Financial Restrictions (Iran) Order 2009

On 12 October, Her Majesty’s Treasury laid before Parliament the Financial Restrictions (Iran) Order 2009 under its powers in Schedule 7 to the Counter-Terrorism Act 2008. This order contained a direction to the financial sector requiring it to cease all business with two Iranian entities—Bank Mellat and the Islamic Republic of Iran Shipping Lines—and all their branches, wherever located. In keeping with the undertakings given to Parliament during the passage of the Counter-Terrorism Act 2008, today I shall set out the reasons for this action, provide some details on the specifics of the direction and finally outline the work that we have done to ensure that these measures are well understood by the UK financial services industry. Due to the nature of the material that informed the decision to take this action, noble Lords will understand that there are limits on what can be shared. I will, of course, provide as much as is possible within these constraints. The direction contained in this order was given on the basis of the Treasury’s belief that the activity of Iran that facilitates the development or production of nuclear weapons poses a significant risk to the national interests of the UK. As the Exchequer Secretary to the Treasury highlighted in her Written Statement to Parliament issued alongside the order on 12 October, Iran continues to fail to meet its international obligations. Most notably, its nuclear programme presents an immediate challenge to the global non-proliferation regime. Work being carried out as part of Iran’s nuclear programme would facilitate the development or production of nuclear weapons. The International Atomic Energy Agency is being refused the access that it seeks by Iran, which also declines to answer questions put to it by the agency’s staff about alleged studies indicative of military aspects to Iran’s programme. As a result, the IAEA director-general has stated that he is unable to verify that Iran’s nuclear programme is for exclusively peaceful purposes. Iran’s ongoing improvement of its ballistic missile capabilities also continues to give rise to international concern. Its failure to answer questions from the IAEA about possible military dimensions to its nuclear programme increases concerns that its ballistic missile programme represents a potential nuclear delivery system. The Government consider the requirement to cease business relationships and transactions with Bank Mellat and IRISL to be a proportionate response to the threat. This is because the direction focuses on two entities that we have evidence have been engaged in activities of concern. Bank Mellat has provided banking services to a UN-listed organisation connected to Iran’s proliferation-sensitive activities and was involved in transactions relating to financing Iran’s nuclear and ballistic missile programmes. IRISL has transported goods for both Iran’s ballistic missile and nuclear programmes. Both have links to the UK financial sector. As such, this is a targeted action against two Iranian entities that have been identified as facilitating proliferation-sensitive activity in Iran, rather than a sanction against Iran. To protect the national interests of this country and the integrity of our financial sector, this direction prohibits any financial or credit institution from providing services that benefit these entities and thereby support the activities in which they are engaged. This action was taken under Schedule 7 to the Counter-Terrorism Act 2008, which provides the Treasury with powers to issue a range of directions to UK financial and credit institutions in response to certain risks to the UK’s national interests. The direction to cease business relationships and transactions is the most stringent direction that can be employed under these powers in relation to the two targeted entities. The direction to cease business relationships and transactions with Bank Mellat and IRISL therefore addresses the risk that UK financial firms are, inadvertently or otherwise, used to facilitate activities of concern. Let me now provide further information on the operation of the restrictions. The requirement contained in the direction came into force on Monday 12 October 2009. Shortly after the restrictions came into effect, the Treasury published a series of documents on its public website to alert the financial sector to the restrictions and provide detailed guidance on their implementation. These documents were also e-mailed to over 8,000 subscribers to our e-mail alert system. In addition, we have asked various supervisors—for instance, the FSA and HMRC—and trade organisations, such as the British Bankers’ Association, to publicise the direction and provide information to firms on the requirements in the direction. The Treasury has also met with those firms most affected by the direction to ensure that they are in a position to comply with the requirements. The documents published by the Treasury on 12 October included three general licences exempting specific acts from the restrictions, which were issued by the Treasury under powers in Schedule 7. These general licences enable financial and credit institutions with existing business relationships or transactions with the entities concerned to manage the cessation of business in an orderly and controlled way. Further licences, whether general or individual, may be granted by the Treasury to manage the impact of the requirements on third parties. This approach is similar to that used in asset freezing. The direction applies requirements to persons operating in the UK financial sector. This includes FSA-authorised firms, money service businesses and credit institutions. Firms are required to establish whether any current or future business relationships or transactions are affected and to take steps to comply with the requirements of the direction. In this case, firms will review their business dealings, cease any business relationships and transactions that are prohibited by the direction and ensure that their systems and controls are adequate for ongoing compliance with the direction. The use of existing procedures and systems that firms will have in place to meet obligations relating to financial sanctions and anti-money-laundering should assist in minimising the burden of compliance. All institutions operating in the financial sector will need to ensure that they do not undertake new transactions or enter into new business relationships with the two entities. It is expected that compliance costs for the sector as a whole will be moderate, although any institution with significant links to Bank Mellat or IRISL will face larger costs. As set out during the passage of the Counter-Terrorism Bill, supervision of the financial sector’s compliance with this direction will form part of the existing supervisory regime. Alongside work with our financial sector to implement the restrictions, the Government have also taken steps to ensure that other jurisdictions are vigilant to the risks posed by Iran. We have lobbied a wide range of international partners to highlight the action that we have taken and we have strongly encouraged them to take steps to prevent any business displaced from the UK from being picked up by their financial sector. We have worked with the Crown dependencies and overseas territories to develop legislation equivalent to the Counter-Terrorism Act to address these risks. Atishoo! I beg your pardon.