Identifier
Created
Classification
Origin
07MANAMA803
2007-08-22 16:10:00
CONFIDENTIAL
Embassy Manama
Cable title:
TREASURY U/S LEVEY WARNS AHLI UNITED AGAINST
how-toVZCZCXRO7274 PP RUEHDE RUEHDIR DE RUEHMK #0803/01 2341610 ZNY CCCCC ZZH P 221610Z AUG 07 FM AMEMBASSY MANAMA TO RUEHC/SECSTATE WASHDC PRIORITY 7165 RUEATRS/DEPT OF TREASURY WASHDC PRIORITY INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY RUEHEG/AMEMBASSY CAIRO PRIORITY 0967 RUEHUNV/USMISSION UNVIE VIENNA PRIORITY 0015 RUCNDT/USMISSION USUN NEW YORK PRIORITY 0102
C O N F I D E N T I A L SECTION 01 OF 03 MANAMA 000803
SIPDIS
SIPDIS
TREASURY FOR U/S LEVEY
CAIRO FOR SEVERENS
E.O. 12958: DECL: 08/20/2017
TAGS: PREL EFIN PTER PARM MNUC IR BA
SUBJECT: TREASURY U/S LEVEY WARNS AHLI UNITED AGAINST
EXPANDING IRANIAN FINANCIAL TIES
REF: MANAMA 747
Classified By: Charge d'Affaires a.i. Christopher Henzel, reasons 1.4 (
b) and (d).
-------
SUMMARY
-------
C O N F I D E N T I A L SECTION 01 OF 03 MANAMA 000803
SIPDIS
SIPDIS
TREASURY FOR U/S LEVEY
CAIRO FOR SEVERENS
E.O. 12958: DECL: 08/20/2017
TAGS: PREL EFIN PTER PARM MNUC IR BA
SUBJECT: TREASURY U/S LEVEY WARNS AHLI UNITED AGAINST
EXPANDING IRANIAN FINANCIAL TIES
REF: MANAMA 747
Classified By: Charge d'Affaires a.i. Christopher Henzel, reasons 1.4 (
b) and (d).
--------------
SUMMARY
--------------
1. (C) Treasury Undersecretary Levey August 8 cautioned Ahli
United Bank (AUB) officials on the bank's ties with
Iranian state-owned banks. Through Future Bank, AUB was
virtually the only bank in the world to be joint-ventured
with Bank Melli and Bank Saderat. Bank Melli Iran had used
deceptive banking practices to provide heavy financial
support to Iran's Islamic Revolutionary Guard Corps (IRGC).
He noted that top European financial institutions, including
Deutsche Bank, have either scaled down or ceased doing
business with Iran. AUB CEO Adel El-Labban replied that in
recognition of mounting international concerns, AUB had
already advised Future Bank not to open its anticipated
branch in Iran's Kish Island Free Zone. He said AUB had also
made the decision to allow its existing Iranian holdings to
mature and run out and sought U/S Levey's advice on
financially viable strategies for divesting its share in
Future Bank. El-Labban said that AUB had contemplated
investing in a private-sector Iranian financial institution
as a means of preserving an entree into the strategically
important Iranian financial market. Here too, U/S Levey
advised caution and counseled that Bahraini financial sector
officials not be lulled by Iranian attempts to discount the
impact of mounting international pressure. End Summary.
--------------
AUB WARNED OVER LINKS TO IRANIAN BANKS
--------------
2. (C) Treasury Undersecretary Stuart Levey and Policy
Advisor Kristen Hecht accompanied by the Charge and
Econoff, August 8 met with Central Bank of Bahrain (CBB)
Governor Rashid Al Miraj, Deputy Governor Anwar Khalifa Al
Sadah, Ahli United Bank (AUB) CEO Adel El-Labban and Deputy
Group Chief Executive for Risk, Legal and Compliance Keith
Gale. Addressing the group, U/S Levey emphasized U.S.
concern over AUB's equally-shared ownership of Future Bank
with Bank Saderat and Bank Melli. AUB's relationship with
these Iranian state-owned banks, and its participation in the
opening of a Future Bank branch on the Iranian Kish Island
Free Zone (reftel). U/S Levey urged El-Labban to be cautious
of these relationships because of the potential for
reputational risk. Other than the Commercial Bank of Syria,
AUB was the only bank in the world to be joint-ventured with
Bank Melli and Bank Saderat.
3. (C) U/S Levey said that the IRGC relied heavily on Bank
Melli Iran, Bank Mellat Iran and the Central Bank of Iran
for the provision of banking services. He noted that Bank
Melli had employed deceptive banking practices to obscure
its involvement from the international banking system when
handling financial transactions on behalf of the IRGC. One
specific example was Bank Melli's increasing abuse of cover
payments. Using this technique, Bank Melli had requested
that its name be removed from payment instructions for
transactions.
4. (C) U/S Levey cautioned that Iran was adept at utilizing
its state-owned banking network and government-controlled
entities, such as the IRGC, to facilitate both legitimate and
illicit financial transactions to carry out Iran's
destabilizing policy objectives and further Iran's missile
program. U/S Levey passed a list of IRGC-controlled
companies to El-Labban and Governor Al Miraj. He noted that
top European financial institutions, including Deutsche Bank
have either scaled down or ceased doing business with Iran
due to the inherent risks associated with conducting
Iran-related transactions. He believed that such decisions
reflected not only an expedient recognition of the current
suspicion with which Iranian banks are increasingly regarded,
but was also the natural result of independent analysis of
illicit Iranian banking practices.
-------------- -
REDUCING IRANIAN EXPOSURE, SEEKING U.S. ADVICE
-------------- -
MANAMA 00000803 002 OF 003
5. (C) El-Labban replied that AUB's mission was to maintain
and grow its regional financial presence. He cited AUB's
presence in Iraq as an example. "We are in Iraq in order to
support investment there." He said AUB's investment in
Future Bank had exemplified AUB's wish to establish a "low
cost, early entry" Iranian presence in anticipation of
eventual normalization of Iran's international relations.
However, he said that despite the strategic importance of
AUB's Future Bank partnership, "No investment will ever be
handled in a way that jeopardizes our ability to do business
going forward." He then stated that AUB had advised Future
Bank not to open its planned Kish Island branch. He said
AUB's advice was not binding, since AUB holds no managerial
role in Future Bank. Nevertheless, he said Future Bank had
"taken the advice on board. The branch is now idle."
6. (C) El-Labban said that as international attention on
Iran's financial institutions grew, AUB's management and
shareholders were sensitive to the potential liability posed
by its investment in Future Bank. He proposed three
possible courses of action: AUB could retain the Future Bank
investment as a "useful entity"; AUB could sell its
shareholding at a reasonable valuation approved by the CBB.
However, the remaining shareholders were under no
obligation to purchase it; or AUB could transfer its shares
of Future Bank into a blind trust under the approval and
supervision of the CBB. El-Labban asked U/S Levey for his
recommendation. U/S Levey replied that this would be a
decision for AUB to make under the guidance of the CBB.
7. (C) El-Labban said that in its quest for avenues into
Iran's financial markets, the bank had "a real interest" in
investing in an appropriate private-sector financial
institution. He said AUB had had evaluated several possible
Iranian private sector financial investments, such as EN Bank
and Saman Banking Corporation. "Some are banks with ties to
the International Finance Corporation and the World Bank.
Some have been established by wealthy Iranian business
families to fund their business ventures. Others are
stranger, such as banks established by the Union of Teachers
or banks established by municipalities." El-Labban noted,
however, that AUB's plans to invest in a private-sector
Iranian institution are in abeyance. "We seek your guidance.
We want to hear your opinion on this."
8. U/S Levey advised caution, noting that in the current
climate, the CIB was signaling that they would become
increasingly reliant upon private-sector financial
institutions to sidestep international sanctions. (Comment:
The potential acquisition that El-Labban mentioned is likely
the same one described reftel by CBB Senior Advisor for
Compliance Richard Ellis. However, Ellis believed the
subject Iranian entity was largely or wholly controlled by
the Government of Iran. End Comment.)
9. (C) El-Labban said that AUB's financial exposure to Iran
was limited compared to other banks in the region. He said
that in terms of its other Iranian investments, AUB had made
the decision to allow its existing holdings to mature and run
out. AUB had closed the account it held for Bank Melli.
El-Labban said that while Bank Saderat and Bank Melli have
repeatedly asked AUB to open accounts on their behalf, his
answer has always been "no". He added that the market for
Iranian investments was drying up. AUB could not withdraw
from these holdings early without taking significant losses.
"We had difficulty selling our Iranian portfolio. There
weren't any takers." (Note: While banks have undoubtedly
become increasingly cautious about handling Iranian
investments, deep regional liquidity virtually assures that a
market remains. For example, shares in Bank Melli's 300
million euro (roughly $400 million) "Mehr" Tehran Stock
Exchange fund, listed in Dubai, sold briskly in Bahrain. End
Note.)
10. (C) U/S Levey thanked Al Miraj and El-Labban for their
engagement in constructive dialog on the issue of Bahraini
financial involvement with Iranian banking institutions. He
warned of an Iranian campaign to discount the impact of
mounting international pressure. They will try to point to
various cooperation agreements they have made in an attempt
to portray that everything is fine. Don't be lulled by it."
11. (U) U/S Levey's office cleared this message.
MANAMA 00000803 003 OF 003
********************************************* ********
Visit Embassy Manama's Classified Website:
http://www.state.sgov.gov/p/nea/manama/
********************************************* ********
HENZEL
SIPDIS
SIPDIS
TREASURY FOR U/S LEVEY
CAIRO FOR SEVERENS
E.O. 12958: DECL: 08/20/2017
TAGS: PREL EFIN PTER PARM MNUC IR BA
SUBJECT: TREASURY U/S LEVEY WARNS AHLI UNITED AGAINST
EXPANDING IRANIAN FINANCIAL TIES
REF: MANAMA 747
Classified By: Charge d'Affaires a.i. Christopher Henzel, reasons 1.4 (
b) and (d).
--------------
SUMMARY
--------------
1. (C) Treasury Undersecretary Levey August 8 cautioned Ahli
United Bank (AUB) officials on the bank's ties with
Iranian state-owned banks. Through Future Bank, AUB was
virtually the only bank in the world to be joint-ventured
with Bank Melli and Bank Saderat. Bank Melli Iran had used
deceptive banking practices to provide heavy financial
support to Iran's Islamic Revolutionary Guard Corps (IRGC).
He noted that top European financial institutions, including
Deutsche Bank, have either scaled down or ceased doing
business with Iran. AUB CEO Adel El-Labban replied that in
recognition of mounting international concerns, AUB had
already advised Future Bank not to open its anticipated
branch in Iran's Kish Island Free Zone. He said AUB had also
made the decision to allow its existing Iranian holdings to
mature and run out and sought U/S Levey's advice on
financially viable strategies for divesting its share in
Future Bank. El-Labban said that AUB had contemplated
investing in a private-sector Iranian financial institution
as a means of preserving an entree into the strategically
important Iranian financial market. Here too, U/S Levey
advised caution and counseled that Bahraini financial sector
officials not be lulled by Iranian attempts to discount the
impact of mounting international pressure. End Summary.
--------------
AUB WARNED OVER LINKS TO IRANIAN BANKS
--------------
2. (C) Treasury Undersecretary Stuart Levey and Policy
Advisor Kristen Hecht accompanied by the Charge and
Econoff, August 8 met with Central Bank of Bahrain (CBB)
Governor Rashid Al Miraj, Deputy Governor Anwar Khalifa Al
Sadah, Ahli United Bank (AUB) CEO Adel El-Labban and Deputy
Group Chief Executive for Risk, Legal and Compliance Keith
Gale. Addressing the group, U/S Levey emphasized U.S.
concern over AUB's equally-shared ownership of Future Bank
with Bank Saderat and Bank Melli. AUB's relationship with
these Iranian state-owned banks, and its participation in the
opening of a Future Bank branch on the Iranian Kish Island
Free Zone (reftel). U/S Levey urged El-Labban to be cautious
of these relationships because of the potential for
reputational risk. Other than the Commercial Bank of Syria,
AUB was the only bank in the world to be joint-ventured with
Bank Melli and Bank Saderat.
3. (C) U/S Levey said that the IRGC relied heavily on Bank
Melli Iran, Bank Mellat Iran and the Central Bank of Iran
for the provision of banking services. He noted that Bank
Melli had employed deceptive banking practices to obscure
its involvement from the international banking system when
handling financial transactions on behalf of the IRGC. One
specific example was Bank Melli's increasing abuse of cover
payments. Using this technique, Bank Melli had requested
that its name be removed from payment instructions for
transactions.
4. (C) U/S Levey cautioned that Iran was adept at utilizing
its state-owned banking network and government-controlled
entities, such as the IRGC, to facilitate both legitimate and
illicit financial transactions to carry out Iran's
destabilizing policy objectives and further Iran's missile
program. U/S Levey passed a list of IRGC-controlled
companies to El-Labban and Governor Al Miraj. He noted that
top European financial institutions, including Deutsche Bank
have either scaled down or ceased doing business with Iran
due to the inherent risks associated with conducting
Iran-related transactions. He believed that such decisions
reflected not only an expedient recognition of the current
suspicion with which Iranian banks are increasingly regarded,
but was also the natural result of independent analysis of
illicit Iranian banking practices.
-------------- -
REDUCING IRANIAN EXPOSURE, SEEKING U.S. ADVICE
-------------- -
MANAMA 00000803 002 OF 003
5. (C) El-Labban replied that AUB's mission was to maintain
and grow its regional financial presence. He cited AUB's
presence in Iraq as an example. "We are in Iraq in order to
support investment there." He said AUB's investment in
Future Bank had exemplified AUB's wish to establish a "low
cost, early entry" Iranian presence in anticipation of
eventual normalization of Iran's international relations.
However, he said that despite the strategic importance of
AUB's Future Bank partnership, "No investment will ever be
handled in a way that jeopardizes our ability to do business
going forward." He then stated that AUB had advised Future
Bank not to open its planned Kish Island branch. He said
AUB's advice was not binding, since AUB holds no managerial
role in Future Bank. Nevertheless, he said Future Bank had
"taken the advice on board. The branch is now idle."
6. (C) El-Labban said that as international attention on
Iran's financial institutions grew, AUB's management and
shareholders were sensitive to the potential liability posed
by its investment in Future Bank. He proposed three
possible courses of action: AUB could retain the Future Bank
investment as a "useful entity"; AUB could sell its
shareholding at a reasonable valuation approved by the CBB.
However, the remaining shareholders were under no
obligation to purchase it; or AUB could transfer its shares
of Future Bank into a blind trust under the approval and
supervision of the CBB. El-Labban asked U/S Levey for his
recommendation. U/S Levey replied that this would be a
decision for AUB to make under the guidance of the CBB.
7. (C) El-Labban said that in its quest for avenues into
Iran's financial markets, the bank had "a real interest" in
investing in an appropriate private-sector financial
institution. He said AUB had had evaluated several possible
Iranian private sector financial investments, such as EN Bank
and Saman Banking Corporation. "Some are banks with ties to
the International Finance Corporation and the World Bank.
Some have been established by wealthy Iranian business
families to fund their business ventures. Others are
stranger, such as banks established by the Union of Teachers
or banks established by municipalities." El-Labban noted,
however, that AUB's plans to invest in a private-sector
Iranian institution are in abeyance. "We seek your guidance.
We want to hear your opinion on this."
8. U/S Levey advised caution, noting that in the current
climate, the CIB was signaling that they would become
increasingly reliant upon private-sector financial
institutions to sidestep international sanctions. (Comment:
The potential acquisition that El-Labban mentioned is likely
the same one described reftel by CBB Senior Advisor for
Compliance Richard Ellis. However, Ellis believed the
subject Iranian entity was largely or wholly controlled by
the Government of Iran. End Comment.)
9. (C) El-Labban said that AUB's financial exposure to Iran
was limited compared to other banks in the region. He said
that in terms of its other Iranian investments, AUB had made
the decision to allow its existing holdings to mature and run
out. AUB had closed the account it held for Bank Melli.
El-Labban said that while Bank Saderat and Bank Melli have
repeatedly asked AUB to open accounts on their behalf, his
answer has always been "no". He added that the market for
Iranian investments was drying up. AUB could not withdraw
from these holdings early without taking significant losses.
"We had difficulty selling our Iranian portfolio. There
weren't any takers." (Note: While banks have undoubtedly
become increasingly cautious about handling Iranian
investments, deep regional liquidity virtually assures that a
market remains. For example, shares in Bank Melli's 300
million euro (roughly $400 million) "Mehr" Tehran Stock
Exchange fund, listed in Dubai, sold briskly in Bahrain. End
Note.)
10. (C) U/S Levey thanked Al Miraj and El-Labban for their
engagement in constructive dialog on the issue of Bahraini
financial involvement with Iranian banking institutions. He
warned of an Iranian campaign to discount the impact of
mounting international pressure. They will try to point to
various cooperation agreements they have made in an attempt
to portray that everything is fine. Don't be lulled by it."
11. (U) U/S Levey's office cleared this message.
MANAMA 00000803 003 OF 003
********************************************* ********
Visit Embassy Manama's Classified Website:
http://www.state.sgov.gov/p/nea/manama/
********************************************* ********
HENZEL