Identifier
Created
Classification
Origin
07ROME2477
2007-12-17 07:56:00
SECRET//NOFORN
Embassy Rome
Cable title:  

(S) ITALIANS TELL U/S LEVEY "THERE IS GROWING

Tags:  EFIN IR KNNP PARM PREL IT 
pdf how-to read a cable
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ZNY SSSSS ZZH
R 170756Z DEC 07
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC 9562
INFO RUEHLO/AMEMBASSY LONDON 1440
RUEHFR/AMEMBASSY PARIS 2367
RUEHRL/AMEMBASSY BERLIN 1810
RUEHMO/AMEMBASSY MOSCOW 4402
RUEHBJ/AMEMBASSY BEIJING 1284
RUEHUL/AMEMBASSY SEOUL 0506
RUEHKO/AMEMBASSY TOKYO 1915
RUEHFL/AMCONSUL FLORENCE 2814
RUEHMIL/AMCONSUL MILAN 9154
RUEHNP/AMCONSUL NAPLES 2958
RUEATRS/DEPT OF TREASURY WASHDC
S E C R E T SECTION 01 OF 04 ROME 002477 

SIPDIS

SIPDIS
NOFORN

TREASURY FOR U/S LEVEY, CEDDY, MMILLERWISE,

E.O. 12958: DECL: 12/03/2017
TAGS: EFIN IR KNNP PARM PREL IT
SUBJECT: (S) ITALIANS TELL U/S LEVEY "THERE IS GROWING
CONCERN OVER IRAN"

REF: A. ROME 2394

B. SECSTATE 160808

Classified By: Econ Counselor William R. Meara
for Reasons 1.4 (b) and (d).

S E C R E T SECTION 01 OF 04 ROME 002477

SIPDIS

SIPDIS
NOFORN

TREASURY FOR U/S LEVEY, CEDDY, MMILLERWISE,

E.O. 12958: DECL: 12/03/2017
TAGS: EFIN IR KNNP PARM PREL IT
SUBJECT: (S) ITALIANS TELL U/S LEVEY "THERE IS GROWING
CONCERN OVER IRAN"

REF: A. ROME 2394

B. SECSTATE 160808

Classified By: Econ Counselor William R. Meara
for Reasons 1.4 (b) and (d).


1. (S/NF) Summary: On November 28, Treasury Under Secretary
for Terrorism and Financial Intelligence Stuart Levey pressed
senior Italian officials to take additional measures to
protect the international financial system from abuse by
Iranian entities and individuals. U/S Levey passed detailed
information on Banks Melli and Mellat and the Islamic
Revolutionary Guard Corp's (IRGC) deceptive use of
international financial systems to support proliferation and
terrorist-related activities. Italian officials all reported
that there was "growing concern" in the government over
Iranian actions, but did not offer specifics. Italy's Export
Credit Agency, SACE, said that new export credits to Iran had
ceased in 2007, but made clear that they would allow existing
projects to continue in order to recoup their 2.1 billion
Euro investment. Central Bank Director General Saccomani
announced that the Bank of Italy had just issued a new
warning on doing business with Iran. Expressing concern over
Iran's continued misuse of the banking sector, Finance
officials suggested working closely to prepare for the
February Financial Action Task Force (FATF) plenary. MFA
Political Director Terzi agreed to consider Italian support
for additional EU sanctions on Iranian banks. End Summary.

--------------
Export Credit Agency: No New Export Credits,
But Existing Projects to Continue
--------------

2.(C) U/S Levey briefed SACE President Ignazio Angeloni and
Chief Operating Officer Raoul Ascari on the growing trend of
the international business community's withdrawal from Iran.
(NOTE: Angeloni is dual-hatted as Chief of the International
Department at the Ministry of Finance.) Citing his 11/27
meetings in Milan, however, Levey said that the Italian
banks, Mediobanca and Intesa San Paolo Banks, reported that

they felt obligated to maintain their existing contracts with
Iran because most of their projects are backed by SACE,s
export credit guarantees. The banks fear, Levey reported,
that if they withdrew from doing business with Iran, SACE
would be vulnerable to an Iranian default and could therefore
sue Italian banks for putting SACE,s equities at risk.


3. (C) Angeloni dismissed the idea that SACE would sue
Italian companies, suggesting that SACE faces a greater risk
of being sued by Iran or by Italian exporters if Italian
banks were to break their existing contracts with Iran.
Angeloni asserted that SACE had nonetheless withdrawn
significantly from Iranian projects, noting that SACE made an
executive decision to not issue new export credits to
projects in Iran, a policy which took effect in January 2007
and which SACE has not disclosed publicly for competitive
reasons. Following Secretary Paulson,s briefing on Iran
during the G-7 ministerial in Singapore in September 2006,
Angeloni said that SACE conducted an extensive review of all
contracts with Iran concluded within the last seven years,
and determined that "98 percent" revealed no problems or
risks; the remaining one to two percent needed "further
analysis." Commenting that Italy's policy is more
forward-leaning than its European and Asian competitors,
Angeloni implied that other European export credit agencies
are still active in Iran and that Russia and the Gulf States
cause the most concern. Complaining that SACE and the
Italian economy as a whole will pay the a price in the
medium- to long-term because of lost business opportunities,
Angeloni argued that only a UN ban on new export credits
would level the playing field for all export-credit agencies.


4. (C) Regarding the recent U.S. designations of Bank Melli,
Bank Mellat, and the IRGC, U/S Levey asked how SACE would
handle projects involving these entities. Ascari confirmed
that SACE has contracts with Banks Melli and Saderat, but
could not state whether any Italian exporters were working

ROME 00002477 002 OF 004


with the IRGC-controlled or affiliated companies. Ascari
noted that all Iranian banks have learned from the Bank
Saderat experience and have prepared the necessary papers to
change the terms of contracts to euros versus dollars, but
Ascari predicted that SACE face difficulty receiving
repayment should UN or EU sanctions be imposed on Banks Melli
and Saderat. Levey summed up the meeting by saying it appears
a ban on new credits would not be painful to their
operations, but took note of SACE's concern that existing
projects be allowed to continue.

-------------- --------------
Bank of Italy Advises Italian banks of Iranian Risk
-------------- --------------


5. (S/NF) In reviewing the international community,s growing
concern over Iran's proliferation activities, Levey shared
information on the IRGC and Banks Melli and Mellat with
Director General of the Bank of Italy Fabrizio Saccomani.
Saccomani said that Banks Melli and Mellat have no branches
in Italy, but acknowledged that the two banks conduct
business in Italy. Saccomani noted that the GOI is
increasingly concerned over Iranian actions; he told U/S
Levey that the Bank of Italy had sent out an advisory to the
Italian banks on November 22 cautioning them about doing
business with Iran.


6. (C) Saccomani told U/S Levey that his organization will
soon absorb 450 people in a move to transform the Foreign
Exchange Office into a financial intelligence unit. (Note:
Italy's Foreign Exchange office presently monitors all
financial transactions over 10,000 Euros.) The director of
the new unit will be appointed by the Central Bank Governor
and will be accountable to him. Saccomani explained that
this move would centralize authority within the Bank and
allow for better coordination among bank regulators.
Saccomani said these changes would take effect on January 1.


7. (S/NF) Turning to the issue of Bank Sepah, Saccomani said
that Sepah is still under administrative control and that the
Bank of Italy will re-examine its status once the one-year
time period expires in May of 2008. Saccomani balked at U/S
Levey's suggestion that Sepah be shut down and assured U/S
Levey that under current conditions, it would be impossible
for Bank Sepah to resume normal operations. He added that
the one reason the bank is open is so it can repay its
creditors. Noting that the UN licensing process delayed the
Rome branch's receipt of money from Bank Sepah's headquarters
in Tehran, Saccomani said that Bank Sepah Rome had finally
received two million euros from Tehran on November 7 and
would begin repaying creditors soon. Pierpaolo Fratangelo, a
senior aide to Saccomani, said that Bank Sepah still had 30
million Euros of debt to be paid out and estimated that the
repayment process would take six months. Levey speculated
that Bank Sepah may drag its feet in repaying its final debts
if these debts are the only thing keeping the Bank of Italy
from shutting it down. Fratangelo conceded that this was a
possibility and that the BOI would more seriously consider
revocation of the bank's license if it suspected as much.

--------------
Ministry of Finance Eager to Work within
FATF on Iran
--------------


8. (S/NF) Under Secretary Levey thanked the Dr. Vittorio
Grilli, Director General of the Treasury and Dr. Giuseppe
Maresca, DG for Financial Crimes at the Ministry of Finance
for Italy's support in convincing members of the FATF to
issue the recent statement about Iran,s lack of an AML/CFT
regime. Levey said the statement has been a useful in
convincing skeptical countries about Iran's threat to the
international financial system. As a new member of FATF, the
Chinese in particular took note of the statement and recently
told Levey that they are increasingly concerned that Chinese
banks may find themselves involved in Iran's proliferation
efforts. Grilli agreed that the FATF statement was a good
resolution that was in line with UN action on Iran. While

ROME 00002477 003 OF 004


deferring to the Ministry of Foreign Affairs on Italy's
overall policy, Grilli said that Italy would be reluctant to
act alone, as Italian creditors should not be unfairly
disadvantaged over their competitors. Grilli also argued
that, politically, Italy can be a helpful channel of
communication with Iran, as "Iran shouldn't only be hearing
from China." Levey responded that nations around the world,
including South Korea, China and Japan have recognized the
threat posed by Iran and are taking steps to both protect
their financial systems and join the international effort to
apply pressure on Iran.


9. (S/NF) Touching on the long-standing dialogue over Bank
Sepah,s Rome branch, Levey said that the international
community learned from its experience with the UN designation
of Bank Sepah and would apply those lessons learned in the
event of additional sanctions against Iranian banks. Grilli
agreed that the issues surrounding third parties were
resolved satisfactorily with respect to Bank Sepah, but
Grilli stressed that any new sanctions should carve our prior
contracts as in previous resolutions. U/S Levey shared
information on Banks Melli and Mellat and asked for Italy's
support within the EU on additional sanctions. Grilli agreed
to review the information and said "we agree on the
outcome," but have some differences over the modalities.
Maresca noted the upcoming FATF plenary, and suggested that
the USG and Italians carefully lay the groundwork before the
February meeting to determine next steps on Iran following
the October statement.


10. (S/NF) In a side conversation before the meeting, Maresca
told U/S Levey that there is growing concern in the Italian
government over Iran's actions. Maresca said that the
Iranian Ambassador to Italy complained to the MoF about the
FATF statement, but Italian officials urged the Ambassador to
consult the Central Bank of Iran about the deficiencies
identified in the statement and inform the MOF of any
information to counter the statement. Since this meeting,
the Iranian Ambassador has not been in contact with MOF
officials and Maresca said he believed the Ambassador's
apparent inaction was due to instructions from Tehran.
(Note: Post does not know when these conversations occurred.)


11. (C) On a separate issue, Grilli expressed frustration
that the USG moved to de-list the Italian national Nasredeen
from the 1267 Sanctions List, as Italy viewed him as a a
dangerous criminal. U/S Levey expressed surprise with this
view, as the USG understood that Italy supported the
delisting, but he agreed to look into the matter.

-------------- --------------
Ministry of Foreign Affairs Concerned about Iran;
but Unhappy with P5 1 Construct
-------------- --------------


11. (S/NF) MFA Political Director Guilio Terzi and Director
General for Mediterranean and Middle East Affairs Cesare
Ragaglini called Iran's lack of progress within the IAEA
process a "great concern," and said that Italy is ready to
support a third UNSCR. They also expressed a willingness to
work in parallel in the EU to maintain pressure on the
Iranian regime "until compliance is achieved." However, both
underscored Italy's preference that additional sanctions on
Iran be contained in a new UNSCR -- even a weak resolution
would have a significant impact on Iran in demonstrating
continued unanimity of the international community. EU
measures alone would not be successful, Ragaglini argued,
noting that other countries, i.e. China could still trade
with Iran. Ragaglini noted that trade between Italy and Iran
dropped from 4 billion Euro a year to today's 500 million.
As the data indicates, Terzi complained that Italy is paying
a significant price on Iran, but has not been allowed to
participate in the political decision making process. In the
medium-term, sanctions on Iran will harm the Italian economy
at least as much as the German economy, and Ragaglini said
Italy should be recognized for its sacrifice by being
included in the negotiations. Terzi encouraged the USG to
coordinate at the G7 level to ensure that stakeholders like

ROME 00002477 004 OF 004


Italy and Japan have a role in the decisions.


12. (S/NF) Citing his experience as Italy's Ambassador to
Iraq from 1996 to 1999, Ragaglini argued that sanctions are
not effective. Ultimately, Iranians will not blame the
regime, he said "they'll blame the West." Ragaglini
expressed the belief that Iran is suffering not from
sanctions but from the regime's "clear mismanagement" of the
economy. Recent reshuffling of Iranian government officials
is an indication not of a regime under pressure, but that the
regime is aligning itself closer together as its first
priority is preservation of the regime at all costs.
Ragaglini also complained that sanctions cannot address the
"UAE role" in helping Iran stay afloat. Levey countered that
the new sanctions, unlike previous sanctions regimes, are
targeted and conduct-based, therefore they are more effective
in convincing the private sector to retreat from dealings
with suspect entities. Levey pointed to decisions taken by
major financial institutions around the world, including
Italian banks, as compelling evidence that sanctions have
drawn attention to Iran's illicit activity and are
effectively applying pressure on the regime to change its
behavior. Levey shared information on Banks Melli and Mellat
and the IRGCs involvement in proliferation and urged the GOI
to support additional sanctions within the EU Terzi said that
the GOI would examine this information carefully.


13. (U) Under Secretary Levey cleared this cable.
BORG