DEMARCHE REQUEST: DFI/IAMB ARRANGEMENTS

S E C R E T STATE 109017

SIPDIS

E.O. 12958: DECL: 10/14/2019
TAGS: PREL UNSC IZ
SUBJECT: DEMARCHE REQUEST: DFI/IAMB ARRANGEMENTS

Classified By: IO Assistant Secretary Esther Brimmer,
For Reasons 1.4 (b) and (d)


1. (U) This is an action request. Please see paras 4 and 5.

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Background
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2. (U) In Article 26 of the U.S.-Iraq Security Agreement,
the United States pledged to support Iraq,s efforts to
extend, temporarily, UN-mandated arrangements for the
Development Fund for Iraq (DFI). The United States also
pledged, in Article 25 of that agreement, to help the
Government of Iraq (GOI) take steps to return Iraq to the
legal and international standing it enjoyed prior to the
adoption of UNSCR 661 (1990).


3. (S) The current arrangements for the DFI (including
international monitoring, the requirement to deposit funds,
and special immunities for the DFI: Iraq,s oil and gas
exports, and the proceeds therefrom) are set to expire on 31
December 2009, per UNSCR 1859. Iraq has not yet requested an
extension of these provisions, but in each of the last four
years requested extensions at the eleventh hour, requiring an
emergency session of the UNSC. It is likely that Iraq will
require another extension of the DFI arrangements through
2010, but this year faces significant opposition within the
UNSC (particularly from Russia and the UK). Achieving
another one-year extension of the DFI arrangements will
require convincing the UNSC that this will be the last
extension, and that the GOI is seriously putting its
financial affairs in order so as to obviate the need for
immunities and special arrangements now associated with the
DFI.

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Action Request
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4. (S/REL) To that end, Embassy Baghdad is requested to
demarche the GOI at the highest appropriate level to discuss
a 12-month extension of arrangements for the DFI (and the
related IAMB).

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Talking Points
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5. (S/REL) Embassy Baghdad may draw on the following talking
points:

-- As you are aware, UN-mandated arrangements for the
Development Fund for Iraq (including international
monitoring, the requirement to deposit funds, and special
immunities for the DFI, Iraq,s oil and gas exports, and the
proceeds therefrom) are due to expire at the end of the year.

-- We are ready to work with you to ensure that appropriate
follow-on mechanisms are in place before the expiration of
the DFI.

Should Iraq reply that it requires an extension of DFI/IAMB
arrangements:

-- Note in order to extend these arrangements, the UN
Security Council (UNSC) would need to pass a new Chapter VII
resolution. This will be difficult to obtain. As Security
Council consultations on DFI/IAMB in August highlighted, and
as UNSCR 1859 (2008) recognized, UNSC members are looking
forward to the transition at the end of the year to successor
arrangements for the DFI and IAMB.

-- We are willing to work with you to seek to convince UNSC
members that you require a final one-year extension, but to
assuage their concerns over an extension of these
extraordinary DFI/IAMB arrangements, the GOI would be
expected to commit to steps to accelerate Iraq,s transition
out of these extraordinary arrangements.

-- In discussions with the Department, your government has
consistently identified outstanding Saddam Hussein-era claims
of U.S. victims as the principal justification for continued
DFI protections. Although our governments have endeavored to
resolve these claims on a state-to-state basis, no final
agreement has yet been concluded. We thus urge you to reach
by the end of the year an understanding with the United
States for the resolution of these claims.

-- Closing all remaining Oil-for-Food (OFF) contracts ($312
million) would go a long way toward demonstrating your
commitment to putting your financial house in order and
address the concerns of UNSC members that would otherwise
oppose the extension (e.g., Russia). Settling all the
remaining OFF contracts would trigger the release of $603
million to the GOI, which would be the remainder of the $915
million now held by the UN OFF Program after the remaining
contracts are paid.

-- We applaud the creation of the Committee of Financial
Experts (COFE) as a step toward ending the current DFI
arrangements. However, more work needs to be done to improve
COFE,s capabilities to take over from the IAMB, and to
ensure the independence of its members. Several of its
members hold significant positions within the MOF and BSA,
which present potential conflicts of interest. We would urge
you to substitute other qualified members or otherwise
address the conflict.

-- As a successor to the DFI, Iraq also needs to develop its
plans for establishing a single fully audited and transparent
petroleum revenue account for receiving all of its oil
revenues. These arrangements must also openly and explicitly
provide a mechanism for Iraq to continue honoring its
UNSCR-based UNCC obligations to pay a percentage of its
revenues to the UN Compensation Fund.

-- The need for Iraq to establish highly competent, impartial
and accountable oversight and to consolidate all petroleum
revenues into a single account is consistent with the
provisions of the Iraqi Constitution that all national oil
revenues be put to use equitably on behalf of all the Iraqi
people. Such clear, transparent and accountable handling of
all petroleum revenues is essential to binding the nation
together and developing a strong and stable democracy in
Iraq. We encourage you to take the steps necessary to
increase the capacity and independence of COFE and offer our
assistance in these
endeavors.

Should Iraq reply that it does not require an extension of
DFI/IAMB arrangements:

-- Inquire how the GOI is ensuring the appropriate follow-on
mechanisms are put in place to allow for the transfer of
obligations from the IAMB to COFE, and for UNCC payments at
the required percentage to continue to be transferred to the
UN Compensation Fund. The international community can offer
useful insights on alternative models that have been used in
other countries.

-- Inquire as to what sort of follow-on mechanism to the DFI
the GOI is going to use. Encourage the GOI to work with
appropriate technical experts to ensure that the new
mechanism is properly managed from both a fiscal and legal
perspective.

-- Ask the GOI how the follow-on mechanism will ensure that
UNCC payments are made to the UN Compensation Fund in a
timely and transparent manner.

End Talking Points.
CLINTON