Are the UK's sanctions against Iran's state bank legitimate?

A new dimension has been added to the attempt by Iran’s largest private bank to challenge the sanctions imposed against it by HM Treasury for Iran’s nuclear proliferation in the Supreme Court. Bank Mellat, which has been fighting accusations of involvement in nuclear ‘proliferation-sensitive’ activities in Iran, has been told by the Supreme Court that six of its private shareholders will now be allowed to make individual interventions at the Supreme Court hearing on 4 and 5 July 2012, which will review the legality of the sanctions against a private sector Iranian bank.

The UK Supreme Court, in the form of Lords Mance, Kerr and Sumption, determined, no doubt in the interest of preserving the rule of law in the UK, that Bank Mellat’s shareholders should have leave to support the bank in court. The UK Treasury made substantial arguments against granting this permission, which were rejected by the Supreme Court.

Bank Mellat also appeared in the European General Court on 23 May to challenge similar sanctions that were imposed by the European Union. At a hearing in the European Court the judges expressed reservations about the allegation that Bank Mellat was an emanation of the State of Iran. The court asked the European Union’s counsel to show the court if there was any evidence that would suggest that with a 20 per cent shareholding the Iranian government had the capacity to influence the decision of the board of Bank Mellat. The European Union’s counsel was unable to direct the court to any such evidence.

No state influence

The sanctions were imposed by the UK Treasury on the basis that it thought, at the time it made the order back in 2009, that Bank Mellat was a state-owned and/or state-controlled bank. It wrongly believed that the Iranian government controlled 80 per cent of the voting rights in Bank Mellat. This was an apparent error on the part of the UK government.

The interveners, who are private shareholders of Bank Mellat, will tell the Supreme Court that their voting rights on the bank’s business are not controlled by the Iranian government and that the Treasury was wrong to conclude that Bank Mellat was owned or controlled by the state. They will explain to the court that the Iranian government only holds 20 per cent of the bank’s share, and that the decision has been taken for it to sell even those shares, so that state-ownership will soon reduce to zero.

The Treasury’s justification for sanctioning Bank Mellat was that it thought the ?order would put pressure on the Iranian government to comply fully and transparently with its international obligations. The interveners will inform the Supreme Court that the private sector in Iran has no leverage or influence over the Iranian government, and that injuring the private sector, which they say is the effect of the Treasury’s sanctions, is contrary to fundamental principles of public policy. They will also highlight the fact that the adverse impact of the order has been felt not by the Iranian government but by the bank’s shareholders and customers, all innocent Iranian citizens.

If the Supreme Court does determine that these sanctions against a privately owned bank are illegal, then the UK government will be barred from imposing political sanctions against truly private organisations, so long as they can conclusively show that they are not controlled by the state. This would see a reduction in indirect sanctions regimes, and could force governments and international organisations to target directly the governments whose behaviour they wish to change. It could usher in a time where the western governments will have to face its perceived adversaries at the centre of power, rather than slowly grinding down normal citizens by breaching their human rights.

The intervening shareholders in Bank Mellat’s application include entities that represent the interests of, among others, 42 million low-income and disadvantaged Iranian citizens who hold shares in Bank Mellat, 120,000 present and former bank employees, and various private pensioners who have been adversely affected due to the imposition of these sanctions.

The interveners will submit the following to the Supreme Court at the hearing starting tomorrow.

Right to property

The Universal Declaration of Human Rights, which was signed and ratified by all UN Member States in 1948, provides as its preamble that “recognition of the inherent dignity and of the equal and inalienable rights of all members of the human family is a foundation of freedom, justice and peace in the world”. Article 17 of the same declaration expressly provides that “everyone has the right to own property alone as well as in association with others”, and “no one shall be arbitrarily deprived of his property”. The preamble of the declaration bestows inalienable rights on all members of the human family, no matter which country they reside in. The UK is a signatory to the declaration.

Article 1 of the First Protocol to the ?European Convention on Human Rights (ECHR) provides that “every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided by law and by the general principles of international law.” The use of the word ‘and’ before the words ‘by the general principles of international law’ makes it mandatory that all laws passed by an EU member state’s legislature must comply with ECHR.

The EU Council and the UK Treasury have exploited the legal umbrella of UN sanctions, designed to target Iran’s government, to impose additional and unilateral sanctions against a privately owned bank that has never explicitly been designated by the UN.

The interveners will submit to the Supreme Court that the Treasury’s act has the effect of disproportionately violating the inalienable rights of private shareholders without proper legal foundation.

Indeed, a share is property like any other, and any arbitrary damage caused to, or restriction placed upon, the property of an innocent private citizen in another country would be unlawful under the public policy of the UK.

Punishing the poorest citizens

Importantly, the damage caused to the shareholders also adversely impacts the lives of ordinary citizens. For example, Saba Tanim (holder of 16.5 per cent of the shares in Bank Mellat) is the investment arm of the Social Security Organisation (SSO) of Iran. The effect on Saba Tanim and the SSO of the restrictive measure imposed on the bank is such that the quality of service, particularly of medical care, that the SSO can provide to Iran’s poorest citizens through its network of private hospitals and clinics has been reduced. This has an obvious impact on the standard of health care accessible by some 11 million of Iran’s poorest citizens.

Mention should also be made of the Provincial Investment Companies Association, which manages 30 per cent of the shares in the bank on behalf of around 42 million disadvantaged Iranian citizens. When Bank Mellat was privatised, it was determined that these shares should go to the Iranian people, as part of a government initiative called the ‘Justice Share’ initiative. These are the Iranians who can least afford to see their private investments lose value, and who are hit the hardest by the significant fall in value of the bank’s shares caused by the restrictive measures.

The interveners will stress to the Supreme Court that sanctions have had an impact on the lives of ordinary Iranian citizens who have no influence or power over the Iranian government. This has been explained by two importers of essential consumer goods, who are shareholders and customers of Bank Mellat. They say that following the sanctions they have had to turn to other banks both inside and outside Iran to fund their transactions. This has increased their expenses drastically, and the effect has been passed onto consumers. This is reflected in the fact that the official inflation figures in Iran for 2012 stand at 21.5 per cent. I understand that there is a widespread perception that the official figures in fact understate the actual inflation rate.

Key questions

Two important questions posed by one shareholder of the bank, which the Supreme Court will consider while deciding this appeal, are:

a) Does the international public policy of which UK public policy forms part allow innocent private citizens to be punished for the acts of their government?

b) Is it lawful or acceptable for the UK government to act in theory to target the government of Iran, but in practice hurt innocent Iranian citizens?

In the context of recent events in Libya, UN officials themselves have stressed the importance of protecting innocent civilians from sustaining injury as a result of the wrongful actions of their own government. On this principle, it would not matter that the injury is physical – as in the case of Libya – or financial – as in the case of Iran.

If, as it appears, sanctions against a private bank are illegitimate and in violation of international public policy and human rights, then that is undeniably wrong. This will not bring about peace and security in the world.

Ms Navi Pillay, UN high commissioner for human rights, recently said: “The denial of human rights – including civil, cultural, economic, political and social rights – is a root cause of discord, unrest, violence and ultimately armed conflict.”