I draw to the House’s attention that Mr Wallace and I are co-chairmen of the all-party group on Iran and that, in January, we were members of a parliamentary delegation to Iran.
This debate is not about the sanctions against Iran themselves, which the UK Government and Parliament have agreed to on an all-party basis; it is about the impact of US extraterritorial jurisdiction on British foreign and commercial policy. Its aim is to highlight the way in which US sanctions on Iran are in practice freezing out many services of UK-based banks and financial institutions, to prevent them and others from participating in commercial and trading activities with Iran that remain entirely lawful under the sanctions regimes of the UK, the EU, the UN and indeed the United States.
Here is the heart of the problem:
“humanitarian trade with Iran has always been permitted under both US and EU sanctions”.
I quote directly from a letter of
“many banks have been wary of processing the payments required. This has been driven in large part because of risk aversion to US banking sanctions”.
That risk aversion by banks based in the UK is entirely understandable. It is compounded by the fact that those banks cannot obtain greater certainty about the reaction of the US Government by looking at the black-letter text of the US sanctions regime. Nor, because they are non-US entities, do they enjoy any of the close connections that Washington DC offers big US corporations to obtain “comfort”, formal or informal, from the US Congress or Government. Rather, our financial institutions are subject to “guidance”, sometimes of an oral and confidential kind, from the US that, if they offer any banking services for any trades with Iran, they could find themselves in difficulties with the US authorities.
The pressure on our banks is intense. Most are so scared and so scarred that they will not provide banking services even where the trades are manifestly within the sanctions regime.
I congratulate the right hon. Gentleman on securing the debate. The problem is illustrated by the fact that the Iranian chargé d’affaires, up to last month, could not even open a British bank account. May I suggest to the right hon. Gentleman, while he is talking about commercial issues, that what is clearly wrong is when humanitarian aid itself is being stopped because of the inability to get bank facilities? Is he going to develop and explore that point?
I am indeed and I am grateful to the hon. Gentleman. I will show that, in practice, the impact of sanctions is much worse against British trading of all kinds and banks than against any other banking operations.
The impact of this unilateral extraterritorial jurisdiction of the US is especially discriminatory against UK-based financial institutions, because of their multinational nature. In contrast, for example, some German companies have banking services for their trade with Iran from a local Landesbank, which has no activity in the US. The US corporation Coca-Cola is able lawfully to sell its product in Iran and to use banking services for remittances by the Iranian franchise. A UK corporation in a similar situation would almost certainly find it far harder, if not impossible, to obtain such banking services here.
There is another example. For reasons of which the Minister is aware, I will not go into further details in public, but an Iranian entity in this country has seen all its banking services stopped, while an exactly similar Iranian entity operating in the United States has full access to the services of US banks.
The stark fact highlighted by the trade statistics is that the United Kingdom’s trade with Iran has been the hardest hit by far of any major European Union member, while, irony of ironies, US exports to Iran have scarcely been hit at all. As sanctions tightened, all EU countries saw their exports to Iran decline in the four years 2009 to 2012—in the EU as a whole, by 33.8%. But the United Kingdom’s exports in that period slumped by 73%, from $584 million to $159 million—the biggest fall by far. The US had the smallest fall, of just 11.3%, from $282 million to $250 million.
Let us go back to 2000. In contrast with the European Union as a whole and with Germany, France, Italy and the United States individually, the United Kingdom is the only nation whose exports to Iran were lower in 2012 than they were at the beginning of this century. In the United States’ case, a man from Mars might be forgiven for thinking that the United States had been on a modest export drive with Iran. Its exports in 2000 were worth $17 million; in 2012 they were worth $250 million; and they rose last year to $313 million.
The “Joint Plan of Action” agreed between the E3 plus 3 and Iran, which came into force on
However, the circumstances that our banks face have been created not by the banks’ own “commercial decisions”, but by the actions of the United States Government. I say, with respect, to the Minister that it is time for the British Government to make it crystal clear to the US that, although we are four-square behind sanctions that they and we have agreed, we will not tolerate any longer the US preventing trading that is lawful under those sanctions and that it is itself carrying out. Effectively, it is preventing our traders from carrying it out.
The Government already have on the statute book clear powers to take counter-action against the United States if they cannot negotiate a satisfactory way through by getting the United States Government and their agencies to change their behaviour. I am referring to the Protection of Trading Interests Act 1980, passed, as I recall, with all-party support by the Government of Margaret Thatcher. Introducing the Bill, the then Secretary of State for Trade, John Nott, told the Commons that its purpose was
“to reassert and reinforce the defences of the United Kingdom” against attempts by the United States
“to enforce their economic and commercial policies unilaterally on us” by
“the most objectionable method” of
“the extra-territorial application of domestic law.”—[Hansard, 15 November 1979; Vol. 973, c. 1533.]
The Bill was prompted by decisions of US anti-trust regulators against UK shipping firms. The British and all European Governments took exception to that gratuitous interference. By the Act, the British Secretary of State is given power to prohibit any United Kingdom entity from complying with any extraterritorial sanction by the United States. Indeed, the power under section 2 makes it a criminal offence here to comply with what the US is trying to impose on our banks. The Act worked. It was used again in 1992 in respect of Cuba. It was followed in 1996 by similar, EU-wide regulations, which I think the hon. Member for Wyre and Preston North will explain in more detail in a moment.
Ministers do not have to be frozen, blinking in the headlights of this unacceptable practice by the United States Government, which is inhibiting the lawful activity of British banks and hindering the step-by-step restoration of bilateral relations with Iran. The Government have strong powers, bequeathed to them by Margaret Thatcher, to deal with this situation. If Ministers make it clear that Her Majesty’s Government will be ready to use those powers if needed, their hand in negotiations will be strengthened, and with luck their use will not be necessary and we should be able to restore our trade at least to the trend set by the United States itself.
I congratulate Mr Straw, my neighbour in Lancashire, on securing the debate. I am delighted to focus on the issue of extraterritorial sanctions. I recognise that this behaviour is a growing trend. It often emanates not from the US Executive, but from the Congress, whose members would say in their defence, “It’s not our business how our laws and sanctions impact on other people. This is what I, as a US law maker, have a responsibility to my constituents to do.” However, we live in a globalised world; we live in a world of international trade; and we live in a world in which we are supposed to respect the international rule of law and trade deals.
I want briefly to take this back. It is not just about Iran. I want to take it back to Cuban cigars. I like a Cuban cigar from time to time, and many hon. Members may remember that in 1992 the United States passed the Cuban Democracy Act, which was followed closely by the Cuban Liberty and Democratic Solidarity Act. One might think that came from the Greater London council and Ken Livingstone, judging by its title. The effect of that legislation was to make anybody—US citizen, EU citizen or anyone else—who was involved in the trafficking of Cuban products guilty of an offence and prosecutable in the United States, or even to bar them from going to the United States. That was quite a formidable threat. It meant that an individual selling Cuban cigars in London who had a shop or an entity in the United States might be liable to prosecution. Even if they did not but they took a trip to America, they would be a trafficker of Cuban goods.
The European Union said that that was simply unacceptable and that a British citizen carrying out trade that was lawful under British and European law should not be a victim of such extraterritorial reach. In 1996, the EU passed a directive with the catchy title of Council Regulation 2271/96 protecting against the effects of the extraterritorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom. In effect, we are still obliged by the conditions of that regulation. It basically told European Union citizens and member states that, if they complied with an extraterritorial threat from a third country, they would be vulnerable to civil claims from people affected. For example, British banks could be sued by European citizens who were prevented from using their facilities in Iran, Cuba or anywhere else, and the banks would be liable to pay damages.
The regulation covered a number of Acts and it is still in existence today. Funnily enough, it worked. The United States adapted its legislation so that it covered only US citizens. If we were to put it in law, we would be saying, “We, as British law makers, do not really care about what American law makers think; our duty is to our constituents and to the sovereignty of this country, so we will make the decision, thank you very much.” That was in 1996, which was a long time ago. The annex to the regulation contains a list of Acts, and I am sure that, if the European Parliament were so minded, it could add more to that list. One that still resonates today is the Iran and Libya Sanctions Act 1996, which was recently modified to become the Iran Sanctions Act.
Some of those provisions are still in existence and we are still bound by the regulation. Will the Minister tell us why the United Kingdom Government are not enforcing the regulation as they are obliged to? Why are they not saying—perhaps they are—to the US and to third parties, “We are obliged to comply with the regulation, otherwise British banks, businesses and entities will be vulnerable to handing over sums of money to injured parties”?
We need to find a way through. We must speak to the United States and others engaged in such extraterritorial legislation to see whether we can drive a way forward. As far as I am concerned, I will soon be ringing up British banks and saying to them, “By the way, you are covered by this regulation.” I will recommend that anyone who comes to my surgeries invoke the regulation, if relevant legislation is listed in the annex, and seek damages. It is simply not good enough that we should be increasingly prohibited, even when we are doing things that are legal under British and European law and within a sanctions regime, for the sake of some far-off idea of protectionism elsewhere.
It is a pleasure to serve under your guidance this afternoon,
Mr Davies. I congratulate Mr Straw on securing this important debate and, as always, on the detailed, measured and articulate way in which he set out his case.
Before I get into the granularity of some of the issues that he raises, I want to set out Her Majesty’s Government’s wider approach to tackling extraterritoriality, because it is an important issue. The impacts of extraterritorial application of another country’s domestic laws on UK businesses can be significant and are not always easy to measure or to cost. British Governments of all colours—both the current Government and their predecessor—have maintained their opposition to overly broad assertions of extraterritorial civil jurisdiction, including when the right hon. Gentleman was Foreign Secretary.
It is not that the UK is averse to legislating to regulate extraterritorial activity; we have done so ourselves in certain cases that concerned the actions of British nationals abroad, the most obvious example of which is the Bribery Act 2010. However, the UK has always opposed the exertion of jurisdiction by a foreign country over British nationals or businesses that have little or no connection to that country. In such cases, we consider that the UK or the state on whose territory the activity occurred should rightfully exercise jurisdiction. As the right hon. Gentleman rightly said, that has principally been an issue with regard to the United States. He will be aware, I hope, that the United States Supreme Court is not immune to such arguments, and has stated that
“even where the claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritorial application.”
Successive British Governments have taken an interest in seeking to ensure that US courts do not try to exert jurisdiction over cases that have no substantial links to the United States. Indeed, we have submitted amicus briefs in a number of cases to the US Supreme Court under the so-called alien tort statute, and the right hon. Gentleman may well be aware of the most recent cases involving Rio Tinto and Shell.
It is important to reiterate the importance that the UK Government attach to sanctions. I know that there is cross-party support from Members, including the right hon. Gentleman, for those sanctions. They are an essential tool of foreign policy and provide a means of coercing changes in behaviour, constraining ability to continue to behave in a particular way and signalling collective opposition to the actions of certain states or individuals. It is still Her Majesty’s Government’s view that that is the case, as has been evidenced by the reaction to the events recently in Ukraine.
I turn to Iran, which was the main focus of the right hon. Gentleman’s remarks. The international community has applied significant pressure to the Iranian economy through sanctions, because of the international concerns surrounding Iran’s nuclear programme. International sanctions, particularly the stringent measures put in place in recent years by the US and the EU, have brought Iran back to the negotiating table. I believe that sanctions have, therefore, been proven to be a vital tool in our attempts to resolve the Iranian nuclear question through peaceful means. I will drill down into what that means with specific relation to Iran in a moment.
My hon. Friend Mr Wallace rightly raised the example of Cuba. In the case of Cuba, we and our EU partners have a very different view from the US on how best to engage. The US continues to impose a trade embargo and apply sanctions, but we do not feel that the US approach regarding sanctions is right and we have raised our objections with them. Clearly, however, US policy towards Cuba is a matter for the US authorities and not for the UK Government. Whereas British businesses and banks can trade freely with Cuba, the US has a sanctions regime. Companies must be fully aware of how their business is being transacted. Banks often use the US clearing systems—this goes right to the heart of the point my hon. Friend made—in which case they are subject to US laws. That is not extraterritorial application of the US-Cuban sanctions regime. We have made it clear for some time to British businesses that operate in Cuba that that is a risk that they should look to mitigate.
On the points the right hon. Member for Blackburn made about the impact of sanctions, it is important that the House understand the distinction between what is and what is not extraterritorial in nature. US sanctions impact on all businesses that operate through the US. Companies, including UK companies, that conduct business with sanctioned regimes must therefore ensure that, if their business goes through the US or there is a US link within the transactions, they comply with US law. That applies to Iran, Cuba and other regimes against which the US applies sanctions but the EU does not—for example, Sudan.
I am grateful to the Minister for giving way. First, I would like to make it clear that the principle of sanctions is not an issue; my concern is about their application. Does the Minister accept that, whichever way we look at the data, one cannot but come to the conclusion that United States practice and the way they pressure British banks is operating more harshly on our banks than on US banks and entities? That is the heart of the matter on which we want to see some action taken by the British Government.
I am grateful for the right hon. Gentleman’s intervention, because it leads me on quite neatly to my next remarks. Before I move on, however, I must say that I do not think he can conflate the challenges that some UK banks have—we can come on to the specifics—with the whole range of issues that affect the bilateral trade relationship between the United Kingdom and Iran. For example, banks must consider other aspects in order to comply with regulatory authorities in the UK and the European Union, as well as in the US. Such considerations include anti-money laundering, concerns about counter-terrorism and all the other aspects that banks must consider when assessing risk and ensuring that they comply with the whole package of important regulatory regimes, US or otherwise.
The right hon. Gentleman referred to banks that have fallen foul of the US regime, but those cases concerned not extraterritorial sanctions but transactions that had a connection to US territory. The allegations were that the banks had directly violated US law by conducting business with Iran from the United States, and it is correct that those banks should respond to allegations that they have broken US regulations within US territory.
I want to move on to secondary or extraterritorial US sanctions, which are at the heart of the thrust of the right hon. Gentleman’s remarks. Along with the European
Union, we have taken steps to protect UK companies from such extraterritorial jurisdiction. The key to our approach to Iran is that our sanctions are so closely aligned with those of the US that the scope for such jurisdictional conflict is small. As I mentioned, we recognise the importance of US and EU sanctions in bringing Iran to negotiations.
I must say that I am rather disappointed with my hon. Friend the Minister’s response—I was hoping it would be rather more Thatcherite, if I can put it that way. It seems that the right hon. Member for Blackburn has a valid point: US trade with Iran is going up and British trade with Iran is being adversely affected. If that is happening, it is possible that the US intends that to happen. Will the Minister address that point?
As I said in response to the right hon. Member for Blackburn, I do not think we can conflate the issues relating to the complexity of a bilateral trade relationship with alleged extraterritorial US sanctions. Many other issues are at stake—for example, the fact that the UK Government currently do not encourage or provide support for UK companies to trade with Iran. However, where trade is allowed under the existing sanctions regime—for example, within the scope of the humanitarian issues raised earlier, such as medicines and pharmaceuticals—the UK’s trade with Iran has increased by 80% since 2012. Where it is allowed within the sanctions regime, therefore, there is a significant uplift in UK trade.
I want to assure my hon. Friend the Member for Wyre and Preston North that we are implementing the EU regulation. The right hon. Member for Blackburn rightly mentioned the Protection of Trading Interests Act 1980, but that cannot stop the US applying its laws to the US arm of a British multinational company. It stops the enforcement of US sanctions here in the UK, but cannot stop British businesses making commercial decisions on the basis of perceived risks in the United States.
I am grateful to my hon. Friend the Minister for his clarification. Is he saying that a British bank choosing to trade in euros, and therefore not clearing through the United States, in order to carry out a transaction in correspondence function for an Iranian, Cuban or any other type of entity, based in London, should not fear any US sanctions? Does he also not recognise that, if they do business in euros and there is no transaction that touches the United States, it would be grossly wrong for the United States Administration to have a go at the US entity of the British parent company, because they have not broken any law in the United Kingdom or Europe?
The Act to which reference was made—as well as the subsequent statutory orders, most recently updated in 1997—provides measures to protect British companies from the impact of, and prevent them from complying with, US sanctions. Judgments against UK companies that result from such sanctions, in the way that has been described, cannot be enforced in the UK. That sends a signal to the US that the EU is opposed to such an approach to sanctions.
What both the right hon. Gentleman and my hon. Friend the Member for Wyre and Preston North have described is a result as much of perception as of legal issues. It is true that all UK banks must ensure that they are taking a risk-based approach to transactions, and that they comply with relevant anti-money laundering and sanctions legislation. EU sanctions law does permit avenues through which certain types of key transactions with Iran can be made legitimately. Her Majesty’s Treasury works very closely with the financial sector to ensure that it is clear about applying for licences and authorisations that allow legitimate financial transactions involving Iran, particularly in the sphere of humanitarian trade, where the limit has recently been increased tenfold, since the agreement on the joint plan of action.
I am coming towards the end the time allotted for the debate, so I want to reiterate that our best approach must be to work with the US and others in seeking to minimise conflicting approaches. Although our objectives on particular policy issues vary on occasion, in most cases any difficulties arise from different regulatory approaches—we have similar objectives. That does not imply any loss of sovereignty: it is a clear UK foreign policy position.