FOLLOW-UP: BANK MELLI ATTEMPT TO PURCHASE A

S E C R E T SECTION 01 OF 03 STATE 005584 SIPDIS SIPDIS E.O. 12958: DECL: 01/17/2018 TAGS: KNNP MNUC IR GM UK FR TU EFIN ETTC SUBJECT: FOLLOW-UP: BANK MELLI ATTEMPT TO PURCHASE A TURKISH BANK TO CIRCUMVENT UNSCRS 1737 AND 1747 REF: A. A) STATE 153725 (2007) ¶B. B) ANKARA 2777 (2007) ¶C. C) ISTANBUL 1052 (2007) Classified By: EUR/PRA Office Director Anita Friedt for reasons 1.4 (b) and (d). ¶1. (U) This is an action request. Please see paragraph 3. -------------- SUMMARY -------------- ¶2. (S) In November, REF A cautioned that Iran's Bank Melli has reached an agreement in principle to purchase a Turkish bank. Other recent press reports have noted that Iran is actively working to expand its banking relationships with Turkey. The U.S. would like to provide the name of the bank in question (Adabank AS) and reaffirm that expanding banking relationships with Iran is not a prudent step at this time. Should Bank Melli purchase Adabank AS in Istanbul, it could be used as a cover for activities prohibited by UNSCRs 1737 and 1747. The U.S. urges Turkey to prevent the sale of the Turkish bank to Bank Melli and to exercise increased vigilance regarding any Iranian financial relationships. -------------- OBJECTIVES/ACTION REQUEST -------------- ¶3. (S) Washington requests Posts deliver the talking points and non-paper in paragraph 4 to appropriate host government officials in the foreign affairs and financial ministries. Posts should pursue the following objectives: FOR EMBASSY ANKARA: -- Alert Turkey that Bank Melli has reached an agreement in principle to purchase Adabank AS. -- Urge Turkey to take the necessary steps to investigate and prevent this purchase since the bank could be used to circumvent UNSCR sanctions. -- Emphasize that the Executive Order 13382 designation of Bank Melli responds to the threat that it poses to the international financial system. -- Note U.S. action against Bank Melli is consistent with obligations under paragraph 12 of UNSCR 1737 and urge Turkey to take similar action. -- Urge Turkey to reconsider any plans to expand banking relations with Iran, including increased cooperation between each country's central bank, increasing the amount of trade credits between the countries, and expanding cooperation between each country's export-import bank. FOR EMBASSIES ANKARA, BERLIN, PARIS, LONDON: -- Reinforce the need for increased vigilance regarding any Iranian financial relationships, as these may be engaged in proliferation-related transactions. FOR EMBASSIES BERLIN, PARIS, LONDON: -- Provide additional information to the EU3 on Bank Melli's involvement in Iranian proliferation activities. -------------- BACKGROUND AND NONPAPER -------------- ¶4. BEGIN SECRET/REL FRANCE, GERMANY, TURKEY, UK NON-PAPER: -- We previously cautioned that Iran's Bank Melli has reached an agreement in principle to purchase a Turkish bank. -- The U.S. has information that Iran's Bank Melli (National Bank of Iran) has agreed in principle to purchase Adabank AS in Istanbul for $250 million. Bank Melli sent a delegation to Turkey to carry out preliminary negotiations, get more STATE 00005584 002 OF 003 information, and prepare an assessment report. Iranian officials continued to discuss this purchase in early November 2007. -- On October 25, the U.S. designated Bank Melli under Executive Order 13382 ("Blocking the Property of Weapons of Mass Destruction Proliferators and their Supporters") for providing financial services and support to Iranian entities designated under E.O. 13382 and for providing support for proliferation-related activities. As a result of this designation, all transactions involving Bank Melli and any U.S. person are prohibited and any assets Bank Melli may have under U.S. jurisdiction will be frozen. -- Bank Melli has facilitated numerous transactions involving 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. -- For example, Bank Melli facilitated a transaction in April 2007 involving a North Korean shipment to Iran; the cargo was consigned to Bank Sepah, an entity designated in UNSCR 1747 for its involvement in Iran's nuclear and missile programs. -- Bank Melli has assisted Sepah by providing financial support and acting on behalf of Sepah, subsequent to Sepah's designation under UNSCR 1747 and E.O. 13382. -- The Hong Kong branch of Bank Melli PLC, a UK-based subsidiary of Bank Melli, facilitated transactions involving Bank Sepah after Sepah's designations under UNSCR 1747 and E.O. 13382. -- We believe that Bank Melli is acting on behalf of Bank Sepah and is therefore covered by paragraph 12 of UNSCR 1737, which requires UN Member States to freeze assets not only of designated entities, but also entities acting on their behalf. -- Bank Melli has also maintained accounts or facilitated transactions for known Iranian missile and nuclear front companies and/or their suppliers indicating complicity and/or a lack of due diligence. These companies include Iran's Defense Industries Organization (DIO) and subordinates which oversee Iran's R&D and production of missiles and rockets. -- The DIO and some of its subordinates, which conduct research and development for Iran's defense and military forces and produce a wide variety of military-related weapons, technologies, and other equipment, have used Bank Melli's Hamburg branch to receive payments and to transfer funds. -- A company subordinate to DIO involved in the marketing of Iranian-made chemical/biological defensive equipment used DIO accounts as of early 2005 at Bank Melli's Hamburg branch to receive payments for unidentified goods. -- Bank Melli in June 2007 facilitated a number of payments from companies associated with AIO. -- Bank Melli also provides banking services to the IRGC and its Qods Force. 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. 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 financial transactions. -- As you know the IRGC and Qods Force have been connected to the transfer of arms by Iran to the Taliban, Hizballah, and Iraqi insurgents, violating Iran's UNSCR 1747 obligation not to conduct such arms exports. FOR TURKEY ONLY: -- The United States urges your government to take the necessary steps to investigate and prevent Bank Melli's purchase of Adabank AS given the risk that such a purchase could be used to support relationships or facilitate transactions associated with Iran's WMD and missile programs contrary to UNSCR 1737 or 1747, or other illicit activities. -- While the U.S. recognizes that capital is necessary in a fast-growing economy like Turkey's, allowing this transaction STATE 00005584 003 OF 003 to take place could expose your banking system to illicit activity related to weapons proliferation. -- In addition, we also urge you to exercise increased vigilance regarding all Iranian financial and commercial relationships, not just those involving Bank Melli. Should you identify any proliferation-related activities, we would urge you to freeze any accounts or transactions held or conducted in support of this activity. -- On October 11, 2007, the Financial Action Task Force (FATF) issued a statement cautioning that Iran's lack of comprehensive anti-money laundering / combating the financing of terrorism (AML/AFT) 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. -- We look forward to hearing the results of any actions you take in this case at the earliest possible time and are prepared to provide additional assistance as appropriate. -- We also look forward to working with you on these and other related security and counter-proliferation matters. END SECRET/REL FRANCE, GERMANY, TURKEY, UK NON-PAPER. -------------- REPORTING DEADLINE -------------- ¶5. (U) Post should report results seven days of receipt of this cable. Please slug replies for ISN, T, TREASURY, EUR, 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