Joined Cases T-246/08 and T-332/08

Melli Bank plc

v

Council of the European Union

‛Common foreign and security policy — Restrictive measures against the Islamic Republic of Iran to prevent nuclear proliferation — Freezing of funds — Actions for annulment — Judicial review — Proportionality — Equal treatment — Obligation to state reasons — Plea of illegality — Article 7(2)(d) of Regulation (EC) No 423/2007’

Judgment of the Court of First Instance (Second Chamber), 9 July 2009 II ‐ 2635

Summary of the Judgment

With regard to the rigour of the judicial review, matters of two kinds must be distinguished within Regulation No 423/2007 concerning restrictive measures against Iran. On the one hand, the articles of that regulation lay down the general rules defining the methods of implementing the restrictive measures which it introduces. On the other, Annex V to that regulation, which lists the entities to which the fund-freezing measures adopted under Article 7(2) of that regulation apply, represents a body of measures applying those general rules to specific entities. With regard to the first kind of matter, the Council enjoys broad discretion in its assessment of the matters to be taken into consideration for the purpose of adopting economic and financial sanctions on the basis of Articles 60 EC and 301 EC, consistent with a common position adopted on the basis of the common foreign and security policy. The Community judicature may not, in particular, substitute its assessment of the evidence, facts and circumstances justifying the adoption of such measures for that of the Council, the review carried out by the Court must, therefore, be restricted to checking that the rules governing procedure and the statement of reasons have been complied with, that the facts are materially accurate, and that there has been no manifest error of assessment of the facts or misuse of power. That limited review applies, especially, to the assessment of the considerations of appropriateness on which such measures are based. With regard to the review of the lawfulness of the decision by which an entity is included in the list in Annex V to Regulation No 423/2007 pursuant to Article 7(2) thereof, it is for the Court to determine, having regard to the pleas for annulment raised by the entity concerned or raised of the Court’s own motion, in particular, that the instant case corresponds to one of the four hypotheses referred to in Article 7(2)(a) to (d) of that regulation. That implies that the judicial review of the lawfulness of the decision in question extends to the assessment of the facts and circumstances relied on as justifying it, and to the evidence and information on which that assessment is based. The Court must also ensure that the right to a fair hearing is observed and that the requirement of a statement of reasons is satisfied and also, where applicable, that the overriding considerations relied on exceptionally by the Council in disregarding those rights are well founded. (see paras 44-46)

Article 7(2)(d) of Regulation No 423/2007 concerning the adoption of restrictive measures against Iran requires the Council to freeze the funds of an entity owned or controlled by an entity identified as engaged in nuclear proliferation as provided for in Article 7(2)(a) or (b) of that regulation, the Council assessing case by case whether the entities concerned are entities ‘owned or controlled’. Thus, on the one hand, extension of the fund- freezing measure to entities owned or controlled is obligatory, the Council enjoying no leeway in this respect. On the other hand, inasmuch as the Council is called upon to evaluate the classification of an entity ‘owned or controlled’, it is led to take into account all the relevant aspects of the specific case, such as the degree of operational independence of the entity in question or the possible effect of the supervision to which it is subjected by public authorities. In contrast, the nature of that entity’s activities and the possible lack of any link between those activities and nuclear proliferation are not, in this context, relevant criteria. (see paras 63, 67, 69)

By virtue of the principle of proportionality, which is one of the general principles of Community law, the lawfulness of the prohibition of an economic activity is subject to the condition that the prohibitory measures should be appropriate and necessary in order to achieve the objectives legitimately pursued by the legislation in question; when there is a choice between several appropriate measures recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued. The purpose of Regulation No 423/2007 concerning the adoption of restrictive measures against Iran is to stop nuclear proliferation and its funding and so to bring pressure to bear upon the Islamic Republic of Iran to put an end to the activities concerned. That objective forms part of a more general framework of endeavours linked to the maintenance of international peace and security and is, therefore, legitimate. The freezing of the funds of entities owned or controlled by an entity identified as being engaged in nuclear proliferation, as provided for by Article 7(2)(a) or (b) of that regulation, is linked to that objective. When the funds of an entity identified as being engaged in nuclear proliferation are frozen, there is a not insignificant danger that that entity may exert pressure on the entities it owns or controls in order to circumvent the effect of the measures applying to it, by encouraging them either to transfer their funds to it, directly or indirectly, or to carry out transactions which it cannot itself perform by reason of the freezing of its funds. That being so, it must be considered that the freezing of the funds of entities owned or controlled by an entity identified as being engaged in nuclear proliferation is necessary and appropriate in order to ensure the effectiveness of the measures adopted vis-à-vis that entity and to ensure that those measures are not circumvented. The importance of the aims pursued by legislation such as Regulation No 423/2007 is such as to justify negative consequences, even of a substantial nature, for some operators. Even if the freedom to carry on economic activity and the right to property of a bank established in the territory of the Community are to a considerable extent restricted by the freezing of its funds, the difficulties caused are not disproportionate to the ends sought. (see paras 100, 102, 103, 111, 112)

At first sight, the meaning of the concept of an entity ‘owned’ by an entity identified as engaged in nuclear proliferation provided for in Article 7(2)(d) of Regulation No 432/2007 concerning the adoption of restrictive measures against Iran appears precise, given that it makes reference to the parent entity’s holding in the subsidiary’s capital. However, analysis of the concept in question is not to be based only on the semantic content but must also take into consideration, in particular, the link between Article 7(2)(d) of that regulation and the objective pursued by that regulation. In consequence, it remains to examine whether, because a subsidiary is owned by the parent company, it is to a considerable degree likely that it may be prompted to circumvent the measures adopted against its parent entity. The question is whether, because the parent entity wields decisive influence, the subsidiary may be led to follow the parent’s instructions instead of deciding upon its own conduct independently. In order to have any useful influence on the actions of the entity owned, the pressure brought to bear by the parent entity must essentially be directed at the directors and/or employees of the entity owned. The fact that one entity is wholly owned by another generally means that the latter is entitled to appoint the directors of the former and it may therefore exercise actual control over the persons who form the management of that entity and, ultimately, over all the staff. It is not, however, inconceivable that, in extraordinary circumstances, the application of Article 7(2)(d) of Regulation No 423/2007 to an entity owned, even wholly, by the parent entity may not be justified in the light of other factors counterbalancing the latter’s influence over the former. (see paras 120-123)