Why an old £400m debt to Iran stands in way of Nazanin Zaghari-Ratcliffe’s release

The UK signed an arms deal with pre-revolutionary Iran that it never fully delivered on. Will it finally pay the refund it owes?

The former UK foreign secretary Jeremy Hunt has said that practicalities, not principles, are holding back the payment of a £400m British debt to Iran, seen as a precondition of the release of British-Iranian dual nationals held in Tehran, including Nazanin Zaghari-Ratcliffe.

How did the debt arise?

In the mid-1970s the UK sold more than 1,500 Chieftain battle tanks and 250 repair vehicles to its close ally the Shah of Iran. Iran paid £600m for the tanks in advance, but the UK, through its arms sales export subsidiary International Military Services (IMS), in February 1979 refused to deliver the remaining weaponry when the shah was deposed and replaced by a new revolutionary and theocratic regime. Only 185 tanks had been delivered.

What happened next?

After years of private negotiations, in 1990 Iran made a claim for its money back for the undelivered weaponry by taking the UK to international arbitration in The Hague. The UK made a counterclaim in 1996, but in an arbitration in 2001 the UK lost both claims. Iran then sought to have the award enforced in the English courts, something Britain resisted until IMS in 2002 put £350m into the UK court as security. The UK, after getting the award’s size reduced once in The Hague finally seemed to have run out of options when its final appeal was dismissed in 2009.

So why was the payment not made?

In June 2008 the EU made Iran’s defence ministry a sanctioned entity, meaning no payment could be paid. Iran nevertheless returned to the UK courts to get a declaration in a British domestic court that the money was owed. Over the next five years the case morphed into a dispute over interest. The UK argued it was not required to pay interest on the principal from the moment sanctions were imposed. Iran eventually lost the case, but the issue for the first time was aired in public in May 2019 after an application by the Sunday Times. Separately Iran applied to a Treasury body for a certificate for the money to be paid to the central bank of Iran, as the bank was not a sanctioned entity. That application has never received a formal response. Iran has since deferred successive high court applications for a UK judge to hand over the money.

How directly is the debt linked to the fate of dual nationals?

As dual nationals from other countries that do not owe money to Iran have also been arrested, it is wrong to say UK dual nationals have been captured only as a ransom to extract the money. But it is evident to ministers in both countries that the payment of the debt has over time become almost a precondition for their release.

What reason does the UK give for the non-payment of the debt?

The initial reason was that the payment would be in breach of UN sanctions. There was also the implicit threat that any UK bank that helped transfer the cash would be vulnerable to US Treasury secondary sanctions or fines. Privately some ministers are opposed giving £400m to any military body in Iran.

Has the UK changed its view?

The advent of Jeremy Hunt as foreign secretary led to a greater focus on the debt, and he came to view this not as an illegitimate ransom demand, but an issue of a legally acknowledged debt. The new defence secretary Ben Wallace, who as a backbencher campaigned for the payment of the debt, also secured a breakthrough when he was given authority to write in September 2020 to the lawyers of Richard Ratcliffe, the husband of Nazanin Zaghari-Ratcliffe, to say that the UK had a debt that had to be paid.

So why has the debt still not been paid?

Ministers and officials refuse to say, which has caused intense frustration of the families, who believe they are entitled to the information since their lives had been ruined purely by virtue of being British citizens, and not because of anything they have done. They say, and havedone for three years, that the equivalent sum could be paid to Iran in medicines, or that the Iranian foreign ministry could give an undertaking that the money would not be used on armaments. The UK post-Brexit, they add, is now in charge of its own sanctions policy.

Why will the Foreign Office not disclose its thinking?

It is arguable that public discussion could upend hugely sensitive negotiations. But the families have lost patience long ago with what they regard as a deep and debilitating culture of secrecy in the Foreign Office. After nearly six years, Richard Ratcliffe’s faith in the Foreign Office’s mastery of quiet diplomacy with Iran has evaporated.

Are the Americans a factor?

Iranian sources, partly backed by British, say a humanitarian deal including the payment of the debt, and a prisoner swap involving American, British and Iranians, was within 24 hours of being sealed this summer. The bank account into which the money would be paid had been agreed. The deal broke down because of a US disagreement about one of the Iranians due to be released. Ratcliffe’s view is that complex prisoner swaps with many moving parts and countries are inherently more likely to fail.


Patrick Wintour Diplomatic editor

The GuardianTramp

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