As outlined in schedule 7 to the Counter-terrorism Act 2008, the Treasury has undertaken to report to Parliament following the end of each calendar year in which a direction under the powers has been issued. This is the first of these reports, and covers the 2009 calendar year.

The Schedule 7 powers

Schedule 7 provides the Treasury with powers to implement a graduated range of financial restrictions in response to certain risks to the UK’s national interests. The risks it addresses are those posed by money laundering, terrorist financing, and the proliferation of chemical, biological, radiological and nuclear (CBRN) weapons.

Direction issued under the powers in Schedule 7

The Treasury issued a direction under schedule 7 powers on 12 October 2009, designating two Iranian companies: Bank Mellat and the Islamic Republic of Iran Shipping Lines (IRISL). The direction was issued on the basis that activity in Iran that facilitates the development or production of nuclear weapons poses a significant risk to the national interests of the UK. Vessels of IRISL have transported goods for both Iran’s ballistic missile and nuclear programmes. Bank Mellat has provided banking services to a UN listed organisation connected to Iran’s proliferation sensitive activities, and been involved in transactions related to financing Iran’s nuclear and ballistic missile programmes.

The direction requires all UK financial and credit institutions to cease business relationships and transactions with Bank Mellat and IRISL.

The direction was approved by the House of Commons on 28 October 2009 and by the House of Lords on 2 November 2009.

Bank Mellat challenged the direction in 2009, and the judicial review will be heard in 2010. IRISL also challenged the direction in early 2010.

Licensing

Licensing is the means by which the Treasury can exempt business relationships or transactions between designated entities and UK financial and credit institutions from the requirements of the direction. The licensing regime in place for the direction against Bank Mellat and IRISL allows the Treasury to minimise the impact of the restrictions upon innocent third parties, without compromising the objective of the direction. Licences are considered on a case-by-case basis.

Between 12 October and 31 December 2009, 120 licence applications were received. Of these, 90 had been processed by 31 December 2009, 87 licences had been issued, and three licences rejected.