ITALIAN BANK (UBAE) CLAIMS IT WILL HALT BUSINESS

C O N F I D E N T I A L ROME 000181 NOFORN SIPDIS TREASURY FOR U/S LEVEY AND OIA V. ATUKORALA E.O. 12958: DECL: 02/11/2020 TAGS: EFIN PARM IR IT SUBJECT: ITALIAN BANK (UBAE) CLAIMS IT WILL HALT BUSINESS WITH IRAN REF: 10 ROME 156 Classified By: DCM Elizabeth Dibble for reasons 1.4 b and d. ¶1. (C/NF) SUMMARY: The Managing Director of Banca UBAE, the Italian bank that finances much of Italy's trade with Iran, told Post on February 11 that the bank will halt its business with Iran starting on February 15. The Italian Finance Ministry encouraged the bank to take this step. Banca UBAE officials expect that Italian exporters will have to turn to German, Swiss, and Austrian banks to finance trade with Iran. This cut-off could have a significant impact on trade with Iran, and could prove useful in efforts to encourage other European banks and governments to carry out similar cut-offs. END SUMMARY. ¶2. (C) ECONOFFS met on February 11 with Marco Ferrario, Managing Director of Banca UBAE, a joint Italian-Libyan bank established in 1972 that specializes in trade between Italy and Middle East/North African countries. (NOTE: Post is aware that UBAE is under suspicion by U.S. authorities of assisting Iranian institutions to circumvent UN and US sanctions. ECONOFFS were careful not to enter into discussions of any ongoing investigations.) ¶3. (C) Ferrario and his head of marketing and communications, Lucia Balietti, claimed that their bank has always been very careful about avoiding involvement in illicit activity (Ferrario mentioned money laundering and dual-use exports). UBAE's main business, he explained, is short-term trade finance, handling letters of credit for Italian exporters to the Middle East and Iran. He characterized clients who export to Iran as predominantly small businesses, transacting small amounts (on the order of 20,000 euros per order) of spare parts and industrial supplies. Ferrario said his bank works only with private Iranian banks, not government ones. ¶4. (C) Ferrario surprised us when he stated that -- at the suggestion of the Italian Ministry of Finance -- his bank has decided to halt all of its business with Iran as of February ¶15. In explaining this decision, Ferrario pointed to the heated exchanges between Italian and Iranian officials that took place during and after PM Berlusconi's February 1-3 visit to Israel. Ferrario said that early in the week of February 8 the Finance Ministry called him in and indicated it would be best for Banca UBAE to suspend its business with Iran. Ferrario says he decided then to halt the bank's business with Iran in order to "align his bank with the wishes of the Italian system." Ferrario was emphatic and unequivocal in saying that his bank would do no further business involving Iran, not even with already established customers. (The bank has several open letters of credit with Iranian counterparties, but Ferrario said these deals would soon be concluded.) Post asked if UBAE would continue correspondent bank relationships with Iran; Ferrario told us that UBAE has no accounts in Iranian banks. Ferrario said the bank's new policy would not be publicized. ¶5. (C) In response to ECONOFFS' follow-up questions, Ferrario ventured that Italian exporters would likely turn to German, Swiss, and Austrian banks to finance and guarantee future trade transactions with Iran. He believes some of his clients may even sell to Iranian customers on credit, i.e. taking risk of non-payment entirely upon themselves. Ferrario is aware, naturally, of the Italian Export Credit guarantee agency's (SACE) de facto stop on Iranian transactions dating to 2007, but he purported not to know whether other Italian banks have continued to finance Iran-bound exports without SACE guarantees. He claimed also not to know what alternatives for credit guarantees -- in the private sector - might be available to Italian banks financing exports to Iran. DIBBLE