Originally from the Journal of Damages in International Arbitration

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The Parties

Bank Melli Iran and Bank Saderat Iran (Claimants)

Kingdom of Bahrain (Respondent)

Sector

Finance—Banking

Applicable Treaty

Agreement on Reciprocal Promotion and Protection of Investments between the Government of the Islamic Republic of Iran and the Government of the Kingdom of Bahrain, dated October 19, 2002

Members of the Tribunal

Professor Gabrielle Kaufman-Kohler, Presiding Arbitrator (replaced Professor Rudolph Dolzer on his passing); Professor Bernard Hanotiau (Claimants’ appointee, replaced Professor Emmanuel Gaillard on his passing); and the Right Honorable Lord Collins of Mapesbury (appointed by appointing authority, the Permanent Court of Arbitration) 

I. BACKGROUND

Claimants Bank Melli Iran and Bank Saderat Iran are Iranian banks which, along with Ahli United Bank, a Bahraini bank, incorporated Future Bank in Bahrain in 2004. The three banks signed a shareholders’ agreement giving each of them an equal interest in Future Bank. As a Bahraini bank, Future Bank is subject to supervision by the Central Bank of Bahrain (“CBB”). From the start, it maintained strong connections to Iran and Iranian businesses. This became an issue when sanctions against Iran gained ground between 2006 and 2010, with the UN Security Council (“UNSC”), the United States and the European Union all adopting sanctions against Iran and various Iranian entities. This ramp-up of sanctions led CBB to issue a directive in September 2010 (“2010 CBB directive”) requiring all Bahraini banks to “ensure that they are fully compliant with the requirements of all United Nations Security Council Resolutions imposing sanctions on the Islamic Republic of Iran” and to familiarize themselves with the sanctions imposed by the U.S. and “ensure they do not fall foul of its provisions.”