REVERBERATIONS CONTINUE FROM MAKHLUF DESIGNATION

C O N F I D E N T I A L SECTION 01 OF 03 DAMASCUS 000177 SIPDIS SIPDIS STATE FOR NEA/ELA, EEB/ESC/TFS; TREASURY FOR GLASER/GRANT; NSC FOR ABRAMS/SINGH/GAVITO E.O. 12958: DECL: 03/11/2028 TAGS: ECON EINV EFIN KCOR PGOV SY SUBJECT: REVERBERATIONS CONTINUE FROM MAKHLUF DESIGNATION REF: A. DAMASCUS 149 ¶B. DAMASCUS 146 ¶C. DAMASCUS 70 ¶D. DAMASCUS 54 ¶E. DAMASCUS 126 Classified By: Charge d'Affaires Michael Corbin for reasons 1.4(b,d) -------------- SUMMARY -------------- ¶1. (C) The continuing fallout from the designation of Rami Makhluf, President Asad's first cousin, has exposed nascent fissures in the Syrian business community. A senior Alawite told us he had already sold his own shares in Gulfsands and intends to completely divest from Cham Holding in order to minimize his exposure. Other anecdotal evidence suggests that Sunni elites are quietly celebrating Rami's designation, while worrying about who among them may be next. Second and third-hand accounts indicate that the designation has rattled the Asad/Makhluf family, with Bashar himself reportedly raising the subject in business meetings and Rami privately acknowledging what he denies in public -- that the designation may indeed impact his business dealings in Europe and Turkey. Although British diplomats doubted that European capitals would support U.S. designations of regime insiders, a Turkish diplomat was clearly concerned about the designation's potential legal and economic consequences for private Turkish investors in Syria. End summary. -------------- REACTIONS FROM WITHIN -------------- ¶2. (C) The French Ambassador (protect) told the Charge that a Lebanese businessman with significant French business interests had recounted a recent meeting with President Asad, in which he claimed that Asad himself had raised the designation of his cousin, Rami Makhluf. According to the Lebanese businessman's readout, Bashar acknowledged that the designation might have some basis, and expressed some understanding of the Syrian people's anger over Makhluf. The French Ambassador said that in his meetings with Syrian business contacts since the designation, he had explained that French businessmen will always be interested in opportunities in Syria, but that the Makhluf designation had exposed the potential downside to doing business here, and the cost to business opportunities of SARG policies in the region. (Note: This position contrasts sharply from late 2005, when the previous French Ambassador held a special meeting to assure the Sunni business community that France would never allow its political differences with Syria to impact the bilateral economic relationship. End note.) ¶3. (C) A British diplomat told Poloff that he had recently met with Rami, and that Rami had acknowledged that the designation could negatively affect his ongoing negotiations with Turkcell to sell his interest in SyriaTel, as well as other business opportunities in Europe. On the other hand, Makhluf countered, the recent visit of Iranian First Vice President Parviz Davoudi to Damascus had convinced Rami that there were still plenty of lucrative investment deals in Syria available to him that the Iranian government could facilitate. Facing declining prospects abroad, Makhluf said he would now exert more effort to expand his dominant position inside Syria. -------------- TURKISH CONCERNS ABOUT TURKCELL DEAL -------------- ¶4. (C) Turkish Ambassador Halit Cevik (protect) urgently DAMASCUS 00000177 002 OF 003 sought a meeting March 12 with Charge to raise the potential impact of the Rami Makhluf designation on the negotiations underway between Turkcell and Syriatel, given Rami's considerable share in the latter company. Noting that he was not raising this issue from a legal or business point of view but was seeking to get a better understanding of the policy implications, Cevik said that he believed that there were now serious concerns on the Turkish side of the negotiations with Syriatel. Alluding to corruption in Syria, but not specifically mentioning it, he said that in his view it would be much better if the badly run and nontransparent Syriatel would be replaced with a respected international mobile phone operator such as Turkcell and that perhaps it would be a good thing for the sale to go through. He mused about the potential impact of the Makhluf designation on the purchase negotiations. Charge noted there could be serious implications and that, while not speaking from a legal point of view, he would hope the Turkish businessmen would look carefully at continuing to deal with Makhluf. ¶5. (C) Charge asked an initially skeptical Cevik whether pressure on the Syrian Sunni business community related to the Makhluf designation might not lead the Syrian side to see a cost from the policies of the Syrian regime to positive economic developments, such as the entry of a respected mobile phone operator into Syria. Cevik conceded that there was something to this and noted that, in his personal opinion, there might be some value to Turkish businessmen raising this type of concern. He noted that the Turkish private sector is extremely concerned about risks in Syria but that Syria was actively encouraging greater Turkish investment. He said that dealing with legitimate business in a more stable environment was Turkey's goal and that he could see how this designation might not be necessarily negative. For example, he wondered to himself, perhaps there was some way Turkcell could insist that Rami be removed from Syriatel before a sale was concluded to send a message that Turkey was not dealing with corrupt individuals. -------------- A WEALTHY ALAWITE DUMPS GULFSANDS -------------- ¶6. (C) Nizar Al-Assaad (protect),a senior Alawite businessman, commented to us that he had already taken action to minimize his own exposure as a result of Rami,s designation. According to Assaad, he sold all of his shares in GulfSands Petroleum and intended to also get out of Cham Holding Company. (Note: Assaad's Gulfsands shares were estimated to be worth two million USD. End note.) Assaad said he expected most people would follow his example and sell or otherwise get rid of their interest in Cham Holding. Assaad commented that the ability of individuals to leave would depend on how large their own business interests were. Assaad was not at all concerned about his ability to recoup his own money now that he had made the decision to divest. (Note: Assaad is a golf fanatic and played most often with Rami's father, Muhammad Makhluf, until Makhluf was compelled to give up the game last year in the face of declining health. End note.) -------------- SUNNI REACTION EXPOSES FISSURES IN COMMUNITY -------------- ¶7. (C) The Sunni business class seems celebratory that Rami is finally receiving his just desserts. Abdel Salam Haykal (strictly protect),scion of one such Sunni family, commented that of all U.S. sanctions, Rami's designation was the only one to meet with popular acceptance. Haykal said that, from an intellectual perspective, he is against any outside sanction as interfering in Syria's domestic issues. Try as he might, however, he said he could not muster any moral DAMASCUS 00000177 003 OF 003 outrage after hearing of Rami's designation. In fact, he commented, most of his friends and business associates seemed happy that someone had finally put Rami in his place. Conversely, Haykal asserted, most of Rami's business associates were rattled by the designation and were left wondering who may be next. Haykal recounted a dinner conversation he recently witnessed involving two Sunni partners in Cham Holding and one of the many Sunni businessmen who had been quietly resentful of his peers' willingness to "sell-out" to the Alawites by joining Rami's company. The outsider loudly recited how surprised he had been to see Rami's name cross the Al-Jazeera news-ticker and how he now wondered if his "dear friends' names" might be next. According to Haykal's retelling, one of the two Rami associates made an effort to laugh along with the joke. The other became very angry and told the jokester that the designation "was very serious and not something to be made light of." Haykal's take-away was that many who had decided to do business with Rami over the last couple of years would now be reassessing that decision with potentially significant consequences for Rami's ability to legitimize himself. ¶8. (C) Another leading Sunni businessman congratulated us on Rami's designation. He said that many prominent Damascenes are quietly snickering at Rami's obvious discomfiture at being called out by the Americans, and claimed that the "whole family" (which we took to mean both the Makhlufs and the Asads) was rattled by the designation. In his estimation, Rami's designation was the first to make Bashar himself feel threatened. He commented that more designations should follow before Rami regains his footing, and suggested one possible designee to make a strong impression on both Rami and Bashar would be Zuhair Sahloul (aka Abu Shafik), whom our source claimed moved all of Rami's money (ref D). -------------- COMMENT -------------- ¶9. (C) Rami's designation has already had a larger impact than any previous designations, including that of Bashar's brother-in-law Assif Shawqat. The Turkish and French Ambassadors' views on the possibility of sending messages to the Sunni businessmen further support the Embassy's proposal (ref E) to attempt to use the new designation tool to pressure Bashar. We will send in operational proposals SETPEL. CORBIN