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THE ILLEGALITY OF US SANCTIONS

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By John Helmer, Moscow

In 1487, when Edmund Duke of Edinburgh, aka the Black Adder, wanted to strike fear into the English royal court, and also the Spaniards, he called his valet to dress him in his Russian codpiece.

Do I need to tell the young girls and boys in charge of war in Washington, DC, just how big the Russian codpiece was back then? Are they so mesmerized by its size today they believe the law is on their side when they try to strike back? If so, girls and boys, you have an unsavoury surprise coming – and I’m not referring to what will happen if the codpiece comes off.

According to the ruling of the Supreme Court – that’s the highest court in the United Kingdom — last week’s attempt at sanctions on Bank Rossiya, and threats by the US Senate and White House of third-stage sanctions against other Russian banks and corporations, are likely to be ruled unlawful outside the US. If European companies of US corporations attempt to implement them – for example, Visa, Master Card, and Western Union — they are likely to face successful court challenges from London to Frankfurt. They will also trigger strike-outs, damages and penalties for any European government attempting to take orders from the US Treasury.

sumptionThe Supreme Court judgement was issued by a 9-judge panel last June, and written for the majority by Lord Justice Jonathan Sumption (right). The case was on appeal by the Iranian international bank, Bank Mellat, against Her Majesty’s Treasury. Backed by the UK parliament, the Treasury had imposed sanctions to stop the Iranian bank’s business. This was based on American allegations that the bank was assisting the Iranian nuclear programme.

The court said it didn’t doubt there was, as the British Government claimed, a “relevant risk” to the national interests of the UK if Iran was producing nuclear weapons. But the court judged there was no evidence to substantiate that Bank Mellat’s business posed such a risk; that the minority shareholding in the bank by the Iranian government added to the risk; or that sanctioning the bank by cutting off its UK and international business was lawful.

According to the majority of the Supreme Court, “the direction [for sanctions] was irrational in its incidence and disproportionate to any contribution which it could rationally be expected to make to its objective. I conclude that it was unlawful. ..I also consider that the Bank is entitled to succeed on the ground that it received no notice of the Treasury’s intention to make the direction, and therefore had no opportunity to make representations. The duty to give advance notice and an opportunity to be heard to a person against whom a draconian statutory power is to be exercised is one of the oldest principles of what would now be called public law.” – par 27-29 [1].

All that remains in the UK now is for Bank Mellat to obtain a court assessment of the financial damage inflicted over the four years the British sanctions were in place, October 2009 to June 2013. That will be at least $100 million, and maybe, with costs, interest, and penalties, more than $200 million.

Again, according to Sumption, “the object of the direction, as the Treasury acknowledges, was to shut the Bank out of the UK financial sector, and that has been its effect. Before the direction, the Bank had a substantial international business, much of it international trade finance transacted through London. In the year to March 2009, it issued letters of credit with an aggregate value of about US$11 billion, of which about a quarter represents letters of credit in respect of business transacted through the United Kingdom. The Bank ‘s own estimate of its revenue losses is about US$25 million a year. In addition, the Bank has been prevented from drawing on 183 million euros of call and time deposits with its part-owned subsidiary in London. Important banking relationships have been lost to other banks.”

Across the Channel, the European Union (EU) has already ended sanctions against the Iranian bank. It is still attempting an appeal to the Court of Justice in Luxembourg to overturn the ruling of the General Court, which was issued on January 29, 2013.

pelikanovaThe EU’s General Court ruling was written by Czech Irena Pelikánová (right) on behalf of the chief judge, Küllike Jürimäe (Estonia), and Judge Marc van der Woude (The Netherlands).

They have ruled [2] to accept the three submissions of the Iranian bank: “The first plea is a claim of an infringement of the obligation to state reasons, its rights of defence and its right to effective judicial protection. The second plea is a claim of a manifest error of assessment as regards the adoption of restrictive measures against it. The third plea is a claim of an infringement of its right to property and of the principle of proportionality.”

The court threw out every one of the arguments made by the EU, and decided its sanctions had been unlawful. “First, the Council infringed the applicant’s [Bank Mellat] rights of defence and its right to effective judicial protection in that it did not notify the applicant, in good time, of the proposal for the adoption of restrictive measures…Next, the Council did not… comply with the obligation to assess the relevance and the validity of the information and evidence against the applicant submitted to it, with the consequence that those measures are tainted by illegality. Lastly, the Council infringed the obligation to state reasons as regards the second, third, sixth and seventh reasons relied on against the applicant.”

The EU court also condemned the failure of the EU ministers to provide genuine evidence, but instead to issue “mere allegations”.

This summary of the issues now on appeal [3] reveals just how much peril the EU is in if it follows Washington’s demands for sanctions against Russian individuals or institutions when they are, as the General Court has ruled in the Bank Mellat case, “contrary to the principles of proportionality, legal certainty, non-arbitrariness and the requirement that sanctions contain necessary legal safeguards.”

The US Treasury announced [4] last week its reason for imposing sanctions on Bank Rossiya. “The following entity is being designated because it is controlled by, has acted for or on behalf of, or has provided material or other support to, senior Russian government officials. Bank Rossiya (ОАО АБ РОССИЯ) is the personal bank for senior officials of the Russian Federation. Bank Rossiya’s shareholders include members of Putin’s inner circle associated with the Ozero Dacha Cooperative, a housing community in which they live. Bank Rossiya is also controlled by [Yuriy] Kovalchuk, designated today. Bank Rossiya is ranked as the 17th largest bank in Russia with assets of approximately $10 billion, and it maintains numerous correspondent relationships with banks in the United States, Europe, and elsewhere. The bank reports providing a wide range of retail and corporate services, many of which relate to the oil, gas, and energy sectors.”

David CohenIntroducing the new sanctions order he had drafted, David Cohen, the Treasury’s Under Secretary for Terrorism and Financial Intelligence, claimed: “With its currency near an all-time low, its stock market down twenty percent this year and a marked rise in interest rates, Russia has already started to bear the economic costs of its unlawful effort to undermine Ukraine’s security, stability, and sovereignty. As President Obama has made clear, we will continue to impose costs in direct response to Russia’s provocative acts.”

Cohen took a university degree in law; clerked for a federal district judge; and spent 16 years in law firms. He claims [5] his specialty was “sanctions compliance advice for a broad range of financial institutions including banks, broker-dealers, insurance companies, mutual funds and hedge funds.”

menendezFor the standard of reason, evidence, proportionality and due process already adopted in the courts of UK and Europe, Cohen is bound to have heard of the judgements in the Bank Mellat case. For the time being he’s ordering US corporations operating outside US jurisdiction to ignore them. Senator Robert Menendez, chairman of the US Senate Committee on Foreign Relations, is also a lawyer by profession, though recently he has specialized, according [6] to reported FBI investigations, in helping his constituents and friends evade sanctions for their business activities.

In the draft [7] of a fresh round of sanctions against Russia, which Menendez pushed through a committee vote last week, Section 9 of the Bill goes further than any other statute in US history in establishing the US President as Prosecutor-General and Chief Justice of a foreign country. Menendez’s Bill aims at “any official of the Government of the Russian Federation, or a close associate or family member of such an official, that the [US] President determines is responsible for, or complicit in, or responsible for ordering, controlling, or otherwise directing, acts of significant corruption in the Russian Federation, including the expropriation of private or public assets for personal gain, corruption related to government contracts or the extraction of natural resources, bribery, or the facilitation or transfer of the proceeds of corruption to foreign jurisdictions.”