ITALIAN ENGAGEMENT ON IRAN MONEY LAUNDERING COULD

S E C R E T ROME 002032 SIPDIS SIPDIS STATE FOR EUR/WE KATHLEEN ALLEGRONE; P FOR HERRO MUSTAFA; IO; NEA/IR; DEPT OF TREASURY DANIEL GLASER E.O. 12958: DECL: 09/19/2017 TAGS: PREL UNSC ECON EFIN KNNP ETTC IR IT SUBJECT: ITALIAN ENGAGEMENT ON IRAN MONEY LAUNDERING COULD IMPERIL FATF ACTION Classified By: Classified by ECMIN Tom Delare for reasons 1.4 (b) and ( d). ¶1. (S) Summary: As the Financial Action Task Force (FATF) considers taking action against the Iranian financial system in October, the Italian representative said that he intended to engage the Iranian Embassy over their failure to respond to repeated entreaties by senior FATF officials. Treasury DAS Glaser urged the Italians to reinforce to the Iranians that a meaningful response to FATF,s concerns is expected, but made clear that the Italians should not coach the Iranians on how to avoid censure. In a subsequent conversation, the Italian rep seemed to back down, but some risk remains that Italian engagement could scuttle a process designed to increase scrutiny over Iranian finanical transactions. End Summary. ¶2. (S) Background: Senior FATF officials have sent three letters to the Iranian government requesting that the Iranian financial sector comply with international anti-money laundering standards. As a result of Iran's failure to respond, in October the Financial Action Task Force will consider invoking "Recommendation 21" calling for enhanced international scrutiny of financial transactions involving Iran. End Background. ¶3. (S) At an informal G-7 experts meeting on the margins of a 9/18 special Rome meeting of Financial Action Task Force (FATF) Working Group on Terrorist Financing and Money Laundering, Giuseppe Maresca, Director General of the Ministry of Finance's Office for the Prevention of Financial Crimes told Treasury DAS Daniel Glaser that Italy was considering consulting with the Iranian embassy in Rome regarding possible FATF actions against Iran. The Italians would raise Iran,s current failure to respond to FATF entreaties. Glaser replied that he could not tell Italy how to conduct its bilateral relationship with Iran, however he strongly discouraged the Italians from "coaching" the Iranians on a response. Glaser feared that the Iranian FATF demarche could easily turn into a coaching session on how to take minimal action to avoid FATF censure. Glaser stated that if such outreach occurred, Italy should tell the Iranians clearly that they should provide a substantive response to FATF, with a clear timeline detailing steps they would take to comply with international AML/CFT standards. ¶5. (S) In a subsequent private conversation with Glaser, Marseca said that it will be important for FATF to show that they have exhausted all efforts for engaging Iran, including seeking Iranian cooperation with IMF, before taking further action. He emphasized that any FATF action must also be consistent with UN Security Council actions. Glaser agreed with Marseca and stated that he thought the FATF would be in that position prior to the October meeting. ¶6. (S) Comment: It was not clear whether or not that the Italians are still considering reaching out to the Iranians on FATF. However, the possibility that Italian engagement on the FATF issue could -- in effect -- forestall international action against the Iranian finance system is another reminder on how the Italian "help" on Iran could turn out to be less than helpful. End Comment. BORG