IRAN,S ATTEMPTS TO EXPAND BANKING RELATIONSHIPS

UNCLAS STATE 001044 SIPDIS SENSITIVE SIPDIS C O R R E C T E D C O P Y - SENSITIVE CAPTION ADDED E.O. 12958: N/A TAGS: KNNP MNUC IR GM SUBJECT: IRAN,S ATTEMPTS TO EXPAND BANKING RELATIONSHIPS IN EGYPT ¶1. (U) This is an action request. Please see paragraph three. -------------- SUMMARY -------------- ¶2. (SBU) Recent press reports have noted that Iran is actively working to expand its banking relationships with its Middle Eastern neighbors. This expansion is presumably a response to the increasingly effective sanctions put in place by the UN and U.S. and the respective moves by Western banks to decrease their exposure to the risk of doing business with Iran. Representatives in the Iranian government have met with counterparts in the Egyptian government to discuss the opening of joint banks or branches in Tehran. At a time when responsible states and banks are decreasing their economic dealings with Iran, expanding banking relationships with Iran is not a prudent step. The U.S. urges Egypt to reconsider these plans and cut off its business relationships with Iran. According to 2007 Bankers Almanac data, the Misr (Egypt) Iran Development Bank is the only listed Iran-related bank operating in Egypt. The Egypt Iran Development bank is a joint stock bank owned by the Iran Foreign Investment Company (40. 4%),National Investment Bank, Cairo (29.93%),and the Misr Insurance Company (29.93%). -------------- OBJECTIVES/ACTION REQUEST -------------- ¶3. (SBU) Washington requests Post deliver the talking points and non-paper in paragraph 4 to appropriate host government officials in the foreign affairs and finance ministries. Post should pursue the following objectives: -- Remind the GOE that many European countries and banks have reduced their business with Iran. -- Urge Egypt to ensure that Egypt Iran Development Bank and other Egyptian financial institutions do not process transactions on behalf of any Iranian banks that are of proliferation or terrorism-related concern, specifically individuals and entities designated under Executive Orders 13224 and 13382 and UNSC resolutions 1737 and 1747. -- Encourage the GOE to warn Egyptian financial institutions about the risks of doing business with Iran, such as the Iranian regime using its state-owned banking network to support terrorism and proliferation-related activity. The Iranian state-owned banks also use deceptive financial practices to support this illicit activity. -- Reinforce the Financial Action Task Force's October 2007 warning that Iran's lack of comprehensive anti-money laundering / combating the financing of terrorism (AML/CFT) regime represents a significant vulnerability within the international financial system, and dealing with Iran's banks endangers Egypt's banking reputation. -------------- BACKGROUND AND NONPAPER -------------- ¶4. BEGIN NON-PAPER -- (U) Recent press reports have noted that Iran is actively working to expand its banking relationships with its Middle Eastern neighbors. Representatives in the Iranian government have met with counterparts in the Egyptian government to discuss the opening of joint banks or branches. -- (U) As major European and Asian financial institutions cut off Iranian business your financial institutions could acquire these Iranian business relationships and put themselves at risk. -- (U) Iran's Mines and Industry minister has announced meetings of a Joint Economic Committee with Egypt to boost commercial and industrial cooperation, including opening a branch of the Iran-Egypt Bank in Tehran. According to these reports, the Iran Foreign Investment Company controls 40.4 percent of the bank's shares, while Egypt's Misr Insurance Company and National Investment Bank control a combined 59.6 percent of the bank's shares. We have concerns that Iran may use companies of which it is a "minority" owner as another method to circumvent current UNSC restrictions. -- (U) The UN Security Council unanimously adopted UNSCRs 1737 and 1747 under Chapter VII. These resolutions require UN Member States to apply targeted sanctions to entities and individuals designated in the resolutions for their involvement with Iran's proliferation-sensitive nuclear activities or ballistic missile program. Member States are required to prevent the provision of financial assets or economic resources to designated individuals/entities, and to freeze their assets as well as those of entities "owned or controlled" by them or persons/entities acting on their behalf (operative paragraph 12 of UNSCR 1737). -- (U) In addition, UN Member States should ensure that financial services provided to Iranian banks are not used by designated entities/individuals to circumvent the restrictions unanimously adopted by the UNSC in UNSCRs 1737 and 1747. -- (U) On October 11, 2007, the Financial Action Task Force (FATF) issued a statement warning of the risk of doing business with Iranian banks. The statement cautioned that Iran's lack of comprehensive anti-money laundering / combating the financing of terrorism (AML/CFT) regime represents a significant vulnerability within the international financial system. FATF advised that financial institutions should take the risk arising from the deficiencies in Iran's AML/CFT regime into account for enhanced due diligence. -- (U) The United States urges your government and institutions to exercise increased vigilance regarding Iranian financial and commercial relationships that may be associated with Iran's nuclear or missile programs, or other illicit activities, contrary to UNSCRs 1737 or 1747. -------------- REPORTING DEADLINE -------------- ¶5. (U) Post should report results within seven business days of receipt of this cable. Please slug replies for ISN, T, TREASURY, and NEA. Please include SIPDIS in all replies. -------------- POINT OF CONTACT -------------- ¶6. (U) Washington point of contact for follow-up information is Kevin McGeehan, ISN/CPI, (202) 647-5408, McGeehanKJ@state.sgov.gov. ¶7. (U) Department thanks Post for its assistance. RICE