INTERNATIONAL SECURITY DISCUSSIONS WITH HMG

S E C R E T LONDON 001535

NOFORN
SIPDIS

E.O. 12958: DECL: 05/21/2018
TAGS: PARM MARR PREL IR SY UK
SUBJECT: INTERNATIONAL SECURITY DISCUSSIONS WITH HMG

Classified By: Political Minister Counselor Maura Connelly, reason 1.4,
b/d.


1. (C/NF) Summary. FCO and Treasury officials said that HMG
was taking steps to restrict Iranian banking activity in the
UK but is restricted by the legal tools available to it. FCO
PolDir Mark Lyall Grant, FCO Director General for Defense and
Intelligence Mariot Leslie, and HMT International and Finance
Director Stephen Pickford told Acting Under Secretary Rood
and ISN PDAS Patricia McNerney May 15-16 that HMG had been
bloodied by judicial losses in trying to shut down Iranian
banking activity and had resorted to using an intel-based
approach to restrict Iranian activity. Pickford and Leslie
acknowledged that HMG had not made a strategic decision to
shut down Iranian banking in the UK, but rather was taking
steps to restrict this activity. Similarly the decision to
delay EU consideration of further measures against Iran was a
tactical decision designed to gain international support by
giving the new P5 1 incentives package a chance to resolve
the nuclear standoff diplomatically. Rood and McNerney also
pressed HMG for support on cluster munitions, the Arms Trade
Treaty and the Syrian nuclear program. End Summary.

Iran and Proliferation Financing
--------------


2. (C/NF) Rood raised Iranian proliferation financing in
separate meetings with Political Director Mark Lyall Grant,
FCO Director General for Defense and Intelligence Mariot
Leslie, and HM Treasury International and Finance Director
Stephen Pickford, urging HMG to make a political decision to
crack down on Iranian banks. He noted, and his interlocutors
agreed, that the constraints on financing seemed to be the
most effective lever against the Iranians and should be
pursued with vigor. Due to London's position as a banking
center and a substantial hub for Iranian banking, action by
the UK would resonate particularly widely and would prevent
other EU members and states in other regions from hiding
behind the UK. Rood suggested if HMG asked for enough due
diligence, it could effectively shut down the Iranian banks
and could attribute the process to the UNSCRs. He noted that
the specific sums of funds affected by actions may be small,
but the market effect would be substantial. More important
than the sums affected, shutting down the banks would send
major ripples through the international financial system.


3. (C/NF) Pickford welcomed Rood's suggestion to publicize UK
actions more. Pickford and his colleagues, Patrick Guthrie,
Head of the Asset Freezing Unit, and Tom Neylan, Counter
Terrorist Finance Advisor, reviewed the UK legal impediments
to more aggressive action against the Iranian banks. They
stressed the difference between subsidiary banks, found in
the UK, and branch banks, used by the Iranians elsewhere.
The subsidiary arrangement, established at the UK's
insistence, had advantages and disadvantages. On the plus
side, the UK subsidiaries are independent of Iran; they have
their own UK board and are subject to UK financial oversight.
Their capital and assets remain in the UK. The downside is
trying to prove a connection to the sanctioned activities of
the parent bank. If the UK allowed them to operate as a
branch, the ties to a sanctioned entity would be clearer, but
they would also be more able to extract money from the UK and
get it to Iran. Given that Bank Sepah has no new bank
activity in the UK, HMG judges it better to hold with the
current subsidiary regime, despite the legal constraints it
presents.


4. (C/NF) Pickford said HMG lawyers were hopeful that at
least part of the recent ruling against HM Treasury's
enforcement of Iran sanctions would be overturned on appeal.
They were also pursuing new legal authority, but the vehicle
-- the latest counterterrorism bill -- was stalled in
Parliament over an unrelated fight about the length of
detention without charge of terror suspects. Pickford also
described a planned meeting of UK, U.S. and French legal
officials to explore how far UNSCR 1803 could be applied
under national legislation. They hoped to include Germany in
the effort soon. Pickford noted that the EU was making
progress in issuing a directive to implement 1803, which will
help countries like Germany to be more active.


5. (C/NF) Leslie noted that UK analysis supported the
assertion that the financial levers were working. She
resented other countries hiding behind the UK, because
"nobody has been stronger on this than us." Leslie noted the
legal issues are "real" and could not be brushed aside.
Already the UK has lost several legal cases in the terrorism
context because HMG was not able to use intelligence as
evidence. Leslie said that there is a sense in HMG that the
UK courts are looking to "trip us (HMG) up and catch us"
stepping over legal bounds. Therefore, HMG has taken an
intel-based approach to disrupt activities rather than risk
judicial loss and bad publicity. Leslie assured Rood that
HMG is "on the case."


6. (C/NF) FCO PolDir Mark Lyall Grant noted that the P5 1 had
just that day agreed to the package and cover letter for the
new Iranian incentive package and were awaiting Iranian
assent to deliver it. He noted the current policy "is not
working but hasn't yet failed either." The West needed
bigger sticks and bigger carrots. Lyall Grant believed
engagement on non-nuclear issues could stimulate debate in
Iran that would turn people against the regime. He viewed
China as the biggest obstacle to implementing the strategy,
as Beijing does not see Iran as a threat. Lyall Grant
insisted there was "no shortage of political will" in HMG to
shut down Iranian banks, but different legal requirements
restricted HMG maneuvering. He argued that HM Treasury "had
no illusions about HMG policy" which is aimed at doing
everything possible to contain Iranian financing.

EU and IAEA Action Against Iran
--------------


7. (C/NF) On the EU track, Lyall Grant described a three-step
process: listings, "gold plating UNSCR 1803," and "wider
measures" that include the sanctions on energy and
investment, and withdrawing defence attaches. Lyall Grant
noted that the UK strategy was to get the first two steps
agreed to before attempting the much more controversial wider
measures, which he expected to be a "hell of a slog unless
the Iranians do something really stupid." He said the
listings had been agreed, including the designation of Bank
Melli, but the EU had not "pulled the trigger" in
anticipation of delivering the new incentives package. The
EU would be prepared to pull the trigger as soon as the
Iranians rejected the incentives package. HMG was also
fairly confident it could get EU agreement on gold plating
UNSCR 1803 since Italy has become more flexible. Discussions
at 27 would begin the following week.


8. (C/NF) Leslie argued that the EU decision to delay
consideration of financial measures against Iran until June
was purely tactical. HMG believed taking aggressive action
against Iran before the new P5 1 incentives package was
delivered would appear disingenuous to the rest of the world
and complicate efforts to gain support. Noting that France
would be hosting in July an EU meeting on the meaning of
financial vigilance, the UK planned to take a clear public
line.


9. (C/NF) Similarly, Leslie expressed concern that a weak
vote on an IAEA Board of Governors resolution could be a
serious setback at a time when the West is enjoying increased
momentum. Rood noted that even without unanimity, a BOG
resolution would reassert some of the BOG's authority, which
has been chipped away as El-Baradei and the Secretariat have
been allowed to determine the pace and substance of
engagement with Iran. Leslie was open to a BOG resolution if
the groundwork were laid to ensure its passage. Lyall Grant
said HMG would be unwilling to proceed on a resolution if the
Russians were not on board, as any indication of an E3 3
split would be very detrimental to the cause. If the
Russians agreed to a resolution, HMG would be happy to
support a resolution making it clear the Iranian dossier is
not closed.

Cluster Munitions
--------------


10. (C/NF) Rood underscored the importance of NATO
interoperability not being affected by the following week's
Dublin Meeting of the Oslo Process on Cluster Munitions
(CMs). He noted 95 percent of civilian casualties in
post-conflict regions are from other types of unexploded
ordinance. Leslie noted that the Norwegian official in
charge of the CM initiative was from the human rights
department, vice the political-military side. She had been
clear to the Norwegians that NATO interoperability was a
redline for HMG. In addition, the UK still uses two types of
CMs, which are essential to its arsenal. She said the UK
would not agree to a ban that affected these munitions.
(Embassy note: The UK did, however, sign the treaty May 30
that did in effect ban those munitions. End note) Leslie
noted the Norwegians had shown some flexibility in their
rhetoric, but she was certain their fundamental objective
remained to ban CMs. Leslie explained that HMG was
experiencing much of the same public and political pressure
to ban CMs that the Norwegians felt. She noted FS Miliband
had been targeted personally with posters saying "Cluster
Munitions should be Milibanned!" HMG, therefore, needed to
be seen cooperating with the process and "could not just walk
away."

Arms Trade Treaty
--------------


11. (C/NF) Rood noted that UK Permrep John Duncan had raised
the possibility of a non-consensual report at the Group of
Government Experts, a move toward which the USG would not
look favorably. Leslie said a non-consensual report was not
part of the HMG gameplan and suggested Duncan may have
experienced a slip of the tongue. She said she would look
into it.

Syria
--------------


12. (S/NF) Leslie said HMG needed to know the USG plan
regarding allegations about Syria's nuclear program. Rood
said the USG had encouraged the IAEA to take action, but
Director General El-Baradei seemed less interested than we
had hoped and more annoyed by Israel's bombing of the site
than by any Syrian safeguards violation. El-Baradei said the
IAEA would provide a report to the Board of Governors (BOG)
in June, and Rood hoped to keep it under discussion at the
BOG so the issue would not be swept under the rug. He
requested HMG assistance in keeping the focus of discussions
on Syria rather than Israel. Rood said El-Baradei's Deputy
Director General for Safeguards Heinonen was more interested
than his boss and seemed confident the Syrians would give him
access to the site soon.


13. (S/NF) Leslie noted the UK had done its own assessment
after the Israeli intervention and concluded it was probably
a nuclear reactor built with DPRK assistance. But, following
the Israeli and U.S. lead, HMG did not report its findings to
the IAEA at the time and was therefore in an awkward position
in pressing the issue now.


14. (U) This cable has been cleared by AU/S Rood and ISN PDAS
McNerney.
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