French case shows the practical difficulties in implementing the Blocking Statute against economic pressures.
In the case Bank Sepah v. Overseas Financial Limited and Oaktree Finance Limited, the frozen assets at the center of the dispute were tied to debts owed by Bank Sepah to two creditors, Overseas Financial Limited and Oaktree Finance Limited.
The creditors sought enforcement of a Paris Court of Appeal ruling from 2007, which had ordered Bank Sepah to pay approximately €1.8 million and €1.1 million, respectively, to Overseas Financial Limited and Oaktree Finance Limited, along with interest.
However, due to EU sanctions against Bank Sepah, these assets were frozen under Regulation (EC) No 423/2007, which imposed restrictive measures on entities involved in Iran’s nuclear proliferation activities. The Court of Justice of the European Union (CJEU) ruled that the enforcement of such debts was not allowed without prior authorization from the national competent authority, even if the claims pre-dated the sanctions and were unrelated to Iran’s nuclear program.
Overview of Bank Sepah
Established in 1925, Bank Sepah is the oldest bank in Iran and was created to provide services to the military. In the years following the Islamic Revolution in Iran, several other military banks and financial institutions were established by various branches of the Islamic Republic’s armed forces.
The IRGC Cooperatives Foundation (BTS) created Ansar Bank. The Basij Cooperatives Foundation (BTB), which is controlled by BTS, created Mehr Eqtesad Bank. The Iranian Police Force created Ghavamin Bank. The Islamic Republic Army created Bank Hekmat Iranian and the Ministry of Defense created Kowsar Credit Institution, which previously had the IRGC and BTB Personnel Life Insurance Fund among its shareholders, and its subsidiaries had IRGC members as board members.
Abdolnaser Hemmati, the former Governor of the Central Bank of Iran (CBI) and Iran’s current Minister of Economic Affairs and Finance, said in March 2019 that these military banks were created in the late 2000s and early 2010s to bypass sanctions against Bank Sepah, according to Iranian media reports. “To counter such sanctions, each military institution established its own dedicated bank to easily conduct financial transactions,” he added. (In Farsi, “Sepah” is a heteronym that shares its name with the Islamic Revolutionary Guard Corps.)
All military banks were later merged with Bank Sepah in 2019. These banks had a total of 2500 branches that increased Bank Sepah’s domestic branches to 4100.
Bank Sepah Currently has branches in France and Germany, as well as BANK SEPAH INTERNATIONAL PLC based in the UK.
The US Treasury has sanctioned Bank Sepah as well as the many of the banks that merged with it.
Connection to other Iranian banks
One former executive at the UK branch, Hadi Akhalaghi Feizasar, previously acted as the director of Persia International Bank, according to Companies House business records. He is the current CEO of Tejarat Bank.