Cablegate: Iran - German Finance Ministry Supports Listing


DE RUEHRL #0211/01 0511753
O 201753Z FEB 08

S e c r e t <> 000211


Sipdis, p, t, e, nea, isn, eur, eeb

E.o. 12958: decl: 02/19/2018
Tags: knnp, mnuc, parm, efin, etrd, econ, prel, ir, eu, gm
Subject: iran - german finance ministry supports listing
bank melli, but remains skeptical

Ref: a. State 5584
b. State 14230
c. Dusseldorf 3
d. 07 <> 2256 and previous

Classified By: EMIN Robert A. Pollard for reasons
1.4 (b) and (d).

1. (S) SUMMARY: German Finance Ministry officials continue
to express doubt that listing Bank Melli as part of EU
autonomous <> against Iran will have a significant
practical effect on Iran's proliferation-related activity.
Nonetheless, they acknowledge the importance of sending a
strong political message to Iran. Finance Ministry officials
expressed concern that designating Bank Melli might somehow
trigger a new liquidity crisis in Germany, especially if the
credit crunch and sub-prime crisis persist -- a prospect that
we consider to be highly remote. German officials insist
they are closely monitoring the activities of the
Hamburg-based, Iranian-owned European-Iranian Commercial Bank
(EIHB). In early February, the Finance Ministry, Federal
Financial Supervisory Authority (BaFin), and German banking
associations circulated "concrete" guidance stating that the
October 2007 FATF statement legally obligates German banks to
implement stringent due diligence procedures for all business
involving Iranian customers or Iran-related
payments/financing. END SUMMARY.

Ministry reluctantly supports listing melli ...
--------------------------------------------- --

2. (S) Finance Ministry Director for Terrorism Finance and
Money Laundering Michael Findeisen told EconOff and PolOff
(Iran Watcher) February 19 that the Finance Ministry and
Economics Ministry had both tried (unsuccessfully) to
convince the Chancellery and MFA not to support the inclusion
of Bank Melli in a post-UNSCR round of EU autonomous
<>. Findeisen said the fact that the Chancellery and
MFA ultimately won out is an indication that Germany views
containing Iran's nuclear weapons program as a foreign policy
priority that trumps economic concerns. The German decision
to support listing Bank Melli is motivated by a desire to put
political <> on Iran, notwithstanding the Finance
Ministry's assessment that designating Bank Melli will have
little effect on the financing of Iran's nuclear weapons and
missile programs. Findeisen explained that Bank Melli's
German branch does not play a major role in financial
transfers between Germany and Iran. He expressed
appreciation for ref A information providing additional
detail on Bank Melli's involvement in Iranian
proliferation-related activities.

... But concerned about liquidity problems

3. (S) Findeisen said German government economists and
financial experts are concerned about the potential for
liquidity problems following the announcement of EU
autonomous <>, particularly since the EU's designation
of Bank Melli will cover both new and existing contracts.
(NOTE: We believe Findeisen exaggerated the danger of a
liquidity problem; if the Finance Ministry really feared that
action against Bank Melli could trigger a financial crisis,
Finance Minister Steinbrueck himself would have weighed in.
END NOTE.) Findeisen said deposits in Bank Melli's German
branch total more than EUR 100 million (approx. USD 150
million). Even though most bank deposits are insured, the
designation of Bank Melli could hurt German depositors,
especially if the sub-prime crisis and credit crunch persist.

4. (S) One of the main reasons for concern, Findeisen said,
is that a large share of Bank Melli depositors are small
towns and local communities attracted by Bank Melli's high
interest rates. Findeisen said German supervisors had not
observed any shifting of funds, despite recent German press
reports hinting that Bank Melli would be included among the
EU designations. Indeed, Findeisen said, the number of Bank
Melli depositors appears to be growing. Findeisen speculated
that most of Bank Melli's depositors are "unpolitical
persons," who do not follow international affairs closely.

Bank sepah - no active business in germany

5. (S) In response to a question, Findeisen said that Bank
Sepah has "no active banking business" in Germany. Although
most of Bank Sepah's employees were dismissed in the wake of
UNSCR 1747, Findeisen said, Sepah's managers will not close
the branch because they remain optimistic about the prospects

for a solution. They are willing to withstand significant,
long-term losses because they do not want to lose their
banking license or return to Iran. Most of Bank Sepah's
managers have been in Germany for 20-30 years and are, as a
result, "fully integrated." Findeisen described Bank Melli
and Bank Sepah managers as "realistic, non-political"
pragmatists, who are sympathetic to the Bazaaris and
staunchly critical of Ahmadinejad.

German authorities continue to monitor eihb

6. (S) Findeisen dismissed press reports claiming that the
Hamburg-based European-Iranian Commercial Bank
(Europaeische-Iranische Handelsbank AG, or EIHB) -- a German
bank wholly owned by Iranian interests, including Bank Mellat
-- plans to open a branch office in Tehran. Findeisen said
he had heard that EIHB plans to transform its representative
office in Kish Island into a branch office, but said the bank
had not yet made a decision on whether to open a branch in
Tehran. Findeisen said German bank supervisors and Federal
Financial Supervisory Authority (BaFin) regulators remain in
"permanent contact" with EIHB officials, conducting regular
on-site inspections and "looking deeply" into the bank's
activities, far more than BaFin does with other foreign banks
(see also ref C).

7. (S) Although EIHB is owned by Iranian banks, with the bulk
of its capital coming from Iran, EIHB is subject to German
licensing requirements and German banking law. In addition,
Findeisen said, EIHB's board members are all German citizens
or permanent residents and, as such, motivated to be "very
transparent" with German financial regulators. Findeisen
expressed hope that the United States would not extend
<> to EIHB, pointing out that German citizens have
hundreds of millions of euros on deposit with EIHB.

Fatf - ministry gives banks "concrete" guidance
--------------------------------------------- --

8. (C) Turning to the October 2007 Financial Action Task
Force (FATF) statement warning of the risks of doing business
with Iranian banks, Findeisen said the Finance Ministry had
convinced the German banking associations to provide
concrete, precise guidance on the subject to their member
banks. The text, which was negotiated among the Finance
Ministry, BaFin, and banking associations and finalized in
early February, is intended to provide an explanation of the
FATF's "political decision," i.e., to inform German banks
that they are legally obligated -- in line with FATF guidance
and UNSCRs 1737 and 1747 -- to implement stringent due
diligence procedures for all business involving Iranian
customers or Iran-related payments/financing.

9. (C) From the Finance Ministry's perspective, Findeisen
said, it was not sufficient simply to explain the FATF
statement to German banks, most of which are medium-sized
credit unions and banks and thus "too distant" from the FATF.
Findeisen said he was surprised that neither the German
banking associations nor their member banks opposed the
Finance Ministry initiative. He speculated that German banks
were motivated in large part by a desire to maintain access
to the U.S. financial system. Findeisen agreed the FATF
statement seems to be having a similar effect in other
countries, including the UAE.

Timken jr

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