READ OUT OF TREASURY U/S LEVEY'S VISIT TO GERMANY

S E C R E T SECTION 01 OF 03 BERLIN 001468

SIPDIS
TREASURY FOR BURKE AND EDDY

E.O. 12958: DECL: 09/22/2018
TAGS: EFIN PRELM IR GM
SUBJECT: READ OUT OF TREASURY U/S LEVEY'S VISIT TO GERMANY

REF: BERLIN 1229

BERLIN 00001468 001.2 OF 003


Classified By: DCM John M. Koenig for reasons 1.4(b) and (d


1. (S) SUMMARY During meetings with a comprehensive slate
of senior Chancellery and Finance, Economic and Foreign
Ministry officials on September 11, 2008, U/S Levey focused
on three main topics: 1) The recent U.S. designation of IRISL
as a proliferation-related entity using deceptive financial
and commercial conduct that has the effect of luring banks
and other companies into illicit transactions; 2) the need to
approach the insurance industry to discuss the potential for
abuse of the sector by Iran,s illicit conduct (Note. As a
financial service, insurance is covered by existing UN
Security Council resolutions),and 3) BHF Bank's relationship
with Iranian banks of proliferation concern. When asked about
U.S. exports to Iran, U/S Levey pointed out that U.S. exports
to Iran are dwarfed by German exports, and are limited to
humanitarian items, agricultural products and medicines, as
required by Congress. U/S Levey also discussed current U.S.
efforts aimed at reducing the number of products from U.S.
firms reaching Iran via third country exports. While German
officials welcomed the message on the promise of new, more
robust enforcement of existing laws against U.S. companies
whose products enter Iran, they were cool to the presentation
on BHF Bank and non-committal on the application of insurance
and re-insurance to existing UN sanctions. End Summary.


--------------
IRISL / INSURANCE
--------------

2. (S) U/S Levey also addressed the recent U.S. designation
of the Islamic Republic of Iran Shipping Lines (IRISL) and
its related entities for facilitating shipments for
proliferators. He provided information illustrating how
IRISL uses deceptive practices to mask its involvement in
illicit conduct, which increases the risk that financial
institutions providing services to IRISL could be
contributing to the illicit activity. He also stressed
paragraph 6 of UNSCR 1737, which prohibits the provision of
"financial resources or services" related to Iran's nuclear
program, included providing insurance and reinsurance to
IRISL, and possibly to any Iranian airline transporting
proliferation-related materials. While the primary insurers
of IRISL vessels are British, U/S Levey invited collaboration
from Germany to the extent their insurers or reinsurers cover
IRISL vessels or other activities.


3. (S) At the Economics Ministry, Dr. Kruse stated that the
responsibility for insurance matters is with the Finance
Ministry and noted that sanctions against airlines or their
insurers might be too extreme, as they would have the
practical effect of grounding the airline. Further, Dr.
Ursina Krumpholz raised the possibility that insurance is
addressed by UNSCR 1803 (paragraph 9) which urges vigilance
over providing financial support for trade with Iran,
including export credits, guarantees, or insurance. U/S
Levey responded that the language in UNSCR 1803 regarding
export credit insurance does not exclude the prohibition of
other forms of insurance as a financial service covered in
paragraph 6 of UNSCR 1737. German officials did not contest
this point.


4. (S) At the Finance Ministry, Dr. Wenzel asserted that the
unique nature of many reinsurance transactions makes them a
less than ideal tool to target specific sectors or entities.
Wenzel also opined that, if the primary insurers comply with
such a sanctions regime, the need to address reinsurance is
obviated. U/S Levey responded by asserting that specific
policy provisions and endorsements may help this approach
achieve its goals.

-------------- --------------
CONCERNS REGARDING BHF BANK
-------------- --------------


5. (S) U/S Levey conveyed concerns over BHF Bank,s continued
relationship with Iran and provided examples about how Iran
uses deceptive practices to prevent detection and evade
sanctions. U/S Levey described how continuing a relationship
under these circumstances risks providing financial services
to UN designated entities, even if unwittingly. In fact, U/S
Levey shared an example of where BHF Bank was involved in a
transaction for which Bank Sepah was a party and noted how
this is a UNSCR violation.

BERLIN 00001468 002.2 OF 003




6. (S) The response from the various German officials with
whom U/S Levey met was similar. At the Economics Ministry,
Deputy Director Dr. Michael Kruse emphasized the role of the
German export control authority BAFA in reducing trade with
Iran, and stated that questionable export cases go to BAFA
for review. U/S Levey stressed that BHF Bank's transactions
were not/not exports, but a financial service. Further, U/S
Levey said that, given Iran,s ongoing illicit conduct as
recognized by the international community, BHF should be on
notice that documents presented by Iran in such transactions
are not reliable and BHF Bank assumes the risk that a
designated Iranian banks may be behind some transactions it
processes. Dr. Kruse promised to contact BHF personally to
address U/S Levey's concerns.


7. (S) During a meeting at the Finance Ministry, Director
General Dr. Rolf Wenzel provided BHF's response to some of
the U.S. concerns (Note. The same information had previously
been provided to German officials and it was apparent that
U.S. concerns were discussed with BHF prior to U/S Levey,s
visit. End Note.). According to Wenzel, BHF stated they had
no accounts for the companies specifically mentioned in the
points passed and "did not know them." Wenzel added that
BHF has reduced its credit exposure in Iran from 80 million
to 25 million Euros. In response, U/S Levey noted that the
risk is not their exposure but rather their provision of
payment services to Iran.


8. (S) At the MFA, U/S Levey stated that there is no evidence
that BHF was aware of the involvement of designated banks in
transactions, but he noted that BHF was possibly "willfully
blind" to the potential involvement of such banks. At the
Chancellery, Vorbeck, (charged with oversight of the German
Federal Intelligence Agency and responsible for coordination
of information between Germany's various intelligence
services),noted that it was difficult for his office to find
points for intervention against BHF Bank, due to its German
domicile. He suggested that the Finance Ministry and
Germany's bank regulator BaFin are better suited to press the
urgency of this case.


9. (S) U/S Levey explained the concerns surrounding BHF Bank
to German Chancellor Angela Merkel's Chief Economic Advisor,
Dr. Jens Weidmann. Weidmann repeated information provided by
the Finance Ministry, namely that BHF had reduced its credit
exposure to Iran, to which U/S Levey replied that it was the
provision of payment services, not the credit exposure, which
was a proliferation concern. Weidmann also repeated that BHF
Bank asserts that they have no accounts for, or knowledge of,
the Iranian or Malaysian companies previously discussed. In
response to Weidmann's inquiry about suggested next steps
regarding BHF Bank, U/S Levey asked the Germans to talk to
the BHF Bank and discuss next steps with the U.S. thereafter.
He also stressed that it is the government,s responsibility
to adhere to UN sanctions.

--------------
U.S. PRODUCTS IN IRAN
--------------


10. (S) At the Finance Ministry, Wenzel and U/S Levey
discussed exports to Iran. Wenzel asserted that German small-
and medium-sized enterprises (the "Mittelstand") have shown
restraint in their exports to Iran, but that they are angry
about what they view as U.S. companies' evasion of sanctions
and widespread trans-shipment of goods through Kuwait and the
United Arab Emirates. He also repeated oft-heard Mittlestand
concerns that China and, increasingly, Russia are filling the
gaps created by German firms reducing their exports.


11. (S) In response, U/S Levey acknowledged that the reports
of trans-shipments of goods from the U.S. to Iran via Dubai
were "troubling". He noted that he has visited Dubai nine
times and has pushed Emirati Authorities in Dubai to improve
their customs oversight. The officials welcomed U/S Levey's
news that OFAC's maximum authority to levy fines has been
raised for such violations from USD 11,000 to USD 500,000.
U/S Levey also promised to "make examples" of U.S. companies
violating the law and suggested public announcements of
prosecutions would follow soon. He also promised to address
any reports reaching him of U.S. companies exporting to Iran
via foreign subsidiaries. U/S Levey also pointed out that
U.S. exports to Iran remain extremely low, and those goods
directly shipped from the U.S. are limited to humanitarian
good, medicines and agricultural products. Wenzel concluded

BERLIN 00001468 003.2 OF 003


the meeting by stating that this new information will help
the Finance Ministry argue its case with the Mittlestand.
While the large companies understand the issue, Wenzel said,
the Mittlestand feels threatened, particularly when U.S.
companies' exports get on their radar.

--------------
COMMENT
--------------


12. (S) Germany's lukewarm response (and unwillingness as of
yet to take action) to information provided on BHF Bank's
Iran transactions indicates the need to keep the bank on
senior German officials' radar. Germany continues to prefer
pursuing most actions within the largest possible
multilateral framework, although policymakers agree in
principle on the need for urgent action. However, Germany,s
view of targeted measures differs in that it seeks to target
only the specific illicit activities as opposed to targeting
activities that are being exploited for illicit purposes.
The German government welcomed U/S Levey's information on
OFAC's more robust prosecution abilities and demonstrated a
willingness to consider new approaches to sector-specific
sanctions such as marine insurance.


13. (S) This cable has been cleared with U/S Levey's office.
Timken Jr