ITALY ANGRY ABOUT "EXTRATERRITORIAL" IRITAL

C O N F I D E N T I A L SECTION 01 OF 02 ROME 001392 SIPDIS ISN/CPI: CHALMERS E.O. 12958: DECL: 11/13/2018 TAGS: KNNP ECON EFIN ETRD EWWT PARM PREL SUBJECT: ITALY ANGRY ABOUT "EXTRATERRITORIAL" IRITAL SANCTIONS REF: A. SECSTATE 104496 ¶B. ROME 1304 ROME 00001392 001.2 OF 002 Classified By: Acting Deputy Chief of Mission Barbara A. Leaf for reasons 1.4 (b) and (d) ¶1. (C) Summary: GOI officials have expressed strong objections to new US sanctions targeting firms that do business with Irital, an Iranian shipping company. A prominent Italian shipping company has ties to Irital. Extraterritoriality also seems to be a concern. This issue could spill over into broader US-EU sanctions discussions. End Summary. ¶2. (C) On 13 November Claudio Spinedi, Deputy Director General for Multilateral Economic and Financial Cooperation of the Italian MFA, told Econoff that reftel A USG sanctions on the Irital shipping company are a "serious irritant that undercuts Italy's relationship with the USG." Spinedi said the GOI strongly disagrees with "unilateral measures that affect Italian companies doing legal business beyond US jurisdiction," and he reiterated reftel B concerns that an Italian company could be subject to US sanctions for unwitting use of Irital, a company the Italians see as a Genoa-based Italian-Iranian joint venture. ¶3. (C) Spinedi said there was a contradiction between the USG's desire to work with "similarly-minded allies, like Italy", on additional Iran measures beyond existing UN resolutions, and the recent unilateral USG decision to designate Irital. The latter, he said, called into question the USG's commitment to producing a multilateral consensus for the former. ¶4. (C) Spinedi asked Econoff for an assurance that the USG would use the discretion permitted in E.O. 13382 to ensure that no Italian company is designated by the USG while the USG and GOI are negotiating additional multilateral sanctions against Iran. When Econoff refused to give such an assurance Spinedi allowed that, "I know you can't give a legally-binding assurance (that Italian companies will not be designated),but perhaps an informal indication (would suffice)." Econoff rejected the request, noting that the purpose of these sanctions is to deprive Irital of business and legitimacy. ¶5. (C) Spinedi differentiated between recent EU measures to implement UNSCR 1803 and US sanctions on Irital. The former, he said, were targeted against illegal or dual use items going to or from Iran and emphasized heightened vigilance, whereas US sanctions encompassed all goods transported by a designated shipping company, regardless of cargo type or destination. When asked if the GOI would be willing to place domestic sanctions on Irital, Spinedi said, "The GOI has no legal basis to object to legal trade with Irital. We cannot go beyond the EU common position." ¶6. (C) In the presence of Ministry of Trade officials who are responsible for outreach to the Italian business community concerning Irital sanctions, Spinedi expressed confidence that Italian exporters of dual use technology would not use Irital, as the GOI could intervene at the permit phase. But for Italian exporters of ordinary consumer goods, who are not accustomed to contacting the GOI before selecting a shipping company, Spinedi said he was concerned that the GOI would be unable to ensure that all Italian firms will be made aware of the new policy. Myriam Ramella, Director General for Trade Policy within the Ministry of Economic Development said that Confitarma, the Italian shipping association, had been informed of USG Irital sanctions. She began to describe additional informal measures to warn companies about Irital, but she was interrupted by Spinedi of the MFA who said, "Further measures are our business." ¶7. (C) Spinedi concluded in a conciliatory tone, noting that the issue of "US sanctions beyond its jurisdiction is not new," and saying that on Iran sanctions the GOI and USG should be more likeminded than ever before. He said that the GOI would be willing to discuss measures against insurance companies doing business with Iran, though he cautioned that moral suasion only works when there are a few large players in an industry. Spinedi said that any measures affecting small and medium sized enterprises (SMEs) exporting to Iran would need to be formal (legal) rather than informal because otherwise Italian SMEs would fear an uneven playing field and ROME 00001392 002.2 OF 002 that competitors might take their place. ¶8. (C) Comment: Post is receiving strong and repeated pushback from the Italians on this issue, but so far the GOI has not raised it at a higher level. Italian displeasure with these new sanctions may stem from the stake in Irital held by Fratelli Cosulich, a prominent and well-connected Italian shipping firm of long standing. However, we suspect that familiar European opposition to assertions of extraterritoriality is also an issue. We would not be surprised if the Italians eventually raise the USG failure thus far to impose ILSA sanctions against European firms. They may ask why a similar exemption from sanctions would not be appropriate in this case. Italian displeasure on the Irital case may eventually spill over into EU-level discussions on Iran sanctions. End comment. SPOGLI