LEBANON LOAN AGREEMENT WITH U.S.-DESIGNATED

C O N F I D E N T I A L STATE 037028 SIPDIS E.O. 12958: DECL: 04/15/2019 TAGS: EFIN ETTC KNNP IR PREL PARM XF LE SUBJECT: LEBANON LOAN AGREEMENT WITH U.S.-DESIGNATED EXPORT DEVELOPMENT BANK OF IRAN REF: A. BEIRUT 442 ¶B. STATE 114408 Classified By: ISN Acting A/S C.S. Eliot Kang, for reasons 1.4 (b) and (d). ¶1. (U) This is an action request. Please see paragraph 3. -------------- SUMMARY/BACKGROUND -------------- ¶2. (SBU) In reftel A, Embassy Beirut alerted Washington that Lebanon signed a Memorandum of Understanding (MOU) March 12 with the Export Development Bank of Iran (EDBI) for the reactivation of a 45 million euro loan originally signed in ¶2003. EDBI was designated by the U.S. under Executive Order (E.O.) 13382 on October 22, 2008 for providing financial services to multiple Ministry of Defense and Armed Forces Logistics (MODAFL)-subordinate entities (ref B). The U.S. urges Lebanon to cancel this loan with EDBI due to its demonstrated support for proliferation-related activities. -------------- OBJECTIVES/ACTION REQUEST -------------- ¶3. (C) Washington requests Embassy Beirut pass the attached nonpaper in paragraph 4 to appropriate government officials and pursue the following objectives: -- Remind the Government of Lebanon of the need to implement UNSCR 1803, which calls for UN member states to exercise vigilance over financial institutions' activities with all banks domiciled in Iran. -- Urge the Government of Lebanon to end contacts with EDBI based on its activities in support of MODAFL. Elements of MODAFL were listed in the Annexes to UN Security Council Resolutions 1737 and 1747. -- Emphasize the role that EDBI plays in Iran's proliferation-related activities. -- Remind the Government of Lebanon that EDBI was designated by the U.S. under E.O. 13382 on October 22, 2008. -- Recall the Financial Action Task Force's (FATF) call for members to advise their financial institutions to give special attention to business relationships and transactions with Iran and apply effective counter-measures to protect their financial sectors from the money laundering and financing of terrorism risks inherent in financial dealings with Iran. -- Explain to the Government of Lebanon that maintaining the MOU with EDBI could place the Government and/or the jurisdiction at risk of losing other international financial relationships. -------------- BACKGROUND AND NONPAPER -------------- ¶4. BEGIN UNCLASSIFIED NON-PAPER FOR LEBANON -- (U) It is our understanding that your government signed a Memorandum of Understanding (MOU) March 12 with the Export Development Bank of Iran (EDBI) for the reactivation of a 45 million euro loan originally signed in 2003. -- (U) The United States designated the Export Development Bank of Iran (EDBI) and three affiliated entities under E.O. 13382 ("Blocking the Property of Weapons of Mass Destruction Proliferators and their Supporters") on October 22, 2008. -- (U) E.O. 13382, signed by the President on June 28, 2005, is an authority aimed at freezing the assets of proliferators of weapons of mass destruction and their supporters, and at isolating them from the U.S. financial and commercial systems. Designations under the Order prohibit all transactions between the designees and any U.S. person, and freeze any assets the designees may have under U.S. jurisdiction. -- (U) Any entity found to be conducting business with EDBI and its affiliates and any other designated entities, or any entity that is owned or controlled by, or acting for or on behalf of EDBI and its affiliates, may be subject to designation under E.O. 13382. -- (U) UNSCR 1803, adopted on March 4, 2008, "(c)alls on all member states to exercise vigilance over the financial activities of banks in their territories with all banks domiciled in Iran, and their branches and subsidiaries abroad, particularly Bank Melli and Bank Saderat." -- (U) According to information available to the U.S. Government, the EDBI provides financial services to multiple Ministry of Defense and Armed Forces Logistics (MODAFL)-subordinate entities; these services permit these entities to advance Iran's WMD Programs. -- (U) Furthermore, the EDBI has facilitated the ongoing procurement activities of various front companies associated with MODAFL-subordinate entities. -- (U) MODAFL controls Iran's Defense Industries Organization (DIO),an Iranian entity designated in UNSCR 1737 and by the U.S. under E.O. 13382 on March 30, 2007. The U.S. also sanctioned MODAFL pursuant to the Arms Export Control Act and the Export Administration Act in November 2000 for its involvement in missile technology proliferation activities. -- (U) MODAFL has ultimate authority over Iranian ballistic missile activities and organizations, including the Shahid Hemmat Industries Group (SHIG) and the Shahid Bagheri Industries Group (SBIG),which were both designated under UNSCR 1737, and by the U.S. in the annex of E.O. 13382. MODAFL has publicly indicated its willingness to continue work on ballistic missiles. Iran's Defense Minister Brigadier General Mostafa Mohammad Najjar said that one of Iran's major projects is the manufacturing of Shahab-3 missile and it will not be halted. The Defense Minister has also commented on MODAFL's readiness to supply these missiles to Iran's armed forces. -- (U) Since the United States and United Nations designated Iran's Bank Sepah in early 2007, the EDBI has served as one of the leading intermediaries handling bank Sepah's financing, including WMD-related payments. In addition to handling business for Bank Sepah, the EDBI has facilitated financing for other proliferation-related entities sanctioned under U.S. and UN authorities. -- (U) We know MODAFL representatives are acting as facilitators for Iranian assistance to an E.O. 13382 designated entity and, over the past two years, brokered a number of transactions involving materials and technologies with ballistic missile applications. -- (U) On February 25, 2009, the Financial Action Task Force (FATF)reaffirmed its call on members to advise their financial institutions to give special attention to business relationships and transactions with Iran and apply effective counter-measures to protect their financial sectors from the money laundering and financing of terrorism risks inherent in financial dealings with Iran. -- (U) In light of EDBI's demonstrated relationship with MODAFL and its affiliates, as well as UNSCR 1803 and the FATF's call for countermeasures to protect against the risk of doing business with Iranian banks, we urge you to cancel this loan agreement with EDBI. -------------- REPORTING DEADLINE -------------- ¶5. (U) Post should report results within seven business days of receipt of this cable. Please slug replies for ISN, T, EAP, TREASURY, and NEA. Please use the caption SIPDIS in all replies. -------------- POINT OF CONTACT -------------- ¶6. (U) Washington point of contact for follow-up information is Kevin McGeehan, ISN/CPI, (202) 647-5408. ¶7. (U) Department thanks Post for its assistance. CLINTON