Cablegate: Depsec Treasury Discuses Iran Sanctions, U.S.


DE RUEHLO #0801/01 0781301
R 181301Z MAR 08




E.O. 12958: N/A

1. (SBU) SUMMARY: In a March 10 meeting with Conservative
Party leader David Cameron, Deputy Secretary Kimmitt told
him that the Iranian financial sector was feeling the
effects of Western sanctions and the EU-3 remain unified on
tightening the ability of Iranian banks to do business,
although Italy is slowing down progress within the EU on
autonomous sanctions. The Deputy Secretary, accompanied
by Ambassador Tuttle, told Cameron and Shadow Chancellor
George Osborne that the fundamentals of the U.S. economy
remained strong, discussed the state of the Iraqi economy,
and stressed U.S. support for the Transatlantic Economic
Council (TEC) and its objective of reducing regulatory and
non-tariff barriers to U.S-EU trade. Cameron pledged to
follow up with the Council. END SUMMARY.

Iranian Sanctions

2. (SBU) In response to Cameron's opening question -
whether UNSC 1803 would affect Iranian behavior - the
Deputy Secretary said that there was "no doubt" it
would have an impact on the Iranian banking sector.
The international financial sector now recognizes the
need to be vigilant -- the word is out that any
financial institution that engages in Iranian-related
transactions risks its reputation. The Deputy
Secretary told Cameron that the EU-3 (UK, France, and

Germany) are "solid" on building barriers to illicit
Iranian financial transactions, but as a result the
Iranians are moving their banking and commercial
transaction "to the south" -- Switzerland, Austria
and Italy.

3. (SBU) The Deputy Secretary explained that Italy is
playing an unconstructive role within the EU and slowing
down EU efforts to establish autonomous sanctions. It
was important to talk with the Italians about their
"outrider" status. Cameron expressed concern that other
European nations were not stopping export credits to
Iran. Kimmitt said that although UNSC 1803 did not
mandate an end to export credits, it put governments on
notice that they had a responsibility to review and
monitor any Iranian-related credits and the tendency
"across the board" was to cut down on export guarantees to
Cameron said that he was concerned about whether
European nations have the legal regimes in place to
unilaterally impose sanctions and freeze assets, outside
of an EU framework. Cameron noted that he had specifically
asked HM Treasury whether the UK could act unilaterally
and was told the legal basis was in place for UK action.
The Deputy Secretary said that was his understanding as
well of the UK situation, though not more broadly across
Europe, but that the issue for the UK Government was
absence of a UK equivalent to the U.S. Classified
Information Procedures Act. That Act provides safeguards
for the use of classified materiel in U.S. court
proceedings. In the absence of a UK equivalent, Kimmitt
said, he understood it was often difficult for the UK
Government to take criminal action against financial
institutions in a manner that would withstand a court
challenge. Kimmitt added that he understood there
were proposals put forward for similar legislation in
the UK; Cameron indicated he would follow up.

The State Of The U.S. Economy

4. (SBU) In response to Cameron's query on the
prospects for the U.S. economy, the Deputy Secretary
explained that the long-term fundamentals remain sound,
but there would be a slower rate of growth in the
short-term. The Deputy Secretary described the
recently-enacted stimulus package and how its effects
would likely be felt by the third quarter of this year.
Cameron asked if there were plans for new regulation
of the mortgage and banking sectors under consideration.
Kimmitt replied that there were proposals under review,
but that there would be no "bail out" for lending
institutions because of the moral hazard it would
represent. Shadow Chancellor George Osborne said that
he understood that the situation remained uncertain
because investors still did not have a good sense of
the value and credit-worthiness of the financial
instruments they were holding. The Deputy Secretary
agreed that "price discovery" was still taking place
and would likely continue for the remainder of the year.


5. (SBU) Turning to Iraq, the Deputy Secretary described
to Cameron recent progress in the Iraqi economy and in
achieving the goals of the Iraq Compact. Iraq is a
beneficiary of current oil price, the Deputy Secretary
noted, and he told Cameron the Iraqi Government was
considering creation of an Iraqi Sovereign Wealth Fund.
Money is not the issue, the Deputy Secretary said, rather
the need is to work on the Iraqi Government's institutional
capacity to manage and execute budget decisions.

The Transatlantic Economic Council (TEC)
--------------------------------------------- ----------

6. (SBU) The Deputy Secretary raised with Cameron the
strong U.S. support for the Transatlantic Economic Council
and its focus on reducing regulatory, non-tariff trade
barriers. The Deputy Secretary described how the
initiative would benefit both sides and would prepare
the way for future discussions on the longer-term goal
of a U.S.-EU Free Trade Agreement. He noted that the
TEC provides a mechanism to respond to UK business people
who have concerns over U.S. or EU regulatory requirements.
Cameron expressed support for the TEC and its regulatory
initiative, noting that at the recent Davos Conference he
had talked about the need to push forward with a U.S-EU
trade agreement, especially given the lack of progress on
the Doha Round. Cameron said he would be in touch with
the German head of the TEC about supporting the effort to
reduce EU regulatory burdens.

7. (U) Participants: USG: Ambassador Robert Tuttle;
Robert Kimmitt, Deputy Secretary, Treasury; Eric Meyer,
Director, Europe and Eurasia; Rob Saliterman, Spokesman,
International Affairs, Treasury; Rick Mills, Notetaker.
UK:David Cameron, Conservative Party Leader; George Osborne,
Shadow Chancellor; David Lidington, Shadow Minister of
Foreign Affairs, Edward Llewellyn, Chief of Staff.

8. (U) Deputy Secretary Kimmitt has cleared this message.

Visit London's Classified Website: cfm

Visit London's Classified Website: cfm

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