IRAN/AUSTRIA: LEVERAGING FATF STATEMENT

S E C R E T SECTION 01 OF 03 VIENNA 001643 SIPDIS FOR ISN, T, NEA, INR, EEB, S/CT, INL E.O. 12958: DECL: 11/04/2018 TAGS: EFIN KNNP PARM PREL AU SUBJECT: IRAN/AUSTRIA: LEVERAGING FATF STATEMENT REF: A. STATE 115523 B. VIENNA 1414 Classified By: AMBASSADOR DAVID GIRARD-DICARLO FOR REASONS 1.5 B,D ¶1. (S) Summary. Ambassador Girard-diCarlo, accompanied by DCM, delivered Ref A demarche on November 4 to Ministry of Finance State Secretary Christoph Matznetter, and on November 5 to MFA Secretary General Johannes Kyrle. The demarche captured our interlocutors, attention. Matznetter committed to another round of Finance Ministry consultations with Raiffeisen Bank, while Kyrle indicated that the GOA,s leverage against Raiffeisen would increase if the bank, as expected, draws on the GOA,s banking support facility. Nevertheless, Raiffeisen,s political influence in Austria should not be underestimated. In the Embassy,s view, the Austrian government,s hand on Iran sanctions would be strengthened, vis-a-vis Austrian business, if the USG were to show that it takes seriously European business concerns over a &level commercial playing field" during and after the current standoff with Iran. End Summary. Ambassador,s Presentation -------------- ¶2. (S) The Ambassador began by stating that he had come to raise an issue of importance &at the highest levels of the U.S. government.8 On October 16, the Financial Action Task Force had issued its fourth warning on Iranian financial practices, with a particular focus upon Iranian shortcomings in the area of terrorist financing. The risks associated with Iran,s financing of terrorism are very high, the Ambassador stressed, and the FATF warning needs to be taken seriously. It was entirely possible that Iran might try to exploit the transfer of power in the United States government through even more aggressive behavior. ¶3. (S) The Ambassador outlined each of the seven steps that the United States would like to see Austria take to limit its exposure to Iranian financial entities, proceeding to explain the actions enumerated in Ref A, para 4. ¶4. (S) The Ambassador then turned to the specific case of Raiffeisen Bank. U.S. officials, both from the Embassy and from Washington, had consulted directly with Raiffeisen on several occasions. We recognized the bank,s many strengths and even applauded parts of its business model. However, Raiffeisen had openly told us that it has made a conscious business decision to maintain (or even expand) certain business links with Iran to preserve its long term competitive position in that country. This was a serious mistake, the Ambassador stated, placing Raiffeisen in a very small (and shrinking) group of European &financial outliers.8 The Ambassador stated, &I must warn them, through you, that they are assuming a reputational risk.8 If the USG had good information that Raiffeisen was engaging in certain kinds of activities with individuals, companies, or financial institutions in Iran, he continued, &you should not assume that we will remain silent.8 ¶5. (S) The Ambassador also noted that he &would be remiss8 if he did not take note of Austria,s special responsibilities as a non-permanent member of the UN Security Council during the next two years. GOA actions vis-a-vis Iran would be watched closely by the world. And because Austria was so widely respected, &the right actions8 would have a positive impact far beyond Austria,s borders. ¶6. (S) The Ambassador underlined that the United States very much wanted to avoid conflict with Iran; such conflict should be avoided if at all possible. He noted that the USG wanted Iran to rejoin the international community as a respected country. President Bush had committed the U.S. to a two-track approach, and this would not likely change under the next president. However, this two-track approach could only work if Iran believes that the sanctions-track is real and that the penalties will hurt. Finance Ministry Response -------------- ¶7. (S) State Secretary Matznetter began by reaffirming that Austria had implemented, and would continue to implement, all UNSC resolutions on Iran. The GOA had already restricted export credit guarantees and prohibited dealings with Bank Melli and Bank Sepah, among other steps. The dilemma facing the government, however, was that a number of Austrian businesses had long-standing trade relationships with Iranian counterparts in non-sensitive areas and this trade had to be supported by correspondent banking transactions. VIENNA 00001643 002 OF 003 ¶8. (S) A second dilemma, from Austria,s perspective, was the specific case of OMV,s investments in Iran,s oil and gas sector, which were inextricably connected with the strategic problem of Europe,s energy security. The Nabucco gas pipeline remained a priority project for Austria and the EU, but gas sources beyond Azerbaijan would be necessary to realize the project. Current relations with Iran were obviously very difficult, but OMV wanted to preserve a &minimum contact level8 with Iran to be able to move forward when Iranian policy eventually becomes more acceptable. The Ambassador offered that the timeframes of the oil/gas sector and the financial sector were very different. While we had concerns about OMV,s investment plans in Iran, they could be managed in a long-term context. Terrorism and proliferation financing activities by Iranian entities posed an immediate threat which needed to be addressed now. The Ambassador again stressed that the timing was quite sensitive. Iran needed to know that the world was serious about sanctions. ¶9. (S) Finally, Matznetter said he wished to raise -- in full candor -- another general concern. The Austrian business sector, he said, regularly makes the argument to the GOA that if Austrian businesses &vacate the playing field8 by severing long-standing ties with Iranian counterparts, they will be &muscled aside8 by stronger international competitors (especially American companies) at some future date when the situation changes and Iran again become a legitimate international business partner. Many in Austria, he continued, felt that this was exactly what had happened in Iraq. &What we really need,8 stated Matznetter, &are some kind of assurances from the U.S. government that if Austrian companies pull back now, they will be given a fair chance to reestablish commercial relationships at a later date." The Ambassador replied that this was a legitimate point, which he would convey to Washington. ¶10. (S) All of the above not withstanding, the State Secretary said he &welcomed8 direct contacts between the USG and Raiffeisen. Two years ago, such contacts -- coupled with GOA pressure on Raiffeisen -- had overcome an earlier bone of contention concerning the bank,s relationship with Rosukrenergo, in Ukraine. He stated that the GOA took U.S. concerns very seriously, and he promised that the Finance Ministry -- probably Minister Molterer himself -- would speak directly with Raiffeisen,s senior management about the issues the Ambassador had raised. Foreign Ministry Response -------------- ¶11. (S) Secretary General Kyrle first thanked the Ambassador for raising U.S. concerns directly with the Foreign Ministry, in addition to the Ministry of Finance, and he encouraged the Embassy to continue this dual-track approach. Kyrle reaffirmed that Austria would continue to rigorously apply all UNSC resolutions and their implementation as agreed among EU members. On November 10, the GAERC would again take up these issues, hopefully resulting in a further tightening of financial and commercial measures against Iranian entities. The Secretary General further offered that he understood from the Finance Ministry that existing Austrian banking laws and regulations gave the GOA sufficient authority to implement most, if not all, of the measures suggested in our demarche. ¶12. (S) Kyrle then said he wished to make one additional observation on a very close hold basis. It appeared likely that Raiffeisen would soon become one of the next Austrian banks to draw upon the GOA,s financial support package (Vienna 1619 and previous). This step would effectively make the Austrian government a significant shareholder in the bank, thereby providing the GOA with a new lever to influence policy decisions of the bank. Comment: -------------- ¶13. (S) We believe that our demarche has caught the Austrian government,s attention. Kyrle,s observation (para 12) regarding impending changes in the GOA,s ownership relationship to Raiffeisen Bank is an important one. While the SecGen did not explicitly state how the GOA would use this new authority, the implication was clear. At the same time, political influence is a two-way street in the case of Raiffeisen. The bank represents a formidable business empire in Austria, with decades-long influence over conservatives, in particular. Raiffeisen, in short, is not without means to sway Austrian policymakers, whatever the issue in question. ¶14. (S) In trading with Iran, Austrian business leaders VIENNA 00001643 003 OF 003 believe they are well within their rights, and indeed exemplify the country,s neutralist tradition. Swimming against that current requires both short-term political arguments and a long-term prospect for thriving commerce. For that reason, we believe that State SecretaryMatznetter,s concern (para 9) over the long-termcompetitiveness of Austrian companies in the Irania market should be taken seriously. We suspect tat these anxieties are widely shared by small an medium-sized businesses in other European counties. It is presumably beyond the capacity of th USG to offer absolute assurances that Austrian (r other European) companies wouldbe able to fully recover their lost market positions in Iran at some future date. However, a serious dialogue with the GOA (and others) on this issue -- showing that we have heard the concern and take it seriously -- could help encourage the GOA to act more aggressively in restraining the activities of Austrian companies in Iran. GIRARD-DICARLO