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Financial Restrictions (Iran) Order 2011

My Lords, this financial restrictions measure against the Iranian banking sector was introduced on 21 November by my right honourable friend the Chancellor of the Exchequer. The Treasury laid the Financial Restrictions (Iran) Order 2011 before Parliament under its powers in Schedule 7 to the Counter-Terrorism Act 2008. The order contains restrictions requiring UK credit and financial institutions to cease business relationships and transactions with all banks incorporated in Iran, including their branches and subsidiaries wherever they are located, and with the Central Bank of Iran. I would like to turn first to the rationale for the order. The restriction contained in the order responds to the risk to the national interests of the UK caused by activity in Iran that facilitates the development or production of nuclear weapons. The Government have had serious concerns about Iran’s nuclear activities for some time, and these concerns are shared by the international community. The 18 November board of governors report of the International Atomic Energy Agency, which is the UN body charged with monitoring Iran’s activities, provided further evidence that Iran’s nuclear programme was being used for non-civilian applications. In particular, the report sets out the IAEA’s concerns about, "““possible military dimensions to Iran’s nuclear programme””." The case for UK action is underlined by the urgent call from the Financial Action Task Force—the FATF—which noted its particular and exceptional concern about Iran’s failure to address the risk of terrorist financing and the serious threat that this poses to the integrity of the international financial system. Other countries share our concerns in respect of Iran. These include the US and Canada, both of which implemented further restrictive measures against Iran on 21 November. The EU also has financial sanctions in place, including further asset-freezing measures against 180 Iranian individuals and entities agreed at the beginning of this month, and is considering future measures to implement. The Government introduced the Financial Restrictions (Iran) Order 2011 to respond rapidly to further evidence of the risks posed by Iran’s nuclear development programme. Iranian banks play an important role in providing financial services to individuals and entities within Iran’s nuclear and ballistic missile programmes, and many Iranian banks have been sanctioned by the UN and EU for their role in Iran’s proliferation-sensitive activities. Given the UK’s important position as a global financial centre, the UK restrictions will have a major impact on the options available to Iranian banks. This will make it more difficult for Iranian banks to use the international financial system in support of proliferation-sensitive activities. The action also protects the UK financial sector from the risk of unwittingly being used to facilitate activities which support Iran’s nuclear and ballistic missile programmes. I will now explain the specifics of the order. The order was made under Schedule 7 to the Counter-Terrorism Act 2008, which provides the Treasury with powers to impose a range of financial restrictions in response to certain risks to the UK’s national interests. The powers enable the Treasury to respond to proliferation risks, as we have in this case, and to money-laundering and terrorist financing risks, or where the FATF calls for countermeasures. Shortly after the restrictions came into effect on 21 November, the Treasury published a series of documents on its public website. These alerted the financial sector to the restrictions and provided guidance on their implementation. These documents were also emailed to more than 13,000 subscribers to our e-mail alert system. In addition, the Treasury worked with the Financial Services Authority, HM Revenue and Customs, and the Export Control Organisation to publicise the restrictions and provide information to firms on the requirements. The documents published by the Treasury on 21 November included six general licences exempting specific activities from the restrictions. These general licences enable credit and financial institutions with existing business relationships or transactions with the entities concerned to manage the cessation of business in an orderly way. They permit them to provide financial services for humanitarian purposes and personal remittances between individuals here and in Iran. Further licences, whether general or individual, may be granted by the Treasury to manage the impact of the requirements on third parties. Companies affected by the restrictions can apply for a licence of exemption and we are particularly minded to grant licences where UK companies are owed money under existing contracts. This approach is similar to that used in other sanctions. Firms already have in place procedures and systems to meet obligations relating to financial sanctions and anti-money laundering. They help to minimise the burden of complying with these restrictions. It is expected that compliance costs for the sector as a whole will be moderate, although any institution with significant business relationships with an Iranian bank will face larger costs. Supervision of the financial sector’s compliance with these restrictions will form part of the existing supervisory regime of the Financial Services Authority, HM Revenue and Customs, the Office of Fair Trading and the Department of Enterprise, Trade and Investment Northern Ireland. Let me conclude by emphasising that this order was issued by the Government to respond to the severe risk that Iran’s nuclear activities posed to the UK’s national interests. This is a strong measure, but it is necessary. Iran’s proliferation-sensitive activities are a serious and ongoing concern for the UK and the international community as a whole. It is vital that we continue to take steps to increase pressure on the Iranian regime and to encourage Iran back to the negotiating table to find a diplomatic solution. For these reasons, I commend the order to the Committee.