The West has sought to impose a watertight sanctions regime against Iran over its nuclear program. But a European court has ruled against targeted sanctions in several cases, ordering some banks removed from blacklists.
Following Washington's lead, the European Union has sought to impose tough sanctions against Iran over the years, targeting 180 Iranian entities with asset freezes and travel bans. But Iranian financial institutions are increasingly fighting back, filing - and winning - lawsuits in European court to be removed from blacklists.
The British Supreme Court overturned sanctions in June against Bank Mellat, Iran's largest private bank. In 2009, the UK Treasury used counterterrorism laws to ban Mellat from the British financial system, alleging that the bank had helped finance Iran's nuclear program.
But Supreme Court Judge Jonathan Sumption ruled that the British sanctions were "arbitrary," "irrational," and "disproportionate." Bank Mellat could seek damages to the tune of 500 million pounds (574 million euros, $761 million), according to a bank spokesman quoted by Reuters news agency.
The ruling by Britain's top court came after two similar decisions by the European General Court, the second highest judicial body in the EU. In January, the General Court had moved to overturn EU sanctions against Bank Mellat. A week later, the court ruled against sanctions imposed on Saderat Bank. Currently, both Mellat and Saderat remain blacklisted pending appeal by Brussels.
"The main reason that is given [for sanctions] is that they [banks] support nuclear proliferation," Nigel Kushner, who represents Iranian clients in sanctions cases, told DW. "It's not enough to say that we think they support proliferation, the EU must check the relevance and validity of that evidence."
Vague allegations, factual errors
According to Maya Lester, Iranian banks began filing lawsuits, because the EU had targeted many Iranian financial institutions for sanctions without providing a detailed reason. Lester represents Iran's central bank as well as its shipping and tanker companies among other Iranian clients.
In the case of Bank Mellat, the General Court ruled that the European Council - the body that represents the EU member states - had failed to state its reasons for imposing sanctions. In addition, the council had not disclosed its evidence to the bank, violating fundamental rule-of-law principles.
"Some of the reasons for the banks' [sanctions] designations were found by the European court to be too vague to satisfy the really high standards in its case law of needing specific evidence, and that the council had not disclosed sufficient supporting evidence to justify the designation," Lester, a barrister with Brick Court Chambers, told DW.
The European Council's cases against Mellat and Saderat were also plagued by factual errors. In its originally reasoning for sanctioning the two banks, the council said that both Mellat and Saderat were state-owned banks that had provided financial services which assisted Iran's nuclear program. But in reality, Mellat is a private bank, and the state is only a minority stakeholder in Saderat.
"Certainly until more recently, I don't think the efficient due process was followed," Kushner said of the council's cases against the two banks. Kushner is the chief executive of W Legal.
Issue of confidentiality
According Michael Mann, the court did not rule on the substance of whether or not Mellat and Saderat were actually involved in nuclear proliferation. Mann is the spokesman for EU foreign affairs chief Catherine Ashton. He said that the judges had asked for more information, which the council could not provide out of confidentiality concerns.
"When you're dealing with putting commercial entities on a list of sanctions, you have to - to a certain extent - keep certain things confidential," Mann told DW.
"If you telegraph the fact that you're going to take measures, it is always possible that those who are going to be subject to these measures can take avoidance measures," he said.
Mann would not say whether or not the EU would seek an arrangement to provide confidential information to the court in secret sessions. He would only say that the council hopes that on appeal, the court will understand that certain sensitive information cannot be shared with the public.
"The hope is that when the appeal is heard, the judges who hear the appeal will see the fact that there are certain things that can't be shared publicly, and that the overriding need for these sanctions measures will be the overriding thing that is taken into account," Mann said.
Kushner believes that Mellat and Saderat have a good chance of winning the EU's appeals cases, which would officially remove them from the sanctions list. But even if the two banks do succeed, there will likely be little impact on the broader sanctions regime, according to Lester.
"If they maintain their win in the appeal, it means they come off the targeted sanctions," she said. "But the council now has effectively non-targeted sanctions, in other words, severe restrictions on financial transactions and other kinds of business that can be done in Europe across a whole sector."
Brussels has forced the Society for Worldwide Interbank Financial Telecommunications (SWIFT) to cut off transactions with blacklisted Iranian financial institutions, severely limiting Tehran's ability to do business abroad.
The EU has also imposed a biting oil embargo against the Islamic Republic. The entire EU-US sanctions regime has reduced Tehran's oil revenues by 50 percent.
Global US pressure
Even if Mellat and Saderat are removed from the EU's blacklist, the threat of US sanctions will likely keep European companies from doing business with the two banks.
"The US have such a massive, massive clout," Kushner said. "They can come after anyone, anywhere in the world these days who has particular wide-ranging dealings with Iran. They can place sanctions on them in the US. So ultimately, they can prevent them from having access to the US financial system."
More than 30 cases are still pending before the EU General Court. They include applications by Iran's Central Bank and the Iranian National Oil Company. But according to Kushner, blacklisting has already done permanent damage to many Iranian financial institutions.
"No EU bank today will voluntarily deal with an Iranian bank, whether it's sanctioned or not," he said.