IRISL'S UNINSURED FLEET AND EVASIVE ACTIONS

UNCLAS SECTION 01 OF 05 STATE 016219

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN ETTC KNNP XF ZP ZR IR UK XG XT
PARM, PREL, MT
SUBJECT: IRISL'S UNINSURED FLEET AND EVASIVE ACTIONS
NECESSITATE DENIAL OF PORT ENTRY WORLDWIDE

REF A) LONDON 002351
B) STATE 069339
C) STATE 094723
D) STATE 104496
E) STATE 108151
F) HAMILTON 00014
G) STATE 125339
H) STATE 1760
I) STATE 52348
J) STATE 121818
K) STATE 115243
L) STATE 90303

STATE 00016219 001.2 OF 005

M) STATE 7877
N) SINGAPORE 00083
O) UNSCR 1737 SANCTIONS COMMITTEE IMPLEMENTATION
ASSISTANCE NOTICE- 24 JULY 2009
P) UNSCR 1737 SANCTIONS COMMITTEE IMPLEMENTATION
ASSISTANCE NOTICE- 20 JANUARY 2010



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

6.

--------------
SUMMARY/BACKGROUND
--------------


2. (SBU) On October 12, 2009, the UK government banned
its companies from doing business with the Islamic
Republic of Iran Shipping Lines (IRISL),Iran's shipping
line of choice for transporting proliferation-related
items (REF A). As a result of the UK action, IRISL lost
access to UK-based Protection and Indemnity (P&I) clubs,
from which it had obtained liability insurance coverage.
IRISL subsequently obtained substandard insurance from
the Bermuda-based South of England Protection and
Indemnity Association (SEPIA). The Government of
Bermuda quickly took action to mirror that of the UK and
on January 15, 2010, Bermuda banned its firms from doing
business with IRISL.


3. (SBU) Because this sequence of events has resulted in
IRISL's inability to maintain appropriate liability
insurance coverage, ports around the world should
consider denying IRISL entry. IRISL could choose to
self-insure or to seek coverage from the Islamic P&I
Club, which is based in the Queshm Free Zone in Iran,
but ports may find such insurance coverage insufficient.
Recent news reports also indicate that control of IRISL
ships has been moved to a new company, Hafiz Darya
Shipping Lines (HDS Lines),and Iran could attempt to
obtain insurance for its vessels under that name as
well. Insurance companies should be cautious of IRISL's
attempts to acquire coverage, including through HDS
Lines or any other related entities, and maritime
authorities should deny port entry for any Iranian
vessels that lack sufficient insurance coverage.


4. (SBU) We have approached the international community
numerous times regarding IRISL's proliferation-related
behavior. In June 2008, we asked nations to fully
implement the provisions of UNSCR 1803, which call for
inspections of IRISL vessels and cargo suspected of
containing prohibited items (REF B, C). We also
notified our partners of the U.S. designation of IRISL
and its subsidiaries for sanctions under Executive Order
13382 on September 10, 2008 (REF D),publicized the
importance of the UK's decision to ban UK business with
IRISL in October 2009 (REF A, E),and urged insurance
companies to cease insurance coverage of IRISL vessels
(REF G). Finally, we have approached individual
countries on an appropriate basis when IRISL-related
issues have arisen in their jurisdictions (REF H-N).
Since January 2009, IRISL has also been involved in
three publicly exposed transfers of conventional arms in
violation of UNSCR 1747 by chartering vessels from other
companies and transferring the material via IRISL cargo
containers (REF O, P).


5. (SBU) Bermuda's ban provides us with another
opportunity to highlight the risks of doing business
with IRISL and the international community's efforts to
protect themselves from those risks, and encourage all

STATE 00016219 002.2 OF 005

SUBJECT: IRISL'S UNINSURED FLEET AND EVASIVE ACTIONS
NECESSITATE DENIAL OF PORT ENTRY WORLDWI
states to take similar decisive action to prevent their
firms and territories from being used by IRISL for
proliferation-related purposes.

--------------
ACTION REQUEST
--------------


6. (SBU) Washington instructs Posts to deliver the
nonpaper in paragraph 7 and pursue the following
objectives with appropriate host government officials in
relevant foreign affairs, finance, trade,
transportation, and maritime ministries. Post should
also work with host governments to ensure that port
authorities and insurance firms in each host country
receive this message.

-- Note that IRISL may not have adequate or reliable
liability insurance coverage and emphasize the risks
inherent in allowing vessels without sufficient coverage
to enter ports in host countries.

-- Request that host countries take steps to deny IRISL
entry into their ports.

-- Note that IRISL is continuing to engage in deceptive
practices to disguise its connection to its ships by
operating them under a new name, Hafiz Darya Shipping
Lines (HDS Lines),and urge host countries to deny port
entry and insurance coverage to these ships as well.

-- Urge countries to take the steps necessary to
discourage their companies from providing chartering
services or moving IRISL containers due to the risks
posed by events such as IRISL's three violations of
UNSCR 1747 since January 2009.

POINT FOR EMBASSIES ABU DHABI, ALGIERS, ANKARA, ATHENS,
BAKU, BEIJING, BERLIN, BRUSSELS, CAIRO, CANBERRA,
ISLAMABAD, KUALA LUMPUR, LONDON, MADRID, NEW DELHI,
NICOSIA, OSLO, PARIS, RIYADH, ROME, SEOUL, SINGAPORE,
STOCKHOLM, TIRANA, TOKYO, VALLETTA, TRIPOLI AND AIT
TAIPEI ONLY (REF B):

-- We appreciate the steps you have taken in response to
previous conversations we have had regarding IRISL's
involvement in proliferation-related activities on
behalf of the Government of Iran, and we hope this new
information on IRISL's lack of adequate insurance will
help you evaluate the enormous risks posed by allowing
IRISL vessels entry to your ports.

POINT FOR EMBASSIES COPENHAGEN, LUXEMBOURG, OSLO,
STOCKHOLM, THE HAGUE, TOKYO, AND CONSULATE HAMILTON (REF
C):

-- We previously requested that P&I clubs in your
countries refrain from providing insurance to IRISL, and
we appreciate the cooperation that we have received on
this issue. We urge you to advise P&I firms in your
jurisdiction to refuse to provide coverage to HDS Lines
or any related entities, just as they have with IRISL.

POINT FOR SINGAPORE ONLY:

-- Acting Assistant Secretary Van Diepen raised IRISL's
insurance status during the recent U.S.-Singapore
Counterproliferation Dialogue (REF N). We note that the
list of acceptable P&I clubs in your jurisdiction,
according to a circular issued by the Maritime Port
Authority in November of 2008, does not allow for
coverage by SEPIA or Iranian insurance providers. Given
IRISL's questionable insurance status, we urge you to
carefully scrutinize the financial responsibility of
IRISL vessels and deny their entry to your port if any
doubt exists about their insurance status.


7. (U) Begin unclassified nonpaper on IRISL.

--------------
IRISL
--------------

-- The Islamic Republic of Shipping Lines (IRISL) has
long been a concern to the United States and the
international community due to its use by the Government
of Iran to transport items of proliferation concern in
violation of UN Security Council Resolutions 1737, 1747,
and 1803. The U.S. designated IRISL for sanctions under

STATE 00016219 003.2 OF 005


-- As a result of IRISL's conduct, other governments
have also taken actions which have degraded IRISL's
access to adequate insurance coverage.

--------------
IRISL LOSES INSURANCE COVERAGE
--------------

-- On October 12, 2009, the United Kingdom banned
British companies from doing business with IRISL and
Iran's Bank Mellat. The ban against IRISL was
implemented due to the services that the shipping line
provides to Iran's Ministry of Defense and Armed Forces
Logistics (MODAFL),which facilitates the transport of
cargo for Iran's nuclear and ballistic missile programs.

-- As a result of the ban, the two UK-based Protection
and Indemnity (P&I) clubs that provided insurance to
IRISL vessels ceased their coverage, and effectively
froze IRISL out of coverage from the other members of
the 13-member International Group of P&I Clubs. The
International Group insures 90 percent of the world's
gross tonnage and is the gold standard for worldwide P&I
insurance.

-- In November 2009, IRISL obtained coverage from South
of England Protection and Indemnity Association (SEPIA).
Although it is registered in Hamilton, Bermuda, SEPIA is
managed by a Lichtenstein company that subcontracts its
day-to-day activities to offices in Zurich and Brighton,
UK. This corporate structure means that while SEPIA
does business in the UK, it is not subject to the UK
ban.

-- SEPIA is considered by the maritime industry to be
the insurer of last resort for older and less seaworthy
ships rejected by the International Group and other top-
tier fixed premium P&I insurers. According to reliable
P&I market reports, SEPIA has the capacity to cover only
$250,000 in claims with its own reserves, which would
cover the bare minimum of P&I claims. Anything in
excess would be covered by its reinsurers, which may not
be in a position to cover IRISL-related liabilities due
to existing sanctions against IRISL.

-- On January 15, 2010, the Government of Bermuda took
action to prohibit Bermudian firms from doing business
with IRISL and Bank Mellat. As a result, SEPIA was
required to cease the provision of insurance coverage
for IRISL vessels. Bermuda's decision also forced Gard
of Norway, the world's second largest P&I club, to
withdraw its long-standing hull coverage of IRISL ships.

--------------
CONSEQUENCES OF THIS SITUATION
--------------

-- IRISL has effectively lost legitimate insurance
coverage as a result of these actions. A shipping line
that operates an uninsured fleet of over 100 container,
bulk carrier, and general cargo ships that sail globally
is unheard-of in the maritime industry and is
unacceptable from a regulatory standpoint. IRISL would
be unable to satisfy the insurance requirements
established under the International Convention on the
Civil Liability for Bunker Oil Pollution Damage, as well
as other national laws in force.

-- Vessels with insufficient or unreliable P&I insurance
are a serious risk for ports operating in your
jurisdiction. P&I coverage ensures that the costs of
any oil spill or other environmental damage caused by a
vessel will be borne by the P&I club, not the host
country. P&I coverage also includes responsibility for
salvaging a ship that has run aground, as well as
reimbursement to cargo owners or their insurers for
negligent damage to the cargo on board a vessel.
Finally, the loss of life and personal injury to
crewmembers, as well as any collision risks, are covered
by P&I insurance. In the event that an IRISL vessel
with insufficient P&I coverage is involved in an
incident in your port, your government or port authority
may be responsible for any damages that IRISL's
insurance does not cover.

-- In 2009, IRISL ships were involved in three major
accidents that killed seven people and caused tens of

STATE 00016219 004.2 OF 005

SUBJECT: IRISL'S UNINSURED FLEET AND EVASIVE ACTIONS
NECESSITATE DENIAL OF PORT ENTRY WORLDWI
millions of dollars in damage to the environment and its
ships. In November, the 23,720 dead weight tonnage
(dwt) IRISL ship Zoorik wrecked and broke in two in the
Yangtze River, creating over 400 tons of oily waste from
spilled bunker fuel. In April, the 17,928 dwt IRISL
ship Danoosh collided with a ship and sank as it crossed
the Singapore Strait. In December, the 38,000 dwt IRISL
ship Pantea collided with a Chinese fishing vessel,
causing the death of the crew members aboard the fishing
vessel. This high accident rate shows the likelihood of
an incident involving IRISL in your waters, and the
potential severity of the damage that IRISL ships can
cause.

--------------
IRISL'S EVASIVE ACTIONS
--------------

-- Recent news reports have stated that a new entity,
Hafiz Darya Shipping Lines (HDS Lines),now controls the
container shipping services formerly operated by IRISL.

-- We believe this is an attempt by IRISL to change its
name and ownership structure to avoid international
scrutiny, and that the Government of Iran could use HDS
Lines as its new shipping line of choice to transport
items of proliferation concern.

-- While the ownership structure may appear to have been
changed, the Government of Iran will likely still
maintain a great deal of control of the activities of
HDS Lines.

-- IRISL has used deceptive practices in the past to
conceal its identity and circumvent UN Security Council
resolutions to transport proliferation-related goods for
the Government of Iran. This behavior has included the
renaming and reflagging of its ships, as well as the
falsification of shipping documents.

-- In addition, IRISL was implicated in three violations
of UNSCR 1747 since January 2009 by transferring arms
related material out of Iran. In two of these incidents
IRISL chartered vessels from other companies; in the
third incident, IRISL transferred the prohibited
material via IRISL cargo containers.

-- IRISL's lack of proper insurance coverage and
exploitation of shipping services poses a risk to those
companies maintaining their business with IRISL.

--------------
IRISL'S NEXT STEPS
--------------

-- IRISL must replace its P&I coverage to continue to
operate internationally.

-- In an attempt to replace SEPIA's P&I coverage, IRISL
has a number of options, but three options appear most
likely. First, it could self-insure its vessels using
coverage provided by the Government of Iran. Second, it
could join smaller or lesser-known P&I clubs, such as
the Islamic P&I Club, which is headquartered in the
Queshm Free Zone, Iran, and has branches in Dubai and
London. Finally, it could approach the international
P&I sector under the new HDS Lines brand and reapply for
coverage.

-- Neither of the first two options provides an
acceptable level of coverage for a shipping line of
IRISL's size. The Government of Iran's continuous
disregard for its international responsibilities, and
its troubled economic situation, makes it unlikely that
a port state could rely on Iranian Government-provided
P&I coverage in case of an emergency. Given that the
Islamic P&I Club has traditionally focused on vessels of
up to 20,000 dwt, and IRISL's fleet includes vessels of
up to 76,000 dwt, it is unlikely that the Islamic Club
could provide sufficient P&I coverage in the event of an
accident.

-- The third option, an attempt by HDS Lines to apply
for P&I coverage, would be just as unacceptable, because
we believe that the Government of Iran will make HDS
Lines its new shipping line of choice to transport
proliferation-related items. Insurance companies,
including P&I clubs, should apply the same evaluation of
risk to HDS Lines as they have to IRISL, and they should

STATE 00016219 005.2 OF 005


--------------
ACTION NEEDED TO MITIGATE PORT RISK
--------------

-- Given IRISL's continued evasive actions, and its
current lack of legitimate insurance coverage for its
vessels, it is vital that your government take action to
protect your port(s) from the risk posed by IRISL and
HDS Lines.

-- We urge your government to take steps under your
national authorities to ensure IRISL and HDS ships are
denied entry to your ports. Preventing these vessels
from entering your port(s) is the most effective way to
protect your country and your port(s) from the risk of
proliferation-related activities or the risk of an
accident that IRISL/HDS' insurance is unable to cover.

-- We also recommend that you notify your insurance
industry, including any domestic P&I clubs, of the
change of control of IRISL vessels to HDS Lines. This
notification will ensure that your insurance companies
are able to identify former IRISL vessels and companies,
and take the necessary steps to prevent the provision of
insurance coverage to these vessels.

End unclassified nonpaper on IRISL.

--------------
ADDITIONAL INFORMATION
--------------

-- Documents relating to the UK ban on business with
IRISL and Bank Mellat can be found on HM Treasury's
website at http://www.hm-
treasury.gov.uk/fin_crime_policy.htm .

-- Documents relating to Bermuda's ban on business with
IRISL and Bank Mellat can be found on the Government of
Bermuda's website at:

http://www.gov.bm/portal/server..pt/text/priv acy_stateme
nt.html/gateway/PTARGS_0_2_12224_201_651_43/h ttp%3B/ptpu
blisher.gov.bm%3B7087/publishedcontent/publis h/ministry_
of_legislative_affairs/additional_document/ir an_order__a
n_interpretive_note_for_fiforms_4.pdf.

-- Information on IRISL's designation for proliferation
concerns under E.O. 13382 can be found in the press
release issued by the Treasury Department on September
10, 2008, which can be found at
WWW.TREASURY.GOV/PRESS/RELEASES/HP1130.HTM.

--------------
REPORTING DEADLINE
--------------


8. (U) Post should report results within seven business
days of receipt of this cable. Please slug replies for
ISN, T, TREASURY, and NEA. Please use the caption
SIPDIS in all replies.

--------------
POINT OF CONTACT
--------------


9. (U) Washington point of contact for follow-up
information is Kevin McGeehan, ISN/CPI, (202) 647-5408,
and Jennifer Chalmers, ISN/CPI, (202) 647-9715.


10. (U) Department thanks Posts for their assistance.

MINIMIZE CONSIDERED
CLINTON