06MOSCOW12396, TREASURY U/S LEVEY DISCUSSES DPRK, IRAN WITH

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Reference ID Created Released Classification Origin
06MOSCOW12396 2006-11-09 14:37 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXYZ0001
PP RUEHWEB

DE RUEHMO #2396/01 3131437
ZNY CCCCC ZZH
P 091437Z NOV 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 5093
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 012396 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR P, E 
STATE FOR EB/ESC/TFS 
STATE FOR EUR/RUS, NEA/FO, EAP/FO 
TREASURY FOR U/S LEVEY, RACHEL LOEFFLER, BAKER AND GAERTNER 
NSC FOR GRAHAM AND MCKIBBEN 
 
E.O. 12958: DECL: 11/09/2016 
TAGS: KTFN EFIN ETTC ECON PTER PREL RS
SUBJECT: TREASURY U/S LEVEY DISCUSSES DPRK, IRAN WITH 
RUSSIAN OFFICIALS 
 
REF: MOSCOW 12322 
 
Classified By: ECON M/C Pam Quanrud, Reasons 1.4 (b/d). 
 
1.  Summary. (C) In meetings October 23 and 24 with Treasury 
Under Secretary Levey, officials from the Central Bank (CBR), 
Finance Ministry and private Russian banks downplayed the 
possibility that North Korean and Iranian entities are 
actively using the Russian financial system to launder money 
and to access foreign capital.  Russia's Central Bank Deputy 
Chairman requested that the USG present the evidence of such 
activity in writing, with a request for Russian authorities 
to conduct an investigation.  The Russians promised a timely 
response.  End Summary. 
 
2.  (U) Reftel A reports on a meeting with the Foreign 
Ministry.  The meeting with the Federal Financial Monitoring 
Service (FFMS) will be reported septel. End Summary. 
 
Using Russia's Financial System 
------------------------------- 
 
3.  (C) In meetings on October 23 and 24 in Moscow, U/S Levey 
shared information outlining how North Korean banks and 
entities identified as proliferators of WMD may attempt to 
use Russian banks to store and launder proceeds from their 
illicit activities; to access foreign capital; and to 
transfer money to and from Pyongyang.  Russia is becoming 
increasingly attractive to these entities since their access 
to financial markets in China, Hong Kong, and other Asian 
countries, has been largely shut down.  Levey pointed to the 
specific case of North Korea's Tanchon Bank and its 
relationship with a Russian bank.  Although the volume and 
value of transactions with North Korean entities may not be 
significant, the accounts would not need to be substantial to 
fund or support illicit proliferation or other destabilizing 
operations.  Raising similar concerns about Iranian entities, 
U/S Levey described action the USG had taken to disrupt the 
ability of one Iranian banks to support terrorist activities. 
 Iran has been employing deceptive financial tactics, and U/S 
Levey urged working toward our common interest of preventing 
Iran's abuse of the international financial system. 
 
Central Bank 
------------ 
 
4.  (C) Central Bank Deputy Chairman Viktor Melnikov asked 
that U/S Levey formally pass the list of entities designated 
pursuant to E.O. 13382 so that he could investigate the 
relationships and provide a full response within two weeks of 
receiving the official request. 
 
Russian Banks: Alfa, Vneshtorgbank-24 (VTB), and Sberbank 
--------------------------------------------- ------------ 
 
5.  (C) VTB's CEO Mikhail Zadornov, Sberbank's Deputy 
Governor Boris Govorunov, and Alfa Bank's Chief Operating 
Officer Miroslav Boublik downplayed the possibility of any 
business relationship between their banks and North Korean 
entities.  Prior to the meeting with U/S Levey, Zadornov said 
he explicitly asked his bank to investigate whether there 
were any such financial transactions being conducted; and 
turned up nothing.  Sberbank's Govorunov maintained that his 
bank was above all else focused on the domestic market.  If 
there were transactions, which he believed there were not, 
they would be of an insignificant amount.  Boublik responded 
that Alfa Bank had no relationship with North Korean 
organizations and would likely determine that the risks of 
such a relationship outweighed any benefits.  (Note: Sberbank 
is Russia's largest bank, with 54 percent of retail deposits 
and 26 percent of Russia's banking sector assets.  VTB is the 
second-largest with 3 percent of retail deposits and 7 
percent of assets.  Alfa Bank is Russia's largest privately 
held bank but occupies 5th place overall, with 1.2 percent of 
retail deposits and 2.3 percent of assets.  End Note.) 
 
6.  (C) The bankers urged that if evidence existed, such 
information should be passed immediately to the Federal 
Financial Monitoring Service (FFMS), Russia's Financial 
Intelligence Unit (FIU).  They explained that only the FFMS 
has the authority to order an investigation of suspicious 
activity or individual(s) and to suspend/freeze an account or 
transaction.  Any transaction above USD 20,000 is 
automatically forwarded to the FFMS for evaluation, but the 
FFMS can review any transaction regardless of monetary amount. 
 
 
7.  (C) When asked by U/S Levey whether banks have discretion 
to sever a business relationship with a client, Zadornov 
noted "there is Russian law; and there is Russian practice." 
Boublik clarified that Russian banks face difficulties in 
forcibly terminating an account if the client is not on the 
FFMS blacklist.  Boublik acknowledged that Alfa Bank uses the 
OFAC list, despite Russian law that banks can only use &#x
000A;GOR-approved lists to scan transactions and make decisions 
about client relationships.  Zadornov said that VTB is 
concerned about maintaining a positive reputation; the bank 
frequently conducts additional due diligence regarding 
prospective clients or existing customers of a suspicious 
nature.  He implied that few other Russian banks have such an 
aggressive "know-your-customer" stance and many may not even 
comply with the requirements of Russian law.  When pressed by 
U/S Levey whether VTB would use this discretion when dealing 
with North Korean and Iranian entities, Zadornov obliquely 
replied in the affirmative, but also maintained that such 
business relationships did not exist with his bank. 
 
8.  (C) In response to U/S Levey's concerns about Tehran, 
Zadornov touched briefly upon the different perspectives the 
U.S. and Russia hold on Iran, acknowledging that Russia has 
business interests that the U.S. does not.  Boublik echoed 
this and encouraged the USG to provide information of concern 
to the Central Bank and the FFMS for action.  Govorunov said 
that unquestionably Russian banks would comply with the 
requirements of any UNSC resolution on Iran. 
 
Comment 
------- 
 
9.  (SBU) Under Secretary Levey's visit resonated with the 
Central Bank and the Federal Financial Monitoring Service, 
which are interested in formalizing information sharing as it 
pertains to illicit financial flows.  We understand that 
earlier this year, Andrey Kozlov, the deputy chairman of the 
Central Bank who was assassinated in September, sent letters 
to his counterparts in the Federal Reserve and the Office of 
the Comptroller of the Currency seeking such formalized 
information exchanges.  Despite Kozlov's death, the Central 
Bank remains interested in such a partnership.  End Comment. 
 
10.  (U) This message held for Under Secretary Levey's 
clearance. 
BURNS

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