TREASURY OFFICIALS MEET WITH GOL AND CLEARSTREAM

C O N F I D E N T I A L LUXEMBOURG 000465

SIPDIS

SENSITIVE
SIPDIS

STATE FOR P, T, ISN, EUR, EUR/WE ALLEGRONE AND SHARP
TREASURY FOR TTFC O'BRIEN, FERNANDEZ, SULLIVAN, AND ARCHIN
TREASURY ALSO FOR FINCEN FREIS

E.O. 12958: DECL: 11/16/2017
TAGS: TTFN EFIN PARM MNUC PREL KCRM ECON LU IR
SUBJECT: TREASURY OFFICIALS MEET WITH GOL AND CLEARSTREAM

REF: STATE 149648

Classified By: DCM Steven H Kraft for Reasons 1.4 b & d


1. (C) SUMMARY: On 8 November 2007, the U.S. Department of
Treasury held consultations in Luxembourg with the Government
of Luxembourg (GOL) and private sector as part of ongoing USG
outreach highlighting the danger of doing business with Iran.
The Treasury delegation met with senior Ministry of Finance
and MFA officials as well as with an official from the
independent financial sector supervisor. They also met
separately with representatives from Clearstream, SA. During
both meetings the Treasury delegation called attention to the
Financial Action Task Force's (FATF) recent activities and
statements regarding Iran, the U.S.'s 25 October domestic
designations of the Islamic Revolutionary Guards Corps (IRGC)
and related entities, including Banks Melli, Mellat and
Saderat, and the risks to institutions of doing business with
Iran. The GOL thanked the delegation for the meeting and
information and also indicated it would issue a circular
informing Luxembourg financial institutions of the FATF's
actions. Clearstream representatives said they appreciated
the meeting and requested that the USG provide more detailed
information regarding designated individuals/entities
whenever possible. END SUMMARY.

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GOL CONSULTATIONS
--------------


2. (C) Department of Treasury A/S for Terrorist Financing
Patrick O'Brien, Director of the Financial Crimes Enforcement
Network (FinCEN) James Freis, and Policy Advisor DeAnna
Fernandez met with Luxembourg's Director of the Treasury
Jean Guill and Jean-Luc Kamphaus, First Councilor, Ministry
of Finance; as well as Orlando Pinto, from the MFA,s
Directorate of International Economic Relations and
Jean-Francois Hein from the Commission de Surveillance du
Secteur Fiancier (CSSF - NOTE: The CSSF is the Luxembourg
financial sector's supervisory authority. END NOTE). The
Embassy was represented by Tom Boughter, Political and
Economic Section Chief and Jason Chiodi, Economic Officer
(notetaker).


3. (C) A/S O'Brien began by placing the delegation's visit in
context - he had been part of an interagency delegation to
Vienna and Brussels on counter-terrorism issues, but Treasury
was taking the opportunity to have a few side meetings to
discuss the Iran issue. O'Brien mentioned that he would be
meeting with Clearstream, SA later in the day since it was
the most logical contact in Luxembourg due to its vital
importance in the international finance system in its roll as
"the banker's bank." A/S O'Brien told the GOL that Treasury
had several purposes for the meeting: 1) to call the GOL's
attention to recent actions and activity taken regarding Iran
- FATF's 11 October actions/statements and the 25 October
U.S. domestic designations of the IRGC; 2) to answer any
questions the GOL may have about the U.S.' 25 October
designations; and 3) to ask for GOL's input and assistance in
efforts to multilateralize additional sanctions on Iran to
support the diplomacy.


4. (C) A/S O'Brien reviewed the recent FATF statements and
actions as well as the USG's actions based on the FATF
recommendations. FinCEN Director Freis explained the
advisory that FinCEN issued to U.S. financial institutions
based on these recommendations and provided the GOL with a
copy of the advisory. Hein, the CSSF representative,
indicated that the CSSF had not yet issued such an advisory,
but that the CSSF would do so.


5. (C) A/S O' Brien noted that while the U.S. made the 25
October designations unilaterally, it saw this action as a
piece of an overall effort to build consensus for further
multilateral action. He further noted that the U.S. actions
also provide additional information to the private sector.
He stated that while foreign financial institutions are not
legally obligated to take action against U.S.- designated
entities, many institutions still take the information under
consideration as part of their overall country risk
evaluations and that it has also contributed to a private
sector re-evaluation of the risks of doing business with
Iran. He further noted that if the late November Solana and
IAEA reports turn out to be negative as all expect, then all
signs point towards a third round of UNSC sanctions. In that
regard, O'Brien pointedly asked for Luxembourg's support
within the EU for sanctions. Guill did not respond
specifically saying only that he also agreed that all signs
pointed to a third round of sanctions before the end of the
year. The Treasury delegation also asked for Luxembourg's
feedback and input on the sanctions process, specifically
regarding feedback from the private sector on difficulties
they encounter in complying with the sanctions. Treasury was
very interested in how entities which had relationships with
Iran were able to implement these sanctions.

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MEETING WITH CLEARSTREAM OFFICIALS
--------------


6. (C) The same USG delegation met later in the day with
Michael Steinicke, Head of Department, Group Risk Management
and Group Compliance and Christian Heyne, Head of Section,
Legal Affairs from Clearstream, S.A. (Clearstream). A/S
O'Brien repeated the context of the visit and explained that
his delegation was in the region on other USG business and
wanted to take the opportunity to continue similar Treasury
outreach efforts around the world to call attention to the
risks of doing business with Iran. O'Brien reviewed and
explained the reasoning behind the FATF statements and
actions, focusing on matters specifically applicable to the
difficulties the private sector had in dealing with a
jurisdiction which lacked transparency, making it difficult
to "know your customer" (KYC). O'Brien mentioned that the
USG understood that there was a relationship between
Clearstream and Iran and while this was a matter for
Clearstream to decide on their own internal calculus, it was
important to note that there are significant risks inherent
in Iranian business and there has been a significant private
sector movement away from doing business with Iran by big
banks.


7. (C) Heyne explained the legal framework in which
Clearstream operated and Steinicke explained how Clearstream
conducted KYC/compliance activities. Clearstream's goal was
to remain in one regulatory environment to the greatest
extent possible (that of Luxembourg as it is a
Luxembourg-registered company). Their compliance efforts
included an automated transaction filtering program which
uses Treasury's Office of Foreign Assets Control's Specially
Designated Nationals (OFAC SDN),EU, and UN lists to generate
alerts. These alerts are then personally reviewed by
compliance officers who will either authorize the transaction
or report to the appropriate Luxembourg authorities. Heyne
said that Clearstream had not had an instance in which their
transaction screening revealed an entity on the OFAC list -
but not on the EU or UN lists - and thus were forced to make
a decision about whether to refer the information to
government authorities. Clearstream explained the challenge
that KYC activities posed due to the nature of its business
and how little information is included about the transaction
beyond the amount(s),account number(s),and bank name(s).


8. (C) O'Brien and Freis thoroughly detailed U.S. regulations
and suggested that in certain instances, Clearstream may have
access to more information than simply the above information.
Clearstream acknowledged this possibility. Clearstream then
inquired about the general legal parameters governing an
instance in which a U.S. bank was both a client/customer of
Clearstream but also a service provider to Clearstream in the
U.S. market. Freis clearly explained the extent to which
U.S. sanctions obligations applied to any U.S. person and
thus could restrict a U.S. bank from providing services
indirectly to a sanctioned entity. In response to Heyne's
questions, Freis explained that the services some U.S.
entities provide via foreign counterparts which may not be
subject to U.S. laws usually contain provisions that the
foreign counterpart not engage in activities with U.S.
sanctioned persons. He relayed a historical, publicly known
example in which UBS was assessed a $100 million civil money
penalty by the U.S. Federal Reserve in May 2004 for deceptive
conduct in providing bulk cash services to several countries
subject to U.S. sanctions programs via an overseas affiliate
in violation of its contractual agreement with the Fed.


9. (C) The Treasury delegation also asked for Clearstream's
feedback and input regarding difficulties they encountered in
complying with the sanctions. This was of great interest to
the USG as the U.S. private sector and regulatory authorities
have very little experience dealing with Iran due to
long-existing U.S. sanctions programs. In response, the
Clearstream officials said that meetings and information such
as this were of great help and that when possible, more
specific information regarding customers would also be
helpful.

10. (C) COMMENT: Treasury Director Guill is Justice and de
facto-Finance Minister Frieden's right-hand man. As Frieden
had just returned from the U.S. where he had discussed the
matter of Iran sanctions with various USG officials, Guill
seemed embarrassed and a bit irritated that the CSSF had not
yet complied with the FATF's recommendation to issue an
advisory. We are thus confident that the CSSF will issue an
advisory shortly. While Guill did not respond directly to
O'Brien's request for GOL support for a third round of Iran
sanctions, in discussions prior to the meeting, Kamphaus told
P/E Chief that "we are beginning to re-think our position
regarding sanctions." As recently as late October, senior
MFA contacts informed us that Luxembourg's position was that
it had confidence in the P5 1 process and in EU High
Representative Solana and that it hoped a third round of
sanctions would not be necessary. Post will follow up with
our GOL contacts as well as with the CSSF if a circular is
not issued within two weeks (21 November).


11. (C) COMMENT CONTINUED: The Clearstream officials were
forthcoming about how they conducted KYC and compliance
activities and claimed full compliance in light of the
limited amount of information available to them. However,
the Treasury delegation's detailed explanation of the
applicability of U.S. sanction laws made it clear to them
that there was the possibility of exposure to U.S. sanctions
in certain instances. END COMMENT.


12. (SBU) This cable has been cleared by A/S O'Brien &
Director Freis.
WAGNER