Another Iranian Bank Receives Early Sanctions Relief

Another Iranian bank has received sanctions relief earlier than anticipated under the nuclear deal with Iran.  The European Union’s sanctions on state-owned Bank Saderat Iran and its London-based subsidiary, BankSaderat PLC, which were originally set to last until 2023, were quietly lifted this week.  The decision was made in April, in response to Bank Saderat’s successful legal challenge of its 2010 designation.  However, instead of lifting the sanctions in April, the E.U. modified the reasons supporting the sanctions and extended them—but only for a period of six months, through October 22.  This is the latest in a series of concessions to Iran’s financial sector, beyond what was agreed to in the nuclear deal.

Bank Saderat was originally sanctioned by the E.U. in July 2010 for providing financial services to three entities linked to Iran’s nuclear and missile programs: Defense Industries Organization (DIO), Iran Electronics Industries (IEI), and Mesbah Energy Company.[1]  A number of legal steps followed: the bank challenged its sanctions designation in European court; in 2013, the court threw out the designation; the European Council appealed this decision; but on April 21, 2016, the European Court of Justice dismissed the appeal, citing a failure to provide evidence linking Bank Saderat to the proliferation activities of the three cited Iranian entities.[2]

On April 18, just before its appeal was dismissed, the E.U. modified the rationale supporting the sanctions on Bank Saderat and BankSaderat PLC.  The new justification only cited Bank Saderat’s handling of letters of credit in March 2009 on behalf of DIO, which was then and remains under U.N. sanctions for involvement in Iran’s nuclear and missile programs.[3]  The E.U. likely modified the rationale because one or more E.U. member-states were unwilling to provide sensitive information in open court.  In its appeal, the E.U. stated that its evidence concerning Bank Saderat’s support for Mesbah “comes from confidential sources which, if disclosed, would enable those who provided the information to be identified, endangering their lives and safety.”[4]

But in addition to modifying the rationale, the E.U. specifically extended the sanctions only until October 22, 2016.[5]  This set off action by other governments, with the United Kingdom lifting its sanctions against London-based BankSaderat PLC and its parent and unfreezing their assets this week.[6]  According to a senior E.U. official speaking on condition of anonymity, the six-month extension was “a political decision of the member-states taken at the time.”  The official noted that E.U. decisions related to sanctions are reached by consensus and declined to comment on why the E.U. decided to extend the sanctions on Bank Saderat only for six months and not until 2023, as set forth in the nuclear agreement.

Meanwhile, Bank Saderat and its subsidiaries remain on the U.S. blacklist for supporting terrorism.  Bank Saderat is one of Iran’s most important financial institutions and operates over 2,500 branches, including overseas offices throughout Europe and the Middle East.  According to the U.S. Treasury Department, Bank Saderat has been used by the Iranian government to channel funds to terrorist organizations, including Hizballah, Hamas, the Popular Front for the Liberation of Palestine-General Command (PFLP-GC), and Palestinian Islamic Jihad.  Between 2001 and 2006, the Central Bank of Iran used Bank Saderat’s London subsidiary to transfer $50 million to Hizballah fronts in Lebanon.[7]

Ever since the nuclear deal was implemented in January 2016, Iran has been complaining that the sanctions relief from the deal has not offered sufficient economic benefit.  This is largely a negotiating tactic, aimed at gaining additional concessions, particularly in the area of reintegrating Iran into the international financial system.  And it has worked.  Earlier this month, the Treasury Department relaxed its restrictions on dollar-denominated transactions with Iran and also now permits foreign companies to do business with non-sanctioned Iranian entities that are nonetheless minority-owned or controlled by an entity on the U.S. blacklist.[8]  In January, the U.S. also agreed to lift the U.N. sanctions on Bank Sepah and its London-based affiliate Sepah International, which had been blacklisted by the United Nations for supporting Iran’s ballistic missile program.[9]  Bank Saderat is yet another case of a major Iranian bank receiving sanctions relief earlier than anticipated and of Iran gaining an important concession beyond what was agreed to in the nuclear deal.

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