US embassy cable - 05MANAMA835

C O N F I D E N T I A L SECTION 01 OF 03 MANAMA 000835 
 
SIPDIS 
 
STATE FOR NEA, NEA/ARPI, EB 
STATE PASS USTR/J BUNTIN 
STATE ALSO PASS TO OMB, COUNCIL FOR ECONOMIC 
- ADVISORS, OFFICE OF SCIENCE AND TECHNOLOGY 
- POLICY, AND NATIONAL ECONOMIC COUNCIL 
USDOC FOR ITA/MAC/ONE 
TREASURY FOR INTL AFFAIRS/G SILLS, TFI/A SZUBIN, 
- AND OFAC/R WERNER 
 
E.O. 12958: DECL: 06/11/2015 
TAGS: EINV, ECPS, EFIN, ECON, ETRD, PREL, BEXP, PTER, BA 
SUBJECT: ARCAPITA ENDORSES SECURITY ARRANGEMENTS WITH USG 
ON CYPRESS ACQUISITION 
 
REF: A. MANAMA 747 
 
     B. STATE 85235 (NOTAL) 
 
Classified by Ambassador William T. Monroe for reasons 1.4 
(b) and (d). 
 
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Summary 
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1.  (C) Arcapita Director for Legal Affairs Henry Thompson 
told the Ambassador June 8 that his company is willing to 
enter into security arrangements with the USG to gain 
approval for its proposed acquisition of Atlanta-based 
Cypress Communications.  He said that Arcapita would keep all 
of Cypress' assets on its own books rather than resell up to 
80% of the equity, as is its usual practice.  Arcapita would 
place only American citizens on Cypress' board of directors 
and would permit authorized USG access to Cypress' equipment. 
 It would agree not to give donations to foreign charities 
identified by Washington agencies.  Arcapita would take 
action against executives, employees, or Shariah board 
members if the USG provided specific, verifiable information. 
 The firm's reputation is at stake and it has a strong 
interest in successfully concluding the Cypress deal. 
Thompson said, however, that the company was worried it would 
not get USG approval for the deal because of "vague, 
unspecified security concerns."  He asserted that Arcapita is 
the "poster boy" for Islamic banking, and a USG decision to 
deny the acquisition would send a bad signal to the world 
about the United States as an investment destination.  The 
USG, he said, should seek to promote moderate Muslims by 
working with companies like Arcapita.  End Summary. 
 
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Arcapita on CFIUS Process 
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2.  (C) Arcapita Executive Director for Legal Affairs and 
London office General Manager (Amcit) Henry Thompson called 
on the Ambassador June 8 to provide a briefing on Arcapita's 
view of the state of play of the Committee on Foreign 
Investment in the U.S. (CFIUS) process.  He described 
Arcapita as "an Islamic version of Investcorp" that was 
formed in 1996 and opened its U.S. office in Atlanta in 1997. 
 Arcapita, formerly First Islamic Investment Bank, has more 
than $2.5 billion invested in the United States and 40% of 
the firm's senior executives are American citizens.  He said 
Arcapita is the largest private equity house in Atlanta and 
the second largest in the southeast U.S. 
 
3.  (C) Atlanta-based Cypress Communications is an attractive 
acquisition for Arcapita because of Cypress' product 
offerings and market position, Thompson said.  Arcapita 
applied to the FCC in November 2004 to transfer Cypress' 
operating license following the acquisition.  The FCC passed 
the security check to "Team Telecom," composed of the 
Departments of Homeland Security, Defense, Justice, the NSA, 
and FBI.  Thompson said that this procedure stalled and 
Arcapita initiated the CFIUS process in an attempt to 
expedite decision-making.  He noted that as a result of USG 
requests during the Team Telecom process, Arcapita had 
decided not to resell up to 80% of its equity in Cypress to 
its investors, as is usually the case, and will keep all of 
Cypress' assets on its own books.  He characterized the Team 
Telecom process as a "constructive dialogue" and stated that 
Arcapita had provided a lot of information to the USG. 
 
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Reputation on the Line 
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4.  (C) Thompson recognized that Arcapita was risking its 
reputation in the Cypress deal.  If the deal was refused, or 
Arcapita pulled out on its own, the word would get around 
Atlanta's financial circles.  Conversely, if the deal went 
ahead, it would be with the explicit approval of the USG. 
Thompson said that Arcapita was committed to proceeding with 
the acquisition at the urging of Executive Director and Head 
of Corporate Investment Charles Ogburn, from the Atlanta 
office, who strongly believes in the attractiveness of the 
investment. 
 
5.  (C) Thompson noted that Ogburn and CEO Atif Abdulmalik 
had requested that Minister of Finance Shaikh Ahmed bin 
Mohammed Al Khalifa, Bahrain Monetary Agency Governor Rasheed 
Miraj, and Ambassador-designate to the U.S. Nasser Al 
Balooshi send letters in support of Arcapita to Acting Under 
Secretary of Treasury Randall Quarles and Deputy Assistant 
 
SIPDIS 
Secretary of Treasury Charles Schott.  He thought that Miraj 
 
SIPDIS 
had done so but had no information on the other two requests. 
 (Note:  Although they have had the opportunity to do so, no 
Bahraini officials have discussed Arcapita with us.  End 
Note.) 
 
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Open to Security Arrangements with USG 
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6.  (C) Thompson said that Arcapita would enter into security 
arrangements with the USG on Cypress.  For example, Arcapita 
had proposed placing only American citizens on Cypress' board 
of directors and would honor legal requests for USG access to 
its equipment, such as court-ordered wire taps.  It would 
agree not to give donations to certain foreign charities 
identified by the USG.  He was worried, however, that 
Washington would ask Arcapita to take action against 
individuals associated with the firm without providing 
background information or evidence.  He said that Washington 
agencies had presented hypothetical situations about Arcapita 
executives, employees, and Shariah board members having 
"security problems," and asked Arcapita what it would do.  He 
told the Ambassador that what the company would do depended 
on the type of information provided and the status of the 
individual.  Changing a member of the Shariah board is the 
least complex thing to do, and he cited the case of Yousef 
Qaradawi, who had been a member of Arcapita's Shariah board 
until he became a liability following the 2002 acquisition of 
Caribou Coffee. 
 
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"Poster Boys" for Islamic Banking 
--------------------------------- 
 
7.  (C) Thompson stressed that "security is the reality of 
our age," and understood that the USG had to be wary.  "Tell 
us what the problem is and we'll solve it," he said, but 
claimed there was "nothing public against our guys."  "We are 
the poster boys for Islamic banking," he continued, saying 
that if Arcapita could not get USG approval for the Cypress 
deal because of "vague, unspecified security concerns," it 
would send a bad message to the world about the U.S. as an 
investment destination.  The USG should be seeking to promote 
moderate Muslims and the U.S.-Bahrain free trade agreement 
(FTA) by working with companies like Arcapita, he said. 
Arcapita wants to do the right thing and have the deal go 
through, and will do what is necessary to ameliorate the 
USG's concerns. 
 
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Comment 
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8.  (C) Arcapita has a strong interest in working with the 
CFIUS to develop a negotiated solution that results in the 
successful conclusion of its acquisition of Cypress. 
Thompson stressed several times that Arcapita would take 
steps to address the USG's concerns about its relationship 
with Cypress and that company's operations.  At the same 
time, however, he signaled that Arcapita would need clear, 
verifiable information from us before taking action against 
individuals associated with the firm.  As discussed Ref A, 
Post favors an outcome that, while safeguarding the homeland, 
promotes the positive benefits we hope to reap from 
ratification and implementation of the FTA and sends a 
message to the Islamic world that its investments are welcome 
in the United States. 
MONROE