US embassy cable - 03ROME3977

S E C R E T  ROME 003977 
 
SIPDIS 
 
 
STATE FOR EUR/WE, EUR/PRA, NP/ECNP, INR/SPM, NEA/NGA, 
PM/RSAT 
 
E.O. 12958: DECL: 09/02/2013 
TAGS: PARM, PREL, PGOV, ETTC, IT, IR, EXPORT CONTROLS 
SUBJECT: STOPPING ITALIAN FAST BOAT TRANSFERS TO IRAN 
 
REF: A. ROME 3613 
 
     B. SECSTATE 230222 
     C. ROME 3386 AND PREVIOUS 
 
Classified By: Economic Minister-Counselor Scott Kilner for Reasons 1.5 
 (b), (c) and (d) 
 
1. (S) Summary. Italian fast boat manufacturer FB Design has 
given the GOI new assurances that it will not export more 
fast boats or boat molds to Iran as long as the security 
situation in the Persian Gulf remains volatile. MFA export 
control coordinator de Mohr told us this means the hold is 
indefinite.  FB Design claims that its continuing contacts 
with Iranian entities are necessary to keep the company from 
being declared in breach of contract. The company further 
reports that its existing contract provides for the delivery 
of four more boats to Iran, two of which are partially built, 
while manufacture of the other two boats has yet to be 
started.  De Mohr maintained that the "catch-all" provision 
of Italian export control law (and the related "catch-more" 
provision) does not give the GOI the ability to formally 
impose a permanent halt on this export.  Nevertheless, he 
stated firmly that the GOI's informal persuasion has been and 
will continue to be effective.  Separately, DCM also raised 
the fast boats issue with MFA Secretary General Baldocci, who 
promised to convey our message to FM Frattini.  End summary. 
 
2. (S) Following up on our discussion with MFA Deputy DG for 
Economic Affairs Leggeri (ref A), Ecmin and econoff exchanged 
views on ref B points in further detail with MFA 
Nonproliferation Coordinator Ugo de Mohr on August 29. The 
two-hour session, which commenced with de Mohr reading 
through the points carefully, focused on the latest 
information de Mohr had received from the Italian firm FB 
Design regarding the status of its contracts to sell fast 
boats to Iran, as well as on the legal means available to 
Italy to formally impede such exports.  Ecmin initiated 
discussion by stressing the persuasive nature of information 
we had seen recently that indicated the company continues to 
do business with Iranian entities. The U.S. believes that 
stopping these fast boat exports remains of critical security 
concern, given the large U.S. military presence in and near 
the Persian Gulf. 
 
GOI Contact with FB Design 
-------------------------- 
 
3. (S) De Mohr told us that FB Design recently (since ref C 
discussion) informed him that the four fast boats originally 
intended for delivery to Iran in September 2003 remained 
uncompleted, with construction of two of the four boats not 
having even begun yet.  De Mohr said the firm, in response to 
GOI pressure, has agreed to continue to suspend delivery of 
any boats, when/if they are completed, as long as the 
security situation in the Persian Gulf remains precarious. De 
Mohr characterized this as an indefinite hold.  De Mohr has 
asked for, and expects to receive, written assurances from FB 
Design that it will maintain this suspension.  The company 
also assured him that no more boat molds would be delivered 
to Iran. De Mohr added that the company has told him that it 
has no intention of signing any future contracts with Iran. 
 
4. (S) According to de Mohr, FB Design is in a legal quandary 
due to its decision to comply with the GOI's informal request 
to suspend further boat exports. The company has a legally 
valid existing contract with Iranian entities, and, according 
to de Mohr, maintains contact with those entities in order to 
forestall Iranian efforts to force the company to comply with 
its contract or declare a breach of contract.  The company 
thus has not formally announced that it will not comply with 
its contract, but rather has resorted to delaying maneuvers 
in order to avoid having to pay a financial penalty.  As part 
of its stalling tactics, FB Design continues to allow a few 
Iranian technicians to visit its Italian facilities. However, 
the company limits their activity, inhibiting their access to 
significant technology, according to de Mohr. 
 
5. (S) To further stall delivery, for example, FB Design has 
asked its Iranian clients to postpone the terms of an 
existing letter of credit under which it would be obliged to 
proceed with the export of boats, de Mohr told us. Despite 
 
its efforts to maintain the semblance of open channels with 
the Iranians, the company remains concerned that its clients 
may seek to legally enforce its contract to finish and 
deliver the vessels, exposing FB Design to breach of contract 
and financial penalties. 
 
Italian Legal Authority to Control Fast Boat Exports 
--------------------------------------------- ------- 
 
6. (S) Picking up on ref B points regarding the GOI's ability 
to use "catch-all" provisions to formally halt shipment of 
fast boats and boat molds to Iran, de Mohr went into further 
detail on the limits of GOI legal authority than he has in 
the past.  De Mohr stated that "catch-all" authority could be 
invoked for an export only if it could be established that 
the item might reasonably be diverted for military use to 
further WMD proliferation. Absent the WMD connection, 
"catch-all" could not be used to stop delivery simply because 
the end-user was of a military nature. 
 
7. (S) De Mohr added that the EU's (and Italy's) so-called 
"catch-more" provision could subject an export to licensing 
if the item could be the object of diversion towards 
conventional military use, but this provision would apply 
only if the end-user is in a country subject to an embargo by 
the UNSC, the OSCE, or the EU (which is not the case for 
Iran).  "Catch-more," de Mohr continued, could also be 
invoked by an EU member for exports with conventional 
military significance to a country that has been formally 
criticized by the UNCHR for human rights abuses - which was 
the case for Iran until last year. 
 
8. (S) Lastly, de Mohr raised an additional provision of EU 
(and Italian) dual use export control law that provides any 
EU member state the opportunity add any item to national 
control lists based on a "general public interest" 
determination.  However, taking this step would require that 
EU country to control the item "universally," i.e. to all 
destinations.  This was a step that de Mohr could not foresee 
Italy taking in the case of patrol boats. Nevertheless, he 
said that the spirit of this "general public interest" 
provision would continue to permeate the GOI's efforts to 
impede exports, on an informal basis, to regions of 
particular tension. 
 
9. (S) De Mohr noted that the ongoing assessment exercise 
within the Wassenaar Arrangement has a task force considering 
counter-terrorism proposals, which could perhaps take a 
closer look at the potential threat by fast boats. In theory, 
categories of items of potential terrorist use could be 
established, and could include patrol boats. De Mohr noted 
that controlling such a common vessel would prove difficult, 
however, and would likely impose a significant burden on the 
global motorboat industry. 
 
DCM's Meeting with MFA SecGen Baldocci 
-------------------------------------- 
 
10. (S)  DCM took advantage of a September 2 meeting with 
Secretary General Baldocci to emphasize the importance we 
 
SIPDIS 
place on de Mohr's latest assurances and the need to ensure 
that the arrangement sticks.  DCM also asked the GOI to guard 
against technology transfer to Iran through the visits by 
Iranian technicians to FB Design.  Baldocci said he would 
convey our message directly to Foreign Minister Frattini. 
SEMBLER 
 
 
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 2003ROME03977 - Classification: SECRET