The Financial Secretary to the Treasury (Mr Mark Hoban)
I beg to move,
That the Financial Restrictions (Iran) Order 2011 (S.I., 2011, No. 2775), dated 21 November 2011, a copy of which was laid before this House on 21 November, be approved.
Today I seek the support of the House for the financial restrictions measures against the Iranian banking sector that the Chancellor announced on 21 November. The Government have taken decisive action to respond to a significant threat against UK national interests by putting a stop to all business between UK financial institutions and those in Iran. The Treasury has laid the Financial Restrictions (Iran) Order 2011 before Parliament under the power in schedule 7 to the Counter-Terrorism Act 2008. This order contains restrictions requiring UK credit and financial institutions to cease business relationships and transactions with all banks operating in Iran, including their branches and subsidiaries, and with the Central Bank of Iran.
I turn first to the rationale behind the order. The Government have serious concerns about activity in Iran that facilitates the development or production of nuclear weapons. This concern has been repeatedly raised by the International Atomic Energy Agency, the UN body charged with monitoring Iran’s nuclear activities. Its latest report, in November, highlights its deepening concerns about
“possible military dimensions to Iran's nuclear programme”.
The restriction in the order was made in response to Iran’s nuclear activities, as highlighted by the IAEA, and the urgent calls from the Financial Action Task Force for counter-measures to be taken against Iran. Iran’s nuclear programme poses a significant risk to the UK’s national interests. This order seeks to address that.
Paul Flynn (Newport West) (Lab)
Is there not a danger, if we push Iran too hard, of it expelling the IAEA inspectors from the country? If that happens, instead of acting in the knowledge with which they provide us, we would be acting in ignorance.
Mr Hoban
It is important that we continue the twin-track approach—of engagement and challenge—that the Government have set out and which the previous Government also followed.
The November IAEA report documents Iran’s failure to co-operate fully with the agency and the possible military dimensions to Iran’s nuclear programme. The IAEA reports on Iran’s programme on a quarterly basis, but the November report set out its concerns in the strongest terms to date. It states that information available to the IAEA indicates that Iran has carried out activities relevant to the development of a nuclear explosive device. The report notes that
“while some of the activities identified have civilian as well as military applications, others are specific to nuclear weapons”.
The Government view these developments with the utmost concern.
In response to the November IAEA report, its board of governors issued a resolution expressing “deep and increasing concern” about the possible military dimensions of the Iranian nuclear programme. The board urged Iran to abide by its international obligations and called on it to engage seriously on the nuclear issue. These concerns are of the most serious nature and have far-reaching consequences for the UK’s interests and those of the region. Some 32 of the 35 countries on the board of governors supported the resolution.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
The Minister might be about to answer my question, but what are other nation states doing in response to events in Iran? In particular, I am thinking about UN Security Council members Russia and China.
Mr Hoban
I will outline some of the action taken by several countries to exert pressure on the Iranian regime and to ensure that targeted action is taken to prevent the development of nuclear technology. I shall address some of those issues later.
The case for UK action is also underlined by the recent calls from the Financial Action Task Force for countries to apply effective counter-measures to protect their financial sectors from money laundering and financing-of-terrorism risks emanating from Iran. Those calls were renewed with urgency on 28 October 2011 and noted the taskforce’s particular and exceptional concern about Iran’s failure to address the risk of terrorist financing. It also flagged up its concerns about the serious threat that this posed to the integrity of the international financial system. The taskforce has not expressed such serious and ongoing concerns about any other country.
The UK is leading action against Iran because Iran’s proliferation-sensitive activities pose an ongoing concern for the UK and the international community as a whole. The measure that we have imposed is strong but necessary, and we encourage other countries to take similar tough action. The UK is an important global financial centre, so UK restrictions will have a significant impact on the options available to Iranian banks. That will make it more difficult for Iranian banks to use the international financial system in support of proliferation-sensitive activities and protect the integrity of the UK financial sector. Other countries share our and the taskforce’s concern about Iran’s nuclear activities.
Mr Straw
I sought to intervene on the Minister when he started talking about other countries. One of the things that slightly surprise me about this measure, whatever its merits, is that only two other countries supported it, which left us rather isolated and an easy target for the thugs in Tehran. Why did the Government not discuss and then take steps to agree with as many European Union partners as possible a similar measure in advance of this measure being promulgated?
Mr Hoban
Given the UK’s importance as a financial centre and its interconnectedness, there was an opportunity to act to close down opportunities for banks in Iran to use our facilities. The other point is that on the day that we announced our measures, President Sarkozy wrote to us supporting our financial sanctions and also proposing sanctions on oil. There will be a further debate in the European Union about that next month at the Foreign Affairs Council, where we will push this issue further. We are working in concert, not just with our European allies but with the US and Canada, as I have said. Indeed, the EU already has strong financial sanctions in place against Iran, and introduced asset-freezing measures and travel bans against 180 Iranian individuals and entities at the beginning of this month. The EU is considering taking further measures to implement that, and we will be pushing our partners to take strong measures too.
Mr Straw
I am grateful to the Minister for giving way, but with great respect, I am still rather perplexed. We are members of the EU, and although I am aware of the individual-specific action that the EU is taking, that is different from the measures in this order. What I simply do not understand, just to repeat the point, is this. Whatever the merits of this measure, the manner of its introduction must leave us very isolated and exposed. Why was there such a hurry? Was it because of an American timetable, or was there some other, more commendable reason for doing it in advance of getting what I would have thought the Minister might judge to be a significant number of other nations alongside us and then making a co-ordinated announcement?
Mr Hoban
The Government bore in mind when making their decision the strong concerns raised by the IAEA in its November report. Indeed, the way in which it expressed them marked a step change in its level of concern compared with previous quarterly reports. The increase in concern on the part of the Financial Action Task Force about how financial systems could be used to finance terrorist acts or in other areas led to the Government’s decision to move, which was an important thing to do. It is a proportionate response to the risk posed by Iran to require the UK financial sector to cease all business relationships and transactions with the Iranian banks and their branches and subsidiaries, including the Central Bank of Iran.
Mr Ben Wallace (Wyre and Preston North) (Con)
Can my hon. Friend perhaps answer a technical question relating to the Treasury’s responsibilities? Is the United Kingdom in the correct legal position unilaterally to stop banks being used in trade with Iran, or could we find UK companies that abide by the European Union ruling or law, which still allows that, taking the UK Government to court to allow them to continue using those banks?
Mr Hoban
We are acting under powers that were put on the statute book by the previous Government. My hon. Friend will be aware that there is a licensing regime in place, and some licences have already been issued on a general basis—there are applications that I shall perhaps turn to a little later when dealing with specific examples. Permission has been given on a general basis to enable transactions to be completed, for example, so there is a regime in place. However, if my hon. Friend has particular concerns, I would encourage him to engage with Treasury officials to take them forward. I know that my hon. Friend, as chairman of the British-Iranian all-party group, has a clear interest in this subject. If there are particular concerns of which businesses are aware, I encourage them to talk to us about them.
Jeremy Corbyn (Islington North) (Lab)
The Minister has been speaking for about 10 minutes, during which he has come from expressing concerns about Iran’s nuclear activities to discussing financial regulations. He would, however, recognise that Iran remains a signatory to the nuclear non-proliferation treaty. Does the Minister not think that a serious diplomatic initiative by all members subscribed to the nuclear non-proliferation treaty would be a more fruitful way of dealing with the issue, rather than descending to what some of us fear will be a much more serious situation, including possible military conflict with Iran?
Mr Hoban
The purpose of the order is not to enable debate of the broader issues of engagement with Iran, but to put in place financial restrictions against Iran. As I said earlier, there is a twin-track approach of both engagement and sanctions, where appropriate. That is what we are doing. I think we would all want Iran to come back and engage in this process; we need to find a mechanism for that to happen.
Let me return to explaining why we have imposed the restrictions in the order. Iranian banks play a crucial role in providing financial services to individuals and entities within Iran’s nuclear and ballistic missile programmes. Many Iranian banks have already been sanctioned by the UN and the EU for their role in Iran’s proliferation-sensitive activities. However, experience under existing financial sanctions against Iran demonstrates that targeting individual Iranian banks is no longer sufficient. Once one bank is targeted, a new one can step into its place.
Taking this action will also protect the UK financial sector from the risk of being used unwittingly to facilitate activities that support Iran’s nuclear and ballistic missile programmes. As I said to the hon. Member for Islington North (Jeremy Corbyn), the action is in line with the Government’s dual-track strategy of pressure and engagement with Iran. The aim of the pressure track is to encourage Iran to begin serious and meaningful negotiations.
Let me explain the specifics of the order. It was made under schedule 7 to the Counter-Terrorism Act 2008, which provides the Treasury with the power to give a range of restrictions to UK credit and financial institutions in response to certain risks to the UK national interest. The power enables the Treasury to respond to proliferation risks, money laundering and terrorist-financing risks, or where the Financial Action Task Force calls for counter-measures. The restrictions in the order sit alongside sanctions already imposed on Iran by the UN and the EU, but go further, as they prohibit additional activities.
The restrictions came into force at 3 pm on 21 November 2011; shortly after that, the Treasury published a series of documents on its public website to alert the financial sector to the restrictions and to provide detailed guidance on their implementation. Those documents were also e-mailed to more than 13,000 subscribers to our e-mail alert system. In previous debates on these measures, one concern raised by the Opposition was about how we ensure that people are made aware of the restrictions.
Mr Hoban
I want to make some progress. This is a time-limited debate, and in looking at the number of Members present on both sides of the House, I am conscious that others wish to participate.
The Treasury asked various supervisors, including the Financial Services Authority, Her Majesty’s Revenue and Customs and other Government organisations, to publicise the restrictions and to provide information to firms on the requirements associated with them. Alongside the order, we published six general licences exempting specific activities from the restrictions. Those general licences enable credit and financial institutions with existing business relationships or transactions with the entities concerned to manage the cessation of business in an orderly and controlled way. The licences permit the provision of financial services for humanitarian purposes and of personal remittances between individuals here and in Iran. Further licences, whether general or individual, may be granted by the Treasury to manage the impact of the requirements on third parties. This approach is similar to that used in asset-freezing measures.
The restrictions apply requirements to persons operating in the UK financial sector, including FSA-authorised firms, money service businesses and insurers. Firms are required to establish whether any current or future business relationships or transactions are affected and comply with the requirements of the restrictions. Although the restrictions are given only to the financial sector, they will make it more difficult for other companies to trade with Iran. The UK Government actively discourage trade with Iran, and UK trade with the country has declined by 46% during the first eight months of this year in comparison with the same period in 2010.
As I said to my hon. Friend the Member for Wyre and Preston North (Mr Wallace), companies affected by the restrictions can apply for a licence of exemption, and we are willing to grant licences where UK companies are owed money under existing contracts that can only be paid via an Iranian bank to the company’s UK account. We will examine applications on a case-by-case basis.
The use of existing procedures means that firms will already have in place systems to meet obligations relating to financial sanctions and anti-money laundering, which should assist in minimising the burden of compliance with the restrictions. All institutions operating in the UK financial sector will need to ensure that they do not undertake new transactions or enter into new business relationships with any bank incorporated in Iran, including the central bank, and branches or subsidiaries. It is expected that compliance costs for the sector as a whole will be moderate, although any institution with significant business relationships with an Iranian bank will face higher costs.
Supervision of compliance with the restrictions will form part of the existing supervisory regime of entities such as the FSA, Her Majesty’s Revenue and Customs, the Office of Fair Trading, and the Department for Enterprise, Trade and Innovation in Northern Ireland. It is an offence to fail to comply with the requirements of the direction or intentionally to circumvent the requirements. Breaches may be subject to civil penalties imposed by supervisors, or to criminal prosecution. The maximum criminal penalties are: a fine not exceeding the statutory maximum, £5,000, in the magistrates court; or two years’ imprisonment or an unlimited fine in the Crown court. Those penalties are equivalent to those for breach of other financial sanctions regimes such as the EU asset-freezing regime in relation to Iran. The financial services sector takes very seriously the implementation of restrictions and sanctions, and takes steps to ensure its compliance with any restrictions.
To conclude, the order was issued by the Government to respond to the severe risk that Iran’s nuclear activities pose to the UK national interest. The measure is strong but necessary. Iran’s proliferation-sensitive activities are a serious and ongoing concern for the UK and the international community as a whole. It is vital that we continue to take steps to increase pressure on the Iranian regime and encourage Iran back to the negotiating table to find a diplomatic solution. For those reasons, I commend the order to the House.
Mr Deputy Speaker (Mr Nigel Evans)
I remind the House that the debate can continue until no later than 6.48. After the shadow Minister has finished speaking, Members will wish to do the maths in their heads to divvy up the time. If they do not do so, in the spirit of Christmas, a time limit will be introduced.
Mr Hoban
This has been an interesting and wide-ranging debate. As anyone listening to it will have recognised, there is a range of views about Iran and how the UK should engage with it, but there is also the common strand that everyone expressed—our concern about the proliferation of nuclear weapons and how we seek to tackle that.
In response to my hon. Friend the Member for Basildon and Billericay (Mr Baron), I say that we all want to see a diplomatic solution, but we need a process whereby there is not only engagement but pressure on the Iranian Government. At the moment, unfortunately, there are no signs to suggest that the Iranians are interested in meaningful and serious negotiations on the key issue of their nuclear programme, and it does take two parties to engage. The E3 plus 3 has been trying to negotiate with Iran, and it is not that group’s fault that the negotiations have not yet succeeded. It is Iran that needs to engage in serious negotiations.
Let me reflect on some of the comments that have been made. The right hon. Member for Blackburn (Mr Straw) and my hon. Friend the Member for Wyre and Preston North (Mr Wallace), who are co-chairmen of the all-party group on Iran and are currently at one of its meetings, asked about support for the action that the Government have taken and why we did not act in concert with EU member states. It is worth highlighting two points in that regard. We have undertaken a significant programme of lobbying internationally and continue to do so. As I said earlier, the US and Canada acted alongside us in imposing the sanctions on 21 November. However, there is a balance to be struck. Clearly, we want to encourage as many people as possible to join with us to impose these sanctions, yet at the same time there is a real sense of urgency on this issue. The risk of Iran acquiring a nuclear weapon becomes more serious as time passes, as was highlighted in stark terms by the IAEA report. We consider it imperative to act now and to encourage others to follow.
Mr Hoban
I want to make progress and conclude fairly promptly because there is a time limit on this debate.
We will engage with our European counterparts at the Council meeting next month. As I said, President Sarkozy wrote to us supporting moves for financial sanctions but also suggesting broadening them to the import of oil.
Let me turn to the points raised by the hon. Member for Nottingham East (Chris Leslie). I have dealt with his first point about putting pressure on other countries to act. His second point was about whether the UK will use significant fines to promote enforcement. As I said earlier, the civil and criminal penalties for breaching these restrictions enable the authorities to levy unrestricted fines. In the context of the civil sanction, for example, the fine should be proportionate, effective and dissuasive. I believe that the authorities take this matter seriously and will act proportionately to that.
The hon. Gentleman asked about exemptions, which relate to the licensing process that we have talked about in other situations. Some general licences are in place to deal with transactions that are already in progress. People can also apply for specific licences. Fifteen specific licences have been applied for; one has been granted and 14 are in the process of being considered. This is an ongoing process. I hope that that also addresses the point raised by my hon. Friend the Member for Wyre and Preston North.
We are committed to reporting regularly to Parliament. The Counter-Terrorism Act 2008 says that we should report as soon as possible after the calendar year in which the actions have been taken. We will endeavour to do so, and we will keep the House informed about the progress that is made.
Everyone across the House recognises the dangers that attach to nuclear proliferation. This is a process of negotiation and diplomatic engagement. We need the other party to engage in that diplomacy, too, but we should not be afraid of applying pressure to the Iranian regime where we think that that is appropriate and proportionate and will help to further our objective of keeping the world a safer place. I commend the motion to the House.
Question put and agreed to.
Resolved,
That the Financial Restrictions (Iran) Order 2011 (S.I., 2011, No. 2775), dated 21 November 2011, a copy of which was laid before this House on 21 November, be approved.