CBS AND BANK SADERAT OF IRAN INVEST IN NEW SYRIAN

C O N F I D E N T I A L DAMASCUS 000728 SIPDIS DEPT FOR NEA/ELA, NEA/FO, EEB/EX, EEB/ESC/TFS, L/EB COMMERCE FOR BIS/SONDERMAN/CHRISTINO NSC FOR SHAPIRO/MCDERMOTT TREASURY FOR HAJJAR/CURTIN PARIS FOR NOBLES LONDON FOR LORD JERUSALEM FOR KAPLAN E.O. 12958: DECL: 10/12/2019 TAGS: ECON EFIN EINV PGOV PREL SY SUBJECT: CBS AND BANK SADERAT OF IRAN INVEST IN NEW SYRIAN COMMERCIAL BANK AMAN Classified By: Charge d'Affaires Chuck Hunter for reasons 1.4(b,d) -------------- Summary -------------- ¶1. (SBU) On September 30, the Syrian Government granted a formal license to the new commercial bank "Aman," a joint venture between the Commercial Bank of Syria (CBS) and Bank Saderat of Iran. Aman will provide CBS with a new outlet to invest excess capital, in particular the Syrian Government's social security reserves. Syrian Minister of Finance Mohammad Hussein was quoted as saying Aman would help "strengthen the economic ties between the two countries." Our own view is less rosy: CBS's open affiliation with Saderat will all but foreclose any chance of rehabilitating CBS and removing U.S. sanctions. How and when we convey that message deserves careful consideration. End summary. -------------- Commercial Bank Aman Granted License -------------- ¶2. (SBU) The Syrian Government granted a formal license to a new commercial bank - named "Aman" - on September 30 according to the October 10 edition of The Syria Report Newsletter. Aman is a joint venture between the Commercial Bank of Syria (CBS) and Bank Saderat of Iran. Aman will offer conventional banking services and have paid-up capital of SYP 1.5 billion ($33 million),the Central Bank's current minimum reserve requirement. Aman was originally to be called "Banki", or "My Bank", but a name change was requested by the Central Bank of Syria according to CBS's Deputy GM, Ahmad Diab. ¶3. (C) Dr. Ayman Midani (strictly protect),a banking and financial markets consultant, told us the bank merger benefits CBS because CBS needs to invest excess reserve capital, in particular the Syrian Government's social security reserves. Midani opined CBS would also benefit from exposure to modern banking practices at the new bank, as CBS currently employs antiquated banking procedures. The SYP 1.5 billion of paid-up capital will be generated through distribution of 3 million shares of stock priced at SYP 500 each. Major shareholders in Aman bank include CBS and Bank Saderat (25 percent each),Saderat subsidiary Ghadir Investment Company (16 percent),and Khalil Sultan al-Abed, the Syrian agent for Iranian car company Iran Khodro (IKCO) (5 percent). The other 29 percent of Aman's shares will be offered through an Initial Public Offering. -------------- Two Sanctioned Banks Joining As One -------------- ¶4. (C) The CBS-Saderat joint venture represents a marriage between two financial institutions currently under U.S. economic sanctions because of Q_Qc8aQIQud money laundering. Minister of Finance Mohammad Hussein is quoted by The Syria Report as saying Aman would help "strengthen the economic ties between the two countries." According to an article by Paul Cochrane in the May 2009 edition of the Lebanon-based "Executive" magazine, the creation of Aman Bank resulted from the recommendation of a joint Syrian-Iranian commission on trade, with Tehran pressuring Damascus to launch the bank. Syrian Prime Minister Otri reportedly spearheaded the license approval. Aman Bank is still in its formative stages with no directors named, no staff and no headquarters. It is not expected to begin operations until mid-2010. ¶5. (C) Comment: Even if CBS were able to meet U.S. concerns regarding money laundering safeguards and Oil-for-Food sanctions violations, the joint venture with Bank Saderat all but guarantees U.S. sanctions against CBS will continue. Given the lead time before the joint venture results in an operating branch in Damascus, we have an opportunity to consider how and when to relay this message to the Syrians. We should avoid, if possible, using press announcements to articulate our intentions. Instead, we advise a more careful approach that would allow U.S. officials to raise our concerns privately about the joint venture, with a view to suggesting to Syria that we might be willing to discuss the necessary conditions for removing the designation of CBS, should CBS be willing to cancel the CBS-Saderat joint venture. HUNTER