VZCZCXRO8695
PP RUEHAG RUEHBC RUEHDE RUEHDIR RUEHKUK RUEHROV
DE RUEHLO #0118/01 0161033
ZNY SSSSS ZZH
P 161033Z JAN 09
FM AMEMBASSY LONDON
TO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 0935
RHEHNSC/NSC WASHDC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCNIRA/IRAN COLLECTIVE PRIORITY

S E C R E T SECTION 01 OF 04 LONDON 000118 
 
NOFORN 
SIPDIS 
 
E.O. 12958: DECL: 01/13/2019 
TAGS: EFIN KNNP MNUC PARM ECON ETTC IR UK
SUBJECT: UK IRAN SANCTIONS ROUNDUP 
 
REF: A. 2008 STATE 133198 
     ¶B. STATE 1760 
     ¶C. 2008 STATE 115523  Classified By: KATHLEEN DOHERTY, ECON COUNSELOR, FOR REASONS 1.4 B & D  This message contains Action Requests. Please see paragraphs 3, 11, 13 and 14.  

¶1. (S/NF) Summary. British officials are eager to apply additional pressure on Iran's nuclear program.  They are pursuing domestic and multilateral options, including possibly broadening the category of products requiring export licenses, imposing EU sanctions on additional Iranian banks, and testing their new legal powers to impose measures on weapons of mass destruction proliferators.  Cabinet and Foreign Office continue to press the more cautious HM Treasury to use all the tools at their disposal.  According to the British, other EU Member states fear the U.S. is preparing to take commercial advantage of a new relationship with Iran, and subsequently, are slowing the EU sanctions process. End summary.  

¶2. (U) The following is a roundup of UK Iran sanctions issues stemming from conversations we have had with HM Treasury (HMT), Foreign and Commonwealth Office (FCO) and Cabinet officials in the January 6-13 time period.  

Designation of ASSA Corp (2008 State 133198) ---------------------------------------  

¶3. (C) We delivered the ASSA Corp. designation information to FCO and HMT on December 22 (and passed U.S. Treasury's press notification to HMT on December 17.)  FCO received a question from a Member of Parliament asking whether the USG and HMG had been in contact prior to the designation of the parent company, ASSA Co. Ltd., which is located in Jersey, (the Channel Islands).  We informed the FCO that the above dates were Embassy's first contact with HMG on the issue.  HMG works closely with the Jersey authorities and is looking into this case.  Action request: HMT has asked if USG holds information about ASSA Co. involvement with Iranian entities through UK subsidiaries.  Note: Jersey is an independent Crown Dependency, not part of the UK or the EU, so not bound to follow EU or UK laws or policy.  As a Crown Dependency, however, Jersey is technically governed by the Queen, so practically speaking there is a great deal of law enforcement and regulatory cooperation with the UK.  In the case of Bank Melli sanctions, Jersey has adopted EU sanctions as its own, and also adopted the vigilance directive.  Jersey authorities share UK goals on preventing Iran's proliferation efforts, and UN Security Council resolutions do apply to Jersey and other Crown Dependencies and Overseas Territories, again due to the fact that they are possessions of the British Crown. Constitutionally-speaking, HMG has no authority to shut down an entity in Jersey, but practically, cooperation is very close, and HMT told us Jersey authorities do not want to be seen as irresponsible players.  Neither Bank Sepah nor Bank Melli have operations in the Channel Islands.  

IRISL and Oasis Freight Agency (State 1760) -------------------------------------  

¶4. (S) We delivered the IRISL and OASIS Freight Agency Name Changes paper on an informational basis to FCO and HMT officials on January 9 and 12.  HMG officials thanked us for the information and said they would share it with other agencies, and consider whether they can submit it for EU deliberations.  

Leveraging the FATF Statement on Iran (2008 State 115523) ------------------------ --------------------------  

¶5. (C) We followed up with Cabinet and HMT officials to inquire about UK efforts following the October FATF statement on Iran's financial practices, and to further stress our concern about correspondent banking relationships.  HMG officials reminded us Paris, Washington and London all cooperated on the FATF statement, and the UK released its own statement to British banks and firms immediately following the October meeting.  HMT officials described the new powers HMG has adopted in the Counter Terrorism bill, which allow the UK to pursue measures against WMD proliferators, as flowing from FATF efforts.  There are three situations that could initiate UK powers: 1) a strong FATF statement noting the financial risks from an entire jurisdiction; 2) a terrorist finance threat to the UK; 3) a nuclear, chemical or bio threat to the UK.  How and when to unleash the powers  LONDON 00000118  002 OF 004   depends upon the severity of the threat, HMT told us. Sanctions run the gamut between a requirement for due diligence, to the imposition of systematic reporting of transactions by an entity or sector, to a cease and desist order affecting an entity or a sector.  The latter category requires parliamentary approval.  

¶6. (C) HMT lawyers are evaluating what evidentiary level will be needed to withstand court scrutiny, with the hope the February FATF meeting will produce a statement strong enough against Iran to allow them to implement their new powers. The stronger the statement, combined with solid evidence, the more powerful the action the UK could take, we were told.  

¶7. (C) British government officials (FCO and Department for Business) are also studying whether they can tighten their export licensing rules to impose restrictions on additional items (currently military products and jewels are proscribed), and/or to strengthen language in the statement the government gives to exporters.  HMG worries the EU might go after the UK for violating EU trade regulations if the British act unilaterally, but the British have some caveats to those agreements that could help them impose tougher sanctions.  

¶8. (C) Regarding correspondent banking relationships, HMT told us there are very few such arrangements still operating in the UK, and what exists is very small.  The problems stem from relationships the Russians and other third-country banks maintain with Iran through London-based operations.  Many UK banks have pulled out of Iran since the UK's warning following the October FATF statement.  

Joint Demarches --------------  

¶9. (SBU) HMG was eager to highlight the joint U.S.-French-UK cooperation in delivering joint demarches to several Gulf and Asian countries, and they encouraged us to continue these approaches to certain countries.  

Bank Sepah ----------  

¶10. (S/NF) HMT officials continue to claim the bank is barely functioning "frozen in almost every way", not engaging in new business, and very little old.  Sepah is fully complying with its legal requirements within the UK, so the British government cannot legally take away its license, we were told.  HMT has looked at using its new Counter Terrorism powers to declare the London subsidiary of the Tehran-based Sepah a threat to the UK, but has determined that action would be a disproportionate use of its powers.  HMT officials suggested the best way to tackle Iranian banks is to cut off all remaining access to Euro Clearing.  This would need to be done at the EU-level, and would affect several German banks. The UK is discussing this with other European countries, and suggested we focus our efforts on Germany.  

¶11. (S/NF) Action Request: It would be helpful to provide the UK with any precedent where we closed down the "clean" subsidiary of a sanctioned parent.  The precedent does not have to be Iran-related, but that would be most effective.  

UN Sanctions Resolution -----------------------  

¶12. (C) HMT officials believe an additional UN resolution sanctioning Iran at this time would not help their efforts unless it includes new entities or stronger enforcement mechanisms.  They said the last resolution, 1835 in September 2008 was not very helpful.  If the UN comes through with another weak measure, it could harm EU efforts, the Treasury officials said.  Embassy comment: HMT's views contrast somewhat from past FCO statements that maintaining pressure from the UN in the form of ongoing resolutions is more important than the substance contained within. End Comment. HMT also stressed to us the importance of keeping the UN's non-proliferation efforts apart from FATF's financial health focus.  

EU Court Challenges to Iranian Designations -----------------------------------  

¶13. (S/NF) Action Request: FCO officials told us EU courts are beginning to challenge the EU's designation of Iranian banks and entities.  HMG is trying to pursue further EU listings.  To go forward, and maintain existing listings, the  LONDON 00000118  003 OF 004   UK is asking for more and better public information in the Statements of Cases.  Classified releasable information is helpful to build a file, but HMG particularly needs additional information they can use in the public arena.  FCO Iran staff told us HMG has requested this through other USG channels, with a target date of January 20.  FCO believes this information could boost prospects for February EU action on EU3 proposals, and is keen for the UK and France to present this evidence to other EU member states in advance of the next round of deliberations in early February. Specifically, HMG asked for any information to back up the following claim in the current statement of case on Bank Melli: "Providing or attempting to provide financial support for companies which are involved in or procure goods for Iran's nuclear and missile programs (AIO, SHIG, SBIG, AEOI, Novin Energy company, Mebah Energy Company, Kalaye Electric Company and DIO.)  Bank Melli serves as a facilitator for Iran's sensitive activities.  It has facilitated numerous purchases of sensitive materials for Iran's nuclear and missile programs.  It has provided a range of financial services on behalf of entities linked to Iran's nuclear and missile industries, including opening letters of credit and maintaining accounts.  Many of the above companies have been designated by UNSCRs 1737 and 1747."  HMG would also appreciate information on the following entities: Bank Mellat, Bank Saderat, Bank Tejara and Persia International Bank.  They would appreciate this information by early February, if possible.  

FCO: Germans Cool on EU Iran Designations; Fear a U.S. Commercial Edge -------------------------------- -----------------------  

¶14. (S/NF) FCO Iran staff also told us German resistance on further designations is spreading to all ministries. Germany, despite its strong public rhetoric, has moved "from advocate to resister" in E3 deliberations, blunting prospects for additional EU designations.  FCO interprets the German position to stem from its view that the new U.S. administration's views on Iran are unknown, therefore requiring a "pause for reflection" within the EU.  According to the FCO, Germany believes Iran should have additional time to reconsider its own strategic calculations.  The FCO and French rejoinder is the opposite view: now is the time to take advantage of any uncertainty Iran may be feeling and escalate multilateral pressure, sharply defining for the Iranian regime the costs of its current course.  

¶15. (S/NF) FCO thanked us for sharing the "outstanding" USG Powerpoint presentation on U.S. trade with Iran put together by Washington agencies in early January.  The current sense among EU missions in Tehran, FCO told us, is that the U.S. will seek, and benefit from, a sharp jump in trade the moment U.S.-Iran relations are restored.  This is many nations' rationale for going slow in generating additional economic pressure on Iran.  FCO said UK and French missions in Tehran will continue to advocate against this view with other EU governments, but HMG estimates the USG will encounter this perspective from most other EU members in the coming months.  

World Bank ----------  

¶16. (S/NF) HMG has heard a rumor Iran will soon request additional money from the World Bank soon. Cabinet Office would like to head this off before it gathers momentum. Action Request: Please provide any information on a possible Iranian request for World Bank money, and a proposed course of action.  

Intra-HMG Iran dynamics ----------------------  

¶17. (S/NF) In general, the Cabinet Office and FCO are pushing HM Treasury to be more aggressive in interpreting laws and regulations in ways that put pressure on Iran.  There are now three monthly meetings on Iran sanctions, including one chaired by Simon McDonald, head of Foreign and Defence Policy, Cabinet Office.  The Prime Minister and Foreign Secretary are eager to see results in the form of changed behavior in Iran's nuclear program, and are concerned that Iran not be allowed to exploit any differences between Europe and the U.S., or even among EU members themselves, a Cabinet officer told us.  Post greatly appreciates Washington's assistance in responding to these action requests.   LONDON 00000118  004 OF 004   Visit London's Classified Website: XXXXXXXXXXXX
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