US Extraterritorial Jurisdiction (British Foreign & Commercial Policy)

Ben Wallace Excerpts

Wednesday 26th March 2014 Westminster Hall

[Mr Ben Wallace (Wyre and Preston North) (Con)]

I congratulate the right hon. Member for Blackburn (Mr Straw), my neighbour in Lancashire, on securing the debate. I am delighted to focus on the issue of extraterritorial sanctions. I recognise that this behaviour is a growing trend. It often emanates not from the US Executive, but from Congress, whose members would say in their defence, “It’s not our business how our laws and sanctions impact on other people. This is what I, as a US law maker, have a responsibility to my constituents to do.” However, we live in a globalised world; we live in a world of international trade; and we live in a world in which we are supposed to respect the international rule of law and trade deals.

I want briefly to take this back. It is not just about Iran. I want to take it back to Cuban cigars. I like a Cuban cigar from time to time, and many hon. Members may remember that in 1992 the United States passed the Cuban Democracy Act, which was followed closely by the Cuban Liberty and Democratic Solidarity Act. One might think that came from the Greater London council and Ken Livingstone, judging by its title. The effect of that legislation was to make anybody—US citizen, EU citizen or anyone else—who was involved in the trafficking of Cuban products guilty of an offence and prosecutable in the United States, or even to bar them from going to the United States. That was quite a formidable threat. It meant that an individual selling Cuban cigars in London who had a shop or an entity in the United States might be liable to prosecution. Even if they did not but they took a trip to America, they would be a trafficker of Cuban goods.

The European Union said that that was simply unacceptable and that a British citizen carrying out trade that was lawful under British and European law should not be a victim of such extraterritorial reach. In 1996, the EU passed a directive with the catchy title of Council regulation 2271/96 protecting against the effects of the extraterritorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom. In effect, we are still obliged by the conditions of that regulation. It basically told European Union citizens and member states that, if they complied with an extraterritorial threat from a third country, they would be vulnerable to civil claims from people affected. For example, British banks could be sued by European citizens who were prevented from using their facilities in Iran, Cuba or anywhere else, and the banks would be liable to pay damages.

The regulation covered a number of Acts and it is still in existence today. Funnily enough, it worked. The United States adapted its legislation so that it covered only US citizens. If we were to put it in law, we would be saying, “We, as British law makers, do not really care about what American law makers think; our duty is to our constituents and to the sovereignty of this country, so we will make the decision, thank you very much.” That was in 1996, which was a long time ago. The annex to the regulation contains a list of Acts, and I am sure that, if the European Parliament were so minded, it could add more to that list. One that still resonates today is the Iran and Libya Sanctions Act 1996, which was recently modified to become the Iran Sanctions Act.

Some of those provisions are still in existence and we are still bound by the regulation. Will the Minister tell us why the United Kingdom Government are not enforcing the regulation as they are obliged to? Why are they not saying—perhaps they are—to the US and to third parties, “We are obliged to comply with the regulation, otherwise British banks, businesses and entities will be vulnerable to handing over sums of money to injured parties”?

We need to find a way through. We must speak to the United States and others engaged in such extraterritorial legislation to see whether we can drive a way forward. As far as I am concerned, I will soon be ringing up British banks and saying to them, “By the way, you are covered by this regulation.” I will recommend that anyone who comes to my surgeries invoke the regulation, if relevant legislation is listed in the annex, and seek damages. It is simply not good enough that we should be increasingly prohibited, even when we are doing things that are legal under British and European law and within a sanctions regime, for the sake of some far-off idea of protectionism elsewhere.

--- Later in debate ---

[Mark Simmonds]

As I said in response to the right hon. Member for Blackburn, I do not think we can conflate the issues relating to the complexity of a bilateral trade relationship with alleged extraterritorial US sanctions. Many other issues are at stake—for example, the fact that the UK Government currently do not encourage or provide support for UK companies to trade with Iran. However, where trade is allowed under the existing sanctions regime—for example, within the scope of the humanitarian issues raised earlier, such as medicines and pharmaceuticals—the UK’s trade with Iran has increased by 80% since 2012. Where it is allowed within the sanctions regime, therefore, there is a significant uplift in UK trade.

I want to assure my hon. Friend the Member for Wyre and Preston North that we are implementing the EU regulation. The right hon. Member for Blackburn rightly mentioned the Protection of Trading Interests Act 1980, but that cannot stop the US applying its laws to the US arm of a British multinational company. It stops the enforcement of US sanctions here in the UK, but cannot stop British businesses making commercial decisions on the basis of perceived risks in the United States.

[Mr Wallace]

I am grateful to my hon. Friend the Minister for his clarification. Is he saying that a British bank choosing to trade in euros, and therefore not clearing through the United States, in order to carry out a transaction in correspondence function for an Iranian, Cuban or any other type of entity, based in London, should not fear any US sanctions? Does he also not recognise that, if they do business in euros and there is no transaction that touches the United States, it would be grossly wrong for the United States Administration to have a go at the US entity of the British parent company, because they have not broken any law in the United Kingdom or Europe?

[Mark Simmonds]

The Act to which reference was made—as well as the subsequent statutory orders, most recently updated in 1997—provides measures to protect British companies from the impact of, and prevent them from complying with, US sanctions. Judgments against UK companies that result from such sanctions, in the way that has been described, cannot be enforced in the UK. That sends a signal to the US that the EU is opposed to such an approach to sanctions.

What both the right hon. Gentleman and my hon. Friend the Member for Wyre and Preston North have described is a result as much of perception as of legal issues. It is true that all UK banks must ensure that they are taking a risk-based approach to transactions, and that they comply with relevant anti-money laundering and sanctions legislation. EU sanctions law does permit avenues through which certain types of key transactions with Iran can be made legitimately. Her Majesty’s Treasury works very closely with the financial sector to ensure that it is clear about applying for licences and authorisations that allow legitimate financial transactions involving Iran, particularly in the sphere of humanitarian trade, where the limit has recently been increased tenfold, since the agreement on the joint plan of action.

I am coming towards the end the time allotted for the debate, so I want to reiterate that our best approach must be to work with the US and others in seeking to minimise conflicting approaches. Although our objectives on particular policy issues vary on occasion, in most cases any difficulties arise from different regulatory approaches—we have similar objectives. That does not imply any loss of sovereignty: it is a clear UK foreign policy position.