Schedule 7 to Counter-Terrorism Act 2008 (Annual Report to Parliament)

Tuesday 7th June 2011 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

This report sets out details of the Treasury’s exercise during the calendar year 2010 of their functions under schedule 7 to the Counter-Terrorism Act 2008. Paragraph 38 of schedule 7 requires the Treasury to report to Parliament after each calendar year in which a direction under the powers is at any time in force.

The schedule 7 powers

Schedule 7 provides HM Treasury with powers to implement a graduated range of financial restrictions in response to certain risks to the UK’s national interests. The risks it addresses are those posed by money laundering, terrorist financing, and the proliferation of chemical, biological, radiological and nuclear weapons.

Direction given under the powers in schedule 7

The Iran (Financial Restrictions) Order 2009 (“the Order”) came into force on 12 October 2009. The order contained a direction by HM Treasury requiring persons operating in the financial sector to cease business relationships and transactions with Bank Mellat and Islamic Republic of Iran Shipping Lines (“IRISL”).

The direction was given on the basis that activity in Iran that facilitates the development or production of nuclear weapons poses a significant risk to the national interests of the UK. Bank Mellat had provided banking services to a UN proscribed organisation connected to Iran’s proliferation sensitive activities, and been involved in transactions related to financing Iran’s nuclear and ballistic missile programmes. Vessels of IRISL have transported goods for both Iran’s ballistic missile and nuclear programmes.

The order was approved by the House of Commons on 28 October 2009 and by the House of Lords on 2 November 2009.

The direction was in force for a period of 12 months from the day on which the order was made, and expired on 9 October 2010, in accordance with paragraph 16 of schedule 7. A further direction was not given on its expiry because the European Council, in Decision 2010/413/CFSP of 26 July 2010 (“the Council Decision”) had imposed restrictive measures against Iran, including designating both Bank Mellat and IRISL (among other entities) for an asset-freeze.

The asset-freezing provisions of the Council decision were implemented by Council Implementing Regulation (EU) No 668/2010 on 26 July 2010. The effect of the designation is that all funds and economic resources owned or controlled by Bank Mellat or IRISL in the EU were frozen with immediate effect, and it is prohibited to make funds or economic resources available to either entity. On 27 October 2010 Council Regulation (EU) 961/2010 came into force, implementing the additional financial restrictions contained in the Council decision, including a ban on providing insurance to Iranian persons.

Bank Mellat challenged the order in November 2009. The order was upheld by the High Court on 11 June 2010. Bank Mellat appealed to the Court of Appeal, which dismissed the appeal on 13 January 2011. Bank Mellat have been granted permission to appeal to the Supreme Court.

IRISL also challenged the order in early 2010. In March 2011 IRISL withdrew their challenge (which had been stayed pending the outcome of proceedings in the Commercial Court).

Licensing

Under paragraph 17 of schedule 7, the Treasury can exempt acts specified in a licence from the requirements of a direction requiring the cessation or limiting of transactions or business relations.

In operating the licensing regime in respect of the order, the Treasury’s aim was to minimise the impact of the restrictions upon innocent third parties, without compromising the objective of the direction. Licences were considered on a case-by-case basis.

The Treasury issued three general licences:

General licence 1 concerned the holding of accounts and funds of designated persons;

General licence 2 concerned payments to designated persons due under prior contracts; and

General licence 3 provided a seven-day grace period for the provision of insurance to designated persons, after which the prohibitions would apply.

Applications were made to the Treasury on a case-by-case basis for Acts not covered by any of the general licences. Between 12 October 2009 and 9 October 2010, 135 licence applications were received. Of these, 101 licences were granted and five applications were refused. The other 29 applications were either duplicate applications or for acts that did not require a licence.