US embassy cable - 04KUWAIT510

C O N F I D E N T I A L KUWAIT 000510 
 
SIPDIS 
 
STATE FOR EB/ESC/TFS JSALOOM, GGLASS AND NROTHSTEIN 
STATE FOR S/CT SFOX, IO/PHO GSOUTHERN AND APEREZ, L/EB SHILL 
TREASURY FOR OFAC RNEWCOMB 
TUNIS FOR NATALIE BROWN 
 
E.O. 12958: DECL: 02/16/2014 
TAGS: EFIN, ETTC, ECON, PREL, KU, IZ 
SUBJECT: (C) IRAQI ASSETS: KUWAIT'S $85 MILLION TRANSFER 
SNARED IN NEW YORK LEGAL BATTLE 
 
REF: A. 03 KUWAIT 5537 
 
     B. KUWAIT 480 
     C. TWILLIAMS (NEA/ARP)-SCARRIG (KUWAIT) EMAIL 
        (02/03/04) 
 
Classified By: Charge d'Affaires Frank C. Urbancic, Reason 1.4(b) 
 
1. (U) This is an action request:  please see paragraph 6. 
 
2. (C) Post reported in Ref A that the Government of Kuwait 
decided in December 2003 to transfer $85 million held in the 
Commercial Bank of Kuwait's Nassau branch to the Development 
Fund for Iraq (DFI), pursuant to UN Security Council 
Resolution (UNSCR) 1483.  During a January 19 meeting with 
Office of Foreign Assets Control (OFAC) Director Richard 
Newcomb,  Governor Shaykh Salem Al-Sabah of the Central Bank 
of Kuwait confirmed that the Central Bank would instruct the 
Commercial Bank to transfer the funds "within a week," 
despite certain unspecified "legal questions" about ownership 
and transfer of the funds (Ref B).  On February 16, EconOff 
spoke with Talal Alsayegh, the acting head of Central Bank's 
Anti-Money Laundering Unit, to determine if the $85 million 
had been transferred and if not, the reasons for the delay. 
 
3. (C) According to Alsayegh, the Commercial Bank of Kuwait 
is balking at transferring the funds -- despite the Central 
Bank of Kuwait's order to do so -- because a New York federal 
court has imposed a freeze on those funds.  As reported in 
Ref C, Alahli Bank (another Kuwaiti institution) received a 
default judgement in 1996 against Rafidain Bank and the 
Central Bank of Iraq.  Alahli Bank is claiming that the 
default judgement should be applied to the $85 million in 
Iraqi assets held in the Commercial Bank of Kuwait's Nassau 
branch.  However, because the attachment procedures began 
after May 22, 2003, State's Office of the Legal Adviser (L) 
believes that the funds are not subject to a prior lien 
(under the definition provided in UNSCR 1483) and 
consequently should be transferred immediately to the DFI. 
 
4. (C) Alsayegh confirms that the Central Bank of Kuwait is 
in agreement with L's position.  The Commercial Bank, 
however, argues that it cannot transfer the funds until the 
US federal court rules on an appeal the Commercial Bank has 
filed against the Alahli Bank judgement.  (NOTE.  In a 
January 29 email to CPA's William Moxley (Ref C), the Iraqi 
Ministry of Justice's attorney in the US, Bingham McCutchen 
LLP's Edward Powers, made the same point, noting that the 
Commercial Bank "can't move the funds until the court here 
rules, assuming it does lift the restraint."   END NOTE.) 
 
5. (C) Alsayegh said that the Central Bank of Kuwait briefed 
OFAC on the situation, and requested OFAC support for the 
Central Bank's position.  Again according to Alsayegh, OFAC's 
lawyers responded that OFAC does not have jurisdiction in 
this case and therefore cannot intervene. 
 
6. (C) ACTION REQUEST.  Post requests guidance on how we 
should advise the GOK to proceed on this issue.  The Central 
Bank requests USG support in its efforts to force the 
Commercial Bank to contravene what the Commercial Bank 
perceives as a valid US federal court order, and make the 
transfer. 
 
7. (U) Baghdad minimize considered. 
URBANCIC