U.S. EXTENSION OF IRAQ'S FINANCIAL IMMUNITIES

C O N F I D E N T I A L STATE 050829 E.O. 12958: DECL: 05/14/2014 TAGS: EFIN PGOV ECON PREL UN SUBJECT: U.S. EXTENSION OF IRAQ'S FINANCIAL IMMUNITIES Classified By: NEA DAS Richard Schmierer For Reasons 1.4(b) and (d). 1 . (SBU) This is an action request. Please see paragraph ¶6. ¶2. (C) Summary: The Executive Order that, inter alia, extends legal protections (immunities) for the Development Fund for Iraq (DFI) and certain other Iraqi assets expires May 22, 2009. The GOI has requested its extension. While Washington is prepared to do so, the Embassy is requested to impress upon the GOI the urgent need to fulfill its pledges to the UN Security Council and to the USG to put its financial affairs in order and address its outstanding financial liabilities and claims that put its assets at risk. Talking points are provided in paragraph 6. End Summary. ¶3. (C) UNSCR 1859 extended the arrangements for the Development Fund for Iraq (DFI),including legal immunities for the DFI and certain other assets, originally mandated by UNSCR 1483 and successor resolutions. To deal with a threat to the national security and foreign policy of the United States represented by the threat of attachment or other judicial process against the DFI, Iraqi petroleum and petroleum products, the proceeds arising from the sale thereof, and the assets of the Central Bank of Iraq, President Bush issued Executive Order (E.O.) Number 13303, as amended by E.O. 13364, in which he declared a national emergency, allowing the U.S. to invoke the authorities of the International Emergency Economic Powers Act (IEEPA) to provide protections for the DFI and certain other properties in which Iraq has an interest. The E.O. also invoked the authority of the UN Participation Act. The U.S. protections go beyond the requirements of the UN resolutions. The national emergency (which also serves as the authority for additional E.O.s on Iraq not related to the immunities issue) must be renewed annually and will terminate on May 22, 2009. Prime Minister Maliki requested that the President extend the immunities. After carefully considering Maliki's request and the still existing threat to U.S. national security and foreign policy posed by obstacles to the stabilization of Iraq, the President has decided to continue the national emergency for a year, thus extending the E.O.s grant of immunities in the U.S., as well as the sanctions in the other E.O.s based on this national emergency, through May 21, 2010. UNSCR 1859's mandate on the international community will expire at the end of 2009. ¶4. (C) The international and U.S. immunities were granted to allow the GOI time to place its financial affairs in order, so that Saddam-era debts and claims would not pose a threat to the orderly reconstruction and stabilization of Iraq. Since 2004, the GOI has made significant progress in resolving much of its sovereign and commercial debt under Paris Club terms for 80 percent debt reduction. (Note: The US canceled 100% of Iraqi sovereign debt). However, the GOI must settle substantial remaining amounts of sovereign debt ($50-80 billion, mostly owed to its Gulf Arab neighbors),and perhaps additional non-debt commercial claims. The American victims of Saddam's terrorism and torture are also pressing substantial claims and have sought to attach Iraqi assets. ¶5. (C) The immunities were always intended as a temporary arrangement and, before the immunities provided under UNSCR 1859 and the E.O.s expire, the GOI must address its remaining financial liabilities. Iraq pledged to do so when it requested the Security Council extend immunities last year. We need to impress upon Prime Minister Maliki that the immunities may have begun as a benefit for Iraq, but are now becoming a burden. They represent an unwanted legacy of the former regime and raise serious questions about the current government's financial future. Iraq should be doing everything that it can to come out from under the immunities as soon as possible. Under the leadership of Dr. Abdul Basit Said al-Turki, the Board of Supreme Audit should audit all unsettled Saddam-era liabilities, and the Ministries of Foreign Affairs, Finance and Central Bank of Iraq should form joint debt reconciliation and reduction negotiation teams to engage with urgency and persistence all remaining major creditors that have not reached formal debt reduction agreements. The Prime Minister needs to engage with and oversee such duly authorized negotiating teams in order to resolve the outstanding debts with major creditors, especially with Iraq's Gulf neighbors. Progress depends on improving the political dynamics. The GOI team named to negotiate a government-to-government settlement of the American victims' claims should be encouraged and supported. ¶6. (C/REL IZ) Embassy Baghdad is requested to demarche the GOI regarding the need for swift and significant progress in resolving its outstanding financial liabilities and can draw from the following points: Begin talking points -- You asked the President and Secretary Clinton for an extension of the U.S. immunities for the DFI and other Iraqi assets in the United States. The extension of the immunities provided by U.S. Executive Orders was considered at the highest levels, and the immunities will be extended another year (through May 21, 2010). This extension goes beyond the protections required by UNSCR 1859, which expire on December 31, 2009, and the E.O.s also protect Central Bank assets, which the UN resolution does not require. -- The Administration remains under significant pressure from Congress with respect to the claims of American victims against Iraq arising from Saddam-era terrorism and torture. As an example, legislation has again been proposed in the House of Representatives that would allow lawsuits alleging these claims to proceed. -- We look forward to working with the delegation headed by Dr. Fadel with the aim of being able to show tangible and demonstrable progress in time for possible high level visits later in June. The American government would appreciate the GOI's commitment to making such progress. -- Iraq should also be taking the steps necessary to alleviate the need for immunities protections. Such actions would represent a strong demonstration of its sovereignty and good governance, as well as its strengthening financial management capabilities. -- The immunities create uncertainty about Iraq's financial standing and future in the eyes of the international financial community. Making progress on resolving debts and claims will help to improve Iraq's international financial credit rating, which will be crucial for Iraq being able to access global financial markets in coming years. -- We would urge Iraq to make a strong and broad effort to settle its remaining Saddam-era commercial and sovereign debts on Paris Club comparable terms or better. Iraq can continue to count on our continuing support in those efforts. End talking points. ¶7. (SBU) POC for questions or concerns is Kevin Taecker (NEA/I-Econ/Assist); TaeckerKR2@state.sgov.gov or TaeckerKR2@state.gov; 1-202-647-6314. CLINTON