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On March 15, 2012, the Council of the European Union (Council)
adopted Council Decision 2012/152/CFSP (amending Decision
2010/413/CFSP). The new measure prohibits companies such as
the Society for Worldwide Interbank Financial Telecommunication
(SWIFT) from continuing to provide specialized financial messaging
services to EU-sanctioned Iranian banks, effectively shutting them
off from the global banking system. The measure escalates
sanctions to an unprecedented level, as this is the first time
banks are being cut off from the world's largest interbank
transfer network. The prohibitions became effective on March
17, 2012 at 16.00 GMT.
Overview of EU Sanctions
On July 26, 2010, the Council adopted Decision 2010/413/CFSP and
on October 25, 2010 Regulation (EU) No. 961/2010. The
measures, as implemented: (1) banned the sale, supply, or transfer
of key equipment and technology to key sectors of Iran's oil
industry and natural gas industry, (2) imposed bans on financing of
enterprises related to Iran's oil and natural gas industry,
such as prohibiting financial loans or credit to Iranian companies
engaged in the above industry, or any EU acquisition or extension
of participation in such companies, and (3) expanded previous
enhanced monitoring requirements over all Iranian financial
institutions.
On January 23, 2012, the EU significantly expanded these
sanctions with Council Decision 2012/35/CFSP, Council Regulation
(EU) No. 56/2012, and Council Implementing Regulation (EU) No.
54/2012. The measures: (1) banned imports of Iranian
petroleum resource-related products, (2) further sanctioned the
energy, financial, and transport sectors dealing with and providing
assistance to Iran's petroleum resource-related sector, and (3)
froze the assets of the Central Bank of Iran (CBI) and other
persons. The measures cover EU Member States, as well as
persons or entities within the territories of Member States or
under their jurisdiction.
Effects of New Decision
The new Decision amends Decision 2012/35/CFSP and expands the
scope of the earlier sanctions by prohibiting the supply of
specialized financial messaging services, which are used to
exchange financial data worldwide, to Iranian persons and entities
listed in the earlier measures. Sanctioned entities include
the CBI and Bank Tejarat, Bank Melli, Bank Saderat as well as any
other financial institution engaged in, associated with, or
providing support for Iran's proliferation-sensitive nuclear
activities.
As there is no alternative payment routing system, by
discontinuing its communications services to sanctioned Iranian
financial institutions, SWIFT effectively shuts down interbank
international payments to and from such institutions. Iranian
financial institutions potentially could transfer funds via other
avenues, but they are limited and likely to be viewed by many as
impractical, such as making or receiving payment in gold, or
engaging in barter transactions. Therefore, as a
practical matter, few international financial institutions will
likely participate in further transactions with the sanctioned
Iranian entities.
Conclusion
The SWIFT communications cut-off further isolates the targeted
Iranian financial sector from international participation.
This is the first time such action has been taken, which
highlights the EU's commitment to effective Iran sanctions.
Combined with the continuing US, Canada, and the additional
UK sanctions, Iran's cross-border financial transactions
capabilities are substantially restricted.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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