How European courts are dismantling sanctions on Iran

Anxiety in Washington over the court rulings is mounting
By Reuters
Wed 17 Jul 2013 10:56 AM

In the years-long
campaign to tie a web of sanctions around Iran and stall its nuclear programme,
the European Union may just have met its biggest obstacle: its own law
courts.

Fearing Tehran is
seeking the means to make bombs, Europe's governments have been combing through
Iran's political elites and businesses to find people and companies linked to
the financing and technical aspects of its nuclear work.

They have frozen
their assets, refused visas and banned companies in the European Union from
doing business with them. But dozens of those targeted have challenged the
restrictions in court and some are beginning to win, embarrassing Europe's
policymakers and causing alarm in the United States.

None of the court
judgments are yet final. But with Israel brandishing threats against a nuclear
programme that Iran insists has no military purpose, Washington worries that any
weakening of sanctions may raise the risk of war.

At the heart of the
issue is the refusal by EU governments to disclose evidence linking their
targets to Iran's nuclear work. Doing so in court, they say, may expose
confidential intelligence, undermining efforts to combat the
programme.

The courts have
effectively rejected that argument, saying that if a case is to be made,
evidence must be presented. Lawyers for the Iranians argue there simply is no
evidence that proves any link to the nuclear programme - a view supported by
British judges who did review some secret material this
year.

"It is very clear
there is no evidence," said Sarosh Zaiwalla, senior partner at Zaiwalla &
Co, a London law firm which has successfully represented Iran's Bank Mellat in
litigation against sanctions imposed by the EU.

The bank, one of the
biggest private lenders in Iran, won a case in January in the European Union's
Luxembourg-based second-highest court. It had challenged an EU move in 2010 to
freeze its assets, saying the EU had failed to prove the bank provided banking
services for the nuclear programme. The court agreed.

"The chairman of the
court asked the EU lawyers, 'can you show me the evidence?'. And they said 'no,
it's Iran, and you must presume there is evidence'," Zaiwalla
said.

"The judge was very
upset and said 'this is a court of law and you cannot assume
things'."

In its January 29
judgment, using dense legal language, the General Court said the council of EU
governments was "in breach of the obligation to state reasons and the obligation
to disclose to the applicant ... the evidence adduced against
it".

The lifting of
sanctions against Bank Mellat is postponed for now, pending an appeal by EU
governments to Europe's highest court. But the case illustrates the dilemma
facing the European Union in its push to stop Iran from advancing the atom
work.

Government lawyers
are telling the courts to trust them and the courts are refusing. To safeguard
its sanctions policy and its economic pressure on Iran, the EU may have to
present evidence - including sensitive intelligence - in
court.

But because of rules
governing pan-European courts, all evidence would then become public which may
damage clandestine operations and unravel the process of devising
sanctions.

Article continued on next page...

"There is nothing in
the current rules to enable us to consider sharing information without it
becoming public," said one European diplomat, speaking on condition of
anonymity. "This is the crux of the issue. We cannot just be handing information
around."

In Washington,
anxiety over court rulings is mounting.

"It's a real concern
of ours that the EU is having difficulties sustaining some of its designations,"
David Cohen, the US Treasury Department's Under Secretary for Terrorism and
Financial Intelligence, told Reuters.

Lawyers for the
Iranian plaintiffs paint the conflict as a human rights issue, praising the
Luxembourg court for decisions they say amount to taking a stand against
government abuse.

"It may be
politically embarrassing," said Maya Lester, a London-based lawyer who
represents companies and individuals in litigation concerning European
sanctions, including the Iranian central bank and the country's main tanker
company, NITC.

"But in terms of
upholding the rule of law, what the European court has done is impressive and
quite brave. It shows it to be a court upholding human rights ... which is not
easy given how political Iranian sanctions are."

The lawyers for Bank
Mellat had asked EU governments to show them information linking the lender to
the nuclear programme and consider their complaint that sanctions were not
justified, in a series of letters in 2010 and 2011.

In one, dated Jan 5,
2011, the lawyers had accused the European Union of having made a "cursory"
review of their complaint. The review, they said, was "clearly ineffective,
insufficient and incompatible with the Bank's right of
defence".

"We got no response
whatsoever," said Zaiwalla. "We would ask every year for new material but they
would ignore it."

The court concluded
in January this year that the European Union had, in fact, breached the bank's
right of defence.

It also said EU
governments had not sufficiently checked the evidence they did offer,
highlighting another dilemma facing Europe in how it targets the nuclear
programme.

Decisions on
sanctions - taken unanimously by all European governments to ensure a level
playing field for all EU companies - usually follow a proposal by one or two
governments, often permanent UN Security Council members France or Britain.
Other capitals have to trust their evidence.

Last month, Bank
Mellat won another case, at Britain's Supreme Court. Its judges, too, ruled the
British government was wrong to have imposed sanctions on the lender but they
also took their argument a step further than the EU court in
Luxembourg.

Having had access to
evidence under British rules allowing for a secret court session, the judges
ruled that measures against the bank were "arbitrary" and "irrational" -
exposing the possibility that even secret evidence governments may share with
the courts might not be enough to justify sanctions.

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While the net of
sanctions may have only been cut in a few places at this stage, dozens of other
cases are in the pipeline. The concern among EU officials is that if a few more
knots are untied, the entire sanctions netting could start to
unravel.

That may have
consequences for security in the Middle East, especially if it allows Iran to
step up its nuclear programme.

In the minds of
Western policymakers, Iran's banks are a vital target for sanctions, and the
fact that the banks appear to be winning in the courts is seen as particularly
worrisome.

The Luxembourg ruling
on Bank Mellat was followed by a similar decision in February in favour of Bank
Saderat, one of the largest lenders in Iran. More will be on the docket
soon.

Officials in
Luxembourg say that in early September the court is due to rule on cases filed
by Europaeisch-Iranische Handelsbank AG (EIH), Post Bank and Persia
International Bank. The Iranian central bank also has a case pending, as do
numerous companies linked to Iran's vital shipping and oil
industries.

Technical aspects of
the nuclear work have also come into question. In May, the Luxembourg court
ruled in favour of an Iranian maker of electrical transformers, Iran Transfo. It
was accused of equipping the Fordow uranium enrichment facility, which Western
states suspect could produce bomb-grade material.

"The council (of EU
governments) hasn't produced any element of proof that the company has
participated in the construction of Fordow," an EU lawyer said. "The court said
'you haven't produced anything, the file is empty, you have lost the
case'."

Several solutions to
the conundrum are under discussion in Brussels and elsewhere in Europe. British
officials, who have taken a lead in proposing targets for sanctions, as well as
EU lawyers, are in contact with the Luxembourg courts to devise new rules for
using confidential evidence in judicial hearings.

Giving some judges
security clearance would go some way in addressing court concerns, lawyers say.
But it may take time.

Overhauling how
sanctions are designed would be another step. EU lawyers argue that targeting
whole sectors of the Iranian economy would sidestep the necessity of proving in
court a particular target's role in nuclear arms
proliferation.

The EU already has
sweeping measures in place against the Iranian energy and shipping sectors. But
moving further is likely to meet strong resistance in many European
capitals.

Sanctions experts
say, for example, that hundreds of small German businesses engage in legitimate
trade with Iran that earned Germany some $250 million a month in exports last
year.

While the EU's main
military powers, Britain and France, pursue sanctions, some partners prefer to
maintain trade ties, under close supervision, creating tensions within the
bloc.

As one EU lawyer put
it: "The underlying economic interests of EU member states are
different."

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