Counter-Terrorism Act 2008 (Schedule 7)

Greg Clark Excerpts

Monday 18th March 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

My noble friend the Commercial Secretary to the Treasury, Lord Deighton, has today made the following written ministerial statement:

Paragraph 38 of schedule 7 to the Counter-Terrorism Act 2008 requires the Treasury to report to Parliament after each calendar year in which a direction under the schedule is at any time in force. This report provides details of the Treasury’s exercise of their functions under schedule 7 during the calendar year 2012.

The Schedule 7 powers

Schedule 7 provides HM Treasury with powers to implement a graduated range of financial restrictions in response to certain risks to the UK’s national interests. The risks it addresses are those posed by money laundering, terrorist financing and the proliferation of chemical, biological, radiological and nuclear weapons.

Direction given under the powers in Schedule 7

The Financial Restrictions (Iran) Order 2011 (“the 2011 order”) came into force on 21 November 2011. The order contained a direction by the Treasury requiring all UK financial and credit institutions to cease business relationships and transactions with all banks incorporated in Iran, including all subsidiaries and branches of such banks, wherever located, and the central bank of Iran.

The 2011 order was issued on the basis that activity in Iran that facilitates the development or production of nuclear weapons posed a significant risk to the national interests of the UK. The decision was made because of the risk caused by the activity of Iranian banks in facilitating the development or production of nuclear weapons. Iranian banks play a crucial role in providing financial services to individuals and entities within Iran’s nuclear and ballistic missile programmes. Iranian banks can be exposed to the risk of being used by proliferators in Iran’s nuclear and ballistic missile programmes.

In accordance with paragraph 15(4) of schedule 7, the 2011 order ceased to have effect at the end of the period of one year beginning with the day on which it was made, on 20 November 2012.

The Financial Restrictions (Iran) Order 2012 (“the 2012 order”) was made and came into force on 21 November 2012, immediately on expiry of the 2011 order. The 2012 order contained a direction by the Treasury in the same terms as that in the 2011 order. The decision to give the direction in the 2012 order, in effect maintaining the restrictions in the 2011 order in place, was made because of the continued risk to the national interests of the UK caused by the activity of Iranian banks in facilitating the development or production of nuclear weapons. The direction mitigates the risk to the financial sector of being involved in proliferation financing.

Licensing

Under paragraph 17 of schedule 7, the Treasury can exempt acts specified in a licence from the requirements of a direction requiring the cessation or limiting of transactions or business relationships between UK and Iranian banks.

In operating the licensing regime in respect of the 2011 and 2012 order, the Treasury’s aim was to minimise the impact of the restrictions upon third parties, without compromising the objective of the direction.

Six general licences were issued by the Treasury exempting certain activities from the requirements of the 2011 order:

General Licence 1—permitted existing and new transactions involving transfers of under €40,000 for humanitarian purposes;

General Licence 2—allowed personal remittances under €40,000. (This licence included cover for payments of up to €40,000 to students studying in the UK);

General Licence 3—permitted existing or new transactions related to the provision of insurance permitted by EU regulation 267/2012;

General Licence 4—allowed UK banks to continue to hold accounts for asset-frozen Iranian banks and credit payment to those accounts in accordance with EU regulation 267/2012;

General Licence 5—allowed UK banks to continue to hold accounts of non-frozen Iranian banks, although they could not process any transactions on these accounts; and

General Licence 6—provided a seven-day grace period to allow payments in progress under existing contracts to be completed.

On 21 November 2012 the Treasury issued six general licences exempting certain activities from the requirements of the 2012 order. General licences 1 to 5 replicated the provisions of those issued in respect of the 2011 order. The new general licence 6 permitted transactions or business relationships already authorised under the 2011 order.

Applications for licences in respect of transactions that fell outside the scope of the six general licences were assessed on a case-by-case basis.

Between 1 January 2012 and 31 December 2012, 142 licences were issued and none were refused:

Seventy-two licences were issued under the 2011 or 2012 order, and 70 licences were issued in relation to transactions that were caught under both the UK order and EU regulation 267/2012 (or EU regulation 961/2010 which it replaced in March 2012).

Over half of the licences were issued in connection with payments due by an agreement or contract concluded before the prohibitions. Licences were also issued to facilitate UK banks exiting their relationships with Iranian banks in accordance with the order and the winding down of frozen Iranian banks in the UK, for business relationships, and to permit specific transactions such as humanitarian payments, personal remittances, legal expenses and the repayment of loans.

The Financial Restrictions (Iran) Order was revoked on 31 January 2013. The Treasury will report further on the revocation in the 2013 report.