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Financial Restrictions (Iran) Order 2011

I am grateful to my noble friend Lord Newby and the noble Lord, Lord Tunnicliffe, for making this a short, constructive and to the point debate. I shall go straight into the questions that have been asked. First, on the question from my noble friend about the extent to which Iranian banks can still continue in this country to do direct business with companies or individuals, the answer is that the four Iranian banks in the UK are already subject to asset freezes. They cannot do any business at all in this country unless they get licensed by the Treasury, and of course licences are going to be issued only in very particular and limited circumstances. The prohibitions in respect of the UK are pretty watertight, and no UK company can, in effect, use a UK bank to deal directly or indirectly with an Iranian bank. The noble Lord, Lord Tunnicliffe, asked what other countries are doing. As I said on 21 November when we brought forward the order, the US and Canada took further, similar measures. France, too, announced that it was going to take measures in the near future, particularly in relation to oil trading. The 27 member states of the EU designated 180 individuals and entities for asset-freezing at the beginning of this month, so there is already significant co-ordinated action. The Foreign and Commonwealth Office is working with our EU partners to consider a further round of strong sanctions measures, including targeting in the new year the Iranian oil and gas sector and the central bank, so there is ongoing work with many of our partners. Incidentally, 32 out of 35 countries on the IAEA board of governors supported the resolution of the IAEA in this respect. The FATF is an international best-practice body. As I know because I chaired it for a year, members take its calls for action very seriously. Often, in my experience, those who are outside the EU and North America will take a bit longer to consider their response. The FATF has three plenary meetings a year and there is always follow-up to action taken since the previous meeting, so it does not let these things wither on the vine. Its next meeting will be approximately four months after the October meeting, at which it will take stock of progress. The noble Lord also asked a question about the risk of leakage through other countries and what we are doing to avoid the risks which the impact assessment identifies. As I have already said, we are working with many Governments to make sure that they are aware of our concerns. I was in the Gulf during the week when this order came into effect. I had discussions with central bank governors and others there about what they were doing in response to the IAEA report. We talked to many countries. It is quite clear that the tightening sanctions have a significant effect on Iran’s economy and its ability to move money around, but I fully accept that we have to remain extremely vigilant and work with our partners to ensure that we make it as difficult as possible for it to move money in any way. It is ongoing business. Lastly, on the penalty regime, I suggest that a two-year prison sentence should be a significant deterrent. The penalties in this order are equivalent to those in other, similar sanction regimes. We have not therefore broken any new ground and have followed precedent in this order. The financial institutions which are the subject of this order in the UK are obliged to have systems and controls in place to counter the risk that they might be used to further financial crime. The FSA, as the supervisor, has a statutory duty to monitor those whom it supervises for the purposes of securing compliance with the requirements of a direction. It can impose civil penalties under the Act. Although I should stress that this under a different part of the UK asset-freezing and financial sanction regimes, it is worth pointing out that RBS was fined £5.6 million in 2010 for the failure to have adequate systems and controls in place to prevent breaches of UK financial sanctions, specifically in relation to Iran. Although that was, as I say, under a different part of the sanction regime, it indicates how seriously the FSA takes these issues. In conclusion, I suggest that the IAEA’s latest report highlights the serious situation we have with Iran’s nuclear programme and its possible military dimensions. The FATF, as has been recognised, has made repeated calls for countries to take countermeasures to address the risk of money laundering and terrorist financing emanating from Iran. I hope your Lordships agree that the decision to issue this order is a proportionate and reasonable response to the threat of nuclear proliferation and that this action mitigates the risk of the UK financial system being used to facilitate proliferation-sensitive activities in Iran. I thank noble Lords for their engagement with this issue and I hope that my answers to the important questions they have raised have been sufficient. I urge noble Lords to support me in this important matter. Motion agreed.