USG SHOULD GIVE BHUTAN BACK FROZEN DRUK AIR FUNDS

C O N F I D E N T I A L SECTION 01 OF 03 NEW DELHI 005290

SIPDIS

SIPDIS

FROM AMBASSADOR MULFORD FOR UNDERSECRETARY BURNS AND
TREASURY DEPUTY SECRETARY KIMMETT

E.O. 12958: DECL: 12/11/2017
TAGS: PREL EFIN EAIR IN BT
SUBJECT: USG SHOULD GIVE BHUTAN BACK FROZEN DRUK AIR FUNDS

REF: A. A. NEW DELHI 7926

B. B. NEW DELHI 7189

Classified By: Ambassador David Mulford for reasons 1.4 (B,D)


1. (C) I would like to bring to your personal attention the
long-standing unresolved matter of Bhutanese government funds
frozen due to USG economic sanctions against Burma. I want
to offer a way forward for resolving this bilateral irritant
with the Bhutanese and thereby send a message that the USG
values their courageous march toward creating democratic
institutions and their steadfast support in key votes in the
UN. Over the last three years, I have been repeatedly
approached by the Ambassador of Bhutan to India requesting
the release of Bhutanese funds which were seized pursuant to
current sanctions against Burma (see non-paper at para 8).
In 2003 the U.S. government blocked a total of USD 97,703
belonging to the Bhutan national airline, Druk Air, from
being transferred to the "Myanmar Department of Civil
Aviation" and "Myanmar Airways" via the "Myanmar Foreign
Trade Bank." I strongly believe that there are compelling
foreign policy reasons to act quickly to unblock the funds
and release them to Bhutan's --not/not Burma's -- custody.
Following are two reasons to do so:

A Democratic Awakening
--------------


2. (C) South Asia is witnessing Bhutan's peaceful transition
from an absolute monarchy to a constitutional democracy. In
large thanks to increased official engagements between the
U.S. and Bhutan, our government is in a position to encourage
this fledgling democracy through its first few critical
years. Bhutan's peaceful transition stands out as a welcome
anomaly in a region rife with political conflict and failing
democracies. The benefits of granting a token reward for a
country that prioritizes the establishment of democratic
institutions does not detract from -- and may potentially
enhance -- the U.S. government goal of punishing the Burmese
dictatorship. We are sending a strong signal to the Burmese
military junta that authoritarian rulers will continue to be
punished while peaceful, democratic transitions will be
actively assisted, supported, and endorsed.

An Ally in the UN
--------------


3. (C) We see tangible examples of how this country is
welcoming closer ties with the U.S. and supporting our
foreign policy objectives. Bhutan has voted with the U.S. in
the UN General Assembly. The Bhutanese Ambassador told me
that despite "losing many of (their) friends," Bhutan
abstained on a key 2005 CHR Resolution on Cuba -- seeing
closer ties with the U.S as an investment. We won that vote
thanks in part to their new support. Bhutan voted against
Venezuela for the rotating Latin American seat on the UN
Security Council (Ref A) and against proposals in the UN
Human Rights Council to condemn the U.S. (Ref B). I recently
received an action request from the State Department to send
a letter of appreciation for Bhutan's votes in the UN General
Assembly on the human rights situations in North Korea, Iran,
Belarus, and Burma. It is critical to note that with this
vote, Bhutan again broke from the traditional Non-Alligned
Movement (NAM) voting pattern, acting independently based on
shared values of good governance and respect for human
rights. The Bhutanese government made a concerted decision
to act on its own accord, motivated by its desire for
improved relations with the U.S. and gradually distance
itself from NAM countries.

Money Would Not Go To Burma
--------------


4. (C) When I attempted to get State and OFAC to un-freeze
these funds a year ago, I was told that there was no way we
could allow funds to be released to the Burmese regime. I
agree, and am not asking for such a step. The Bhutanese
already covered their debt to the regime in Rangoon. We are
now holding Bhutanese money that should just go back to
Bhutan. It will not in any way go to the Rangoon regime. I
hope this distinction will this time allow us to release the
funds.

NEW DELHI 00005290 002 OF 003



Background
--------------


5. (C) Bhutan is a small country with one tiny airline
servicing all its air travel needs. Burma is a neighbor with
which Bhutan shares a common religion and similar cultural
practices. In 1997 Druk Air began using a stop in Burma for
re-fueling and transit facilities for a short period of time.
Druk Air flew to Rangoon from 1997-1998 and then again from
2002-2004. Despite consistent pressure from the Burmese to
resume flying to Burma, the Bhutanese have since resisted and
continued to find alternative routes to continue serving
their citizens.


6. (C) In 2003, the US government blocked a total of six
transfers, totaling USD 84,023 plus one additional transfer
of USD 13,680 under current sanctions law, Executive Order
13310 of July 28, 2003 (see para 7). The Bhutanese
acknowledged that the U.S. Department of Treasury confirmed
that six transfers totaling USD 84,023 would remain blocked
under current U.S. law, and that a seventh transfer of USD
13,680 had not been blocked, contrary to Bhutanese claims.
We are trying to ascertain if the USD 13,680 is indeed
available to return to Bhutan.


7. (C) In November 2006, Post requested Washington agencies
to investigate the issue to see if the matter could be
referred to the U.S. Treasury Department's Office of Foreign
Assets Control to consider release of the funds to Bhutan.



8. (SBU) BEGIN TEXT OF BHUTANESE NON-PAPER.

Subject: Druk Air's Blocked Funds

A total of USD 97,703.00 remains blocked by the Department of
Treasury and the American Express Bank since 2003 pursuant to
Executive Order 13310 of 28 July 2003 as part of the Myanmar
Sanctions Programme. The funds were to be paid by Druk Air to
the Myanmar Department of Civil Aviation and Myanmar Airways
via Myanmar Foreign Trade Bank. The details of the case are
as follows:


1. Case No. BU-881 -USD 15,855.00

2. Case No. BU-460-a -USD 25,850.00

3. Case No. BU-537-a -USD 23,760.00

4. Case No. BU-943 -USD 8,250.00

5. Case No. BU-944 -USD 6,792.00

6. Case No. BU-945 -USD 3,516.00

7. Case No. BU-1044 -USD 13,680.00

Total -USD 97,703.00

Since 2004 The Bhutan National Bank, (BNB,) who made the
transfer on behalf of Druk Air, and Druk Air have been
pursuing with the Treasury Department and American Express
bank to have the blocked funds released. We have also pursued
the matter through PMB, New York, but with no success. We
have been informed that the Treasury Department cannot under
the current circumstances authorize the release of the funds
amounting to USD 84,023/- and that case no. Bu-1044 involving
USD 13,680/- is being handled separately as it does not
appear to have been blocked. The Department of Civil
Aviation, Myanmar and Myanmar Airways have directly been paid
in cash.

Foreign Secretary Yeshey Dorji raised the matter with Senator
Arlen Specter during their meeting on 15 August 2006. Senator
Specter agreed to look into the matter. The matter was also
taken up by Foreign Secretary Yeshey Dorji with the staff
delegation. They have also agreed to look into the matter.

The US Embassy is requested to kindly pursue the matter with
the US Treasury Department and American Express Bank. The
release of the blocked funds would not be inconsistent with
the US sanctions policy as far as the transfer of the blocked
funds is not effected in favour of the beneficiary bank, the
Myanmar Foreign Trade Bank. All relevant details have been
submitted to the US Treasury Department by the Bhutan
National Bank.


NEW DELHI 00005290 003 OF 003


END TEXT OF BHUTANESE NON-PAPER.
MULFORD