AMBASSADOR MARCIEL'S MEETING AT CENTRAL BANK ON

S E C R E T SECTION 01 OF 02 KUALA LUMPUR 000138

SIPDIS

STATE PASS FEDERAL RESERVE AND EXIMBANK
STATE PASS FEDERAL RESERVE SAN FRANCISCO TCURRAN
SINGAPORE PASS TO SBAKER
TREASURY FOR FINCEN,OASIA, AND IRS

E.O. 12958: DECL: 02/25/2019
TAGS: KNNP MNUC IR GM ECON XB XC XE XG MY
SUBJECT: AMBASSADOR MARCIEL'S MEETING AT CENTRAL BANK ON
BANK MELLAT

REF: A. A. SECSTATE 13998 -- BANK MELLAT DEMARCHE

B. B. KUALA LUMPUR 113 -- AMB KEITH'S MEETING WITH
MFA SECGEN RASTAM

C. C. KUALA LUMPUR 122 -- AMB KEITH'S MEETING WITH
DPM NAJIB

Classified By: CHARGE D' AFFAIRS ROB RAPSON FOR REASONS 1.4 (B) AND (D)



1. (S) Summary: In a February 23 meeting with senior Bank
Negara Malaysia (BNM) officials and the DG of the Labuan
Offshore Financial Services Authority (LOFSA),visiting
Ambassador for ASEAN Affairs and DAS for Southeast Asia Scot
Marciel conveyed U.S. concerns about reports of the imminent
opening of a Bank Mellat branch in Labuan. Marciel
emphasized Malaysia was facing substantial reputational risk
with such a move and asked that Bank Negara reject the
license application. While BNM Deputy Governor Zamani did not
respond directly to Ambassador Marciel's points, his comments
suggested that Malaysia was still proceeding with an approval
for Bank Mellat. Zamani pointed out that Malaysia had a solid
regulatory system; that other countries were doing business
with Iran and, as a small, trade-dependent nation, Malaysia
could not afford to "miss the boat." Speaking outside his
Bank Negara brief, Zamani opined that the U.S. should be more
"objective," not sanctioning one country for pursuing nuclear
weapons while allowing others to have them. (Note: Economic
Counselor provided ref A non-paper to BNM Deputy Governor Ooi
Sang Kuang on February 19. End note).


2. (S) COMMENT: The best that we can determine is that
Malaysia has not given final approval to Bank Mellat,s
subsidiary in Labuan, but Zamani's remarks were not
encouraging. Given what we have heard recently from the MFA
and the Deputy Prime Minister in response to our expressed
concerns (refs B and C),the GOM is evincing no signs at this
stage, prior to the upcoming leadership transition, that it
is willing to revoke the Bank Mellat license outright. At
best, there may be further delay as the Malaysians digest the
import of our approaches and those of others (e.g., the Euros
and Australians). END SUMMARY AND COMMENT.


3. (S) During his February 23 call on Central Bank Deputy
Governor Zamani Abdul Ghani, visiting US Ambassador for ASEAN
Affairs and DAS for Southeast Asia Scot Marciel conveyed ref
A points and specifically asked that Malaysia reject Bank
Mellat,s application for a license to open a subsidiary in
Labuan. Zamani responded only indirectly to Marciel,s
points/request, twice saying "We have shown
ourselves to be definitive in what we want to do." (Comment:
The meaning of this comment is unclear, but may have been
intended to imply that the approval was definite when in fact
it might not be. End comment.) Zamani did not provide any
information on the status of Bank Mellat's application, but
Wan Nazri, Director of Malaysia's Financial Intelligence
Unit, indicated that he would follow up on the points
contained in our non-paper.


4. (S) Zamani explained that Bank Mellat's subsidiary in
Labuan, Malaysia's offshore financial services center, would
be required to comply with national laws and regulations
including the Anti-Money Laundering and Counter-Financing of
Terrorism Act (AMLA) and would be subject to oversight by GOM
regulators including the central bank, the Islamic Financial
Services Board, and LOFSA. He pointed out that Malaysia had
done much better than other nations in the region on its
Mutual Evaluation by the Asia Pacific Group, an
intergovernmental body styled after the Financial Action Task
Force, and that its regulatory system was solid.


4. (S) Ambassador Marciel agreed that Malaysia had done very
well for itself in building up its financial services sector.
He said Bank Negara Governor Zeti was held in high regard in
the international community, and Malaysia had made
significant progress in positioning itself as a global
hub for Islamic finance. It would be a shame to risk
Malaysia's excellent reputation by licensing a subsidiary of
Bank Mellat to operate on Malaysian soil. EconCouns added
that, although the UN Security Council had not yet sanctioned

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Bank Mellat, the information the U.S. was sharing with the
Malaysia Government laid out numerous links between Bank
Mellat and entities under UN sanctions, and the UN may
sanction Bank Mellat. It was Malaysia's decision to act on
this information, or not, he added.


5. (S) Zamani reacted to this point and said the U.S. should
be more objective; that it was unfair to
sanction one country and not sanction "another country in the
same region" for doing the same thing. "Both sides must obey
international law," he said. Zamani said he noted our
concerns but that sometimes the world was not fair. Malaysia
does have a solid regulatory system, he reiterated, adding,
"Iran is a big country and we must not miss the boat.
Everybody is doing business there. We are
a small trading nation and we have to consider the economy."
Alluding to Malaysia's Muslim-majority
population, Zamani said, "We also have to consider where our
affinities lie." He added, "We are frightened as well of
nuclear proliferation; that is why ASEAN has a no-nuclear
policy. Warships go through the Straits of Melacca and we
have no control over that." (Comment: Zamani is one of three
Deputy Governors at Bank Negara. He is a civil servant who
has worked his way up through the
ranks. He oversees the Financial Intelligence Unit, Special
Investigations, and Banking Supervision, among other
departments. While Ambassador Marciel spoke, Zamani was
reviewing other documents before making his points, some of
which clearly were outside the purview of the central bank.
It is likely that he had already reviewed our non-paper,
which EconCouns provided to Bank Negara last week, and was
delivering points from either the MFA or the Prime Minister's
Department. End comment.)


6. (S) LOFSA Director General Azizan Abdul Rahman asked about
Bank Mellat's branches in London and South Korea. Marciel
explained that the current focus was to discourage new
licenses, and later if Bank Mellat were sanctioned by the UN,
more pressure would be put on existing branches. EconCouns
noted that the UK was very concerned about the activities of
Bank Mellat and British regulators were
scrutinizing the bank very closely.


7. (U) Other Malaysian participants included: Mr. Wan
Mohammad Nazri Wan Osman, Director of Malaysia's Financial
Intelligence Unit (FIU); Mr. Ismail Alowi, Director of Bank
Negara's International Department; Mr. Albert See Choon
Kwang, Manager, Bank Negara's Economics Department; and a
number of other Bank Negara staff including a representative
of the Governor's office.


8. (U) Ambassador Marciel did not have an opportunity to
clear this message before his departure from Malaysia.
RAPSON