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### Viewing cable 08MADRID757, TREASURY UNDER SECRETARY LEVEY SCENESETTER

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
08MADRID757 | 2008-07-10 09:09 | 2010-12-23 12:12 | CONFIDENTIAL | Embassy Madrid

`

    VZCZCXYZ0006
    RR RUEHWEB

    DE RUEHMD #0757/01 1920918
    ZNY CCCCC ZZH
    R 100918Z JUL 08
    FM AMEMBASSY MADRID
    TO RUEATRS/DEPT OF TREASURY WASHDC
    INFO RUEHC/SECSTATE WASHDC 5063

` `

    C O N F I D E N T I A L MADRID 000757

    SIPDIS

    TREAS FOR (DFERNANDEZ)

    E.O. 12958: DECL: 07/07/2018
    TAGS: ECON EFIN EINVETC ETTC ETRD KTFN PREL PARM
    PTERS, SP
    SUBJECT: TREASURY UNDER SECRETARY LEVEY SCENESETTER

    Classified By: Charge d'Affaires, Hugo Llorens. Reasons: 1.5 (b) and (
    d)

    ¶1. (SBU) Summary: Embassy Madrid warmly welcomes your
    visit. Your presence provides an excellent opportunity to
    reinforce our message on Iran financial sanctions with both
    government and private sector representatives. (Note: Your
    schedule has been sent via e-mail to staff.) You will also
    have an opportunity to discuss terrorism finance matters with
    Spanish officials. End Summary.

    ------------------------
    IRAN FINANCIAL SANCTIONS
    ------------------------

    ¶2. (C) Perhaps one of the most important things you can do
    during your calls is to stress that pressure to isolate Iran
    economically is likely to increase. While the Spanish
    government agrees with the U.S. objective of preventing Iran
    from building a nuclear weapon, the Spaniards are more
    comfortable with the carrot and engagement side of the
    relationship with Iran. This is why it is going take hard
    work to secure Spanish support for the ratcheting up of
    sanctions, but if additional sanctions are approved by the UN
    and/or the EU, Spain will implement those sanctions.

    ¶3. (C) Spanish trade with Iran is not large. In 2007, Spain
    exported USD 693 million to Iran (0.24 percent of Spanish
    exports to the world) and imported USD 2.4 billion from Iran
    (0.55 percent of Spanish imports from the world), mostly
    petroleum products. There are no Spanish data on Spanish
    investments in Iran in 2006 or 2007. There was no registered
    Iranian investment in Spain in 2006 or 2007 either. The
    other big EU economies exported considerably more to Iran. In
    2007, France exported USD 2 billion, the UK USD 801 million,
    Italy USD 2.5 billion, and Germany almost USD 5 billion.
    Spain's base position is that it implements UNSCRs 1737 and
    1747, and we have no reason to disbelieve that it does so.
    With respect to UNSCR 1803, there is reporting from Brussels
    indicating that Spain moved slowly with respect to approving
    the EU's so-called autonomous designation list, but
    ultimately Spain approved.

    ¶4. (C) Spain will likely support EU recommendations with one
    important exception: Spanish officials have told us that they
    will not accept restrictions on investment in the oil & gas
    sector. This is somewhat ironic because Repsol has decided
    not to pursue the development of the South Pars gas field's
    block 13, although Repsol (and Shell) have not ruled out the
    prospect of working on latter phases of the project.
    Ambassador Aguirre has discussed Iran on several times with
    Repsol CEO Antonio Brufau. Your meeting with Brufau is an
    opportunity to thank him for not pursuing the South Pars
    deal, and to to encourage the company to continue to desist
    from investing in Iran's oil and gas sector.

    ¶5. (C) Deputy Treasury Secretary Kimmitt and Ambassador
    Aguirre have talked directly to Spanish banks about being
    very careful about their activities in Iran. EconCouns
    talked to Banco Sabadell management as well about its
    Iran-related activity. Our sense is that Spanish banks are,
    in fact, monitoring their activities carefully. Ministry of
    Industry, Tourism and Trade Secretary of State Silvia Iranzo,
    chairs an inter-ministerial committee looking into possible
    dual-use exports to Iran. We think that Spain analyzes
    possible dual-use issues carefully. With respect to export
    credit policy, Ambassador Aguirre and EconCouns have talked
    about Iran with Spanish officials. Spain takes the position
    that Spanish policy is set in the OECD's export credit
    committee. Whatever Spain does with respect to export
    credits is likely to be coordinated with the EU. The Spanish
    government is aware that in addition to talking to the
    government, we also talk directly to private sector actors
    about Iran.

    --------------
    TERROR FINANCE
    --------------

    ¶6. (U) The GOS is efficient in imposing freezes and sanctions
    related to UN and EU designations but does not implement E.O.
    13224 designations. The GOS has the authority to do so under
    Law 12/2003, but chooses instead to apply standard judicial
    procedures when dealing with non-UN or EU designated
    entities. Nonetheless, the GOS actively complies with our
    requests to investigate designated entities and is very
    efficient and discreet in conducting searches for funds from
    individuals and organizations listed in pre-notifications.
    In recent years, no such related funds have been found in
    Spanish accounts.

    ¶7. (U) SEPBLAC is Spain,s FIU with a primary mission to
    receive, analyze, and disseminate suspicious and unusual
    transaction reports. SEPBLAC works in close coordination
    with the Directorate General of the Ministry of Economy and
    Finance (MEF), the entity with the authority to freeze assets
    and impose sanctions. SEPBLAC and the Directorate General
    are overseen by an inter-ministerial policy committee
    referred to as the Commission for the Prevention of Money
    Laundering and Monetary Offenses (CPBCIM) chaired by Second
    Vice President and Secretary of Economy Pedro Solbes.

    ¶8. (U) As an organization, SEPBLAC has grown by almost 50
    percent in the past year to about 60 employees. Included in
    its ranks are members of the Guardia Civil, National Police,
    and Spanish Customs who cooperate with each other and
    supplement the information provided by reporting parties.
    Press reports indicate that the number of Suspicious Activity
    Reports filed by banks has increased substanitially in recent
    years.

    ¶9. (C) We have scheduled an appointment with SEPBLAC for you.
    The reason is that if you find it opportune, we recommend
    you ask re: the status of a reported SEPBLAC investigation
    into Barakat Yarkas's possibly financing terror finance
    activities from his jail cell. (Note: Yarkas was convicted
    for membership of a terrorist organization and for conspiring
    to commit terrorist acts. He was suspected of being involved
    with individuals linked to the September 11, 2001 attack.)
    On April 28, Spain's leading daily, El Pais, published a
    story alleging that Yarkas was financing terrorist groups
    from his jail cell, and that there was an outstanding
    judicial investigation against Yarkas involving a new
    terrorism finance charge(s) against him. You may wish to ask
    SEPBLAC whether there is, in fact, an ongoing investigation
    into Yarkas's possible activities. We have not been able to
    confirm whether there is an investigation through other
    channels. (Note: The National Security Council has been
    interested in designating Barakat Yarkas for several years,
    and we have urged the Spanish government to do so. For
    reasons still not entirely clear to us, the Spanish
    government has desisted from designating Yarkas.)

    ----------------------
    DOUBLE TAXATION TREATY
    ----------------------

    ¶10. (U) We are providing the following information for you
    as background should the issue arise in connection with your
    American Chamber of Commerce (AmCham) lunch. The Chamber is
    seeking to convince the GOS to amend the 1990 double taxation
    treaty between the U.S. and Spain. The biggest change would
    allow U.S. corporations that sell stock in their subsidiaries
    in Spain for the purpose of corporate reorganizations to be
    taxed on their capital gains in the U.S., rather than at the
    Spanish 25 percent rate. Procter & Gamble, IBM, and GM are
    particularly interested in this change. The U.S. Treasury
    Department's Office of International Tax Counsel is, in
    principle, willing to renegotiate the treaty but only if the
    Spanish government indicates strong interest and if American
    firms lobby Treasury through the National Foreign Trade
    Council and the Tax Executive Institute. With respect to the
    latter, we have encouraged AmCham to have their members lobby
    through these organizations, but this has not taken place
    yet. The Spanish government is aware of the AmCham's
    interest in amending the treaty, but so far our sense is that
    not enough business interest has been demonstrated to
    convince the Spanish government to pursue this matter. The
    AmCham is currently organizing a campaign to get major CEOs
    to write the government about this topic.

    ----------------
    Political Update
    ----------------

    ¶11. (SBU) The general elections in March 2008 were a hard
    fought affair that saw President Zapatero's Socialist
    party(PSOE) defeat Mariano Rajoy's Popular Party (PP). The
    PSOE, which needed 176 seats in the 350-seat Congress to gain
    an absolute majority, won 169 seats or about 44 percent of
    the vote. The Popular Party won about 40 percent of the
    vote, which translated into 155 seats. Smaller regional
    parties from Catalonia, Galicia, and the Basque Region all
    received enough votes to gain congressional representation
    but lost seats to the two main political parties, the PSOE
    and PP. Voter turnout nationwide was over 75 percent. The
    slowing Spanish economy, the terrorist threat from both the
    Basque terrorist group ETA and Islamic extremist groups,
    regional autonomy, and immigration were all major topics
    during the election. Foreign affairs did not play a major
    role in the campaign, but the PSOE reminded voters that it
    removed Spain's troops from an unpopular war in Iraq.

    ¶12. (SBU) Since winning reelection, Zapatero has named a new
    government, created new ministries and combined others.
    Zapatero's new cabinet notably has more female ministers
    (9)than male (8), including Spain's first female Minister of
    Defense, Carme Chacon. Two new ministries have been added:
    The Ministry of Equality and the Ministry of Science and
    Technology. The Ministry of Agriculture has taken on the
    additional responsibility of Marine Affairs and has been
    combined with the Ministry of the Environment. The GOS'
    First Vice President for the Presidency, Second Vice
    President for Economy and Finance, and Ministers of Foreign
    Affairs and Interior remain the same.

    ---------------
    Economic Update
    ---------------

    ¶13. (U) Spain has had one of Europe's fastest-growing
    economies over the last decade. It has the world's eighth
    largest economy and is the world's second largest tourism
    destination and eighth auto manufacturer. Its GDP per capita
    is expected to pass Italy's in 2010. The next year or two
    will be more difficult. A housing boom that spurred growth
    for several years ended abruptly in 2007. Construction has
    slowed dramatically, and unemployment has risen to almost 10
    percent. Inflation is higher than the EU average, which
    hurts competitiveness.

    ¶14. (U) U.S. investment has long been important to the
    Spanish economy (more so than bilateral trade), and U.S.
    firms employ over 220,000 Spaniards. The growth of Spanish
    multinationals and the strong Euro have led to a surge of
    Spanish investment in the U.S. in the last few years. In
    2007, Spain was the fourth largest foreign investor in the
    U.S., with particular emphasis in banking, toll road
    construction, and renewable energy. Spanish firms now own
    wind farms in at least 14 U.S. states, as well as solar power
    and biofuels plants.

    -----------------------------------
    Diplomatic Cooperation and Security
    -----------------------------------

    ¶15. (SBU) U.S.-Spain relations were seriously damaged by
    President Zapatero's decision soon after his election in 2004
    to abruptly withdraw Spanish forces from Iraq. However, over
    the last several years, both countries have made a concerted
    and successful effort to rebuild the relationship based on
    strong mutual interests in counter-terrorism, fighting
    narcotics trafficking and organized crime, and rapidly
    expanding economic ties. The real bilateral story is found
    in novel initiatives such as the HSPD-6 agreement we signed
    last September to facilitate the sharing of information
    between our national counter-terrorism authorities. Following
    the March 11, 2004 train bombings, Spain remains a target of
    Islamic extremists. Al-Qaeda leaders often call for the
    recapture of the medieval "Al Andalus," and the recent
    uncovering of a cell allegedly sympathetic to Al-Qaeda and
    operating out of Barcelona has shown the Spanish that this
    threat is not an idle one.

    ¶16. (SBU) Spain is no stranger to terrorism, having fought
    the domestic Basque terrorist group ETA for almost 40 years.
    Spanish political leaders are currently showing a united
    face, as - for the first time in several years,
    representatives of all political parties in the Spanish
    Congress issued a joint statement on March 15 announcing that
    all would work together to defeat ETA. Interior Minister
    Rubalcaba said in late March that "we are entering a long
    cycle of violence" with ETA and, according to Spanish media,
    the Spanish National Intelligence Center (CNI) has informed
    the government that ETA has no plans to negotiate for at
    least the next 18 months. The Basque terrorist group has been
    active in recent months, detonating explosives on several
    occasions, including one that resulted in the death of a
    Spanish Civil Guard Officer on May 14. ETA also assassinated
    a former PSOE city councilman on March 7 (two days before
    national elections), and two Spanish Civil Guard officers in
    France in December 2007. Spanish security forces are
    concerned that ETA has established new bomb manufacturing
    centers and techniques that will enable the organization to
    launch more attacks.

    ¶17. (SBU) Narcotics trafficking is another area of common
    concern and excellent cooperation. Spanish authorities
    acknowledge that Andean cocaine is a serious problem here,
    and Colombian trafficking organizations are active in Spain.
    Money laundering is another serious issue. We are eager to
    find ways to increase bilateral cooperation and to encourage
    Spain to engage more aggressively with law enforcement
    authorities in key Latin American countries. Spain has
    recently taken steps in this direction. Within the last two
    months, the Director General of Spain's Police and Civil
    Guard traveled to Colombia to sign a cooperation agreement to
    fight drug trafficking and its related crimes through
    increased personnel and information exchange.

    ¶18. (SBU) Spain, second only to the U.S. in terms of
    investment, is actively engaged in Latin America. In
    addition to cultural and historical ties, Spain shares our
    interest a strong democratic and free market institutions in
    the region. Regarding Cuba, we share with Spain the
    objective of a peaceful transition to democracy but differ
    markedly on how to achieve this end. Spain's socialist
    government has opted for engagement, claiming it can
    encourage regime elements who want change. We take every
    opportunity to remind the Spanish that the Cuban regime is
    only interested in survival and that the Cuban dissidents
    need and deserve the active and visible support of
    democracies everywhere.

    ¶19. (SBU) Spanish military cooperation matters. The bases of
    Rota and Moron are strategic hubs, midway between the U.S.
    and Afghanistan and Iraq. U.S. planes and ships account for
    around 5,000 flights and 250 port calls a year in Spain. The
    Spanish military is pro-U.S. and pro-NATO. We need to keep
    this relationship strong. Spain has nearly 800 personnel in
    Afghanistan and runs a provincial reconstruction team in
    Badghis province. Spain has contributed some 150 million
    Euros in Afghan reconstruction funds. Planning is underway
    to allow the Spanish to train and equip an Afghan Army
    company, which we hope will be a prelude to the training and
    equipment of a full battalion. Spain has nearly 1,100 troops
    with UNIFIL in Lebanon and about 700 in Kosovo. On Iraq,
    Spain has contributed $22 million to the Basrah Children's
    Hospital and a further $28 million in development funding for
    Iraq. Spain's total commitment to the Iraq Compact was USD
    225 million. The Spanish Foreign Ministry says that Spain
    has disbursed all of its pledge except for its concessional
    loans, which are pending completion of project proposals. It
    also has provided through UNHCR over 800,000 euros for
    refugee and displaced persons relief in Jordan and Syria.
    Spain is an active participant in EU-Iraq negotiations on an
    economic cooperation agreement that would provide additional
    funding for training and development activities.

    -------------------
    Security Assessment
    -------------------

    ¶20. (U) In general, Spain is safe. However, Madrid,
    Barcelona and other large cities in Spain attract a large
    number of criminals and pickpockets and frequent incidents of
    crime of opportunity against the unwary do occur. It is best
    to carry only essential items including a photocopy of your
    passport's photo page. Visitors can protect themselves
    against crime by being street-smart, alert and aware of their
    surroundings. Travelers are encouraged to review the most
    recent Worldwide Caution issued by the Department of State.
    As the Department of State continues to develop information
    on any potential security threats to Americans overseas, it
    shares credible threat information through its Consular
    Information Program documents, available on the Internet at
    http://travel/state.gov. Additional information regarding
    safety and security in Spain is available on the U.S.
    Department of State's website (www.embusa.es).
    LLORENS

`