MALTA RESPONDS POSITIVELY TO U/S LEVEY'S MESSAGE

C O N F I D E N T I A L SECTION 01 OF 02 VALLETTA 000168

SIPDIS

NOFORN
SIPDIS

DEPARTMENT FOR EUR/WE; TREASURY FOR CHRISTINE CLARK

E.O. 12958: DECL: 04/23/2018
TAGS: KTFN PTER IR EFIN PARM MT
SUBJECT: MALTA RESPONDS POSITIVELY TO U/S LEVEY'S MESSAGE
ON IRAN

REF: VALLETTA 89

Classified By: MCummings for reasons 1.4 (b) and (d)


1. (C) Summary. In meetings with senior Maltese Government
officials on April 16, 2008, Treasury Under Secretary for
Terrorism and Financial Intelligence Stuart Levey urged Malta
to protect its financial system from abuse by Iran, including
through implementation of paragraph 10 of UNSCR 1803
(requiring states to exercise vigilance over the activities
of financial institutions in their territories with all banks
domiciled in Iran). He expressed concern about a particular
bank in Malta, the First International Merchant Bank. He
also urged Malta to support EU implementation of UNSCR 1803
and further EU action against Iran, including designation of
Iran,s Bank Melli. U/S Levey's GoM interlocutors appeared to
clearly understand the dangers and downsides of doing
business with Iran and were receptive to his message. End
summary.

LEVEY MESSAGE: VIGILANCE, ON IRANIAN BUSINESS TRANSACTIONS
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2. (C) U/S Levey met a number of senior GOM officials: the
Foreign Minister, Tonio Borg; Leonard Callus, from the Office
of the Prime Minister (OPM); David Pullicino, Deputy Governor
of the Central Bank; Andre Camilleri, Director-General of the
Malta Financial Services Authority (MFSA),Sylvio Camilleri,
Attorney General and chair of the Financial Intelligence
Analysis Unit (FIAU); and Alan Caruana, Head of Secretariat
at the Ministry of Finance. Throughout the day,s meetings,
Levey emphasized the importance of GOM vigilance in
monitoring Iranian business and financial activity in Malta.
GOM officials responded positively and raised their own
concerns about Iran,s attempts to exploit their financial
system.

IRAN,S CREATIVE USE OF EUROPEAN FINANCIAL INSTITUTIONS
-------------- --------------


3. (C) Levey explained that Iranian banks pose a risk to the
international financial system, as Iran, particularly through
its state-owned banks, employs deceptive techniques to evade
the controls of responsible institutions. Levey pointed out
that as major European banks scale back their business with
Iran, the banks that continue to do business with Iran bear a
disproportionate risk of getting tied up in potentially
illicit activity.

4.(C) In each of his meetings, Levey emphasized the risks of
doing business with Iran. He noted the two advisories by the
Financial Action Task Force warning of those risks. He also
cautioned about Iran,s use of its banks to pursue
proliferation and terrorism activities and pointed to the UN
Security Council,s recognition of that with its designation
of Bank Sepah in UN Security Council Resolution (UNSCR) 1747.
He also noted the new UNSCR 1803, requiring governments and
regulators to &exercise vigilance8 over the activities of
financial institutions in their territories with all banks
domiciled in Iran, in particular Banks Melli and Saderat, and
their branches and subsidiaries abroad. Taken together,
these international steps warrant extreme caution in dealing
with Iran.


5. (C) In meetings with OPM, Ministry of Finance, MFSA and
the Central Bank, U/S Levey raised concerns about an increase
in the volume of Iranian activity at the First International
Merchant (FIM) Bank of Malta. He said that FIM Bank appeared
to be establishing itself as a niche bank for the kind of
business that other banks around the world are rejecting.
Camilleri at MFSA said that this information called for
further scrutiny and MFSA would evaluate the link; he added
that with Malta being such a small community, the MFSA had
open channels of communication with the FIM Bank board. In a
subsequent meetings, Caruana said it appeared that the
information on increased business with Iran was based on
growth that had occurred a couple of years ago in FIMBank
branches in northern Africa, but that the MFSA would examine
the bank's position and activity anew and report back.


6. (C) Maltese officials responded positively to Levey,s
requests for vigilance, saying that they understood the risks
involved and the impact it could have on the reputation of
Malta,s financial services sector, which represents about
12% of GDP, a number the GoM hopes will grow to 20% by 2015.
The concern for Malta,s reputation was echoed throughout the

VALLETTA 00000168 002 OF 002


day,s meetings, and it was clear that Maltese officials had
considered the implications of business dealings with Iran.
Andre Camilleri informed Levey that MFSA routinely circulated
lists of UN and EU sanctions information to all financial
institutions and license holders; MFSA has taken an
&unequivocal8 stance on being in &clear compliance8 with
all UN and EU sanctions.


7. (C) A recent attempt by Iranian banks to use Malta,s Euro
payment system prompted discussion of the risks within the
government. As reported reftel, Minister of Finance Tonio
Fenech told Ambassador Bordonaro that the GoM would use any
mechanism necessary to prevent Iranian banks from accessing
their Euro payment system. This message was echoed by the
Deputy Governor of the Central Bank David Pullicino, who has
direct responsibility for ensuring the integrity of Malta,s
Euro payments clearing system. Pullicino hinted that the
issue had likely come up because London banks would on May 16
be "pulling out of Target," the existing mechanism for making
euro payments, thus forcing London-based banks who needed to
process euro payments to find new means of doing so.


8. (C) Pullicino and Camilleri at MFSA voiced concern about
the possibility of Iranian banks licensed for operations in
the UK or Germany attempting to establish branches in Malta.
Pullicino informed U/S Levey that there had been one
application from an Iranian bank to open a representative
office in Malta, and that this had been rejected outright.
Camilleri, MFSA, indicated that the bank seemed to be
&testing the waters8 to gauge Malta,s response to the
application. Maltese officials were specifically concerned
that Banks Melli and Mellat, Iranian state-owned banks, have
subsidiaries in London and under EU rules such subsidiaries
had automatic branching rights in the EU. While there is no
indication that these banks were looking at Malta for
expansion, in the event that a bank operating in the UK or
Germany were to decide to open a branch in Malta, it would be
regulated by the home office and Malta would not have
jurisdiction. The MFSA would not even be able to monitor
transactions out of such branches.



SCREENING OF IRISL CARGO SHIPMENTS
--------------


9. (C) Levey also noted Malta's commitment under UNSCR 1803
to screening Islamic Republic of Iran Shipping Lines (IRISL)
any cargo for which there is a (reasonable suspicion) that it
might be illicit. IRISL uses Malta as its hub in the
Mediterranean and has 9 Maltese-flagged ships. Leonard
Callus at OPM thanked the USG for its assistance in providing
scanning equipment and promised cooperation on political and
other levels. This message was echoed by FM Borg and Charles
Inguanez, MFA Director General for Economic Affairs and
Chairman of Malta,s Sanctions Monitoring Board. Malta aims
to strike the right balance between protecting the flow of
goods through its Freeport and stringently upholding the
spirit of the UNSCR(s) that call for monitoring IRISL cargo
for shipment of goods prohibited by the UNSC sanctions. GOM
interlocutors made it clear they would continue to welcome
tips from the USG regarding suspicious cargo shipments that
need to be inspected; after the meeting with FM Borg,
Inguanez pulled Levey aside to tell him that while the
inspections of IRISL cargo had so far been limited, GOM
officials were willing to conduct more frequent inspections;
they just need to be pointed in the right direction. (Note:
With the entry into force of the Proliferation Security
Initiative Ship Boarding Agreement (PSI-SBA),channels have
been established to share pertinent information with respect
to shipments on Maltese flagged carriers. End Note.)

COMMENT
--------------


10. (C) Across the board, GOM officials clearly understood
that it was in Malta's interest to ensure careful scrutiny of
Iranian financial activity in Malta. GOM officials had
already approached the Embassy with their concerns regarding
the request by UK-based Iranian banks to use Malta's Euro
payments system. When it comes to countering Iran's abuse of
the international financial system, we have a willing partner
in Malta, albeit one with somewhat limited resources.
BORDONARO