How Brussels’ sanctions could bleed Britain dry

London is at risk of another blow from Brussels. Currently, the UK Supreme Court is hearing a sanctions case involving the Iranian Bank Mellat, which could prove pivotal in the on-going controversy surrounding the many Russian companies and individuals subject to financial restrictions.

Acting at Brussels’ behest and under the Counter Terrorism Act of 2008, the Treasury blacklisted the Iranians for their alleged role in furthering Teheran’s nuclear ambitions. As a direct result, UK financial institutions were prohibited from doing business with the lender. Irked by this development, Bank Mellat challenged the decision both with the Luxembourg-based European Court of Justice (ECJ) and Britain’s Supreme Court – and won. In both cases, judges agreed that there simply wasn’t enough evidence to back up claims that the Bank had actively supported the controversial Iranian nuclear programme. While giving his ruling, Lord Sumption deemed that the Treasury acted in an “irrational” and “disproportionate” way and therefore Bank Mellat was “not in a position to defend itself against the Treasury’s allegations”.

In February 2014, riding high on the string of favourable decisions it had under its belt, Bank Mellat sued London again, this time demanding £2.3bn in compensation for the losses it incurred following the “negligently” imposed sanctions of 2009. The case is still pending, but if the courts find the Treasury guilty, Mr. Cameron would be in quite a pickle. How will he explain to British taxpayers that legal shenanigans prompted by Brussels’ wrongful decisions to sanction foreign entities will now deprive them of billions of pounds? How will the public react upon hearing that British money is being used to prop up the flagging bottom line of an Iranian bank?

Making matters worse, a win for Bank Mellat would open the floodgates for similar claims from the many Russian companies and prominent individuals that are currently featured on the long-touted European sanctions list. Meant to punish Russia for the “illegal annexation of Crimea and deliberate destabilization of Ukraine”, the sanctions were spearheaded by Brussels with the similar disregard for the legal implications that might arise if these actors were ever to argue that their fundamental rights have been breached.

Since the ECJ has a well-established judicial penchant for tearing European sanctions because of Brussels’ refusal to present evidence to back up its claims (like in Bank Mellat’s case), many Russians have already taken the Union to court. Rosneft, a handful of Russian banks, and Arkady Rotenberg, a businessmen and Vladimir Putin’s judo sparring partner, have already done so. In a sign of things to come, Rosneft has already hired the London-based Zaiwalla & Co law firm, the same one that represented Bank Mellat in its trials and tribulations with the European justice system. For their part, Rotenberg’s lawyers allege that the Russian is wrongly accused of owning shares in a company involved in the building of a bridge between Russia and Crimea. If true, this revelation would seriously damage the credibility of the European sanctioning mechanism.

Looking at the details of the case and at the Court’s previous track record, it is likely that the judges will rule in their favour. Brussels will have a hard time defending its double stance of sanctioning actors deemed “responsible for destabilizing Ukraine” while refusing to present the evidence that backs up its claims. Moreover, as Bloomberg’s Carol Matlack argued, it is unclear “how the EU would link the companies to Russia’s actions in Ukraine”.

It has become an oft-repeated trope to say that the vast scale of Russian investment in the City has earned London the nickname of Londongrad. Therefore, because of its £27 billion exposure to Russian assets, the UK could easily become a target for those who have managed to fight off EU sanctions. Departing from the Mellat case, national courts would be able to force the government to pay billions in reparations for the damages such individuals and companies incurred. What’s more, they would be well within their rights to do so if the ECJ finds that they were wronged at the hand of Brussels’ faulty reasoning and self-imposed secrecy when passing sanctions.

Apart from clamouring over the Commission’s demands for the extra £1.7 billion, Mr. Cameron should also extract guarantees from Brussels and shield the UK from the tidal wave of litigations looming over London’s head as a direct result of the Union’s flawed sanctions regime. Otherwise, all his savoury piques of standing up for Britain in the face of the intrusive and overbearing European Union, would have been for nothing.

© 2014 The Spectator