U/S LEVEY URGES QATAR TO PREVENT IRANIAN BANKS

S E C R E T DOHA 000186

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/05/2018
TAGS: EFIN KTFN ECON QA IR
SUBJECT: U/S LEVEY URGES QATAR TO PREVENT IRANIAN BANKS
FROM GAINING TOEHOLD IN QATAR'S FINANCIAL SECTOR

Classified By: CDA Michael A. Ratney, reasons 1.4 (b) and (d).


1. (C) During February 25 meetings, Treasury Under Secretary
for Terrorism and Financial Intelligence Stuart Levey
commended Qatar's financial leaders for the progress they
have made in expanding Qatar's financial services, warned
them of deceptive practices being undertaken by Iranian banks
and the Iranian Central Bank, and urged them to prevent Iran
from gaining a toehold in Qatar's growing financial sector.
All Qatari officials stressed the limited Iranian presence in
Qatar's financial sector, expressed their desire to avoid
illicit activity, and underscored the utility of having UN
cover for any restrictive actions Qatar would take against
its neighbor.


2. (C) Qatari interlocutors included Minister of State for
Foreign Affairs Ahmed Al-Mahmoud, Central Bank Governor
Sheikh Abdullah Bin Saoud Al Thani, Deputy Central Bank
Governor Sheikh Fahad Bin Faisal Al Thani, Minister of
Finance and Acting Minister of Economy and Commerce Yousef
Hussain Kamal, CEO of Qatar National Bank Ali Shareef
Al-Emadi, and Qatar Financial Center Regulatory Authority
(QFCRA) Chairman and CEO Phillip Thorpe. USG participants
included U/S Levey, Charge, Treasury policy advisors Daniel
Harris and Molly Millerwise, NEA/Iran economic officer Bob
Gerber, and Embassy Economic Officer.

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MFA Seeks UN Cover for Scrutiny of Iran
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3. (C) Al-Mahmoud (the MFA's number two official) stressed
that Qatar has "no important financial ties with Iran," and
said that Iranian Foreign Minister Mottaki complained
privately to the Qataris that they have "no business" with
Qatar when compared to UAE. Al-Mahmoud cautioned that "we
are (geographically) close to Iran and have to find a way to
have relations." Citing Qatar's support for and
implementation of UNSCRs 1737 and 1747, he said it is easier
to take actions against Iran when there is a UNSC resolution
as cover. He assured U/S Levey that the GOQ is monitoring
closely Bank Saderat's activities and "up to now" has not
seen any strange activity in Qatar (Note: Bank Saderat is the
only Iranian bank with a branch in Qatar -- see paragraph 5).


4. (C) U/S Levey noted that the current draft of a new UNSCR
on Iran is more explicit than past resolutions in calling for
special scrutiny on Iranian financial institutions,
especially Bank Melli and Bank Saderat; the adoption of the
resolution would provide a good opportunity to review the
licenses of Iranian banks currently operating in the region.
In response to Al-Mahmoud's question on "recent publicity
about a U.S.-Iranian economic dialogue," U/S Levey explained
that U.S. and Iranian representatives met in a multilateral
context to review the October 2007 Financial Action Task
Force (FATF) statement on Iran, which warned about the risks
associated with Iran's lack of AML/CFT controls. Al-Mahmoud
concluded that vigilance with Iranian financial institutions
is "in our interests, though we have to deal in the context
of our international relations."

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Central Bank Cautious on Iran, Wants UNSCR
Before Taking Any Action Against Bank Saderat
--------------


5. (C) U/S Levey told Qatar Central Bank (QCB) Governor
Sheikh Abdullah that the international community is focused
on Iran's use of the banking system in the financing of its
proliferation activities and that many European banks have
halted business with Iran as a result. Moreover, the next
draft UNSCR on Iran likely includes language calling for
increased vigilance on all Iranian financial institutions.
Sheikh Abdullah began by noting that Qatar has one branch of
an Iranian bank (Bank Saderat),but it is very important for
the Central Bank to approach change with care, as officials
do not want to spawn "front relationships" with other banks
in Qatar. Sheikh Abdullah said that Qatar receives the
relevant lists from the UN and up to now has not found any
accounts in Qatar held by listed entities. He confessed that
"I know we have to do more," especially as Iran's interest in
using the Gulf for financial services grows. He added that
Qatar would be upgrading its AML/CFT committee and Financial
Information Unit as part of an ongoing IMF assessment, and
noted that banks' compliance officers need more training.
Sheikh Abdullah said that since the most recent UNSCR on Iran
was enacted, the Central Bank has been trying to eliminate
Bank Saderat's mobility of funds and restrict its activities.



6. (C) U/S Levey stressed that Iran engages in a pattern of

activity to deceive financial institutions, and it is likely
Iran will use its Central Bank to open other avenues of
business for its banking institutions. Sheikh Abdullah
responded that Qatar advised banks on the receiving end of
approaches by Iran, specifically Qatar National Bank and Doha
Bank, that "now is not the right time to open branches in
Iran." He added that Iran has been sending the message that
Qatari banks are welcome to establish branches in Iran, but
the QCB won't give approval at this time for any further
expansions. U/S Levey welcomed this cautious approach and
noted that the USG listed Bank Saderat because it is involved
in sending money to terrorist organizations. Sheikh Abdullah
responded that having the bank named in an UNSCR would help
Qatar take action against it. Asked directly by U/S Levey if
the QCB would reexamine Saderat's license if it was included
in the upcoming UNSCR, Sheikh Abdullah demurred, saying "We
will discuss in the future how to squeeze down the bank's
license." He nevertheless assured Levey that the bank's
outside activities would be "zero" and internally restricted
to retail services for the local Iranian community.


7. (C) Asked by U/S Levey about Qatar's regime against bulk
cash smuggling, Deputy Governor Sheikh Fahad said Qatar's
AML/CFT committee is studying the issue and in discussion
with the MENA FATF about how to improve procedures. (Note:
Qatar does not require cash declaration, but travelers must
disclose amounts over 100,000 Qatar Riyals or 27,473 USD if
asked). U/S Levey responded that ultimately the USG believes
a mandatory declaration system is the best way to deal with
the problem of cash couriers and that Iran in particular may
move to moving more cash since its banks are being monitored
closely. Sheikh Abdullah expressed confidence that airport
x-ray machines can detect bulk cash in excess of about 30,000
Qatari Riyals (8,242 USD) and claimed to have "tested the
system" by carrying that amount on a recent trip.

-------------- --------------
Finance Minister Claims Money for Palestinians Sent
Through Right Channels to Legitimate Recipients
-------------- --------------


8. (C) Finance Minister Kamal likewise noted that Qatar's
trade and banking activity with Iran is small and assured U/S
Levey that Qatar has a "first class control system." He
added that Qatar wants to brand itself as a financial center
for the entire MENA region and therefore needs a financial
system that people believe in. Moreover, Qatar is following
developments in Europe closely - such as the three German
banks which recently cut off relations with Iran - and
adjusting its risk perceptions accordingly.


9. (S) U/S Levey expressed concern over allegations that
Qatari charities send money to Hamas, noting that the Sheikh
Eid charity is reported to have sent money through Qatari
banks to the Al-Salah society, a U.S.-designated organization
linked to Hamas. Kamal had not heard of the Al-Salah society
but assured his interlocutor that the GOQ regulates
charitable activity closely (via the Qatar Authority for
Charitable Activities) and sends official contributions to
the Palestinians through the right channels (i.e., the Arab
League).

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Qatar National Bank Eager to Avoid Illicit Iranian Activity
-------------- --------------


10. (C) U/S Levey described USG concerns about Iran's
deceptive banking practices for Qatar National Bank (QNB) CEO
Al-Emadi (Note: QNB is 50 percent government owned and
Qatar's largest bank with about 45 percent of total banking
assets in the country). Al-Emadi noted that QNB "abides by
all Qatar Central Bank guidelines and regulations," and
although it has had a representative office in Iran for about
6 years, QNB has "almost frozen business" with Iran over the
last 3-4 years. Al-Emadi noted that QNB is historically very
conservative; its major partners are in Europe and the U.S.,
so it takes Western concerns about Iran very seriously. He
added, per the adage that "banks survive not because of the
deals they do but because of the deals they don't do," QNB is
not comfortable with the business environment in Iran, though
there are a lot of trade finance opportunities there.


11. (C) Saleh Ahmed Nofal, QNB's Senior Compliance Manager,
said his department has 20 years of experience and told U/S
Levey that QNB takes compliance and anti-money laundering
issues very seriously. He said QNB receives regular updates
from the QCB, World-Check system, and the Office of Foreign
Assets Control (OFAC),and now has a "second stage" of
World-Check whereby the bank checks existing customers
against relevant watch lists. Al-Emadi added that QNB always
checks into prospective account holders before opening an

account for them, and if anyone is on U.S. lists (not just
international ones),QNB notifies the QCB of the attempt to
open an account and refuses the new business.


12. (C) Asked by U/S Levey about the presence of a Bank
Saderat branch in Qatar, Al-Emadi replied that QNB deals with
that bank only for local check clearing. U/S Levey warned
that Iranian banks are having increasing difficulty doing
business in Europe and are trying to replace those lost
relationships with new ones in the Gulf. Al-Emadi responded
that QNB does not allow Iranian banks to take their names off
the SWIFT system, and Nofal added that QNB applies the FATF
recommendation to acquire full details on a prospective
customer before doing anything with the account.


13. (C) U/S Levey showed QNB officials an example of a public
Iranian bid for a new nuclear power plant that referenced a
bank account that had been opened by the Iranians at Austrian
Bank Creditanstalt, ostensibly for their diplomats in Vienna.
He warned that Iran often uses the supposed respectability
of its existing banking relationships to try to establish new
ones. Al-Emadi replied that the main challenge is stopping
Iran from dealing with and through third parties and said he
would welcome any information from the USG to augment current
lists and improve the AML processes. U/S Levey pointed out
that Iran is now starting to use its Central Bank to act on
behalf of sanctioned entities. Al-Emadi replied that while
banks must do business with each other, QNB wants to avoid
being linked to anyone with bad ties and would welcome
regular lists of suspicious people or accounts to make sure
money is not funneled into gray areas. He added that because
Bank Saderat has a branch in Qatar, QNB is "obligated by law"
to deal with Saderat (e.g., on check clearing),but QNB has
not yet been approached by Iranian banks, which "don't seem
to be paying much attention to Qatar." U/S Levey concluded
by expressing his understanding that this was the case in
general, but also warning that Iran will likely begin to look
to Qatar as its existing relationships deteriorate and
Qatar's financial sector grows.

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Qatar Financial Center Regulatory Authority Commends
GOQ Efforts to Unify and Strengthen Regulation
-------------- --------------


14. (C) QFCRA Chairman and CEO Phillip Thorpe gave the
delegation a detailed explanation of the genesis of the QFC
and the regulatory authority's current and future place in
Qatar's financial architecture. He agreed with U/S Levey
that the Iran issue is primarily a preventative one in Qatar
-- i.e., keeping Iranian entities of concern from
establishing relationships in the country. Thorpe pointed
out that the QFC's establishment means that Qatar now has a
second financial system operating under a parallel legal and
regulatory environment and noted that the emphasis is to
attract business not already being done in Qatar. Stressing
that the QFC was always meant by GOQ leadership to be a
catalyst for wider change, Thorpe assessed that Qatar will
probably formally merge all current regulatory bodies in the
country into one unified regulator in the next couple of
months (Note: The Ministry of Finance announced a plan to
form a single regulatory regime in July 2007 but it has yet
to be implemented).


15. (C) Thorpe assessed that "there are no huge alarm bells"
in Qatar's domestic financial services environment, but
conceded that the Central Bank does not seem to recognize the
existence of informal transfer networks (i.e., hawalas).
Managing Director for Supervision Michael Lesser added that
an IMF report on Qatar will soon be reviewed at the MENA
FATF; it will include a number of corrective actions for
adherence to FATF recommendations on AML/CFT controls.
Lesser noted that the QFCRA has been pleasantly surprised by
due diligence procedures on prospective customers of Qatari
banks and exchange houses.


16. (C) Asked by U/S Levey why Qatar's AML/CFT laws remain
untested by enforcement, Thorpe replied that this was hard to
judge, but he "would like to believe that bad activity is
mainly in other places in the Gulf...if you're hiding needles
you look for big haystacks and Qatar is not one of those."
Thorpe added that Qatar appears to take financial crime
seriously and noted that the Attorney General has a clear
mandate not to tolerate bad behavior. For example, the GOQ
sacked three Ministers of State, one for corruption and two
for breaking exchange rules during initial public offerings,
and put the CEO of a major bank in prison for 90 days for
insider trading.


17. (C) U/S Levey noted that despite Qatar's progress, its
ambitions for its emerging financial sector could be

threatened by its political support for Hamas, as U.S. and
other institutions will be quite cautious about doing
business with anyone with possible Hamas ties. He urged the
QFCRA to pass the message to the GOQ that the government's
tolerance of Hamas will prevent Qatar from becoming a
world-class financial center. Thorpe replied that the
structure of the new regulator and the oversight board calls
for major international participation, and it will be hard
for Qatar, once it is up and running, to be indifferent to
international concerns on Hamas.


18. (C) Charge questioned whether the GOQ has internalized
that it will be ceding control of financial regulation to
outsiders, and Thorpe responded that he thinks officials have
made this leap. He said in particular Prime Minister and
Foreign Minister Hamad Bin Jassim Al Thani (HBJ) -- a key
economic power-broker -- has taken on board that he cannot
interfere with the regulator. Thorpe added that it might
suit HBJ to have a separate internationally-accountable
regulator as a place to lay blame when Qatari business
interests complain about losing
their privileges.


19. (C) Thorpe assessed that harmonization of regulation
activities in advance of the new regulator is proceeding
well, and the Central Bank is increasingly helpful in sharing
information with the QFC, though it is not always clear they
are asking the right questions of banks. Lesser added that
the QFCRA has been working closely with Qatar's FIU -- e.g.,
participating in the recent IMF assessment meetings -- and
expects to gain a seat on the national AML/CFT committee. In
conclusion, Thorpe declared that the new law "will change the
accountability of the government."

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COMMENT: Iran Not a Major Problem...Yet
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20. (C) The high level of GOQ access and interest in U/S
Levey's trip underscores the seriousness with which Qatar
monitors U.S. and international actions on Iran. Although
wary of Iran, Qatar's financial leaders want explicit UN
cover to take any concrete sanction actions against Iranian
financial institutions. We believe the Central Bank is
overly optimistic in its stated ability to track and limit
nefarious Iranian activity and bulk cash smuggling, but
continued USG engagement -- particularly at senior levels --
will help sensitize the Bank and GOQ to USG concerns.


21. (U) Under Secretary Levey's delegation cleared this
message.
RATNEY