US embassy cable - 04MANAMA1840

C O N F I D E N T I A L SECTION 01 OF 02 MANAMA 001840 
 
SIPDIS 
 
STATE FOR EB/ESC/TFS, S/CT, INL/C, IO/PHO, NEA/ARPI, EUR/PGI 
TREASURY FOR JZARATE, DGLASER, AND OFAC 
 
E.O. 12958: DECL: 12/09/2014 
TAGS: ECON, EFIN, ETTC, PREL, PTER, KTFN, BA 
SUBJECT: US TREASURY DELEGATION DISCUSSES SYRIAN 311 
DESIGNATION AND IRAQI ASSETS 
 
REF: (A) STATE 242449 
 
Classified By: JZARATE 
 
(C) Summary. On the margins of the inaugural meeting of the 
Middle East/North Africa Financial Action Task Force, 
Treasury A/S Juan Zarate met with Syrian Minister of Finance 
Dr. Mohamed Al-Hussain and Dr. Douraid Dergham, the chairman 
of the Commercial Bank of Syria (CBS).  They discussed the 
steps the Syrians need to take for the removal of the Section 
311 designation of the CBS as a "primary money-laundering 
concern".  Most of the discussion eventually focused on the 
condition that Syria transfer Iraqi assets frozen in CBS to 
the Development Fund for Iraq (DFI).  Minister Al-Hussain 
committed to work with Iraq and again called for an Iraqi 
delegation to come to Damascus to resolve the issue.  This 
discussion was followed by two separate "trilateral" meetings 
between Minister Al-Hussain, A/S Zarate, and representatives 
from the Iraqi Finance Ministry and Central Bank who were 
present in Bahrain.  The Iraqis initially insisted that all 
Iraqi funds at CBS be immediately transferred to the DFI 
pursuant to UNSCR 1483.  Eventually, the Syrians and Iraqis 
agreed that a meeting in Damascus would occur following the 
transfer of a relatively small amount ($3-6 million) from CBS 
to DFI.  The Syrians asserted that this transfer could be 
effected within a week. End Summary 
 
(C) Syria Responds to Action Items 
 
(C) On November 29, 2004, on the margins of the MENA FATF 
inaugural meeting, a US delegation led by Treasury A/S Juan 
Zarate with representatives from Treasury, OFAC, FinCEN, FBI, 
and State, met with a Syrian delegation headed by Dr. Mohamed 
Al-Hussain the Syrian Minister of Finance, and including Dr. 
Douraid Dergham, the chairman of the Commercial Bank of Syria 
(CBS).  The meeting focused on a Treasury Department list of 
Action Items that Embassy Damascus presented to the Syrians 
in November (Ref A).  The Syrians must address and correct 
these action items in order to continue the postponement of 
the issuance of the final rule implementing the Section 311 
designation of the CBS and for the eventual lifting of the 
Section 311 designation. (Note. Section 311 refers to a 
section of the Patriot Act that gives the Treasury the 
ability to designate a foreign entity or country as a 
"primary money-laundering concern" and to require U.S. 
financial institutions to terminate correspondent 
relationships with the designated entity or country. 
Endnote.) 
 
(C) Al-Hussain stressed the Syrian willingness to work with 
the USG on these issues and wanted to bring back positive 
results to Syria.  He also wanted a definite time frame and 
closure to the issue if the Syrians accomplished the US 
requests.  Zarate explained that the USG would need to see 
real progress and good faith on issues of concern in order to 
be in a position to reconsider the 311 designation.  Zarate 
also stated that the US expects Syria to act as a partner in 
these issues and there may be more lists of requests in the 
future.  For example, establishing FIU to FIU relations 
involves an ongoing and evolving relationship and mutual 
information exchange. 
 
(C) Al Hussain then laid out the steps the Syrians have taken 
in reference to the Treasury,s list of sixteen Action Items 
(Note: For ease of reference the action item number will 
follow the item discussed. Endnote).  Al Hussain addressed 
eight of the action items and said that not all the Action 
Items required new legislation but could be enacted through 
decree.  Al Hussain stated that:  the Money Laundering 
Commission is being reviewed to remove both private and 
publicly-owned banks from the Commission (#3); private banks 
working in the free trade zones were subject to the Central 
Bank (#5); the Ministry of Finance was working with the 
Central Bank to refine the rules and control the money flow 
(#6); Customs is tightening its rules on money crossing the 
border.  They have had incidents of money smuggling (into 
Lebanon) but he reported they weren,t money laundering or 
terrorism financing (#7); they will extend an invitation to 
the IMF/World Bank for an AML/CFT assessment (#8); charitable 
organizations can now only send "in-kind" contributions for 
humanitarian aid and not money (#10); the Ministry of Foreign 
Affairs is examining the International Convention on the 
Suppression of Terrorist Financing for ratification (#12). 
Finally, Al-Hussain stated that they were collecting the 
specific account information requested (# 16) and would 
provide it once they worked out the legal issues with the 
Ministry of Finance, the Central Bank and other Ministries. 
(Comment: Al Hussain did not address items 1, 2, 4, 9, 11, 
13-15 directly during the meeting. End Comment) 
(C) Al Hussain expressed disappointment that A/S Zarate 
characterized the cooperation by the Syrians as "weak" in Mr. 
Zarate,s testimony to Congress and stressed the Syrian 
willingness to work together on these issues. 
 
(U) Technical Assistance Request 
 
(U) Al-Hussain expressed a need for technical assistance on 
customs and banking issues.  Mr. Zarate said he would explore 
options for technical assistance with Customs and other 
appropriate agencies back in Washington. 
 
(C) Iraqi Assets:  Syria still waiting for Iraqi delegation 
to Damascus 
 
(C) Al Hussain reiterated the Syrian position, on Iraqi 
assets in Syria, that they would be willing to discuss the 
issue with the proper Iraqi delegation in Damascus - but so 
far no one has come.  The Syrians would like to meet with the 
Iraqi Minister of Finance, Oil Minister, General Manager of 
SOMO, and the Central Bank Governor.  Mr. Zarate stated that 
the Jordanians had already released the assets back to Iraq. 
To this Al-Hussain reiterated that they wouldn,t accept any 
official unless they come with the proper authority and 
credentials to disperse funds to the right people. 
 
(C) After the bilateral meeting two trilateral meetings were 
held among the Iraqi delegation (Dr. Sabah Awny, from the 
Ministry of Finance and Ms. Hanna Ibraheem Alkhafiaji, from 
the Central Bank), the Syrians and the US.  The Iraqi 
delegation initially insisted that all funds that had been 
located in Syria as of May 2003 (the date of the passage of 
UNSCR 1483) should be immediately transferred to the DFI. 
After much discussion of cash versus trade accounts, the 
requirements of UNSCR 1483, and the magnitude and nature of 
Syrian commercial claims, Dr. Sabah agreed that he would 
gather the appropriate delegation to come to Damascus. Dr. 
Dergham (Chairman of CBS) stressed his confidence that an 
overall resolution could be reached within 2-3 weeks of the 
arrival of an Iraqi delegation in Damascus. Minister Al 
Hussain in turn agreed to transfer the funds (approximately 
USD3.5 million) in the non-protocol accounts to the DFI quote 
next week unquote. 
 
 
 
MONROE