VZCZCXRO8142
PP RUEHAG RUEHBC RUEHDE RUEHDIR RUEHKUK RUEHROV
DE RUEHLO #0265/01 0291502
ZNY SSSSS ZZH
P 291502Z JAN 09
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 1234
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCNIRA/IRAN COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 1123
RUEHMO/AMEMBASSY MOSCOW PRIORITY 2808

S E C R E T SECTION 01 OF 02 LONDON 000265 
 
NOFORN 
SIPDIS 
 
E.O. 12958: DECL: 01/27/2019 
TAGS: EFIN ETTC KNNP IR UK
SUBJECT: SUBJECT: BRITISH PRESS CASE AGAINST IRISL WITH XXXXXXXXXXXX 

Classified By: KATHLEEN DOHERTY, ECON COUNSELOR, FOR REASONS 1.4 B & D  This message contains action requests. Please see paras 6 & 7 

1.(S/NF) Summary: As part of HMG's efforts to impose pressure domestically on the Iranian nuclear program, HM Treasury has met with UK ship insurers to detail the threat posed by IRISL (Islamic Republic of Iran Shipping Lines.) The British XXXXXXXXXXXX told HMG it would not stop doing business with IRISL unless officially ordered to do so.  HMG would benefit from any pre or post-impact studies we have done to evaluate the effectiveness of our Iran sanctions regime.  End Summary 

2.(S/NF) HMT's approach to the British XXXXXXXXXXXX to persuade it IRISL is a threat and the club should cease doing business with the Iranian group was rebuffed, HMT told us.  HM Treasury officials gave the Club general information regarding IRISL's proliferation activities, described the shipping company's practices at avoiding detection and its linkage with sanctioned entities, and advised the club what it needed to be aware of in its dealings with IRISL.  HMT was politely received, but was eventually sent packing by the club, saying that due to its commercial interests, it would only cease and desist business with IRISL if ordered by HMG. HMT believes a very clear cut evidence package might persuade the club to reconsider, but in any event, the stronger evidence would also help HMG present its case to Parliament. 

3.(S/NF) The British Defense Intelligence Staff (DIS) recently prepared an unclassified document for HMT to deliver to the club.  Before handing it over to HMT, DIS cleared the document with the National Security Agency, which, according to HMG, was the original source of much of the information on IRISL.  The version DIS received back from NSA had much of the substance stripped out, HMG told us, to the point the British government felt it would harm their efforts to provide such a diluted document to XXXXXXXXXXXX. 

4.(S/NF) The British had hoped that if the case against IRISL was strong enough, they could designate the shippers using their newly obtained Counter Terrorism Act powers. They told us if they were able to convince the British XXXXXXXXXXXX to stop doing business with IRISL, others would follow. At this point, however, HMG feels it does not have a sufficiently strong case to designate domestically. Additionally, a good, unclassified statement from the USG would help persuade other EU Member States to designate, knowing they could defend the case in court, HMT told us. 

5.(S/NF) As part of a review of the tools it can use against Iran, HMG has requested USG studies or feedback on the impact of our actions against Iran.  As an example, we recently provided HMG with information of IRISL's name change.  HMT asked whether we believe this was a direct reaction to the USG designation of IRISL, or to general Iran sanctions.  The British also asked if we have we done any pre-impact evaluations to determine beforehand whether there will be unforeseen knock-on effects from sanctions.  In evaluating how and when to use their CT Act powers against proliferators, HMG is attempting to set up an evaluation mechanism for its actions.  They are particularly concerned about properly deploying their strongest tool - the ability to order an entity or sector to cease and desist any relationship with a proliferating company (i.e., IRISL) or a jurisdiction (i.e., Iran). 

6.(S/NF) HMT is evaluating whether shutting down IRISL's access to XXXXXXXXXXXX will have the intended effect of harming its ability to do business, or whether it would merely force the shipper to find alternative insurance provision.  HMT currently believes IRISL could get lower quality coverage from Russia or China at a similar cost. This insurance, however, could be insufficient for third-country ports if there were damage, HMT said.  HMG asked if the USG had looked at the knock-on effects of financial transactions, potential loss of port fees, lighthouse dues, etc.  Action Request: We would greatly appreciate any pre or post impact studies on the effectiveness of U.S. sanctions on Iran, which we could share with HMG. 

7.(S/NF) Other ministries are also concerned about unintended consequences of action against IRISL.  The British  LONDON 00000265  002 OF 002   Department for Transport is concerned that if the UK takes action against IRISL, there could be retaliation by Iran against UK shipping, i.e,. in the Strait of Hormuz, or in a shutting down of overflight access against the UK or EU. Action Request: Drawing from the USG's many years of experience working around our lack of relationship with Iran, we would appreciate any information and advice to assuage HMG concerns about potential retaliatory effects on British/EU shipping and overflight. 

8.(S/NF) A final HMT concern relates to the American XXXXXXXXXXXX's relationship with the XXXXXXXXXXXX.  HMT asked whether the American club has an exemption to the sanctions against IRISL allowing it to continue to participate indirectly in the XXXXXXXXXXXX that still has a relationship with IRISL.  HMT understood the reasons the American club would need such a waiver, but also pointed out the symbolic effect of the U.S. XXXXXXXXXXXX withdrawing its license. 

9.(S/NF) Comment: HMG appears to be actively looking at ways to isolate IRISL, but needs to address cautious concerns in several bureaucratic corners before advancing.  The British are weighing the effectiveness of further sanctions against the risks of retaliatory or unintended harm to its interests, as well as the unavoidable loss of business to UK entities which would be forced to curtail business with Iran.  Any additional information we could provide to help HMG make the case to its commercial and EU partners would be helpful.  We pointed out to HMT the ultimate goal of the sanctions regime was to pressure the Iranian government to stop its nuclear program, and it was important to remind all our partners, public and private, of the big picture, and that some sacrifice was necessary.  Visit London's Classified Website: XXXXXXXXXXXX TUTTLE