UAE SEEKS CLEAR MESSAGE ON IRAN SANCTIONS

S E C R E T ABU DHABI 000575





NOFORN



E.O. 12958: DNG: CO 05/26/2034

TAGS: AE, ECON, IR, KTFN, PREL, PTER

SUBJECT: UAE SEEKS CLEAR MESSAGE ON IRAN SANCTIONS



REF: 2008 ABU DHABI 309



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



1. (C) Summary. On 19-20 May 2009, Treasury Under Secretary

Stuart Levey explained to UAE officials that USG financial

measures with respect to Iran will continue despite efforts

to open dialogue with the Iranian regime. UAE officials in

Abu Dhabi viewed the dialogue with suspicion and low

expectations, while Dubai officials welcomed a reduction in

tensions. All parties sought clarification on the role of

financial measures during the dialogue process and explored

the co-existence of the two tracks. U/S Levey met with UAE

Central Bank Chairman Khalil al Foulathi and Governor Sultan

bin Nasser al Suweidi, Minister of State for Financial

Affairs Obaid al Tayer, Minister for Cabinet Affairs Mohammed

al Gergawi, Minister of State Reem al Hashemi, Abu Dhabi

Department of Finance Chairman Mohammed bin Khalifa bin Zayed

al Nahyan, Dubai International Financial Centre Governor Dr.

Omar bin Sulieman, Abu Dhabi Commercial Bank Chairman Issa al

Suweidi and CEO Ala'a Eraiqat, Dubai World Chairman Sultan

bin Sulayem, Emirates NBD Chairman Ahmed al Tayer, and

Mohammed bin Rashid Foundation for Humanitarian and

Charitable Works Vice Chairman Ibrahim Bumelha. U/S Levey was

accompanied by Ambassador Olson for all meetings except

BuMelha's; CG Dubai Sutphin accompanied for all Dubai

meetings.



2. (S/NF) U/S Levey expressed particular concern about Bank

Melli and Bank Saderat, which continue to operate relatively

freely in the UAE despite U.S., EU, UN and FATF measures to

address the threat posed by the Iranian financial

institutions. He pointed out that Dubai-based Emirates NBD

appears to remain out-of-step with other major international

financial institutions with respect to its sizeable Iranian

exposure. He cautioned on the risks in doing business with

Iran's shipping lines IRISL and highlighted the FATF's

February 2009 call for countermeasures against Iran. End

Summary.





U.S. POSITION ON SANCTIONS NOT CLEAR

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



3. (S/NF) Finance Minister Obaid al Tayer confirmed that the

UAE financial sector is responding to USG efforts to isolate

Iran. He attributed the private sector moves to UAE's good

relations with the U.S. and Treasury's successful efforts to

draw attention to the issue and cause banks to react. Al

Tayer confirmed that UNSCR compliance can be taken for

granted in the UAE, but in order to make additional progress

'we need to keep talking to the business sector to increase

awareness of the risk.' He noted a decline in exports from

UAE to Iran beginning in 2008 and opined that Iran is

attempting to reduce its reliance on the UAE. Dubai knows

that business will suffer in the event that Iran falls under

heavy sanctions, and therefore Dubai businesses are planning

and hedging.



4. (S/NF) Al Tayer said that most UAE banks have reduced or

cut off all forms of business with Iran, and stressed the

need to protect normal trade and avoid hurting the Iranian

people, who are suffering. He cautioned that the UAE must

manage its relationship with Iran 'without throwing bottles

everyday.' He said the UAEG could increase pressure to a

certain level, but then could not push as hard, adding 'it

will happen naturally.' Al Tayer said that after pushing to

60%, 70%, 80%, it will be more difficult to push through to

81%, 82%, 83%, etc., making an argument for diminishing

marginal policy returns. He half-joked that the UAE was

reluctant to cut off all financial ties with Iran, as the

UAEG enjoyed the Under Secretary's visits and wanted to make

sure he came back.



5. (S/NF) Al Tayer pointed out that the U.S. position with

respect to Iran is not always clear, especially now with the

parallel track pursuing dialogue with the Iranian regime. He

stated that while the USG policy on Syria sanctions was clear

cut, President Obama's message on Iran was confusing as there

has been no clear message from the President reaffirming the

Iran sanctions policy. He said the UAE public believes that

the USG is about to change relations with Iran, particularly

after the Iranian New Year's address and the upcoming Cairo

speech. Al Tayer asked about the Italian position on Iran

amid indications that Italy may be changing its position and

Europe is in general increasing business with Iran. He

stressed the need for clear signals from the USG on Iran

sanctions policy.



6. (S/NF) Ambassador stated that core USG policy objectives

had not changed, namely to address Iran's nuclear program and

attempts at regional hegemony. Ambassador confirmed that USG

sanctions policy remains the same, despite efforts to open a

dialogue with the regime. Al Tayer advised the USG to

separate rhetoric from reality when dealing with Iran and

offered that the regime is likely looking for a face-saving

concession from the U.S. (COMMENT: Ambassador recommends an

ALDAC cable with instructions to clarify USG position with

respect to Iranian sanctions and efforts to pursue dialogue.

END COMMENT.)



7. (S/NF) In a separate meeting, DIFC Governor Dr. Omar

sought guidance from U/S Levey on allowing additional Iranian

banks to set up in the DIFC. With Iran pushed out of most

other jurisdictions, its banks are increasingly focusing on

the DIFC as an option to access the international financial

system. Mr. Levey stated that the risks of dealing with

Iranian banks persist so long as Iran pursues its nuclear

program and regional hegemony in contravention of the will of

international community. He warned that U.S. attempts at

dialogue should not be viewed as window to relax financial

measures against Iran.



MOHAMMED BIN KHALIFA: NO POSSIBLE DEAL WITH IRAN

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



8. (S/NF) Abu Dhabi Finance chief Mohammed bin Khalifa al

Nahyan assured that the UAE is pressuring Iran the best it

can. He explained that 'you cannot trust or deal with Iran

and the UAE knows this.' He continued, 'There is no solution

with Iran. The Iranian people and Government will give you no

solution.' Mohammed stated that there is no possibility of a

deal with Iran. He commented that there is no clear leader in

Iran, besides the Supreme Leader, and questioned with whom

exactly the USG would pursue direct talks. Mohammed observed

that short of the Supreme Leader, everyone is just a

messenger, and cautioned against falling into a 'never ending

circle of back-and-forth.' (NOTE: In addition to serving as

the head of the Abu Dhabi Department of Finance, Mohammed bin

Khalifa is a member of Abu Dhabi's Executive Council and the

eldest son of Abu Dhabi Ruler and UAE President Khalifa bin

Zayed al Nahyan. Mohammed is well placed in Abu Dhabi to

reveal candid inside thinking on Iran, without delivering

standard Abu Dhabi talking points. END NOTE.)



9. (S/NF) In response to questions judging the compatibility

of sanctions and dialogue, U/S Levey explained that talks

would hopefully begin after the June election in Iran, and if

progress was not achieved, crippling sanctions would be

pursued. In the interim, the U.S. would continue with current

course of financial measures and urged the UAE to remain

vigilant. Mohammed speculated that Iran would retaliate if

subjected to such treatment. Mohammed questioned U/S Levey on

Russian support for Iran and its nuclear program.



10. (S/NF) Mohammed stated that Iranian people and merchants

were feeling the effects of sanctions, with many leaving Iran

as a result. He pledged UAE support for international

measures to pressure Iran, and noted the importance of UNSCRs

to give the UAE the proper cover it needs to take bold

action. Even without UN resolutions, however, the UAE would

continue to move gradually, as is consistent with its

national interest.



DUBAI: U.S. & UAE SHARE SAME GOALS ON IRAN

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



11. (S/NF) Minister for Cabinet Affairs Mohammed al Gergawi

and Minister of State Reem al Hashemi underlined that the USG

and UAEG share the same goals in checking Iran's nuclear

ambitions and regional troublemaking. Regarding tactics, he

endorsed the new administration's efforts at dialogue as

'closer to the Dubai position,' and sought clarity on the

role of sanctions during this period. He described Iran as a

greater threat to the UAE than to the U.S., and stressed the

need to deal with it carefully, as Dubai has been doing. He

said the price of Iran going nuclear is 'too great for the

UAE.'



12. (S/NF) Gergawi advised that the UAE has come under

tremendous pressure from the Iranian Government, press and

people because 'they know where the UAE stands.' He pointed

out that UAE banks - including Emirates NBD - were reducing

business with Iran, and Iranian business in the UAE is down

30% from last year (nfi). He stated that UAE authorities had

spoken to IRISL's UAE shipping agent and were in the process

of 'dismantling the relationship' (nfi). He confirmed that

UAE was screening Iranians applying for employment,

residential and tourist visas, with the intention of reducing

absolute numbers of Iranians in the UAE. Gergawi added that

the UAE is pursuing such steps for UAE interests, not U.S.

pressure, adding 'we are aligned.'



13. (S/NF) Gergawi described these steps to address the

Iranian presence in the UAE - individuals, companies, and

banking - as 'good for UAE security.' He pointed to Iranian

policies on Hizballah, Hamas and Syria as against UAE

interests and asked for additional UNSCRs to help the UAE

carry out its objectives.



14. (S/NF) Dubai World Chairman Sultan bin Sulayem echoed

Gergawi's affirmation of UAE policy towards Iran and

hopefulness that U.S.-Iran dialogue would show success. He

stated that sanctions are hurting Iran, and welcomed dialogue

in place of sanctions that 'so far had not produced any

positive developments.' Sultan ticked off UAE measures to

pressure Iran, including closing companies and screening

travelers, that are designed to protect the UAE. He mentioned

drug smugglers entering the UAE from Iran and indicated that

UAE authorities were using drug trafficking as an excuse to

target Iranians. He pointed to strained relations between the

neighbors, as evidenced by the Iranian media targeting the

UAE and the Iranian Ambassador complaining to UAE officials.



15. (S/NF) Explaining the UAE's discomfort with Iran's

regional activity, Sultan described Iranian efforts to extend

its presence in African nations such as Djibouti and Senegal.

He said that Iran is building factories in these countries

and offering scholarships for students to come study in Iran.

Sultan said he has warned Djibouti officials about Iran's

intentions and the dangers it poses.



CENTRAL BANK ENDORSES CASH COURIER SCRUTINY

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



16. (S/NF) Under Secretary Levey provided the Central Bank

Governor and Chairman with an additional list of suggestions

on how the UAE could further protect its financial system

from abuse by the Iranian regime. The Governor thanked Levey

for the list and promised to carefully consider the

recommendations and respond. Citing U.S. overtures to the

Iranian people and regime, the Governor repeated deep-rooted

Emirati fears that the U.S. was about to make a deal with

Iran that leaves the UAE exposed for its measures taken

against its powerful neighbor. (NOTE: In a separate meeting,

Levey provided the same list to Central Bank Vice Chairman

Dr. Omar bin Suleiman. END NOTE.) Chairman Foulathi, new to

the U.S.-UAE dialogue on Iran financial measures, expressed

concern about the UAE's security vulnerability with respect

to Iran and asked about financial measures taken by other

countries as a point of reference.



17. (S) Governor Suweidi referenced his May 24 meeting with

Deputy National Security Advisor John Brennan and confirmed

that the UAE will be stepping up enforcement with respect to

cash couriers. He stated that the UAE was in the process of

adding cash declaration requirements for travelers departing

the UAE (to match existing declaration requirements for

incoming travelers),and intensifying scrutiny of incoming

passengers. He stated that the Central Bank would share with

the USG any new regulations for comment prior to enactment.

With respect to Afghanistan and Pakistan, the Governor stated

that UAE customs authorities would target flights for

additional scrutiny and inspections of travelers. He added

that the UAE National Anti-Money Laundering Committee would

meet soon to agree on a path forward.



18. (C) Governor Suweidi thanked the Treasury Department for

its offer to assist the Central Bank with its modernization

effort and stated that the Central Bank would seek Treasury

involvement in the coming months.



19. (S/NF) Governor Suweidi inquired about the OFAC

investigation involving the National Bank of Abu Dhabi (NBAD)

and possible Sudan sanctions violations. He stated that NBAD

and the Central Bank were taking the matter very seriously

and pledged full cooperation to resolve the issue. He

mentioned that initial remedial measures had already been

taken, to include removing the bank employee responsible for

stripping information off transfer records.



COLLAPSE OF IRAN/ETISALAT DEAL EXPLAINED

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



20. (S/NF) DIFC Governor and Etisalat board member Dr. Omar

explained UAE national telecom company Etisalat's recent

decision to pull out of a joint venture to purchase Iran's

3rd mobile telecom license. According to Dr. Omar, after the

UAE agreed to purchase the license alongside an Iranian firm,

Iran changed the terms of the deal with respect to financing

obligations, control and management responsibilities.

Etisalat was not satisfied with the new commercial terms and

came to view the venture as unprofitable and the Iranians as

unreliable. As a result, Etisalat elected to forfeit the

substantial down payment already made and pull out of the

venture.



ABU DHABI COMMERCIAL BANK WINDS DOWN IRAN BUSINESS

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



21. (S/NF) Consistent with prior meetings, newly appointed

ADCB Chairman Issa al Suweidi and CEO Ala'a Eraiqat

reaffirmed their bank's efforts to reduce its financial

relationship with Iran in line with Abu Dhabi's political

views on the issue (ref). They said exposure has been reduced

from $930 million of funded and unfunded obligations to zero

unfunded, and limits frozen at $164 million that is winding

off. They stated ADCB relationships with Iran Petrochemical,

Bank Mellat and National Iranian Tanker Company are on an

exit or liquidation basis. They said that ADCB maintained

correspondent relationships with some Iranian banks, but that

these accounts had no limits and were under high scrutiny.

They said that ADCB has some business with Bank Melli that

was now down to a minimum, and offered to return with exact

figures. The CEO stated that while bank policy required all

Iranian accounts to come under additional scrutiny, in

practice it could be difficult to clearly identify all

Iranian business due to the longstanding commercial ties

between the UAE and Iran.



22. (S/NF) ADCB CEO Eraiqat explained at length the bank's

efforts to step up compliance practices, including bi-weekly

compliance meetings with the CEO and a new $1.7 million

compliance software system due to come online later this

year. They explained that ADCB was looking to float a rule

144a bond offering in the U.S. in 3Q2009 and welcomed the

high level of disclosure and transparency that accompanies

the process.



EMIRATES NBD RESISTANT, FUMBLES UNDER PRESSURE

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



23. (S/NF) During an hour private lunch in a Dubai

restaurant, Emirates NBD Chairman Ahmed al Tayer erratically

dismissed Under Secretary Levey's concerns about doing

business for Iran with a mix of hostility, remorse and

assurances of submission. Initially, the Chairman stated that

his bank had substantially reduced its Iranian exposure,

citing scaled down existing limits, no new limits, an end to

financing oil shipments with letters of credit (l/c),a 25%

reduction in trade finance, and Iran related l/cs down 95%

across the board at the bank. He said all previous

commitments are running down and whatever is left is

negligible compared to two years ago and that Emirates NBD

handled 'no l/cs for Iranian banks.' He said the bank handled

just normal accounts for Iranian banks that have been with

Emirates NBD for years, but did not provide financing for

these banks. The Chairman pointed to U.S. efforts at dialogue

with Iran and complained that the Dubai business sector has

suffered irreparable damage as Iran will not forget UAE

measures to cut financial ties even after international

tensions subside.



24. (S/NF) Further into the conversation, the Chairman became

defensive about the bank's business with Iran and then

questioned why Iran or Iranians would need financial services

in the UAE. The Chairman stated that he did not believe that

the UAE served as a transshipment hub for Iran, and then

dismissed the subject as not relevant to the banking sector.

When asked about Iranian shipping company IRISL, he said he

did not know the company and then stated that the bank issues

no letters of credit for the entity. He several times raised

the U.S. company Cargill and its substantial business with

Iran financed by Emirates NBD, suggesting that servicing

Cargill was the bank's primary exposure to Iran.



MBR CHARITY AIMS TO HELP PALESTIANIAN, NOT HAMAS

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



25. (C) Vice Chairman Ibrahim Bumelha of the Mohammed bin

Rashid Foundation for Humanitarian and Charitable Works

(MBRHC) described the NGOs efforts to provide humanitarian

aid in Gaza, without supporting Hamas. He said his

organization aims to help the Palestinian people, without

siding with any political party or faction. Ibrahim described

a clean water restoration project that MBRHC is supporting in

Gaza. He said that MBRHC received proposals from two Gaza

government institutions, one controlled by Hamas and one

controlled by the Palestinian Authority. With the proposals

in hand, MBRHC quietly solicited local contractors to perform

the work. MBRHC settled on a Christian contractor based in

Gaza, after first screening the names with Dubai security

services to ensure no Hamas connections. Ibrahim explained

that MBRHC intentionally did not publicly announce the tender

offer, because he was concerned that a Hamas organization

might submit the lowest bid and thereby win the tender.



26. (C) Ibrahim described MBRHC's past association with the

Union of Good, a Hamas-affiliated charity coalition headed by

Muslim Brotherhood leader and Hamas supporter Yousef al

Qaradawi. He said that around 2000-2001, MBRHC joined with a

group of UAE charities to deliver aid to Palestinians in the

wake of the second intifada. At the time, the Union of Good

was not blacklisted in the U.S. or elsewhere, and UAE efforts

were coordinated with this coalition. The association lasted

only a handful of months, after which time MBRHC broke off

relations with the Union of Good. Ibrahim stated that MBRHC

would not work with Union of Good or any other

Qaradawi-affiliated groups in the future.



27. (C) Ibrahim lamented the Israeli blacklisting of MBRHC,

as the action made it illegal for Israel-based entities to

partner with MBRHC, a common practice for the organization.

He complained that the reputation of MBRHC, Dubai, and its

Ruler Sheikh Mohammed bin Rashid had been damaged by the

Israeli action. He believes the Government of Israel should

remove MBRHC from its blacklist as the organization has long

since broke its affiliation with the Union of Good - the

stated basis for the action - and actively seeks to avoid

working with Hamas in Gaza.





OLSON