UK OFFICIALS TELL U/S LEVEY THAT WILL ON IRAN IS

C O N F I D E N T I A L SECTION 01 OF 03 LONDON 004512

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NOFORN
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TREASURY FOR U/S LEVEY; MILLERWISE; EDDY

E.O. 12958: DECL: 12/10/2017
TAGS: EFIN KTFN PREL MNUC PTER IR UK
SUBJECT: UK OFFICIALS TELL U/S LEVEY THAT WILL ON IRAN IS
STRONG BUT UK LEGAL CONSTRAINTS LEAVE THEM WEAK

REF: LONDON 04328

Classified By: A/ECONOMIC MINISTER COUNSELOR SANDRA CLARK, REASON 1.4 (
B,D)


1. (C/NF) Summary: Senior UK officials told Treasury Under
Secretary Stuart Levey November 30 that international action

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against Iran has increased pressure on the regime and made
life "significantly uncomfortable" for Iranian leadership,
but has not so far succeeded in changing Iran's nuclear
program. HMG officials generally agreed that the
multilateral process is in danger of losing momentum unless
there is a breakthrough soon. The UK is considering all
options available in the UN (aiming for a late December
UNSCR),EU and domestically, but any UK unilateral measures
must conform with the UK's legal requirements. Levey
stressed that there are four months before Iranian elections,
and, if the UK's (and others') political decision is that
Iran and certain banks are threats, we should pursue all
avenues, domestic and multilateral, in order to have an
impact on the Iranian regime's behavior before then. The
Cabinet Office's Margaret Aldred said the UK shared U.S.
frustration, but "should allow modest satisfaction that the
Iranians are nervous" and we have "succeeded in making life
significantly more difficult" for the Ahmadenijad regime.
The UK agreed to study creative ways to shut down banks, such
as looking into U/S Levey's suggestion of using paragraph 6
of UNSCR 1737 as a justification for action against Iranian
banks operating in London. End Summary

U/S Levey Presses for Creativity in UK Approach
-------------- --


2. (C/NF) In meetings with Cabinet Office's Margaret Aldred,
Defense and Overseas Secretariat; Antony Phillipson, Iran
Coordinator, Foreign and Commonwealth Office; and Stephen
Pickford, Managing Director, International Finance, HM
Treasury, U/S Levey pressed for urgency and creativity in the
UK's efforts both domestically and in the EU. Levey
described how officials in other countries he's visited -
China, South Korea, Japan, Italy and France - are receptive
to pressing ahead against Iran, but have often pointed to
London as the center of Iranian banking outside of Tehran.
East Asian governments in particular are willing to follow -
but not get out in front of - the UK in instituting tougher
banking measures. Levey stressed that in order to get
progress, the U.S. and UK needed to show we were doing all we
could, including taking formal domestic actions against
Iranian banks.


3. (C/NF) U/S Levey suggested the UK consider using language
in paragraph 6 of UNSCR 1737, which states that "all states
should also take the necessary measures to prevent the
provision to Iran of . . . financial assistance . . . related
to the supply . . . of prohibited items . . ." as a legal
lever to give the UK (and others) the cover necessary to shut
down Iranian banks. If the UK, France and Germany could use
this language as a way to shut down banks Melli and Mellat,
which all agree are proliferators, it could create both
pressure in its own right, and momentum in other countries to
do the same. Aldred and Pickford promised to look into the
legal possibilities of using this option. Aldred said the
UK's banking regulators were already using 1737 para 6 as
their basis for enhanced scrutiny of the banks, but agreed to
look at expanding the application of this provision. Aldred
stressed, however, that the UK was hoping for UN - or EU -
action because of the legal risk of being challenged on any
domestic action they take.

UK focused on multilateral levers: UN
--------------


4. (C/NF) Phillipson, in a separate meeting, admitted that
neither EU nor UN efforts thus far have succeeded as hoped.
The UK believes more pressure must be put on Iran via
financial measures and increased international pressure.
Agreement on timing with P5 1 partners will be difficult;
Aldred called for a strong push in the EU and UN before
January, but Phillipson told Levey that Germany does not want
any meaningful action in the UN until January. Phillipson
discussed the need to get a UN agreement soon, but one which
passes the "credibility test" in the international community.
Aldred questioned whether China would continue to hide

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behind Russia, and said that the Russians would link their
position to the Iraq rollover and Kosovo resolutions. Aldred
described the importance of a coherent, collective effort so
that "no one feels there are winners and losers," and so
"Iranians cannot explore other options" to commercial
transactions. Aldred also said the U.S. needs to bring
pressure on Russia in the UN, and admitted the UK carries no
weight with Russia at this point. If the UN process breaks
down due to Russian or Chinese intransigence, the EU could
act, but it may not be sufficient, Phillipson warned.

EU
--


5. (C/NF) Within the EU, the UK maintains it is playing a
forceful role. Aldred told Levey UK Cabinet Office
representatives were in Germany that very day trying to
persuade the Germans to be "more robust" on financial
sanctions and in applying political pressure, and Germany has
agreed to designate Melli (Comment: It is unclear if Germany
agreed to this in the EU as well as the UN. End comment),but
not until January. Phillipson said, however that the UK and
France were working very hard for little gain with other EU
member states. The UK is pressing for tough financial
sanctions against specific entities, and they only get
agreement on vague political commitments, Phillipson said.
The UK and France are preparing a report on further measures
the EU could adopt, including measures on insurance,
shipping, oil and gas, but there is nervousness on the part
of some member states about acting before it is clear that
the UN process has gone as far as it can - one way or the
other. According to Phillipson, German Chancellor Merkel,
for instance, believes the UN is the proper forum for action
against Iran, while others are afraid Russia and China will
scoop up commercial contracts if the UN does not act.


6. (C/NF) Phillipson told Levey the UK believes that
preventing a nuclear-armed Iran is of such importance that
countries will have to make a sacrifice. He also said some
of the smaller EU countries need to know better what is
happening in the UN process, and to be told that there should
be a cutoff date by which the EU and individual states would
begin to act if the UN had not. Pickford suggested that
"outside pressure" on Germany, Italy and Austria could be
useful in the EU process, and said Austria would "fall in
line" once the big countries came on board. Pickford also
said the UK is ready to press in the next FATF meeting for
further action, and HMT wants to begin building a consensus
in the G-7 on Iran during Japan's presidency.

Domestic Options
--------------


7. (C/NF) Domestically, Aldred told Levey there was "no lack
of (UK) political will to finding imaginative ways forward,
only legal constraints." Phillipson admitted that it was a
legitimate question as to why Iranian banks are still
operating in the UK, and was more forward-leaning than HM
Treasury or Cabinet Office officials in the room in calling
for the UK to be out in front on pursuing all avenues -
including domestic - against Iran. He said Sepah is
essentially frozen, but that the UK should go back to its
Attorney General and ask whether there is sufficient evidence
against Bank Saderat to sanction it as well. (NOTE: The
previous Attorney General, under the Blair government,
decided there was insufficient evidence to sanction Saderat.
End note) Pickford pointed to success in "crippling" Bank
Sepah, forcing the Iranian banks to clear transactions in
Euros by closing down their sterling operations in
UK-chartered banks, and increasing regulatory inspections on
the UK-based operations of Iranian banks. Aldred said EU
sanctions would be the only way to stop Iran from using the
Euro to clear transactions, and agreed this was an area EU
governments should examine.


8. (C/NF) In particular, Pickford described how the Financial
Services Agency (FSA) was using its resources as fully as
possible and had sought a legal opinion whether they could
use confidential information in their "fit and proper" bank
reviews. When U/S Levey asked whether FSA would be able to
consider classified reporting in the case of a bank involved
in terrorism or criminal activity Pickford replied that it
would be possible, depending on the quality of the

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intelligence. HMT is also looking at the possibility of
legislation on non-proliferation, but that would take time
and competes with other legislative priorities. Aldred said
the UK is looking at travel bans of certain officials as a
way of increasing pressure, and stressed that we all need to
convince the Iranians that their actions are "damaging Iran's
proper place in history." She wants people on the
street-level in Tehran to question why there is no gasoline
available in this major oil-producing country.

Terrorist Finance - LIFG
--------------


9. (C/NF) Aldred told Levey the UK was hoping to designate to
the UN's 1267 committee another four names from the Libyan
Islamic Fighting Group within a few weeks. She said this
should have the desired effect of bringing pressure on LIFG
and al-Qaeda after their merger. However, Pickford told U/S
Levey that the UK has decided that one of the individuals on
the original U.S. designation request, Subeita, has moved
away from extremism.


10. (C/FN) Comment: Closely following U/S Levey's November 30
visit, HMG's immediate reaction to the USG announcement, on
December 3, of the new National Intelligence Estimate on Iran
was to signal HMG's unqualified support for the UNSC process.
Prime Minster Brown and Foreign Secretary Milliband made
strong statements on Iran. The FCO's public guidance said
that the NIE simply underlined the immediate need for
increased international pressure on Iran in response to
Iran's continued pursuit of nuclear enrichment. Publicly and
privately, the UK is fully committed to increasing the
pressure on the Iranian regime. The U.S. will need to
continue to press the UK to be creative in finding ways to
take domestic action against banks that they agree are
complicit in nefarious activity; and will need to work hard
to convince some of the UK's skeptical EU (and UN) partners
of the continued threat after the release of the NIE.

U/S Levey has cleared this cable.

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