ITALY IMPLEMENTS FATF/EU POLICY ON IRAN BUT IS

C O N F I D E N T I A L SECTION 01 OF 02 ROME 001500 SIPDIS ISN: CHALMERS T NEA INR EEB S/CT INL E.O. 12958: DECL: 12/08/2018 TAGS: EFIN PARM PREL KNNP SUBJECT: ITALY IMPLEMENTS FATF/EU POLICY ON IRAN BUT IS RELUCTANT TO GO FURTHER REF: A. STATE 115523 ¶B. ROME 1475 Classified By: Deputy Chief of Mission Elizabeth Dibble for reasons 1.4 (b) and (d) ¶1. (C) Summary: According to Cristina Collura, Director of the Financial Crimes Unit at the Italian Treasury, Italy has implemented measures directed at Iranian finance -increased customer due diligence, improved record keeping and new Suspicious Transaction Reports (STRs) for proliferation finance - based on the 16 October FATF statement on Iran, as well as EU regulation 1110 of 10 November. Italy has also pursued "moral suasion" through communication with the private sector, according to Collura. However, the GOI has been unwilling to formally restrict commerce with Iran beyond the EU common position, as it claims such unilateral action would threaten the EU common market and create an "un-level playing field." Post thinks Italy could do more, especially in the areas of shipping, banking, and energy. End Summary. - - - - - - - - - - - - - Technical Progress - - - - - - - - - - - - - ¶2. (C) Econoff met with Cristina Collura and Roberto Ciciani, Director of the International Relations Unit at the Italian Treasury, on 9 December to deliver reftel A demarche on leveraging the FATF statement on Iran into national actions. According to Collura and Ciciani, based on the 16 October FATF statement on Iran and on EU regulation 1110, which automatically became Italian law, Italy has made numerous improvements to its anti-money laundering (AML), counter-terror finance (CTF),and counter-proliferation finance regulations concerning Iran. The two Treasury officials said Italy had followed FATF guidance in the following ways: Suspicious Transaction Reports may now be filed for proliferation financing; previously only AML and CTF were covered. Additionally, banking records must be kept for five years and bankers must know the beneficial owners of their accounts. These regulations apply to all accounts in Italy, not exclusively those with an Iranian connection. Moreover, the Bank of Italy would need to approve any foreign investment in an Italian bank above a threshold, including, of course, Iranian investment. Finally, according to Collura, there is now enhanced due diligence required for Iranian accounts and entities at Italian financial institutions. - - - - - - - - - - - - - Moral Suasion and Other Informal Measures - - - - - - - - - - - - - ¶3. (C) In addition to financial measures directed against Iran, Collura stated that the GOI also had pursued a variety of informal actions, primarily through communicating to the private sector the risks involved in doing business with Iran (reftel B). Ciciani said the Rome branch of Bank Sepah was no longer carrying out financial operations and its employees were not being paid. Accordingly, in-house supervision by the Bank of Italy had been curtailed. The Italian insurance regulator ISVAP (Istituto per la Vigilanza sulle Assicurazioni Private e di Interesse Colletivo) had also reached out to insurance companies to inform them of existing EU regulations on Iran, as well as regulations that they anticipate, according to Collura. One notable loophole from the existing regulatory structure is that certain types of insurance companies (primarily in transport and shipping) are not classified as financial institutions, and therefore cannot be held accountable for violating customer due diligence regulations. Collura said that the GOI had tried to remedy this problem through outreach to the affected companies through ISVAP. - - - - - - - - - - - - - What Italy Remains Unwilling to Do - - - - - - - - - - - - - ¶4. (C) Despite the enhanced due diligence placed on Iranian transactions in Italian financial institutions, ROME 00001500 002.2 OF 002 Collura said Italy remains unwilling to suspend Iranian correspondent accounts, as the US has done. She claimed that restrictions on financial transactions with Iran or persons in Iran would create an un-level playing field, threaten the EU common market, and "distort competition." Italy is also unwilling to mimic the US decision to revoke Iran's U-turn license because, Collura said, "there is no legal basis (to do so)." (Comment: Presumably Collura meant that the EU position does not require Italy to do so currently, as she later allowed that national legal measures beyond EU policy were probably permissible under existing EU treaties. She immediately noted that such unilateral formal legal measures would be very unlikely to be implemented in practice, especially since, "EU measures are so strong." End comment). ¶5. (C) Collura said the "will to cooperate" with other members of the G-7 on recognizing the threat posed by Iran was in place, and that further technical discussions would be required to strengthen policy implementation. - - - - - - - - - - - - - COMMENT: Italy COULD do more - - - - - - - - - - - - - ¶6. (C) Although Italy seems to have effectively executed the reforms of EU regulation 1110 and appears to be practicing some moral suasion with some private companies, we think Italy could do more. The GOI could finally move to close zombie-like Bank Sepah. It could pressure on the Italian component of the Italo-Iranian shipping company IRISAL (reftel B) to sever its ties with the Iranians. It could urge the Edison energy company to cancel contracts signed with the Iranians earlier this year. And it could exert some "moral suasion" in an effort to get Italian energy giant ENI to scale back its support for the Iranian petroleum industry (moral suasion on this company would presumably be easy, becasue ENI is 33% owned by the GOI). But Collura's references to the need for a "level playing field," and for the need to not "threaten the EU common market," indicate that progress on stronger Iran sanctions will likely remain constrained by Italy's desire to prevent any harm to its commercial concerns. SPOGLI