THE ECO BANK AND IRAN

C O N F I D E N T I A L SECTION 01 OF 02 ISTANBUL 000146

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LONDON FOR GAYLE; BERLIN FOR PAETZOLD; BAKU FOR HAUGEN;
DUBAI FOR IRPO

E.O. 12958: DECL: 03/24/2018
TAGS: PREL ECON EFIN ETRD OIC TU IR
SUBJECT: THE ECO BANK AND IRAN

REF: (A) 2007 ISTANBUL 1052 (B) ISTANBUL 85 (C)
ANKARA 379 (D) STATE 29398

Classified By: Consul General Sharon Wiener; reason 1.5.(d)


1. (C) Summary: Economic Cooperation Organization (ECO) bank
officials told us March 20 that the ECO bank, established by
Iran, Turkey, and Pakistan under ECO auspices, has 480
million dollars (300 million SDR) in funds, seeks to fund
projects in ECO countries that promote intra-ECO trade and
development, makes investment decisions based only on
financial criteria, and will avoid investments that pose
"reputational risk" including deals involving entities named
in Chapter VII UNSCRs. These officials, who direct the
bank's "policy and strategy" office, underscored how
important it is to the bank to be seen as a serious and
credible lender, on par with the Asian Development Bank,
rather than a political tool of ECO member state governments.
They admitted the bank's funds were a "drop in the bucket"
compared to members, development needs, enough only to
support about 10 major development projects (one for each
member state). Comment: We will monitor ECO bank's future
lending decisions for any evidence of undue Iranian
government influence. End Summary.


2. (SBU) Consulate Istanbul officers met March 20 with ECO
Trade and Development bank officers Fazli Sak and Azhar Rauf,
the director and deputy director respectively of ECO bank's
"policy and strategy" office, to discuss the bank's policies
and objectives and share USG concerns about Iran's financial
sector.


3. (SBU) Our interlocutors explained that the ECO bank was
formally established by the three founding members of the ECO
-- Turkey, Iran, and Pakistan -- in 1995, though it had been
in discussion for decades. It only started formal financial
operations in the first quarter of FY 2008 after a lengthy
period of organization, accreditation, and seeking capital
from member states. The bank is headquartered in Istanbul
and led by a Turkish director, Murat Ulus, while ECO's
Ambassador-level "Council of Permanent Representatives", as
well as its cultural bureau, are in Tehran. ECO's ten member
states -- Turkey, Iran, Pakistan, Afghanistan, Azerbaijan,
Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and
Uzbekistan -- have all agreed to provide 30 million "SDR"
(special drawing rights, a currency basket currently valued
at 1 USD = .61 SDR) in five annual installments, giving the
bank 300 SDR/490 million USD in capital available for
lending.


4. (SBU) Concerned about reputational risk: Sak told us
that "like any international development bank," ECO bank
wishes to maintain the highest possible credit rating and is
acutely aware of the need to protect the bank's reputation.
Indeed, both officers reinforced that the bank will only make
loans and investments based on strictly financial criteria.
Our interlocutors insisted that bank is not/not intended to
serve as a vehicle for ECO member states to fund pet projects
in their countries. Indeed, Rauf argued that member states
themselves would object to the bank lending to questionable
entities or making imprudent investments. Sak added that
because the bank has access only to 300 million SDR, which he
agreed was "a drop in the bucket" compared to the development
needs of ECO member states, ECO bank must be extremely
cautious in selecting projects to finance. Sak believed the
bank would only be able to fund a total of up to 10 projects
of any economic significance (Comment: enough for one project
in each member state.)


5. (SBU) ECO bank and other IFOs: Our contacts said the ECO
bank has had little or no formal contacts with the "D8" group
of developing countries (ref B),even though the D8
Secretariat is also headquartered in Istanbul and shares

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overlapping membership (specifically Iran, Turkey, and
Pakistan) and objectives (promoting trade and development
among its member states). The ECO bank is more interested in
building links and eventually partnering with the Asian
Development Bank and the IMF's International Finance
Corporation (IFC),as well as the Black Sea Trade and
Development Bank (BSTDB),based in Thessaloniki, on which Sak
said the organization of the ECO bank was modeled.


6. (SBU) Exercise vigilance on Iran: We cautioned about the
risks of doing business with Iran (drawing from refs C and D)
and urged the bank officers to ensure that ECO bank complies
fully with UNSCR obligations with regard to ECO member state
Iran, specifically the Chapter VII sanctions against Iranian
entities, including Bank Sepah, as well as UNSCR 1803's call
for enhanced vigilance over any financial transactions with

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Iranian Banks, particularly Banks Melli and Saderat. We
queried whether ECO Bank was aware of the October 2007 and
February 2008 FATF advisories that highlighted the threat
posed by Iran to the international financial system. Rauf
affirmed that ECO Bank was aware of the advisory (though only
Turkey among ECO members is also a FATF member),and that
ECO's charter forbids any association or entities considered
to be engaged in money laundering, fraud, or other criminal
activity. We noted that the ECO bank's website
(www.etdb.org) made no mention of the FATF advisory regarding
Iran and urged that ECO bank publicly affirm its commitment
to abide by the FATF advisory.


7. (SBU) Rauf added that bank's charter also dictates that
the bank may not finance any activities listed on its
"negative list of products" including weapons, alcohol,
gambling, tobacco, narcotics, hazardous materials, or any
other activity that "contravenes any applicable laws or
international conventions." Before any ECO bank transaction
is approved, audit experts review the transaction against
this list. Subsequent to our meeting, Sak confirmed to us
that the ECO bank agrees that the entities and activities
named UNSC resolutions 1737, 1747, and 1803 fall under this
prohibition.


8. (C) Comment: Sak and Rauf underscored several times that
the ECO bank's financial decision-making is independent of
ECO member state political influence, and is committed in its
charter not to invest in activities or entities that could
pose reputational risk to the bank. That said, given that
ECO bank's management includes an Iranian Vice President
(Abolghassem Erfan, a long-term Iranian Central Bank
official),and in light of the Iranian regime's interest in
using regional multilateral organizations to advance its
national interests and mitigate against its international
isolation (ref B),we intend to stay in contact with ECO bank
officials and monitor ECO bank's future lending practices and
decisions for any evidence of undue Iranian government
influence. End comment.
WIENER