DUBAI REGULATOR STRUGGLES WITH BAD IRAN P.R.

C O N F I D E N T I A L ABU DHABI 000499


E.O. 12958: DECL: 05/19/2019
TAGS: AE ECON IR KTFN PREL PTER
SUBJECT: DUBAI REGULATOR STRUGGLES WITH BAD IRAN P.R.

Classified By: Ambassador Olson, for reasons 1.4 b and d.


1. (C) Summary. On 18 May 2009, Dubai Financial Services
Authority (DFSA) CEO Paul Koster met with Ambassador Olson to
complain about U.S. Treasury Department public statements
highlighting Iranian financial activity in the Dubai
International Financial Centre (DIFC). Koster asked that the
USG handle Iran concerns privately and spare the DIFC from
negative treatment in the press. Ambassador explained that
the USG will continue to use targeted financial measure to
address Iran's illicit activity and that Dubai would not be
spared to the extent that it is exploited by Iran. He
encouraged the DIFC to follow the international community and
implement strict measures to protect its financial system
from Iranian abuse. End Summary.


2. (C) Koster explained that the DFSA is a well regulated
onshore financial free zone that puts great emphasis on money
laundering, fraud, and terror finance concerns. With respect
to Iran, Koster noted the active trade relationship between
Iran and the UAE. Despite this relationship, the DFSA has
attempted to discourage and reduce Iran-related activity in
the jurisdiction when possible. Koster referred to one
instance where the DFSA successfully blocked an Iranian
entity from setting up the DIFC, and another where it
persuaded a non-Iranian entity to turn down its business with
Bank Melli Iran (NFI).


3. (C) Referring to the recent Treasury designations
targeting Bank Melli subsidiaries, including two organized in
the DIFC, Koster complained that such negative attention had
a damaging impact on the DIFC's reputation, and therefore its
business prospects as well. He requested that Treasury and
the USG instead handle such matters quietly, which in his
view would give the DIFC greater flexibility to take
measures, considering the political circumstances.


4. (C) Koster also addressed concerns about Persia
International Bank (PIB),an Iranian bank located in the DIFC
that is blacklisted by the USG. He explained that the DFSA
recently concluded a review of PIB's operations. While the
DFSA found no illicit activity, he admitted that inspections
can only go so far. He urged the USG to share with the DFSA
any indications of wrongdoing that the DFSA could act upon.
Koster noted that PIB has become more active in recent
months, handling more financial activity, which he conceded
is likely attributable to Iran being pushed out of other
financial jurisdictions.


5. (C) Ambassador explained that the USG's primary concerns
with respect to Iran stem from its nuclear program and
terrorist support activity. He stated that while the USG is
attempting to engage Iran diplomatically on a variety of
issues, our targeted financial measures to address these
specific threats would not abate. Ambassador warned that
harboring Iranian financial activity in the DIFC posed a
reputational risk to the jurisdiction, and that the USG would
continue to expose areas of weakness the international
financial system that are being exploited by Iran.


OLSON