CENTRAL BANK CHAIRMAN DEFENDS SUSPENSION OF

C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 001015 SIPDIS E.O. 12958: DECL: 12/17/2018 TAGS: PGOV PREL ECON EFIN EINV AM RU SUBJECT: CENTRAL BANK CHAIRMAN DEFENDS SUSPENSION OF WESTERN UNION OPERATIONS Classified By: Ambassador Marie L. Yovanovitch. Reasons 1.4 (b/d) SUMMARY -------------- ¶1. (C) Meeting with the Ambassador on December 8, Central Bank of Armenia (CBA) Chairman Arthur Javadyan defended the CBA's August decision to expel Western Union from Armenia in response to its decision to close its branches in Nagorno-Karabakh under pressure from the Government of Azerbaijan (GOAJ). He evaded the question of why Western Union's decision is any concern of the CBA. While Javadyan expressed hope that a resolution could be made in cooperation with the National Bank of Azerbaijan, such a decision will likely need to be made at a higher level. End Summary. NOT UP FRONT ABOUT REASON FOR DECISION -------------- ¶2. (C) Meeting with CBA Chairman Arthur Javadyan on December 8, Ambassador expressed concern about the CBA's expulsion of Western Union from Armenia following the company's decision in August to close its operations in Nagorno-Karabakh (NK). Ambassador noted its potentially chilling effect on U.S. and other potential investors in Armenia. Javadyan made it clear he understands that Western Union responded to pressure from the Government of Azerbaijan (GOAJ),but asserted that Western Union had not been forthcoming with the CBA about the reasons for its actions, claiming they cited only problems in the NK branches. He said it would not be logical for Western Union to have problems with AML compliance only in its NK locations, as such controls should be in place on a system-wide basis. ¶3. (C) According to Western Union's position statement, the company mentioned concerns about anti-money laundering (AML) compliance as a reason for closing the branches when it met with CBA officials on August 8. However, Western Union told us they had been frank with GOAM officials, that the real issue is the GOAJ ultimatum about NK, and CBA officials have likewise been relatively frank with us in acknowledging that this is the real problem. ¶4. (C) Javadyan noted that a similar issue arose with MoneyGram in 2006, and MoneyGram opted to withdraw from the market in Azerbaijan and retained its branches in NK. Javadyan did not dispute the suggestion that the two companies may have agreed to divide the market -- a suggestion we have not heard from either firm. Asked by Ambassador whether the CBA would reverse its decision if Western Union were to tell the CBA explicitly that the company withdrew from NK under pressure from the GOAJ, Javadyan dismissed it as a hypothetical question, asserting that no company would ever make such an admission, and that he would not want to do business with any company that would make such a political decision. WHAT CONCERN IS THIS OF THE CBA? -------------- ¶5. (C) Javadyan also repeated points made previously by GOAM officials that Western Union had violated the terms of its license or was otherwise out of compliance with its obligations. Asked why the CBA should even concern itself with where Western Union decides to offer its services, Javadyan argued that as operator of a payment system, it cannot discriminate with respect to where it provides its services--but evaded answering the fundamental question of what legitimate business it is of the CBA what Western Union does in NK. Javadyan stated that the CBA does not license any banks in Nagorno-Karabakh, though there are about 20 branches of Armenian-registered banks operating there. Javadyan was vague about the CBA's role in regulating financial institutions in NK, which does not lie within its jurisdiction. POSSIBILITY OF RESOLUTION -------------- ¶6. (C) Javadyan asserted that the GOAJ's ultimatum to Western Union was driven by the recent Presidential election in Azerbaijan, suggesting that otherwise the GOAJ would have left the matter alone, as officials had long known about Western Union's operations in NK and had not made an issue of it. Javadyan said that he enjoys good relations with GOAJ financial regulators, noting that he and the Azerbaijan Minister of Finance are co-chairs of the Black Sea Trade and Development Bank and regularly support the other country's proposals. He said he had not yet had an opportunity to discuss the Western Union case with his Azerbaijan counterparts, but hoped to do so. He insisted that as CBA Chairman, he does not want to be involved in political decisions, and had not been seeking a reason to terminate YEREVAN 00001015 002 OF 002 Western Union's operations in Armenia. COMMENT -------------- ¶7. (C) Although we remain concerned about the CBA's action against Western Union--which is hard to view as anything other than retaliation against the company for withdrawing from NK under pressure from the Azerbaijan government-- we suspect he was acting on instructions from above. This seems to be a simple case of Armenian unwillingness to let Azerbaijan succeed in dictating commercial activity in the disputed territory; authorities have no way to punish Azerbaijan directly, so they take out their frustration on Western Union. The muttering about AML compliance is empty formalism. We also suspect that CBA is the de facto bank regulator of NK banks--as the 100,000-person break-away province likely lacks capacity to do so itself--but that the CBA and GOAM do not feel they can admit this to us. In any case, we find it difficult to accept the CBA's decision to throw Western Union out because of pique for a business decision outside of Armenian jurisdiction. We suggested to Western Union officials that they seek legal counsel and explore whether there are grounds for a complaint under the Bilateral Investment Treaty; Western Union has not yet told us what it intends; we maintain close touch with Western Union and will continue to raise this case. END COMMENT. YOVANOVITCH