Identifier
Created
Classification
Origin
08KUALALUMPUR273
2008-04-17 09:19:00
CONFIDENTIAL
Embassy Kuala Lumpur
Cable title:  

TREASURY DEPARTMENT ENGAGES MALAYSIANS ON IRAN AND

Tags:  KTFN EFIN ETTC PTER PGOV KNNP MNUC PARM UNSC 
pdf how-to read a cable
VZCZCXRO0460
RR RUEHBC RUEHCHI RUEHDE RUEHDIR RUEHDT RUEHHM RUEHKUK RUEHNH
DE RUEHKL #0273/01 1080919
ZNY CCCCC ZZH
R 170919Z APR 08
FM AMEMBASSY KUALA LUMPUR
TO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHC/SECSTATE WASHDC 0818
RUEAIIA/CIA WASHDC
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUCNIRA/IRAN COLLECTIVE
C O N F I D E N T I A L SECTION 01 OF 02 KUALA LUMPUR 000273 

SIPDIS

SIPDIS

TREASURY FOR DFERNANDEZ

E.O. 12958: DECL: 04/11/2018
TAGS: KTFN EFIN ETTC PTER PGOV KNNP MNUC PARM UNSC
IR, MY
SUBJECT: TREASURY DEPARTMENT ENGAGES MALAYSIANS ON IRAN AND
COUNTERTERRORISM FINANCE ISSUES

REF: KUALA LUMPUR 213

Classified By: Ambassador Keith for reasons 1.4 (b) and (d)

C O N F I D E N T I A L SECTION 01 OF 02 KUALA LUMPUR 000273

SIPDIS

SIPDIS

TREASURY FOR DFERNANDEZ

E.O. 12958: DECL: 04/11/2018
TAGS: KTFN EFIN ETTC PTER PGOV KNNP MNUC PARM UNSC
IR, MY
SUBJECT: TREASURY DEPARTMENT ENGAGES MALAYSIANS ON IRAN AND
COUNTERTERRORISM FINANCE ISSUES

REF: KUALA LUMPUR 213

Classified By: Ambassador Keith for reasons 1.4 (b) and (d)


1. (C) Summary: During meetings on March 31 and April 1,
Treasury Assistant Secretary for Terrorist Financing and
Financial Crimes Patrick O'Brien impressed upon his Malaysian
counterparts at the Central Bank, the Ministries of Finance
and Foreign Affairs, charities regulators, and private banks
that there was a clear need for enhanced vigilance of all
financial relationships with Iran following three UN Security
Council Resolutions (UNSCRs)-- 1737, 1747, and 1803 -- and
two statements from the FATF highlighting deficiencies in
Iran,s (anti-money laundering/counter-financing) AML/CFT
controls. Malaysian counterparts were generally receptive to
U.S. messages on the need for enhanced vigilance with regard
to Iranian financial relationships, especially given the
recent actions of the UN Security Council and the Financial
Action Task Force (FATF). The Malaysians also welcomed
additional cooperation, training, and information on
suspicious Iranian financial activity. Malaysian bankers
reported receiving prompt notice of, and on-going
communication about UN Security Council designations and the
two FATF advisories highlighting deficiencies in Iran's
AML/CFT regime from the Financial Intelligence Unit (FIU),
and expressed the desire to avoid reputational risks of
association with Iranian banks. The regulation of Malaysia's
charities sector to guard against money laundering and
terrorist finance appears strong at the point of
establishment of organizations and initial licensing, but
less vigilant in exercising on-going oversight. End Summary.

U.S. message: "Don't risk your good reputation"

-------------- --


2. (C) A/S O'Brien commented that banks in Europe and around
the world were re-evaluating their relationships with Iranian
banks because of Iran,s use of deceptive practices to
circumvent due diligence systems. He noted that Malaysia has
longstanding trading ties with Iran but that they undertook
substantial reputational risk when dealing with Iranian
banks. O'Brien highlighted that with Iran's willingness to
use front companies and strip identifying information from
SWIFT messages, Malaysian banks needed to closely scrutinize
transactions and take into consideration the additional risk
of doing business with these Iranian firms.


3. (C) Ministry of Foreign Affairs Deputy Secretary Hanniff
told A/S O'Brien the Government of Malaysia (GOM) was
committed to meeting its obligations under the UNSCRs. He
understood the fact that some firms would use deception to
evade sanctions and said the GOM appreciated any information
Treasury could provide on such cases. He added that
interpretation of the UNSCRs was broad and that there were
some grey areas. Both sides, he said, would benefit from
ongoing discussions. Hanniff acknowledged that the GOM had
not finished the reports that are due under the three UNSCRs
but said they were working on them. He added that the GOM
had signed 9 of the 12 counterterrorism international
instruments and were working on adopting the rest. In
closing, Hanniff said the GOM understood it had an obligation
to make sure things did not get into the wrong hands. A/S
O'Brien told Hanniff the USG would try when possible to help
others understand the techniques Iran was using to circumvent
controls. He reiterated to everyone he spoke to that the
message from the UNSCRs and FATF recommendations was that
risks were now higher and Malaysia, like other countries,
needed to recalibrate its supervisory and compliance efforts
accordingly.


4. (C) Jeremy Lee, the head of the Central Bank's Financial
Intelligence Unit, reported that the FIU had used its on-line
system to issue electronic advisories covering the UNSCR
resolutions and the two FATF statements to all Malaysian
financial institutions, calling on them to carry out enhanced
due diligence with respect to all Iranian financial
institutions, especially Bank Melli and Bank Saderat. Lee
said the FIU had excellent cooperation from compliance
officers at Malaysian banks and the FIU worked closely with
Bank Negara to integrate AML/CFT compliance into regular
supervision and inspection work. Lee also said the FIU
maintained close contact with the special branch of the
police. He added that he appreciated the general information
which A/S O'Brien passed over but noted that while typologies
were helpful, actionable specifics would be appreciated.
O'Brien took the opportunity to share some pre-approved

KUALA LUMP 00000273 002 OF 002


material with the FIU on Bank Melli,s deceptive practices as
well as particular information about a sensitive transaction
moving through a Malaysian bank.


5. (C) A/S O'Brien also gave due credit to the FIU and the
private sector banks for their efforts to implement
obligations under the FATF 40 Recommendations and 9 Special
Recommendations on Terrorist Financing and UNSCR 1267.
O'Brien also suggested that Malaysia's FIU expand its efforts
and share its expertise with counterparts in other countries
in the region.

Charities supervision challenging
--------------


6. (SBU) Noting that implementation of the FATF's Special
Recommendation VIII on charities posed difficult concerns for
many countries, O'Brien thanked Lee for inviting two charity
supervisors from the Registrar of Societies and Companies
Commission to provide an overview of their efforts to ensure
the bona fides of applicants who sought to establish
charities. The charities regulators reported working very
closely with law enforcement at the point of establishment to
ensure the managers and directors of new charities were "fit
and proper." For example, the Malaysian Police Special
Branch vets the names of new applicants for charities and
foundations. In terms of supervision of on-going operations,
however, the picture was mixed. Larger charities appeared to
be under more frequent supervision, but small-scale charities
operated with little to no ongoing oversight. The
supervisors generally only intervened if charges of fraud or
misuse of funds were made against the managers, particularly
in the case of small operations.

Private Sector Outreach
--------------


7. (C) A/S O,Brien also met with two of Malaysia,s largest
banks, Malayan Banking Berhad (Maybank) and CIMB Bank to
discuss the risks of doing business with Iran. Both Maybank
and CIMB made presentations to A/S O'Brien on their
compliance systems and confirmed that they had received
advisories from the FIU on the UNSCRs as well as the FATF
statements calling for enhanced vigilance due to the higher
risks created by the deceptive practices of Iran's banks.
Malaysian banks do not open accounts for entities included on
the OFAC list and they have an anti-fraud/AML system in place
to identify suspicious transactions. CIMB mentioned a bad
business experience with Bank Melli dating from before the
Asian financial crisis and indicated they would not do
business with the bank in the future. Maybank said that
maintaining its reputation was key and that it had a close
working relationship with the FIU, so it complied with all
FIU requirements. Maybank was particularly interested in A/S
O,Brien,s discussion on Iran,s use of front companies and
the ability of entities in Iran to work in concert to
frustrate due diligence efforts. Maybank acknowledged that
it did not have adequate systems for dealing with such
activities and requested whatever additional information on
typologies the U.S could provide.

Comment
--------------


8. (C) Malaysian counterparts were much less defensive than
in previous meetings with high level Treasury officials.
Working through the central bank's FIU and emphasizing
multilateral endorsements of our AML/CFT concerns was an
effective strategy to gain counterparts' confidence and
cooperation.


9. (U) A/S O'Brien has cleared this cable.
KEITH