Viewing cable 09KUALALUMPUR752, BANK MELLAT/FEEB DEMARCH DELIVERED TO BANK NEGARA
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|09KUALALUMPUR752||2009-09-11 09:09||2010-12-05 21:09||SECRET||Embassy Kuala Lumpur|
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VZCZCXRO3219 PP RUEHCHI RUEHDT RUEHHM RUEHNH DE RUEHKL #0752/01 2540945 ZNY SSSSS ZZH P 110945Z SEP 09 FM AMEMBASSY KUALA LUMPUR TO RUEHC/SECSTATE WASHDC PRIORITY 3187 INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY RHHMUNA/CDR USPACOM HONOLULU HI PRIORITY RHEHNSC/NSC WASHDC PRIORITY RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
S E C R E T SECTION 01 OF 02 KUALA LUMPUR 000752 SENSITIVE SIPDIS DEPT FOR T, DEPT FOR ISN, DEPT FOR NEA, DEPT FOR EAP E.O. 12958: DECL: 11/12/2019 TAGS: EFIN ETTC KNNP IR PINR PTER MY SUBJECT: BANK MELLAT/FEEB DEMARCH DELIVERED TO BANK NEGARA REF: A. SECSTATE 90063 B KUALA LUMPUR 739 Classified By: Economic Counselor Matthew J. Matthews, reason 1.4 (b and d). ¶1. (S) Econcouns delivered ref A demarche on FEEB xxxxxxxxxxxx emphasized that BN and LOFSA took their supervisory role seriously, and that Malaysia approved the FEEB license and would allow it to operate as long as there was no evidence that FEEB was in contravention of any relevant law and was not sanctioned by the UN. In an effort to establish that BN did in fact take its supervisory role seriously, Zamaini had his LOFSA Deputy Director read the four restrictions which LOFSA placed on the FEEB license and noted that FEEB had only processed one transaction in its first six months of operation. Econcouns reiterated core USG points several times, emphasizing that FEEB represented substantial reputational risk to Malaysia and that revocation of the license would be the prudent thing to do. xxxxxxxxxxxx made it clear that BN did not intend to revoke FEEB,s license unless the UN decided to sanction FEEB or proof was provided that activity by FEEB that contravened Malaysia,s laws. End Summary. ¶2. (S) Econ Counselor Matthews, accompanied by Econoff and visiting Embassy Singapore Treasury Attache Seth Bleiweis, conveyed reftel (a) points and non-paper on First East Export Bank (FEEB) to Bank Negara (BN) Deputy Governor Zamani, BN Legal Director Jeremy Lee, Labuan Offshore Financial Services Authority (LOFSA) Deputy Governor Danial Mah Abdullah, and others on September 10. This follows on delivery of demarche and non-paper to the Ministry of Foreign Affairs and PM,s office on September 4 (Ref B). Econcouns highlighted to xxxxxxxxxxxx the key points of the non-paper for xxxxxxxxxxxx, noting specifically the new information on Bank Mellat proliferation finance activities and warned that if the GOM did not commit to revoking the FEEB license the U.S. would proceed with sanctioning FEEB under U.S. law. ¶3. (S) xxxxxxxxxxxx responded that BN performed significant due diligence and gave great consideration prior to allowing LOFSA to issue the FEEB license. To counter possible proliferation activities, LOFSA issued the FEEB license with four significant operating conditions, the first conditioned bank license ever issued in Malaysia, xxxxxxxxxxxx said. LOFSA,s Abdullah orally read out the conditions which included: FEEB may not do business with any UN sanctioned entity; FEEB is required to adhere to all Malaysian anti-money laundering and anti-terror financing laws; FEEB must comply with all LOFSA regulations and directives; and FEEB shareholders may not be sanctioned by the UN. Breach of any of the listed conditions, he noted, would be cause for immediate license revocation. Abdullah also said that Bank Melli and Bank Saderat had previously applied for bank licenses from LOFSA, but were denied. ¶4. (S) Lee shared BN concerns that if BN were to revoke the FEEB license it would trigger law suits against the GOM by FEEB shareholders. He continued that after repeated BN requests, the USG has yet to provide any concrete or specific evidence of FEEB or Bank Mellat wrongdoing that could be used in court by the GOM to defend a suit against BN for wrongful action against FEEB. xxxxxxxxxxxx added that U.S. &suspicions8 were not always accurate. Lee also queried on U.S. designation actions on other Bank Mellat foreign subsidiaries in Seoul, London, Ankara and other locations and asked why Malaysia was being singled out for immediate action. Abdullah noted that BN recently inspected FEEB and found the bank had consummated only one Euro 400,000 letter of credit for the import of oil and gas-related equipment from Iran in its first six months of operation. BN officials argued that they could supervise a low-activity Bank Mellat subsidiary as well as those other countries where the US is not preparing to implement sanctions. ¶5. (S) Econcouns countered that the U.S. will unilaterally designate FEEB in order to protect our financial system and warn other financial institutions away from a bank owned by what we believe is a provider of financing for proliferation items. He added that Iran had used its banks, such as Saderat and Melli, to finance proliferation items from other important trading partners and those banks are now sanctioned. Our information indicates Iran is now using Mellat for the same purpose. FEEB could be next, potentially causing significant embarrassment to Malaysia. Econcouns told xxxxxxxxxxxx that the US was offering BN pre-notification and Kuala lump 00000752 002 of 002 the release of our intelligence as a good faith gesture so that the GOM could prudently manage the risks to Malaysia,s financial system and its reputation in the global financial market by revoking FEEB,s license prior to a proliferation finance incident. ¶6. (S) xxxxxxxxxxxx acknowledged the importance of this issue to the United States, but gave no indication that the GOM would revoke FEEB,s license. Econcouns nevertheless encouraged prompt revocation action by BN. Keith