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### Viewing cable 06VIENNA515, USG CONCERNS OVER AUSTRIAN BANKING OPERATIONS

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06VIENNA515 | 2006-02-17 19:07 | 2010-12-01 21:09 | SECRET | Embassy Vienna
Appears in these articles: http://www.spiegel.de

`

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

` `

    S E C R E T SECTION 01 OF 03 VIENNA 000515

    SIPDIS

    STATE FOR EUR/AGS - WEYGANDT
    NSC FOR EUROPEAN DIRECTORATE - WILSON

    E.O. 12958: DECL: 02/15/2016
    TAGS: PARM PREL EFIN MNUC KCRM KTFN KNNP AU
    SUBJECT: USG CONCERNS OVER AUSTRIAN BANKING OPERATIONS

    Ref: a) vienna 350 b) vienna 309 c) 05 vienna 1760 d)
    05 state 220738

    Classified By: Deputy Chief of Mission Scott F. Kilner for reasons 1.4
    (b) and (d).

    Introduction
    ------------

    ¶1. (S/NF) In view of continued Washington questions about
    the operations of Raiffeisen Zentralbank (RZB) and Bank
    Austria Creditanstalt (BA/CA) in several areas, this cable
    attempts to consolidate all the information that this Mission
    has regarding allegations and GoA responses. Embassy would
    appreciate any additional information Washington agencies may
    have regarding these banking concerns. The following message
    has been cleared with all relevant agencies at post.

    Summary
    --------

    ¶2. (S/NF) The Austrian Ministry of Finance (MoF) told us
    February 15 that Bank Austria/Creditanstalt (BA/CA) has
    agreed to "stop doing business" with North Korean entities.
    An Austrian Financial Market Authority (FMA) official told us
    February 14 that the FMA was "uncomfortable" with Raiffeisen
    Investment Holding AG's (RIAG) involvement in RosUkrEnergo
    (RUE) and RUE's role in the Ukrainian-Russian gas deal.
    However, the FMA is satisfied that an internal RIAG due
    diligence and an outside due diligence by the U.S. risk
    consulting firm Kroll revealed no derogatory information on
    RUE's unnamed investors and no links to Russian organized
    crime boss Semyon Mogilevich. Both the FMA and MoF
    emphasized RIAG's commitment to expand operations in Eastern
    Europe, maintaining that western commercial influences in the
    region were beneficial to the countries. Embassy's Legatt
    Office has been cooperating closely with Austrian law
    enforcement authorities since summer 2005 on a multi-country
    investigation of Mogilevich's money laundering activities in
    the region. End Summary.

    ¶3. (S/NF) On February 14 and 15, EconUnit Chief followed up
    on ref B and C discussions in separate meetings with xxxxx
     from the Financial Market Authority's (FMA) xxxxx of the Ministry of
    Finance's Financial Markets Directorate.xxxxx
    reviewed the various USG concerns (ref D) in a systemic
    manner. Both appreciated the information the USG had shared,
    agreed to continue cooperation on a technical level regarding
    USG concerns, and acknowledged that there was a political
    component associated with these issues.

    North Korea
    -----------

    ¶4. (S/NF) xxxxx told us that following a meeting with
    Finance Minister Karl-Heinz Grasser the week of February 6,
    Erich Hampel, the CEO of BA/CA, agreed to stop BA/CA's
    business relations with North Korean entities. xxxxx
    speculated that BA/CA probably made the decision to maintain
    its good reputation.

    ¶5. WMD Proliferation Financing Issues
    ----------------------------------

    ¶A. (S/NF) USG Concern: Novin Energy Company, a firm
    affiliated with Iran's nuclear program, was involved in a
    payment from Creditanstalt to Mileace General Trading in May
    2004 (ref D).

    (S/NF) GOA Response: xxxxx reiterated information
    discussed during Treasury U/S Levey's meeting with xxxxx,
    the FMA's Executive Director (ref B). The
    Iranian Mission to the International Atomic Energy had opened
    a deposit bank account for Novin Energy Company at BA/CA.
    According to xxxxx there have been no transactions that
    aroused the FMA's suspicion. Periodically, there is a large
    transfer to the Iranian National Bank. The FMA identified
    only one payment to Mileace General Trading in New York for
    an amount "under Euro 100,000."

    ¶B. (S/NF) USG Concern: Since 2001, Creditanstalt xxxxx has facilitated about a
    dozen Iranian transactions, mostly nuclear-related (ref D).

    (S/NF) GOA Response: xxxxx said the FMA was satisfied,
    based on discussions with BA/CA, that xxxxx had not engaged
    in any illegal or questionable activity. xxxxx is aware of
    the sensitive nature of his position. He has over 10 years
    experience in this position and works very closely with the
    Austrian Financial Intelligence Unit (FIU), xxxxx stated.
    ¶C. (S/NF) USG Concern: Syria was preparing to purchase
    rocket motors for training aircraft from the Czech supply
    company Omnipol. Financing was to be arranged with
    Creditanstalt (ref D).

    (S/NF) GOA Response: BA/CA has no direct business
    relationship with Omnipol. However, Omnipol does have an
    account with HVB Czech, a subsidiary of BA/CA. According to
    xxxxx HVB Czech needs BA/CA's authorization to transfer
    amounts in excess of Euro 500,000. xxxxx maintained that
    the only financing Omnipol has had through HVB Czech was for
    the Czech Army's purchase of U.S. military equipment.

    ¶6. Terrorist Financing Issues
    --------------------------

    ¶A. (S/NF) USG Concern: The Palestinian Association of
    Austria (PVOE) maintained a Creditanstalt account as of early
    ¶2003. PVOE -- designated by the U.S. Treasury Department as
    a terrorist entity and renamed the Palestinian Humanitarian
    Association (PHV) -- collects donations on behalf of
    HAMAS-affiliated charities in the Palestinian territories.
    PHV's Internet website indicates that the organization
    continues to maintain an account at Creditanstalt (ref D).

    (S/NF) GOA Response: xxxxx stated that BA/CA had closed
    all its PVOE accounts well before the U.S. designated PVOE as
    a terrorist entity. xxxxx claimed that the FIU has
    conducted two extensive investigations into PHV, which did
    not turn up anything suspicious.

    ¶B. (S/NF) USG Concern: As of late November 2004, xxxxx ,
     a former regime official now on the Iraqi
    interim government's "Most Wanted" list, claimed to have
    transferred a large sum of unspecified currency from the Arab
    Bank in Amman, Jordan, to RZB to finance the Iraq insurgency
    (ref D).

    (S/NF) GOA Response: xxxxx said that RZB has not
    identified any accounts belonging xxxxx following a
    thorough search that included numerous transliterations of
    xxxxx.

    ¶C. (S/NF) USG Concern: The Vienna-based NGO Irakhilfswerk
    in Osterreich instructs donors to send funds to Creditanstalt
    (ref D).

    (S/NF) GOA Response: xxxxx characterized Irakhilfswerk's
    websites as distasteful, e.g. with gruesome pictures of
    wounded or dead U.S. military personnel. Nevertheless,
    xxxxx said an extensive investigation by the Austrian
    security services (BVT) revealed that Irakhilfswerk does
    indeed use collected funds for charitable work in Iraq, e.g.,
    purchasing medicines and clothing. xxxxx said the FMA
    continued to monitor Irakhilfswerk accounts closely.

    ¶7. Money Laundering Issues
    -----------------------

    ¶A. (S/NF) USG Concern: Following the recent U.S. sanctions
    on Banco Delta Asia (BDA), there are indications that North
    Korea moved several million euros from BDA to Creditanstalt
    in October 2006 (ref D).

    (S/NF) GOA Response: xxxxx restated information in ref C,
    stressing that the FMA had no evidence that the BDA had ever
    had an account with BA/CA. However, there was one payment
    transfer in the amount of Euro 7 million that originated from
    a Macao trading company via the Bank of China and Dresdner,
    which BA/CA transferred to the Sberbank in Moscow. The FMA
    admitted it did not know what the payment was. Other
    payments from BA/CA's few North Korean accounts were
    typically to international entities active in North Korea,
    such as UNICEF, WFP, WHO, and the Swiss Development Agency.
    xxxxx emphasized that the FMA exercised additional
    surveillance regarding North Korean financial activities
    through the Austrian banking system.

    ¶B. (S/NF) USG Concern: U.S.-indicted crime boss Semyon
    Mogilevich probably uses RZB and its subsidiary Raiffeisen
    Investment Holding AG (RIAG) as a front to provide legitimacy
    to the gas company that we suspect he controls, RosUkrEnergo
    (RUE). RUE makes direct payments of $360,000 annually to
    each of two RIAG executives in "consulting fees." We assess
    that the payments probably are bribes for RIAG to maintain
    the front for Mogilevich (ref D).

    (S/NF) GOA Response: xxxxx acknowledged that the
    non-transparency surrounding the gas deal had become a major
    political issue in Ukraine and Russia. The FMA is
    "uncomfortable" that an Austrian bank is in the middle of the
    controversy. The FMA, xxxxx continued, had had "intense
    discussions" with RZB/RIAG, but could not uncover any legal
    improprieties. RIAG also conducted a strenuous due diligence
    review of the unnamed RUE investors. Neither RIAG's internal
    due diligence nor an independent due diligence by the U.S.
    risk consulting firm Kroll had revealed derogatory
    information or links to criminal activity, including to
    Seymon Mogilevich (ref A). Regarding the RUE payments of
    $360,000 to RIAG executives, xxxxx maintained that the
    payments, in the names of the four RIAG executives on the RUE
    Coordination Committee, went directly into a RIAG account, to
    which none of the executives had access. RZB General Legal
    Counsel told xxxxx January 30 that the Kroll Report found "no
    link between the undisclosed investors and Mogilevich."
    (Note: Embassy is working with RIAG to obtain a copy of the
    Kroll report. End Note.) xxxxx speculated that RIAG's
    primary objective is to prepare RUE for a January 2007 IPO on
    the FTSE.

    (S/NF) Embassy Note and Comment: Embassy's Legatt Office has
    been cooperating closely with Austrian law enforcement
    authorities since summer 2005 on a multi-country
    investigation of Mogilevich's money laundering activities in
    the region. Embassy suggests that Washington agencies
    carefully consider this on-going investigation in regard to
    further intervention with various GoA entities on
    Mogilevich's links to RUE. End Embassy Comment.

    ¶C. (S/NF) USG Concern: RIAG holds a 61% stake in Priorbank,
    Belarus' largest foreign-owned bank. Priorbank maintains
    close ties to the Lukaschenko regime (ref D).

    (S/NF) GOA Response: xxxxx noted that
    Raiffeisen had been active in Eastern European markets, some
    less democratic than others, for many years. Raiffeisen
    believed that western commercial engagement, rather than
    isolation, had had positive effects in undemocratic countries
    (ref A). He noted that EBRD is a 13.5% shareholder in
    Priorbank. xxxxx noted that there were no international
    financial or trade sanctions against Belarus or senior
    Belarussian officials.

    ¶8. Suspicious Activity Reports
    ---------------------------

    ¶A. (S/NF) USG Concern: U.S. banks reported 75 and 217
    suspicious activity reports (SARs) since the late 1990s
    involving BA/CA and RZB, respectively. Some transactions
    involve shell companies used by criminal groups (ref D).

    (S/NF) GOA Response: xxxxx said the Austrian FIU did not
    believe that the quantity of SARs filed since the late 1990s
    was especially high, especially for BA/CA. xxxxx said RZB
    believes the overwhelming majority of its SARs stem from its
    major U.S. dollar clearing operations throughout Eastern and
    Central Europe. xxxxx added that the FMA had met with the
    CEOs of BA/CA and RZB to heighten the banks' awareness of USG
    concerns.

    Statistics on BA/CA and RZB
    ---------------------------

    ¶9. (U) Bank Austria Creditanstalt (BA/CA) maintains 1,521
    offices and branches, including 1,121 in Central and Eastern
    Europe, South East Europe, and the CIS countries. In 2004,
    its balance sheet assets totalled 146,516 million Euros. It
    has 31,300 employees, of whom 21,100 are in Central and
    Eastern Europe, South East Europe and the CIS.

    ¶10. (U) Raiffaisen Zentralbank (RZB) has 987 offices,
    including 970 in Central and Eastern Europe, South East
    Europe and the CIS. It had balance sheet assets of 67,946
    million Euros in 2004. It employs 27,200, of whom 24,500 are
    in Central and Eastern Europe, Southeast Europe and the CIS.
    McCaw

`