BANK OF TOKYO AGREES EXTRA $315 MILLION SETTLEMENT FOR US SANCTIONS VIOLATIONS

On 18 November 2014, the Bank of Tokyo Mitsubishi UFJ (BTMU) agreed to pay a $315 million penalty and sanction two employees for misleading regulators over its transactions with Iran, Myanmar and Sudan in violation of US sanctions. The penalty comes in addition to a $250 million fine already levied on BTMU in 2013 for the sanctions violations themselves.

BTMU employees were accused by US authorities of pressuring a consultant, PricewaterhouseCoopers, to alter the content of a report it produced on wire transfers performed by the bank on behalf of sanctioned companies and entities.

 

EU SANCTIONS TO TARGET UKRAINIAN SEPARATISTS

On 17 November 2014, the Council of the European Union met in Brussels to discuss the situation in Ukraine. The Council announced that ‘having assessed the situation on the ground’ it will impose ‘additional listings targeting [Ukrainian] separatists’ involved in the recent disputed elections.

The EU will publish the names of the new sanctions targets to be added to the list of those subject to asset freezes and travel bans once a list of subjects has been agreed. The measures will target individuals accused of destabilising the country through the holding of disputed local elections in eastern Ukraine in early November 2014. The EU has repeatedly stated that it views the elections as illegal, while the outcome of the elections was recognised by Moscow.

Although the ministers discussed the issue, no decision was taken to impose further sanctions on Russia in addition to the latest round of sanctions (see our previous blog post here).

We will publish the names of the new sanctions targets on this blog once they are announced. A full list of sanctions currently in force against Russia and Ukraine can be found on the ‘sanctions in force’ section of this blog.

 

ADVOCATE GENERAL’S OPINION IN EIH: BEWARE RELIANCE ON NATIONAL AUTHORITIES’ AUTHORISATIONS?

We reported last September on the judgment of the General Court of the European Union in Case T-434/11 Europäisch-Iranische Handelsbank AG (EIH) v Council (6 September 2014).  The General Court annulled a previous inclusion of EIH (a German bank) on the EU’s sanctions measures relating to Iran, but did not annul a subsequent version, which listed EIH for assisting Iranian banks to carry out financial transitions with sanctioned entities and circumventing sanctions. The General Court rejected EIH’s argument that those transactions were authorised by the German Bundesbank (the natural authority competent to grant licences to authorise the release of frozen funds) and therefore the Council could not designate it on the basis that it had breached or circumvented sanctions.

EIH appealed to the Court of Justice.  Advocate General Mengozzi has just given his Opinion, in Case C-585/13 P.  AG Mengozzi’s view is that the General Court was correct, and he recommends that the ECJ should reject all of EIH’s grounds of appeal.

Some of the Opinion is about whether the General Court was right to have held that some of EIH’s arguments were raised too late to be admissible.  Of more general significance (whether one agrees with it or not) is his opinion on the relevance and role of the authorisations / licences given by national authorities which permit exceptions to EU asset freezing measures.  The Advocate General’s view, in summary, is that the General Court was right to have held that:

1) The Bundesbank should not have been granting general authorisations, as opposed to case-by-case authorisations.

2) Exceptions to asset freezes should be construed narrowly.  “What is in issue is an exception to the principle of the freezing of funds which, by its very nature, must be interpreted strictly”.

3) Licensing decisions by national authorities cannot bind the Council in imposing and interpreting EU sanctions measures.  A national authorisation “does not provide an absolute guarantee, for the decision of the national authority does not automatically confer a stamp of lawfulness on the authorised transition in the light of the regulations laying down the legal framework of the restrictive measures system.  Sight must not be lost of the fact that the national authorities, when deciding on a request for authorisation, may have only limited information at their disposal and it is easily conceivable that an entity making such a request might conceal certain information about the planned transactions in order to secure authorisation”.

4) An entity such as EIH can be held by the Council to have been circumventing sanctions, even where the transactions at issue have been expressly authorised, where the authorisations granted are inconsistent with the purpose of the EU sanctions regulations.

Advocate General’s opinions are not binding on the Court of Justice, but offer an independent analysis.  The next step in the case will be a judgment from the Court of Justice.

G20 LEADERS WARN PUTIN OF FURTHER SANCTIONS AGAINST RUSSIA OVER UKRAINE

The G20 leaders have warned President Putin at their meeting in Brisbane (Australia) that they may impose increased sanctions on Russia if the President does not stop supporting secessionist groups in eastern Ukraine.

News reports suggest that leaders talked of new banking, energy and defence sanctions, and that Angela Merkel (the German Chancellor) said that the EU was likely next week to add Russian separatists in Ukraine to the list of individuals subject to EU measure imposing asset freezes and travel bans (which are all on the ‘sanctions in force’ section of this blog).

British Prime Minister David Cameron said at a press conference: “If Russia continues to destabilise Ukraine there will be further sanctions. There is a cost to sanctions, but there would be a far greater cost to allow a frozen conflict on the continent of Europe to be maintained. President Putin can see he is at a crossroads.”  US President Obama said that the US was not actively considering further sanctions on Russia now (“at this point, the sanctions that we have in place are biting plenty good”) but would consider doing so if Russia did not change its policies. If President Putin choses to seek a diplomatic solution the US will be the first country to suggest rolling back the current sanctions “that are frankly having a devastating effect on the Russian economy”.

In an interview on German television, President Putin said of the sanctions imposed by the west: “Do they want to bankrupt our banks? In that case they will bankrupt Ukraine. Have they thought about what they are doing at all or not? Or has politics blinded them? As we know eyes constitute a peripheral part of brain. Was something switched off in their brains?”

SWITZERLAND EXTENDS RUSSIA ANTI-CIRCUMVENTION SANCTIONS LAWS

On 12 November 2014, Switzerland published new amendments to Swiss measures that were adopted on 12 November 2014 to prevent the circumvention of international sanctions related to the situation in Ukraine (available in German, French and Italian only). The measures are designed to prevent individuals and companies in Russia subject to sanctions by the west from using structures in Switzerland to circumvent the restrictions.

The amendments this week, which are to the Federal Council’s previous Ordinance of 27 August 2014, do the following (in summary):

  1. Extend Switzerland’s anti-circumvention measures, which create a series of checks and barriers to certain dealings with listed individuals in order to aid compliance with international sanctions, to apply to all individuals and entities that were added by the EU to its latest round of sanctions against Russia in September pursuant to Council Regulation (EU) No 959/2014 and Council Decision 2014/658/CFSP (as we previously reported). Switzerland last made additions to its watchlist in August 2014.
  2. Give the Swiss State Secretariat for Economic Affairs (SECO) the right to refuse export permits for specific military goods and dual-use goods that are to be used for a military purpose or by a military end user.
  3. Provide that any provision, directly or indirectly, of financial services or technical services related to military or dual use items to listed entities must be declared to SECO. (This requirement does not apply to the aeronautic or aerospace industries.)
  4. Make certain services necessary for deep water oil exploration and production, arctic oil exploration and production and shale oil projects in Russia are subject to a duty to notify SECO.
  5. Require that trade in new financial instruments with a maturity exceeding 30 days and the granting of loans with a maturity exceeding 30 days to certain Russian entities or entities acting on their behalf (Sberbank, VTB Bank, Gazprombank, VEB, and Rosselkhozbank), receive authorisation from SECO.
  6. Add twenty-four names to the existing list of persons and companies with whom Swiss financial intermediaries are prohibited from entering into new business relationships, and whose existing business dealings are subject to a duty to notify SECO.

The Swiss federal government announced in a press release on 12 November 2014 that “in view of the situation in Ukraine, and following decisions taken by the EU, the Federal Council today decided to adopt further measures to prevent the circumvention of international sanctions”, and emphasised that it “continues to monitor the situation in Ukraine closely and reserves the right to take further measures depending on how the situation develops”.

 

UN AND US SANCTION FORMER PRESIDENT OF YEMEN AND HOUTHI LEADERS

On 7 November 2014, the United Nations Security Council imposed targeted sanctions on the former President of Yemen, Ali Abdullah Saleh, and two senior Houthi military leaders for their in engagement ‘in acts that threaten the peace, security or stability of Yemen’. They are the first three people to be added to the UN’s targeted sanctions list relating to Yemen.

The sanctions consist of a one year asset freeze and a travel ban in UN Member States. The US also made the same people subject to US sanctions on 11 November 2014 – see White House press release here.

Yemen has been in a state of political unrest since mass protests began against Saleh, who was president for 33 years until he stepped down in 2012. In February, the UN Security Council authorised sanctions against those who obstruct Yemen’s political transition or commit human rights violations, but did not list any specific individuals at that point. The US requested to the Yemen Sanctions Committee that Saleh and the Houthi leaders should be the first people to be sanctioned by the UN.

 

US SANCTIONS CASE AGAINST EUROPEAN BANKS FOR ASSISTING IRAQ ATTACKS

A number of US veterans and family members of US soldiers killed in Iraq have brought proceedings in the US District Court in Brooklyn, New York, against 5 European banks (Barclays, Credit Suisse, HSBC, RBS and Standard Chartered).  They are claiming damages from the banks under the US Anti-Terrorism Act 1992, for facilitating attacks in Iraq by allegedly conspiring with Iranian banks to mask wire transactions in breach of US  sanctions, which helped to fund militant groups operating in Iraq.

The case follows another action brought in the same court under the US Anti-Terrorism Act 1992 against Arab Bank, for allegedly financing Hamas attacks in Israel and the Palestinian territories.

DISCLOSURE IN UK SANCTIONS CASES: BANK MELLAT

A judgment of the UK High Court in Bank Mellat v HM Treasury [2014] EWHC 3631 (Admin) (judgment here) has just held that the essence of allegations against a person or entity justifying their inclusion in UK terrorist / proliferation sanctions must be disclosed, even where national security concerns prevent full disclosure.

The context is Bank Mellat’s ongoing application to set aside Financial Restrictions (Iran) Orders made against it under the Counter-Terrorism Act 2008, which permits the British Government to impose financial restrictions on people and organisations said to be connected with terrorism or nuclear proliferation (these Orders were imposed on the bank before the EU’s sanctions against Iran took over from the UK proliferation sanctions).  We reported that in June 2013 the Supreme Court of the UK held that the 2009 Order was unlawful (judgment here: [2013] UKSC 39).  The bank is now applying to set aside the 2011 and 2012 Orders, which have frozen 183 million Euros of its assets, under the UK Counter-Terrorism Act which permits closed hearings to be held and security-cleared Special Advocates to be appointed on the listed entity’s behalf.

A dispute arose about what level of disclosure the Government had to make to the bank (as oppose to the bank’s Special Advocates) to enable it to challenge the reasons given for its designation.  The Government argued that the principles set down in Secretary of State v AF (No 3) [2010] 2 AC 269 in the UK and A v UK (2009) 49 EHRR 29 in the European Court of Human Rights, to the effect that sufficient allegations must always be disclosed to enable the person / entity to refute them and mount a defence, do not apply to asset-freezing cases (as opposed to detention cases), based on a UK Supreme Court case Tariq v Home Office [2012] 1 AC 452.  The Court rejected that argument, holding that because EU law applies to the Orders (and therefore the principles in Case C-300/11 ZZ v Secretary of State for the Home Department), and given the “utterly damaging effect on [the bank's] ability to function”, the essence of allegations must be disclosed.

The judgment is particularly interesting in the light of the proposals by the European Court of Justice (currently being considered by the Council of the EU) to permit closed hearings which would not require this minimum level of disclosure in sanctions cases (see previous blog).