Documents considered by the Committee on 3 November 2010, including the following recommendations for debate: Financial Management - European Scrutiny Committee Contents


13 Restrictive measures against Iran

(31905)

13082/10

COM(10) 459

Draft Council Regulation on restrictive measures against Iran and repealing Council Regulation (EC) No. 423/2007

Legal baseArticle 215 TFEU; QMV
DepartmentForeign and Commonwealth Office
Basis of considerationMinister's letter of 22 October 2010
Previous Committee ReportHC 428-ii (2010-11), chapter 24 (15 September 2010) and (31779) —: HC428-i (2010-11), chapter 61 (8 September 2010); and (31937) —: HC 428-iii (2010-11), chapter 15 (13 October 2010); also see (29812) — and (29813) —: HC 16-xxvii (2007-08), chapters 16 and 17 (16 July 2008); and (29912) 12463/08: HC16-xxx (2007-08) chapter 16 (8 October 2008)
To be discussed in Council25 October 2010 Foreign Affairs Council
Committee's assessmentPolitically important
Committee's decisionCleared (decision reported on 15 September 2010)

Background

13.1 On 23 December 2006, the UN Security Council adopted Resolution 1737, which imposed a number of sanctions on Iran. In broad terms UNSCR 1737:

  • prohibited the sale/transfer to Iran — and also the export by Iran or export from Iran — of certain goods and technologies that could contribute to sensitive activities (enrichment related, reprocessing and heavy water activities and the development of nuclear weapons delivery systems);
  • prohibited technical or financial assistance related to these activities;
  • froze the assets of named individuals and entities involved in, associated with or providing support to Iran's sensitive nuclear and missile programmes;
  • called on signatory States to "exercise vigilance" about the travel to or through their territories of individuals involved in, associated with or providing support to Iran's sensitive nuclear and missile programmes and required them to inform the Security Council when named individuals do so; and
  • called on States to prevent Iranian nationals from studying sensitive subjects.

13.2 On 7 February 2007 the then Committee cleared Common Position 2007/140/CFSP, which enabled EU Member States to fulfil their obligation to implement these restrictions. It was subsequently adopted by the Council on 27 February 2007.

13.3 Consideration by the previous Committee of subsequent changes is set out in those Reports referred to in the headnote above.

13.4 Most recently, on 9 June 2010, the UN Security Council adopted Resolution 1929 on Iran's nuclear programme and its failure to comply with its international obligations, which imposes a number of further restrictive measures against Iran. In broad terms it:

— reaffirms that Iran shall cooperate fully with the International Atomic Energy Agency;

— stops new Iranian nuclear facilities and bans Iranian nuclear investment in third countries;

— imposes total bans on exports of several major categories of arms, and further restrictions on Iran's ballistic missile programme;

— freezes the assets of 40 entities, including one bank subsidiary, several Islamic Revolutionary Guard Corps companies, and three Islamic Republic of Iran Shipping Lines subsidiaries, which have been involved in multiple sanctions violations cases;

— freezes the assets of and bans travel on one senior nuclear scientist;

— implements a regime for inspecting suspected illicit cargoes and authorising their seizure and disposal;

— places restrictions on financial services, including insurance and reinsurance, where there is suspicion of a proliferation link;

— bans existing and new correspondent banking relationships where there are proliferation concerns;

— establishes a Panel of Experts to advise and assist on sanctions implementation; and

— reaffirms the dual track strategy (of pressure and diplomacy).

13.5 EU Heads of Government welcomed the UN resolution in a Council Declaration on 17 June 2010, which invited the EU Foreign Affairs Council to adopt a Council Decision at its next session, on 26 July, to implement the measures contained in UNSCR 1929, as well as additional EU sanctions in the following areas:

— the energy sector, including the prohibition of investment, technical assistance and transfers of technologies, equipment and service;

— the financial sector, including additional asset freezes against banks and restrictions on banking and insurance;

trade, including a broad ranging ban on dual use goods and trade insurance;

— the Iranian transport sector in particular the Islamic Republic of Iran Shipping Line (IRISL) and its subsidiaries and air cargo;

— new visa bans and asset freezes, especially on the Islamic Revolutionary Guard Corps (IRGC).

13.6 The Committee was not formed at the time the Council Decision was adopted, and was not able to consider it until its first meeting on 8 September 2010.

13.7 In an Explanatory Memorandum of 9 July 2010, the Minister for Europe (David Lidington) said that the Government was "committed to tough additional EU sanctions against Iran, aimed at halting its proliferation sensitive activity and making it comply with its international obligations", and explained the Government's position in detail.[70] In an accompanying letter of 9 July 2010, the Minister said that he had submitted the Decision, despite it being still a working document, so that the Committee had time to scrutinise the proposal, and undertook to submit the final Decision for scrutiny as soon as it had been agreed by officials and, in advance of the adoption, outline the main differences from the draft text — which, he said, he expected to be of detail rather than substance.

13.8 The Minister also explained in his Explanatory Memorandum that, once the Decision was adopted, the EU would negotiate an implementing Council Regulation, which would make these measures binding upon Member States; he expected this to be adopted in October 2010, and undertook to submit it for scrutiny when a draft was received.

13.9 The European Council adopted Council Decision 2010/413/CFSP at the 26 July Foreign Affairs Council, together with a Regulation extending the list of entities and individuals subject to an assets freeze.[71]

The Minister's letter of 29 July 2010

13.10 The Minister for Europe then wrote to the Committee on 29 July 2010 with regard to this updating of the existing Council Regulation. It was, he said, imperative that the Regulation update was agreed along with the Council Decision to prevent asset flight, of which there would have been a real threat if action had been delayed until adoption of a new Regulation in the autumn, which would have weakened the impact of the new measures. He expressed regret that the Committee was not able to scrutinise the update to the Regulation before it was adopted; the final list of agreed names was only agreed and circulated on 23 July, with the result that he had had to agree to the adoption of the Regulation amendment at the Foreign Affairs Council, before the Committee had cleared it from scrutiny. He expected the translation of the measures in the Council Decision into a Council Regulation to be completed by the end of September, and undertook to submit the draft Regulation to be scrutinised by the Committee in due course.

Our assessment

13.11 We found it disappointing that, despite his protestations regarding his commitment to rigorous scrutiny, the Minister had now agreed to override scrutiny of the amendment to the implementing Council Regulation without giving the Committee any prior warning. At paragraph 4 of his Explanatory Memorandum the Minister said that "once the Decision is adopted, the EU will negotiate a Regulation. This will make these measures binding on upon Member States. On current timing, we expect the Regulation to be adopted in October 2010." And at paragraph 27 he said again "Once the Decision is adopted EU member states will begin negotiation of the Council Regulation". His letter of 9 July similarly made no mention of an amendment to the implementing Regulation being adopted at the same time as the Decision. So it was only in his letter of 29 July, after the meeting of the Council, that we were told that in fact an amended Regulation was adopted at the same time as the Decision.

13.12 We accordingly asked the Minister to explain when the Commission forwarded the proposed amendment to the Regulation to the Council, and why the Government did not deposit it with an Explanatory Memorandum, as is the procedure for EU documents under our Standing Order.

13.13 We also asked the Minister to deposit the amended Regulation with an Explanatory Memorandum. Given that the Regulation was directly effective, we asked that the Explanatory Memorandum should cover the fundamental rights implications of the travel restrictions and asset freezes in the Regulation, in particular in the light of the ECJ's decision in Yusuf and Kadi.[72]

13.14 Given our understanding that a second implementing Regulation was to be adopted, we also looked forward to its early deposit with an accompanying Explanatory Memorandum.

13.15 In the meantime, we cleared the Council Decision.[73]

The Council Regulation

13.16 In his Explanatory Memorandum of 9 September 2010, the Minister for Europe said that the Iran Regulation would make the measures agreed in the Council Decision that fell under EU competence legally binding upon Member States.

13.17 With regard to the fundamental rights aspects of the proposed Council Regulation, the Minister said that the procedures for designating individuals as subject to asset freezes are compliant with fundamental rights, explaining that:

— provision is made for competent authorities of Member States to authorise the release of frozen funds where necessary in certain circumstances, for example, to satisfy the basic needs of listed persons or their dependents and where necessary for extraordinary expenses. Decisions by competent authorities of Member States in this regard would be subject to challenge in Member State's courts. Prohibitions on transfer of funds and financial services are exempted where necessary for humanitarian purposes, or where necessary for supply of foodstuffs, medical equipment or provision of health care. In addition, these prohibitions do not apply to transfers having a value below €40,000 and the Member State's competent authority has been notified (unless to a designated person or entity where separate licensing arrangements will apply). Provision of bunkering services to Iranian ships and engineering and maintenance services to Iranian cargo aircraft are prohibited where there are reasonable grounds to believe that the vessel is carrying goods covered by the EU Common Military List or goods prohibited under the Regulation. These prohibitions are subject to services necessary for humanitarian purposes;

— the Regulation says that the Council shall provide designated persons and entities an opportunity to present observations on the reasons for their listing. Where observations are submitted, the Council will review its decision in the light of those observations and inform the person or entity concerned accordingly. In addition, the asset freezing measures will be reviewed at regular intervals and at least every 12 months;

— challenges to a listing can be brought before the General Court;

— challenges to the application of an asset freeze may be brought in the courts of the Member State concerned.

The Minister's letter of 9 September 2010

13.18 In his accompanying letter of 9 September 2010, the Minister:

— reiterated the Government's commitment to ensuring that the Committee has an opportunity to express its views on texts, so that it can hold the Government to account on EU decision making;

— said that he was sending the Regulation in its current form, along with an unnumbered EM, so that the Committee had time to scrutinise the proposals;

— went on to say that he would submit the final Regulation as soon as it had been agreed at official level and write in advance of the adoption, outlining the main differences from the draft text;

— said that he expected any differences to be on the detail of the text rather than the substance of the policy covered by the draft Regulations.

Our further assessment

13.19 We had no wish to seek to hold up this process, and accordingly cleared the draft Council Regulation.

13.20 In so doing, we reminded the Minister that we still awaited his response to the matters outstanding from our earlier Report (c.f. paragraphs 13.12-13.14 above), as well as the further information that he had undertaken to provide with regard to this Council Regulation.[74]

Council Implementing Regulation (EU) No. 668/2010 of 26 July 2010

13.21 This is the Council Regulation adopted by the Foreign Affairs Council on 26 July ahead of the timetable envisaged by the Minister and prior to parliamentary scrutiny.

13.22 In his Explanatory Memorandum of 15 September 2010, the Minister for Europe reiterated his explanation that its adoption in concurrence with the Council Decision was important to mitigate the risk of asset flight.

13.23 With regard to the Fundamental Rights aspect of the Regulation, in response to our earlier request the Minister said:

"Community acts must respect fundamental rights in accordance with the principles outlined in the European Court of Justice in Kadi and Al Barakaat v Council of the EU and Commission. If the Regulation breached fundamental rights this would be reviewable by the European Court of Justice. Provision is made for competent authorities of Member States to authorise the release of frozen funds where necessary in certain circumstances, for example, to satisfy the basic needs of listed persons or their dependents and where necessary for extraordinary expenses. Decisions by competent authorities of Member States are subject to challenge in Member State's courts."

13.24 The Minister went on to note that the Regulation says that the Council shall provide designated persons and entities an opportunity to present observations on the reasons for their listing and to say that, where observations are submitted, the Council will review its decision in the light of those observations and inform the person or entity concerned accordingly; and that, in addition, the asset freezing measures will be reviewed at regular intervals and at least every 12 months.

13.25 He also noted that challenges to a listing can be brought before the General Court, while challenges to the application of an asset freeze may be brought in the courts of the Member State concerned.

13.26 A separate letter of 15 September 2010 dealt with the timing issues. There, the Minister explained that:

— the first draft was circulated to Member States on 9 July but only finalised on 23 July, before its adoption on 26 July;

— the draft should have been submitted to the Committee with an Explanatory Memorandum, but this was overlooked;

— he had taken steps to prevent this from happening again by instructing officials to submit draft Regulations to the Committee, along with an Explanatory Memorandum, as soon as they have been received.

13.27 The Minister concluded his letter with the hope that his Explanatory Memorandum answered the Committee's concerns on the fundamental rights aspects of the Regulation.

Our further assessment

13.28 We confirmed that it did, and thanked the Minister for his clarification.

13.29 We also noted that, on the scrutiny aspect, it was now up to the Minister and his officials to live up to the standard that he had laid down.

13.30 In the meantime, we cleared the document.[75]

The Minister's letter of 22 October 2010

13.31 The Minister writes to update the Committee on progress with the EU Iran Regulation, as promised in his letter of 9 September, as follows:

"The Regulation was finalised at official level today and is due to be adopted at the Foreign Affairs Council on 25 October. This delay from the informal deadline of the end of September was due to complex negotiations on unprecedented EU measures. I have attached the text that will be discussed by Foreign Ministers. I would be grateful if you could treat it in confidence until its adoption. I do not anticipate any further changes to be made at the Foreign Affairs Council, although this remains a possibility.

"We believe that the Regulation represents a significant achievement that will help ratchet up the pressure on Iran to return to dialogue with the E3+3 and comply with its international obligations. The measures that the Regulation imposes are the most stringent and broad ranging that the EU has adopted to date. The sanctions are the first to target the energy sector, which UN Security Council resolution 1929 noted was a key source of finance for Iran's proliferation-sensitive activity. The Regulation also extends the financial sanctions into new areas and, inter alia, requires the EU to monitor and authorise payments being made to Iran over a threshold of forty thousand Euros; places prohibitions on the opening of new Iranian banks in the EU; and restricts the provision of insurance and reinsurance to Iran. The transport sector has also been targeted through additional asset freezes of IRISL, the Iranian state shipping line, and its subsidiaries and additional inspections of Iranian cargo entering the EU.

"The finalised Regulation does not deviate from the substance of the measures agreed in the Council Decision. However, the text that has been agreed at official level has inevitably changed during the course of negotiations from the first draft which I deposited with your Committee. The nature of these changes is largely technical or legal in nature and will enable Member States to implement measures more easily and effectively. One example is the decision to move to a purely list based prohibition for goods for use in Iran's energy sector.

"Other changes have been made to ensure that business within the EU were not unfairly disadvantaged or unintentionally caught by sanctions. 

"As such, clarifications have been made on existing contracts and joint ventures with Iranian companies to ensure that EU businesses would not be liable for legal action or faced with unintentional environmental consequences."

13.32 The Minister concludes his letter by saying that the UK has been at the forefront of upholding the case for the most stringent possible sanctions that are clearly and consistently implementable by EU Member States, and that he believes that the Regulation has met the Government's objectives.

Conclusion

13.33 We thank the Minister for this further information, which we are reporting to the House.

13.34 We now regard the scrutiny of the Council Decision and Council Regulation to be complete.





70   See (31779) -: HC 428-i (2010-11), chapter 61 (8 September 2010). Back

71   The Iran conclusions are at pages 10 and 11 of the Conclusions of the 26 July 2010 Foreign Affairs Council, available at http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/EN/foraff/115976.pdf. Back

72   Joined cases C-402/05 and C-415/05. Back

73   See (31779) -: HC428-i (2010-11), chapter 61 (8 September 2010). Back

74   See headnote: HC 428-ii (2010-11), chapter 24 (15 September 2010). Back

75   See (31937) -: HC 428-iii (2010-11), chapter 15 (13 October 2010). Back


 
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