Short-Circuiting Sanctions

E.U. courts overturn sanctions on Iranian banks

Iranian President Mahmoud Ahmadinejad shakes hands with deputy leader of Lebanese Hezbollah / AP
February 6, 2013

European Union courts have quietly rolled back economic sanctions on several Iranian banks that have long been suspected of transferring funds to terrorist groups such as Hamas, Hezbollah, and Palestinian Islamic Jihad.

The Wednesday announcement of the removal of Iran’s Bank Saderat from the E.U.’s sanctions list has caused concern among experts and some on Capitol Hill who warn the E.U.’s decision could erase years of progress on the economic sanctions front.

Bank Saderat is at least the third Iranian bank to have won an E.U. sanctions reprieve since December.

An E.U. court recently ruled that the sanctions against Bank Saderat were "illegal" and ordered they be removed, according to reports in Iran’s state run media.

"The General Court of the European Union consequently ruled that the sanctions imposed against the Iranian bank were illegal and accepted the bank’s request to lift the restrictions," Iran’s Press TV quoted the bank as saying in a statement.

Western sanctions experts dubbed the move as dangerous.

"This is doing serious damage to the sanction regime that the U.S. has painstakingly assembled over the last several years with the goal of rolling back Iran’s ability to leverage its financial institutions for its nuclear program, as well as its ability to finance terrorist organizations across the world," said Jonathan Schanzer, a former terrorism finance analyst at the Treasury Department.

"The timing of this is particularly strange given the report issued yesterday about the Bulgaria bombing," added Schanzer, currently vice president of research for research at the Foundation for Defense of Democracies. "Just as the Europeans are acknowledging Hezbollah’s role in attacking a target in Europe, the Europeans end the sanctions on a bank known to finance Hezbollah. Moves like this will kill the sanctions regime."

Iran’s state-run media reported European lawyers attempted to ensure the bank, one of Iran’s largest, remained blacklisted.

"The E.U. court ruling in support of Bank Saderat came despite the extensive efforts made by the union lawyers and legal advisors to maintain the sanctions," Iran’s state-controlled Fars News Agency reported Wednesday.

Saderat was initially sanctioned during the George W. Bush administration in 2006.

"Bank Saderat facilitates Iran's transfer of hundreds of millions of dollars to Hizballah and other terrorist organizations each year," said Stuart Levey, former under secretary for terrorism and financial intelligence, in a 2006 Treasury Department press release. "We will no longer allow a bank like Saderat to do business in the American financial system, even indirectly."

Additionally, Iran's Bank Mellat won an appeal last week in a European court, which agreed sanctions imposed against it were unwarranted, according to reports.

Sanctions were initially imposed on the bank by the E.U. in 2010 on the grounds that the financial institution was "facilitating Iran's nuclear program," according to Fox Business.

The E.U. lifted sanctions on a third Iranian bank in December, according to Fars.

The European Union's highest judicial authority also overturned sanctions against Iran's Bank Sina in December.

"On Dec. 11, E.U. court judge Irena Pelikanova (from the Czech Republic) informed the E.U. and Sina Bank lawyers of the verdict she issued after 20 months of precisely studying the causes of the sanctions against the bank and the documents presented at court's hearing sessions," said Sina’s managing director Abdolnasser Hemati, according to Fars.

The removal of the E.U.'s sanctions could allow these banks to continue bankrolling Tehran's illicit activities, experts warned.

"The European Union had levied sanctions back in 2008 against Bank Saderat and Bank Melli because of their involvement in Iran's proliferation activities," said Michael Rubin, a former Pentagon adviser on Iran and Iraq. "The sanctions had been effective. The court's decision to lift the sanctions—if obeyed—would pump adrenalin into Iran's nuclear program and hasten conflict."

Bank Melli remains under sanctions.

The E.U. rollback also reveals Europe’s hesitance to take a consistently tough stance against terror, Rubin said.

"The irony here is that the European Union for years refused to categorize Hezbollah as a terrorist group because it believed Hezbollah's PR and denied proof of Hezbollah's terror culpability," he said. "That might change because of the Hezbollah attack in Bulgaria. What the E.U. court is signaling is that it will accept no proof unless innocents die."

One senior congressional GOP aide who tracks sanctions called the decisions by E.U. courts "troubling."

"It's a very troubling development that we have been tracking closely—the Obama administration has long resisted congressional calls to simply blacklist Iran's entire financial sector but the E.U. developments might force our hand," said the aide.

Vice President Joe Biden, meanwhile, has raised the possibility that the U.S. could soon negotiate directly with Iran over its nuclear program.

Obama administration critics argue that moves such as this are also undermining Western sanctions.

"The more this [sanctions] thing becomes clearly a fools errand, that they’re not going to be actually preventing the bomb from getting into the Iranians hands, we’re going to see intensifying pressure to cut deals and do separate peace agreements with the Iranians," said Frank Gaffney, a former deputy assistant secretary of defense in the Reagan administration.

"This is part of the trend that will accelerate in the future," added Gaffney, who is now the director of the Center for Security Policy.