US Extraterritorial Jurisdiction (British Foreign & Commercial Policy)

Mark Simmonds Excerpts

Wednesday 26th March 2014 Westminster Hall

[The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mark Simmonds)]

It is a pleasure to serve under your guidance this afternoon, Mr Davies. I congratulate the right hon. Member for Blackburn (Mr Straw) on securing this important debate and, as always, on the detailed, measured and articulate way in which he set out his case.

Before I get into the granularity of some of the issues that he raises, I want to set out Her Majesty’s Government’s wider approach to tackling extraterritoriality, because it is an important issue. The impacts of extraterritorial application of another country’s domestic laws on UK businesses can be significant and are not always easy to measure or to cost. British Governments of all colours—both the current Government and their predecessor—have maintained their opposition to over-broad assertions of extraterritorial civil jurisdiction, including when the right hon. Gentleman was Foreign Secretary.

It is not that the UK is averse to legislating to regulate extraterritorial activity; we have done so ourselves in certain cases that concerned the actions of British nationals abroad, the most obvious example of which is the Bribery Act 2010. However, the UK has always opposed the exertion of jurisdiction by a foreign country over British nationals or businesses that have little or no connection to that country. In such cases, we consider that the UK or the state on whose territory the activity occurred should rightfully exercise jurisdiction. As the right hon. Gentleman rightly said, that has principally been an issue with regard to the United States. He will be aware, I hope, that the United States Supreme Court is not immune to such arguments, and has stated that

“even where the claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritorial application.”

Successive British Governments have taken an interest in seeking to ensure that US courts do not try to exert jurisdiction over cases that have no substantial links to the United States. Indeed, we have submitted amicus briefs in a number of cases to the US Supreme Court under the so-called alien tort statute, and the right hon. Gentleman may well be aware of the most recent cases involving Rio Tinto and Shell.

It is important to reiterate the importance that the UK Government attach to sanctions. I know that there is cross-party support from Members, including the right hon. Gentleman, for those sanctions. They are an essential tool of foreign policy and provide a means of coercing changes in behaviour, constraining ability to continue to behave in a particular way and signalling collective opposition to the actions of certain states or individuals. It is still Her Majesty’s Government’s view that that is the case, as has been evidenced by the reaction to the events recently in Ukraine.

I turn to Iran, which was the main focus of the right hon. Gentleman’s remarks. The international community has applied significant pressure to the Iranian economy through sanctions, because of the international concerns surrounding Iran’s nuclear programme. International sanctions, particularly the stringent measures put in place in recent years by the US and the EU, have brought Iran back to the negotiating table. I believe that sanctions have, therefore, been proven to be a vital tool in our attempts to resolve the Iranian nuclear question through peaceful means. I will drill down into what that means with specific relation to Iran in a moment.

My hon. Friend the Member for Wyre and Preston North (Mr Wallace) rightly raised the example of Cuba. In the case of Cuba, we and our EU partners have a very different view from the US on how best to engage. The US continues to impose a trade embargo and apply sanctions, but we do not feel that the US approach regarding sanctions is right and we have raised our objections with them. Clearly, however, US policy towards Cuba is a matter for the US authorities and not for the UK Government. Whereas British businesses and banks can trade freely with Cuba, the US has a sanctions regime. Companies must be fully aware of how their business is being transacted. Banks often use the US clearing systems—this goes right to the heart of the point my hon. Friend made—in which case they are subject to US laws. That is not extraterritorial application of the US-Cuban sanctions regime. We have made it clear for some time to British businesses that operate in Cuba that that is a risk that they should look to mitigate.

On the points the right hon. Member for Blackburn made about the impact of sanctions, it is important that the House understands the distinction between what is and what is not extraterritorial in nature. US sanctions impact on all businesses that operate through the US. Companies, including UK companies, that conduct business with sanctioned regimes must therefore ensure that, if their business goes through the US or there is a US link within the transactions, they comply with US law. That applies to Iran, Cuba and other regimes against which the US applies sanctions but the EU does not—for example, Sudan.

[Mr Straw]

I would like to make it clear that the principle of sanctions is not an issue; my concern is about their application. Does the Minister accept that, whichever way we look at the data, one cannot but come to the conclusion that United States practice and the way they pressure British banks is operating more harshly on our banks than on US banks and entities? That is the heart of the matter on which we want to see some action taken by the British Government.

[Mark Simmonds]

I am grateful for the right hon. Gentleman’s intervention, because it leads me on quite neatly to my next remarks. Before I move on, however, I must say that I do not think he can conflate the challenges that some UK banks have—we can come on to the specifics—with the whole range of issues that affect the bilateral trade relationship between the United Kingdom and Iran. For example, banks must consider other aspects in order to comply with regulatory authorities in the UK and the European Union, as well as in the US. Such considerations include anti-money laundering, concerns about counter-terrorism and all the other aspects that banks must consider when assessing risk and ensuring that they comply with the whole package of important regulatory regimes, US or otherwise.

The right hon. Gentleman referred to banks that have fallen foul of the US regime, but those cases concerned not extraterritorial sanctions but transactions that had a connection to US territory. The allegations were that the banks had directly violated US law by conducting business with Iran from the United States, and it is correct that those banks should respond to allegations that they have broken US regulations within US territory.

I want to move on to secondary or extraterritorial US sanctions, which are at the heart of the thrust of the right hon. Gentleman’s remarks. Along with the European Union, we have taken steps to protect UK companies from such extraterritorial jurisdiction. The key to our approach to Iran is that our sanctions are so closely aligned with those of the US that the scope for such jurisdictional conflict is small. As I mentioned, we recognise the importance of US and EU sanctions in bringing Iran to negotiations.

[Mr Richard Bacon (South Norfolk) (Con)]

I must say that I am rather disappointed with my hon. Friend the Minister’s response—I was hoping it would be rather more Thatcherite, if I can put it that way. It seems that the right hon. Member for Blackburn has a valid point: US trade with Iran is going up and British trade with Iran is being adversely affected. If that is happening, it is possible that the US intends that to happen. Will the Minister address that point?

[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.