EU Justice Sub-Committee of the House of Lords

Committee Room 3, Palace of Westminster, 11 October 2016, 11am

ORAL EVIDENCE SESSION: EU SANCTIONS

General questions

1) What are the principal reasons for the EU courts annulling so many sanctions listings?

Insufficient evidence

1. The most common reason for targeted sanctions listings being annulled by the General Court of the European Union over the past few years has been that the EU Council has no or insufficient evidence to prove that the allegations made in the published reasons for listing a person or entity. As the Court puts it, the listing is founded on an “insufficiently solid factual basis” and the Council has made a “manifest error of appreciation”.

2. The context for these judgments is that the applicant individual or entity brings an application for annulment challenging (usually among other grounds) the factual accuracy of the allegations published in the “reasons” column in the EU sanctions regulation on which it has been listed or re-listed. The Council (which bears the burden of proof) defends the case on the basis of the evidence on which it relied in in taking the decision to list or re-list, and the Court exercises its powers of judicial review.

3. I have summarised in the attached annex some examples of listings annulled on this basis. This is by no means a complete list; I have given a few examples from different sanctions regimes in order to illustrate the Court’s reasoning on this point in recent annulment cases. I should say that I acted as counsel for the applicants in some of these cases.

Vague reasons

4. Another common reason for annulment is where the EU fails to comply with its duty to give reasons. In the early case law on this issue, people and entities were regularly listed on the basis of no reasons. For example, in T-228/02 People’s Mojehadin of Iran (12.12.2006) and C-315/01 Kadi (3.9.2008), two of the judgments

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setting out the legal principles that apply in EU sanctions cases, the PMOI and Mr Kadi had been listed on counter-terrorist sanctions with no reasons.

5. Now the Council gives reasons for sanctions listings. The Court sometimes finds those reasons to be insufficiently precise, detailed and specific, although the Court has held more recently that there need only be one adequate reason to justify a sanctions designation (ie a listing will be upheld if multiple reasons are given but only one complies with the Council’s duties) and more often now finds a lack of evidence rather than reasons.

Terrorist listings

6. A third reason for annulment relates to the EU’s counter-terrorist sanctions, which have a different legal basis and procedure from all its other regimes. EU sanctions designations which do not relate to terrorism (for example, the regimes referred to in the annex) are made by the EU Council itself deciding on listings or re-listings (on the basis of proposals from member states or third countries).

7. By contrast, terrorist listings (which are based on Regulation 2580/2001) follow a two-stage process:

a. First, a decision of a competent national authority (whose processes respect the rule of law and fundamental rights), based on precise information / evidence, that a person or entity has participated in / facilitated / attempted to perpetrate a terrorist act.

b. Second, review by EU Council as to whether that national decision was based on serious and credible evidence and complied with the rule of law.

8. The Court annuls listings where the Council has not followed that process. Again examples are given in the annex.

2) Are those reasons for annulment justified?

9. In my view these reasons for annulments are justified. The General Court of the European Union has jurisdiction under Article 263 of the Treaty on the Functioning of the European Union to review the legality of acts of the Council of this kind, and people and entities listed in EU “restrictive measures” (targeted sanctions lists) have standing to challenge their inclusion in judicial review proceedings.

10. My view (which has been informed by acting for applicants over a number of years) is that singling out individuals for restrictive measures requires justification. It seems

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to me to be appropriate for the European court to have held, as it has did famously in C-315/01 Kadi (3.9.2008), that EU targeted sanctions must comply with the rule of law, which includes obligations on the Council to give clear reasons, to justify those reasons with evidence, to respect rights of defence, provide effective judicial review, comply with the principle of proportionality. As Advocate General Sharpston (the UK’s Advocate General at the European Court of Justice) put this point in her recent opinion in C-599/14 P LTTE (22.9.2016) at para 102:

“It is worth recalling that the consequences of listing are very serious. Funds and other financial assets of economic resources are frozen… for a person, entity or group that is named in the … list, normal economic life is suspended. It does not seem unreasonable to insist that, where such are the consequences, the procedures followed should be rigorous and should respect fundamental rights of defence and effective judicial protection”.

11. In a number of cases (some of which are listed in the first category in the annex) the Council presented no evidence at all to the Court to justify the published reasons, often disclosing only a redacted listing proposal from a member state containing the person’s name and the wording of the “reasons” column. Where the Council has disclosed material from its file during the court process, it often consists only of the results of internet searches and press articles whose provenance, reliability and relevance are not explained. That said, the Court regularly upholds sanctions listings; they are by no means always annulled, and applicants fail as often as they succeed.

12. Some people no doubt take the view that judicial review by the General Court into targeted sanctions decisions has been too “active”, and that the Court should be more deferential to the Council, given the important foreign policy aims of these measures (in particular counter terrorism and nuclear proliferation). After all, if sanctions were less targeted, they would have a greater impact on individuals but with less due process protection, so it is perhaps ironic that in an effort to be fairer by targeting measures the EU then has to comply with higher standards of fair process.

13. The US courts, for example, take a far more deferential approach to executive action on targeted sanctions; they have truly “closed” procedures in which listings can be upheld on the basis of a classified record that the targets never see, and non-US citizens (which comprise most US sanctions lists) do not enjoy constitutional due process protection. The United Nations has no effective process for challenging targeted sanctions, save for the Ombudsperson process for the Al Qaida list, which was put in place after pressure from the Kadi case (it was feared that the EU court

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would overturn UN listings unless the UN had some mechanism for reviewing listings).

14. I agree with the comments of Advocate Genreal Maduro in the Kadi case on this issue, at paras 34 and 45:

“The implication that the present case concerns a ‘political question’, in respect of which even the most humble degree of judicial interference would be inappropriate, is, in my view, untenable. The claim that a measure is necessary for the maintenance of international peace and security cannot operate so as to silence the general principles of Community law and deprive individuals of their fundamental rights. This does not detract from the importance of the interest in maintaining international peace and security; it simply means that it remains the duty of the courts to assess the lawfulness of measures that may conflict with other interests that are equally of great importance and with the protection of which the courts are entrusted….

Especially in matters of public security, the political process is liable to become overly responsive to immediate popular concerns, leading the authorities to allay the anxieties of the many at the expense of the rights of a few. This is precisely when courts ought to get involved, in order to ensure that the political necessities of today do not become the legal realities of tomorrow. Their responsibility is to guarantee that what may be politically expedient at a particular moment also complies with the rule of law without which, in the long run, no democratic society can truly prosper.”

3) Is the Council’s practice of relisting individuals or entities on amended statements of reasons, within two months and ten days of the annulment of the original listing, fair in terms of due process and the right to an effective remedy?

15. There are of course cases in which the Council must be permitted to re-list individuals or entities that have won applications for annulment, in particular where there is a genuine concern that funds will be used for purposes such as terrorism or proliferation.

16. However, where a listing has been annulled for lack of evidential basis, it does not seem to me to be compatible with the right to an effective remedy or due process for the Council then to rely on the same facts to found an immediate re-listing, by expressing them differently (either by means of a slightly amended statement of reasons or a different listing criterion that it could have relied on at the time of the original listing), or on facts that it could have relied on for the original listing but did not. Moreover, in all re-listing cases it seems to me that the Council should explain

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why there is a continued need for that person or entity now to be re-listed, given the purpose of the restrictive measures in question.

17. This Committee (and the House of Commons EU Committee) has expressed doubts about the fairness of the practice of re-listing on a number of occasions. The House of Commons EU Scrutiny Committee suggested that practices of this kind might in some cases be “an artificial legal device to prolong restrictive measures that have a weak legal foundation” (the Committee was referring to Bank Saderat’s re-listing at para 9.12 of the report of its meeting on 11.5.2016).

18. This Committee questioned the fairness of re-listing the National Iranian Tanker Company (for whom I acted) on the basis that it is a significant carrier of Iranian crude oil and therefore provides “logistical” support for the Government of Iran, when the General Court had annulled its original listing because there was no evidence that it provided “financial support” to the Government of Iran.

19. I agree with the Committees’ concerns in this regard. The President of the General Court (in an interim measures judgment of 16.7.2015 in T-207/15 NITC) stated that in his view re-listing NITC on this basis might jeopardise its right to an effective remedy. And that this principle might require the Council to deploy all reasons and evidence available to it in its initial listings, only to re-list an entity where “new and relevant facts or evidence have emerged”, and to have some:

“element of a time-bar … which would require the Council to include in its first file compiled for restrictive measures all the reasons for inclusion and incriminating evidence which it could easily obtain by the date on which the file is compiled, and which would prevent it, if the Court censures those reasons and evidence, from using them to justify a relisting of the company. That would mean such a relisting could be envisaged only where new and relevant facts or evidence have emerged, while the Council would be prohibited from using, during future re-listings, evidence that it had admittedly not yet invoked, but which could already have been invoked on the date of the first listing.”

20. However, the General Court upheld NITC’s re-listing and did not follow the President remarks on this point. There are other pending cases on the practice of re-listing (eg IRISL, Bank Saderat), but based on the NITC judgment, it seems that the General Court is likely to uphold the lawfulness of the Council’s re-listing practice. The Court of Justice (the appellate court) has not yet ruled on this issue. The Court of Justice has rejected the argument that sanctions measures should be annulled immediately rather than the annulment being suspended until after the appeal period has expired (the Court analyses the legal instruments as regulations of general application rather than as individual decisions; see eg C-200/13 P Bank Saderat (21.4.2016)).

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4) Does the number of listings being annulled have a wider bearing on the credibility, or effectiveness, of EU sanctions?

21. It may be that the credibility of EU sanctions is harmed by the fact that the EU Council has not been able to uphold the evidential basis or procedural fairness of a number of listings, in particular in Iranian cases. It seems to me to be plausible to think that the practice of the Council to re-list entities that have won their cases on the basis of unchanged facts with slightly relabelled reasons could damage the credibility of EU targeted sanctions, although as I have said this practice has so far been upheld by the European court.

22. Others may take the view that this is a sign of a robust system in which the EU court provides effective judicial review and listings require justification in court. It may also be that has been (and will be) a move away from targeted sanctions (eg in the case of the EU’s Russia sanctions regime) in part because listings have been difficult to defend in court. This would be ironic given that the purpose of targeted sanctions is to be more proportionate and fairer than broader measures that impact more widely on a population.

23. Every time a listing is annulled, one could say that targeted sanctions are less effective, in that the restrictive measures no longer apply to that person or entity. However, this seems to me to be a consequence of targeting sanctions, and of the application of the rule of law in the EU. Advocate General Mengozzi expressed this view in his opinion in Case C-376/10 P Pye Phyo Tay Za v Council (rejecting an argument that the EU’s Burma sanctions should be based on a presumption, rather than on concrete evidence, that family members of people that benefit from the regime themselves benefit):

“I do not believe that everything may be sacrificed on the altar of the effectiveness of the restrictive measures. By this I mean, that the very thing that gives the European Union its added value, that distinguishes it from the authoritarian regimes it fights against, is the implementation and defence of a union governed by the rule of law. It would be easier, and certainly more effective, to establish a system of sanctions applicable to the whole of the Union of Burma. By taking the approach of targeted sanctions, the EU has opted for a system of sanctions which may be less effective but which is undeniably fairer. Of course, if they are to produce the desired effects, the sanctions have to be as effective as possible. Absolute effectiveness, however, must fall by the wayside, the very fallibility of the restrictive measures testifying to the fact that, in the legal system of the European Union, it is the rights of individuals that are paramount.”

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24. It may be difficult in any event to measure the “effectiveness” of targeted sanctions, given that EU regimes do not usually state what they are designed to achieve, but often just why the regime as imposed (eg “in view of the deteriorating human rights situation in X”, “in the light of Russia’s actions in Ukraine” etc). It is often not clear what the inclusion of a particular person or entity is designed to achieve and therefore whether it has been “effective”. The measures do not say, for example, if you adopt policy X or stop engaging in behaviour Y, the EU will remove that person or entity from the list. People may be included for events in the past (which they cannot change), or because of their positions in / connections with regimes rather than their conduct, and it is therefore difficult to know how the effectiveness of their inclusion can be measured, or whether the possibility of court annulment therefore has an impact on effectiveness.

5) What has the Council done to improve the fairness of the listing and relisting process over the last two to three years?

25. I am not aware of any changes made by the Council over the last two to three years to improve the fairness or the listing or re-listing process. One concern is that the procedures followed by the Council for listing and re-listing are for the most part not transparent. I am not aware of any improvements that it has made public or that are publicly visible.

6) Do you think the Council’s response, particularly the introduction of the closed material procedure, will stem the level of litigation?

26. It is not possible at this stage to say how much the new procedure in Article 105 of the Rules of Procedure of the General Court will be used or what impact it will have. Whether the procedure results in applications for annulment being dismissed and/or fewer cases being brought or succeeding will of course depend on the evidence submitted, and the Court’s approach.

27. I doubt that this new procedure will have a significant impact on the level of litigation, for the following reasons:

a. Article 105 may not provide sufficient safeguards for some Member States to make wide use of it. The United Kingdom abstained in the Council vote on the new rules because of concerns that the originator of the information could not withdraw the information after a certain stage, and that there was no mechanism for checking inadvertent disclosure in orders and judgment. The Rt Hon David Lidington (then the Europe Minister) informed the House of Commons European Scrutiny Committee in a letter of 5 January 2015 (considered in its 29th

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report of session 2014-15) that the absence of these safeguards would limit the types of information that the UK would be able to submit to the Court.

b. The new procedure is, in my view, of serious concern as regards the rule of law because (contrary to the case law of the European Court of Human Rights and the House of Lords) it does not require an “irreducible minimum” level of disclosure to applicants. Those courts have interpreted Article 6 ECHR (the right to a fair hearing) as requiring that individuals are given sufficient information to enable them to give effective instructions in order to refute allegations against them, even where it would be damaging to national security to disclose that “irreducible minimum”. Article 105 does not provide any protections such as Special Advocates to represent the interests of listed parties (which even the UK Justice & Security Act 2013 does).1

28. It may be that the level of litigation will decline in any event in future years (and I think has already done so) because of a number of other factors:

a. The Court’s jurisprudence makes it increasingly difficult for applicants to succeed in any event (see my answer below) including on the Council’s practice in relation to re-listings.

b. As stated below, listing criteria are becoming less susceptible to challenge because they are based on the position or status of an individual or entity rather than their conduct, and the use of broader, less targeted sanctions is increasing.

c. The EU’s Iran sanctions have mostly now been lifted as a result of the Joint Comprehensive Plan of Action agreed in July 2015; a large number of cases had been brought by Iranian people and entities.

7) What would you recommend to make the process fairer, and what is the likelihood of these recommendations being implemented?

29. I would recommend the following reforms in order to make the process fairer:1 The Bar Councils of England and Wales, the General Council of the Bar of Ireland and Northern Ireland, the Scottish Faculty of Advocates, the Law Societies of England, Wales, Scotland and Northern Ireland, Justice, Liberty, the Bingham Centre for the Rule of Law, and a number of Specialist Bar Associations, wrote to the President of the Court of Justice suggesting a consultation on the rule change given that “an amendment to the Court’s rules to permit exceptions to the principle that a person should know the case against him or her “may have a serious impact on the rule of law, natural justice and rights of defence, and may raise serious issues of constitutional and public importance for fundamental rights in the European Union, upon which our organisations (and others) may wish to comment”. A consultation was declined.

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a. A more rigorous evidence gathering capability in the EU Council so that listings are genuinely based on concrete evidence, gathered following a process that respects rights of defence, and to an appropriate standard of proof. As I have said, this exists in the case of terrorist listings but not the other EU sanctions lists.

b. A more responsive Council secretariat, both in terms of the speed and substance of responses (see above).

c. A swift, responsive, and effective system for requesting de-listings, in which evidence is reviewed in detail, assessed against a consistent and appropriate standard, and where de-listings can be proposed where appropriate and remedies given for unlawful listings. The most obvious model for some of this is the UN Ombudsperson for the Al Qaida Sanctions Committee. At the moment the European Court process is slow and expensive, and in practice does not provide either injunctive relief (ie suspending the effect of sanctions pending the outcome of a case), or expedition even in urgent cases, or damages for wrongful listings or realistic recovery of legal costs.

d. A re-think in particular of EU regimes that have the potential for political misuse. I am particularly concerned by the “misappropriation of State funds” regimes which relate to Ukraine, Tunisia and Egypt. The EU lists people said to be connected with former regimes (the Yanukovych, Ben Ali & Mubarak regimes) on the basis that people are under “judicial investigation” in those countries for having misappropriated State funds. The EU was asked to impose sanctions on “enemies of the state” (literally, in the case of Tunisia) by the deposing regimes, and did so in some cases 24 hours later. The European Court has upheld the lawfulness of those regimes, and rejected submissions that there should adequate safeguards to ensure that there is evidence, a prima facie case, and a fair trial in those countries. I am concerned these regimes contain no safeguards against misuse for political purposes, and circumvent the well established processes for countries providing each other with mutual legal assistance.

30. I am not in a position to guess at the likelihood of these recommendations being implemented. I expect that it is close to zero at this time. There is no political or legal impetus to do so of which I am aware. Sanctions regimes seem to me to be healthy given in particular that the Council may amend listing criteria, re-list where there have been annulment judgments in the manner outline above, and move away from targeted sanctions.

Questions arising from the Committee’s correspondence

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8) What do you consider to be the value of Parliamentary scrutiny of sanctions listings, when the great majority are submitted for scrutiny after adoption by the Council, based on evidence which is confidential?

31. The concerns raised by this Committee and by the House of Commons EU Committee are, in my view, of considerable importance. From the perspective of people and entities targeted by EU sanctions, these Parliamentary committees may be the only bodies that have raised with the relevant public authorities concerns that arise in many listing and re-listing cases.

32. Applicants have sometimes raised points with the Committee because there is no other body that will press the decision-makers for answers: the Council is extremely unresponsive (see my answer below). The UK Courts have been reluctant to permit judicial review of UK sanctions decision-making given that EU sanctions require unanimity in the Council. Applicants in my experience therefore greatly appreciate the detailed and persistent scrutiny provided (or attempted) by this Committee.

33. I should note that the General Court has dismissed the relevance to EU sanctions litigation of “possible objections to … re-listing expressed at national level” and the procedure to “bypass the scrutiny of the competent parliamentary committees” because they were not relevant to the EU case, which concerned the legality of the EU Council’s actions (in re-listing the NITC; T-205/15; 14.9.2015 paras 43-44).

34. The House of Commons European Scrutiny Committee expressed the view in May 2016 that the override of its scrutiny was “part and parcel of a policy adopted recently by the Minister”, by which he is “deliberately undermining scrutiny” by the House of Commons. The Foreign & Commonwealth Office will be better placed than me to comment on the use of scrutiny override, and on the fact that measures are submitted for scrutiny after (or extremely close to) their adoption. It may be that the Committee could be informed more quickly in the case of re-listings, where there is no danger of “asset flight” and where people and entities are informed in advance of the intention to re-list them in any event. I have addressed the claimed confidentiality of the evidence on which listing decisions are based in my answer to question 10 below.

9) In your experience, has the Council relied more often on open-source evidence in the last two years to justify sanctions listings, and has this made the process fairer?

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35. As I have said, it used to be the case that the Council would provide no evidence to justify a listing; at most it would disclose the listing proposal which usually contained only the name of the target and the reasons that became the published reasons for listing.

36. More recently the Council’s practice has been to disclose some form of documentation to justify its listing and re-listing decisions. This is “open-source” in the sense that it usually consists of the results of internet searches and press articles relating to the targeted person or entity.

37. This is “fairer” in the sense that some material justifying a designation is better than none, and sometimes the material disclosed has been considered to be sufficient by the General Court to uphold a designation. For example, if a company is listed because it is “owned” or “controlled” by a listed entity, and if the open-source material contains information on corporate ownership structure suggesting that this is the case, the Court may well uphold the designation (unless the applicant company were to submit compelling evidence that the open source material is incorrect).

38. However, in my view the fact that material is “open source” does not mean the process is more robust. In particular:

a. the General Court accepts as “evidence” material that a UK court would not regard as meeting any appropriate evidential threshold. The open source material often consists of opinions expressed in press articles, sometimes from a non-objective source, or internet pages whose source and reliability are unknown and untested. I am doubtful that presentation of this material makes the process fairer. As Advocate General Sharpston put it in her opinion in the LTTE case I quoted above (para 100):

“the Council cannot include a person or group in the … list because it has a press report stating ‘he did it’ or ‘he said he did it’. Such a decision cannot satisfy the conditions of Common Position 2001/931. Nor is it reconcilable with the rule of law.”

b. Although there are no doubt cases in which member states are reluctant to share sensitive intelligence information, that cannot in my view account for the absence of evidence other than internet searches and listing proposals; there is a large spectrum of material in between highly sensitive national security intelligence material and internet searches, but one rarely in my experience sees much in between.

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c. In the case of the EU’s “misappropriation” regimes in particular, the fact that an open letter is written by a State prosecutor in Ukraine, Tunisia or Egypt stating that an investigation for corruption offences is underway does not in my view make this a “fair” basis for an EU-wide asset freeze.

39. It may be that the Council does not have adequate means to investigate in order to provide robust evidence; the Council will be in a better position to comment on this than me. This is why terrorist listings require a national decision of a competent authority that respects rights of defence based on evidence; the Court of Justice in C-539/10 P Stichting Al-Al Aqsa noted “the absence of means on the part of the European Union to carry out its own investigations regarding the involvement of a given person in terrorist acts”.

10) Is it a correct interpretation of Council procedural rules that national parliaments are not entitled to see such open-source information?

40. This does not seem to me to be likely to be a correct interpretation. I have not had time to undertake a full legal analysis, but my view in brief for these purposes is as follows.

41. The Foreign & Commonwealth Office has relied in correspondence on Article 6(1) of the Council’s Rules of Procedure for its view that the open-source information on which it seeks to justify listings is based. Article 6(1) states that “Without prejudice to Articles 7, 8 and 9 and to provisions on public access to documents, the deliberations of the Council shall be covered by the obligation of professional secrecy, except in so far as the Council decides otherwise”.

42. This does not seem to me to relate to open-source material relating to, and sent to, a sanctions target. The Committee has not asked for the “deliberations of the Council” to which Article 6(1) relates; that refers to the Council’s own deliberations (for example, records of who said what at a meeting).

43. I do not agree with the view expressed by the FCO in correspondence that this covers all information “shared with the Council”. The EU has broad principles and provisions permitting access to documents. Documents submitted to the Council on the part of its agenda entitled “legislative deliberations” are public in any case, by virtue of Article 7(2). The Rules set out procedures for applications for the disclosure of documents from third parties or from other institutions or member states. But as this Committee has noted in correspondence, open-source documents that have

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already been disclosed to a designated person are in the public domain in any event. I can think of no good reason why in those circumstances they should not be disclosed to the Committee.

11) Is there a standard of proof applied by the Council in adopting listings and, if so, what is it?

44. I am not aware of any standard of proof being applied by the Council in adopting listings, except in a counter-terrorism context. The Council will obviously be in a better position to answer this question than me.

45. It is, in my view, a serious shortcoming in the case law of the European Court that it has not required an evidential threshold or standard of proof in non-terrorist sanctions cases, beyond saying that there must be a “sufficiently solid factual basis” for a listing and that “mere unsubstantiated allegations” will not suffice.

46. The exception is for terrorist listings, where the two-tier procedure I have outlined above applies. There must be a decision of a competent national authority, whose processes respect the rule of law and fundamental rights, based on precise information / evidence, that a person or entity has participated in / facilitated / attempted to perpetrate a terrorist act. There must be review by EU Council as to whether that national decision was based on serious and credible evidence and complied with the rule of law.

47. Several states use their normal criminal or other judicial procedure for the freezing of terrorist assets and so rely on standards applicable to the initiation of a criminal investigation or prosecution or application for a judicial warrant for freezing, for example that there is "sufficient evidence" or a "strong suspicion". The Financial Action Task Force recommends the alternatives of “reasonable grounds or basis/to suspect/to believe”, as does the Commonwealth’s Model Legislative Provisions on Measures to Combat Terrorism (reasonable grounds to suspect or to believe). The United Nations Ombudsperson’s standard is “whether there is sufficient information to provide a reasonable and credible basis for the listing”, recognizing that these are not criminal measures, but they are significant and must respect rights of defence.

48. By contrast, other EU autonomous sanctions have no such requirement. I cannot see why a different standard should apply to other EU sanctions regimes, which freeze the assets of (and sometimes prohibit travel by) individuals on the basis of their conduct or status for an important foreign policy aim.

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12) How effective is the Council/EEAS in corresponding with individuals or entities subject to listings? Have you formed a view of how attentively its staff consider representations made to them in such correspondence?

49. In my experience, although practice varies in quality, the Council is not generally effective in corresponding with individuals or entities subject to listings. This is one of the principal causes of frustration among those subject to sanctions listings. In particular:

a. The Council frequently takes several months to respond to correspondence from targeted people or entities and when it does so frequently sends a “holding” reply (eg “we have received your letter and will respond”).

b. When (sometimes “if” rather than “when”) the Council does respond substantively, the quality and level of engagement varies a great deal. In the majority of cases, the Council does not respond to the substance of observations raised by applicants or their representatives. Usually the Council’s letter states that the Council “proposes to re-list [x]” or “has decided to re-list [y] for the reasons given in the proposed measures”.

50. It is unusual (in my experience) for the Council to engage with the substance of representations / observations in correspondence. Applicants frequently spend a great deal of time making detailed representations on the reasons why their listings are unjustified, in the hope that the Council might engage with their observations and de-list them or provide a convincing explanation as to why their listings remain justified and why their particular observations are rejected. Were the Council to do so it might obviate the need for applicants to bring expensive and slow court proceedings. However, the Council almost never responds before the deadline for an annulment application has passed (2 months & 10 days after an applicant has been informed of the listing) which means that the applicant has to bring proceedings in any event.

51. When the Council does respond, it frequently does not engage with the substance of observations, or where it does it states that it rejects them without explaining why. It usually responds to observations only in the sense of saying something along the lines of: “your observations have not changed the Council’s assessment in this regard” without explaining why. The Council always (as far as I am aware) declines to inform individuals what it is that they need to do in order to be de-listed, even when they have asked directly what the conduct is that the Council wishes to change or influence. And refuses also to respond to suggestions that there are less restrictive but equally effective alternatives to a total EU-wide asset freeze. This

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seems to me sometimes to be paying “lip service” to rights of defence, as the General Court put it in Kadi II.

52. The Council’s practice in this regard does not seem to vary between cases where there might have been a real injustice to an individual (and where the individual is suffering sometimes severe personal consequences; I have known of Syrian targets receiving death threats as a result of their sanctions listings) and cases where the listing is more obviously justified. This is very frustrating to representatives, and makes expensive court proceedings inevitable.

53. That said, the General Court rarely now annuls listings for failure to comply with the applicant’s rights of defence; the Court seems to regard the Council’s replies as being sufficient for these purposes.

13) The General Court appears to have been particularly critical of the Council in the listing of Yuri Chyzh under the EU-Belarus sanctions regime. Do you think it was right to require a greater nexus between Mr Chyzh and the allegation against him, beyond his general connections with the political regime?

54. I do think this judgment is correct (perhaps unsurprisingly, since I acted for Mr Chyzh). The reasons given for his listing were that:

a. First, he provided “financial support” to the Lukashenko regime. The Council relied for this allegation on the fact that it was “widely known” that Mr Chyzh was a leading businessman in Belarus, and that he paid taxes. The Court was correct in my view to say that these facts did not in themselves demonstrate that Mr Chyzh provided the regime with financial support, and “the Council provides no evidence showing that Mr Chyzh financially supports the regime” (para 168). The Council had also made allegations in pleadings (but not in the reasons) that Mr Chyzh must have paid bribes and that his company’s “public awards and concessions” had been obtained other than through merit, but Mr Chyzh disputed this and again the Council provided no evidence that this was so.

b. Second, that he was “associated with” the regime, given his role in sporting bodies and the importance that President Lukashenko attaches to sports. Again the Court said that mere association with sporting bodies was not evidence of association with the regime; evidence was required.

55. The Court was not unusually critical of the Council’s lack of evidence in this case. In a number of the cases I have referred to in the annex (and others), the Council relies

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on presumptions and unevidenced assertions, often alleging serious misconduct that might severely damage the reputation of listed people / companies, rather than on concrete evidence. These allegations, where they are unjustified and unsupported, are in sense easy to make but difficult to defeat for applicants; they are published to the world, the Council will never withdraw them in the process of correspondence, and only expensive litigation which takes many years can achieve that. Even then the Council’s common practice is to appeal and/or re-list, and the Court has almost never granted damages for wrongful listings.

14) The statement of reasons for the listing for Bank Saderat was supplemented three days before the decision of the Court of Justice upholding the annulment of the original listing. Does this concern you?

56. That timing is of concern, of course.

57. Also of concern in the case of Bank Saderat (like that of NITC, referred to above) is that the amended statement of reasons relied on the same facts that the General Court had said were inadequate (the Court of Justice agreed 3 days later), acts which related to allegations of conduct in 2009, refuted by the Bank since 2010, and regarded as insufficient by the Court in 2013.

58. The Council’s case is that it can rely on old facts in support of a different listing criterion (assisting an entity to breach sanctions rather than supporting nuclear proliferation). A challenge to the Bank’s re-listing is pending before the General Court; as I have said the Court has so far upheld the lawfulness of the Council’s re-listing practice in this regard.

15) Are there any other points you would like to raise that arise out of our correspondence with the Government over the last two years on sanctions listings?

59. The Government states in this correspondence that although the designation of an individual under a regime of restrictive measures “may engage fundamental rights, however any interference with those rights is considered to be proportionate which is why, on analysis, no fundamental rights issues apply”.

60. The European Court has essentially agreed with this approach; it has never challenged the proportionality of a targeted sanctions decision, except in the case of Kadi which it held was disproportionate because no reasons were given or opportunity to make observations. It is troubling in my view that the Government takes the view that any listing will be proportionate because it serves an important

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foreign policy aim, even listings that could serve no purpose connected with the aim of the sanctions regime, or whose impact on an individual would be disproportionate to achieving such an aim. The Government is of course correct that there are derogations from asset freezes, but they are extremely limited.

Brexit

16) Once the UK has withdrawn from the EU, is it likely to have to align itself with all autonomous EU sanctions?

61. If the United Kingdom ceases to be a Member State of the European Union, it will not be bound by EU sanctions, and I am not aware of any obligation to align itself with all autonomous EU sanctions. The UK will of course continue to be obliged to implement United Nations Security Council sanctions.

62. If the UK decides to impose sanctions itself, whether aligned with the EU’s autonomous sanctions regimes or not, it will I assume enact primary legislation. At the moment the UK has autonomous terrorist asset freezing powers in the Terrorist Asset-Freezing etc Act 2010, but does not (as far as I am aware) at the moment have powers to impose restrictive measures where the UK is not implementing UN or EU measures.

63. It is worth noting that I understand (anecdotally) that the UK has significant influence over EU sanctions policy and processes, and takes greater care to ensure the due process and evidential support for targeted listings than a number of other Member States. Brexit may therefore have implications for the credibility and effectiveness of EU sanctions.

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Annex: the principal reasons for recent annulments

Insufficient evidence

The following are a few examples of listings annulled on the basis that there was an insufficiently “solid factual basis” for the designations.

Iran: where the criterion for listing is being “engaged in, associated with or providing support for Iran’s nuclear activities”, or “acting on behalf of” such an entity:

T-421/11 Qualitest FZE (5.12.2012): The Council could not support the allegation that the applicant was “involved in procurement of components for Iranian nuclear programme” (para 60).

T-57/12 Good Luck Shipping (6.9.2013): The Council could not support the allegation that the applicant “acted on behalf of” the Islamic Republic of Iran Shipping Line (para 65).

T-12/11 Iran Insurance Company (6.9.2013): The Council could not support the allegation that the applicant provided insurance services for the purchase of helicopter spare parts / electronics / computers for use in aircraft and missile navigation (para 127).

T-4/11 Export Development Bank of Iran (6.9.2013): The Council could not support the allegation that the applicant had made payments circumventing sanctions against Bank Sepah (para 120).

T-12/11 Post Bank Iran (6.9.2013): The Council could not support the allegation that the applicant had assisted Bank Sepah to evade sanctions (para 131).

T-110/12 Iran Offshore Engineering & Construction Co (6.9.2013): The Council could not support the allegation that the applicant had participated in the construction of the Qom enrichment site (para 56).

T- 489/10 Islamic Republic of Iran Shipping Lines (16.9.2013): The Council could not support the allegation that IRISL was involved in shipments of proscribed cargo.

T-182/13 Moellem Insurance Co (10.7.2014): The Council could not support the allegation that the applicant was IRISL’s main insurer (para 47).

T-384/11 Safa Nicu Sepahan (25.11.2014): The Council could not support the allegation that the applicant supplied equipment to the Qom facility (para 38).

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T-158/13 Iranian Aluminium Co (15.9.2015): The Council could not support the allegation that the applicant had contracted to supply aluminium to a designated entity (para 49).

T-52/15 Sharif University of Technology (28.4.2016): The Council could not support the allegation that the applicant had assisted entities “to violate the restrictive measures adopted against Iran, or provided direct support to Iranian nuclear activities”.

And where the additional listing criterion was added: “providing support to the Government of Iran”:

T-565/12 National Iranian Tanker Company (3.7.2014): The Council could not support the allegation that the NITC was “effectively controlled by the Government of Iran” or provided “financial support to the Government of Iran through its shareholders which maintain ties with the Government”.

T-157/13 Sorinet Commercial Trust Bankers (3.7.2014): The Council could not support the allegation that the applicant “assists designated entities to violate” sanctions or is “providing financial support to the Government of Iran” etc (para 75).

T-155/13 Babak Zanjani (3.7.2014): The Council could not support the allegation that the applicant had assisted designated entities to violate sanctions or provided financial support to the government (paras 74-5).

T-121/13 Oil Pension Fund Investment Co (18.9.2015): The Council could not support the allegation that the applicant provided financial support to the Government of Iran.

T-539/14 North Drilling Company (19.11.2015): The Council could not support the allegation that the applicant was a subsidiary of the National Iranian Oil Company.

Ukraine: A letter from the Ukrainian public prosecutor to the EU (which constituted the evidence relied on by the Council) did not contain sufficient information about the allegations against any individual for the Council to be able to support the allegation that the following people were “responsible for the misappropriation of state funds” (the relevant listing criterion):

T-290/14 Portnov (26.10.2015)

T-331/14 Azarov, T-434/14 Arbuzov, T-332/14 Azarov, T-486/14 Stavtskyi (all 28.1.2016)

T-340/14 Klyuyev and T-348/14 Yanukovych (both 15.9.2016)

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Belarus: The listing criterion is people or entities “responsible for serious human rights violations, whose activities seriously undermine democracy or the rule of law in Belarus, or who benefit from or support the Lukashenko regime”:

T-441/11 Peftiev (9.12.2014): The Council could not show that the applicant was an associate of or provided financial support to the regime.

T-267/12 Chyzh (6.10.2015): The Council could not show that the applicant provided financial support to the regime.

T-693/13 Mikhalchanka (10.6.2016): The Council could not show that the applicant’s activities undermined democracy or the rule of law in Belarus.

Syria: The criterion for listing is people and entities “responsible for the violent repression against the civilian population in Syria, and persons associated with them” or providing support for or benefitting from the Syrian regime:

T-293/12 Syria International Islamic Bank (11.6.2014): The Council could not show that the bank provided financial support to the Syrian regime.

T-203/12 Alchaar (3.7.2014): The Council could not show that the applicant was still connected with the Syrian regime.

T-329/12 Tabbaa (9.7.2014): The Council could not show that the applicant was the business partner of two other sanctioned people, and the co-owner with another of a currency exchange company which the Council alleged “supports the policy of the Central Bank of Syria”.

T-43/12 Hamcho, T-654/11 Kaddour, T-653/11 Jaber (all 13.11.2014): The Council could not show that they were associates of Maher al Assad, provided support for the regime, or were involved in the violent suppression of the Syrian people.

T-652/11 Sabbagh (26.2.2015): The Council could not show that the applicant was associated with President Bashar al-Assad in funding a real estate project, or was providing financial support to the regime.

T-723/14 HX (2.6.2016): The Council could not show that the applicant supports or benefits from the regime.

T-719/14 Tri Ocean Energy (9.9.2016): The Council could not show that the applicant was “providing support to the Syrian regime and benefitting from the regime by organising covert shipments of oil to the Syrian regime”.

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Another reason for annulment (related to the first category set out above) is that the Council cannot support listing or re-listing a person or entity on the basis of an alleged connection with another person or entity. A few examples in this category:

Iran:

Once IRISL’s listing was annulled, so were those of a number of people and companies alleged to be connected with it; T-423/13 Good Luck Shipping, T-45/14 HTTS & Mr Bateni, T-58/12 Mr Nabipour & others, T-420/11 Ocean Shipping, and numerous other individuals and entities.

T-5/13 Iran Liquified Gas Company was listed for a connection with the National Iranian Oil Company, which was not proved.

When Sina Bank’s designation was annulled, it followed that so to was T-68/12 Mr Hemmati’s.

Belarus:

T-276/12 Dinamo Minsk was listed for connection with Mr Chyzh; when his listing was annulled so was that of Dinamo Minsk.

T-440/11 BT Telecoms PUE’s listing for being controlled by Mr Peftiev failed when his listing was annulled.

Vague reasons

A few examples of cases from the past few years in which the Court has held that the reasons for listing did not comply with the duty to state reasons are as follows:

T-15/11 Sina Bank (11.12.2012): Alleging that the bank was “closely linked to the interests of ‘Daftar’. It thus contributes to the financing of the regime’s special interests” was too vague.

T-24/11 Bank Refah Kargaran (6.9.2013): The allegation that the bank had “taken over ongoing operations from Bank Melli in the wake of the sanctions imposed on the latter by the European Union” was too vague.

T-262/12 Central Bank of Iran (18.9.2014): being “involved in transactions to circumvent sanctions” was too vague.

Case C-176/13P Bank Mellat (18 February 2016): the bank “engages in a pattern of conduct which supports and facilitates Iran’s nuclear and ballistic missile programmes” and “has provided banking services to UN and EU listed entities, to entities acting on

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their behalf or at their direction, or to entities owned or controlled by them” was too vague.

Case C-200/13 P Bank Saderat (21 April 2016): providing banking services to entities “procuring on behalf of Iran’s nuclear programme”, including UN listed entities, was too vague.

Failure to apply the 2-stage terrorist listing process

Designations have been annulled for failure to follow this two-stage process. For example:

T-208/11 LTTE (16.10.2014): the Court found that the Council had not assessed whether the Indian competent authority protected rights of defence and effective judicial review in a manner equivalent to EU protection. And the Court would not permit the Council to rely on French and German decisions that were raised ex post facto, or out of date assessments by the UK, or on the EU’s own press and internet searches as opposed to the considerations taken into account by the relevant national authorities (the UK and India).

T-400/10 Hamas (17.12.2014): similar reasoning.

T-127/09 Abdulrahim (14.1.2015): this time a UN terrorist designation implemented in the EU. The reasons given by the UN Sanctions Committee were insufficient to justify Mr Abdulrahim’s EU designation; insufficient evidence that he was involved with the Libyan Islamic Fighting Group (LIFG) in 2007, or that the LIFG was associated with Al Qaida.

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