Identifier
Created
Classification
Origin
07ROME336
2007-02-20 08:29:00
SECRET//NOFORN
Embassy Rome
Cable title:  

GOI STOPS FASTBOAT ENGINE SHIPMENT TO IRANIAN

Tags:  PREL PARM MARR ETTC IR IT 
pdf how-to read a cable
VZCZCXRO1673
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ZNY SSSSS ZZH
P 200829Z FEB 07
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 7220
INFO RUCNWSN/THE WASSENAAR ARRANGEMENT COLLECTIVE PRIORITY
RUEHNP/AMCONSUL NAPLES PRIORITY 2319
RUEHFL/AMCONSUL FLORENCE PRIORITY 2169
RUEHMIL/AMCONSUL MILAN PRIORITY 8358
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
S E C R E T SECTION 01 OF 04 ROME 000336 

SIPDIS

SIPDIS
NOFORN

DEPARTMENT FOR EUR/WE, NEA/NGA, AND ISN/CATR

E.O. 12958: DECL: 02/16/2017
TAGS: PREL PARM MARR ETTC IR IT
SUBJECT: GOI STOPS FASTBOAT ENGINE SHIPMENT TO IRANIAN
REVOLUTIONARY GUARD, FOR NOW

REF: A. ROME 310

B. 2006 ROME 3295

C. 2006 ROME 3059

D. 2006 STATE 179794

E. OCTOBER 6 2006 REDDY-ITALY DESK E-MAIL

F. 2006 ROME 0017

G. 2004 ROME 0776 AND PREVIOUS

H. 2004 ROME 0254

Classified By: Deputy Chief of Mission Anna Borg for reasons 1.4 (b) an
d (d)

S E C R E T SECTION 01 OF 04 ROME 000336

SIPDIS

SIPDIS
NOFORN

DEPARTMENT FOR EUR/WE, NEA/NGA, AND ISN/CATR

E.O. 12958: DECL: 02/16/2017
TAGS: PREL PARM MARR ETTC IR IT
SUBJECT: GOI STOPS FASTBOAT ENGINE SHIPMENT TO IRANIAN
REVOLUTIONARY GUARD, FOR NOW

REF: A. ROME 310

B. 2006 ROME 3295

C. 2006 ROME 3059

D. 2006 STATE 179794

E. OCTOBER 6 2006 REDDY-ITALY DESK E-MAIL

F. 2006 ROME 0017

G. 2004 ROME 0776 AND PREVIOUS

H. 2004 ROME 0254

Classified By: Deputy Chief of Mission Anna Borg for reasons 1.4 (b) an
d (d)


1. (U) This is an action request. Please see paragraph 14.


2. (S/NF) Summary. Over the past four years, Post has
engaged the GOI repeatedly on Italian exports of fastboats
and their components to Iran (refs B, C, and G). We recently
heard that fastboats and marine diesel engines exported to
Iran were purchased by the Iranian Revolutionary Guard,
contrary to earlier GOI statements that the boats were
exported for use by the Iranian Coast Guard. Isotta
Fraschini Motori, the manufacturer of the fastboat engines,
has reached an informal "gentleman's" agreement with the GOI
not to pursue Iranian interest in an additional 400 engines,
but will export five or six more engines to complete an
on-going export of 60 engines. Both the company and the GOI
note that the engines' export to Iran is legal under Italian
law. Isotta Fraschini is now seeking contracts to take the
place of future Iranian orders, and has identified the U.S.
Coast Guard's Response Boat-Medium program as its most likely
customer. The GOI and Isotta Fraschini have expressed
concern that the German companies MAN and MTU will step in to
fill future Italian demand for fastboat engines. An Isotta
Fraschini official told us the informal nature of the
"gentleman's" agreement leaves the company exposed to
commercial and labor pressures to resume exports to Iran.
The GOI has outlined plans to implement improved export
controls, and we should do all we can to support that effort.
Ref A conveys Embassy's strong recommendation to hold
bilateral consultations immediately to engage the GOI on

improving Italy's export control system. End summary.

Export of Marine Diesel Engines to Iran Halted
-------------- -


3. (S/NF) Acting Ecmin met February 9 with Alberto
Maestrini, Executive Senior Vice President of Fincantieri, to
discuss ref D marine diesel engine exports to Iran by the
Isotta Fraschini Motori company, a Fincantieri subsidiary.
(Note: Isotta Fraschini is a wholly-owned subsidiary of
Fincantieri. The GOI owns 98.79 percent of Fincantieri
through Fintecna, a holding company controlled by the
Ministries of Finance and Economic Development. End note.)
Maestrini was accompanied by Enrico Padula, an MFA official
responsible for Wassenaar Arrangement and Missile Technology
Control Regime issues, and Alberto Cuzzoni, Director of the
Ministry of Economic Development office of technology
transfer and defense-industrial issues.


4. (S/NF) Maestrini stated that following ref C demarche
regarding Isotta Fraschini's export of marine diesel engines
to Iran, the GOI had urged Isotta Fraschini not to pursue
further exports to Iran. According to Maestrini, Isotta
Fraschini will finish filling an Iranian order for 60 engines
(of which only five or six engines have not been shipped),
but will not follow up on Iranian interest in purchasing an
additional 400 engines, worth some 40 million euros. (Note:
We have repeatedly demarched GOI officials regarding our
concern over the export of fastboats and their components.
See refs B, C, E, and G. End note.) Maestrini stated that
the German companies MAN and MTU could fill the Iranian
order, if Isotta Fraschini does not. (Note: In a previous
meeting with Acting Ecmin, Carlo Tripepi, the MFA official
responsible for licensing arms exports, said the MFA had
contacted the German Embassy in Rome to urge the GOG to
implement similar restrictions on marine diesel engine
exports to Iran. End note.)


5. (S/NF) In a February 12 e-mail, Cuzzoni underscored the
voluntary nature of Isotta Fraschini's actions and stated
that "the supply of naval motors to the Iranian Revolutionary
Guard, which are not subject to the Wassenaar Arrangement,
produced by Isotta Fraschini, are gradually being stopped."

ROME 00000336 002 OF 004


Prior to Cuzzoni's e-mail, the GOI had argued the engines
were outside the Wassenaar Arrangement, but had never said
the engines were exported to the Iranian Revolutionary Guard.
Indeed, the MFA's Tripepi and his predecessor told us the
engines and ref G fastboats were exported to the Iranian
Coast Guard. (Comment: Cuzzoni is a well-placed Ministry of
Economic Development official who has occasionally provided
useful information to this Embassy regarding Italian arms
exports. We have no reason to doubt the veracity of his
statement that the engines were being exported to the
Revolutionary Guard. End comment)


6. (S/NF) Maestrini said Isotta Fraschini's decision not to
pursue additional business with Iran was made because of GOI
pressure and because Isotta Fraschini and Fincantieri want to
increase their sales to the USG. Maestrini confirmed Isotta
Fraschini's interest in winning a subcontract with Marinette
Marine to provide engines for the U.S. Coast Guard's Response
Boat-Medium (RB-M) program in lieu of selling additional
engines to Iran. He said the Marinette Marine contract, also
for 400 engines, would be worth 20 million euros, about half
the value of the Iranian contract. Fincantieri, Isotta
Fraschini's parent company, is also interested in
participating in the construction of the Coast Guard's
Deepwater Patrol Vessel and in the contract for the Littoral
Combat Ship.


7. (S/NF) To avoid closing the Bari plant manufacturing the
engines, the GOI is working with Isotta Fraschini to find
alternative customers, which may include the Italian Ministry
of Interior, Guardia Di Finanza, Italian Navy, Libyan
government, and unspecified Russian customers. Maestrini
said none of these potential customers had firm contracts to
offer in place of the Iranian contract, and that the
Marinette Marine/U.S. Coast Guard contract is the most
promising. He said Marinette Marine will stop taking bids
for the RB-M engine subcontract in two to three weeks, and
that he was "absolutely confident" Isotta Fraschini would win
the subcontract. Maestrini has misgivings over whether a
foreign supplier would be fairly considered, and expressed
concern that because the firm did not supply the engine for
the Marinette Marine test boat used to win the RB-M contract,
the firm's bid will be at a disadvantage.

Through an Informal, Undocumented, Agreement . . .
-------------- --------------


8. (S/NF) Maestrini stated that the agreement between
Fincantieri/Isotta Fraschini and the GOI is a "gentleman's
agreement," with "nothing on paper" to prove its existence.
Maestrini lamented that by using an informal mechanism to
halt the engines' export, the GOI had disavowed any
responsibility for the employment effects of losing the
Iranian contract for an additional 400 engines.
Specifically, Maestrini stated that if there is no
replacement buyer for the engines, Isotta Fraschini will face
labor problems at the Bari factory manufacturing the engines.
According to Maestrini, eighty percent of the 200-person
workforce had already been laid off and is receiving
unemployment compensation. A failure to win the RB-M, or
similar, contract would result in the plant's closure, and
the loss of 200 jobs in one of Italy's most economically
depressed regions.


9. (S/NF) In an earlier conversation with Econoff, Cuzzoni
said the USG should understand the "political context" in
which the GOI is acting with respect to the export of these
engines, and warned that Alfonso Gianni, a Communist Renewal
party member of parliament and the Economic Development
Ministry Under Secretary responsible for defense trade, is
willing to blame the USG publicly for any Italian job losses
caused by cutting Isotta Fraschini off from its Iranian
customers. (Note: In ref B and C demarches to the MFA, and
in conversations with Trade Ministry officials, we have made
clear our own "political context" and concerns over the
threat posed to western naval forces in the Persian Gulf,
should the fastboats and their components be exported to
Iran. We have noted that the boat used to attack the USS
Cole, for example, was not a Wassenaar-controlled item. End
note.) In a February 12 e-mail, Cuzzoni noted that the
exports "are 'gradually' being stopped to avoid political
backlash over the firing of over 90-120 company employees."
Cuzzoni stated the GOI expects the USG to "ensure the U.S.

ROME 00000336 003 OF 004


Coast Guard inform us in due time of any deficiencies of our
bid to allow us the time to amend our offer."

Revealing the Weaknesses of Italian Export Control "System"
-------------- --------------


10. (S/NF) Comment. MFA officials have consistently
maintained that they could not halt the export of the engines
because their export is not covered by the Wassenaar
Arrangement and their export to Iran is legal under Italian
law (refs B and C). Because of this gap in Italian export
control regulations, the GOI was forced to resort to ad hoc,
extra-regulatory, measures to stop the engines' export,
similar to the ones used to halt the export of a fastboat to
Iran in 2004 (ref G). This line of reasoning is consistent
with the GOI's practice of interpreting its Wassenaar
Arrangement obligations as narrowly as possible, to maximize
export opportunities for Italian business. This
interpretation of Italy's Wassenaar Arrangement obligations,
and Cuzzoni's inadvertent disclosure to us that the Isotta
Fraschini's customer was the Iranian Revolutionary Guard,
raises disturbing questions about the extent to which the GOI
has allowed the export of goods not controlled by the
Arrangement to proceed, regardless of the end-user.


11. (S/NF) Comment continued. However, even some in the GOI
recognize this problem. According to Trade Ministry Director
General Amadeo Teti, the GOI is now instituting an improved
export control system, including a broader catch-all
authority to block the export of goods not included in the
Wassenaar Arrangement, to individuals and companies included
on a GOI-maintained list. Embassy will press the GOI to
implement these new export controls as soon as possible.
However, a more comprehensive mechanism to assist the GOI to
improve its export controls are the bilateral export control
consultations proposed ref A.


12. (S/NF) Comment continued. By halting the export of
Isotta Fraschini engines without a paper trail, the GOI has
avoided responsibility for the consequences of losing future
sales to Iran. If Isotta Fraschini has to close its Bari
factory, the company will have to face its labor unions
alone, without evidence that its hand was forced by the GOI.
Cuzzoni's statements make clear that at least one GOI
official is prepared to publicly blame the USG for Isotta
Fraschini's decision not to pursue additional Iranian
contracts. Finally, we note that by handling this export
outside of normal export control mechanisms, the GOI leaves
open the possibility that Isotta Fraschini may resume exports
to Iran, if Isotta Fraschini is not able to find other
buyers. Alternatively, Isotta Fraschini could resume exports
to Iran after the firm fills other orders.


13. (S/NF) Comment continued. Cuzzoni's apparently
inadvertent disclosure that Isotta Fraschini was exporting
marine engines to Iran's Revolutionary Guard also raises
disturbing questions about the GOI's willingness to cooperate
with us on export control issues. During the four years that
we have worked to halt the export of fastboats and their
components to Iran, GOI officials have consistently
maintained that the goods in question were civilian in nature
and downplayed ref D concerns regarding the role that
fastboat "swarm" tactics play in Iran's naval strategy in the
Persian Gulf. The MFA's Tripepi argued the engines were not
covered by the Wassenaar Arrangement because the engines were
magnetic, not "amagnetic" (ref B). Tripepi has also
described the boats and engines as "rich men's toys," and
implied the purchaser was the Iranian Navy or Coast Guard.
Cuzzoni's e-mail reveals the GOI knew Isotta Fraschini's
customer was the Revolutionary Guard; the only questions that
remain are how long has the GOI known this, and at what level
was the decision made not to share this information with the
USG? In any event, it is clear that the Italian export
control system was not up to the challenge posed by the GOI's
conflict of interest in this case. The responsible decision
to list the marine diesel engines on Italy's national list of
controlled commodities was at odds with the GOI's interest in
the profitability of Isotta Fraschini. End comment.


14. (S/NF) Action requests. Post requests Department
guidance on how to rebut GOI assertions that the Isotta
Fraschini engines are not controlled by the Wassenaar
Arrangement, including information on whether Tripepi's

ROME 00000336 004 OF 004


distinction between magnetic and "amagnetic" engines has any
merit. (Engine technical details were provided ref H.) Post
also requests Department consider instructing Embassy Berlin
to demarche the GOG, urging it to counsel MAN and MTU against
pursuing possible exports to Iran of engines similar to those
manufactured by Isotta Fraschini. End actions requested.
SPOGLI