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Cablegate: Terrorism Finance: Goi Says Now Is the Time to Act

DE RUEHTV #1742/01 2210945
P 080945Z AUG 08

S e c r e t section 01 of 05 tel aviv 001742


Ankara for reynolds, c.
L for dolan, j.
Treasury for glaser, d.

E.o. 12958: decl: 07/29/2018
Tags: ktfn, efin, econ, kwbg, ir, is
Subject: terrorism finance: goi says now is the time to act
against the central bank of iran and increases its
financial isolation of gaza

Ref: a. Secstate 83136
b. E-mail correspondence
davis-baukol/rose/hajjar/grant july 21
c. E-mail correspondence agor-margolies july 31
d. Tel aviv 1508

Classified By: CDA Luis G. Moreno for Reasons 1.4 (b) and (d)


1.(S/NF) On July 29, 2008 officials from various GOI
agencies, including the intelligence community and the MFA,
made clear to Treasury DAS Daniel Glaser's delegation their
belief that now was the time for action against the Central
Bank of Iran (CBI) in the form of sanctions, or failing that,
strong financial measures by the USG and international
community. The GOI discussed evidence that it believed proves
the CBI acts on behalf of designated Iranian commercial banks
and engages in other deceptive financial practices contrary
to international standards. Glaser stated that information
simply identifying the CBI as engaging in commercial
practices might not be a sufficient basis for action. He
emphasized that the ideal information would demonstrate that
CBI acts directly on behalf of designated entities such as
Bank Sepah. On related issues, Glaser updated the GOI on
potential FATF action against Iran in October, and on recent
discussions he had in Paris on European next-steps on Iran.
He cautioned that China could prove to be an obstacle in FATF

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2.(S/NF) Glaser also engaged a variety of GOI agencies on
Hamas financing in the West Bank, and Palestinian and Israeli
efforts to address the problem. GOI officials were uniformly
unimpressed with assertions by PA Prime Minister Salaam
Fayyad that the Hamas Zakat Committees had been reconstituted
and severed from Hamas. GOI officials seemed to feel that
nothing short of complete elimination of the committees would
be sufficient. Glaser piqued the interest of the Israeli
National Security Council's (NSC) counter-terrorism finance
director in establishing a USG private sector sponsored
charitable network to compete with Hamas charities, a concept
that the Israelis have been exploring as well. Regarding
Palestinian financial matters more broadly, Bank of Israel
(BOI) officials confirmed that the GOI was operating under
the principle of preventing any new liquidity from entering
circulation in the Gaza Strip. The GOI will exchange spoiled
bank notes with new bank notes but will not permit any
additional notes to enter circulation. The DAS notified the
Israelis that Treasury had established a new position at CG
Jerusalem with the primary purpose of working with the PA on
AML/CFT issues.

fatf and european sanctions against iran

3.(C) On July 29, 2008 in a meeting organized and moderated
by Ariel Shafransky, Deputy Director of Counterterrorism at
the Strategic Affairs Bureau of the Israeli MFA, Treasury DAS
for Terrorist Financing and Financial Crimes, Daniel L.
Glaser briefed officials of the Mossad, Israeli Security
Agency (ISA) or "Shin Bet", Israeli Defense Intelligence
(IDI), and the Israeli Money Laundering and Terror Financing
Prohibition Authority (IMPA) on relevant topics from the P3
(UK, France, and the US) meetings he had just attended in
Paris before arriving in Israel (Ref A). Also in attendance
were Hagar Hajjar, Policy Advisor to the DAS, Christopher
Backemeyer, Foreign Affairs Officer in EEB/ESC/TFS, and
econoff. The DAS told the GOI officials that the goal of the
talks was to arrive at an agreement on next-steps for
applying financial pressure on Iran. Glaser informed the
Israelis that the EU had reached a "political" consensus on
additional financial measures relating to Iran, but that
these would not be formally agreed upon until September.
Beyond that, Glaser mentioned that there was also agreement
with the UK and France to focus their efforts in the sectors

Tel aviv 00001742 002 of 005

of insurance and reinsurance. The DAS also briefed the
Israelis on recent developments within FATF related to Iran
and discussed the possibility of additional FATF action in
October, though he cautioned that Iran could take steps to
avoid such an outcome and that China could prove to be an
obstacle in FATF discussions.

now is the time for action against the cbi

4.(S/NF) Later in the day the delegation met exclusively with
members of Israel's intelligence community, led by Udi Levi,
Director of Israel's National Security Council's (NSC)
Counterterrorism Finance Bureau. Levi had brought together
several analysts from Mossad and IDI that specifically cover
counterterrorism finance issues in regard to Iran. Levi
announced to the group that the time was ripe to act against
the CBI. The USG, he said, should designate the CBI, but if
that were not an option for political or other reasons, the
Israeli intelligence community stands ready to assist the USG
in taking any other action possible to hinder the CBI in
conducting business.

5.(S/NF) Udi Levi outlined the actions of the CBI that he and
his team of analysts believed to run contrary to
international banking standards. Working from several
documents that had been internally produced by Mossad and had
been passed to the USG intelligence community, he outlined
three practices by the CBI that he believed made the case for
designation. He said that the GOI maintains information to
implicate the CBI in 1) transferring money without the use of
Swift to obfuscate the identities of the parties transmitting
and receiving money, 2) planning to purchase undesignated
banks using false names through which it could assist Iranian
enterprise in circumventing sanctions, and 3) acting on
behalf of designated Iranian banks such as Bank Melli and
Bank Saderat to execute transactions that would otherwise be
prohibited. On the last point, DAS Glaser mentioned that if
any of this activity were occurring in London, such
information could be key to persuading an otherwise highly
cautious UK to take action. The Israelis said that they would
look into that question.

6.(U) Failing full designation, Levi said, the GOI would be
highly supportive of USG efforts to enact any other measures
to stifle Iranian finance and activities of the CBI. Levi
suggested encouraging the international community to conduct
enhanced vigilance with regard to CBI activity, including but
not limited to examining each transaction, and enhanced
record-keeping and customer identification practices.

no increase in liquidity to gaza

7.(S/NF) On the same day, in a meeting with David Zaken,
Assistant Supervisor of Banks and Head of Off-Site
Examination & Licensing, and Merav Basri, Assistant to
General Council at the BOI, DAS Glaser's delegation and
econoff learned that the BOI and Israeli Defense Forces (IDF)
were operating under a principle of not permitting any
additional liquidity into Gaza. Zaken was able to confirm
that NIS 40 million was already approved for exchange at the
border by the BOI and IDF and said that NIS 17 million was
being delivered as he spoke. NOTE: Embassy Tel Aviv later
confirmed that this exchange had taken place. END NOTE.
Zaken said that the GOI would only permit exchanges of
spoiled bank notes for new ones. Having been informed of the
PA's situation through CG Jerusalem (Refs B ad C), econoff
questioned Zaken regarding the possibility that the PA would
not have enough liquidity to make its August civil servant's
salaries in Gaza. Despite the PA's assessment, Zaken opined
that the PA would be able to make its August salary payments
as it did in July. COMMENT: As mentioned in the morning
meeting at the MFA by a senior ISA analyst, GOI intelligence
agencies generally believe that PA salaries paid in Gaza
actually make their way into the hands of Hamas; therefore,

Tel aviv 00001742 003 of 005

the PA argument that the salaries meet the mutually
beneficial goal of bolstering Fatah does not impress the
Israelis. While Israeli officials frequently express their
doubts with regard to PA statistical assessments of the state
of the economy in Gaza, whether the PA is able to meet its
salary commitments in Gaza appears of little concern to the
goi. End comment

8.(C) Despite the general principle of denying Gaza
additional liquidity, Zaken said that the BOI would still
consider requests to move additional bank notes into Gaza on
a case-by-case basis. Even if the BOI were to look positively
on such a request, however, final approval to allow any
additional notes into Gaza would still remain with the IDF.
NOTE: Recent actions by Israeli commercial banks to
discontinue cash services to Palestinian banks complicates
this matter (Ref D). END NOTE. When DAS Glaser asked if the
GOI's policy was to maintain the Gazan economy at the
precipice of disaster, Zaken agreed, but added that the goal
is to prevent the financing of Hamas terrorism. When DAS
Glaser noted that this policy could mean cutting off the
Gazan economy completely, Zaken disagreed and stated that
Israel would not want to cause a humanitarian crisis. Zaken
made it clear, however, that he was not articulating an
official GOI policy, and that from a central bank perspective
they were not opposed to a healthy Palestinian financial

the problem of zakat -- islamic charities

9.(S/NF) During the meetings at the MFA and with the Israeli
intelligence agencies, DAS Glaser briefed the Israeli
officials on his recent discussions with PM Fayyad on "zakat"
or Islamic charitable organizations operating in the West
Bank that were determined to be funding Hamas. Glaser
conveyed Fayyad's anger over recent Israeli raids on zakat
committees in Nablus. The PM stated that he had taken
significant action against these Hamas-related zakat
committees--action that he said was unparalleled in the Arab
world. The Israeli officials replied that raids such as the
one in Nablus were necessary in order to spur Fayyad and the
PA to action, and repeatedly expressed frustration that
Fayyad was not doing as much as he could to address the
problematic zakat committees.

10.(S/NF) Glaser went on to discuss potential future actions
against the zakat committees. He told the Israelis that he
felt Fayyad and Treasury had been "talking past each other"
for the past several months, with Treasury focused on passing
specific information regarding the financial activities of
the zakat committees, and Fayyad responding with general
assurances that the committees had been restructured. Glaser
told the GOI that Treasury's view is that the charities
continue to be controlled by Hamas. DAS Glaser said the
burden is on Fayyad to demonstrate with detailed information
that the link between Hamas and the zakat committees has
indeed been severed. The DAS expressed his view that Fayyad
is acting with good intentions on the issue, and informed the
GOI officials that one of the main purposes for the creation
of the new Treasury position at CG Jerusalem was to provide a
constant and direct exchange with the PA on these issues. The
Israelis expressed the view that simply replacing the
leadership of the committees would not sufficiently sever
their connection with Hamas. When Glaser asked if there was
any action that Fayyad could take to improve the situation,
the Israelis responded that there was, but did not provide
details of what this action might be.

11.(S/NF) Oren Driesen, a senior ISA analyst, emphasized
general Israeli frustration on the zakat committee issue.
Driesen stated that the GOI understands that the Dawa is an
ingrained institution that will continue to operate in all
predominately Muslim societies. He said that the GOI had no
designs on attempting to destroy the institution, but the
problem was separating the legitimate charities from those
that fund Hamas. He expressed great fear that the system

Tel aviv 00001742 004 of 005

used by Hamas to slowly take over Gazan institutions was at
work in the West Bank. Driesen stated that once the
infrastructure of social welfare institutions was in place,
all an organization needed to do to become the government was
"flip the switch".

pma aml/cft and gazan banking woes

12.(U) Recounting his meeting the previous day with
Palestinian Monetary Authority (PMA) Director, Jihad
al-Wazir, DAS Glaser told the Israeli officials at the MFA
and intelligence meetings that the PMA chief believes the PMA
can and will implement an AML/CFT regime in the near future.
Al-Wazir told Glaser that the PA had now passed the point
where it would need basic money-laundering training. He said
it needs analysts and implementers. The PA was now focused on
building organizations. DAS Glaser said that the new Treasury
representative in Jerusalem would be of great help on this.
One important challenge, said Glaser of his conversation with
al-Wazir, would be regulating the moneychangers in the West

13.(U) Paul Landes, Legal Counsel for IMPA, Israel's FIU,
asked the DAS about USG technical efforts to assist the PA
with cash smuggling into Gaza. He stated that recent GOI
intelligence estimates that 100s of millions are entering
Gaza this way. Glaser responded to say that Treasury is
working closely with the PMA to ensure it receives the
technical assistance it needs. The PMA has requested help in
FIU analyst training for its FIU and PMA senior personnel,
drafting regulations related to the registering and
monitoring of money service businesses (MSBs), and handling
trade-based money laundering (TBML). Glaser pledged to
improve on these efforts through his new Treasury position in
Jerusalem. He assured Yehuda Shaffer, Director of IMPA, the
same, as well as help in improving cooperation between the
PMA, IMPA, and Jordanian FIU in an earlier meeting that

14.(S/NF) In concluding the meeting at the MFA, Shafransky
asked Glaser if he was aware of any changes in the PMA's
efforts to enforce its demand that the Palestinian Islamic
Bank (PIB) and Bank of Palestine (BOP) move its headquarters
from Gaza to the West Bank. Glaser told the Israelis that
BOP had been transferred to the West Bank, but not PIB. He
also noted that the PMA has expressed frustration with PIB as
it has not been responding to orders and benchmarks set forth
by the PMA, and that heavy fines and regulatory pressure have
been applied. Glaser noted that Al-Wazir stated the PMA would
give the PIB until the end of the year to reform its
operations or would consider closing the bank. NOTE: Israeli
intelligence suggests that the PIB's primary client is Hamas
and the Israelis are anxious to see the bank closed. END NOTE.

--------------------------------------------- -----------
hopes for a usg-private sector sponsored charity network
--------------------------------------------- -----------

15.(U) During the afternoon intelligence meeting with Udi
Levi, Glaser piqued great interest by Levi regarding the
establishment of a USG-Private Sector sponsored charity
program. Glaser briefed Levi on the program, the American
Charities for Palestine (ACP), founded by Dr. Ziad Asali,
president of the American Task force on Palestine, and
explained that the mission of the organization would be to
raise U.S. private funds and disburse them in the Palestinian
Territories through USG-vetted programs on-the-ground. He
envisioned that the organization would facilitate a
legitimate way for donors to send money to the Palestinian
Territories and hopefully provide alternatives to Hamas-led
programs. Levi expressed strong interest in the program and
noted that he was working with the Gulf countries on a
similar concept. Levi noted that if the program becomes
operational, it could provide an additional mechanism through
which Gulf donors could donate money. Glaser agreed to pursue
the issue and keep Levi informed of his progress.

Tel aviv 00001742 005 of 005

16.(U) This cable has been cleared by Treasury DAS Daniel L.

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