By David Nordell
The global efforts to use economic sanctions as a means of putting pressure on Iran to slow down or even abandon its nuclear weapons programme have just suffered a serious setback, perhaps even a death blow, at the hands of a group of European judges.
The European Union has in the past followed the example of the United States, and blocked the activities of Iranian banks and other business that might play a role in financing and facilitating the purchase of materials and technologies useful in Iran’s nuclear programme. In particular, the sanctions meant that any bank in the EU was forbidden to make payments to these banks for the benefit of any of their account holders.
The banks concerned included Melli Bank, which is the largest bank in the Middle East, with over 3,300 branches and 43,000 employees, and which was previously prominent in the City of London.
But the decision, made by the EU’s General Court in Luxembourg and announced on 6th September, said that the evidence presented by the EU member governments did not justify the broad ban on the banks and other businesses concerned: they “had not proved the facts” in the case of Post Bank Iran and the Iran Insurance Company; and the facts “do not by themselves justify” the ban on Persian International Bank and Iranian Offshore Engineering and Construction.
The truth is that the sanctions regime has been something of a joke since it began, because it is so full of loopholes. European banks have already been found to be sidestepping the sanctions, mainly by putting false counterparty information into SWIFT payment instructions. Dubai, where many leading Western banks have large operations, is known to be a centre for both trade and financial transactions with Iran. The American sanctions in practice only put pressure on transactions denominated in US Dollars, just as the EU sanctions only affect transactions in Euro or sterling. And there are even unconfirmed, but highly plausible, reports that financial transactions are being laundered through Zimbabwe, with the clear collusion of President Mugabe, in the form of uncut diamonds.
Nevertheless, putting economic pressure on Iran through sanctions remains an important part of the overall strategic international goal, led by the USA and Israel, of slowing down that country’s nuclear armaments programme as much as possible – if only because it is the only part of that strategy that can be achieved without military or intelligence operations, in the absence of any convincing diplomatic process. The Stuxnet malware reportedly developed by the USA and Israel working together, and infiltrated into Iranian uranium enrichment centrifuges in order to sabotage them, apparently worked in the short term, but has not been an effective substitute for decisive military action to destroy both the nuclear programme itself and the missiles that would deliver the nuclear warheads to Israeli targets, or perhaps targets in Saudi Arabia or Europe. And since Iran is one of the main suppliers of weaponry and indeed intelligence and training to the Syrian regime, which is carrying out wholesale slaughter of its own citizens as well as breaking all the international conventions on the use of chemical weapons, any pressure on Iran serves an important dual purpose.
The question needs to be asked: who is right here? There is no question that despite all the loopholes in the international sanctions programme, its very existence is important, both because it remains partially effective and because it makes a political statement. But on the face of things, the judges of the General Court are also right, because the EU needs to show due cause for imposing the sanctions; and just complying with the USA’s sanctions regime is not due cause when it comes to another, completely independent, political bloc. And ‘innocent until proved guilty’ must remain a central part of any jurisdiction’s system of justice. However, the sanctions regime is meant to prevent Iran from doing something, not to impose criminal punishments for having done so, and it is therefore arguable that the European Union’s states and the European Commissions should not be forced to produce evidence to the level required for criminal conviction, just as in English law there is a difference between the burden of proof in civil and criminal cases.
The member states will appeal the court’s ruling, which means in practice that the sanctions will not be relaxed any time soon. Nevertheless, the court’s decision reveals an important weakness in international sanctions regimes in general, not only the one against Iran, but also the entire body of counter-terror finance regulation; after all, the names of suspected terror financiers are placed on international blacklists without any burden of criminal proof. It is therefore essential that governments and regulators focus their attention on how to improve the functioning of both CTF rules and sanctions against rogue states such as Iran, in order to ensure that they are both effective and equitable.