INFORMATION ON IRAN,S USE OF BANK MELLAT SEOUL FOR PROLIFERATION ACTIVITIES

S E C R E T SECTION 01 OF 04 STATE 030247



SIPDIS



SIPDIS



E.O. 12958: DECL: 03/24/2018

TAGS: ECON, EFIN, ETRD, KNNP, PARM, PGOV, PREL, EINV, MNUC, IR

SUBJECT: INFORMATION ON IRAN,S USE OF BANK MELLAT SEOUL

FOR PROLIFERATION ACTIVITIES



REF: A. A. STATE 109506

B. B. SEOUL 2547

C. C. SEOUL 3459

D. D. SEOUL 3583

E. E. STATE 29096

F. F. STATE 29098



Classified By: ISN Acting A/S Mary Alice Hayward for

reasons 1.4 (b) and (d).



1. (U) This is an action request. Please see paragraph 6.



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BACKGROUND

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2. (S) On March 3, 2008, the U.N. Security Council adopted

Resolution 1803, imposing further Chapter VII sanctions on

Iran in response to its failure to comply with its

obligations in UN Security Council resolutions (UNSCRs) 1737

and 1747, including the obligation to suspend its uranium

enrichment-related, reprocessing, and heavy water-related

activities (REF E). UNSCR 1803 also includes a specific

provision on Iranian financial activities.



3. (S) The U.S. recently shared information on

implementation of the financial provisions of UNSCR 1803 (REF

E) and additional information on the activities of Bank

Melli, Bank Mellat, and Bank Saderat (REF F). The U.S would

now like to share additional information with London, Seoul,

and Tel Aviv on Iran's Use of Bank Mellat Seoul for

Proliferation Activities.



4. (S) Background for Seoul: In August 2007, the U.S. urged

the ROKG to exercise heightened scrutiny of all Iran-related

transactions to ensure that Iran could not evade UNSC

sanctions (REF A). The U.S. also asked the ROKG to

investigate the activities of Bank Mellat Seoul to look for

proliferation-related transactions. ROKG initiated an

investigation of Bank Sepah and Bank Mellat and provided a

46-page document for U.S. review (REF B). A U.S. review of

the ROKG document found no suspicious or

proliferation-related transactions.



5. (S) In December, the ROKG reported that following

Treasury U/S Levey's trip to Seoul (REF C) it continued the

investigation of Bank Mellat Seoul's transactions (REF D).

In addition, other South Korean banks are aware of the ROKG

investigation of Bank Mellat Seoul and have begun to curtail

their interactions with Bank Mellat.



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OBJECTIVES/ACTION REQUEST

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6. (S) Washington requests all action addressees deliver

the non-paper in paragraph 6 to appropriate host government

officials in the foreign affairs and finance ministries.

Posts should pursue the following objectives:



FOR EMBASSY SEOUL:



-- Thank Seoul for its continuing investigation of Bank

Mellat's activities in its financial jurisdiction.



-- Provide additional information to Seoul on Bank Mellat's

involvement in Iranian proliferation activities.



-- Inform Seoul that the U.S. views Bank Mellat's Seoul

branch as a key node for facilitation of

proliferation-related activities.



-- Note that South Korea should continue its investigation

into the potential proliferation-related activities of Bank

Mellat/Seoul and ensure that the branch does not continue to

facilitate proliferation-sensitive payments in violation of

UNSCRs.



FOR EMBASSY LONDON:



-- Provide additional information to the UK on the

involvement in Iranian proliferation activities of Bank

Mellat's branch in Seoul, South Korea.





STATE 00030247 002 OF 004





-- Confirm the UK has taken steps to prevent Bank Melli's

branch in London from being able to conduct transactions in

support of Iran's nuclear programs or proliferation.



FOR EMBASSY TEL AVIV:



-- Provide nonpaper in paragraph 7 to Israel for

informational purposes only.



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NONPAPER FOR UK, ROK and ISRAEL

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7. (SECRET//REL UK, ROK, ISRAEL)



BEGIN NON-PAPER FOR UK, ROK AND ISRAEL:



-- In the spirit of our close nonproliferation partnership we

would like to provide you with additional information on the

proliferation-related activity of Bank Mellat's Seoul branch.





-- The U.S., on October 25, 2007, designated additional

Iranian entities and individuals under domestic authority

Executive Order 13382 for their involvement in

proliferation-related activity, including the Islamic

Revolutionary Guard Corps (IRGC),the Ministry of Defense and

Armed Forces Logistics (MODAFL),and state-owned Bank Melli

and Bank Mellat. Bank Melli provides banking services to

entities involved in Iran's nuclear and missile programs, and

Bank Mellat provides banking services in support of Iran's

nuclear, missile and Defense Industries Organization (DIO)-

and MODAFL-related entities.



-- In April 2007, Iran Communication Industries (ICI) advised

Taiwan Soltech Industry Company that Iran Electronics

Industries (IEI) would make a Euro payment via the Tehran

branch of Bank Mellat to the Seoul branch of Bank Mellat, and

then to Taishin International Bank in Taipei.



-- Iran Communications Industries is a subsidiary of Iran

Electronics Industries, and Iran Electronics Industries is

subordinate to the Ministry of Defense and Armed Forces

Logistics.



-- In May 2007, Samamicro, an Iranian firm that has procured

on behalf of Iranian missile, defense, and biotechnology

organizations, sought to open a letter of credit covering the

import of sonography equipment from a South Korean firm

through the Sharjah branch of Bank Saderat. The letter of

credit was to be payable to Bank Mellat/Seoul.



-- Bank Mellat's Head Office in Tehran has provided financial

services to other entities tied to Iran's nuclear program,

including Novin Energy Company, meaning that Mellat's branch

in Seoul - as a correspondent for Bank Mellat/Tehran - may

facilitate some international payments on behalf of these

entities. Novin Energy Company was designated under U.S.

Executive Order 13382 on January 4, 2006, and subsequently

sanctioned under UNSCR 1747.



-- In July 2007, Bank Mellat/Seoul served as an intermediary

bank for two probably missile-related euro payments from

Doostan International, a Tehran-based broker for Iranian

missile entities, to China's Shanghai Technical By-Products

International. The payments originated at Doostan's account

at Bank Mellat in Tehran which, during 2007, received several

payments from front companies for Shahid Hemmat Industries

Group (SHIG) and Sanam Industrial Group (SIG).



-- In late August 2007, Iran's MODAFL-subordinate the State

Purchasing Organization (SPO),and China National Precision

Machinery Import/Export Corporation (CPMIEC) agreed to the

terms of a letter of credit issued by Iran's Bank Refah and

advised by Bank Mellat/Seoul to cover Iranian purchases

related to a surface-to-air missile system.



-- CPMIEC has been sanctioned under a number of U.S.

sanctions laws including pursuant to the Iran, North Korea

and Syria Nonproliferation Act (INKSNA) for transferring

equipment and technology to Iran that was either controlled

under multilateral export control lists or which had the

potential to make a material contribution to Iran's WMD and

missile programs. CPMIEC was also designated under U.S.

Executive Order 13382 for providing support to Iran's missile

program.



-- In early October 2007, South Korean firm Just

International Corp. requested an official from Iran's Taksa



STATE 00030247 003 OF 004





Company, which is related to Defense Industries

Organization-subordinate Iran Electronics Industries (IEI),

amend a letter of credit to reflect Bank Mellat/Seoul as the

negotiating bank.



-- In early November 2007, Hong Kong Electronics, almost

certainly a front company for Tanchon Commercial Bank (North

Korea's primary weapons trade bank),made two euro payments

worth a total of about $1.5 million from its account at

Parsian Bank/Kish Island to Bank Mellat/Seoul for ultimate

credit to accounts in China and Russia.



-- As you know, Tanchon Commercial Bank is the main North

Korean financial agent for weapons sales. Tanchon is also

the financial arm of the Korea Mining Development Trading

Corporation (KOMID),which is North Korea's primary weapons

trading firm. Tanchon Commercial Bank and KOMID were both

designated under U.S. Executive Order 13382.



-- In early November 2007, Singapore firm Falcon

International Aviation received euro payments from Iran

Aircraft Industries, which were processed via transfer from

Bank Refah/Tehran to Bank Mellat/Seoul.



-- Iran Aircraft Industries is subordinate to Iran's Ministry

of Defense and Armed Forces Logistics (MODAFL).



-- In mid-November 2007, Hong Kong Electronics transferred

nearly $1 million in Euros from its account with Iran's

Parsian Bank to Bank Mellat/Seoul, probably as part of effort

to repatriate weapons sales earnings from Iran.



-- In mid-November 2007, Shahid Bakeri Industries Group

(SBIG),Iran's solid-propellant ballistic missile developer,

may have used Bank Mellat/Seoul to send payment to China's

Dalian Sunny Industries (DSI) - also known as LIMMT Economic

and Trade Company. A DSI official recommended to SBIG's

commercial manager that SBIG route an upcoming payment via

Mellat/Seoul, indicating that DSI had successfully received

funds via Mellat from an unspecified Iranian entity the

previous week.



-- LIMMT was designated under U.S. Executive Order 13382 on

June 13, 2006, for continuing to supply or attempt to supply

Iran's military and missile organizations with controlled

items.



-- In November 2007, the Aviation Department of Iran's SPO -

subordinate to Iran's MODAFL - authorized a euro payment

worth nearly $5 million via Bank Mellat/Seoul to China

Precision Machinery Import/Export Corporation (CPMIEC) for

costs related to a surface-to-air missile system.



FOR UK ONLY:



-- (S//REL UK) With regard to the nonpaper on activities of

Bank Mellat Seoul, note that it is the U.S. view that closing

or tightly restricting operations of Bank Mellat/Seoul would

disrupt some Iranian procurement-related payments in East

Asia, but Tehran and its foreign partners would retain

several options for completing transactions, including using

cooperative foreign banks or possibly banks outside the

region.



-- (S//REL UK) Note also that, in particular, the Bank Mellat

Seoul branch's closure could push more activity to the Hong

Kong branch of Iranian State-owned Melli Bank PLC -- the only

other Iranian bank branch in East Asia. Similar to Bank

Mellat/Seoul, Melli Bank PLC Hong Kong has served an

intermediary role in some of Tehran's proliferation-related

purchases from Asia.



-- (S//REL UK) Note that Melli Bank PLC Hong Kong is a branch

of the London-based Melli Bank PLC and is subject to UK

jurisdiction. We would be interested in learning what

measures the UK has taken or will take to ensure Melli Bank

PLC Hong Kong does not support Iran's procurement of

proliferation sensitive technology.



END S//REL UK POINTS.



END SECRET//REL UK, ROK, ISRAEL NON-PAPER.



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REPORTING DEADLINE

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8. (U) Post should report results within one week of

receipt of this cable. Please slug replies for ISN, T,



STATE 00030247 004 OF 004





TREASURY, IO/PSC and NEA. Please include SIPDIS in all

replies.



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POINT OF CONTACT

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9. (U) Washington point of contact for follow-up

information is Michelle New, ISN/CPI, (202) 647-0186,

newml@state.sgov.gov, or Jennifer Chalmers, ISN/CPI, (202)

647-9715, chalmersja@state.sgov.gov.



9. (U) Department thanks Posts for their assistance.

RICE