TERRORISM FINANCE: GOI SAYS NOW IS THE TIME TO ACT AGAINST THE CENTRAL BANK OF IRAN AND INCREASES ITS FINANCIAL ISOLATION OF GAZA

VZCZCXRO6294
PP RUEHBC RUEHDE RUEHDIR RUEHKUK
DE RUEHTV #1742/01 2210945
ZNY SSSSS ZZH
P 080945Z AUG 08
FM AMEMBASSY TEL AVIV
TO RUEHC/SECSTATE WASHDC PRIORITY 7919
INFO RUCNIRA/IRAN COLLECTIVE PRIORITY
RUEHAM/AMEMBASSY AMMAN PRIORITY 4573
RUEHAK/AMEMBASSY ANKARA PRIORITY 5029
RUEHEG/AMEMBASSY CAIRO PRIORITY 2572
RUEHLO/AMEMBASSY LONDON PRIORITY 1856
RUEHFR/AMEMBASSY PARIS PRIORITY 0068
RUEHJM/AMCONSUL JERUSALEM PRIORITY 0236
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY

S E C R E T SECTION 01 OF 05 TEL AVIV 001742 
 
SIPDIS 
 
ANKARA FOR REYNOLDS, C. 
L FOR DOLAN, J. 
TREASURY FOR GLASER, D. 
 
E.O. 12958: DECL: 07/29/2018 
TAGS: KTFN, EFIN, ECON, KWBG, IR, IS 
SUBJECT: TERRORISM FINANCE: GOI SAYS NOW IS THE TIME TO ACT 
AGAINST THE CENTRAL BANK OF IRAN AND INCREASES ITS 
FINANCIAL ISOLATION OF GAZA 
 
REF: A. SECSTATE 83136 
 B. E-MAIL CORRESPONDENCE 
 DAVIS-BAUKOL/ROSE/HAJJAR/GRANT JULY 21 
 C. E-MAIL CORRESPONDENCE AGOR-MARGOLIES JULY 31 
 D. TEL AVIV 1508 
 
Classified By: CDA Luis G. Moreno for Reasons 1.4 (b) and (d) 
 
------- 
SUMMARY 
------- 
 

r />charitable network to compete with Hamas charities, a concept

that the Israelis have been exploring as well. Regarding

Palestinian financial matters more broadly, Bank of Israel

(BOI) officials confirmed that the GOI was operating under

the principle of preventing any new liquidity from entering

circulation in the Gaza Strip. The GOI will exchange spoiled

bank notes with new bank notes but will not permit any

additional notes to enter circulation. The DAS notified the

Israelis that Treasury had established a new position at CG

Jerusalem with the primary purpose of working with the PA on

AML/CFT issues.



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FATF AND EUROPEAN SANCTIONS AGAINST IRAN

--------------



3.(C) On July 29, 2008 in a meeting organized and moderated

by Ariel Shafransky, Deputy Director of Counterterrorism at

the Strategic Affairs Bureau of the Israeli MFA, Treasury DAS

for Terrorist Financing and Financial Crimes, Daniel L.

Glaser briefed officials of the Mossad, Israeli Security

Agency (ISA) or "Shin Bet", Israeli Defense Intelligence

(IDI),and the Israeli Money Laundering and Terror Financing

Prohibition Authority (IMPA) on relevant topics from the P3

(UK, France, and the US) meetings he had just attended in

Paris before arriving in Israel (Ref A). Also in attendance

were Hagar Hajjar, Policy Advisor to the DAS, Christopher

Backemeyer, Foreign Affairs Officer in EEB/ESC/TFS, and

econoff. The DAS told the GOI officials that the goal of the

talks was to arrive at an agreement on next-steps for

applying financial pressure on Iran. Glaser informed the

Israelis that the EU had reached a "political" consensus on

additional financial measures relating to Iran, but that

these would not be formally agreed upon until September.

Beyond that, Glaser mentioned that there was also agreement

with the UK and France to focus their efforts in the sectors



TEL AVIV 00001742 002 OF 005





of insurance and reinsurance. The DAS also briefed the

Israelis on recent developments within FATF related to Iran

and discussed the possibility of additional FATF action in

October, though he cautioned that Iran could take steps to

avoid such an outcome and that China could prove to be an

obstacle in FATF discussions.



--------------

NOW IS THE TIME FOR ACTION AGAINST THE CBI

--------------



4.(S/NF) Later in the day the delegation met exclusively with

members of Israel's intelligence community, led by Udi Levi,

Director of Israel's National Security Council's (NSC)

Counterterrorism Finance Bureau. Levi had brought together

several analysts from Mossad and IDI that specifically cover

counterterrorism finance issues in regard to Iran. Levi

announced to the group that the time was ripe to act against

the CBI. The USG, he said, should designate the CBI, but if

that were not an option for political or other reasons, the

Israeli intelligence community stands ready to assist the USG

in taking any other action possible to hinder the CBI in

conducting business.



5.(S/NF) Udi Levi outlined the actions of the CBI that he and

his team of analysts believed to run contrary to

international banking standards. Working from several

documents that had been internally produced by Mossad and had

been passed to the USG intelligence community, he outlined

three practices by the CBI that he believed made the case for

designation. He said that the GOI maintains information to

implicate the CBI in 1) transferring money without the use of

Swift to obfuscate the identities of the parties transmitting

and receiving money, 2) planning to purchase undesignated

banks using false names through which it could assist Iranian

enterprise in circumventing sanctions, and 3) acting on

behalf of designated Iranian banks such as Bank Melli and

Bank Saderat to execute transactions that would otherwise be

prohibited. On the last point, DAS Glaser mentioned that if

any of this activity were occurring in London, such

information could be key to persuading an otherwise highly

cautious UK to take action. The Israelis said that they would

look into that question.



6.(U) Failing full designation, Levi said, the GOI would be

highly supportive of USG efforts to enact any other measures

to stifle Iranian finance and activities of the CBI. Levi

suggested encouraging the international community to conduct

enhanced vigilance with regard to CBI activity, including but

not limited to examining each transaction, and enhanced

record-keeping and customer identification practices.



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NO INCREASE IN LIQUIDITY TO GAZA

--------------



7.(S/NF) On the same day, in a meeting with David Zaken,

Assistant Supervisor of Banks and Head of Off-Site

Examination & Licensing, and Merav Basri, Assistant to

General Council at the BOI, DAS Glaser's delegation and

econoff learned that the BOI and Israeli Defense Forces (IDF)

were operating under a principle of not permitting any

additional liquidity into Gaza. Zaken was able to confirm

that NIS 40 million was already approved for exchange at the

border by the BOI and IDF and said that NIS 17 million was

being delivered as he spoke. NOTE: Embassy Tel Aviv later

confirmed that this exchange had taken place. END NOTE.

Zaken said that the GOI would only permit exchanges of

spoiled bank notes for new ones. Having been informed of the

PA's situation through CG Jerusalem (Refs B ad C),econoff

questioned Zaken regarding the possibility that the PA would

not have enough liquidity to make its August civil servant's

salaries in Gaza. Despite the PA's assessment, Zaken opined

that the PA would be able to make its August salary payments

as it did in July. COMMENT: As mentioned in the morning

meeting at the MFA by a senior ISA analyst, GOI intelligence

agencies generally believe that PA salaries paid in Gaza

actually make their way into the hands of Hamas; therefore,



TEL AVIV 00001742 003 OF 005





the PA argument that the salaries meet the mutually

beneficial goal of bolstering Fatah does not impress the

Israelis. While Israeli officials frequently express their

doubts with regard to PA statistical assessments of the state

of the economy in Gaza, whether the PA is able to meet its

salary commitments in Gaza appears of little concern to the

GOI. END COMMENT



8.(C) Despite the general principle of denying Gaza

additional liquidity, Zaken said that the BOI would still

consider requests to move additional bank notes into Gaza on

a case-by-case basis. Even if the BOI were to look positively

on such a request, however, final approval to allow any

additional notes into Gaza would still remain with the IDF.

NOTE: Recent actions by Israeli commercial banks to

discontinue cash services to Palestinian banks complicates

this matter (Ref D). END NOTE. When DAS Glaser asked if the

GOI's policy was to maintain the Gazan economy at the

precipice of disaster, Zaken agreed, but added that the goal

is to prevent the financing of Hamas terrorism. When DAS

Glaser noted that this policy could mean cutting off the

Gazan economy completely, Zaken disagreed and stated that

Israel would not want to cause a humanitarian crisis. Zaken

made it clear, however, that he was not articulating an

official GOI policy, and that from a central bank perspective

they were not opposed to a healthy Palestinian financial

system.



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THE PROBLEM OF ZAKAT -- ISLAMIC CHARITIES

--------------



9.(S/NF) During the meetings at the MFA and with the Israeli

intelligence agencies, DAS Glaser briefed the Israeli

officials on his recent discussions with PM Fayyad on "zakat"

or Islamic charitable organizations operating in the West

Bank that were determined to be funding Hamas. Glaser

conveyed Fayyad's anger over recent Israeli raids on zakat

committees in Nablus. The PM stated that he had taken

significant action against these Hamas-related zakat

committees--action that he said was unparalleled in the Arab

world. The Israeli officials replied that raids such as the

one in Nablus were necessary in order to spur Fayyad and the

PA to action, and repeatedly expressed frustration that

Fayyad was not doing as much as he could to address the

problematic zakat committees.



10.(S/NF) Glaser went on to discuss potential future actions

against the zakat committees. He told the Israelis that he

felt Fayyad and Treasury had been "talking past each other"

for the past several months, with Treasury focused on passing

specific information regarding the financial activities of

the zakat committees, and Fayyad responding with general

assurances that the committees had been restructured. Glaser

told the GOI that Treasury's view is that the charities

continue to be controlled by Hamas. DAS Glaser said the

burden is on Fayyad to demonstrate with detailed information

that the link between Hamas and the zakat committees has

indeed been severed. The DAS expressed his view that Fayyad

is acting with good intentions on the issue, and informed the

GOI officials that one of the main purposes for the creation

of the new Treasury position at CG Jerusalem was to provide a

constant and direct exchange with the PA on these issues. The

Israelis expressed the view that simply replacing the

leadership of the committees would not sufficiently sever

their connection with Hamas. When Glaser asked if there was

any action that Fayyad could take to improve the situation,

the Israelis responded that there was, but did not provide

details of what this action might be.



11.(S/NF) Oren Driesen, a senior ISA analyst, emphasized

general Israeli frustration on the zakat committee issue.

Driesen stated that the GOI understands that the Dawa is an

ingrained institution that will continue to operate in all

predominately Muslim societies. He said that the GOI had no

designs on attempting to destroy the institution, but the

problem was separating the legitimate charities from those

that fund Hamas. He expressed great fear that the system



TEL AVIV 00001742 004 OF 005





used by Hamas to slowly take over Gazan institutions was at

work in the West Bank. Driesen stated that once the

infrastructure of social welfare institutions was in place,

all an organization needed to do to become the government was

"flip the switch".



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PMA AML/CFT AND GAZAN BANKING WOES

--------------



12.(U) Recounting his meeting the previous day with

Palestinian Monetary Authority (PMA) Director, Jihad

al-Wazir, DAS Glaser told the Israeli officials at the MFA

and intelligence meetings that the PMA chief believes the PMA

can and will implement an AML/CFT regime in the near future.

Al-Wazir told Glaser that the PA had now passed the point

where it would need basic money-laundering training. He said

it needs analysts and implementers. The PA was now focused on

building organizations. DAS Glaser said that the new Treasury

representative in Jerusalem would be of great help on this.

One important challenge, said Glaser of his conversation with

al-Wazir, would be regulating the moneychangers in the West

Bank.



13.(U) Paul Landes, Legal Counsel for IMPA, Israel's FIU,

asked the DAS about USG technical efforts to assist the PA

with cash smuggling into Gaza. He stated that recent GOI

intelligence estimates that 100s of millions are entering

Gaza this way. Glaser responded to say that Treasury is

working closely with the PMA to ensure it receives the

technical assistance it needs. The PMA has requested help in

FIU analyst training for its FIU and PMA senior personnel,

drafting regulations related to the registering and

monitoring of money service businesses (MSBs),and handling

trade-based money laundering (TBML). Glaser pledged to

improve on these efforts through his new Treasury position in

Jerusalem. He assured Yehuda Shaffer, Director of IMPA, the

same, as well as help in improving cooperation between the

PMA, IMPA, and Jordanian FIU in an earlier meeting that

morning.



14.(S/NF) In concluding the meeting at the MFA, Shafransky

asked Glaser if he was aware of any changes in the PMA's

efforts to enforce its demand that the Palestinian Islamic

Bank (PIB) and Bank of Palestine (BOP) move its headquarters

from Gaza to the West Bank. Glaser told the Israelis that

BOP had been transferred to the West Bank, but not PIB. He

also noted that the PMA has expressed frustration with PIB as

it has not been responding to orders and benchmarks set forth

by the PMA, and that heavy fines and regulatory pressure have

been applied. Glaser noted that Al-Wazir stated the PMA would

give the PIB until the end of the year to reform its

operations or would consider closing the bank. NOTE: Israeli

intelligence suggests that the PIB's primary client is Hamas

and the Israelis are anxious to see the bank closed. END NOTE.



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HOPES FOR A USG-PRIVATE SECTOR SPONSORED CHARITY NETWORK

-------------- --------------



15.(U) During the afternoon intelligence meeting with Udi

Levi, Glaser piqued great interest by Levi regarding the

establishment of a USG-Private Sector sponsored charity

program. Glaser briefed Levi on the program, the American

Charities for Palestine (ACP),founded by Dr. Ziad Asali,

president of the American Task force on Palestine, and

explained that the mission of the organization would be to

raise U.S. private funds and disburse them in the Palestinian

Territories through USG-vetted programs on-the-ground. He

envisioned that the organization would facilitate a

legitimate way for donors to send money to the Palestinian

Territories and hopefully provide alternatives to Hamas-led

programs. Levi expressed strong interest in the program and

noted that he was working with the Gulf countries on a

similar concept. Levi noted that if the program becomes

operational, it could provide an additional mechanism through

which Gulf donors could donate money. Glaser agreed to pursue

the issue and keep Levi informed of his progress.



TEL AVIV 00001742 005 OF 005









16.(U) This cable has been cleared by Treasury DAS Daniel L.

Glaser.



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