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Cablegate: Insurance and Reinsurance Industry Aiding Iran,S

VZCZCXRO0415
OO RUEHDE RUEHHT
DE RUEHC #5339/01 3311510
ZNR UUUUU ZZH
O 261502Z NOV 08
FM SECSTATE WASHDC
TO RUEHSW/AMEMBASSY BERN IMMEDIATE 5111
RUEHDE/AMCONSUL DUBAI IMMEDIATE 8162
RUEHHT/AMCONSUL HAMILTON IMMEDIATE 4400
INFO RUEHRL/AMEMBASSY BERLIN IMMEDIATE 8302
RUEHBY/AMEMBASSY CANBERRA IMMEDIATE 2970
RUEHLO/AMEMBASSY LONDON IMMEDIATE 0851
RUEHFR/AMEMBASSY PARIS IMMEDIATE 1910
RUEHRO/AMEMBASSY ROME IMMEDIATE 8657
RUEHTV/AMEMBASSY TEL AVIV IMMEDIATE 6436
RUEHBS/USEU BRUSSELS IMMEDIATE

UNCLAS SECTION 01 OF 04 STATE 125339

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: KNNP MNUC IR GM
SUBJECT: INSURANCE AND REINSURANCE INDUSTRY AIDING IRAN,S
PROLIFERATION ACTIVITIES

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

-------
SUMMARY
-------

2. (SBU) The United Kingdom, France, Germany, Italy, and
the U.S. (E4 1) have discussed the adoption of additional
national measures to increase the pressure on Iran to end its
proliferation-sensitive nuclear activities. After a meeting
on October 9, the E4 1 identified insurance and reinsurance
as "financial services" for the purposes of sanctions imposed
by the United Nations Security Council concerning Iran.
These industries are vulnerable to Iranian deceptive
practices regarding proliferation. The E4 1 agreed to a
joint demarche as a way to inform governments about the risks
that Iran poses to the insurance and reinsurance industries
in their jurisdictions. Posts are requested to coordinate
the delivery of the attached nonpaper to host governments
with the local representatives of the United Kingdom, France,
Germany, and Italy.


-------------------------
OBJECTIVES/ACTION REQUEST
-------------------------

3. (SBU) Washington requests Posts deliver the talking
points and non-paper in paragraph 4 to appropriate host
government officials in the foreign and finance ministries.
Posts are requested to coordinate the delivery of the
attached nonpaper with the local representatives of the
United Kingdom, France, Germany, and Italy. Post should
pursue the following objectives:

-- Remind host governments that full implementation of UN
Security Council Resolutions (UNSCRs) by all members of the
international community is critical to addressing the
proliferation threat posed by Iran and that many European
countries and firms have determined that the risk of doing
business with Iran is too great and, as a result, have
reduced their business with Iran.

-- Commend the efforts of the European Union and Australia
(The EU designated Bank Melli and Australia designated Banks
Melli and Saderat) on additional national actions outside of
those prescribed by the UN Security Council to curb Iranian
proliferation activities.

-- Note that Iran's use of front companies and other
deceptive practices in purchases in commercial and financial
activities makes it difficult to know the final end user or
ultimate use of any goods or assets.

-- Note that insurance, as a financial service, is included
within the scope of UNSCR 1737 obligations requiring states
to take measures to prevent the provision to Iran of any
financial assistance or services related to the transfer of
prohibited items to Iran.

-- Urge host governments to ensure that their insurance
companies do not provide insurance to any entities that are
engaged in proliferation-related activities, specifically
individuals and entities designated under UNSC resolutions
1737, 1747 or 1803, as well as those designated by the USG
under Executive Orders 13224 and 13382.

-- Encourage host governments to warn their insurance
companies about the risks of doing business with Iran, such
as the Iranian regime using its state-owned firms to support
terrorism and proliferation-related activity. The Iranian
state-owned banks also use deceptive financial practices to
support this illicit activity.

-----------------------
BACKGROUND AND NONPAPER
-----------------------

STATE 00125339 002 OF 004

4. (SBU) BEGIN NON-PAPER

-- Full implementation of UN Security Council Resolutions
(UNSCRs) by all members of the international community is
critical to addressing the threat posed by Iran. UNSCR 1737
(2006) requires UN Member States to take the necessary
measures to prevent the provision to Iran of any financial
assistance or services (including brokering)or services
related to the transfer, manufacture, or use of prohibited
items specified in that resolution.

-- UNSCR 1747 (2007) calls upon States and international
financial institutions not to enter into new commitments for
providing financial assistance to the Government of Iran,
except for humanitarian and developmental purposes.

-- UNSCR 1803 (2008) calls upon States to exercise vigilance
over the activities of financial institutions in their
territories with all banks domiciled in Iran, including Banks
Melli and Saderat, and in entering into new commitments for
public-provided financial support for trade with Iran,
including insurance, in order to avoid contributing to Iran's
proliferation sensitive nuclear activities or to the
development of nuclear weapon delivery systems.

-- UNSCR 1803 also calls upon States, in accordance with
their national legal authorities and consistent with
international law, to inspect cargo to and from Iran of
aircraft and vessels owned or operated by Islamic Republic of
Iran Shipping Line (IRISL) when there is reason to believe it
is carrying items prohibited under UNSCRs 1737, 1747 or 1803.

-- In addition, UNSCRs 1737, 1747 and 1803 require all States
to ensure that no financial assets or economic resources are
made available by any persons or entities in their
territories to or for the benefit of those designated by the
UN Security Council in these resolutions or by those acting
on their behalf.

-- We have worked with the banking sector on implementation
of the Iran-related UNSCRs, but other financial sectors -
such as the insurance sector - are also vulnerable to the
risk of facilitating Iranian proliferation activities and
support for terrorism by providing insurance services to
Iranian entities. We understand that there are several areas
where Iran would have a need for the type of reinsurance
provided by companies in your jurisdiction - in particular,
for coverage in the aviation and energy sectors.

IRISL Activities:

-- We have discussed the activities of IRISL with your
government. The United States designated IRISL and 18
subsidiaries and foreign joint ventures under national
authorities (Executive Order 13382) on September 11, 2008 for
facilitating shipments of military cargo destined for the
Ministry of Defense and Armed Forces Logistics (MODAFL) and
its subordinate entities, including organizations that have
been designated as subject to targeted sanctions by the
United Nations Security Council in Resolutions 1737 and 1747.

-- We remain concerned about the activities of the Islamic
Republic of Iran Shipping Lines (IRISL), which we understand
acquires liability insurance and other services from P&I
Clubs. We would like to discuss with you the risks
associated with providing such financial services and
insurance coverage to an Iranian entity.

-- Even if P&I Clubs in your jurisdiction may not cover a
loss determined to have occurred in the context of illicit
activity, the act of providing coverage to Iranian companies
like IRISL both legitimizes their operations and enhances
those companies' ability to engage in nefarious activity. We
have seen evidence that such illicit activity continues.

-- IRISL continues to carry cargo destined for entities
designated by the United Nations Security Council. Several
IRISL vessels had cargo impounded in 2007 because they were
transporting dual-use items to designated entities or to
entities acting on their behalf.

-- IRISL is increasingly employing deceptive practices to

STATE 00125339 003 OF 004


disguise its involvement in shipping operations and the
destination of its cargo. This includes modifying documents,
changing ship names or registration, and developing schemes
to shroud IRISL's involvement in order to secure bank
cooperation.

-- Such deceptive conduct allows Iran to abuse coverage
provided by P&I Clubs in your jurisdiction that participate
in an insurance pool, even if all reasonable due diligence is
done by that Club.

Reinsurance Sector:

-- We are increasingly concerned that reinsured Iranian
activity in these and other sectors is being exploited for
activities prohibited by the UN or that reinsured activity
may be controlled by Iranian entities designated by the UN.
We want to discuss the risks associated with providing such
financial services to Iran.

-- Even if the reinsurance company may not cover a loss
determined to have occurred in the context of illicit
activity, the existence of coverage for Iranian companies
enhances their ability to conduct illicit activity. Iranian
entities continue operating with the financial security
achieved by having their operations reinsured on the global
reinsurance market, and we have seen evidence that illicit
activity continues.

-- Deceptive conduct allows Iran to abuse coverage provided
by the global insurance industry, even if all reasonable due
diligence is done by the insurance company.

-- To avoid providing financial services prohibited by the UN
Security Council, we ask that companies in your jurisdiction
review coverage and/or brokering services they may provide to
Iranian companies or projects in Iran operated by other
companies, consider rescinding reinsurance policies under
contract, and not provide coverage to Iran or to projects in
Iran in the future. A first step could be ending existing
relationships and refraining from beginning new relationships
with the Central Iranian Insurance Organization and the Iran
Insurance Company.

-- Swiss Re, a global reinsurance firm, recognized the risk
of providing coverage to the Iranian regime and stated that
it will no longer insure Iranian activities. We ask that
companies in your jurisdiction take similar steps which would
contribute to international efforts to address Iranian
illicit activity.

Iran Insurance Company:

-- We are concerned about the activities of the Iran
Insurance Company.

- Iran Insurance Company insured 16 shipments of
materials between February and August of 2008 that were
consigned to Bank Melli, Bank Saderat and Bank Mellat.
- Iran Insurance Company in October 2007 insured a
shipment of an emissometer for a Malaysia-based Iranian
procurement to Iran Communications Industries (ICI) in Iran
via Malaysia. This emissometer is sophisticated U.S.-origin
technology capable of being used in a ballistic missile
program. The freight forwarding company used for this
shipment is heavily utilized by the procurement front company
to transship materials from suppliers to Iran in
circumvention of sanctions and end-user requirements on
dual-use goods.
- Iran Communications Industries is a communications
technology production, research and development company and
is a subsidiary of Iran's Ministry of Defense and Armed
Forces Logistics (MODAFL).
- In March 2008, Iran Insurance Company insured a
shipment of aluminum alloy sheets to Iran Aircraft
Manufacturing Industries Company. Aluminum alloy sheets can
be used to produce airframes for ballistic missiles and
aircraft.
- In September 2007, the Iran Insurance Company insured a
shipment of Australia Group-controlled equipment,
specifically glass-lined chemical reactors, from China to
Iran. Glass-lined chemical reactors are useful in the
production of chemical warfare agents.

STATE 00125339 004 OF 004

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

5. (U) Posts should report results within seven business
days of receipt of this cable. Please slug replies for ISN,
T, TREASURY, and NEA. Please include SIPDIS in all replies.

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

6. (U) Washington point of contact for follow-up
information is Kevin McGeehan, ISN/CPI, (202) 647-5408,
McGeehanKJ@state.sgov.gov.

7. (U) Department thanks Post for its assistance.
RICE

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