INFORMATION ON BANK MELLI FOR ITALY,S

S E C R E T STATE 024292

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/07/2018
TAGS: EUN IT KNNP PARM
SUBJECT: INFORMATION ON BANK MELLI FOR ITALY,S
CONSIDERATION IN EU DISCUSSIONS ON AUTONOMOUS SANCTIONS

Classified By: ISN PDAS Patricia A. McNerney
for reasons 1.4 (b) and (d)


1. (U) This is an action request. Please see paragraph 3.

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SUMMARY
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2. (S) The EU is expected to consider sanctions against Iran
the week of March 10. On February 6, EU experts prepared a
list of 19 new entities and 15 new individuals to be
designated under the EU's Common Policy on Restrictive
Measures Against Iran. EU Member States agreed implicitly
that the new designations would not actually be implemented
until after the adoption of the third sanctions UNSCR, but
they planned to go ahead with preparations so that EU foreign
ministers could approve the new measures at their monthly
meeting (GAERC) on March 10-11. However, the Italians
(followed by the Cypriots) subsequently insisted on placing a
"hold" on the entire process, delaying even the technical
work of preparing a new list of entities for designation
until the third UNSC sanctions resolution was approved. The
third UNSC sanctions resolution was approved on March 3 and
we would like the EU both to implement the new resolution as
quickly as possible and to move forward with autonomous
actions immediately. The Italians have recently indicated
that they are likely to lift the hold on all of the entities
and individuals on the EU list, except Bank Melli.

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OBJECTIVE/ACTION REQUEST
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3. (S) Washington requests Embassy Rome deliver the nonpaper
in paragraph 4 to Italy's Director General for Multilateral
Affairs and Human Rights Giulio Terzi, for Italy's
consideration in discussions with EU partners on autonomous
sanctions on Iran and as a follow up to A/S Fried's
conversation with Terzi. Treasury U/S Levey shared the
nonpaper with Italy's Ambassador to the U.S. late afternoon
March 7, but in the interest of time, Embassy Rome should
ensure delivery to DG Terzi prior to his departure for the
GAERC meeting on Monday. Embassies London and Paris should
inform appropriate host government officials that we are
sharing information with Italy on Bank Melli that is similar
to the information we shared with the P5 in January 2008.

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S/REL NONPAPER ON BANK MELLI'S ACTIVITIES
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4. BEGIN S/REL NONPAPER

(U) BANK MELLI'S ROLE IN IRAN'S PROLIFERATION NETWORK

(U) Overview

(S//REL TO USA, ITA) Information available to Treasury
indicates that Bank Melli has facilitated numerous
transactions with Iranian proliferation entities and others
listed under the asset freeze provisions of UNSCRs 1737 and
1747, including transactions that took place following the
date of these entities' designations. This information, which
is summarized below, is cause for concern and should be taken
into consideration as we develop options for increasing
financial pressure on Iran.

(U) Iran employs several sophisticated deceptive financial
practices that obscure the true nature of the activities of
entities such as Bank Melli. Thus, an investigation of Bank
Melli's activities could find that its activities appear
benign when Iran is really using deceptive practices to
continue its proliferation and terrorism activities.

(U) Background on Bank Melli

(U) Bank Melli, Iran's largest bank, is a state-owned
institution founded in 1928. Its assets as of
March 2005 were over $35 billion, according to Banker's
Almanac. Bank Melli has over 3,000 domestic branches and 16
foreign branches.

(U) Through its role as a financial conduit, Bank Melli has
facilitated numerous purchases of sensitive materials for
Iran's nuclear and missile programs. In doing so, Bank Melli
has provided a range of financial services on behalf of
Iran's nuclear and missile industries, including opening
letters of credit and maintaining accounts.

(S//REL TO USA, ITA) Bank Melli provides such banking
services to entities involved in Iran's nuclear and ballistic
missile programs, including entities listed by the UN for
their involvement in those programs. This includes handling
transactions in recent months for Bank Sepah,
Aerospace Industries Organization (AIO),Defense Industries
Organization (DIO),Shahid Bakeri
Industrial Group (SBIG),Shahid Hemmat Industrial Group
(SHIG),Mesbah Energy Company, Energy Novin and the Islamic
Revolutionary Guard Corps (IRGC).

(U) Bank Sepah (Sepah)

(U) Following the designation of Bank Sepah under UNSCR 1747
in March 2007, Bank Melli
took precautions not to identify Sepah in transactions. Bank
Sepah has also layered transactions
through other Iranian banks to hide Bank Sepah's role when
routing funds internationally.

-- (U) Bank Sepah routed a payment through Bank Melli in
Tehran and a Bank Melli branch abroad to a foreign bank.
Because Bank Melli is not under international sanctions, the
funds can be routed internationally.

(U) Bank Sepah has increasingly relied on third party and
private banks. Private Iranian banks and foreign financial
institutions and jurisdictions that lack proper due diligence
or have other systemic weaknesses are most attractive.

-- (S//REL TO USA, ITA) The Hong Kong branch of Bank Melli
PLC, a UK-based subsidiary of Bank Melli, facilitated
transactions involving Bank Sepah after Sepah's E.O. 13382
designation.

(S//REL TO USA, ITA) Bank Melli was facilitating a
transaction in April 2007 involving a North Korean shipment
to Iran; the cargo was consigned to Bank Sepah.

(U) Aerospace Industries Organization (AIO)

(S//REL TO USA, ITA) Intermediaries used Bank Melli accounts
to receive payments from subordinates of Iran's E.O. 13382
designee Aerospace Industries Organization (AIO),which
oversees Iran's R&D and production of missiles and rockets.

(S//REL TO USA, ITA) Bank Melli in mid-2007 facilitated
payments from companies associated with AIO.

(U) Defense Industries Organization (DIO)

(S//REL TO USA, ITA) The DIO, which conducts research and
development for Iran's defense and military forces and
produces a wide variety of military-related weapons,
technologies, and other equipment, uses Bank Melli/Hamburg to
receive payments and to transfer funds.

(S//REL TO USA, ITA) In mid-2007, Bank Melli facilitated two
payments for DIO.

(U) Shahid Bakeri Industrial Group (SBIG)

(S//REL TO USA, ITA) Between April and July 2007, Bank Melli
was listed as the consignee on multiple purchases for a
company affiliated with SBIG.

(U) Shahid Hemmat Industrial Group (SHIG)

(S//REL TO USA, ITA) If a deal negotiated during March 2007
between a SHIG front company and a Swiss firm were finalized,
financing would be arranged through Bank Melli.

(U) Mesbah Energy Company and Energy Novin

(S//REL TO USA, ITA) Two entities associated with Iran's
nuclear program, Mesbah Energy Company and Energy Novin, held
accounts at Bank Melli until at least late 2005.

(U) Islamic Revolutionary Guard Corps (IRGC)

(U//FOUO) Iran's Islamic Revolutionary Guard Corps (IRGC)
relies heavily on Bank Melli Iran, Bank Mellat Iran and the
Central Bank of Iran for the provision of banking services.
These banks hold deposits, send and receive funds for
domestic and international payments, and handle letters of
credit on behalf of the IRGC. Several elements of the IRGC
rely on Bank Melli, Bank Mellat and the Central Bank of Iran,
including organizations headed by UNSCR 1737 & 1747 designees
Yahya Rahim Safavi and Ghassem Soleimani, as of July 2007.

(U//FOUO) IRGC-controlled Companies' use of Bank Melli & Bank
Mellat

(S//REL TO USA, ITA) Bank Melli and Bank Mellat are the
principal banks used by Khatam al-Anbiya, an IRGC-controlled
construction and engineering company headed by UNSCR 1737
designee and former IRGC Commander Rahim Safavi, as of July

2007. Khatam al-Anbiya serves as an important source of
funding for the IRGC, as the organization has been awarded
Iranian government contracts in recent years estimated to
total over USD $7 billion.

-- (S//REL TO USA, ITA) From 2002 through 2007, Bank Melli
and Bank Mellat sent and received payments totaling nearly
USD $100 million for Khatam al-Anbiya.

-- (S//REL TO USA, ITA) Bank Melli and Bank Mellat also aid
the IRGC's Khatam al-Anbiya and its subsidiaries by handling
their letters of credit. These letters of credit are
primarily used to finance Khatam al-Anbiya's purchase of
equipment and services from overseas suppliers.

-- (S//REL TO USA, ITA) Khatam al-Anbiya subsidiaries
serviced by Bank Melli and/or Bank Mellat include Ghorb Nooh,
Sepasad, Sahel Consultant Engineers and Gharargah Sazandegi
Ghaem.

(U//FOUO) IRGC-Qods Force use of Bank Melli & the Central
Bank of Iran

(S//REL TO USA, ITA) Bank Melli and the Central Bank of Iran
also provide crucial banking services to the Qods Force, the
IRGC's terrorist supporting arm that was headed by UNSCR 1747
designee Commander Ghassem Soleimani. Soleimani's Qods Force
leads Iranian support for the Taliban, Rizballah, Ramas and
the Palestinian Islamic Jihad.

-- (U) Entities owned or controlled by the IRGC or the Qods
Force use Bank Melli for a variety of financial services.
From 2002 to 2006, Bank Melli was used to send at least $100
million to the Qods Force.

(U//FOUO) Bank Melli use of Deceptive Banking Practices

(U//FOUO) When handling financial transactions on behalf of
the IRGC, Bank Melli has employed deceptive banking practices
to obscure its involvement from the international banking
system. For example, Bank Melli has requested that its name
be removed from payment instructions for US dollar
denominated transactions.

END S/REL NONPAPER

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REPORTING DEADLINE
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5. (U) Post should report results by close of business
Monday, March 10. Please slug replies for ISN, T, Treasury,
NEA, and EUR/WE. Please include SIPDIS is all replies.

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POINT OF CONTACT
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6. (U) Washington point of contact for follow-up information
is Anthony Ruggiero, ISN/CPI, (202) 647-5181,
ruggieroaj@state.sgov.gov, or Jennifer Chalmers, ISN/CPI,
(202) 647-9715, chalmersja@state.sgov.gov.


7. (U) Department thanks Posts for their assistance.
RICE