HKMA "LOCKS UP" MELLI BANK, PLC (HK)

S E C R E T HONG KONG 001216

SIPDIS

STATE FOR EAP/CM AND EEB/ESC, ISN/CPI FOR NEW AND INL; NSC
FOR WILDER AND TONG, TREASURY FOR LEVEY, GLASER AND
GARABEDIAN

E.O. 12958: DECL: 07/03/2032
TAGS: EFIN ECON CH HK PARM PTER KNNP UK
SUBJECT: HKMA "LOCKS UP" MELLI BANK, PLC (HK)

REF: A. HONG KONG 1107

B. STATE 63929

C. MULLINAX/NEW EMAILS 6/18-19/08

Classified By: E/P Section Chief Laurent Charbonnet, Reason 1.4 (b/d)


1. (S) Summary: Hong Kong Monetary Authority (HKMA)
Executive Director for Banking Supervision Arthur Yuen
confirmed that HKMA has "locked up" Melli Bank, PLC (HK)'s
accounts. While the bank is still officially operational,
all transactions now require HKMA approval. HKMA banking
supervision staff will begin a comprehensive audit of Bank
Melli (HK)'s books "soon" and are paying particular attention
to any transactions involving JetPower, ambiguous terms in
letters of credit, and large-scale transfers through Melli
Bank (HK) accounts. End Summary.


2. (S) Econ Unit Chief met with Arthur Yuen, HKMA's
Executive Director for Banking Supervision on June 27. Yuen
declared that HKMA had completely "locked up" Melli Bank, PLC
(HK)'s accounts in the wake of the European Union's June 23
announcement that froze Bank Melli's EU accounts. (Note:
Melli Bank (HK) is a subsidiary of London-based Melli Bank.
End Note.) HKMA's action is not officially related to the EU
announcement, but is a precautionary measure to protect
depositors, said Yuen.


3. (S) As of the opening of business June 25, all Melli Bank
(HK) transactions, including deposits, withdrawals and
transfers, require approval from the HKMA. While this allows
the bank to officially continue operating, in fact there have
been no applications from the bank for approval of
transactions of any kind. Yuen noted that his office has
been in regular contact with the United Kingdom Financial
Services Authority (FSA) and had been told that the FSA had
also not received any applications for withdrawals from Melli
Bank in the UK. Yuen said he was not aware of any large
transfers from Melli Bank through its subsidiary in Hong Kong
in recent weeks.


4. (S) Yuen re-affirmed that HKMA has been closely
monitoring Melli Bank (HK) for some time (ref A) and that his
staff would soon commence an intensive audit of the bank's
accounts. His staff has been alerted to pay particular
attention to any transactions involving Hong Kong-based
JetPower, any letters of credit with ambiguous descriptions
of goods, and any large transfers into or out of Melli Bank
(HK) accounts in recent weeks. He speculated that it was
unlikely Bank Melli PLC would route transfers through Hong
Kong, particularly if these were euro denominated accounts,
as the small number of euro transactions in Hong Kong would
make such transfers too easy to track.
Cunningham