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Viewing cable 06LONDON4338, UK OPEN TO FINANCIAL MEASURES AGAINST IRAN

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Reference ID Created Released Classification Origin
06LONDON4338 2006-06-16 10:23 2011-04-07 00:00 SECRET Embassy London
Appears in these articles:
http://www.ft.com/cms/s/0/cc350008-5325-11e0-86e6-00144feab49a.html
VZCZCXRO1274
PP RUEHBC RUEHDE RUEHKUK
DE RUEHLO #4338/01 1671023
ZNY SSSSS ZZH
P 161023Z JUN 06
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 6401
INFO RUCNIRA/IRAN COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCNDT/USMISSION USUN NEW YORK PRIORITY 0730
UK OPEN TO FINANCIAL MEASURES AGAINST IRAN
Class: 	SECRET
Date: 	Fri Jun 16 10:23:00 2006
Key: 	06LONDON4338
Tags: 	ETTC, EFIN, PTER, PREL, UK, IR

 

S E C R E T SECTION 01 OF 02 LONDON 004338

SIPDIS

SIPDIS

STATE FOR P, NEA/IR, PM/ISD, EUR/UBI (ROY)
TREASURY FOR ADAM SZUBIN

E.O. 12958: DECL: 06/15/2016
TAGS: ETTC EFIN PTER PREL UK IR
SUBJECT: UK OPEN TO FINANCIAL MEASURES AGAINST IRAN

Classified By: DCM David T. Johnson for reasons 1.4 (b) and (d).

1. (S) Undersecretary of Treasury for Terrorism and Financial
Intelligence Stuart Levey met with UK officials on June 7 to
discuss possible financial measures that could be used to
increase pressure on Iran. In meetings at the Foreign and
Commonwealth Office, Her Majesty's Treasury, and the Bank of
England, U/S Levey laid out U.S. thinking on persuading
financial institutions to cut their ties with Iranian
government and commercial entities involved in proliferation
or the funding of terrorism. U/S Levey stressed that the
current focus was on providing banks with information to help
them reassess their reputational risk with Iranian entities
in light of a range of illicit conduct carried out by the
Iranian regime. HMG officials were open to the idea, but had
questions regarding the effectiveness of these measures,
whether they would adversely impact the Iranian people, and
whether they would damage the UK's reputation as a financial
center. End Summary.

2. (S) During a June 7 visit to London, U/S of Treasury for
Terrorism and Financial Intelligence Stuart Levey presented
current U.S. thinking on possible financial measures against
Iran to officials in the Foreign and Commonwealth Office, Her
Majesty's Treasury, and the Bank of England. U/S Levey said
that the U.S. was looking at financial measures to keep
pressure on Iran to end its efforts to develop nuclear
weapons. He underscored that the U.S. was looking for
options that could apply pressure without requiring UN
approval (and therefore the express support of Russia and
China).

3. (S) Levey said that our current focus was to work with
private financial institutions to provide them with
information on various Iranian government and commercial
entities involved in proliferation financing. Levey said
that he expected that this information would lead financial
institutions to reevaluate the potential costs of doing
business with the Government of Iran, and lead them to
constrain or sever their ties with GOI institutions. When
asked about the U-turn provision in current U.S. regulations,
Levey acknowledged that the U.S. would have to consider this
provision if there was multilateral momentum to cut the GOI
from the world's most important financial relationships.
Levey also solicited UK reactions to the real impact such
measures might have both on Iran and the international
financial system, and suggested that these measure --
particularly those aimed at proliferation entities -- are
warranted now, irrespective of the outcome of the incentives
package presented to Iran on June 6.

4. (S) xxxxxxxxxxxx said that
the impact such financial measures would have on Iran is
unclear. But he strongly agreed with Levey that we should
continue to develop these ideas. He said that "I'll back you
100 percent," on the idea that we should simultaneously work
on the proposal to resolve the situation in Iran
diplomatically and plan for a negative outcome to
negotiations. xxxxxxxxxxxx stressed that, whatever financial
measures were eventually agreed, that it was important that
they be widely implemented to avoid a situation where the
measures were easily circumvented with no negative impact on
Iran.

5. (S) xxxxxxxxxxxx at HM Treasury, expressed
HMT's preference for multilateral measures approved by the
United Nations or the European Union. Although they
acknowledged the importance banks attach to reputational
risk, they said that financial institutions would respond
better to clear rules on what they could and couldn't do.
Relying solely on banks to end relations with Iranian
entities because of reputational risk could lead to a
situation where the money simply flowed to less reputable
institutions. xxxxxxxxxxxx welcomed our desire to discuss Iran in
the context of the Financial Action Task Force (FATF).
xxxxxxxxxxxx said that the UK has started to look at the
economic aspects that various financial sanctions on Iran
could have on financial, currency, and oil markets. He added
that he thought that even robust financial measures against
Iran would not negatively impact the systemic viability of
the UK financial services industry or the viability of any
single UK-based bank.

6. (S) At the Bank of England, xxxxxxxxxxxx
agreed that financial institutions prefer clear-cut rules.

LONDON 00004338 002 OF 002


Still, they said that if we were to ask financial
institutions to examine their reputational risk, we should
also emphasize Iran's involvement in funding terrorism in
addition to its nuclear activities. They agreed that
financial measures could have an impact on Iran, but stressed
that many avenues would emerge to circumvent these measures.
Nevertheless, they agreed that financial measures would raise
the cost of doing business with Iran. They also noted that
they had observed a number of banks reducing their exposure
to Iran, presumably because of heightened risk. Finally,
xxxxxxxxxxxx said that the Bank of England had observed significant
moves by Iran to purchase gold. He said that he had not seen
any evidence that this gold was being stored in apparent
reserve locations (such as the New York Fed or Bank of
England) and presumed that it was being taken to Tehran for
storage. He surmised that this was an attempt by Iran to
protect its reserves from risk of seizure.

7. (U) This message has been cleared by U/S Levey.



Visit London's Classified Website:
http://www.state.sgov.gov/p/eur/london/index. cfm
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