More recently, Bank Mellat has been disputing the grounds on which these sanctions were imposed and seeking legal proceedings to bring about their removal. They have recently had some success on this front with a UK Supreme Court ruling that the UK sanctions were unlawful in June 2013, following a similar ruling by the EU General Court in January and lifting of the designation of the bank’s Chairman by the EU in 2012. However, EU sanctions remain in place whilst the EU appeals the ruling at the European Court of Justice. This case study explores the Bank Mellat case and some of the issues surrounding it.

Bank Mellat and Alleged Involvement in Proliferation

Bank Mellat was designated under E.O.13382 in 2007 ‘for providing financial services to AEOI and Novin Energy Company (AEOI financial conduit)’.[1] The UK Treasury has also listed Bank Mellat since 2009 under the The Financial Restrictions (Iran) Order (2009).[2] This order has effectively excluded the bank from the UK financial market. The 2009 Order has since been superseded as a consequence of the EU’s listing of Bank Mellat in Regulation (EU) No 668/2010.[3]This regulation has, since 2010, effectively excluded Bank Mellat from the EU market as a whole, and has seen its EU assets frozen.

US State Department cables released by activist group Wikileaks provide some insights into the reasons for Bank Mellat’s listing by the US government. The following allegations, amongst others have been made regarding the Bank’s activities:

• ‘Facilitated the movement of millions of dollars for Iran’s nuclear program since at least 2003’[4];
• ‘Provided financial services in support of Iran’s nuclear industry, namely the Atomic Energy Organization of Iran (“AEOI”), by servicing and maintaining AEOI bank accounts, mainly through an AEOI front company, the Novin Energy Company’;
• Been ‘involved in facilitating millions of dollars in business involving Iran’s Aerospace Industries Organization’;
• Have ‘finance[d] purchases associated with the contract for missile-related goods’ on behalf of ‘China Precision Machinery Import Export Corporation, an entity designated under Executive Order 13382 for providing material support to Iran’s missile program’;
• Allowed a branch to have acted as ‘the consignee for a shipment of defense-related goods to a company we believe was acting as a front for Iran’s Defense Industries Organization’;
• Been used in 2008 by Bank Sepah to facilitate millions of Euros in payments to Iran’s Aerospace Industries Organization (AIO);
• Been used in 2008 to facilitate payments to Aerospace Industries Organization (AIO) to the value of several million Euros to companies in Europe and Asia;
• ‘In July 2007, Bank Mellat Seoul served as an intermediary bank for two probably missile-related euro payments from Doostan International, a Tehran-based broker for Iranian missile entities, to Chinas Shanghai Technical By-Products International’;[5]
• ‘In early November 2007, Hong Kong Electronics, almost certainly a front company for Tanchon Commercial Bank (North Koreas primary weapons trade bank), made two euro payments worth a total of about $1.5 million from its account at Persian Bank/Kish Island to Bank Mellat/Seoul for ultimate credit to accounts in China and Russia’

Bank Mellat has continually denied all allegations of involvement in proliferation-related trade.

Disputing Sanctions against Bank Mellat

Bank Mellat has been pushing at multiple levels to have sanctions against it lifted since 2009. In 2011, it lodged an appeal with the UK Court of Appeal to have the sanctions against it lifted on both substantive and procedural grounds.[6]  The substantive grounds related to the proportionality of the measures imposed on Mellat; the Judge presiding concluded in this regard that the ‘rational connection’ between the bank and Iran’s nuclear activities was ‘permissible’, and that the intrusive measures taken against the bank were ‘justified by the very high value of the legitimate aim, namely minimising the risk of very great harm to vital national interests’.[7]The Judge also rejected allegations that the bank had been unable to make a representation, commenting that the bank’s representatives had made an ‘impressive albeit ultimately unsuccessful challenge’ to the 2009 order.[8]

In August 2012, it launched a successful appeal to have the name of its former Chairman, Dr Ali Divandari, removed from the EU sanctions.  A regulation was published on 2 August 2012 legally removing sanctions from Divandari.[9]

In January 2013, the EU General Court ruled that the EU had failed to provide sufficient evidence of the Bank’s links to Iran’s nuclear efforts when it decided to list it in 2010.[10] This ruling meant that the EU had to cancel sanctions against the bank.

The EU decided, in April, to appeal the decision by the General Court. This appeal is pending at the highest court, the European Court of Justice. Whilst this appeal is pending, Bank Mellat remained on the EU sanctions list.[11]

The June 2013 UK Supreme Court Judgement

In June 2013, a ruling was made at the UK Supreme Court regarding UK financial sanctions on Bank Mellat. A judge ruled that the sanctions against the Bank were based on ‘misconceptions about the facts’ and ‘singled out Bank Mellat without rational grounds’.[12]

Rather than allowing Bank Mellat to reinstate its European operations which remain closed due to the EU measures still in place, the judgement is perhaps more representative of both a moral victory and a precedent.

Further Cases: A Precedent?

The victories for Bank Mellatat the courts, whilst not explicitly affecting the bank’s ability to conduct business operations in Europe yet, do set an interesting precedent. The cases raise significant questions regarding the standards of evidence required to impose proliferation-related sanctions and also the criteria which need to be met by this evidence for sanctions to be imposed.

A large number of entities that have been designated, listed, or sanctioned have decided to mount legal challenges. A news report from January 2013 indicates that 50 Iranian entities had cases outstanding at the European courts.[13] There is also, of course, the possibility that entities judged to have been sanctioned in error could claim compensation for lost business and reputational damages.

[1] ‘Fact Sheet: Overview of Iranian Linked Financial Institutions Designated by the United States’, Treasury Department Fact Sheet, 23 January 2012, http://www.treasury.gov/press-center/press-releases/Documents/012312_Fact_Sheet_-_Designated_Iranian_Financial%20Institutions.pdf.

[2] ‘The Financial Restrictions (Iran) Order (2009)’, UK Statutory Law approved by the Houses of Parliament in October 2009, http://www.legislation.gov.uk/uksi/2009/2725/pdfs/uksi_20092725_en.pdf.

[3] ‘Regulation (EU) No 668/2010’, available from  http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:195:0025:0036:EN:PDF.

[4] Following 7 points are taken from Secretary of State, ‘Request for Malaysia to withdraw Conditional Approval for Bank Mellat License’, US State Department Cable, Cable No.09STATE13998, 13 February 2009, http://wikileaks.org/cable/2009/02/09STATE13998.html, accessed 20 June 2013.

[5] This and the next point taken from Secretary of State, ‘Information on Iran’s use of Bank Mellat Seoul For Proliferation Activities’, Cable No.08STATE30247, 24 March 2008, http://wikileaks.org/cable/2008/03/08STATE30247.html, accessed 20 June 2013.

[6] Court of Appeal Judgement, ‘Bank Mellat v HM Treasury’, 12 October 2012, available from http://www.bailii.org/ew/cases/EWCA/Civ/2011/1.html, accessed 20 June 2013.

[7] Ibid.

[8] Ibid.

[9] ‘Regulation (EU) No 668/2010’, available from  http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:195:0025:0036:EN:PDF.

[10] ‘Iran Bank to Sue EU after winning Sanction List Case’, Reuters, 30 January 2013, http://www.reuters.com/article/2013/01/30/iran-bankmellat-eu-idUSL5N0AZEOB20130130.

[11] Clare Hutchinson, ‘British Supreme Court Ruling Threatens Western Sanctions Against Iran’, Reuters, 19 June 2013, http://uk.reuters.com/article/2013/06/19/uk-iran-sanctions-idUKBRE95I18A20130619.

[12] Kit Chellel, ‘Bank Mellat U.K. Sanctions over Nuclear Weapons Links Overturned’, Bloomberg, 19 June 2013, http://www.bloomberg.com/news/2013-06-19/bank-mellat-u-k-sanctions-on-nuclear-weapon-links-overturned.html.

[13] ‘Iran Bank to Sue EU after winning Sanction List Case’, Reuters, 30 January 2013, http://www.reuters.com/article/2013/01/30/iran-bankmellat-eu-idUSL5N0AZEOB20130130.

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