Select Committee on Economic Affairs Minutes of Evidence

Examination of Witnesses (Questions 80 - 88)



  Q80  Lord Oakeshott of Seagrove Bay: This is all very interesting. Can I understand how it works? I think you are saying that US sanctions do apply extra-territorially but British or EU ones would not. If you are Goldman Sacks in London, you can either be told what to do by the Americans or you can be told what to do by the British here, but if you are Barclays Bank in New York, you cannot be told what to do by the British Government. Is that correct? It is completely unbalanced.

  Dr Alexander: Exactly. All US economic sanctions are not equally extra-territorial. Some are more so than others for instance, the Dutch bank ABN Amro was fined $80 million by the US Federal Reserve Board last December for facilitating payments to Iranian banks in the Netherlands, not in New York.

  Q81  Lord Oakeshott of Seagrove Bay: Did they pay?

  Dr Alexander: They paid the fine. They have a big operation in New York, of course. They do not want to jeopardise their business in the US. This applies to money laundering as well. You have the Patriot Act that allows the Treasury Secretary to impose so-called special measures on foreign jurisdictions, foreign banks, foreign transactions and foreign accounts if they are deemed by the US to be a special money laundering concern, and so very similar to the economic sanctions legislation, but the ABN Amro case was the case of a Dutch bank involved in facilitating transactions for Iranian banks in violation of extra-territorial US financial sanctions.

  Q82  Lord Oakeshott of Seagrove Bay: Is this whole question being discussed at an EU level? The significance of it is that if the Americans do that, they are basically saying, "We know better than you in the EU what is terrorism and what is not, and we are going to arrogate to ourselves the right to decide and you are not going to". It does seem a very strange way to conduct international affairs, to me. That is what they are saying, is it not? That is the logic of it.

  Dr Alexander: That is the result of it, yes.

  Q83  Lord Oakeshott of Seagrove Bay: Is this being seen by the EU? It is outrageous.

  Dr Alexander: I do not know. I do know that after the Helms-Burton Act was adopted in 1996 the EU adopted a blocking regulation, similar to Britain's Protection of Trading Interests Act. It was a regulation that prohibited any EU business or person from complying with the Cuban Trade Embargo and with the Iran Sanctions Act. It had to be implemented throughout the EU. That has not been done with respect to these particular sets of sanctions or regulations. The EU could do that. They could say, "We are going to issue an order to prohibit a European bank from complying with these United States sanction requirements," but if they did the bank would probably lose its licence in the US and the bank would probably say, "Look we'll just pay the fine."

  Q84  Lord Oakeshott of Seagrove Bay: That is why the bank cannot stand up to it, so it has to be a political decision.

  Dr Alexander: Exactly, it has to be political.

  Q85  Lord Macdonald of Tradeston: On the other hand, a determined United States policy has proved to be more effective in the fight against terrorism than the rather disorganised and ineffective European response that we have seen in the past. Might not this be one of the catalysts for a more effective united front against terrorism?

  Dr Alexander: It could certainly bring together the EU Member States to try to co-ordinate their policies either in response to the problem of terrorism or in response to the US. In fact, I think a policy suggestion might be for the EU to engage in negotiations with the US and say let us enter into an agreement so that we can allocate jurisdiction over these global transactions. This is what happened in competition law. After the US was unilaterally applying anti-trust law in the 1980s, upsetting European countries, the Justice Department and the EU Competition Commission came together and entered into a series of bilateral agreements that said if we both are going to prosecute firms that are doing business in each other's jurisdictions for things they did in the other jurisdiction, we should have an agreement on how to co-ordinate the investigation, co-ordinate the enforcement action and basically to allocate on a jurisdictional basis what is going on. This should be done with sanctions but it is not and so you get the US acting unilaterally. The US would say that they are engaging in multilateral negotiations trying to get the European partners to come on board, but if they do not get full support, they are going to do what they are going to do anyway.

  Lord Oakeshott of Seagrove Bay: We do not call that partnership.

  Q86  Lord Layard: On money laundering, I just wanted to check there is the asymmetry that has been suggested. Supposing the EU decided somebody was a terrorist who America did not think was a terrorist and some American bank was handling their account, could the Europeans prosecute that American bank in a European court?

  Dr Alexander: The answer to your question for criminal prosecutions is no. My reading of the Terrorism Act 2000 and the Anti-Terrorism, Crime and Security Act 2001 is that the third party liability provisions for financing terrorism are not extra-territorial under UK law, and that is correctly so. It is probably too difficult to try to go after bankers in the Middle East. You want to try and focus on people in the UK and co-ordinate through EU Member States. The UK could amend the legislation and make it more extra-territorial regarding people abroad who are facilitating financial transactions with so-called terrorist groups, but they would want to co-ordinate that with other countries and do it in a multilateral fashion. The US has not really done that. The US did give British pressure to designate the Real IRA and some of the other Irish terrorist groups as terrorists under US law, but there was some political resistance towards that.

  Q87  Lord Oakeshott of Seagrove Bay: That is why they will not ratify the current treaty in the Senate, which is the whole NatWest case. That is why it is so outrageous. There is no suggestion there of terrorism, as far as we know. It is extraordinary.

  Dr Alexander: Exactly.

  Q88  Chairman: Has everybody finished? Sir, it has been a fascinating exposition and I am very grateful to you for coming along and talking to us and helping us at this relatively early stage in our inquiry. We are very grateful indeed to you, thank you very much.

  Dr Alexander: Thank you very much, my Lord Chairman.

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