MAXIMIZING THE IMPACT OF RAMI'S DESIGNATION

S E C R E T SECTION 01 OF 04 DAMASCUS 000070

SIPDIS

SIPDIS

STATE FOR NEA/ELA, EEB/TFS; TREASURY FOR U/S LEVEY; NSC FOR
ABRAMS/SINGH

E.O. 12958: DECL: 01/31/2018
TAGS: ECON EINV EPET ETTC PGOV PINR KCOR SY
SUBJECT: MAXIMIZING THE IMPACT OF RAMI'S DESIGNATION

REF: A. DAMASCUS 54

B. 05 DAMASCUS 2364

C. 06 DAMASCUS 03

Classified By: Charge d'Affaires Michael Corbin for reasons 1.4(b,d)

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SUMMARY
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1. (S/NF) As Washington moves towards designating Rami
Makhlouf, Embassy Damascus recommends that the Department's
roll-out strategy focus on linking his corrupt activities to
consequences suffered by the Syrian people (see para 11). In
some of the largest economic sectors -- electricity,
petroleum, and telecommunications -- Makhlouf has used
government instruments to squeeze out legitimate businessmen,
receive lucrative public contracts, establish cash cows and
then milk them with impunity from oversight or competition.
Significantly, several of his ventures exploit weaknesses in
the Syrian economy and undermine reform efforts while
increasing the burden on Syria's lower classes. Embassy
contacts report that Makhlouf is anticipating his eventual
designation, and that he has taken steps to lower his profile
and mitigate risk to his personal fortune. End summary.

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MAKING THE CASE...
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2. (C) In one well-known example, Makhlouf used his regime
ties to muscle-out the local agent for Iberdrola, just before
the Spanish company was awarded a 430 million-euro contract
to build a new power plant. Having previously obtained
exclusive rights to represent Siemens, Rami profited again
when additional power infrastructure projects were awarded to
the German company. Currently, both the Iberdrola (Iberinco)
and Siemens projects are behind schedule and over-budget.
Over the same period, the Syrian public suffered from rolling
blackouts and increased electrical bills. During last
summer's August heatwave, poorer neighborhoods went without
power up to ten hours per day while Prime Minister Utri
blamed Syria's electrical woes on "international pressure"
rather than insufficient SARG investment in infrastructure.
Blackouts have recently returned to Syria and Rami's avarice
(reportedly demanding a USD 30 million "commission" in
Iberdrola's case) is a key contributing factor.


3. (U) Rami is suspected of delaying the SARG's anticipated
licensing of a third GSM service provider in Syria until he
closes a deal to sell SyriaTel, which reportedly earned USD
692 million in 2007 alone. Since GSM service was first
introduced in 2000, Syrians have been forced to choose
between two providers, Makhlouf's SyriaTel and Areeba (now
MTN),which was reportedly owned by First Lady Asma
al-Akhras' family. Syrians widely resent the duopoly's
ability to set prices for the entire country. With market
forces unable to compete, regime corruption elevated the
price of basic GSM service on which the average Syrian relies
as his primary means of communication. (There are six million
mobile subscribers to roughly three million land-line
connections.)


4. (C) At a time when Syria's petroleum exports are
contracting and the Syrian people are increasingly suffering
from fuel shortages, Rami's presence in the petroleum sector
is exacerbating the problem. The French company Total
proposed a venture that would have brought additional Syrian
gas reserves on-line in time to avert recent shortages, but
the deal has inexplicably floundered facing SARG bureaucratic
inaction. Similarly, a Shell offer to upgrade and increase
capacity of Syrian refineries remains mired in SARG
bureaucracy at a time of acute shortages in refined product.
Interestingly, the only petroleum project currently
proceeding at full-speed in Syria is the Gulfsands (35
percent) "strategic partnership" with the Rami-led Cham
Holding Company (65 percent) to develop the recent oil and
gas discovery in the Khurbet East region (Northeastern
Syria). According to a Gulfsands' statement, the joint
venture soon expects to bring 10,000 bpd of new oil
production on-line.


5. (U) In a particularly brazen venture, Makhlouf also seems
intent on profiting from the impact of US sanctions on Syrian
Arab Airlines. Rami's Cham Holding Company (40 percent) has
joined with Syrian Air (25 percent) and the Kuwaiti company
Al Aqeelah (35 percent) to create the first "private airline"
in Syria, dubbed the Cham Pearl. The Kuwaiti company's
subsidiary, Aqeeq Aviation Holding, is apparently exploring
ways to circumvent US sanctions and provide commercial
aircraft. Once operational, Cham Pearl intends to take over
Syrian Air's most profitable routes of three hours or less --
75 percent of Syrian Air's business -- from Damascus to major
regional airports, leaving Syrian Air with the less
profitable long-haul routes. (See "Syria: Opening Skies,"
Oxford Business Group, January 29, 2008)


6. (U) Makhlouf remains unabashed about employing SARG muscle
when necessary. In one oft-repeated example on the Damascus
street in 2007, a Syrian businessman purchased a prime piece
of real estate along the Mezzeh autostrade and received a
permit from the city to construct a large apartment building.
As the project progressed, the SARG security services
informed the building's owner that he could not complete his
project as it would allow future occupants to have direct
line-of-sight to the Damascus airport. Rami's agents then
visited the distraught owner and offered to buy the
unfinished building for a fraction of the property's actual
value. Rebuffing Makhlouf's initial offer, the owner sought
recourse in the local courts for weeks to no avail. In late
2007, Cham Holding announced that it had acquired the
property and would be developing a five-star Marriott hotel
on the site at a cost of USD 70 million.


7. (C) Note: A hospitality-industry contact told Econoff that
Rami and Nabil Kuzbari (ref A) had traveled to the US and met
with senior Marriott executives in December to present a
potential business proposal and discuss design options for
the site. According to the contact, the Syrians left the US
believing they had closed the deal and upon returning,
prematurely leaked their success to the local media. In late
December, Marriott reportedly informed Cham Holding that it
was no longer interested in the proposal due to "political
reasons." End note.


8. (U) Although difficult to prove, various internet-based
newsletters claim that Makhlouf is the political patron of
many high-ranking public SARG officials, including Minister
of Construction Hamud al-Hussein, Minister of Petroleum
Sufian Allaw, Minister of Electricity Ahmad Khalid al-Ali,
Central Bank Governor Adib Mayaleh and former Minister of
Telecommunications Amro Salem. As officials with these
portfolios would be in position to wield substantial
influence over industry regulation and lucrative tenders, it
is doubtful that Rami would have enjoyed such uncanny
business successes without government collusion.

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DIFFUSING RESPONSIBILITY
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9. (U) Since returning from his brief exile in Dubai (ref B),
Rami has taken several measures to try to both lower his
profile and insulate his personal fortune. In 2006, Makhlouf
founded the Al Mashrek Fund, a holding company with a
reported capitalization of SYP 4 billion (USD 80 million),
including SYP 1 billion (USD 20 million) in cash deposited
with Banque Bemo Saudi Fransi. Later that year, Makhlouf and
69 prominent Syrian businessmen formed the Cham Holding
Company with an initial capitalization of USD 200 million,
now estimated to be worth USD 350 million. Representing
Makhlouf, the Al Mashrek Fund is the majority shareholder in
Cham Holding, which currently has 65 partners and a
ten-member board of directors. By mid-2007, Cham Holding was
pursuing six "landmark" development projects valued at USD
1.3 billion, primarily in energy, transportation and real
estate. (See The Syria Report, April 30 and Sept 12, 2007)

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USING CUT-OUTS AND PRIVATE BANKING SECTOR
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10. (S/NF) In addition to his public financial activities,
Makhlouf has undertaken several behind-the-scenes
machinations to mitigate his financial risk. Possibly
concerned by the vulnerability of UAE banks to US pressure --
or frustrated by Emirati laws limiting foreign investment to
real estate and the stock market -- Rami reportedly brought a
part of his fortune back into Syria in 2006. According to a
well-informed contact, Rami befriended then-expatriate Syrian
Morthada al-Dandashi in Dubai and hired him to manage many of
Makhlouf's "parallel" financial activities in Syria. The
contact said that Rami paid Dandashi's USD 2 million "ante"
to become a partner in Cham Holding, and deposited
significant sums under Dandashi's name in the Damascus branch
of the Lebanese Byblos Bank -- where Dandashi subsequently
became a partner. Syrian-Austrian citizen and Cham Holding
director Nabil Kuzbari is also reported to have deposited
money for Rami in Austrian banks. Finally, contacts say
Makhlouf has also opened accounts under different names in
Lebanon, Greece, Turkey, and possibly Cyprus -- where Post
has learned that Rami once explored obtaining citizenship.

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SUGGESTED ROLL-OUT THEMES
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11. (U) Post recommends the following themes for public
statements regarding the designation of Rami Makhlouf:

-- Electricity: Rami Makhlouf used his influence with the
regime to gain lucrative contracts in the power sector.
Yet, as the Syrian people continue to suffer from chronic
power outages and higher electrical bills, Rami has already
been paid for projects that are behind schedule and well
over-budget.

-- Petroleum: Although several Western petroleum companies
are interested in helping Syria develop its gas and oil
sector, the only new project to be proceeding without SARG
impediment is Rami's. As a result, Syria has become a net
importer of petroleum products. In the midst of an unusually
severe winter, severe fuel shortages are forcing the Syrian
public to wait in long lines for, and frequently go without,
heating fuel for their homes.

-- GSM service: Rami Makhlouf has made millions of dollars
from his ownership of SyriaTel, one of only two GSM service
providers in Syria. Currently, Rami is said to be blocking
the licensing of a third GSM provider until he completes a
deal to sell SyriaTel. Until free market forces are allowed
to compete, Makhlouf will continue to subject the Syrian
public to artificially elevated prices for basic
telecommunications services.

-- Aviation: The Syrian national air carrier, Syrian Arab
Airlines (Syrian Air),has an aging fleet that is in need of
replacement. Rather than addressing any of Syrian Air's
needs, the Assad regime instead awarded Rami Makhlouf a
license to operate a private airline that intends to assume
the most profitable of Syrian Air's routes.

-- Tourism/Hospitality: The Syrian people are known for their
hospitality and entrepreneurial expertise. Unfortunately,
legitimate Syrian businessmen hoping to invest in the
emerging tourism sector have again been muscled-out by Rami
Makhlouf and regime thugs who wish to monopolize every
opening in the Syrian economy for their own profit, rather
than share the country's potential with the hard-working
Syrian people.

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COMMENT
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12. (S/NF) Makhlouf's efforts to divest and diversify suggest
that he is expecting eventual USG action against him,
particularly since the November 2007 designation of his
brother, Hafiz. Although his countermeasures will likely
mitigate the impact of his designation, we believe that it
will still send a strong signal to the regime and to his
current and potential future business partners. Corruption
is a theme that resonates here, as every Syrian has been a
victim of it. Rami has long been Syria's poster-boy for
corruption, so making the charge stick is not difficult.
Citing examples that impact the daily lives of Syrians should
help to amplify the designation's roll-out and ensure that it
receives the widest possible coverage.
HOLMSTROM