VZCZCXRO7621
OO RUEHBC RUEHDBU RUEHDE RUEHDIR RUEHFL RUEHKUK RUEHKW RUEHLA RUEHNP
RUEHROV RUEHSL RUEHSR RUEHTRO
DE RUEHLO #2479/01 3071638
ZNY CCCCC ZZH
O 031638Z NOV 09
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3872
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE IMMEDIATE
RUCNIRA/IRAN COLLECTIVE IMMEDIATE
RUEHBJ/AMEMBASSY BEIJING IMMEDIATE 1215
RUEHMO/AMEMBASSY MOSCOW IMMEDIATE 2986
RUEHNY/AMEMBASSY OSLO IMMEDIATE 0787
RUEHKO/AMEMBASSY TOKYO IMMEDIATE 1305
RUEHHT/AMCONSUL HAMILTON IMMEDIATE 0270
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUEAIIA/CIA WASHINGTON DC IMMEDIATE
RHEHNSC/NSC WASHDC IMMEDIATE

C O N F I D E N T I A L SECTION 01 OF 02 LONDON 002479 
 
SIPDIS 
 
E.O. 12958: DECL: 11/03/2019 
TAGS: EFIN ECON KTFN IR UK
SUBJECT: (C) UK SANCTIONS ON IRAN FORCE IRISL TO SEEK 
COSTLY AND INADEQUATE RUSSIAN INSURANCE 
 
REF: LONDON 2351  LONDON 00002479  001.2 OF 002   Classified By: ECON COUNSELOR KATHLEEN DOHERTY, FOR REASONS 1.4 B & D  Action Request in Paragraphs 4 and 10.  1. (C) SUMMARY: UK measures to prohibit British companies from doing business with the Islamic Republic of Iran Shipping Lines (IRISL), combined with joint U.S.-UK diplomatic pressure on host governments in other shipping insurance states, have forced IRISL to seek Russian services, which are more costly and offers less coverage than the original UK insurance.  Nine members of the International Group of P&I Clubs are now prohibited from serving IRISL, and the governments of the other four members have pressed their clubs to deny coverage.  Bank Mellat is discussing with HMT lawyers the legal ramifications of the order that British entities cease business with the Tehran bank, but has not yet filed suit.  The UK Parliament gave full cross-party backing to the measures on November 2, ensuring the sanctions will be in place until October 12, 2010, when they can be renewed. END SUMMARY  

IRISL - Most Doors Close, Russia Opens ---------------- ---------------------  

¶2. (C) HM Treasury (HMT) and Foreign Office (FCO) officials told us on November 3 their Counter Terrorism Act measures (Ref A) have successfully forced two UK Protection & Indemnity Clubs (P&I) to cancel insurance services for IRISL.  IRISL is no longer a member of either UK club, and receives no cover from them.  The UK clubs are currently working only on legacy issues, essentially winding down existing business in a way consistent with the cease and desist order (i.e, ensuring money owed by IRISL to the clubs are actually paid, and granting exemptions where necessary on a case-by-case basis.)  

¶3. (C) In additional encouraging news, UK authorities learned that eight additional members of the International Group of P&I Clubs are regulated by the UK's Financial Services Authority (FSA) due to historical UK links (i.e., Bermuda's London Club originated in the UK and is still supervised by the FSA).  This brings to nine (the U.S., plus eight clubs under FSA) the number of members of the International Group prohibited by their home regulator from engaging in business with IRISL.  The remaining International Group members not currently restricted by sanctions are Japan, Norway (with two clubs) and Luxembourg.  IRISL does not have a business relationship with these four clubs, the British government told us, and USG-UK diplomatic efforts have been successful so far in getting the host governments to pressure their domestic clubs to refuse to replace the canceled UK coverage.  The Norwegian government has actively lobbied its clubs but has not yet imposed any official prohibitions on dealing with IRISL, according to HMT.  The Japanese have been eager to help deny coverage, according to HMT, but report they have not yet been approached by IRISL.  Luxembourg is also asking its P&I Club not to pick up the UK business.  FCO told us Luxembourg is often unreliable in keeping its financial promises, however.  

¶4. (C) Despite successfully keeping IRISL out of the pre-eminent International Group, HMT has learned the shipper approached Russia and will obtain coverage this week that is much more expensive than its previous contract with the UK clubs, but with less generous coverage.  FCO has learned some western companies involved with IRISL, including firms from Germany and the Isle of Man, may not accept the inferior Russian coverage.  The British government has decided not to approach Russia, as it feels unable to encourage the Russian government to step in.  Moscow has already told the British their unilateral measures have undermined the unity of the P5 1.  ACTION REQUEST: The UK is eager for our views on whether to approach Russia.  

¶5. (C) The UK P&I Clubs have quietly pressed HMG to include sanctions against IRISL in a broader package of UN sanctions.  The clubs have been receptive to the British government's arguments about the threat posed by IRISL and Iran, HMT tells us, but are concerned they are being forced to give up valuable business only to see it go to other providers who  LONDON 00002479  002.2 OF 002   are not affected by sanctions.  The FCO is drawing up a wish list for the next UNSCR round, which includes sanctions against IRISL, Iran Air and all Iranian state-owned banks.  

Bank Mellat -----------  

¶6. (C) There is little existing business contact between Bank Mellat and UK entities, so most of the effects of the UK's sanctions against the Tehran bank is on the London subsidiary, Persia International.  UK regulators are working to cut ties and wind down existing relationships and accounts.  Only a few companies have requested licenses to finish up business with Bank Mellat, and the UK will follow the same process used in applying UN sanctions on Bank Melli (i.e., case-by-case review of license requests and all Bank Mellat funds to go into a restricted account.)  

¶7. (C) Bank Mellat has been instructed by the Iranian government to engage in discussions with HMT lawyers on the process, but has not yet brought legal action against the measures - much to HMT's surprise.  The discussions, announced by the Iranian Ambassador to the UK in a letter to all UK Members of Parliament, are more information-gathering in nature at this point.  

¶8. (C) Parliament officially approved HMG's CT Act measures on November 2 with wide-spread, cross-party support (no opposition), ensuring the sanctions will remain in place until October 12, 2010, unless the UK opts to withdraw them beforehand due to a reduced threat from IRISL and Bank Mellat (reftel).  

¶9. (C) Press reporting has been fairly quiet, and the few pieces have been fact-based.  Public and political opinion has been silent.  10. (C) ACTION REQUEST:  HMT officials are planning an impact analysis in the next few months and have asked for U.S. models and methodologies of assessing the impact of our various sanctions regimes.  They are interested in how we measure both big-picture political effectiveness and calculate the small-scale impact on specific companies and players.  Visit London's Classified Website: XXXXXXXXXXXX 
LeBaron