IRAN SANCTIONS EXEMPTIONS FOR BANK SEPAH

C O N F I D E N T I A L USUN NEW YORK 000381 SIPDIS SIPDIS E.O. 12958: DECL: 05/17/2017 TAGS: ETTC EFIN UNSC PREL MNUC PARM IR SUBJECT: IRAN SANCTIONS EXEMPTIONS FOR BANK SEPAH REF: A. ROME 1036 ¶B. NELSON-TESSLER EMAIL 5-14-07 Classified By: Political Minister Counselor William Brencick, for Reasons 1.4 (B and D) ¶1. (C) SUMMARY: Per instruction, USUN met separately May 14 and May 16 with the German and the Italian Missions to discuss their exemption notifications submitted to the Iran Sanctions Committee regarding the unfreezing of certain assets for Bank Sepah's use (Frankfurt/Main and Italian branches respectively). In both meetings, USUN stressed that we do not want to see Bank Sepah or Bank Sepah International -- entities sanctioned under resolution 1747 (2007)-- operating "business as usual." We expressed concern over the broad and vague exemption notifications sent to the Committee and urged both Germany and Italy to enforce strictly the assets freeze. The German Mission assured us that Berlin has no intention of allowing Bank Sepah to enter into new contracts. The Italian Mission pledged to examine more closely a potentially problematic component of their notifications, which state that Bank Sepah Italian Branch would likely need to receive funds transfers from the "parent bank." END SUMMARY. ¶2. (C) USUN met with German Mission Counselor Bernd Heinze on May 14 to discuss a German exemption notification for Bank Sepah Frankfurt/Main Branch. The notification would unfreeze certain funds to allow Bank Sepah to pay for "basic expense" business costs, tax and legal fees. Heinze expressed surprise to hear of our concerns because Berlin copied almost identically previous UK exemption notifications, which were submitted to the Committee March 30 without issue. Nevertheless, Heinze assured us that Berlin has no intention of allowing Bank Sepah to enter into new contracts or conduct any new business. He underlined that Germany is committed to enforcing the sanctions and promised to work more closely with USUN in advance of any future notifications to the Committee. ¶3. (C) USUN met on May 16 with Italian Mission First Counselor Massimo Riccardo to raise concerns about Rome's notifications for Bank Sepah Italian Branch. In addition to points raised in REF A, USUN highlighted a potentially problematic component of the Italian notifications, which indicate that the Italian branch may require funds transfers from the "parent bank." If the "parent bank" is located in Tehran, then the Government of Iran would need to send in a notification or request to the Committee to unfreeze the necessary funds. If the funds transfer occurred without such a parallel notification, then Iran would be in violation of resolution 1747 and there may be implications for Italy's compliance with the resolutions given Iran's failure to notify. Riccardo accepted that the references to "parent bank" may be problematic and said he would seek instruction from Rome. We indicated that if appropriate clarifications could not be conveyed to the USG before the Committee's silence procedure expires on May 18 at 10:00 a.m., it may be in Italy's interest to withdraw the notifications to allow more time for bilateral discussions. ¶4. (C) COMMENT: We delivered a strong message to both Germany and Italy that Bank Sepah should not be allowed to continue operations. We note, however, that the exemptions in resolution 1737 (2006) are broad and create room for wide-ranging interpretation. Moreover, the Committee has limited ability to stop a notification for "basic expenses" under paragraph 13(a) of resolution 1737 (2006) because blocking would require consensus of all committee members (15 no's). The combination of broad interpretation of exemptions and the Committee's limited ability to stop them means that bilateral pressure by the USG will be essential to ensure strong and strict enforcement of the sanctions. KHALILZAD