December 31, 2021
Bahrain has been ordered by the Permanent Court of Arbitration in The Hague to pay more than 200 million euros in damages plus costs to two Iranian banks for unlawfully expropriating their banking venture in Manama in an act of “political retribution.”
The Financial Tribune of Tehran quoted an official with the Vice Presidency for Legal Affairs, Tavakol Habibzadeh, as announcing the huge Iranian victory at the court November 24.
The Washington Post later said it had obtained a copy of a yet-to-be-released decision in which Iran indeed did win the case. But it said it was unclear how much, if any, money Iran would get in the end because the liquidation of the Bahraini bank might offset all the funds awarded by the court.
But as of December 14, the court’s website still said the case was pending.
Iran’s largest lenders, Bank Melli and Bank Saderat, had sued the island kingdom at the Permanent Arbitration Court in the Netherlands for confiscating nearly $1.3 billion worth of Iranian funds.
The funds belonged to Future Bank, which was established as a joint venture between Bahrain’s Ahli United Bank and the two Iranian lenders in 2004 when Bahraini leaders were seeking to mend strained relations with their neighbor to the north.
In January 2016, however, Bahrain’s Central Bank said it was taking steps to close down Future Bank after Manama cut diplomatic ties with Tehran, following its neighbor Saudi Arabia in severing relations with the Islamic Republic.
In July of this year, Bahrain’s top court upheld a money-laundering verdict against Future Bank, the Central Bank of Iran and other Iranian banks. The lower court ruling, issued in April 2018, included prison terms of up to 10 years for Future Bank officials and confiscation of funds.
Iranian officials rejected the allegations, asserting that Future Bank was a victim of an international political conflict, instigated by Persian Gulf neighbors and other countries seeking to isolate Iran. The dispute thus became a major political clash between Iran and Bahrain.
“There is no evidence, nor was there even an allegation, including in the ongoing arbitration, of corruption, let alone of a ‘multibillion-dollar corruption scheme,’” a joint statement issued by Bank Melli and Bank Saderat said at the time, referring to Bahrain’s characterization of the case.
The statement described the Iranian institutions as “collateral victims of an entirely political decision, taken in the context of tensions and efforts by some Arab countries, led by Saudi Arabia, to isolate Iran.
The international tribunal decided November 22 that the Iranian institutions had been the target of “political retribution” and ordered Bahrain to pay over 200 million euros in damages plus costs to the banks, reported the London-based Global Arbitration Review, a magazine dedicated to commercial arbitration.
But The Washington Post said the damages could be offset by payments made as part of Future Bank’s still-pending liquidation. Legal experts familiar with the case told The Post it is unclear how much money, if any, actually will change hands or when.
The tribunal rejected a demand for additional damages based on alleged harm to the Iranian banks’ reputations, according to the panel’s 235-page decision that The Post said it saw.
The arbitrators did not dispute Bahrain’s claim that Future Bank failed to comply with legal obligations on record-keeping, monitoring and reporting of suspicious transactions. Such conduct made it more difficult, Bahraini officials said, to fully document the scope of Iran’s circumvention of international sanctions imposed by the United States and the United Nations over Iran’s nuclear activities.
But the panel concluded that Bahrain’s actions against Future Bank “were not genuine regulatory measures aimed at addressing Future Bank’s illegal conduct,” according to the copy of the decision seen by The Post. Rather, the closing of the bank amounted to an “expropriation” of the Iranian banks’ money, without due consideration of less-punitive measures, the panel said. The arbitrators appeared skeptical over whether US and UN sanctions against Iran were binding in all cases on Bahraini bank regulators.
The Permanent Court of Arbitration in The Netherlands is an intergovernmental organization with 116 member states established in 1899 to facilitate arbitration and other forms of dispute resolution between states.
