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Knocking back the sanctions

The case of Bank Mellat shows the vulnerability of Iranian sanctions

by Benjamin Redd

Unlawful. Such was the UK Supreme Court’s verdict on sanctions against Iran’s Bank Mellat this June. And by ruling the UK Treasury’s actions illegal, the court hinted at a deep vulnerability within the international sanctions regime against Iran — such restrictions may not be compatible with Western respect for justice.

“The Supreme Court has really broken the back of the sanctions for the UK and EU,” claimed Sarosh Zaiwalla, senior partner at Zaiwalla & Co Solicitors, the litigators in Bank Mellat’s case. The EU General Court — the Union’s second highest court — struck down similar European-level restrictions on the bank earlier this year.

The reasons the UK court gave were particularly problematic for those hoping to impose further sanctions on Iranian interests — or even keep existing ones in place. Not only did the court say that singling Bank Mellat out was arbitrary and unjustified, it crucially ruled that the way the UK Treasury had gone about it was an affront to the rule of law.

The court particularly condemned the fact that the bank was given no notice of the Treasury’s decision and had no recourse to challenge it. In other words, the Treasury’s procedure for designating the bank was unlawful.

The Treasury had barred individuals and companies from doing business with the bank under the Counter-Terrorism Act 2008. Handing down the ruling, Lord Jonathan Sumption said, “unless the Act expressly or impliedly excluded any relevant duty of consultation, it is obvious that fairness in this case required that Bank Mellat should have had an opportunity to make representation before the [Treasury’s] direction was made.”

Speaking to Executive, Zaiwalla was adamant on this point. “Justice requires that evidence be produced, and the defendant must have an opportunity to look at the evidence and comment on it if it’s right or wrong,” he said.

Zaiwalla wasn’t given this opportunity, even at trial. Following lower courts’ procedures and pleas from the government, the Supreme Court held an extraordinary closed session without Bank Mellat’s lawyers to consider secretive ‘sensitive’ evidence. Despite this challenge, Zaiwalla and the bank still won — underscoring the strength of potential legal challenges to sanctions. But Zaiwalla was nevertheless unhappy that the court had established a new precedent of sitting in closed session. A defendant must have the right to review evidence, he said, but “in a secret court, he does not have that opportunity.”

Bank Mellat’s favorable rulings at both the UK level in June and the EU level in January paved the way for similar victories by other Iranian-linked firms operating in Europe, many of whom had been blacklisted by the same 2010 Council decision naming the bank — the EU General Court handed down eleven decisions relating to Iranian sanctions just last month, most of them in favor of protesting companies. While sanctions are still in place pending appeal, the rulings bode well for the winners — and poorly for those who favor further tightening sanctions.

Despite the recent victories, sanctioned companies still face a series of hurdles, especially outside of Europe. Both the United States and the United Nations still consider Bank Mellat or its subsidiaries complicit in illegal activities. Zaiwalla appealed both listings, and was “cautiously optimistic” about clearing his client’s name at the UN.

But he was less enthusiastic that the Office of Foreign Asset Control (OFAC), the bureau that manages sanctioned entities for the US Treasury Department, will delist Bank Mellat anytime soon. “There is no rule of law [with OFAC listings] at all,” he said, adding that while a company can apply for delisting, the backlog of such applications means any decision will be very slow. “For the last year, we haven’t had a reply.”

Warmer relations

Bank Mellat’s victories in the UK and EU came after years of sanctions and litigation against Iran. The bank was originally blacklisted by the UK government in 2009, and then by the EU Council the following year. These sanctions were part of a concerted push by the West to isolate the Islamic Republic amid concerns the country was developing nuclear weapons.

While Iran vehemently denied any such activities, questions about disclosures to the International Atomic Energy Agency, the global nuclear watchdog, as well as defiant rhetoric by the country’s former president, Mahmoud Ahmadinejad, weakened European faith in negotiations, pushing the EU towards adopting more comprehensive and coordinated sanctions.

With the election of a new president this year, these circumstances may have changed. In what’s being called Iran’s “charm offensive”, President Hassan Rouhani gave a flurry of conciliatory interviews to US media outlets and a carefully crafted speech to the United Nations General Assembly last month. Remarkably, he also spoke to US President Barack Obama directly by telephone — the first such contact since the nation’s 1979 revolution. The message: let’s resolve the dispute over sanctions and nuclear programs.

This new public engagement and softer style has prompted hopes that the nuclear and sanctions crisis surrounding Iran may finally be headed for resolution, fueled by speculation that the economic strictures have finally brought Iran to the table.

Whether this is the case or not, the recent European court rulings regarding Bank Mellat and other Iranian entities may provide an incentive for the West to resolve the Iran file now, while sanctions are still in effect and its hand is perceived to be strongest. As EU foreign policy chief and lead Western negotiator Catherine Ashton’s spokesperson said last month, “We are fully aware, as are the [EU] member states, of the consequences deriving from these judgments…[and] the need to come to a swift conclusion on the approach regarding these cases.”


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Benjamin Redd

Ben is a Beirut based investigative journalist. He served as Executive's resident data geek from 2013 to 2014, and as managing editor from 2014 to 2015.

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