US Extraterritorial Jurisdiction (British Foreign & Commercial Policy)

John Baron Excerpts

Wednesday 26th March 2014 Westminster Hall

[Mr Jack Straw (Blackburn) (Lab)]

I draw to the House’s attention that the hon. Member for Wyre and Preston North (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 6 March to me from the Foreign Secretary. Such trade includes food and agricultural products, pharmaceuticals, medical devices and services. As the Foreign Secretary said in the same letter, however:

“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.

[Mr John Baron (Basildon and Billericay) (Con)]

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?

[Mr Straw]

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 20 January, allows for some relaxation of the sanctions regime, but there is precious little evidence that that is making any significant difference for UK traders or banks, because of the threat, whether real or perceived, from the United States. This unacceptable situation is a direct challenge, I say to the Minister, to the sovereignty of the United Kingdom. It is one that the United States Congress and Government would not tolerate for a moment were the situation reversed, yet the British Government preside over a catastrophic decline in our exports that is not required by sanctions and has not been suffered by any other nation, and then retreat into claiming that they cannot interfere in the “commercial decisions” of UK-based banks.

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.”—[Official Report, 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.