US embassy cable - 04AMMAN1722

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 001722 
 
SIPDIS 
 
NOFORN 
 
TREASURY FOR QUARLES, ZARATE, MILLS, MCDONALD 
 
E.O. 12958: DECL: 03/07/2014 
TAGS: EFIN, PREL, PINR, JO, UNSC, IAZ 
SUBJECT: (C) JORDANIAN BANKERS CITE UNEXPLAINED, 
LAST-MINUTE REVERSALS IN IRAQ 
 
REF: AMMAN 1453 
 
Classified By: CDA DAVID M. HALE.  REASONS: 1.5 (B,D). 
 
1.  (C)  SUMMARY:  At the request of respective bank 
managers, the Ambassador met separately with representatives 
of the Export & Finance Bank (EFB) and the Arab Bank.  Both 
banks raised concerns that they were being treated 
arbitrarily  by Iraqi authorities and questioned how they 
might resolve their problems.  EFB had concluded an agreement 
in early January to acquire 49 percent of the National Bank 
of Iraq, only to see a decree published some three weeks 
after the fact being applied retroactively to annul the deal. 
 Arab Bank PLC (AB) was invited by the CPA to consider 
re-establishing its presence in Iraq by applying for a branch 
license.  All indications were that Arab Bank was among four 
finalists recommended for the licenses, until the Central 
Bank of Iraq (CBI) announced only three banks had been 
approved.  The leadership of the two banks has expressed 
concern at these sudden, inexplicable reversals.  This report 
summarizes what they say about their situation.  END SUMMARY. 
 
Export & Finance Bank Deal:  Moving the Goalposts 
--------------------------------------------- ---- 
 
2.  (C)  Ali K. Al-Husry, Chairman of the Board and CEO of 
the Export & Finance Bank (EFB), called on the Ambassador 
February 29 to detail a strategic partnership agreement EFB 
had signed January 4 with the National Bank of Iraq (NBI) 
whereby EFB acquired 49 percent of NBI's paid up capital in 
return for USD 7.3 million.  The agreement gave EFB 
management control of NBI, according to the bank's 
proprietary chronology that Embassy is faxing to NEA/ARN 
(protect).  Al-Husry said that the deal had been approved by 
the Central Bank of Iraq and also by the Central Bank of 
Jordan.  After the deal was consummated, the Iraqi Finance 
Minister issued a letter on January 28 declaring all such 
agreements void unless they had the prior approval of the 
Governing Council Finance Committee.  The letter explicitly 
stated the decree was retroactive, applying to any agreement 
made "before this date." 
 
3.  (C)  Al-Husry said that he wanted to know where EFB 
stood.  Iraq needed an improved banking sector, he noted, and 
two CPA advisors had encouraged EFB to enter into the 
arrangement:  "They were very, very keen, very supportive," 
he added.  The sudden reversal sent a mixed message to 
investors, he noted.  Other potential investors in the 
banking sector will ask about what will happen to them, he 
averred, and they will wonder what to do in an environment 
without a finalized legal situation.  Al-Husry said that he 
had his suspicions about who upset the apple-cart but was 
careful not to make any allegations about the source of EFB's 
problems in the GC, although he said that it was self-evident 
to anybody who understood the situation. 
 
4.  (C/NF)  Al-Husry revealed that his father-in-law had been 
the Government of Jordan official to issue the order to close 
Ahmed Chalabi's Jordan-based Petra Bank in the early 1990s. 
(NOTE: Chalabi was convicted in absentia in Jordan's courts 
for bank fraud in 1992 in connection with the failure of 
Petra Bank.  END NOTE.) 
 
5.  (C)  Al-Husry wanted to know what EFB could do.  He said 
that he had informed GOJ Foreign Minister Marwan Muasher and 
that Muasher had advised him to brief the Ambassador while 
Muasher would inform King Abdullah.  He stressed that he did 
not wish to cause friction in Iraq, rather he wanted to 
proceed with the bank partnership in accordance with the 
signed agreement. 
 
Arab Bank Invited to Return: "If not Welcome, Why go?" 
--------------------------------------------- --------- 
 
6.  (C)  Abdel Hamid Shoman, Deputy Chairman and CEO of Arab 
Bank PLC called on the Ambassador March 2 to recount the 
history of Arab Bank and the CPA last fall.  At the time, he 
said, AB was not contemplating moving into Iraq so quickly 
but had considered the move as a distant prospect in the 
future.  One compelling reason for staying out was the fact 
that AB's assets had been seized when the Iraqi regime 
nationalized AB in 1963-64 and AB had never been compensated, 
he said.  However, a letter from CPA Administrator L. Paul 
Bremer to King Abdullah II and a visit from the CPA's Peter 
McPherson and Tom Foley had convinced AB to send a team to 
Baghdad.  The AB group met with the CBI and other parties, 
Shoman recounted, to determine if the Arab Bank would be 
welcome.  If they did not want AB to go in, that was fine 
said Shoman.  "If we are not welcome, why go?" 
 
Reputation on the Line 
---------------------- 
 
7.  (C)  AB filed the application with what it believed was a 
strong proposal.  When only three banks were chosen, they 
were surprised that Arab Bank was not among them, said 
Shoman.  Shukry Bishara, COO of the bank, added that Arab 
Bank had even received unofficial congratulations from 
individuals in Baghdad for being one of four finalists.  "At 
the eleventh hour, our name was pulled out."  Bishara stated 
that he later learned CG member Ahmed Chalabi "stood in the 
way" of Arab Bank's obtaining a license.  Bishara said that 
he believed Chalabi acted as he did because of his poor 
relations with Jordan.  The decision was not good for the 
reputation of Arab Bank, he continued, so AB made a decision 
to see what it could do to continue advancing its application 
for a license.  Hence the subsequent letters to the CPA and 
the CBI (Ref), he concluded. Because Arab Bank was asked to, 
it applied, interjected Shoman. "Now we are told 'No' though 
we are among the best banks that applied," said Shoman. 
 
8.  (C)  Bishara added that AB accedes to the "highest level" 
of international banking conduct.  "AB respects both the 
spirit and the letter of the law on money laundering," he 
noted, adding that AB had long adopted stringent criteria 
regarding "know your customer" guidelines.  Regarding 
transactions in the Gulf and Jordan, AB has a clean 
reputation, he said.  AB regularly turned away 
suspicious-looking transactions, he noted.  Giving another 
example related to Iraq, he said that AB had refused to 
conduct transactions if they appeared to be outside the 
oil-for-food (OFF) protocol when that UN program was in 
effect.  Washington is aware of Arab Bank's credentials 
because Arab Bank New York offices are subject to the U.S. 
system, he continued.  Since opening in the U.S. in 1981, the 
Office of the Comptroller of the Currency (OCC) has regularly 
visited the bank, he said, and the bank is guided by OCC 
rules. 
 
9.  (C)  Regarding recent Israeli Defense Force raids on AB's 
Palestinian bank branches, Shoman said that the AB was 
willing to work with the Palestinian Finance Minister to 
block any transactions for those designated as terrorists 
through regular mechanisms.  Furthermore, AB was willing to 
share with the Palestinian FinMin all of its bank account 
records for the last two years, he said.  For payments 
greater than USD 10,000 the bank followed a policy of 
reporting the amount, holding the money, and paying it out 
only after is was declared to be clean by authorities, he 
noted. 
 
AB Follows Standards, Will Cooperate 
------------------------------------ 
 
10.  (C)  When asked if AB ever had any of the entities 
listed by the UN (UNSCR 1267 committee)  on its account 
records, Bishara responded that not even CitiBank could avoid 
a few accounts like that slipping through.  But the bank did 
not knowingly tolerate such accounts.  By intent, standards, 
and procedures of governance the Arab Bank was taking every 
possible step to avoid abuses, he said.  Shoman said that the 
Arab Bank would be cooperative and respond to questions. 
 
11.  (C)  In both cases, the Ambassador said that he would 
report what he had heard from the bank leaders and would see 
what might be done. 
HALE