The Domino Theory: Bank Saderat to Come Off the EU Sanctions List?

by Erich Ferrari

via Sanctions Law

There is a lot of stuff going on in the world of sanctions today. First, the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued guidance both on the impact of Section 504 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“TRA”) as well as on the ability of foreign financial institutions to process certain transactions in relation to Iran without fear of exposure to U.S. secondary sanctions. While those topics are both incredibly important and germane to the subject matter of this blog, I will focus on another breaking story today: the finding by the EU General Court that Bank Saderat should be removed from the EU Sanctions List.

In making its decision the EU General Court found that the EU had failed to provide sufficient evidence that Bank Saderat was involved in Iran’s nuclear program. Just last week the court issued a similar ruling in respect to about Bank Mellat, which is also designated pursuant to EU sanctions. There are still numerous cases pending before the General Court in relation to EU sanctions which have been imposed against Iranian institutions, financial and otherwise. EU countries have two (2) months to appeal the decision, and walk a thin line in providing sufficient justification for their designation without compromising their intelligence sources on these banks.

When the EU General Court said that sanctions against Bank Mellat should be lifted I found it to be interesting. Now with the same recommendation being made in regards to the EU sanctions against Bank Saderat I am fascinated. Will the potential removals of EU sanctions portend a similar trend in the United States? Probably not. I don’t see OFAC or any other agency in the U.S. government doing anything but shrugging off the decision by the EU General Court. However, perhaps that is because there is no litigation pending before U.S. courts in relation to either Bank Mellat’s or Bank Saderat’s designation pursuant to U.S. sanctions.

While it is uncertain whether or not these two Iranian banks are contesting their designations pursuant to the administrative reconsideration process at 31 C.F.R. 501.807, a simple search on the PACER database reveals that neither of those banks are a party to litigation in any U.S. District Court. What would be interesting to see is whether these banks will seek their reconsideration under OFAC’s administrative reconsideration process. If they do, they almost certainly will be denied reconsideration, however, at that point they can file suit against the U.S. Department of the Treasury under the Administrative Procedure Act (“APA”). The APA allows final decisions of federal administrative agencies, like OFAC, to be reviewed at the U.S. District Court level to determine whether or not the agency’s ruling was arbitrary and capricious.

This would give an opportunity for the U.S. courts to review the designation in a similar fashion as the EU General Court has. It would be interesting to see how a U.S. court would rule on the issue of whether sufficient basis exists for these Iranian financial institutions’ designations, and if they did rule in the favor of the Iranian financial institutions, if the U.S. government would follow the ruling of the court or appeal the decision. In theory, these latest decisions by the EU General Court could lead to a domino effect in which sanctions on Iranian banks are called into question by courts of law both in the EU as well as the U.S. leading to the ultimate removal of those sanctions as a result of those decisions. While it may seem very unlikely, these decisions in theory could prove to be the beginning of a change in the way sanctions are imposed, or at a minimum in how evidence regarding designations is offered. Of course, all of that would depend on whether or not these banks would contest their designations in the U.S., a step we haven’t publicly seen yet. Again, this scenario is unlikely, however, the EU General Court’s recent decisions make it more probable.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or [email protected].

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