Cablegate: Iran Focus of Treasury Under Secretary Levey Trip

DE RUEHMD #0836/01 2101629
R 281629Z JUL 08

C O N F I D E N T I A L SECTION 01 OF 03 MADRID 000836



E.O. 12958: DECL: 07/17/2018

Classified By: Deputy Chief of Mission, Hugo Llorens, reasons: 1.5 (b)
and (d)

1. (C) Summary: Treasury Under Secretary Stuart A. Levey,
accompanied by Chief of Staff Christy Clark and Policy
Advisor DeAnna Fernandez, traveled to Madrid, Spain July
15-17, 2008 to press for Spanish support for implementation
of UNSCR 1803 per the EU-3 1 proposal and to provide
information on the Iranian shipping line IRISL and on threats
to the insurance industry. Spanish officials said they had
no "substantive" objections with the EU-3 1 proposal,
although they did not unequivocally commit to support
implementation of the proposal prior to the August holidays.
Spanish officials received the information U/S Levey provided
on IRISL and insurance with great interest. The Under
Secretary, together with Ambassador Aguirre, thanked a Repsol
representative for the company decision not to pursue the
South Pars Block 13 gas deal. U/S Levey also participated in
an AmCham hosted lunch and engaged in press outreach. End

--------------------------------------------- -----

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2. (C) The Under Secretary stressed in all of his meetings
the USG's commitment to a diplomatic solution to the Iranian
nuclear issue, underscored by the decision to send Under
Secretary Burns to participate in the Geneva meeting with
Iran as one more indication of the USG's firm commitment to
reach a diplomatic solution. In order to facilitate that
solution, it was necessary to present Iran with a "stark"
choice, either conform to UNSCR resolutions or face isolation
and stronger economic sanctions. Levey emphasized that the
EU's decision in June to designate Bank Melli was a strong
action that sent an important signal that the EU was prepared
to be firmer with Iran. This was why it was so necessary for
Spain to support implementation of UNSCR 1803 per the EU-3 1
proposal prior to the August vacation. The Under Secretary
also provided information on the Iranian shipping line,
IRISL. He said that in 2007, IRISL ships had been
interdicted, and that in several instances, the ships had
been carrying prohibited items to Iran. IRISL had also
engaged in deceptive practices involving, among other things,
the falsification of shipping documents and operating through
a company called Seibow Limited. Additionally, Levey noted
that UNSCR 1737 requires measures to prevent the provision of
financial services related to the transfer of prohibited
items to Iran. There had been a great deal of success in
convincing the banking sector to be extremely vigilant in
dealing with Iran. The U.S. now wants to expand vigilance to
the insurance industry as well. The Under Secretary also
raised questions regarding the possible collaboration between
Iran and a Libyan-owned bank.


3. (C) The Under Secretary met with International Economic
Relations and Energy Affairs Director General Rafael Conde de
Saro and two staff members. The MFA officials said that
Spain has no "substantive" problems with the EU-3 1 UNSCR
1803 implementation proposal, but it was not clear whether
Spain would support implementation of the proposal prior to
the August holidays. The MFA officials added that perhaps
other EU members might have problems with the substance
and/or timing. Levey indicated that there was a very clear
reduction of Iranian activity in Spain deriving from various
sanctions adopted at different levels. Spain had been
scrupulous in its application of sanctions. De Saro and his
staff received the Under Secretary's information on IRISL and
insurance with interest. Conde indicated that he was not
aware of any Spanish operations with IRISL or of Spanish
insurance for IRISL, but that the appropriate Spanish
authorities would be informed.


4. (C) U/S Levey met with Ministry of Industry, Tourism and
Trade Secretary General for Foreign Trade Alfredo Bonet and
staff. Bonet expressed support for vigilance and caution
with respect to transactions with Iran. He said that Repsol
had made a "tough decision" not to pursue the South Pars

MADRID 00000836 002 OF 003

deal. With respect to export credits, a staff member said
that Spain was "freezing" export credit levels to Iran.
Responding to U/S Levey' questions regarding what a "freeze"
means, the official said that it meant capping export credit
levels to Iran. New deals can be approved, although the
staff member said that export credit transactions with Iran
were decreasing because it was difficult to find a bank
willing to finance the deal. Bonet received the information
U/S Levey provided with respect to IRISL and insurance with a
great deal of interest. He said that recently, the ministry
had imposed new information requirements for companies
seeking to export possible dual use items. Now, the firms
have to specify the means of transportation (including the
identity of the shipping company) and for information on
transit countries. For shipments to Iran, it was common
practice to have the Centro Nacional de Inteligencia (CNI -
Spain's main intelligence organization) check the end user
and middlemen links for some operations, often delaying them
for up to a month. If there is a potential risk or doubt
about the information Iran provides, the Ministry requests
further information or denies the operation. Ministry staff
also noted that Spanish banks have closed representative
offices in Iran.


5. (C) Ambassador Aguirre and Under Secretary Levey thanked
Repsol YPF General Counselor and Secretary to the Board Luis
Suarez de Lezo for Repsol's decision not to go ahead with the
South Pars Block 13 deal. Suarez said that Repsol's decision
had been a "cruel" one. However, Spain was "sensitive" to
the problem of terrorism. Suarez said that the company had
delayed making a decision for as long as possible, and that
it still has hopes for business in Iran once the nuclear
issue is dealt with. Suarez said that, so far, Repsol had
not been lucky in developing business in Iraq, mostly because
the competition from bigger rivals was too tough. However,
Repsol had been very successful in making new discoveries in
Brazil and Libya.


6. (C) U/S Levey and DCM met with Economy Ministry Secretary
of State David Vegara and staff. The U/S stressed the
importance of Spain supporting the EU-3 1 UNSCR
implementation proposal. One Vegara staff member suggested
that Spain was already largely implementing the proposal
through increased banking vigilance, but Levey pointed out
that the EU-3 1 proposal contained other important elements
as well. The staff member said that Spain was working with
the U.S. within the Financial Action Task Force (FATF) to
develop guidance on how to implement UNSCR 1803 (including on
"counter-measures"), and U/S Levey thanked him for that
support. Vegara said that Spain was on the right side of
this issue, and on the matter of containing export credit
operations, Spain had reduced export credits by 30 percent.
The Secretary of State expressed a great deal of interest in
the IRISL and insurance information provided by U/S Levey.
Vegara noted, however, that while Spain has large banks, it
does not have large insurance companies, so he doubted that
they were involved in insuring cargo destined for Iran, but
the government would look into it. Secretary of State Vegara
underscored that Spain was committed to the Iran financial
sanctions issue, but that Spain had to coordinate with other
EU members. He expressed a great deal of interest in Under
Secretary Burns' meeting with Iranian officials. DCM
emphasized in this context the need for the international
community to continue to make clear the "stark" choice that
Iran faces precisely in order to give diplomacy a better
chance to work. There was also a discussion of the risk
posed by possible collusion between Libyan-owned banks and
Iran. Vegara and his staff indicated that there was only one
such bank in Spain and they would look into the matter.


7. (C) U/S Levey and DCM met with Deputy Governor Jose Vinals
and staff. He too demonstrated great interest in the
material the U/S provided. Vinals agreed with Levey that
Spanish banks were increasingly unwilling to take any risks
with respect to Iran. He said that Banks Santander and
Sabadell had ceased Iran-related operations, and that, as far
as he knew, Spanish banks had closed their representation

MADRID 00000836 003 OF 003

offices in Iran. When Levey raised concerns about the risk
posed by possible collusion between Libyan-owned banks and
Iran, Vinals and his staff also indicated that there was only
one Libyan-owned bank in Spain, Aresbank. They noted that
while Aresbank was Libyan-owned, it was managed by Spanish
officials. They indicated that the majority of Aresbank's
business was financing equipment and transport to Libya,
which was necessary since roughly 30 percent of Spain's oil
imports come from Libya. Vinals, nonetheless , noted that
any Libyan-owned bank merited extra scruitiny.


8. (C) Under Secretary Levey's trip was very timely given the
upcoming EU decision on the EU-3 1 UNSCR 1803 implementation
proposal. We do not know whether Spain will support
implementation prior to the summer holidays. However,
although the Spaniards, especially the Ministry of Foreign
Affairs, played the perennial Brussels-Member State dance,
i.e. suggesting that others might be to blame for an outcome
not desired by the USG, we think the GOS understands that we
are monitoring Spain's stance on this issue very carefully.

9. (U) Under Secretary Levey has cleared this message.


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