DEMARCHE DELIVERED FOR IRAN SANCTIONS ACT:

C O N F I D E N T I A L SEOUL 001653 SIPDIS EEB/ESC/TFS FOR CBACKEMEYER E.O. 12958: DECL: 10/20/2019 TAGS: ENGR EPET ETTC IR PREL KS SUBJECT: DEMARCHE DELIVERED FOR IRAN SANCTIONS ACT: REPORTED SOUTH KOREAN COMPANY INVOLVEMENT IN IRANIAN GAS DEAL REF: STATE 107425 Classified By: DCM Mark Tokola for Reasons 1.4 (b/d) ¶1. (C) On October 20, the DCM delivered reftel demarche to Deputy Minister of Foreign Affairs Lee Yong-joon. The DCM told Deputy Minister Lee the reported USD 1.4 billion energy deal signed by Iran with the South Korean firm GS Engineering and Construction (GS E & C) raised concerns under the Iran Sanctions Act (ISA). The DCM said Congress was considering legislation that could expand the transactions covered by the ISA, and further, the GS E & C deal could undermine the P-5 plus 1 proposal to offer enhanced economic and energy engagement as an inducement for Iranian compliance. Accordingly, the DCM asked that the ROKG urge GS E & C to reconsider going forward with this contract and discourage other South Korean firms from engaging in new activities in Iran at this time. ¶2. (C) Deputy Minister Lee said the ROKG's policy was to comply with all laws and resolutions applicable to Iran, including the ISA. The ROKG has also urged Korean companies not to engage in business with Iran that would contravene applicable laws, and has also ceased export financing to Iran, which has posed a significant hurdle to companies doing business there. However, said Deputy Minister Lee, the GS E & C contract does not violate the ISA because the type of engineering, procurement, and construction (EPC) contract at issue is not considered an "investment" under the ISA. Rather, such turn-key construction is considered a "service," which is specifically excluded from the definition of "investment." The Deputy Minister pointed out that numerous European companies bid on the contract, and other European companies, including Technimont from Italy, were currently engaged in similar EPC contracts to work in the Iranian oil fields. In fact, Korea is just "a small potato" in the Iran oil business. GS E & C, he emphasized, would not be responsible for the development of natural gas resources in Iran. Addressing the issue of a possible expansion of the ISA in Congress, Deputy Minister Lee said it would be absurd for the ROKG to instruct companies to act on the basis of laws that could be passed in the future. In these circumstances, if the Korean companies did not take the contracts, Spanish, Italian or other European countries would. ¶3. (C) The DCM reiterated that, although all the facts are not yet known, one could reasonably conclude the GS E & C transaction would directly and significantly contribute to the enhancement of Iran's ability to develop petroleum resources in violation of the ISA. Even if the contract does fall within one of the ISA's exceptions, it would be important to think beyond purely commercial concerns and consider the general context of negotiations with Iran as well. STEPHENS