Note: Bank Mellat (Bank), an Iranian bank, was excluded from the U.K. financial market by HM Treasury (Regulator) pursuant to the Counter- Terrorism Act 2008 (CTA). In 2009, Regulator, applying the CTA, ordered "all persons operating in the financial sector" to cease transactions and relations with Bank. Regulator gave this order because Bank had provided financial services to U.N. prohibited entities. Bank moved to have the order set aside. The Queen's Bench Division, Administrative Court, Mitting, J., denied the motion.

On appeal, Court of Appeal, Civil Division, Kay, LJ., affirmed the trial court decision. Quoting extensively from the trial court's decision, the appellate court noted that Bank frequently issued letters of credit. The court reasoned that this subject was relevant because an Iranian importer of prohibited weapons and materials would likely use an Iranian bank, such as Bank, to issue letters of credit. Kay, LJ. quoted from Mitting J.'s opinion at paragraph 16:

To produce or facilitate the production of nuclear weapons, Iran needs to import uranium, centrifuges and, no doubt, a host of other materials, from abroad. To do so, it must pay for them. To pay for them, it will require, or at least find convenient, to use banking facilities, in particular the issuing and confirmation of letters of credit. An Iranian importer of such material is likely to turn to an Iranian bank with an international presence, to issue letters of credit.

Bank argued that it had ceased all connection with U.N. prohibited entities and therefore all future letters of credit were irrelevant. The court rejected this claim noting that it is easy to conceal the contents of imported goods. Again quoting Mitting J.'s opinion at paragraph 16:

The fundamental justification for the order is that, even as an unknowing and unwilling actor, the bank is, by reason of its international reach, well placed to assist entities to facilitate the development of nuclear weapons, by providing them with banking facilities, in particular trade finance. Concealment of the true nature of imported goods paid for by a letter of credit is straight forward: all that an issuing bank sees are documents. On presentation of compliant documents describing innocent goods, the bank must pay, whatever the nature of the goods in fact imported.

Consequently, Bank was still a risk because it issued letters of credit and had done business with prohibited parties.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.