IRAN: BANK SEPAH ROME STILL OPEN

C O N F I D E N T I A L SECTION 01 OF 02 ROME 000409 SIPDIS SIPDIS DEPT OF TREASURY FOR U/S LEVEY STATE FOR EB A/S DAN SULLIVAN; EUR/WE KATHLEEN ALLEGRONE, ANDREW YOUNG, AND KEVIN OPSTRUP E.O. 12958: DECL: 03/01/2017 TAGS: ECON EFIN PGOV IR IT SUBJECT: IRAN: BANK SEPAH ROME STILL OPEN REF: A. 06 ROME 3378 ¶B. ROME 95 ROME 00000409 001.2 OF 002 Classified By: Economic Minister Counselor Tom Delare for reasons 1.4 (b) and (d). ¶1. (C) Summary: EcMin discussed the status of Iranian Bank Sepah's Rome branch with Bank of Italy (BOI) officials March ¶1. Bank Sepah's Rome branch will remain open, but it pledged to the BOI to cut all ties with Aerospace Industries Organization (AIO) and all individuals and entities associated with AIO. The BOI officials reported that Bank Sepah Rome will put in place internal controls to ensure compliance with banking law, generate more commercial activity and report regularly to the BOI. The officials could not say when the BOI would next inspect Bank Sepah Rome, but stated that there was "quite a change of attitude" by Bank Sepah officials since UNSCR 1737. When EcMin expressed doubt and stated that Sepah Rome would likely stay open to assist weapon proliferators again, the officials claimed that the BOI had so far done everything within its regulatory power to deal with Bank Sepah. End summary. BANK SEPAH ROME BRANCH STILL OPEN FOR BUSINESS -------------- -- ¶2. (C) BOI Director General Fabrizio Saccomanni and former Banking Supervision Chief Giovanni Carosio (now a BOI Board Member) reported to EcMin March 1 that Iranian Bank Sepah's Rome branch is still open. Carosio stated that since Treasury U/S Levey's December 21, 2006 visit (ref A),BOI officials met with a Bank Sepah board member to discuss the Rome branch's operations. The BOI requested that Bank Sepah Rome cut all ties to individuals and entities linked to AIO (ref B). Carosio reported that Bank Sepah Rome agreed and also pledged that it would generate new commercial business in Italy. ¶3. (C) Bank Sepah Rome is to report regularly to the BOI to verify that new internal controls are in place to ensure due diligence and compliance with Italian banking law. Sepah has hired a former BOI Banking Supervision employee to work as a consultant to ensure the controls are put into place. EcMin challenged this as being potentially bad news, since the consultant could assist Bank Sepah in working around Italian law, rather than complying with it. Our contacts demurred from that sceptical view and thought that Sepah had gotten the message to put their operations in order. EcMin pressed Carosio and Saccomanni to say when the next audit of Bank Sepah's Rome branch might occur. Neither gave a specific date; instead, they stated that the BOI would continue its focus on the bank branch and put any future inspection ahead of normal rotation in the queue. ¶4. (C) Saccomanni pointed out that there had been "quite a change of attitude" by Bank Sepah officials since UNSCR 1737. Whereas before, the bank was reluctant to do anything the BOI requested, Sepah officials were now promising to work with the BOI to justify having a presence in Italy. As for Italian banks, Saccomanni reported that they were even less willing to engage in any business with Bank Sepah since a January BOI circular note on UNSCR 1737. COMMENT -------------- ¶5. (C) When EcMin pushed back on BOI optimism that Bank Sepah Rome would abide by its word -- stating that Bank Sepah Rome was likely remaining open to assist AIO or other weapon proliferators again -- Saccomanni claimed that the BOI had done everything within its regulatory power to deal with Bank Sepah. Anything else, he argued, was a political question outside of BOI's mandate. We will continue to press our GOI counterparts for more information regarding Bank Sepah Rome's activities and its closure. However, we believe it will be essential to augment our approaches with further high-level USG pressure in Rome and Brussels to drive home to the Italians the dangers of allowing Bank Sepah to continue to operate. End comment. ROME 00000409 002.2 OF 002 SPOGLI