US embassy cable - 05ABUDHABI4105

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 004105 
 
SIPDIS 
 
STATE FOR NEA/ARPI RSMYTH 
STATE PASS USTR FOR SDONNELLY, DBELL, KCLAYMAN, AROSENBERG 
TREASURY FOR RWERNER, JEL-HINDI, WLANGFORD, PBROWN 
 
E.O. 12958: DECL: 09/28/2015 
TAGS: KTFN, EFIN, PTER, ETRD, ECON, TC 
SUBJECT: UAE DESIRES MECHANISM TO REVIEW ASSET FREEZES 
 
REF: A. ABU DHABI 4103 
     B. ABU DHABI 1550 
 
Classified By: (U) Classified by Ambassador Michele J. Sison for reason 
s 1.5 (b) and (d). 
 
 1. (C) Summary.  During his September 17-19 visit to the 
UAE, Bob Werner, Director of the Department of Treasury's 
Office of Foreign Assets Control (OFAC), met with Sheikh 
Ahmed bin Zayed, General Manager of the Abu Dhabi Investment 
Authority (ADIA), to discuss concerns the UAE has raised 
during the U.S./UAE FTA negotiations about asset freezing. 
Werner explained to Ahmed that the U.S. already has a 
mechanism for processing requests that frozen assets be 
unblocked.  He also emphasized that the U.S. must maintain a 
uniform system and that it cannot create a special process 
for the UAE.  Werner and Ahmed agreed that it would be useful 
to have appropriate UAEG and USG officials meet so that the 
U.S. can explain the current process.  (See ref A for a 
readout of other aspects of Werner's visit.)  End summary. 
 
2. (C) Background.  As a part of the FTA negotiations, the 
UAE has requested that two sides sign a side letter 
indicating the U.S. will develop a formal mechanism to review 
the freezing of UAE assets.  The UAE's proposed side letter, 
presented during the second round of FTA negotiations in 
Washington in May, states, "No party shall continue to hold 
any such assets which it contends are subject to seizure for 
a period greater than 30 days without establishing the 
propriety of such seizure under standards and procedures to 
be mutually agreed upon not later than 180 days following the 
entry into force of the Agreement (FTA)."  (Note: the UAE 
often uses the term "seizure" when it means "blocking" or 
"freezing" of assets.) The UAE cites as justification for its 
request for a mechanism its experience in trying to have the 
U.S. unblock $116 million in UAEG assets in the ARBIFT bank 
that were frozen in 1992 under the Libya sanctions regime. 
The ARBIFT assets remained frozen over six months past the 
lifting of the OFAC-implemented sanctions against Libya (ref 
B), and UAEG officials were repeatedly frustrated by a 
process that they perceived as a confusing and 
non-transparent.  End background. 
 
Security of Assets 
------------------ 
 
3. (C) On September 18th, OFAC Director Werner met with ADIA 
General manager Sheikh Ahmed and ADIA's Executive Director 
Salem Al-Mazroui.  Ahmed conveyed that ADIA wants to increase 
its investments in the U.S., but that it needs to be assured 
that it can protect its interests -- "We have recovered from 
the ARBIFT issue, but we are now looking forward."  Werner 
acknowledged that the UAE's past experience had been 
frustrating, and he assured Ahmed that he understood the 
UAE's desire for a transparent mechanism.  Salem stated that 
he hopes the U.S. will be able to respond to the UAE's 
request for a side letter because "we believe that since we 
have a strategic alliance, our concerns regarding freezes 
warrants attention."  Werner explained that the U.S. already 
has a system in place to process unblocking requests, which, 
if fully understood by the UAE, might satisfy their concerns. 
 He emphasized that the U.S. cannot create a special process 
for any one country.  He indicated that OFAC would be willing 
to participate in a working group that could meet with 
appropriate UAEG counterparts in order to better explain the 
existing mechanism, if USTR approved the establishment of 
such a group.  Sheikh Ahmed supported this idea and indicated 
his confidence that we can reach an agreement that both sides 
will be "comfortable with." 
 
4. (SBU) OFAC Associate Director Jamal El-Hindi and the rest 
of the OFAC delegation held a concurrent, more technical, 
meeting with ADIA legal advisors William Brown and Robert 
Peake.  Directors Werner and Al-Mazroui joined the meeting 
after concluding their discussion with Sheikh Ahmed.  During 
this meeting, Brown stressed the importance of the assets 
protection issue to Abu Dhabi as part of the FTA 
negotiations, based in part on the frustrations experienced 
by key persons in Abu Dhabi with respect to the blocking of 
ARBIFT. 
 
5. (C) El-Hindi noted that a better understanding between the 
parties of OFAC's unblocking process would be beneficial.  He 
explained that the U.S. mechanism for dealing with requests 
to unblock assets was similar in substance, if not in form, 
to what the UAE is requesting in its side letter.  He stated 
that the U.S. applied its procedures in the same manner 
"across the board," noting that special procedures were 
unlikely.  The group discussed how the U.S. mechanism 
differed from the UAE proposal, in that it placed the burden 
on the party with the frozen assets to demonstrate why the 
funds should be unblocked, and that depending on the 
circumstance, the process may not result in the unblocking of 
assets.  El-Hindi noted that under its present procedures, 
the USG also had the flexibility to protect assets, as was 
done with respect to Kuwait's assets during its occupation by 
Iraq.  Brown noted that the language of the side letter could 
be "massaged" to shift the burden to initiate the request to 
the UAE, and he understood that it is not guaranteed that the 
outcome will be the release of the assets.  He noted that the 
main issue for the UAE is to have a transparent process with 
a designated point of contact and procedure for review.  All 
parties agreed that a "small" working group to explain the 
process and provide appropriate points of contact would be 
beneficial.  Brown and Peake emphasized that the group must 
be small, with only key representatives from USTR, Treasury, 
ADIA, the UAE Ministry of Finance, and possibly the Central 
Bank present.  They also noted that they think the meeting 
should be held before the third round of FTA negotiations. 
 
Comment 
------- 
 
6. (C) Embassy supports the idea of bringing together key USG 
and UAEG officials to discuss the unblocking procedure, and 
we recommend that USTR invite ADIA, Central Bank, and 
Ministry of Finance officials to the U.S. in October to 
discuss this issue with USTR and OFAC officials before the 
third round of negotiations.  This is a critical issue for 
ADIA, and by extension the UAEG, because they view their 
investments in the U.S. as a key component of their "national 
security."  We believe that educating ADIA on the process and 
convincing them that the system is transparent and durable is 
the best way to raise ADIA's comfort level and thus make 
progress on this issue. 
 
7. (C) Sheikh Ahmed told Werner that ADIA and ADNOC (the Abu 
Dhabi National Oil Company) were the two most important arms 
of the UAEG.  This comment -- while accurate -- is unusually 
candid, since both of these bodies are Abu Dhabi Emirate 
bodies rather than federal institutions.  ADIA is officially 
the Emirate of Abu Dhabi's investment arm.  More importantly, 
however, it is the Emirate of Abu Dhabi's "checkbook."  If 
the Emirate's revenues exceed expenditures (as is currently 
the case), the excess goes to ADIA.  On the other hand, if 
Abu Dhabi needs money, it calls on ADIA.  As the Emirate of 
Abu Dhabi funds the overwhelming majority of the UAEG's 
expenditures, ADIA is the UAE's checkbook, but one which the 
federal government has no control over. Estimates of ADIA's 
overseas assets range from a low of $200 billion to $600 
billion. 
 
Bio Notes 
--------- 
 
8. (C) Sheikh Ahmed, the 11th of 19 sons of former President 
Zayed, is a shy individual who rarely meets foreigners.  He 
was engaging and dynamic during this meeting and opened up to 
Werner.  During a discussion about the high price of oil, 
Ahmed noted that other countries in the Middle East are 
trying to emulate ADIA's investment strategy.  He observed 
that the UAE has only $160 billion in debt and joked that if 
oil prices continue to rise, the UAE will be able to 
eliminate that debt in a year. 
 
9. (U) This cable was cleared by OFAC Director Werner and 
Associate Director El-Hindi. 
SISON