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