EU shifts tactics to bolster Iran sanctions

The Wall Street Journal

BRUSSELS—The European Union is moving to a new approach in reinforcing its Iran sanctions regime in a bid to prevent legal challenges by companies from undermining the West's efforts to counter Tehran's nuclear program.

In recent weeks, the EU has informed more than a dozen companies with ties to Iran that have won rulings against previous restrictions that it plans to target them with new sanctions, an EU official said.

The notices to the companies mark the first attempt in a broader effort to shore up economic sanctions against Iran after a raft of defeats in European courts last month. Although the EU can still challenge many of the rulings before the EU's top court, European officials have voiced concern that the prospect of additional legal defeats could further weaken the sanctions strategy.

Western diplomats have credited the tighter EU restrictions on Iran's financial, energy and shipping industries since 2010 as playing a key role in forcing Tehran back to the negotiating table over its nuclear activities. Talks with Iran are set to continue Nov. 7 in Geneva and hopes have grown of a possible breakthrough since the June election of President Hasan Rouhani.

EU officials say the measures are intended to safeguard its existing sanctions regime to maintain leverage with Tehran and aren't aiming at expanding it. But the move comes at a sensitive time: In the U.S., the Obama administration is pressing Congress to hold back on additional sanctions against Iran, arguing that diplomatic efforts need more time to contain Tehran's nuclear program and that further moves could undermine Mr. Rouhani's ability to negotiate.

Among the letters the EU recently sent to more than a dozen firms with ties to Iran was one to London-based Persia International Bank PLC. EU officials stated they would return the bank to the bloc's sanctions list, according to the Oct. 10 letter, which was reviewed by The Wall Street Journal.

The bank won a legal challenge Sept. 6, when the EU's second-highest court ruled that the EU had erred in sanctioning the firm on the basis that 60% of its share capital was owned by the already-sanctioned Bank Mellat, Iran's largest private bank. In its ruling, the court said this fact alone didn't "justify the adoption and/or maintenance of the restrictive measures."

In its letter to Persia International Bank, the EU said it intended to place the bank on its sanctions list on the basis that it is fully owned by two sanctioned banks—Bank Mellat and Bank Tejarat.

In recent days, the EU also has written to Islamic Republic of Iran Shipping Lines, or IRISL, a lawyer for the firm confirmed. On Sept. 16, the EU's General Court ruled there was too little evidence linking IRISL to Iran's nuclear program.

Maryam Taher, of M. Taher & Co Solicitors who represents IRISL, said the letter informed the company that it would be placed on the sanctions list on new grounds: The EU claimed "clear violations" of a 2007 United Nations Security Council resolution that included provisions against shipping arms from Iran, she said.

The EU also informed Good Luck Shipping Company LLC, a Dubai-based shipping agency, that it would be placed again on the sanctions list as an agent for Hafiz Darya Shipping Lines, "a designated entity acting on behalf of IRISL," said Ms. Taher, who also represents Good Luck Shipping.

Whether the new sanctions approach succeeds is far from certain. The redesignation of Persia International Bank could prove short-lived if the EU's top court upholds Bank Mellat's successful challenge to the sanctions in the General Court. Bank Mellat has also won a separate case in the U.K.'s Supreme Court against U.K. sanctions.

Richard Blakeley, a lawyer representing Persia International Bank said the EU sanctions are "unlawful, unfair and are causing significant damage to the bank's business and reputation."

As for IRISL, Ms. Taher said the effort to pin new sanctions on the alleged U.N. violations comes though the U.N. has never sanctioned the company. She said the EU also was on shaky legal ground in seeking to relist Good Luck Shipping as an agent of IRISL, given the latter had successfully challenged its own place on the EU sanctions list.

Maja Kocijancic, a spokeswoman for EU foreign policy chief Catherine Ashton, declined to comment on the EU measures other than to say that "the work on remedial action [to maintain sanctions] is ongoing."

Since July 2010, the EU has imposed wide-ranging nuclear-related asset freezes and travel bans on roughly 500 Iranian citizens and companies, helping slash Iranian oil exports. They also ban European companies doing various kinds of business with Iran and have forced many of Iran's European based banks and other firms to effectively shutter their businesses.

But EU courts have upheld companies' challenges to the Iran sanctions on a variety of grounds, including failure to provide sufficient evidence of a person or company's connection to Tehran's nuclear activities and refusal to provide defense lawyers with enough details of the case against them.

The Wall Street Journal reported last month that under pressure from the U.S., the EU had been looking at various ways to reinforce the sanctions regime. One option was to offer new evidence against the companies or to find a way of relisting them under alternative sanctions. A more ambitious approach considered included a complete overhaul of the sanctions regime, in which broad sectors of the Iranian economy would be targeted instead of individual people and companies.