BELGIAN BANK WILL LOOK INTO REPORTS OF ITS DOING

S E C R E T SECTION 01 OF 02 BRUSSELS 001459

NOFORN
SIPDIS

E.O. 12958: DECL: 09/22/2033
TAGS: KTFN EFIN KNNP ETTC BE IR
SUBJECT: BELGIAN BANK WILL LOOK INTO REPORTS OF ITS DOING
BUSINESS WITH IRAN

Classified By: POL/E Counselor Richard Eason, Reasons 1.4 (b) and (d).


1. (S/NF) SUMMARY: Belgian officials were receptive to
Treasury U/S Levey,s explanation of Iranian deceptive
banking practices and guarded over any suggested implications
of Belgium,s KBC Bank in illicit Iranian financial
transactions. KBC Bank showed surprise and dismay at the
suggestion that it has supported substantial Iranian
financial transactions. KBC,s CEO promised to look into the
reports immediately. In addition, U/S Levey stressed the
importance of Belgium closely monitoring the activities of
IRISL, the Islamic Republic of Iran Shipping Line, and
describing the concept of engaging the insurance industry as
a financial service captured under UNSCR 1737. He also urged
the Belgians to use this as an opportunity to further
activate the UNSCR 1737 committee which it chairs. The
Belgians cautioned that the committee was highly political
and it might be counterproductive to politicize it even
further. However, they agreed that it was necessary to close
any loopholes which the Iranians were currently using. END
SUMMARY.


2. (C) On September 9, Under Secretary of the Treasury
Stuart Levey met with a delegation at the Belgian MFA to
discuss Iran sanctions and general efforts by Iran to
circumvent those sanctions. Levey noted that these measures
had begun to put pressure on influential segments of Iranian
society and that European Union designations of Bank Melli
and support for UNSCR 1803 had been very important steps.
Levey also described the illicit conduct and deceptive
practices of IRISL, stressing the need to closely monitor its
actions as called for under UNSCR 1803. Levey added that
insurance for IRISL is a starting point for expanding
engagement to the insurance industry as another financial
service prohibited by UNSCR 1737.


3. (C) The MFA's non-proliferation expert, Werner Bauwens,
noted that the IAEA was not pleased with Iran's lack of
cooperation. Bauwens expects another negative report on Iran
to be delivered at the next IAEA Board of Governors meeting.
Iran clearly threatens international peace and security and a
number of countries are becoming more irritated with Iranian
attitudes. Agreeing on the need to forge a consensus over
Iran paying an economic price for its actions, Bauwens
expressed concern that the Russia and Georgia crisis may set
higher standards for another resolution in the UN Security
Council. The challenge is to deepen sanction policy in
coordination with the Security Council.


4. (C) Levey suggested that Belgium use its chairmanship of
the UNSCR 1737 Committee to activate its approach to Iran,
particularly since 1803 gives the committee the power to
impose sanctions on entities identified by the committee as
helping other designated entities avoid sanctions. Bauwens
replied that the committee is highly political and it is
important not to politicize it further. Bauwens believes
that a productive approach would be to target specific
Iranian activities and emphasize to the Iranians that their
economic growth potential remains limited without a
significant change in behavior. The key is to close all
loopholes under the current sanctions. He said that Belgium
would advocate with its European partners the need to improve
the process and that the French Presidency was also very
supportive.


5. (S/NF) Levey presented information to the MFA, Finance
Ministry and to the Belgian Banking, Finance and Insurance
Commission suggesting KBC Bank continues to do significant
business with Iran. The Belgian officials were unaware of
the extent of the alleged Iranian financing flowing through
KBC. Several officials thought the data may have reflected
the closing out of Iranian positions by the bank. The
information clearly surprised the top officials of the
Banking Commission, and the head of the Commission (Servais)
called KBC's CEO to make sure that he would attend KBC's
meeting with Levey (NOTE. Previously, KBC Bank had not
offered any bank management for the meeting with U/S Levey.
There was only 45 minutes between the end of the meeting with
the Commission and the beginning of the meeting with KBC
bank. Servais made the call (unsolicited) after his meeting
with Levey ended. END NOTE).


6. (S/NF) KBC CEO Andre Bergen was unexpectedly in
attendance and clearly surprised by the information
suggesting that large amounts of Iranian funds were passing
through KBC. He welcomed any evidence or details the U.S.
could provide. He explained such transactions were against
bank policy and that the bank had been scaling down its Iran
business regularly. He knew there were still some transfers,
but mainly only on behalf of Belgian clients and only in the

BRUSSELS 00001459 002 OF 002


tens of thousands of dollars. "We have never had amounts
like that," he added (NOTE. The dollar figure was apparently
provided to Bergen by Belgium,s bank regulator, Servais,
during his phone call referenced above. U/S Levey did not
confirm any particular dollar figure. END NOTE).


7. (S/NF) The discussion then centered on the possibility
that funds might be flowing through the Iranian Central Bank
account held at the bank, but flowing through in a way that
the account balance remained stable. Bergen also promised to
investigate whether the numbers might reflect transfers to
correspondent bank accounts. Stopping such flows would be
easy. It was also possible that rolling over accounts might
generate some of the amounts in question.


8. (S/NF) KBC,s Head of Compliance, Guido Segers, asserted
that KBC does not distinguish between sanctioned and
non-sanctioned Iranian banks and does not intentionally deal
with any of them. Bergen said KBC had been scaling down its
relations with Iranian banks over the years. KBC continues
to be part of the Inter-Alpha bank group which has one
representative in Iran, mainly tasked with recovering KBC
assets there.


9. (S/NF) COMMENT: KBC promised to examine closely its
accounts to look into the allegations. Levey agreed that
Treasury would arrange a conference call with KBC in the near
future to discuss the findings. (NOTE: In a follow up call
with KBC, CEO Andre Bergen thanked Levey for the information
and engagement, and noted that he had been unaware of the
volume of business KBC was doing with Iran.)

FOX
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