Sarah
McCarthy-Fry: We have had an insightful exchange of
opinions and questions from the hon. Members for Fareham and for
Southport, and I will try to address those concerns
first. The
first question was on how the Government assess the impact on
Iran’s proliferation activities. International finance services
underpin the actions of Bank Mellat and IRISL. Restricting their access
to UK financial services will lock them out of a key financial centre,
which will make their contribution to Iran’s nuclear programme
more difficult. Obviously, our action applies to the UK. The hon.
Member for Fareham used the word “sanction”, but the
order is not a sanction on Iran, but a direction for financial
institutions in the UK.
Many of the
questions asked by the hon. Member for Fareham were about a timeline,
when we first became aware of the issue and what exactly the entities
were doing. The intelligence underpinning the order is not public, but
I assure the Committee that we took action as quickly as was
appropriate, given the young age of the legislation, and when we had
the powers to do
so.
Mr.
Hoban: My right hon. Friend the Member for
Richmond, Yorks wrote to the Foreign Secretary last September to demand
action. Is the Minister saying that action could not have been taken
any earlier?
Sarah
McCarthy-Fry: If I answer the hon. Gentleman’s
question, I am at risk of disclosing information that I should not.
However, I am happy to look at Hansard, return to his questions
and try to answer them helpfully within the realms of what I can say. I
will feel more comfortable doing
that. A
question was asked about why we are going it alone and why the measure
has not been replicated across the EU. That is because our specific
action under our legislation relates to activities that we in the UK
have identified as being of concern. Of course, the Foreign Secretary
has had extensive discussions on responding to the risks posed by Iran.
We have made all EU partners aware of the direction, and we are in
active discussions on how other EU countries can replicate the order as
appropriate. Different countries are at different stages with
legislation that enables them to do things like
this. I
was asked about the areas in which exemptions are being sought.
Exemptions in general are being sought to manage an orderly wind-down
of existing business that was established before the restrictions were
put in place. There are a small number of financial sector firms with
existing business, and we are working actively with them to help them
manage the process.
We have not
included subsidiaries in the direction, because the powers under which
we made the direction address specific risks to the UK’s
national interests that are posed by activity carried out in, by the
Government of, or by persons rested or incorporated in, a third
country. As subsidiaries are separate legal entities, they are not
subject to the requirements of the
direction.
Mr.
Hoban: On that basis, is the Minister saying that a
subsidiary of Bank Mellat, for example, could still engage in financial
services transactions with UK-based businesses, notwithstanding the
direction?
Sarah
McCarthy-Fry: Yes. That was my understanding and I have
had it confirmed. I can say to the hon. Gentleman that we must have
evidence on individual legal entities. We would have to have a
direction for every single subsidiary. As the hon. Member for Southport
said, it is very much an evidence-based
approach.
Mr.
Hoban: But when the United States introduced similar
restrictions, it dealt with all the companies, not just a single one.
Does the US legislation have a different basis from ours? It seems we
have allowed a big gap for Bank Mellat, for example, to route
transactions through its subsidiaries to circumvent the
order.
Sarah
McCarthy-Fry: I am not aware that Bank Mellat or IRISL
have any financial subsidiaries in the UK. The subsidiaries of which I
am aware are not in the financial sector, but I will check that out and
write to the hon.
Gentleman. On
the question of indirect transactions, the powers allow us to prevent
direct transactions with the entities. UN Security Council resolution
1803 requires all financial institutions to carry out enhanced
vigilance on all transactions that may be related. EU regulation 1100
enforces that in the EU by requiring suspicious transaction reporting
on transactions with Iran and reporting of all transactions by banks.
We will of course keep that under
review. The
restriction targets Bank Mellat and IRISL transactions. Other Iranian
banks are not subject to the restrictions. As long as all financial
sanctions and relevant risk warnings are complied with, alternative
banks may be used, otherwise an application for a licence of exemption
may be made to the
Treasury. The
direction does not require closure of all UK offices. It is a financial
measure intended to address a specific risk by preventing the UK
financial sector from dealing with the entities. The measure does not
seek to close the offices of the entities. This is not an asset
freeze—we have to make that absolutely clear. There are
significant discussions in the EU on the Iranian financial sector and
we are talking to our EU partners regarding our measures and what
further things we can do. On the question of whether there is evidence
of Iranian banks using assets outside the EU, I am concerned that I may
stray too far, so I will look at what the hon. Member for Fareham said
and see what I can
do. The
hon. Member for Southport concentrated on consultation. In my opening
remarks, I explained that we had gone to great lengths to work with the
companies that we knew were involved in transactions, to help them to
manage. He also asked if there would be further directions. This
direction arises from an intelligence-led
process.
Dr.
Pugh: I am grateful for that information. Will the
Minister assure me that as far as the Treasury is concerned, the list
of people it has consulted is fairly
exhaustive?
Sarah
McCarthy-Fry: I did not quite catch the
question.
Dr.
Pugh: It is an intelligence-led exercise and the Minister
may know things about banks’ dealings that perhaps one would not
ordinarily know. As a result, she would know whether she had consulted
most of the
current legitimate customers of the bank or whether there were a large
number that she had not managed to
contact.
Sarah
McCarthy-Fry: To the best of my knowledge, we have
consulted all those of whom we are aware within our reporting systems.
The Isle of Man was quite far ahead in its legislation but, as the hon.
Gentleman said, we are working closely with all the Crown dependencies
on
this. Paul
Farrelly (Newcastle-under-Lyme) (Lab): Will the Minister
tell us what concerted action, if any, has been taken by the European
Union and the United States in parallel with this measure by the United
Kingdom?
Sarah
McCarthy-Fry: The United States already has measures in
place. We are working with the EU. As I said, not all EU countries have
their legislation in the
same place as ours and so not all EU countries are in a position to take
particular measures such as this. We are certainly in talks with them
and we are trying to work as a concerted team. I think that this
direction is a proportionate and reasonable response. Obviously our
action seeks to mitigate the risk. It is important that our financial
sector is not used to facilitate the proliferation of sensitive
activities in Iran, which is the reason that the order is before the
Committee
today. I
should like to thank all hon. Members who have contributed. Where I
have not been able to answer specific questions I shall look to see
what we can do within the constraints. I hope that all hon. Members
will support the
order. Question
put and agreed
to. 3.1
pm Committee
rose.
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