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Mixed Scorecard for Recent Legal Challenges to Iran Sanctions

Targeted economic sanctions became a central issue during recent negotiations in Geneva over Iran’s nuclear program.  While future negotiations may alleviate some sanctions, U.S. legislators are proposing to strengthen the current sanctions regime.  Despite their likely continued use, sanctions themselves remain a contested policy tool.  In addition to debates about their efficacy, sanctions can, and have, been challenged in courts.  The proposition that any sanctions framework should be able to sustain legal challenge is a reasonable one.

Recently, several legal challenges to sanctions against Iranian-affiliated entities were decided in the United Kingdom, the European Union’s General Court, and the United States.  Their divergent results may create a policy problem for the United States and its allies as they attempt to promote a common framework against Iran’s alleged nuclear weapon development program.

In the United Kingdom, the Supreme Court rejected the British government’s case against an Iranian bank.  The June 19, 2013, decision in favor of Bank Mellat represented a major setback for the U.S.-driven policy against Iran.  The court raised concerns about the sufficiency of links between Bank Mellat and Iran’s nuclear program.

Banks play a pivotal role in denying Iran access to global financial markets.  The current sanctions regime in place against Iran depends on the cooperation of private entities and foreign governments for enforcement.  Whether this case and a related European Court of Justice terrorism financing decision will “imperile the very concept of targeted global financial sanctions” is unclear.  Nonetheless, this outcome by a British court does present an obstacle for a unified U.S.-European approach to Iran sanctions.

A European Union court also rejected sanctions against Iran’s Bank Saderat in February 2013.  The court noted that the “EU had failed to provide sufficient evidence that Bank Saderat was involved in Iran’s nuclear program.”

European officials are reviewing their options at this point.  While these bank cases have been challenged, other industries like shipping, oil, and insurance are still subject to sanctions.  Most recently, EU officials sent letters to the Islamic Republic of Iran Shipping Lines (IRISL) and its subsidiaries, indicating that they may re-impose sanctions.

If such sanctions were to proceed, they would be implemented in spite of the European Union General Court’s recent findings of insufficient links between the IRISL and Iran’s nuclear program.  This similar rationale to the British Supreme Court’s decision for Bank Mellat may signal a trend of European courts in raising the evidentiary standard to uphold a given sanctions program.

However, all is not lost for the U.S. government’s sanctions effort.  Unlike the outcomes in Europe, a federal judge granted the U.S. government’s motion for summary judgment in a civil asset forfeiture proceeding against an Iranian government-owned building in New York City.  The ruling in September 2013 allows the U.S. government, along with victims of Iranian-sponsored terror attacks, to collect funds from the proceeds of the building’s sale.  Importantly, this case predates the implementation of sanctions in Europe against Bank Mellat, Bank Saderat, and IRISL. Yet, the outcome creates another point of leverage in the ongoing negotiations between the United States, its allies, and Iran.


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