SYRIAN BUSINESSMEN AND E.O. 13460: A STRATEGY TO

S E C R E T DAMASCUS 000199 SIPDIS SIPDIS STATE FOR NEA, EEB/TFS; TREASURY FOR LEVEY/GLASER/GRANT; NSC FOR SINGH/GAVITO E.O. 12958: DECL: 03/19/2028 TAGS: EFIN EINV ETRD ETTC KCOR PGOV SY LE SUBJECT: SYRIAN BUSINESSMEN AND E.O. 13460: A STRATEGY TO PRESSURE BASHAR REF: A. DAMASCUS 126 ¶B. DAMASCUS 177 ¶C. DAMASCUS 149 ¶D. DAMASCUS 146 ¶E. DAMASCUS 54 Classified By: Charge d'Affaires Michael Corbin for reasons 1.4(b,d) -------------- SUMMARY -------------- ¶1. (S) Post proposes an operational strategy to use E.O. 13460 to expose and exploit Bashar al-Asad's domestic economic vulnerabilities (ref A). These include the growing influence of a Syrian business class resentful of increased regime extortion despite Bashar's promised economic reforms, the lack of significant foreign investment, and other major economic challenges. We propose that Treasury quickly move to designate the notoriously corrupt regime insider Mohammad Hamsho. Further, we suggest developing designation packages for other corrupt and widely resented businessmen. Concurrently, we propose Department step up pressure on foreign investors from the Gulf, Turkey and Europe, develop PD strategies to clarify our support for "legitimate" Syrian businesses, and consider ways to motivate business elites to convey clearly to Bashar that his foreign policy positions have a tangible economic cost. While these tactics may not have an immediate effect on regime behavior, they represent one of the few available levers to target Bashar's vulnerable economic position. Over the long-term, the overall strategy can strengthen U.S. links to the Syrian business community that will play a constructive role in any eventual change in Syria. End summary. -------------- THE CONCEPT -------------- ¶2. (S) Reactions to Rami Makhluf's designation (refs B,C,D) have confirmed Bashar's vulnerabilities (ref A),and present an opportunity for Washington to exploit. Consequently, Post proposes an operational strategy based around E.O. 13460 to persuade the Syrian business community (most of which is Sunni, but which also contains significant Christian and Armenian elements) to exert collective influence over the regime on our key areas of concern. This strategy seeks to encourage legitimate businessmen who are resentful of regime insiders, eager for economic engagement with the U.S., supportive of economic reforms, and capable of pressuring Bashar. �A; ¶3. (S) In order to maximize the effect on the intended audience, we recommend implementing all three elements of this strategy concurrently. The first element would require additional designations of regime lackeys (ref E),and preparation of designation packages for selected businessmen outside Bashar's inner circle. The second element consists of a diplomatic campaign to inform Syria's primary investors (and Rami's external business partners) in the Gulf, Turkey and Europe of the potential business risks of dealing with Syria. The third and final element involves a combination of threatening the business community with the new E.O. while offering targeted incentives to certain Syrian business interests. The threat is evident because, by the nature of Syria's economic system, all businessmen are, in some way, in cahoots with the regime. The incentive should exploit this community's proclivity to seek opportunities in Western economies by emphasizing possibilities that are already present within our sanctions law. -------------- ASSUMPTIONS -------------- ¶4. (S) The strategy to persuade the Syrian business community to wield collective influence over the regime is based upon the following assumptions: a. Syrian businessmen can be motivated to pressure the regime. b. Bashar is vulnerable to business pressure (particularly from the Sunni majority). c. Sunni businessmen are extremely skeptical about Bashar's economic overtures to Iran. d. The recent opening in Syria's economy has focused the business community's attention on increased corruption and domestic economic pressures. e. Currently, the business community is the only feasible agent for constructive change in Syria. We base these assumptions on the following information: -- There are real Syrian businessmen who deal with regional and global markets. Many of these businessmen are Sunni, but Christian Arabs and Armenians are also well-represented because of the secular minority (Alawi) regime's favorable treatment of other minorities. This community cares about opportunities in major financial centers, such as the Gulf, Europe, U.S., Turkey, India, and China. Due to the Greater Arab Free Trade Agreement (GAFTA) and Gulf interest in Syria's economic potential, most businessmen view petrodollars as the greatest short-term opportunity for the Syrian economy. -- Since Hafez al-Asad seized power in 1971, wealthy Sunni elites have been co-opted into bankrolling the Alawi regime. At least 70 percent of Syrians are Sunni, and the growing religiosity of this group -- including among many businessmen -- is at odds with Bashar's secular Alawi government. Bashar is increasingly sensitive to this trend. -- There is widespread skepticism within the business community about the value of Iranian interest in Syria. The Sunni business community harbors deep suspicions about Iranian/Shia business involvement in Syria (some of which is related to antipathy towards the Shia). The Iranian government is actively trying to establish an economic relationship with Syria that is as strong as its political relationship. As evidenced by eight economic-oriented MOUs signed during the recent visit of Iranian First Vice President Parviz Davoudi, Bashar has consistently yielded to Iranian pressure in this regard. -- Bashar has awakened hopes among businessmen that he will implement real economic reform and will allow Syria to take its "rightful place" in the regional and international market. However, Syria's foreign policies threaten this hope by deterring risk averse foreign capitalists from significant productive investment in Syria. -- The economic reforms that Bashar has implemented over the past six years have resulted in a limited opening of Syria's economy to a greater private sector presence. These reforms have enticed many Syrian expatriates with much-needed white collar skills to return, and have renewed business hopes for Syria's potential as an emerging market. Three ongoing government studies commissioned by Bashar on additional reforms indicate that the door to Syria's economy is unlikely to close again -- particularly when Bashar has staked his public persona to Syria's economic reforms. -- It seems increasingly likely that the SARG can no longer avoid implementing more politically difficult, but economically necessary reforms. For the past few months, D/PM Dardari has tried to persuade Syrian business elites that now is the time to proceed with the controversial reforms, such as restructuring fuel subsidies. Syria's new status as a net importer of oil by-products has dramatically increased Syria's budget deficit, decreased revenues and highlighted its increasing dependence on international trade. At the same time Syria's oil is running out, entrenched government interests and many Syrian industrialists who benefit from subsidies remain opposed to any corrective economic policies. -- The elimination of fuel subsidies will be reflected in higher prices for all goods in the Syrian market, which will compound the effects of region-wide inflation that has already shocked Syrian consumers. In the context of continued high unemployment, an announced freeze on public sector hiring, and more conspicuous corruption, Bashar will be exposed to growing public anger over the economy. -- Absent an accommodation between Israel and Syria, which would likely increase pressure for lifting the state of emergency, short-term internal change in Syria is not going to come from the political opposition. The Western-oriented business elites are the principal hope for change. While such a process will be slow, any U.S. pressure that benefits legitimate businessmen at the expense of known corrupt figures establishes ties to this group that will be useful as a basis for any future U.S. economic relationship with Syria. -------------- OBJECTIVES -------------- ¶5. (S) The objectives of this proposed strategy are twofold: -- To motivate the predominantly Sunni business elites to pressure Bashar into moderating Syria's regional policies for fear of the tangible economic costs of maintaining Syria's current foreign policy positions. -- To support legitimate businessmen, whom we argue are present in Syria and who represent an important engine of change in the country through their understanding of the cost of Syria's isolation from the Westernized international economy, and the potential benefits of the rule of law. -------------- ADDITIONAL DESIGNATIONS -------------- ¶6. (S) The first element of this strategy requires additional designations under E.O. 13460 to clearly signal to the regime and the business community that Rami's designation was not a one-time event, and to add credibility to the threat of other designations. Towards that end, Post recommends a prioritized list of potential designees. -- Washington should first expedite the designation of another regime insider whose business success has depended exclusively on Asad family favors. Mohammad Hamsho fits this profile. The Kurdish-Alawi parliamentarian is, in many ways, as polarizing a figure as Rami Makhluf, and Syrians will be hard-pressed to defend him. -- Next, we should begin work on a designation package for black-market moneychanger Zuhair Sahloul (ref E),another illegitimate businessman who is close to Bashar, widely resented by the private sector, and well known to the public. Other potential designees would include wealthy Baathists, such as Kamal al-Asad and Nader Qal'ai Additionally, Washington should consider designating a Lebanese businessman closely tied to either Rami or the SARG. One example might be former Lebanese Prime Minister Najeeb Miqati, who is reportedly the majority shareholder in Syria's second GSM service provider, MTN. -- Finally, to drive home the threat of additional designations outside Bashar's immediate inner circle, we should prepare a designation package on a major Syrian businessman who is widely resented among his peers and whose wealth is derived from being a regime stooge. The purpose would be to send the message that designation could happen to any businessman profiting from official corruption. However, we recommend that this action should be exercised prudently to avoid calling into question the legal credibility of the E.O., and to avoid alienating the larger business community. -------------- CONCURRENT PRESSURE -------------- ¶7. (S) We believe that the impact of additional designations would be stronger if they were to occur within the context of a coordinated information and persuasion campaign to reinforce the potential personal costs of Syria's present course. In Syria, we propose to: -- Create a fact-sheet in English and Arabic that clearly explains the consequences of designation under the E.O. and the potential cost of dealing with designees. The Embassy would post this on its website and distribute it to business contacts, who are already clamoring for such clarification. -- Host a Treasury/Commerce delegation to explain sanctions law while delivering a sobering message on designations. Even if Post cannot arrange a large public gathering of businessmen (as was done before 2001),we can easily use the team with selected influential business contacts. Additionally, Washington could initiate a diplomatic strategy that includes the following elements: -- Engage influential leaders in key Gulf states with large investments in Syria. In the UAE, we should discourage MBZ from proceeding with major real estate deals with Rami Makhluf. Similarly, the Kuwaiti ruling family should be made aware of the risks to the Kuwaiti Al-Aqeelah company from partnering with Rami in the Cham Pearl private airline venture. In Qatar, we could consider sending a concrete message outlining the risks to Qatari FM Hamad Bin Jassim, given his promotion of his family's financial interests here. -- Engage Turkey in a high-level diplomatic discussion of Syria, to include Turkcell's negotiations to purchase SyriaTel. -- Lobby our allies to echo our message in their meetings with Syrian businessmen regarding the costs of continuing on Syria's present course. -- Wage an information campaign to publicize the difference between legitimate and illegitimate businesses in Syria to regional audiences using, for example, Arab satellite TV. -------------- -------------- WHILE BUILDING CONSTRUCTIVE LINKS TO THE PRIVATE SECTOR -------------- -------------- ¶8. (S) Once proven credible, the threat of additional sanctions will likely be a more persuasive tool than actual designations, which could drive businessmen into the regime camp. Thus, as the first and second elements of the strategy increase private sector anxiety, we should also look for ways to channel their concerns in a constructive direction. Business elites are always on the lookout for the possibility of increased economic engagement with the U.S. We believe they will be more likely to pressure the regime if they see a willingness by the USG to be more flexible in facilitating unsanctioned areas of private sector trade between the two countries. The following list describes possible options for consideration, working within the constraints of the Syria Accountability Act (SAA): -- The interagency could consider a new, more relaxed approach towards the adjudication of export licenses for internet-related information technology (IT) hardware/software destined for private sector end-users in Syria. The internet is key to the spread of information in Syria -- despite the SARG's efforts to block it. When President Bush retained the option of granting a license for the legal export of IT to Syria in the SAA, the point was to encourage the development of a networked society that would pose issues to the regime. Unfortunately, U.S. companies have been dissuaded from supplying IT equipment to their Syrian agents. -- Exploit the issuance of licenses for civil aviation spare parts to benefit the Syrian private sector. One example is a recent request Post received from a Syrian merchant asking for help with a tender for spare parts for ICAO-required airport fire-fighting equipment that Oshkosh USA could provide. As any airline servicing Damascus International Airport could potentially require emergency fire-fighting services, Washington could determine that such equipment meets the definition of "safety of flight" equipment for a waiver to the SAA. We could spin the license as U.S. support for the private sector by only dealing with the merchant. -- As with internet-related IT equipment, many U.S. medical equipment companies are reluctant to apply for export licenses to supply private Syrian hospitals with allowable goods. Again, the interagency could agree to issue those licenses that strengthen the Syrian private sector. -- Exempt from SAA sanctions, U.S. corn and soybeans are becoming increasingly important to Syria's large agriculture sector. We should spin the story of our private sector agricultural trade to the general business community as evidence of U.S. willingness to cooperate with Syrian businessmen within the constraints of the law. -- Use USG influence in Iraq to facilitate greater Syrian-Iraqi private sector cooperation, particularly on petroleum projects. -------------- COMMENT -------------- ¶9. (S) Post believes there is no "magic bullet" that could change regime behavior, but this strategy takes advantage of the coincidence of factors making Bashar vulnerable at this time -- the weak economy, lack of productive foreign investment, half-hearted reforms, and corruption. Having created a lever with E.O. 13460, we believe this tool could be used both as a threat and an incentive to convince the business elites to add to the pressure on Bashar. CORBIN