RESPONSE TO GOVERNMENT OF GEORGIA REGARDING

C O N F I D E N T I A L STATE 070201

SIPDIS

E.O. 12958: DECL: 07/05/2019
TAGS: PREL ETRD ENRG GG IR
SUBJECT: RESPONSE TO GOVERNMENT OF GEORGIA REGARDING
IRANIAN INVESTMENT IN GEORGIA'S HYDROPOWER SECTOR

REF: A: TBLISI 01211
B: STATE 114408

Classified by NEA Acting Assistant Secretary Jeffrey D.
Feltman for reasons 1.4 (b) and (d).


1. (U) This is an action request. Please see paragraph

3.


2. (C) SUMMARY: Department appreciates reftel report of
a pending Georgian deal to accept Iranian investment in
Georgia's hydropower sector. Such business deals with
Iran or Iranian entities, particularly in the energy
sector, undercut international efforts to maintain
pressure on Iran while it continues to defy its
obligations. The international community must
demonstrate that it is united against Iran's negative
policies. Iran has a history of using new energy deals
as opportunities to proclaim itself as a fully-
integrated and responsible member of the international
community. The Government of Iran also uses such
announcements to augment its position that multilateral
sanctions have little effect on Iran's economy. The
Government of Georgia should refrain from presenting
Iran such an opportunity. There are also implications
under U.S. law and particularly given Congressional
consideration of legislation to expand U.S. sanctions on
Iran. If such sanctions are adopted, there would likely
be impacts on countries doing business with Iran, and
could greatly restrict access to U.S. capital and
financial markets for Georgian firms who are engaged in
business with Iranian entities.
End summary.


3. (C) BACKGROUND: Ref A states that the Iran Export
Bank would provide financing for the proposed project by
the Iranian company Sunir and the Georgian Investment
Group (GIG). Post should alert appropriate host
government officials in the Foreign Affairs, Energy and
Finance Ministries that the Iran Export Bank may be
another name for the Export Development Bank of Iran
(EDBI),which was designated by the U.S. Treasury
Department under Executive Order (E.O.) 13382 on October
22, 2008, for providing financial services to entities
engaged in developing Iran's weapons of mass destruction
(WMD) programs (ref B). Doing business with EDBI could
expose Georgian entities to U.S. sanctions, and is
inconsistent with both the call in UN Security Council
Resolution 1803 to exercise vigilance against Iranian
banks, as well as the call by the Financial Action Task
Force for countries to apply countermeasures to guard
against the threat posed by the money laundering and
terrorist financing deficiencies inherent in Iran's
financial system.


4. (C) ACTION REQUEST: Post is requested to urge the
Government of Georgia to refrain from accepting Iranian
investment to develop hydropower in Georgia for export
to Iran through Armenia or Azerbaijan, drawing on the
points in paragraph 5.


5. (U) Post may draw from the following points with
Government of Georgia interlocutors in the Ministries of
Foreign Affairs, Energy and Finance as appropriate:

-- Now is not the time for business as usual with Iran.
Iran needs to understand it has an opportunity to regain
the confidence of the international community. We have
offered a path to dialogue and diplomatic resolution.
It is up to Iran to take advantage of this offer or face
consequences.

-- Signing a deal like this now only reinforces Iran's
belief that its current path is acceptable to the
international community, and that Tehran has no reason
to adjust its actions and fulfill its international
obligations.

-- The Iran Export Bank may be another name for the
Export Development Bank of Iran (EDBI). The United
States designated 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.

-- E.O. 13382 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.

-- 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.

-- 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." EDBI
is included in this call by extension.

-- 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.

-- Furthermore, the EDBI has facilitated the ongoing
procurement activities of various front companies
associated with MODAFL-subordinate entities.

-- 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.

-- 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.

-- 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.

-- 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.

-- 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.

-- 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 refrain from accepting Iranian investment to develop
hydropower in Georgia for export to Iran through Armenia
or Azerbaijan.

-- We understand that Iran is a neighbor and that
Georgia does not want to have a problematic relationship
with Iran. We look forward to time when Iran takes its
place as a responsible member of the international
community that respects the rights of both its own
people and its neighbors.

End points.


6. (U) Post is requested to report any substantive
response front channel. Raj Wadhwani (202-647-2513) is
the Department point of contact for this demarche.
CLINTON