Archive for May, 2011

TURKEY’S ECONOMY: IS THE DEAL ON PAMUK AND YAPI KREDI A SHOW STOPPER FOR THE IMF?

Tuesday, May 17th, 2011
ID
03ANKARA887
SUBJECT
TURKEY’S ECONOMY: IS THE DEAL ON PAMUK AND YAPI KREDI A SHOW STOPPER FOR THE IMF?
DATE
2003-02-04 17:46:00
CLASSIFICATION
UNCLASSIFIED//FOR OFFICIAL USE ONLY
ORIGIN
Embassy Ankara
TEXT
UNCLAS SECTION 01 OF 02 ANKARA 000887 

SIPDIS

SENSITIVE

STATE FOR E, EB/IFD/OMA AND EUR/SE
TREASURY FOR OASIA – MILLS AND LEICHTER
STATE PASS USTR – NOVELLI AND BIRDSEY

E.O. 12958: N/A
TAGS: ECON EFIN PREL TU
SUBJECT: TURKEY’S ECONOMY: IS THE DEAL ON PAMUK AND YAPI KREDI A SHOW STOPPER FOR THE IMF?

REF: ANKARA 676

Sensitive but unclassified. Not for internet distribution.

¶1. (SBU) Summary: As details of the Banking Board’s January 31 deal with Cukurova Group emerge, it looks like bail-out of the group. The deal reschedules Cukurova’s $5 billion debt to two banks (Pamuk and Yapi Kredi) on favorable terms, without requiring the group to put any cash upfront. Furthermore, the two banks sell their 20 percent of Turkcell (Turkey’s largest cellphone operator) back to the group in exchange for more debt. IMF management has complained about the deal to the government. IMF staff is not yet addressing whether this deal prevents them from completing the Fourth Review, given other issues left to resolve (especially on the budget), but this is a likely conclusion, per the IMF resrep. End Summary.

Where’s the Money? ——————

¶2. (SBU) On January 31, the Banking Regulation and Supervision Board (BRSA) signed an agreement with the Cukurova Group to resolve Cukurova’s $5 billion debt to two banks previously owned by Cukurova – Pamuk and Yapi Kredi. These two banks together represent about 20 percent of Turkish bank assets.

¶3. (SBU) On February 2, BRSA released the broad outlines of the deal to the public, which we reported last week (reftel): Cukurova will repay a $3 billion debt to Pamukbank over 15 years, with 3 years grace period on principal, at LIBOR plus 0.5 percent; Cukurova will repay a $2 billion debt to Yapi Kredi over 9 years, 3 years grace on principal, at LIBOR plus 3.5 percent. Cukurova will pledge as collateral other group assets, most importantly its shares in Turkcell (Turkey’s largest cellphone operator). Cukurova will not give cash up front, but will give Yapi Kredi Bank 50 percent of the shares of ATEL (a prepaid phone card business) in exchange for forgiving about $300 million of its debt to Yapi (bringing that debt down to $2 billion). Finally, Cukurova drops its legal challenge to BRSA’s take-over of the insolvent Pamukbank, and agrees to sell its 45 percent stake in Yapi Kredi in two years (down from an initial three years under the draft protocol agreement in reftel).

¶4. (SBU) On February 3, BRSA Vice President Ceyla Pazarbasioglu provided us additional information about the deal:

— The payment schedule for the $5 billion debt: Cukurova will make payments twice a year, with annual payments of only $145 million in the first two years (during the grace period on principal payments), rising to $460 million in year 3 and peaking at $887 million in year 8.

— Collateral pledged to secure the $5 billion debt, most importantly Cukurova’s 42 percent stake in Turkcell: This 42 percent of Turkcell includes nearly 20 percent that was owned by the two bank subsidiaries of Cukurova Pamuk and Yapi Kredi. (Note: Turkcell’s market valuation is currently about $4 billion, down from a high of about $17 billion in 2000.) The two banks agreed as part of this rescheduling to sell their shares back to Cukurova, and add the sales price to the existing debt owed by the holding company. The theory is that Cukurova is best situated to maximize the income stream from Turkcell, and thus use this income to pay back its bank debts. (Comment; In effect, this constitutes another loan from the banks to Cukurova. End Comment.)

— Yapi Kredi’s cash position: Rescheduling the $2 billion debt improves Yapi’s balance sheet (from insolvent to nearly 13 percent capital adequacy), but doesn’t change its cash position. Giving Yapi non-marketable shares in ATEL also doesn’t translate into cash. If Yapi’s capital adequacy falls below 10 percent, the deal calls for BRSA to inject capital into the bank and dilute Cukurova’s 45 percent interest.

— Management of Yapi Kredi. Though Cukurova will continue owning its Yapi Kredi shares for two years (down from an initial three years in the draft protocol agreement), BRSA will have complete management control, and will select a consulting firm to recommend replacements to both Yapi’s board and senior management. The goal is to replace the Cukurova people who approved the lending to the holding company. — Criminal prosecution option. BRSA waives its right to take Cukurova to bankruptcy court, but doesn’t waive its rights to prosecute Cukurova or owner KARAMEHMET for criminal fraud.

— Asked if BRSA had looked at the option of taking over Yapi Kredi Bank, Pazarbasioglu made the point that Cukurova would block such a move in court, just as he had with Pamukbank. Noone would buy either bank with Cukurova’s legal claim outstanding. The weakness of Turkey’s legal system dictated this kind of negotiated deal with Cukurova, according to Pazarbasioglu.

¶5. (SBU) Comment: Pazarbasioglu is right about the Turkish legal system, but that still doesn’t explain why Cukurova wasn’t required to put any money into either bank upfront (and why it acquires the two banks’ shares of Turkcell in a new loan), while its existing loan is rescheduled on favorable terms. The deal requires two leaps of faith: first, that Cukurova will gain the capacity to service $450 million plus in debt service within two years (which assumes its telecom and high tech businesses recover); second, that Cukurova’s owner KARAMEHMET has the intention to repaying this debt even if he does gain the capacity to do so (he hasn’t shown this intention previously). End Comment.

The IMF Reaction, and Press Leak ——————————–

¶6. (SBU) IMF resrep and resident banking expert tell us this deal presents serious problems, but they need to see the complete details before reaching a conclusion. Given the lack of progress over other issues (agreement on the 2003 budget and draft amendments to the Public Procurement Law which would gut this reform), the Fund staff are not yet taking the position that this deal would prevent a completion of the Fourth Review. But they might well reach this conclusion, per IMF resrep. IMF Europe Director Deppler called BRSA Chairman Akcakoca to warn the BRSA on January 30 not to sign the Cukurova deal until the Fund had the chance to study the details. IMF Managing Director Koehler followed up with a letter to PM Gul, also faxed to Treasury and BRSA, and then an angry phone call to Gul, asking the GOT to tell BRSA not to sign the agreement.

¶7. (SBU) The Koehler letter was leaked to the press, and AK Chairman Erdogan commented to the press that the IMF was finally agreeing with AK that there were problems with the independent regulatory boards, and that they need more central government supervision. (Comment: This exchange has further reduced the credibility and independence of the BRSA.) End Comment.

Comment ——-

¶8. (SBU) The Pamuk and Yapi Kredi deal is signed. Unlike the budget and Public Procurement Law amendment impasses, it would be difficult if not impossible for the GOT to walk it back. The deal at a minimum is highly favorable to Cukurova, and looks like a partial bail-out of the group (injection of $2.7 billion of GOT paper into Pamuk, regulatory forbearance and possible future injection into Yapi Kredi).

PEARSON

HEADER
This record is a partial extract of the original cable. The full text of the original cable is not available. 

XTAGS: XTAGECON, XTAGEFIN, XTAGPREL, XTAGTU 03ANKARA887

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http://www.wikileaks.ch/cable/2003/02/03ANKARA887.html

EX-BRSA CHAIR AKCAKOCA COMMENTS ON BANKING SECTOR, INVESTIGATIONS

Tuesday, May 17th, 2011
ID
03ANKARA7918
SUBJECT
EX-BRSA CHAIR AKCAKOCA COMMENTS ON BANKING SECTOR, INVESTIGATIONS
DATE
2003-12-24 08:52:00
CLASSIFICATION
CONFIDENTIAL
ORIGIN
Embassy Ankara
TEXT
C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 007918 

SIPDIS

STATE FOR E, EB/IFD AND EUR/SE
TREASURY FOR OASIA – MILLS AND LEICHTER
NSC FOR BRYZA AND MCKIBBEN

E.O. 12958: DECL: 12/23/2013
TAGS: EFIN PGOV TU
SUBJECT: EX-BRSA CHAIR AKCAKOCA COMMENTS ON BANKING SECTOR, INVESTIGATIONS

(u) Classified by Economic Counselor Scot Marciel. Reasons:
1.5 (b,d)

¶1. (C) Summary: Ex-BRSA Chairman Engin Akcakoca complained to us recently that the police raid on his house, which uncovered confidential documents he had kept from BRSA, was a politically-motivated set-up. Numerous current and former officials, he said, had called offering support and confiding that they also keep such documents to protect themselves from accusations and investigations. Akcakoca warned that the banking sector remains vulnerable, and will have difficulty remaining profitable in a low-interest rate environment. He reported that Cukurova Group owner Mehmet KARAMEHMET was negotiating with BRSA to reduce his Pamuk Bank-related debt to the state from just over $3 billion to $2 billion, and was also pressing to regain bank ownership rights. On a positive note, Akcakoca expressed support for the proposed merger of Pamuk Bank and Halk Bank, and said new BRSA Chair Tevfik Bilgin appeared well qualified — if perhaps a bit young — to take over the job. End Summary.

¶2. (C) During a recent lunch in Istanbul, ex-BRSA Chairman Engin Akcakoca offered us his thoughts on the investigation into his activities and on the broader banking sector. He began by saying that he had resigned because Deputy Prime Minister Sener — through an emissary — had explicitly asked for his resignation in the wake of the Imar Bank scandal. He complained that authorities had raided his house only three days after his resignation, while they had taken weeks to conduct raids on the Uzan family members, who clearly had engaged in massive fraud. Akcakoca said the raids were prompted by an “anonymous tip” claiming that authorities would find Imar Bank records at various addresses, including at his house. They had not found any such documents, but had instead uncovered a number of confidential BRSA documents.

¶3. (C) Akcakoca claimed the raids were a “set up,” since “everyone” keeps such records to protect themselves. He noted that former President Demirel, at least one Supreme Court Justice, and other current and senior officials had called him to express support and had acknowledged that they too keep such records. Even Deputy PM Sener, he added, had publicly defended him for keeping official documents. Akcakokca further complained that the prosecutor assigned to the case was someone he had worked with on the Imar Bank case; unfortunately, Akcakoca had publicly criticized the prosecutor a few weeks earlier for failing to act more assertively against the Uzans.

¶4. (C) Turning to the banking sector as a whole, Akcakokca warned about continuing vulnerabilities, particularly in the context of rapidly declining interest rates. He argued — as have others — that, in the absence of significant corporate lending, banks remain overly reliant for profits on returns from their huge investments in government securities. They will book significant capital gains from these holdings this year, but will be unable to do so next year, given the sharp drop in real interest rates. Noting that many banks already barely meet required capital-adequacy ratios, he warned that any slide into the red could bring serious problems for the sector.

¶5. (C) Akcakoca noted that the current government now had a majority of its people on the BRSA board and also would appoint supporters to the newly independent SDIF board. As a result, he said, the government will have unprecedented power to “squeeze” bank owners if it so chooses. The GOT already has indicated it will review all loan workouts done through the Istanbul approach, and could — per Akcakoca — also review and even cancel existing agreements between SDIF and the owners of failed banks. He noted that Justice Minister Cicek has made clear that he wants to go after at least some of the owners.

¶6. (C) At the same time, Akcakoca complained, Cukurova Group owner Mehmet KARAMEHMET — former owner of Pamuk Bank and Yapi Kredi Bank — is negotiating with SDIF to reduce his debt obligations. Under the arrangement worked out following BRSA’s mid-June 2002 intervention, KARAMEHMET committed to repaying more than $3.1 billion over 15 years to SDIF to fill the hole he created in Pamuk Bank’s balance sheet. Now, he is proposing paying $1.9 billion over two years, and also asking to regain his right to own banks (Turkish law prohibits owners of failed banks from owning other banks). Akcakoca acknowledged that SDIF sometimes agreed to 30 percent reductions in debts owed by failed bank owners in return for immediate payment, but pointed out that KARAMEHMET’s proposed deal involved a 42 percent discount without full upfront payment. (Comment; IMF ResRep and others say they also have heard about this proposed deal, but we have not yet been able to verify the details with SDIF. End Comment)

¶7. (C) On a more positive note, Akcakoca said he thought Tevfik Bilgin, his successor, was qualified, if a bit young. He also expressed support for the proposed Pamuk Bank – Halk Bank merger, saying the two banks would complement each other and that it would be very difficult for SDIF to sell Pamuk Bank to a private buyer.

EDELMAN

HEADER
This record is a partial extract of the original cable. The full text of the original cable is not available. 

XTAGS: XTAGEFIN, XTAGPGOV, XTAGTU 03ANKARA7918

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STAMP
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http://www.wikileaks.ch/cable/2003/12/03ANKARA7918.html

CUKUROVA FAILS TO COME THROUGH AGAIN

Tuesday, May 17th, 2011
ID
04ISTANBUL1558
SUBJECT
CUKUROVA FAILS TO COME THROUGH AGAIN
DATE
2004-10-15 06:17:00
CLASSIFICATION
UNCLASSIFIED//FOR OFFICIAL USE ONLY
ORIGIN
Consulate Istanbul
TEXT
UNCLAS SECTION 01 OF 02 ISTANBUL 001558

SIPDIS

SENSITIVE

STATE FOR E, EUR/SE AND EB/IFD
TREASURY FOR OASIA – MILLS
NSC FOR MBRYZA AND TMCKIBBEN

E.O. 12958: N/A
TAGS: ECON EINV EFIN TU
SUBJECT: CUKUROVA FAILS TO COME THROUGH AGAIN

Sensitive but Unclassified – not for internet distribution.
This cable was coordinated with Embassy Ankara.

¶1. (SBU) Summary: Turkey’s stock market was shaken Tuesday as it absorbed news that the Cukurova Group had again missed the deadline for completion of the first payment under its early payment plan with the Turkish Savings Deposit Fund (SDIF). The ISE-100 dropped 2.15 percent Tuesday as a result, with Yapi Kredi Bank, which was slated to receive the bulk of the 130 million USD payment, falling 9.5 percent before trading in its shares was suspended. The apparent failure of the high profile deal not only complicates the future of Yapi Kredi Bank, which is owed 2 billion USD by the group, but also that of Turkey’s largest GSM operator, Turkcell, whose shares are held in trust by the bank as collateral for the loan. End Summary.

¶2. (SBU) Early Repayment: Pursuant to an early repayment agreement concluded in July between the Cukurova group, Banking Regulatory Board (BRSA), the SDIF, and Yapi Kredi Bank, the group received a “haircut” of nearly 2 billion USD in its outstanding debt to the bank and the SDIF (the latter debt stems largely from the failure of Pamukbank, which the group also owned) by shortening the repayment period from 2011 to 2006. From the outset much speculation surrounded the identity of the mysterious foreign investors who were providing the capital that would enable the Cukurova Group to meet its 4 billion USD in outstanding obligations, with press speculation earlier this month focusing on Central Asian and other unspecified middlemen. Officially, the source of the funds was the Northway Petroleum Corporation, an apparent paper entity whose General Manager was added to the Turkcell and Yapi Kredi boards earlier this fall.

¶3. (SBU) Jewel in the Crown: For Cukurova, the key enticement to the deal was the ability to hold onto the 13 percent of Turkcell shares that the bank holds in trust against the group’s outstanding debts. Under its original payment protocol, the group can only hold onto the shares by paying 1 billion USD in cash by the end of January 2005. The new protocol lengthened the deadline and provided for gradual release of shares as Cukurova made its debt payments. The company, which once made Mehmet KARAMEHMET(who controls Cukurova) the wealthiest man in Turkey, is the group’s centerpiece, and with a leading position in Turkey and growing interests throughout the region (including its recent success in a GSM license tender in Iran, albeit one now subject to review by the Iranian parliament), Turkcell appears poised to maintain its market dominance and continue to grow its overall valuation.

¶4. (SBU) Missed Deadline: Despite the doubts about the fund providers, most brokerages hailed the deal this summer. One typical comment, from HC Istanbul, characterized the outcome as “positive for all the parties directly involved.” Given Cukurova’s previously spotty record in loan repayment, however, this endorsement came with the important caveat that confidence in the plan would “gradually increase once investors see a couple of regular monthly payments by Cukurova.” To date, however, no payments have been registered. Instead, the payment deadline was first moved from early September to late September, and ultimately to October 11. The Group briefly claimed on October 11 that it had made the necessary payment in the United States, but that the Columbus Day holiday had prevented transfer of funds to Turkey. That claim swiftly disappeared, however, as the group proved unable to produce a deposit receipt and as the funds failed to appear again on October 12.

¶5. (SBU) Next Steps: Still unclear is what the next step in the process will be. The SDIF, which has less at stake, has indicated that Cukurova can combine the first and second payment, together with interest, and maintain the revised protocol. Both Yapi Kredi Bank and the BRSA, however, have said that failure to produce the money on October 12 rendered the revised protocol null and void. Most critically for Cukurova, that would enable Yapi Kredi to sell the Turkcell shares it holds as early as the end of January. Already a number of companies have expressed interest, including Telia-Sonera, the company’s minority Finnish partner, which could assume majority control of the company by buying the pledged shares.

¶6. (SBU) What Went Wrong: Cukurova Chairman KARAMEHMET is notoriously tightlipped, but already there is speculation that the group’s unidentified fund providers balked at contributing once they realized that the collateral they had been promised fell short of the amount they were being asked to provide. As evidence, some note that the fund providers had asked that bank shares be provided to them as collateral as well, something explicitly prohibited by the early repayment agreement, since their eligibility to run a bank in Turkey was open to question. In a statement late Thursday, Cukurova claimed that the delay in payment was entirely the fault of its lenders, as though this somehow absolved it of responsibility.

¶7. (SBU) Yapi Kredi Still Healthy: Both the Chief Sworn Auditor (bank inspector) of BRSA and Yapi Kredi executives told econoffs that, despite the market concerns, Yapi Kredi is still a sound institution. One YKB executive told us the Turkcell shares held by YKB have appreciated in value from $1.5 billion to $7-8 billion over the past 2.5 years. Moreover, he opined that some groups such as Koc, Sabanci or Telia Sonera would be very interested in paying a substantial premium for these shares. The Sworn Auditor said YKB is adequately capitalized and has a good image. A second YKB executive worried about the effect of the uncertainty could have on YKB’s image, a concern similar to that voiced by BRSA Chairman Bilgin in a meeting this summer.

¶8. (SBU) How the Cukurova-Yapi Kredi end game plays out is important for several reasons. First and foremost, as BRSA Chairman Bilgin has told us privately, Yapi Kredi is one of Turkey’s major banks, and problems at Yapi Kredi have implications for the entire banking sector. YKB executives have told us that BRSA stays in close, solicitous touch with YKB management. This case is also important for the credibility of the relatively new leadership of BRSA and SDIF. Cukurova is only one of the owners of failed banks that the regulators–backed by the GOT–have been pressuring into finalizing deals to honor intervened banks’ loans to these owners’ other companies. But Cukurova is the most important of the remaining cases because of the large amounts involved and Yapi Kredi’s size and importance. If SDIF and BRSA are perceived as insufficiently tough on Cukurova, this could hamper the regulators’ ability to enforce other deals with failed bank owners. Finally, the Cukurova arrangement raises questions about the source of the funds the group is bringing in to make its payments. Though markets and even regulators seem to be mainly focused on whether Cukurova can come up with the money, if the source of the funding is not clear, it would raise doubts about possible tax evasion or money laundering. End Comment.

ARNETT

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This record is a partial extract of the original cable. The full text of the original cable is not available.

XTAGS: XTAGECON, XTAGEINV, XTAGEFIN, XTAGTU 04ISTANBUL1558

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http://www.wikileaks.ch/cable/2004/10/04ISTANBUL1558.html

TURKEY’S THRACE DEVELOPMENT COMPANY AND BOSPHORUS BYPASS – ADVOCACY QUESTION

Tuesday, May 17th, 2011
ID
05ANKARA247
SUBJECT
TURKEY’S THRACE DEVELOPMENT COMPANY AND BOSPHORUS BYPASS – ADVOCACY QUESTION
DATE
2005-01-15 15:29:00
CLASSIFICATION
CONFIDENTIAL
ORIGIN
Embassy Ankara
TEXT
C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 000247 

SIPDIS

USDOE FOR CHARLES WASHINGTON
USDOC FOR ADVOCACY CENTER AND
4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: DECL: 12/13/2014
TAGS: EPET BEXP TU KZ
SUBJECT: TURKEY’S THRACE DEVELOPMENT COMPANY AND BOSPHORUS BYPASS – ADVOCACY QUESTION

Classified By: ECONOMIC COUNSELOR THOMAS GOLDBERGER FOR REASONS 1.4 (B) AND (D)

This is an action request. Please see Para 4.

¶1. (SBU) Thrace Development Company (TDC) Chairman Howard Lowe called on Ambassador December 8 to update us on TDC’s proposed oil pipeline project that would be an alternative “bypass” route across Turkish Thrace for oil exported from the Black Sea that currently passes by tanker through the Turkish Straits. Lowe described his continued frustration with no movement on TDC’s longstanding permit application to the GOT for the proposed project. (TDC, with USG advocacy support, has asked the Turkish Government to issue it a “conditional permit” that would allow it time to demonstrate the financial and environmental feasibility of the project – or at a minimum to give TDC a timely yes or no response.) Asked about TDC’s Turkish partners, Lowe disclosed for the first time that Mehmet KARAMEHMET, Chairman of the Cukurova Group, was a partner in TDC. We noted to Lowe that some U.S. companies had experienced questionable, even threatening, behavior in their dealings with Mr. KARAMEHMET and his companies, and advised Mr. Lowe to exercise extreme caution in connection with KARAMEHMET. Lowe said that KARAMEHMET had declined an offer to be taken out of the partnership, noting that KARAMEHMET’s share constituted 16-17 %.

¶2. (C) KARAMEHMET is known to Post as an unreliable and unsavory business partner. Post knows of one U.S. firm that was subject to unethical and intimidating tactics, including death threats, to force a settlement of a business dispute favorable to KARAMEHMET. Because of this, Post has advised U.S. firms against partnering with KARAMEHMET. While his extensive Cukurova Group has significant interests in some good assets (for example, Yapi Kredi Bank and Turkcell, the major mobile telephone operator), it has been involved in bank failures and murky financial transactions and dealings. These include the failure and takeover of Pamukbank in 2002 and dubious lending from Yapi Kredi to other Cukurova Group companies, resulting in $2 billion bad debt on the bank’s balance sheet. Turkish bank regulators are obliging Cukurova Group to make good on this debt, but to date the group has been unable to do so. Also, Cukurova Group is ineligible to hold a bank license because of the failure of Pamukbank. KARAMEHMET has also been involved in a nasty, public battle for control of Turkcell with the company’s Finnish/Swedish partners.

¶3. (SBU) Our concerns were further heightened following a January 12 conversation with Econoff in which TDC’s locally retained consultant, lawyer Yilmaz Oz, revealed that the other TDC partners included former Kazakh Prime Minister Nurlan Balgimbaev and Servet Harunoglu, Fintraco Construction Chairman. Embassy notes that the former has been linked in court documents to the FCPA case against James Giffen related to Kazakhstan, but is not in a position to evaluate this information. Lowe and his partners all appear to have oil and other business experience in Kazakhstan. Howard Lowe last called EconOff on December 21 to check on developments (or lack of) on Bosphorus bypass projects. He said that TDC was making progess in discussions with Gazprom for a potential oil throughput guarantee. Lowe again expressed frustration on lack of progress from the GOT on permitting their bypass project.

¶4. (SBU) Action request: Post has advised Lowe to excercise extreme caution in its dealings with KARAMEHMET. Given this new information about financial interests behind TDC, post would appreciate Washington’s updated guidance on how to pursue the company’s advocacy request.

¶5. (SBU) Background: TDC applied for a permit for its trans-Thrace (Kiyikoy-Ibrikbaba/Saros) project in June 2003. A Transneft (partnered with Turkish Anadolu Construction) backed project filed an application for a copycat trans-Thrace project in June 2004. While MENR officials agree in principle with the Embassy’s consistent message that the market – not governments – should pick potential Bosphorus bypass projects; in practice, the GOT Council of Ministers has held up permits pending approval of an acceptable route. The GOT has expressed concern about lack of oil throughput guarantees and environment impact – in particular associated with the trans-Thrace route. The GOT has indicated a preference for the Samsun-Ceyhan route and has sought to gain Russian support for this route. (Note: Prime Minister Erdogan just returned from Moscow, seeking a broad range of energy, economic, and political agreements. They do not appear to have reached any solid agreement on Bosphorus bypass. End Note) In his meeting with the Ambassador, Howard Lowe asserted that the Samsun-Ceyhan route was not competitive from both a cost and technical basis, relative to TDC’s proposed route and project. He asserted that the high elevation passage would create extra costs and/or limits to pipeline size that would affect capacity. Additional reporting on Bosphorus bypass issues will be provided septel.

EDELMAN

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This record is a partial extract of the original cable. The full text of the original cable is not available. 

XTAGS: XTAGEPET, XTAGBEXP, XTAGTU, XTAGKZ 05ANKARA247

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http://www.wikileaks.ch/cable/2005/01/05ANKARA247.html

ATHENS RSI DECEMBER 2006 READOUT

Monday, May 16th, 2011
ID 06ATHENS3254
SUBJECT ATHENS RSI DECEMBER 2006 READOUT
DATE 2006-12-28 13:44:00
CLASSIFICATION SECRET//NOFORN
ORIGIN Embassy Athens
TEXT S E C R E T SECTION 01 OF 04 ATHENS 003254
SIPDIS
NOFORN SIPDIS
E.O. 12958: DECL: 12/28/2016 TAGS: PREL PGOV ASEC OTRA PTER GRSUBJECT: ATHENS RSI DECEMBER 2006 READOUT
REF: A. ISTANBUL 1201
¶B. SECSTATE 90114
Classified By: CHARGES D’AFFAIRES THOMAS COUNTRYMAN. REASONS 1.4 (B) A ND (D). 

¶1. (S/NF) SUMMARY: On December 11, Embassy Athens hosted Chiefs of Mission and others from posts in Amman, Ankara, Beirut, Cairo, Nicosia, Rome (MFO), Sofia, and Tel Aviv, as well as participants from S/CT, INL, NEA, DOJ, OSD, CENTCOM, EUCOM, and the NCTC, for an Eastern Mediterranean conference of the Regional Counter-Terrorism Strategy Initiative (RSI). Participants described terrorist threats within their host countries, linkages to trans-national terrorism (principally al-Qaida, but also the PKK and Hizballah), and possible regional policy responses. Given the complex nature of the threats, participants foresaw effective responses in policies combining diplomatic efforts and assistance to host governments, intelligence collection and information sharing, economic measures, military power, as well as public diplomacy, particularly through the internet, which was seen as the medium of choice for terrorists. The work of the conference focused on five key areas of concern:

— the persistent terrorist threat in Sinai;
— the threat to European border security posed by returning jihadists;
— the PKK,s role in destabilizing Turkey, Iraq, and Western Europe;
— Lebanon as the front line in the struggle between democracy and Iranian theological revolution;
— challenges and best practices for our public diplomacy in countering terrorist propaganda.

The incoming Eastern Med regional CT coordinator was able to participate in the conference, which will help this officer get off to a strong start when she arrives in Istanbul in mid-2007. Regional participants welcomed the opportunity to work cooperatively and looked forward to meeting again )- a point they underscored with Washington participants. END SUMMARY.

AN EVOLVING THREAT ) AND DYNAMIC RESPONSE —————————————–

¶2. (S/NF) The December 11 Athens conference was the second Eastern Mediterranean RSI meeting; the first was held in Istanbul in June 2006 (ref a). COMs and other participants viewed the RSI format as a valuable one, in this case especially because it brought together participants from two different regional bureaus and the MFO. Flows of terrorist personnel, goods, finances, and ideas are dynamic, involving potential threats to the United States and Europe, which, participants underscored, demand agile, field-driven policy responses. Participants focused on a number of issues first raised at the June RSI conference, as well as newly emerging potential threats, such as those in the Sinai.

THE SINAI TIME BOMB ——————-

¶3. (S/NF) Participants viewed the Sinai as the site of persistent terrorist activity. Al-Tawhid wa Al-Jihad, an indigenous Islamist bedouin terror group, has carried out three major terrorist bombings in Sinai resort communities since 2004. In addition, it has — so far unsuccessfully — targeted the Multi-national Force and Observers (MFO) with one IED and two suicide bombings. Ambassador Larocco, MFO Director General, described the Sinai as a &time bomb8 with consequences for Israel, Gaza, and Jordan, as well as Egypt. Weapons trafficking, a profitable element in the broader smuggling apparatus between Sinai and Gaza, attracts a high volume of weapons and explosives to the area. According to Larocco, because this includes Strela missiles, MFO helicopters no longer fly in the vicinity of the Gaza border.

The introduction of the Egyptian border force in September 2005 — concurrent with the withdrawal of Israeli troops from Gaza — has failed to curb the weapons smuggling. The Egyptians insist that more troops are needed but have not received permission under the Camp David Accords for additional troops. Although there is no treaty limit on the number of police forces in the area, all agree that police on the ground have not been effective.

¶4. (S/NF) The USG has engaged with the Egyptians on technical assistance at the border to address smuggling, but there appears to be no simple technological fix, especially in light of treaty limitations. Egyptian, Israeli, and Palestinian border authorities have met on a regular basis, but meetings were disrupted by violence in Gaza last summer. The parties are now working to re-start these consultations. The Egyptians are also hampered by their own bureaucratic infighting over Sinai, which has impeded economic and political development in the region.
Participants identified five discreet avenues of activity as potentially fruitful:

— increasing Egyptian intelligence collection and capacity; — improving border controls; — strengthening legal/legislative measures; — addressing deeper economic and social conditions; — continued diplomacy, focusing on cross-border consultations.
Participants also agreed that the USG should share best practices developed elsewhere with Egypt and Israel )- perhaps by funding a conference to share information on technical means to disrupt terrorist activity, such as terrorist financing.

RETURNING JIHADISTS: THE NEXT BIG THING —————————————

¶5. (S/NF) Participants agreed that as the situation in Iraq and/or Afghanistan changed, many jihadists were likely to leave those theaters and attempt to transit to Western Europe, creating a new CT problem. Turkey, Bulgaria, Greece, and Cyprus were identified as likely transit nations in the eastern Mediterranean, while Europeanand American border-control tools to deal with the problem were described as uneven and disjointed, allowing little bilateral or international cooperation. Examples of the latter were the absence of a common European database of useful information beyond the embryonic Schengen &Information System.8 Moreover, American databases held by the CIA, FBI, DHS, State, etc. were stovepiped. The obstacles to overcoming these problems were both procedural and technical.

¶6. (S/NF) Using a discussion paper developed by Ambassador Ries and country team on ways to counter the threat posed by returning jihadists, participants identified two specific areas to begin work. First, the U.S. needed to make decisions on what watchlist information )- especially biometric — it could share with European border-control agencies and how to do so. Second, a first step to cooperation with the Europeans would be a conference involving experts below the political level but senior enough to make decisions/commitments. After considerable discussion of possible venues, it was decided that S/CT would coordinate with EUR/ACE and DOJ to organize a conference involving participants, host countries and perhaps others and Interpol. The question of whether the conference would be small and regionally focused or larger and more theoretically oriented was left open, though the majority of participants leaned toward a smaller conference focused on technical standards of data sharing, with a larger conference as a next step. The Southeast European Cooperative Initiative Center in Bucharest was discussed as a model for developing this type of cooperation.

PKK: NUMBER TWO AFTER AL-QAIDA ——————————

¶7. (S/NF) 2006 saw a major increase in terrorist violence by the Kurdistan Workers Party (PKK). The Germans have described the PKK as the second most significant contemporary terrorist threat after al-Qaida and the number-one organized-crime threat in Europe (though the French and SWISS have downplayed or avoided the issue). The PKK also represents a major political threat insofar as perceived U.S./Iraqi inaction against the PKK safehaven in Northern Iraq could provoke Turkish intervention. The U.S. has been working on several fronts against the PKK, but much remains to be done. Moreover, action against the PKK by the Europeans would create a good optic with the Turks as Turkey,s EU accession slows. The Principals Committee recently raised the PKK from a Tier 3 to a Tier 2 terrorist threat, which will allow for the commitment of greater collection resources to track PKK activity. There is active interagency collaboration in Washington to shut down PKK camps and review options against PKK leaders in Iraq. Participants suggested a number of possible steps for the U.S. and Europeans: follow-on consultations in Europe by S/CT Deputy Urbancic, which might include southeastern Europe and the eastern Mediterranean; increased counter-terrorist training programs with the Turks; increased intelligence sharing, including by other RSI countries; increased overflights of PKK bases in Iraq (this reportedly has a strong psychological impact on the PKK )- the Turks also have expressed interest in commercial purchase of surveillance blimps); strengthening of obstacles to PKK financial flows; political pressure on Kurdish leader Barzani to shut PKK bases/centers; a DOJ push on the European prosecutors, liaison group EuroJust to focus on PKK; and a diplomatic push on the Germans during their EU presidency to promote anti-PKK efforts.

LEBANON: FRONT LINE OF U.S./IRAN CONFLICT —————————————–

¶8. (S/NF) Lebanon was described as a new surrogate conflict: while the U.S. sought to promote democracy and stability, Iran sought to export theological revolution through Hizballah. Hizballah received tremendous financial, material, and spiritual backing from Iran and, while the terrorist group suffered significant infrastructure damage from the attack by Israel last summer, it emerged organizationally unscathed, if not stronger, and was likely to rebuild itself in 6-8 months. Syria was also seeking avenues to increase its influence in Lebanon. The U.S. had begun to describe Hizballah as a global terrorist threat. Participants focused on several areas of activity, emphasizing the need to continue our efforts in all: working towards establishing a common political vision for the country; pre-emptive PD action to head off Hizballah propaganda undermining the democratic process; build-up of the Lebanese government,s ability to police through equipment and training grants (in 19 recent bombing cases, no one has been arrested, undermining police legitimacy); increase of costs to Iran and Syria for intervention and support of Hizballah; and more work with Europeans to increase awareness of the Hizballah threat.

PUBLIC DIPLOMACY COUNTERING TERRORIST PROPAGANDA ——————————————— —

¶9. (S/NF) While all conference participants agreed on the importance of a strong PD push against the terrorist message, there was general frustration at the success of our efforts so far, including the inability of the Department to secure desired funding for relevant PD efforts. Participants thus focused primarily on developing new, indirect methods to get our message across. For example, an increase in the number of foreign students in American schools and of American students in foreign schools was seen as paying large long-term dividends. Embassy Athens shared the experience of its program on countering anti-Americanism in working with private foundations to support lecture visits by major American figures outside the world of foreign policy. Athens, experience with its brand new youth website &www.Mosaiko.gr8 was also cited as a model for other embassies. EUCOM discussed its experience with its &www.setimes.com8 website and the Marshall Center,s extensive expertise, including a program on Countering Ideological Support for Terrorism. These and a number of other EUCOM tools are at the USG,s disposal in the public diplomacy realm. Participants agreed that television and radio appearances )- particularly when done in host-country languages )- were much more effective than conferences of diplomats, politicians, and scholars. Finally, participants agreed that progress on the Israeli/Palestinian conflict, in addition to bringing greater stability to the region, would also have immense PD impact.

LOOKING AHEAD ————-

¶10. (S/NF) Regional ambassadors will decide on the timing and venue for the next meeting and asked S/CT, DOD, and other Washington participants to underscore the important synergy such meetings bring to regional cooperation efforts. Ambassador Crumpton previewed the four new full-time regional RSI coordinator positions that have been created (with six others in the works) and noted that the Eastern Mediterranean center would be located in Congen Istanbul. He also emphasized Washington,s support for flexible, dynamic regional networks and initiatives to counter terrorists. The conference agreed that RSI has proved effective not only in promoting counter-terrorism initiatives but also for promoting inter-embassy, inter-agency, and inter-regional cooperation.
¶11. (C) Conference participants cleared this message.

COUNTRYMAN

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http://www.wikileaks.ch/cable/2006/12/06ATHENS3254.html

 

SENTENCING OF TURKEY’S 2ND RICHEST MAN AND MEDIA MOGUL NOT SEEN AS POLITICAL

Sunday, May 15th, 2011
ID
10ISTANBUL55
SUBJECT
SENTENCING OF TURKEY’S 2ND RICHEST MAN AND MEDIA MOGUL NOT SEEN AS POLITICAL
DATE
2010-02-12 13:26:00
CLASSIFICATION
UNCLASSIFIED//FOR OFFICIAL USE ONLY
ORIGIN
Consulate Istanbul
TEXT
UNCLAS ISTANBUL 000055 

SENSITIVE
SIPDIS

DEPT PLEASE PASS USTR

E.O. 12958: N/A
TAGS: ECON EINV ETRD EFIN PGOV PREL PHUM TU
SUBJECT: SENTENCING OF TURKEY’S 2ND RICHEST MAN AND MEDIA MOGUL NOT SEEN AS POLITICAL

REF: 09 ANKARA 1705

¶1. (U) On February 10 Mehmet Emin KARAMEHMET, President of Cukurova Holding, was sentenced to 11 years and eight months of jail for embezzlement by Istanbul’s Heavy Penal Court. Known as Turkey’s second richest man, KARAMEHMET was convicted of embezzling funds from Pamukbank, a bank he owned before it was seized by the Savings, Deposits, and Insurance Fund (TMSF) in 2002 due to a US $2 billion capital shortfall. The Istanbul court also fined him 472 million Turkish Lira (nearly US $312 million) for misusing loans provided by the bank. The court case against KARAMEHMET was opened six years ago in response to complaints from the Turkish Banking Regulatory and Auditing Board (BDDK) and the TMSF. KARAMEHMET is expected to appeal to the Higher Court of Appeals.

¶2. (U) The Cukurova Group’s business activities range from media and telecommunications to energy, transportation, and finance. The Group’s Genel Enerji company is very active in northern Iraq. The group owns a number of media companies including Aksam and Tercuman newspapers, Show TV, and Digiturk cable. Although Aksam is more mainstream, Tercuman is considered ultra-nationalist and anti-government. Tercuman’s former editor-in-chief, Ufuk Buyukcelebi, was briefly detained during a round of Ergenekon raids in 2008. Presently, the media is not portraying the sentencing of KARAMEHMET as politically motivated, in contrast to much of its reaction to the government’s tax case against rival Dogan holding (reftel). The media instead has focused on the financial difficulties of tycoon KARAMEHMET, who has long eschewed the public limelight. (Note: Journalist contacts at Aksam have told us that they had not been paid for three months, while Digiturk seemed to be able to afford a US $1.5B five-year bid for premier football league broadcast rights).

¶3. (SBU) Comment: The Cukurova Group’s evident economic problems and its comparatively less controversial media influence lead us to caution against assuming that KARAMEHMET is another Dogan. This case instead arises from the 2001 Turkish financial crisis, which was triggered in part by Turkey’s then-poorly regulated banks making huge, non-collateralized loans to owners like KARAMEHMET that were never repaid. Interbank, another Cukurova Group bank, failed in 1999. Pamukbank went under early in 2002 after its assets were distributed (via unpaid loans) to various Cukurova Group companies. The GOT spent US $43 billion to restructure its financial system after the crisis. Part of that process – done with IMF and World Bank help – involved taking over 23 bankrupt banks, including Pamukbank. The KARAMEHMET prosecution grew out of that clean up process. However, as one of post’s investment analyst contacts notes, such cases will not make attracting foreign investment any easier. End Comment.

WIENER

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QUARTZCOM: CONCERN ABOUT SWISS FIRM’S ENGAGEMENT WITH SYRIAN ENTITY

Saturday, May 14th, 2011

2009-11-20 16:39:00

09BERN498

Embassy Bern

SECRET

09STATE115194

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S E C R E T BERN 000498

SIPDIS

DEPT FOR ISN/MTR (JP.HERRMANN) AND EUR/CE (Y.SAINT-ANDRE)

E.O. 12958: DECL: 11/20/2034
TAGS: PARM, MNUC, PREL, ETTC, SY, SZ
SUBJECT: QUARTZCOM: CONCERN ABOUT SWISS FIRM’S ENGAGEMENT WITH SYRIAN ENTITY

REF: STATE 115194

Classified By: Poloff Chris Buck; reasons 1.4(b), (c), and (d).

1. (S) Poloff delivered the reftel non-paper on November 10 to Pierre-Andre Farine, Acting Director of the Export Controls Section, Swiss State Secretariat for Economic Affairs (SECO). Farine thanked poloff for the information and undertook to look into the matter.

2. (S) On November 20, Juergen Boehler, Director of SECO’s Export Controls Section, informed poloff that SECO shares USG concerns about the Syrian entity noted in the reftel non-paper, and would not approve any shipments of quartz oscillators to it. He said that he had been in touch with Quartzcom’s head manager, warning him not to proceed with any
transactions with Syrian entities. According to Boehler, the manager currently is on business travel in Asia. SECO has requested a meeting with the Quartzcom manager upon his
return to Switzerland, and has asked him to provide any documentation Quartzcom has relevant to possible orders from Syrian entities. Boehler underlined that Swiss authorities
are keeping an eye on the company, and said he thinks it will be possible to prevent the quartz oscillators from being exported, per USG concerns in reftel.

BEYER

http://www.letemps.ch/cables?id=09BERN498

STAYING AHEAD OF PROLIFERATORS REVOLVES AROUND BETTER COMMUNICATION

Friday, May 13th, 2011

2009-07-21 14:23:00

09BERLIN879

Embassy Berlin

UNCLASSIFIED//FOR OFFICIAL USE ONLY

 

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UNCLAS SECTION 01 OF 03 BERLIN 000879

SENSITIVE

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STATE FOR ISN

E.O. 12958: N/A
TAGS: ETTC, ETRD, KOMC, PARM, PGOV, PINR, BR, UK, IR, GM

SUBJECT: STAYING AHEAD OF PROLIFERATORS REVOLVES AROUND  BETTER COMMUNICATION

BERLIN 00000879 001.2 OF 003

1. (SBU) SUMMARY: As the global financial crisis adds pressure to stimulate growth through increased exports despite the ever increasing threat from proliferation/terrorism, the question of how to effectively administer national export control measures has never been more important or for that matter; more challenging. At the June 15-16 Berlin Export Control Seminar on Risk Assessment in Licensing, international export control and nonproliferation experts discussed ways to prevent proliferation without harming legitimate trade. To combat the threat posed by increasingly sophisticated proliferators, conference presenters emphasized the importance of establishing collective export control synergy both internationally; through information sharing within export control regimes, and within country; through improved interagency communication and outreach to industry. USG participation included presentations from Department of State ISN/MTR and DTCC offices and from the Department of Commerce. END SUMMARY

FIGHTING NON-PROLIFERATION IN TIMES OF RECESSION
——————————————— —

2. (SBU) The global financial meltdown has severely diminished worldwide exports of technical goods and created pressure from industry and governments to ease export control restrictions to stimulate economic growth and jobs. Hartmut Schauerte, German Ministry of Economics (BMWi) Parliamentary Secretary, opened the German-hosted seminar on Risk Assessment in Licensing by stressing the need for the EU “to not neglect export control” given the effects of the financial crisis and noted Germany’s 28 percent plunge of their 6.3 billion euro export industry from the previous year. Schauerte said future success combating nonproliferation in the EU rests squarely with their ability to work with industry and make their export control policies transparent. French and Australian export control officials reiterated Schauerte’s sentiment to strive for a balance between trade and proliferation concerns.

BRAZIL SAYS TO THINK GLOBALLY NOT LOCALLY
—————————————–

3. (SBU) Brazilian State Minister for Export Control, Santiago Mourao, encouraged nations to “think globally and not locally” and proposed creating an overarching structure to bring together the four export control regimes; Wassenaar Arrangement (WA), Missile Technology Control Regime (MTCR), Australia Group (AG), and Nuclear Suppliers Group (NSG). Mourao said the export control regimes are “good, but not enough” and the international community must find a way to work together in a cohesive way to close loopholes. Mourao made the point that the regimes are already loosely linked and urged further cooperation and communication. He also cited United Nations Security Council Resolutions (UNSCRs) on Iran and North Korea, which utilize the regime lists to define where action should be taken.

PROLIFERATORS EXPLOITING EXPORT CONTROL WEAKNESSES
——————————————— —–

4. (SBU) A number of presenters noted that as proliferators evolve their tactics, they are finding increasingly sophisticated evasive ways to take advantage of export control loopholes and are primarily targeting communication deficiencies among worldwide export control systems. Proliferators are privileged to vast resources of open source information about export controls and enforcement efforts, which they leverage to conceal the goods and/or the actual end-use, and end-users of items of proliferation concern so as to avoid setting off proliferation flags. Seminar presenters shared examples of cases where proliferators have become particularly adept at gaming export control systems to achieve their goals. The primary tactic discussed was multi-pronged procurement efforts through networks of suppliers/brokers attempting to acquire dual-use/weapons- related items. This “shotgun approach” works by requesting similar items through several export control systems simultaneously to procure a desired technology, which inherently increases the odds of the illicit procurement slipping through at least one system.

FIXING THE COMMUNICATION LOOPHOLE REMAINS A CHALLENGE
——————————————— ——–

5. (SBU) Conference presenters emphasized the critical role intelligence information plays in evaluating risk in the export control decision making process and noted difficulties disseminating this information to foreign partners. This creates an information gap that can result in proliferators not being monitored or tracked as closely as needed and even &falling through the cracks.8 In this context, some presenters stressed the need for increased information sharing among countries on export denial case details. For example, Juergen Boehler from the Swiss Export Control Office (EVD) emphasized the value his agency places on export denials from regime partners and encouraged all regime members to file denials within the nonproliferation regimes.

PROBLEMS WITH LEGAL TERMS/DEFINITIONS
————————————-

6. (SBU) A great deal of discussion centered around interpretation of terms defined in international export control policy and how this effects resultant action taken against proliferators. Specifically, the legal definitions of what a &broker8 are, who “state actors” are, and what constitutes “dual-use” resonated strongly with the presenters and audience. Mourao pointed out that UNSCR 1540 calls for nations to “take action” on “state actors”, which he said was subject to interpretation and could lead to irregularities in implementation. He called for nations to universally define (1) what a state actor is and (2) what is illegal. Some conference presenters complained that weak definitions of a &broker8 are sometimes a limiting factor for export control authorities to take action.

PROBLEMS WITH BROKERS AND TRANSSHIPMENT POINTS
——————————————— –

7. (SBU) Several presenters discussed how proliferators are using brokers and transshipment points to create layers of complexities making it difficult for export control systems to assess risk and track dual-use goods from the producer to the final end-user. Licensing and enforcement officials in many countries rely heavily on information gleaned from the original export application, end-use statement, intermediary signatures, and final end-user certificate of receipt to obtain a level of confidence that sensitive items are not diverted. However, once the export leaves the producer and the legal territoriality of the producer’s host country, ensuring export control non-proliferation compliance becomes extremely difficult for many countries.

8. (SBU) Boehler stated, “You can never stop proliferation, but you can make it more expensive and slow it down.” He centered his presentation on the role trading companies and brokers play in the overall risk of diversion for dual-use items. He said under Swiss law, brokers and trading companies are not subject to the same export restrictions as the original exporter, financial institutions, and shipping companies, which exposes a weakness in the overall export control system. Klaas Leenman, of the Dutch Customs Authority, and Steven Goodinson, a trade specialist within the Canadian MFA, reiterated Boehler’s point that identifying brokers and transshipment points is the primary challenge to their respective export control systems.

9. (SBU) Karl Wendling, BMWi State Secretary, emphasized the proliferation risk involved with custom free zones such as in Dubai. Wendling said that the risk associated with the transport of dual-use goods through export free zones needs to be addressed and that export control-related outreach activities would be of particular value to these areas.

TREND: AUTOMATED RISK ASSESSMENT TO SAVE RESOURCES
——————————————— —–

10. (SBU) A number of presenters noted that for countries with significant export industries, a robust export control system puts a significant strain on labor and financial resources, Several also indicated desire for an increasingly automated and paperless export control system to evaluate risk. John Doddrell, Director of the UK Export Control Organization, explained that the UK’s export control processing efficiency improved after having adopted a completely paperless system called SPIRE in an effort to lessen the burden on labor and financial resources. In addition, Doddrell said the UK developed general and open licenses to enable exporters to use a single license for a range of exports to a range of countries. Doddrell said these new approaches have led to improvements from 2003 to 2008 (before/after SPIRE) of over 50 percent in total resource efficiency while maintaining the same license issuance turn-around time. Doddrell said the UK is now advocating for the adoption of SPIRE in all of Europe.

11. (SBU) Although the paradigm shift to more automation for efficiency reasons made sense to many, questions were voiced about the level of quality assurance and opportunities for proliferators to game the rules governing automated systems to further their proliferation goals. An Australian export control official also warned that automation is not the complete answer that some claim and brings about its own problems.

Bradtke

http://www.letemps.ch/cables?id=09BERLIN879

SWISS FIRM QUARTZCOM COLLUDING WITH IRANIAN FRONT COMPANY IN ATTEMPT TO SKIRT EXPORT CONTROLS

Friday, May 13th, 2011

2010-01-06 16:34:00

10STATE996

Secretary of State

SECRET

08BERN514|08BERN594|08STATE101519|08STATE122304|08STATE132055|09BERN118|09BERN498|09BERN510|09BERN59|09STATE115194

VZCZCXYZ0007
PP RUEHWEB

DE RUEHC #0996 0061639
ZNY SSSSS ZZH
P R 061634Z JAN 10
FM SECSTATE WASHDC
TO AMEMBASSY BERN PRIORITY 0000
INFO MISSILE TECHNOLOGY CONTROL REGIME COLLECTIVE

S E C R E T STATE 000996

SIPDIS

E.O. 12958: DECL: 01/06/2035
TAGS: MTCRE, PARM, PREL, MNUC, ETTC, KSCA, SZ, IR
SUBJECT: SWISS FIRM QUARTZCOM COLLUDING WITH IRANIAN FRONT COMPANY IN ATTEMPT TO SKIRT EXPORT CONTROLS (S)

REF: A. 08 STATE 101519
B. 08 BERN 000514
C. 08 STATE 122304
D. 08 BERN 000594
E. 08 STATE 132055
F. 09 BERN 000059
G. 09 BERN 000118
H. 09 STATE 115194
I. 09 BERN 000498
J. 09 BERN 000510

Classified By: ISN/MTR DIRECTOR PAM DURHAM, REASON: 1.4 (C)

1. (U) This is an action request. Embassy Bern, please see paragraph 4.

2. (S) Background: On several occasions in 2008 and 2009, we discussed with Swiss officials efforts directed by the Iranian procurement entity FEDCO to procure crystal oscillators from the Swiss firm Quartzcom (Refs A-G). These efforts included the use of FEDCO front companies in Malaysia and the UAE, and also involved discussions between Quartzcom and FEDCO aimed at evading Swiss export laws. In response to our concerns, Swiss officials investigated the information we provided and met with Quartzcom’s management, who pledged to abandon all of the firm’s Iran-related activities. (Note: In November we provided the GOS information indicating that Quartzcom had also received an order for quartz oscillators from the Syrian firm Business Lab. In this case, Swiss officials obtained Quartzcom’s agreement to “abstain voluntarily” from the planned sale to Syria. (Refs H-J) End note.)

3. (S) Background (continued) and Objectives: We now want to advise the GOS of new information indicating that as of late November 2009, a Quartzcom representative and a director of FEDCO were discussing options for evading Swiss export laws in an effort to supply goods to Iran. Specifically, the FEDCO director (acting as a representative of FEDCO’s Singapore based front company Opto Electronics) suggested routing a shipment of Iran-bound goods through China instead of Singapore, in order to avoid problems encountered with a previous shipment. We are concerned with Quartzcom’s apparent willingness to circumvent Swiss export controls, especially after having already been approached by GOS officials, and want to encourage Switzerland to take all measures necessary to prevent Quartzcom from engaging in trade with Iran or with entities affiliated with Syria’s WMD or ballistic missile programs.

4. (S) Action Request: Request Embassy Bern approach appropriate host government officials to deliver talking points/non-paper in paragraph 5 below and report response. Talking points also may be provided as a non-paper.

5. (S) Begin talking points/non-paper:

(SECRET//REL SWITZERLAND)

— We would like to alert you to information of proliferation concern and request your assistance in investigating this activity.

— On several occasions in 2008 and 2009, we discussed with you Iranian and Syrian efforts to procure crystal oscillators from the Swiss firm Quartzcom.

— The Iranian efforts were directed by the Iran-based procurement firm Farazeh Equipment Distributor Company (FEDCO) and involved the use of the Malaysia-based FEDCO front company Evertop Services and the UAE-based FEDCO front company Alkaen Equipment and Industrial Supplies LLC.

— We also advised you that it appeared that Quartzcom and FEDCO were exploring ways of getting around Swiss export laws.

— In March 2009, we were pleased to learn that you had met with Quartzcom’s management, who said that Quartzcom would abandon all of its Iran-related activities.

— We now have new information we would like to share with you related to Quartzcom’s recent activities.

— We understand that as of late November 2009, FEDCO and Quartzcom continued to discuss options for evading Swiss export control laws in an effort to supply goods to Iran.

— Specifically, our information indicates that a FEDCO director, acting as a representative of FEDCO’s Singapore- based front company Opto Electronics, advised a Quartzcom representative to send an order of Iran-bound goods to an intermediary in China instead of Singapore.

— The FEDCO director suggested this course of action in order to avoid problems encountered with a previous shipment of goods.

— Given Quartzcom’s apparent willingness to cooperate with FEDCO in circumventing Swiss export controls, we would encourage you to view with suspicion its assurances that it would abandon all of its Iran-related activities.

— We also urge you to investigate this information and take all appropriate measures to ensure that Quartzcom is not acting as a supplier to Iran or to entities affiliated with Syria’s WMD or ballistic missile programs.

— We hope this information is helpful and appreciate your continued vigilance in this matter. We look forward to continuing our excellent cooperation on nonproliferation issues and to hearing of any updates on the progress of your investigation of this case.
End talking points/non-paper

6. (U) U) Washington POC is ISN/MTR John Paul Herrmann (Phone: 202-647-1430). Please slug any reporting on this issue for ISN/MTR and EUR/CE.

7. (U) A word version of this document will be posted at www.state.sgov.gov/demarche.

CLINTON

http://www.letemps.ch/cables?id=10STATE996

UAE INTERMEDIARY USED TO DISGUISE IDENTITY OF IRANIAN END-USER FROM SWISS EXPORT OFFICIALS

Friday, May 13th, 2011

2008-12-23 14:20:00

08STATE133865

Secretary of State

SECRET

08STATE132055

VZCZCXRO3573
PP RUEHDE
DE RUEHC #3865/01 3581427
ZNY SSSSS ZZH
P R 231420Z DEC 08
FM SECSTATE WASHDC
TO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 2944
INFO MISSILE TECHNOLOGY CONTROL REGIME COLLECTIVE
RUEHDE/AMCONSUL DUBAI 8236

S E C R E T SECTION 01 OF 02 STATE 133865

SIPDIS

E.O. 12958: DECL: 12/23/2033
TAGS: PARM, MTCRE, PREL, MNUC, ETTC, SZ, IR, AE

SUBJECT: UAE INTERMEDIARY USED TO DISGUISE IDENTITY OF IRANIAN END-USER FROM SWISS EXPORT OFFICIALS (S)

REF: STATE 132055

Classified By: ISN/MTR DIRECTOR PAM DURHAM FOR REASONS 1.4 (B), (C),
AND (D).

1. (U) This is an action request. Embassy Abu Dhabi, please see paragraph 4.

2. (S) Background: We have information indicating that as of early November 2008, the UAE-based firm Alkaen Equipment and Industrial Supplies LLC was working to provide Iran’s Farazeh Equipment Distributor Company (FEDCO) with a large quantity of products supplied by the Swiss firm Quartzcom Ltd. The equipment was flown from Switzerland to the UAE in late October/early November, and then transshipped by Alkaen to FEDCO in Iran. We believe that Alkaen was used in order to disguise from Swiss export control officials the fact that the goods were actually destined for an Iranian end-user. Although the items supplied to FEDCO are not controlled by any of the multilateral export control regimes and are widely used in commercial applications, they can also be used in ballistic missile and unmanned aerial vehicle (UAV) programs. FEDCO has acted as a supplier to entities affiliated with both Iran’s ballistic missile and UAV programs.

3. (S) Objectives: We want to advise UAE officials of Alkaen’s role in providing FEDCO with Swiss-origin items and request that they investigate and take measures to ensure that Alkaen ceases its activity on behalf of Iranian entities of proliferation concern.

4. (S) Action Request: Request Embassy Abu Dhabi approach appropriate UAE authorities to deliver talking points/non-paper in paragraph 5 below and report response. Talking points also may be provided as a non-paper. We are also sharing this information with Swiss officials (Ref).

5. (S) Begin talking points/non-paper:  (SECRET//REL UAE)

— We would like to raise with you a matter of proliferation concern and request your government’s assistance in investigating this activity.

— We have information indicating that as of early November 2008, the UAE-based firm Alkaen Equipment and Industrial Supplies LLC was working to provide Iran’s Farazeh Equipment Distributor Company (FEDCO) with approximately $150,000 worth of products – including crystal oscillators – supplied by the Swiss firm Quartzcom Ltd.

— This equipment was delivered by air from Switzerland to Alkaen in the UAE in late October/early November.

— Alkaen, in turn, transshipped the goods to FEDCO in Iran.

— We believe that Alkaen, the UAE intermediary, was used in order to disguise from Swiss export control officials the fact that the goods were actually destined for an Iranian end-user.

— Crystal oscillators are common in telecommunications, navigation, avionics, and precise measurement industries. They are not controlled and are widely used in many commercial applications.

— However, they can also be used in ballistic missile and unmanned aerial vehicle applications.

— FEDCO has supplied sensitive goods to entities affiliated with Iran’s ballistic missile and unmanned aerial vehicle program.

— We urge you to investigate this activity and take measures to ensure that Alkaen ceases its activity on behalf of Iranian entities of proliferation concern.

— We appreciate your support and look forward to hearing of any actions your government takes in response to this information.

— We are also discussing this matter with Swiss officials.

End talking points/non-paper.

6. (U) Please contact ISN/MTR’s John Paul Herrmann with any questions or follow-up issues related to this case (202-647-1430 – herrmannjp@state.sgov.gov) and slug reporting on this issue for ISN/MTR.

7. (U) A word version file of this document will be posted at www.state.sgov.gov/demarche.

RICE

http://www.letemps.ch/cables?id=08STATE133865