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.
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.