Business And Markets

EU Argument Vague on CBI Sanctions

EU Argument Vague on CBI SanctionsEU Argument Vague on CBI Sanctions

The sanctions imposed on the Central Bank of Iran by the Council of the European Union in October 2012 have proven to be based on "vague presumptions," which will probably make them subject to annulment in the next few months, a legal expert said on Monday, referring to a hearing of the CBI's case at a European court.

The EU Council sanctioned the central bank twice in 2012, first time in March when it alleged that the CBI had helped the Iranian government circumvent US-led sanctions, and second time in October when the council sanctioned the bank alleging that it offered financial support to the government.

On September 18, The Court of Justice in Luxembourg struck down restrictions imposed by the EU against the CBI on an alleged charge of circumventing sanctions. The case against the bank from January 2012 was based on confidential evidence from one unidentified member state, against which Tehran could not mount a defense.

The court said it “annuls…the EU March 23, 2012 [ruling] concerning restrictive measures against Iran in so far as it listed Central Bank of Iran.”  The court also ordered the 28-nation bloc to “bear one half of its own costs and to pay one half of the costs of Central Bank of Iran.”

But for the second case, the court held another hearing on September 30.

Hamid Ghanbari, a lawyer with the CBI's Legal Studies Department who was present in Luxemburg during the hearing, said in a phone interview with Financial Tribune that Europeans came up with no persuasive proof that the central bank had been involved in any sort of financial support to the government.

Ghanbari argued that the provided financial support must meet certain standards regarding quality and quantity. "If the CBI violates those standards it could be sanctioned," he said.

"In terms of quantity, the contribution must be proven to be so significant that it empowers the government to follow up its nuclear activities. The quality criterion is vague, though, as the council has not specified it exactly," Ghanbari explained.

The EU argued that according to the Iranian law, the central bank is allowed to award loans to the government or issue bonds on its behalf. But the CBI argues, "even if it is allowed to use certain rights it does not necessarily mean that it has used them."

Besides, Ghanbari said, in recent years, new regulations have been designed that prevent the CBI from granting any loans to the government.

Clause 2 of Article 117 of the Fifth Five-Year Economic Development Plan, which is in effect now, forbids the government to borrow from the CBI and the banking system as a whole, even in case of budget deficit, Ghanbari added.

On other occasions, if the government has to borrow from the CBI, it will need the approval of the parliament in advance, Ghanbari explained, saying that "the parliament has not permitted the government to do so in the past."

The EU Council needs to present proof that the Iranian government has borrowed from the central bank, or that the parliament has permitted the government to do so, "but they have failed to provide any legal document or contract that proves such financial support has been offered by the bank, and even so, they have no proof to show that the contribution was 'quantitatively' important," the legal expert said. "They may not have any instrument to prove it, but they do not have to impose sanctions on their wrong presumptions too. This argumentation is unacceptable for imposing sanctions."

Ghanbari said that the central bank is not regarded a profit-making enterprise for the government. Its mandate is not to bring about profit for the government, rather, it is mandated with maintaining stability and the monetary value, even the law has forbidden the bank to bring about profit.

Anyway, total removal of sanctions against the CBI is one of the main demands Iran is pursuing in nuclear talks with the P5+1. However, the restrictions might last for another 6 months, Ghanbari said. "Once this happens, the CBI will fully get out of sanctions and both cases will be cancelled."

Iran and the five permanent members of the UN Security Council plus Germany reached an interim deal in the Swiss city of Geneva last November, according to which the six countries accepted to ease sanctions against Iran in return for Tehran to limit certain aspects of its nuclear activities. The deal came into effect on January 20 and expired on July 20. The two sides then agreed to extend the duration of the agreement until November 24, 2014.