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Lawyers, other representatives, expert(s), tribunal’s secretary

Final Award

Glossary of Defined Terms / List of Abbreviations

2006 Report The Anti-Money Laundering examination report submitted by the BMA (Compliance Directorate) dated August 6, 2006
2008 CBB Report The CBB's Inspection Directorate's report dated April 12, 2009
2009 CBB Report The CBB's Compliance Directorate Examination Report, dated April 22, 2009
2012 CBB Report The CBB's Investigation Report dated October 31, 2012
2015 CBB Report The CBB's Investigation Report dated May 24, 2015
2018 CBB Report The CBB's Investigation Report dated February 16, 2018
2015 KPMG Report The report prepared by KPMG dated April 28, 2015
AML/CFT Anti-Money Laundering/Countering the Financing of Terrorism
AMS Alternative Messaging System
Answer on Interim Measures The Respondent's Answer to the Claimants' Application for Interim Measures submitted on October 12, 2017
Application for an Interim Award of Costs The Respondent's Application for an Interim Award of Costs submitted on October 12, 2018
Application for Interim Measures The Claimants' Application for Interim Measures submitted on September 26, 2017
Bank Future Bank B.S.C
Bank Melli Bank Melli Iran
Bank Saderat Bank Saderat Iran
BIT Bilateral Investment Treaty
BMA Bahrain Monetary Authority, predecessor to the CBB
BMI Bank Melli Iran
BSI Bank Saderat Iran
CBB Central Bank of Bahrain
CBB Decision CBB's decision to place Future Bank under forced administration dated April 30, 2015
CBB Directive CBB's Directive issued on September 8, 2010
CBB Law Central Bank of Bahrain and Financial Institutions Law (Decree No. 64 of 2006)
CBB Rulebook CBB's Rulebook containing regulations governing the banking sector
Claimants' Comments on Security for Costs The Claimants' Comments on the Respondent's Application for Security for Costs submitted on August 28, 2017
Claimants' Costs Claims Update The Claimants' update on their cost claims submitted on September 15, 2020
Claimants' Further Requests Regarding Document Production The Claimants' additional requests regarding the Respondent's document production submitted on October 22, 2018
Claimants' Rejoinder on the Application for an Interim Award of Costs The Claimants' Rejoinder on the Application for an Interim Award of Costs submitted on October 30, 2018
Claimants' Reply Comments on the Application for Interim Measures The Claimants' Reply Comments on the Application for Interim Measures submitted on October 23, 2017
Claimants' Reply Comments on Submission on Costs The Claimants' Reply Comments on the Respondent's Submission on Costs submitted on July 24, 2019
Claimants' Request No. 13 The Claimants' document production request no. 13 submitted on March 16, 2018
Claimants' Response to the Application for an Interim Award of Costs The Claimants' Response to the Respondent's Application for an Interim Award of Costs submitted on October 22, 2018
Claimants' Submission on Costs The Claimants' Submission on Costs dated July 10, 2019
Confidentiality Agreement The Confidentiality Agreement agreed by the Parties
Decision on the Designation of Certain Documents as Confidential and on Redactions The Tribunal's Decision on the Designation of Certain Documents as Confidential and on Redactions dated December 13, 2018
EDD Enhanced due diligence
FATF Financial Action Task Force
First ER Davies The First Expert Report of Mr. Gary Davies dated February 16, 2018
First ER Fair Links The First Expert Report of Fair Links dated October 2017
First ER Sharma The First Expert Report of Mr. Paul Sharma dated February 16, 2018
FB Future Bank
FC Module The Financial Crime Module of the CBB Rulebook, as amended from time to time
FET Fair and equitable treatment
FID Financial Intelligence Directorate within the Bahrain Ministry of the Interior
FPS Full protection and security
Hearing The five-day hearing held on May 6-10, 2019 in Paris, France
IAEA International Atomic Energy Agency
IFSR Iran Financial Sanctions Regulations
Interim Award on Interim Measures The Tribunal's Interim Award on the Claimants' Application for Interim Measures
Interim Award on Security for Costs The Tribunal's Interim Award on the Respondent's Application for Security for Costs dated November 16, 2017
Interim Award on the Respondent's Application for an Interim Award of Costs and the Claimants' Further Requests Regarding Document Production The Tribunal's Interim Award on the Respondent's Application for an Interim Award of Costs and the Claimants' Further Requests Regarding Document Production dated December 6, 2018
JCPOA The Joint Comprehensive Plan of Action signed between Iran, China, France, Germany, Russia, the United Kingdom and the united Stated on July 14, 2015
KYC Know-Your-Customer
MFN Most-favoured nation
MIS Management Information Systems
MLRO Money Laundering Reporting Officer
Notice of Arbitration Notice of arbitration submitted by the Claimants on February 8, 2017
OFAC The United States Department of Treasury office of Foreign Assets Control
P/B Price-to-Book ratio
P/E Price-to-Earnings ratio
PCA Permanent Court of Arbitration
PEP Politically Exposed Persons
POGC Pars Oil and Gas Company
Published CBB Decision The publication of the placement of Future Bank under administration in the Official Gazette, dated May 7, 2015
Rejoinder The Respondent's Rejoinder dated February 27, 2019
Rejoinder on Security for Costs The Claimants' Rejoinder Comments on the Respondent's Application for Security for Costs submitted on September 28, 2017
Rejoinder on Interim Measures The Respondent's Rejoinder to the Claimants' Application for Interim Measures submitted on November 3, 2017
Reply The Claimants' Reply submission dated December 19, 2018
Reply on Interim Measures The Claimants' Reply to the Respondent's Answer on Interim Measures submitted on October 23, 2017
Respondent's Application for Security for Costs The Respondent's Application for Security for Costs submitted on August 10, 2017
Respondent's Costs Claims Update The Respondent's update on its cost claims submitted on September 15, 2020
Respondent's Reply on Security for Costs The Respondent's Reply Comments on the Application for Security for Costs submitted on September 14, 2017
Respondent's Reply on the Application for an Interim Award of Costs The Respondent's Reply on the Application for an Interim Award of Costs submitted on October 25, 2018
Respondent's Reply Comments on Submission on Costs The Respondent's Reply Comments on the Claimants' Submission of Costs submitted on July 24, 2019
Respondent's Request No. 1 The Respondent's document production request no. 1 submitted on March 16, 2018
Respondent's Submission on Costs The Respondent's Submission on Costs dated July 10, 2019
SDN Specially Designated Nationals under the U.S. Iran Financial Sanctions Regulations
Second ER Davies The Second Expert Report of Mr. Gary Davies dated February 27, 2018
Second ER Fair Links The Second Expert Report of Fair Links dated November 30, 2018
Second ER Sharma The Second Expert Report of Mr. Paul Sharma dated February 27, 2019
SoC The Claimants' Statement of Claim submitted on October 16, 2017
SoD The Respondent's Statement of Defense submitted on February 16, 2018
STR Suspicious transaction Reporting
SWIFT Society for Worldwide Interbank Financial Telecommunication
UNCITRAL Rules The Arbitration Rules of the United Nations Commission International Trade Law of 1976
UNSC United Nations Security Council
VCLT Vienna Convention of the Law of Treaties

I. INTRODUCTION

A. The Parties

1.
The Claimants in this Arbitration are Bank Melli Iran ("BMI" or "Bank Melli"), with headquarters on Ferdowsi Street in Tehran, Iran,1 and Bank Saderat Iran ("BSI" or "Bank Saderat"), with headquarters at Bank Saderat Tower, 43 Somayeh Avenue, Tehran, Iran2 (collectively, the "Claimants"). The Claimants are represented in these proceedings by Dr. Hamid Gharavi, Mr. Emmanuel Foy, and Ms. Déborah Schneider of Derains & Gharavi International, 25 rue Balzac, 75008 Paris, France.
2.
The Respondent in this Arbitration is the Kingdom of Bahrain, a sovereign State ("Bahrain" or the "Respondent", and together with the Claimants, the "Parties"). The Respondent is represented in these proceedings by counsel Professor Jan Paulsson of Three Crowns LLP, 9th Floor, West Tower, Bahrain World Trade Centre, P.O. Box 17396, Manama, Kingdom of Bahrain, Mr. Luke Sobota, Ms. Kimberly Larkin, Ms. Kelly Renehan of Three Crowns LLP, Washington Harbour, 3000 K Street, N.W., Suite 101, Washington D.C. 2000-5109, United States of America, Dr. Ryan Manton and Ms. Zara Desai of Three Crowns LLP, 104 avenue des Champs-Elysées, 75008 Paris, France, Mr. Josh Simmons, Ms. Jessica Ji and Mr. Mushegh Manukyan, formerly of Three Crowns LLP, and party representatives Sheikh Khalid bin Ali bin Abdullah Al Khalifa (Agent for Bahrain, Minister of Justice), Sheikh Salman bin Khalifa Al Khalifa (Minister of Finance), Governor Rasheed Mohammed Al Maraj (Governor of Central Bank of Bahrain), Ms. Manar Mustafa Al Sayed (General Counsel of Central Bank of Bahrain), Mr. Khalid Hamad (Central Bank of Bahrain), Mr. Khalil Ebrahim Swailim (Central Bank of Bahrain), Mr. Mohamed Rashed Al-Najem (Central Bank of Bahrain), Mr. Nayef Yousef (Public Prosecutor), and Mr.. Devashish Krishan (Consultant).

B. Overview of the Dispute

3.
A dispute has arisen between the Claimants and the Respondent, in respect of which the Claimants filed a notice of arbitration (the "Notice of Arbitration") pursuant to Article 11 of the Agreement on Reciprocal Promotion and Protection of Investments between the Government of the Islamic Republic of Iran and the Kingdom of Bahrain, dated October 19, 2002 (the "BIT") and Article 3 of the Arbitration Rules of the United Nations Commission on International Trade Law, 1976 (the "UNCITRAL Rules").
4.
The dispute concerns the alleged breach by the Kingdom of Bahrain of its obligations under the BIT arising out of the forced administration of Future Bank ("Future Bank" or the "Bank"), a bank established by the Claimants together with Ahli United Bank ("AUB") in 2004 on the territory of Bahrain.3
5.
According to the Claimants, "[t]he Kingdom of Bahrain expropriated Claimants' investments without any justification or any form of due process or fairness, nor any sense of proportionality, but rather abruptly and arbitrarily in violation of all procedural and substantive protections under the BIT."4 According to the Claimants, the expropriation was not accompanied by compensation.
6.
The Respondent denies the claims in their entirety and submits that the claim is inadmissible because of the Claimants' illegal activities.5

C. The Arbitration Agreement

7.
Article 11 of the BIT contains the arbitration agreement and provides:

Article 11

Settlement of Disputes between a Contracting Party and Investor(s) of the other Contracting Party

1. If any dispute arises between the host Contracting Party and investor(s) of the other Contracting Party with respect to an investment, the host Contracting Party and the investor(s) shall primarily endeavour to settle the dispute in an amicable manner through negotiation and consultation.

2. In the event that the host Contracting Party and the investor(s) can not agree within 4 months from the date of notification of the claim by one party to the other, either of them may refer the dispute to:

(a) the competent courts of the Contracting Party in the territory of which the investment has been made; or

(b) the International Center for Settlement of Investment Disputes (ICSID) provided for by the Convention on the Settlement of Investment Disputes between States and Nationals of other States, done at Washington, on March 18, 1965; as soon as both Contracting Parties become members to that convention.

(c) an ad-hoc arbitral tribunal which, unless otherwise agreed upon by the parties to the dispute, shall be established under the arbitration rules of the United Nations Commission on international Trade Law (UNCITRAL).

3. A dispute primarily referred to the competent courts of the host Contracting Party, as long as it is pending, cannot be referred to arbitration save with the parties agreement; and in the event that a final judgment is rendered, it cannot be referred to arbitration.

4. National courts shall not have jurisdiction over any dispute referred to arbitration. However, the provisions of this paragraph do not bar the winning party to seek for the enforcement of the arbitral award before national courts.6

D. The Applicable Law

8.
The Netherlands arbitration law, which applies to these proceedings as lex arbitri, contains the following provision concerning the law applicable to the substance of the dispute:

If a choice of law is made by the parties, the arbitral tribunal shall make its award in accordance with the rules of law chosen by the parties. Failing such choice of law, the arbitral tribunal shall make its award in accordance with the rules of law which it considers appropriate.7

9.
Article 33 of the UNCITRAL Arbitration Rules contains essentially the same choice of law rules, except that in the absence of a choice of law by the parties, it points to the application of the "law determined by the conflict of law rules which [the tribunal] considers applicable". In the present context of an investment treaty dispute, this difference is without effect on the law that this Tribunal will apply.
10.
The BIT contains no choice-of-law clause, nor have the Parties otherwise made such a choice. Therefore, the Tribunal must decide the issues in dispute pursuant to the law which it considers appropriate. Since it is seised of this dispute on the basis of the BIT, the Tribunal will first and foremost apply the provisions of the BIT. For the interpretation of the BIT, it will resort to the rules of customary international law contained in the Vienna Convention on the Law of Treaties (the "VCLT"). If the BIT is silent on an issue or if it uses notions pertaining to other sets of rules, the Tribunal will determine in each case whether a given issue is subject to rules of international law (other than the BIT) or to municipal law.

II. PROCEDURAL HISTORY

A. Commencement of the Arbitration and Constitution of the Tribunal

11.
The Claimants served their Notice of Arbitration on February 8, 2017, together with factual exhibits CE-1 to CE-68 and legal authorities CLA-1 to CLA-29. In their Notice of Arbitration, the Claimants proposed that the UNCITRAL Arbitration Rules of 2010, as revised in 2013, or, alternatively, the UNCITRAL Rules of 2010, or of 1976, apply to the dispute. They also proposed that the proceedings be administered by the Permanent Court of Arbitration in The Hague (the "PCA"), that the PCA act as "appointing authority" in accordance with the UNCITRAL Rules, that the place of arbitration be Paris, France, and that the language of arbitration be English.
12.
Additionally, in their Notice of Arbitration, the Claimants appointed Professor Emmanuel Gaillard, a French national as arbitrator. Professor Gaillard's contact details where then as follows:

Professor Emmanuel Gaillard
Shearman & Sterling LLP
7 rue Jacques Bingen
75017 Paris
France
Tel.: +33 (0)1 53 89 70 00
Fax.: +33 (0)1 53 89 70 70
E-mail: egaillard@shearman.com

13.
By letter dated March 13, 2017, the Respondent raised certain questions pertaining to the status of the Claimants as Specially Designated Nationals ("SDN") under U.S. Iranian Financial Sanctions Regulations ("IFSR") and the need for an arbitrator in a case involving SDNs to obtain prior clearance from the U.S. Department of Treasury Office of Foreign Assets Control (the "OFAC") with respect to funds emanating from such entities. In particular, the Respondent asked the PCA to "inquire whether Shearman & Sterling (or Professor Gaillard, or anyone else) has obtained OFAC clearance that would cover receipt of remittances originating from both of the Claimants with respect to fees earned in this case".
14.
By letter dated March 15, 2017, the Claimants stated, inter alia, that the Respondent "cannot rely on [the OFAC license] issue to delay its appointment of an arbitrator" and that it had "failed to nominate an arbitrator within the 30-day deadline under Article 7 of the 1976 [UNCITRAL Rules]". The Claimant thus informed the PCA and the Respondent that it would proceed to request the Secretary-General of the PCA to appoint an arbitrator on behalf of the Respondent.
15.
By letter dated March 16, 2017, the Claimants submitted a request for the Secretary General of the PCA to designate an appointing authority to appoint a second arbitrator on behalf of the Respondent in accordance with Article 7(2)(b) of the UNCITRAL Rules.
16.
Between March 17 and March 27, 2017, at the invitation of the PCA, the Parties exchanged comments on the Claimants' request for the Secretary-General of the PCA to designate an appointing authority.
17.
By e-mail of March 27, 2017, the Respondent agreed that the PCA should serve as appointing authority.
18.
By letter dated March 29, 2017, the Claimants reiterated their request that the PCA Secretary-General designate an appointing authority.
19.
Following further correspondence between the Parties and the PCA, by e-mail dated May 8, 2017, the Respondent notified the Claimants and the PCA of its nomination as arbitrator of The Rt. Hon. Lord (Lawrence) Collins of Mapesbury, a U.K. national.
20.
On May 9, 2017, the PCA invited the Claimants to provide any comments on Lord Collins' nomination as arbitrator.
21.
By letter dated May 15, 2017, the Claimants objected to the "purported nomination" of Lord Collins.
22.
By letter dated May 16, 2017, the Respondent commented on the Claimants' objection and asked the PCA to confirm Lord Collins' appointment.
23.
On May 17, 2017, the Claimants responded to the Respondent's comments.
24.
Also on May 17, 2017, the PCA informed the Parties that the Secretary-General of the PCA had appointed Lord Collins as the second arbitrator in these proceedings pursuant to Article 7(2)(a) of the UNCITRAL Rules. Lord Collins' contact details are as follows:

The Rt. Hon. Lord Collins of Mapesbury
Essex Court Chambers
24 Lincoln's Inn Fields
London WC2A 3EG
United Kingdom
Tel.: +44 (0)20 7813 8000
E-mail: lcollins@essexcourt.net

25.
By letter dated July 20, 2017, the Claimants informed the PCA that, together with the Respondent, they proposed that the Secretary-General of the PCA appoint the Presiding Arbitrator. By letter of the same date, the PCA informed the Parties that the Secretary General of the PCA had agreed to make such appointment.
26.
By letter dated July 26, 2017, the Secretary-General of the PCA appointed Professor Dolzer as the Presiding Arbitrator. Professor Dolzer's contact details were as follows:

Professor Dr. Rudolf Dolzer
Am Pferchelhang 4/1
69118 Heidelberg
Germany
E-mail: rdolzer@me.com

27.
On July 27 and 29, 2017, respectively, the Claimants and the Respondent confirmed that they had no objection to the constitution of the Tribunal. In the same correspondence, the Claimants confirmed their consent to proceed under the 2010 UNCITRAL Rules, while the Respondent argued in favour of the application of the 1976 UNCITRAL Rules. Upon the invitation of the Tribunal, further comments on the applicable version of the UNCITRAL Rules were received on August 4, 2018.
28.
By letter dated August 14, 2017, the Tribunal, inter alia, informed the Parties that, having considered the Parties' submissions on the applicable version of the UNCITRAL Rules, it had determined that the UNCITRAL Arbitration Rules, as promulgated in 1976, were applicable to the present proceedings. By the same letter, the Tribunal proposed a first procedural meeting and requested that the Parties make simultaneous written submissions on various procedural matters.
29.
By letter dated August 18, 2017, the Tribunal advised the Parties that communications to and from the Tribunal in this matter should be made via the PCA and proposed the appointment of Dr. Levent Sabanogullari as Secretary to the Tribunal, appending Dr. Sabanogullari's curriculum vitae to the letter. The Parties agreed to such appointment by separate correspondence of the same date.

B. First Procedural Conference and Procedural Timetable

30.
By letters dated August 30, 2017 and September 7, 2018, the Claimants and the Respondent responded to the matters set forth in the Tribunal's letter of August 14, 2017. In particular, they agreed on The Hague as the place of arbitration, and on the dates for the submission of the Statement of Claim and Statement of Defense.
31.
By letter dated September 14, 2017, after considering the Parties' comments, the Tribunal decided that the first procedural meeting would be held via conference call on September 27, 2017.
32.
Such meeting proceeded as scheduled. Both Parties were represented by counsel. All the members of the Tribunal, as well as the Secretary to the Tribunal were present.
33.
On November 6, 2017, the Tribunal issued the final Terms of Appointment, which were signed by the Parties and each Member of the Tribunal. On the same date, and after having sought the Parties' comments, the Tribunal issued Procedural Order No. 1, which, inter alia, fixed The Hague as the seat and English as the language of the Arbitration. Further, Annex 1 of Procedural Order No. 1 set forth the Procedural Calendar.

C. Application for Security for Costs, Application for Interim Measures, and Interim Awards

34.
By e-mail of August 10, 2017, the Respondent submitted an Application for Security for Costs and Request for Disclosure of any Funding Arrangement (the "Respondent's Application for Security for Costs"), accompanied by factual exhibits R-1 to R-55 and legal authorities RL-1 to RL-43.
35.
On August 14, 2017, the Tribunal invited the Claimants to provide any comments on the Application for Security for Costs, which the latter did on August 28, 2017 (the "Claimants' Comments on Security for Costs") also filing exhibits C-69 to C-80 and legal authorities CL-30 to CL-72.
36.
By letter dated August 31, 2017, the Tribunal invited the Respondent to file reply comments and the Claimants to file rejoinder comments.
37.
On September 14, 2017, the Respondent submitted its reply comments on the Application for Security for Costs (the "Respondent's Reply on Security for Costs"), together with factual exhibits R-56 to R-61 and legal authorities RL-44 to RL-52.
38.
On September 26, 2017, the Claimants submitted an Application for Interim Measures (the "Application for Interim Measures"), together with exhibits C-81 to C-82 and legal authorities CL-73 to CL-77. The Claimants requested that the Tribunal (a) order the Respondent to stay the ongoing winding up proceedings initiated against Future Bank; (b) order the Respondent to refrain from any further winding up or equivalent proceedings against Future Bank; (c) order the Respondent to secure, store, and maintain any documentation and data held by Future Bank, and (d) order the Respondent to bear all costs incurred by the Claimants in this Application for Interim Measures.
39.
On September 28, 2017, in accordance with the Tribunal's instructions, the Claimants submitted their Rejoinder on Security for Costs, along with exhibits C-38 to C-90 and legal authorities CL-78 to CL-81.
40.
On October 12, 2017, the Respondent submitted its Answer on Interim Measures, accompanied by legal authorities RL-53 to RL-58.
41.
On October 23, 2017, the Claimants submitted their Reply on Interim Measures, along with legal authorities CL-122 to CL-123.
42.
On November 3, 2017, the Respondent submitted its Rejoinder on Interim Measures, dated November 2, 2017, together with factual exhibits R-62 to R-67 and legal authorities RL-69 to RL-74.
43.
On November 14, 2017, the Claimants asked the Tribunal for leave to submit comments on paragraphs 8, 9, and 32 (bullet points nos. 6 and 7) of the Rejoinder on Interim Measures, arguing that the Respondent had "raised new allegations" in these paragraphs and introduced "new exhibits" in support thereof. On the same date, the Tribunal invited the Respondent to comment on the Claimants' request.
44.
On November 15, 2017, in accordance with the Tribunal's instructions, the Respondent filed its comments on the Claimants' request of November 14, 2017.
45.
On November 16, 2017, the Tribunal granted the Claimants' request to comment on paragraphs 8, 9, and 32 (bullet point nos. 6 and 7) of the Rejoinder on Interim Measures, including on the supporting exhibits.
46.
On the same day, the Tribunal issued its Interim Award on Security for Costs, denying the Respondent's Application and reserving its decision as to costs.
47.
On November 20, 2017, the Claimants submitted their comments on the Rejoinder on Interim Measures, together with exhibit C-130.
48.
On November 23, 2017, the Tribunal advised the Parties that no further submissions on the Claimants' Application for Interim Measures were necessary.
49.
On February 1, 2018, the Tribunal issued its Interim Award on Interim Measures. In that award, the Tribunal (i) denied the request to stay the administration proceedings, (ii) ordered the Respondent to "secure, store and maintain documentation concerning the full history of the administration of Future Bank as well as the manner of its implementation, any transfer to third parties and the accounting of Future Bank's assets relevant for the computation of potential damages to the Claimants", and (iii) reserved its decision on costs.

D. Statement of Claim and Statement of Defense; Document Production Phase

50.
On October 16, 2017, the Claimants submitted their Statement of Claim (the "SoC") as well as exhibits C-91 to C-129, legal authorities CL-82 to CL-121, and Witness Statements CWS-1 and CWS-1, as well as Expert Report CER-1.
51.
On February 16, 2018, pursuant to the Procedural Calendar, the Respondent submitted its Statement of Defense (the "SoD"), together with a covering letter, exhibits R-68 to R-174, legal authorities RL-75 to RL-119, and Witness Statements RWS-1 to RWS-2, Expert Reports RER-1 to RER-2, and the CBB Assessment of Future Bank B.S.C. dated February 16, 2018 (the "2018 CBB Report").
52.
By e-mail of February 22, 2018, the Claimants requested "leave to submit brief comments on Respondent's […] cover letter of February 16, 2018".
53.
By e-mail of the same date, the Tribunal granted the Claimants' request and invited the Claimants to submit their comments by February 28, 2018.
54.
By e-mail dated February 28, 2018, the Claimants notified the Tribunal of the Parties' agreement to an extension for the submission of the Claimants' comments to the Respondent's covering letter accompanying the SoD.
55.
On March 2, 2018, the Claimants submitted their comments on the Respondent's covering letter of February 16, 2018.
56.
On March 16, 2018, the Parties exchanged requests for the production of documents in the form of Redfern Schedules pursuant to Procedural Order No. 1.
57.
On March 29, 2018, further to the Parties' agreement, the Tribunal issued Procedural Order No. 2, providing a revised Procedural Calendar.
58.
By letter dated April 5, 2018, the Claimants submitted to the Tribunal a Washington Post article of April 3, 2018 titled "Billion-dollar sanctions-busting scheme aided Iran, documents show", which, according to the Claimants, "essentially relay[ed] Bahrain's most recent allegations in this arbitration". The Claimants requested inter alia that the Tribunal direct Bahrain "to refrain from further leaking to the press or any third parties any materials on the record that is not in the public domain".
59.
On April 6, 2018, the Tribunal invited the Respondent to comment on the Claimants' letter of April 5, 2018, which the former did on April 7, 2018.
60.
On April 9, 2018, the Claimants requested leave to submit a reply to the Respondent's comments. The Tribunal allowed the Claimants to provide reply comments by April 11, 2018, and the Respondent to submit rejoinder comments by April 16, 2018.
61.
By e-mail dated April 11, 2018, the Claimants submitted such reply comments to the Respondent's letter of April 7, 2018 and requested that the Tribunal Order the Respondent to issue a statement admitting to the leak.
62.
Also on April 11, 2018, the Parties produced the documents to which no objections were made and submitted their objections to each other's requests for production.
63.
On April 16, 2018, the Respondent submitted a response to the Claimants' reply comments of April 11, 2018, attaching Annexes 1-3 and asking the Tribunal to "summarily dismiss" the Claimants' requests.
64.
On April 19, 2018, the Tribunal responded to communications by the Parties regarding the alleged leak by the Respondent. It found that the letters by the Claimants of April 5, 2018 and April 11, 2018, regarding, respectively, a "general" complaint about the leak and a request that the Tribunal order the Respondent to issue a statement admitting to the leak did "not warrant an order against the Respondent", noting that "[they] are not in the nature of categories of recognized types of applications by parties before an investment tribunal".
65.
On April 25, 2018, the Parties exchanged their replies to each other's objections pursuant to the revised Procedural Calendar, and submitted their requests for the production of documents to the Tribunal for its decision.
66.
On April 26, 2018, the Claimants submitted their Document Production Requests (including Respondent's Objections, and Claimants' Replies thereto), together with Annexes A to C. On the same date, the Respondent submitted its Application for an Order for Document Production, including the legal authorities it relies on for the application.
67.
On April 27, 2018, the Claimants filed a copy of the notice of arbitration dated April 6, 2018, which Iran Insurance Company had served on Bahrain.
68.
On May 2, 2018, the Tribunal confirmed receipt of the Parties' requests for document production of April 26, 2018. In view of the volume and the complexity of the requests submitted, the Tribunal informed the Parties that it would render its decisions by May 30, 2018, as opposed to May 16, as foreseen under the revised Procedural Calendar. The Tribunal did not consider that further adjustments to the revised Procedural Calendar were required.
69.
On May 29, 2018, the Tribunal issued Procedural Order No. 3 on the production of documents and advised the Parties that it had deferred its decision on the Claimants' document production request no. 13 (the "Claimants' Request No. 13") and the Respondent's document production request no. 1 (the "Respondent's Request No. 1"), and decided to afford the Parties an opportunity to provide further comments on these requests.
70.
On June 6, 2018, the Respondent wrote to the Tribunal regarding Procedural Order No. 3, seeking an extension to the production of documents so ordered. The Respondent also stated that its document disclosure was predicated on a confidentiality agreement, which had not yet been agreed with the Claimants.
71.
On June 13, 2018, following an extension agreed between the Parties and on the Tribunal's request, each side submitted its additional comments regarding the Parties' outstanding document production requests.
72.
On June 19, 2018, each side commented on the other's additional comments.
73.
On June 27, 2018, the Tribunal denied the Claimants' Request No. 13 and the Respondent's Request No. 1 and asked the Parties to provide updates on their efforts to comply with Procedural Order No. 3.
74.
On June 29, 2018, the Claimants updated the Tribunal on its progress to comply with Procedural Order No.3 and commented on a certain statement therein.
75.
On July 6, 2018, the Respondent wrote to the Tribunal requesting that, in the light of the Claimants' letter of June 29, 2018, the Tribunal reconsider its decision to deny the Respondent's Request No. 1.
76.
On July 17, 2018, upon the Tribunal's invitation and following an agreed extension, the Claimants provided their comments on the Respondent's request just mentioned.
77.
On July 26, 2018, the Tribunal denied the Respondent's request for reconsideration of the Tribunal's order with respect to the Respondent's Request No. 1.
78.
On July 31, 2018, the Claimants provided the Tribunal with the Parties' agreed, newly revised procedural calendar.
79.
By letter dated July 31, 2018, the Tribunal issued Procedural Order No. 4, revising the Procedural Calendar, set out in Annex 1 to Procedural Order No. 1 and revised by Procedural Order No. 2.
80.
On September 27, 2018, the Claimants advised the Tribunal that the Parties had agreed to a further extension of the time to produce documents, which the Respondent confirmed on the same day.
81.
By e-mail dated September 27, 2018, the Tribunal granted such further extension.
82.
On October 4, 2018, the Respondent circulated the Confidentiality Agreement agreed by the Parties (the "Confidentiality Agreement") for the Tribunal's reference.

E. Interim Award on Costs and Further Applications Concerning Document Production

83.
On October 12, 2018, the Respondent filed an application for an Interim Award of costs (the "Application for an Interim Award of Costs") dated October 11, 2018, with exhibits R-175 to R-210 and legal authorities RL-120 to RL-134.
84.
On October 12, 2018, the Tribunal invited the Claimants to respond to this Application.
85.
On October 22, 2018, the Claimants responded to the Application for an Interim Award of Costs (the "Claimants' Response to the Application for an Interim Award of Costs"), seeking that the Tribunal dismiss the application without further briefing. They also filed additional requests regarding the Respondent's document production (the "Claimants' Further Requests Regarding Document Production").
86.
On October 25, 2018, the Respondent replied to the Response to the Application for an Interim Award of Costs (the "Respondent's Reply on the Application for an Interim Award of Costs"), attaching exhibits R-211 to R-213 and legal authorities RL-135 to RL-136.
87.
On October 30, 2018, the Claimants' submitted their rejoinder to such reply (the "Claimants' Rejoinder on the Application for an Interim Award of Costs").
88.
On November 1, 2018, the Claimants sought an order pursuant to paragraph 6 of the Confidentiality Agreement regarding documents which the Respondent had designated as confidential. They also requested that the Tribunal "enjoin […] the Respondents to remove all redactions made" to certain documents.
89.
On the same day, the Respondent wrote to the Tribunal objecting to the Claimants' challenge to its confidentiality designations and redactions. It proposed that the Tribunal review the disputed documents in camera and decide on their proper designation, and by separate e-mail, submitted all such documents in accordance with Article 6(3) of the Confidentiality Agreement for the Tribunal's review, with an index.
90.
On December 6, 2018, the Tribunal issued its Interim Award denying the Respondent's Application for an Interim Award of Costs. In the same Award, it also rejected the Claimants' further requests regarding document production.
91.
On December 13, 2018, the Tribunal issued Procedural Order No. 5 containing its Decision on the Designation of Certain Documents as Confidential and on Redactions.
92.
By e-mail dated December 13, 2018, the Claimants informed the Tribunal that the Parties had agreed to extend the time limit for the Reply, with a corresponding extension for the Rejoinder. On the same day, the Tribunal confirmed these extensions.

F. Reply and Rejoinder

93.
On December 19, 2018, the Claimants submitted its Reply, together with exhibits C-1 to C-301, legal authorities CL-1 to CL-168, Witness Statement CWS-3, and Expert Report CER-3.
94.
On February 22, 2019, the Claimants submitted further documents that they had been ordered to produce in Procedural Order No. 3, with a letter explaining the delay. The Claimants further requested that the Tribunal grant leave to introduce into the record a letter from the Iranian Ministry of Foreign Affairs, dated July 9, 2011 (copied to Bank Melli and Bank Saderat) produced in response to Document Request No. 6, in order to request corresponding disclosures.
95.
Following an exchange of comments on this request, on March 2, 2019, the Tribunal granted the Claimants' request to admit the letter of July 9, 2011.
96.
On February 27, 2019, the Respondent submitted its Rejoinder with exhibits R-214 to R-302, legal authorities RL-137 to RL-167, Witness Statements RWS-3 and RWS-4, as well as Expert Reports RER-3 and RER-4.

G. Hearing

97.
By letter dated March 15, 2018, having invited and considered the Parties' comments, the Tribunal fixed Paris, France as the venue for the hearing ("Hearing").
98.
On June 29, 2018, in the light of certain delays, the Respondent asked the Tribunal to allow the Parties to confer and agree on a revised Procedural Calendar, including a rescheduling of the Hearing.
99.
In July 2018, upon the Parties' agreement, the Tribunal rescheduled the five-day hearing from December 2018 to the week commencing May 6, 2019.
100.
On March 7, 2019, the Claimants requested that the Tribunal issue an order calling on the Respondent to produce the five following persons as witnesses at the Hearing, none of whom had produced a witness statement to date. These five persons were: (1) Mr Khalid Hama, Executive Director for Banking Supervision at the CBB; (2) Mr. Khalil Ebrahim Swailim, Head of Compliance Directorate at the CBB; (3) Mr. Nawaf Ahmed Bubshair, Superintendent Compliance Examination at the CBB; (4) Mr. Isa Ahmed Falamarzi, Ministry of Interior; and (5) Mr. Ebrahim Khalil Swailim, Ministry of Interior.
101.
By letter dated March 11, 2019, the Tribunal scheduled the pre-hearing telephone conference to be held on April 15, 2019, and invited the Respondent to provide its comments to the Claimants' aforementioned request, which the Respondent did on March 15, 2019, followed by further comments from the Claimants on March 20, 2019, and from the Respondent on March 21, 2019.
102.
On March 27, 2019, the Tribunal issued Procedural Order No. 6, in which it ordered the Respondent to procure Mr. Khalid Hamad and Mr. Khalil Ebrahim Swailim to testify at the Hearing with regard to matters specified by the Tribunal, and denied all other requests.
103.
By joint letter dated April 15, 2019, the Parties submitted to the Tribunal areas of agreement and disagreement regarding the organization of the Hearing, ahead of the pre hearing telephone conference.
104.
On April 15, 2019, the Tribunal and the Parties held a pre-hearing telephone conference to discuss the outstanding issues pertaining to the organization of the Hearing.
105.
On April 16, 2019, the Tribunal issued Procedural Order No. 7 dealing with logistical and procedural issues for the Hearing.
106.
By letter dated April 26, 2019, the Respondent requested leave from the Tribunal to submit additional factual documents upon which it intended to rely on during the Hearing, with Annexes 1-25. Following an exchange of comments by the Parties, on May 1, 2019, the Tribunal granted the Respondent's request, in part allowing the introduction of some documents and denying others.
107.
On May 3, 2019, the Claimants submitted demonstrative exhibits A and B, in accordance with Procedural Order No. 7. On the same day, the Respondent submitted additional legal authorities RL-168 to RL-174, to which it claimed it may refer to during the Hearing.
108.
On May 4, 2019, the Respondent submitted new exhibits R-303 to R-208, and a complete version of Exhibit R-74, in accordance with the Tribunal's directions of May 1, 2019.
109.
The Hearing took place over five days, commencing on May 6, 2019, at the offices of Shearman & Sterling LLP (7 rue Jacques Bingen, 75017 Paris, France). The following persons attended the Hearing:

Tribunal
Professor Dr. Rudolf Dolzer
The Rt Hon Lord Collins of Mapesbury
Professor Emmanuel Gaillard

Claimants

Counsel
Dr. Hamid Gharavi
Mr. Emmanuel Foy
Mr. Dimtry Bayandin
Mr. Ali Al-Khasawneh
Ms. Alveen Shitinyans
Ms. Shirin Gurdova
Ms. Sara Eftekhar Jahromi
(Derains & Gharavi LLP)

Party Representatives
Mr. Gholam Souri
Ms. Asrar Pazhouhi
Mr. Mahmoud Baheri
Ms. Hamideh Barmakhshad
(Bank Saderat Iran)

Mr. Eshagh Yoused Nejad
Mr. Arash Arasteh
Mr. Saeed Vakili
Mr. Abbas Fatemi Torshizi
(Bank Melli Iran)

Dr. Mohammad Jafar Ghanbari Jahromi
(Centre of International Legal Affairs in Tehran)

Claimants' Witnesses
Fact Witnesses
Mr. Gholam Souri
(Bank Saderat Iran)

Dr. Abdolnaser Hemmati
(Central Bank of Iran)

Expert Witnesses
Mr. David Brain
(Bovill)
Mr. Anton de Feuardent
Mr. Benjamin Roux
Ms. Jeanne Vellard
(Fair Links)

Respondent
Counsel
Prof. Jan Paulsson
Mr. Luke Sobota
Mr. Ryan Manton
Ms. Kimberly Larkin
Ms. Jessica Ji
Ms. Zara Desai
Ms. Kelly Renehan
(Three Crowns LLP)

H.E. Sheikh Khalid bin Ali bin Abdullah Al Khalifa
Agent for Bahrain
(Minister of Justice)

Party Representatives
Mr. Nayef Yousef
Bahrain Representative
(Public Prosecutor)

Ms. Manar Mustafa Al Sayed
Bahrain Representative
(General Counsel of Central Bank of Bahrain)

Mr. Devashish Krishan
Bahrain Representative

Respondent's Witnesses
Fact Witnesses
Mr. Khalid Ebrahim Swailim
Mr. Khalid Hamad
Governor Mohammed Al Maraj
Mr. Mohamed Rashed Al-Najem

Expert Witnesses
Mr. Paul Sharma
Mr. Gary Davies
Mr. Adrian Martin
(Alvarez & Marsal)

Permanent Court of Arbitration
Dr. Levent Sabanogullari

Interpreters
Ms. Michèle Antaki
Ms. Aline Bazouni
Ms. Mina Faress
Mr. Reza Amini

Court Reporter
Ms. Susan McIntyre

110.
Dr. Gharavi and Mr. Foy presented oral arguments on behalf of the Claimants. H.E. Sheikh Khaled bin Ali bin Abdullah Al Khalifeh, Minister of Justice, made a statement as agent of the Respondent, and Prof. Paulsson and Mr. Sobota presented arguments on behalf of the Respondent.
111.
During the Hearing, by e-mail of May 9, 2019, the Claimants submitted new legal authorities CL-169 to CL-174, as well as exhibit C-303, as instructed by the Tribunal at the Hearing.

H. Post-Hearing Proceedings and Costs Submissions

112.
On May 13, 2019, the Tribunal invited the Parties to make simultaneous costs submissions by no later than July 10, 2019. By the same letter, the Tribunal invited the Parties to file reply comments on the other side's costs submissions by July 24, 2019.
113.
On July 10, 2019, the Respondent submitted its letter to the Tribunal regarding costs (the "Respondent's Submission on Costs") and a declaration of costs in an Annex. On the same date, the Claimants filed their submission on costs (the "Claimants' Submission on Costs").
114.
On July 24, 2019, the Respondent replied to the Claimants' Submission on Costs (the "Claimants' Reply Comments on Submission on Costs"), and submitted a declaration of amended costs in an Annex. On the same date, the Claimants replied to the Respondent's Submission on Costs (the "Respondent's Reply Comments on Submission on Costs").
115.
On September 21, 2019, the Claimants sought confirmation that no further submissions were required from the Claimants with respect to their amended request for relief, which the Tribunal confirmed on September 26, 2019.
116.
On February 13, 2020, the Respondent wrote to the Tribunal to "update the Tribunal in relation to the criminal investigations in Bahrain" in respect of Future Bank "in the interest of transparency", enclosing a press release from the Office of the Public Prosecutor in Bahrain.
117.
By e-mail of February 27, 2020, the Claimants commented on such letter regarding the criminal proceedings initiated in Bahrain against Future Bank, the Claimants, and Future Bank executives. In this communication, the Claimants referred to the Respondent's letter and the underlying criminal proceedings as aggravating the dispute and the reputational damage inflicted on them. They also reserved their rights and requested an indication on the date of issue of the Award.
118.
On February 27, 2020, the Respondent answered the Claimants' letter regarding the criminal proceedings underway in Bahrain.

I. Replacement of the Presiding Arbitrator, Re-Hearing, And Supplemental Costs Submissions

119.
On April 6, 2020, the PCA informed the Parties of the recent passing of Professor Rudolf Dolzer.
120.
On April 30, 2020, the co-arbitrators appointed Professor Gabrielle Kaufmann-Kohler as presiding arbitrator pursuant to Articles 13(1) and 7(1) of the UNCITRAL Rules. Professor Kaufmann-Kohler's contact details are as follows:

Professor Gabrielle Kaufmann-Kohler
3-5, rue du Conseil-Général
P.O. Box 552
1211 Geneva 4
Switzerland
Tel.: +41 22 809 62 00
E-mail: gabrielle.kaufmann-kohler@lk-k.com

121.
On May 11, 2020, with reference to Article 14(1) of the UNCITRAL Rules, the Tribunal invited the Parties to provide their views on the appropriate next procedural steps, informing the Parties that the Tribunal would be inclined to hold a hearing at which counsel would be afforded an opportunity to present oral arguments and address any questions from the Tribunal.
122.
By letters dated May 18, 2020, each side confirmed its availability for a hearing.
123.
On May 25, 2020, the Tribunal proposed dates for a hearing by videoconference to the Parties, who confirmed their availability on May 25 and June 6, 2020 respectively.
124.
On June 15, 2020, the Tribunal confirmed that the hearing would take place on August 10 and 11, 2020, proposed to conduct the hearing via the Zoom platform, and invited the Parties' comments on draft Procedural Order No. 8 in respect of arrangements for a videoconference hearing.
125.
On June 29, 2020, the Parties provided their joint comments on draft Procedural Order No. 8.
126.
On July 1, 2020, having considered the Parties' comments, the Tribunal issued Procedural Order No. 8, inter alia setting out the hearing schedule and the videoconference etiquette.
127.
On July 28, 2020, the Tribunal informed the Parties of areas of particular interest and invited them to address these in their oral arguments at the forthcoming hearing.
128.
By letter of the same date, the Claimants updated the Tribunal on recent development in the criminal proceedings in Bahrain and requested that "any monetary relief awarded by the Tribunal be accompanied by language expressly setting out that such monetary relief shall not be capable of set off against any other amounts allegedly owed by Future Bank, Claimants, or their respective representatives, in the context of other actions initiated by Bahrain", citing Togo Electricité and GDF-Suez Energie Services v. Republic of Togo in support.
129.
On July 29, 2020, the Tribunal invited the Respondent to comment on the Claimants' correspondence of July 28, 2020, noting that the Parties may further address the issues raised in the Claimants' correspondence in their oral arguments at the hearing if they deemed it appropriate.
130.
On July 30, 2020, the Claimants requested certain changes to the hearing schedule.
131.
On the same date, the Tribunal invited the Respondent's views on such changes, to which the Respondent objected on July 30, 2020.
132.
On July 31, 2020, having considered the Parties' positions and taking into account that what was expected was as summary of elements already in the record, the Tribunal decided to keep the original schedule fixed in Procedural Order No. 8.
133.
On August 4, 2020, the Respondent commented on the Claimants' letter of July 28, 2020, arguing inter alia that the Claimants' new request for relief was inadmissible.
134.
Also on August 4, 2020, the Respondent sought leave to file two updated exhibits and two legal authorities into the record for purposes of the upcoming hearing.
135.
On August 5, 2020, the Tribunal informed the Parties that it was inclined to admit the documents for which the Respondent sought leave, subject to any compelling reason to the contrary raised by the Claimants, in which case the Tribunal would reconsider its position.
136.
On August 5, 2020, the Claimants informed the Tribunal that they did not object to the introduction of the documents "without prejudice to the relevance and materiality of the same". By the same letter, the Claimants introduced legal authorities CLA-175 to CLA-179.
137.
Also on August 5, 2020, a pre-hearing conference took place via the Zoom platform in which counsel and representatives for the Parties, the members of the Tribunal, and the PCA participated and tested the features of the videoconference platform.
138.
By letter dated August 6, 2020, the Tribunal admitted the exhibits and legal authorities that the Respondent sought to introduce on August 4, 2020, and the Claimants' legal authorities CLA-175 to CLA-179 into the record. By the same letter, the Tribunal noted the Respondent's letter of August 4, 2020, addressing the criminal proceedings in Bahrain.
139.
The Re-Hearing took place on August 10 and 11, 2020 by videoconference. The following persons were in attendance:

Tribunal
Professor Gabrielle Kaufmann-Kohler
Professor Emmanuel Gaillard
The Rt Hon Lord Collins of Mapesbury

Claimants
Counsel
Dr. Hamid Gharavi
Mr. Emmanuel Foy
Mr. Ali Al-Khasawneh
Ms. Deborah Schneider
(Derains & Gharavi LLP)

Respondent
Counsel
Prof. Jan Paulsson
Mr. Luke Sobota
Mr. Scott Vesel
Mr. Ryan Manton
Ms. Kimberly Larkin
Ms. Zara Desai
Ms. Supritha Suresh
Ms. Kelly Renehan
Ms. Tracey Stokes
(Three Crowns LLP)

Party Representatives
H.E. Sheikh Khalid bin Ali bin Abdullah Al Khalifa
Bahrain Representative
(Minister of Justice)

H.E. Sheikh Salman bin Khalifa Al Khalifa
Bahrain Representative
(Minister of Finance)

H.E. Governor Rasheed Mohammed Al Maraj
Bahrain Representative
(Governor of the Central Bank of Bahrain)

Mr. Khalid Hamad
Bahrain Representative
(Executive Director of Banking Supervision, Central Bank of Bahrain)

Mr. Mohamed Rashed Al-Najem
Bahrain Representative
(Head of Compliance Examination – Banks, Central Bank of Bahrain)

Ms. Manar Mustafa Al Sayed
Bahrain Representative
(General Counsel of Central Bank of Bahrain)
Mr. Devashish Krishan
Bahrain Representative

Permanent Court of Arbitration
Dr. Levent Sabanogullari
Ms. Ruba Ghandour
Ms. Hosna Sheikhattar

Court Reporters
Ms. Diana Burden
Ms. Ann LLoyd

140.
On behalf of the Claimants, oral arguments were presented by Dr. Gharavi, while the Respondent presented arguments through Prof. Paulsson and Mr. Sobota.
141.
On August 11, 2020, the Tribunal invited the Parties to update their costs claims.
142.
On September 15, 2020, the Parties filed the respective updates of their costs claims (the "Claimants' Costs Claims Update" and the "Respondent's Costs Claims Update", respectively).
143.
On November 24, 2020, the Tribunal informed the parties of its intention to have the Award issued by the end of March 2021.
144.
By letter dated December 30, 2020, the Claimants insisted that the Tribunal make efforts to issue the Award promptly. In this communication, they referred to developments in the criminal proceedings in Bahrain and claimed that the Respondent was "continuing to use each day that elapses to aggravate the dispute" through these proceedings. They further repeated their request that "any monetary relief awarded by the Tribunal be accompanied by language expressly setting out that such monetary relief shall not be capable of set off against any other amounts allegedly owed by Future Bank, Claimants, or their respective individual representatives, in the context of other actions initiated by Bahrain".
145.
On January 4, 2021, the Tribunal gave the Respondent the opportunity to submit comments on the Claimants' letter of December 30, 2020, by January 8, 2021.
146.
By letter dated January 6, 2021, the Respondent replied to the Claimants' letter of December 30, 2020.
147.
On January 7, 2021, the Tribunal took note of the content of the Claimants' letter of December 30, 2020.
148.
On March 3, 2021, the Tribunal notified the Parties that it would "not be in a position" to issue the Award by the end of March, as previously anticipated, and proposed to give notice three days in advance of its issue.
149.
By e-mail dated March 4, 2021, the Claimants urged for the Award "to be issued promptly" and "within the first half of April".
150.
On March 18, 2021, the Tribunal informed the Parties that it would be continuing its deliberation process and would provide a status update in two months.
151.
By e-mail dated March 19, 2021, the Claimants repeated calls for the prompt issue of the Award, reiterating concerns regarding the ongoing criminal proceedings in Bahrain.
152.
By e-mail dated March 23, 2021, the Respondent replied to the Claimants' letter of March 19, 2021, commenting on the criminal proceedings in Bahrain.
153.
On March 24, 2021, the Tribunal invited the Claimants to comment on the Respondent's letter of March 23, 2021, by March 26, 2021, and the Respondent to make further observations by March 31, 2021.
154.
By e-mail dated March 26, 2021, the Claimants commented on the Respondent's e-mail communication of March 23, 2021, reiterating inter alia their concerns over the criminal proceedings in Bahrain and their calls for a prompt issue of the Award.
155.
By e-mail communication dated March 31, 2021, the Respondent made observations on the remarks made by the Claimants in their e-mail of March 26, 2021.

J. Appointment of a Substitute Arbitrator

156.
On April 6, 2021, the PCA informed the Parties of the passing of Professor Emmanuel Gaillard and invited the Claimants to appoint a substitute arbitrator by May 3, 2021, pursuant to Article 13(1) of the UNCITRAL Rules.
157.
By letter dated April 12, 2021, the Claimants notified the Tribunal of their appointment of Professor Hanotiau as substitute arbitrator. Professor Hanotiau's contact details are as follows:

Professor Bernard Hanotiau
Hanotiau & van den Berg
IT Tower
480, avenue Louise – box 9
B - 1050 Brussels
Tel.: (32.2) 290.39.00
Fax: (32.2) 290.39.39
E-mail: bernard.hanotiau@hvdb.com

158.
In the same communication, the Claimants noted that they did not request a repetition of hearings and called for an expeditious conclusion of the arbitration.
159.
By e-mail dated April 22, 2021, the Respondent welcomed the Claimants' appointment of Professor Hanotiau and made comments on the Claimants' letter of April 12, 2021.
160.
Following exchanges between the Parties, the Tribunal informed the Parties on June 29, 2021, that Professor Hanotiau considered a repetition of the Hearing unnecessary and that the Tribunal would resume its deliberation process.
161.
On September 9, 2021, the Claimants requested an update as to the date of issue of the award.
162.
On September 10, 2021, the Tribunal informed the Parties that it had made substantial progress and expected to be in a position to issue the award in late October or early November 2021.
163.
On October 21, 2021, the Respondent informed the Tribunal of "the internationally-broadcast news of the ten year jail sentence for corruption that an Iranian court has pronounced against the former Governor of the Central Bank of Iran, Dr. Valiollah Seif." On the same day, the Claimants notified the Tribunal that they did not intend to respond to the Respondent's communication, "other than to say that the issue bears no relevance to the specific points in dispute."

III. FACTUAL BACKGROUND

164.
This section restates the main facts of this dispute. Where a fact or its significance is disputed, reference is made to the Parties and, where appropriate, the Parties' respective positions on such facts. In particular, it addresses the establishment of Future Bank in Bahrain, the various compliance reports issued by the Central Bank of Bahrain (the "CBB") and Future Bank's responses thereto, the circumstances and events surrounding the CBB's decision to place Future Bank under administration and, subsequently, liquidation. In the analysis set out in Chapters V to VIII the Tribunal will refer to additional facts where this appears necessary.

A. The Legislative and Regulatory Framework

165.
Before setting out the chronology of the main facts, the Tribunal briefly summarizes the relevant Bahraini legal framework.

1. Central Bank of Bahrain and Financial Institutions Law

166.
Article 136 of the Central Bank of Bahrain and Financial Institutions Law (Decree No. 64 of 2006) (the "CBB Law") sets out the grounds upon which the Central Bank may place a bank holding a licence under administration as follows:

(a) The Central Bank may, pursuant to a justified resolution, assume the administration of a Licensee or may appoint another person (the "External Administrator") to conduct the administration of a Licensee on behalf of the Central Bank under any of the following circumstance:

1) If the Licensee becomes insolvent or appears most likely to be insolvent.

2) If the license is amended or cancelled pursuant to the provisions of items (1) and (3) of paragraph (c) of Article (48) of this law.

3) If the Licensee continued to provide regulated services which resulted in inflicting damages to financial services industry in the Kingdom.

(b) In this part the term administrator denotes the Central Bank if it assumes the administration of the Licensee or any external administrator to be appointed for this purpose.8

167.
Pursuant to Article 138(a), the Administrator "shall, promptly after assuming the administration of a Licensee, publish a notice to this effect in the Official Gazette and in one Arabic and one English language newspaper published in the Kingdom, and to show such notice in every place of business of the Licensee in the Kingdom all through the period in which he assumes the administration."9 Article 138(b) adds that "the appointment of the Administrator shall only have effect on the day following the publication of such notice […]"10
168.
The CBB Law further provides in Article 139(a), that a financial institution placed under administration may file an appeal before the CBB within ten days following the publication of the administration. Article 139(b) then stipulates that the decision on the appeal must be notified to the appellant within 15 days and that reasons must be given in the event that the appeal is dismissed. Under Article 139(c), the financial institution may then challenge the decision of administration or the dismissal of the appeal before the competent court within 30 days.11
169.
Within a period of two years from the commencement of the administration, a petition for the compulsory liquidation of the bank under administration or to terminate the administration and reinstate the bank's management shall be made (Art. 143).12
170.
Article 145 specifies that compulsory liquidation will ensue in case of insolvency and where it is shown to be just and equitable.13

2. The CBB Rulebook

171.
In the exercise of its powers as the regulator of all financial institutions in Bahrain, the CBB has issued a Rulebook (the "CBB Rulebook"), which contains regulations governing the banking sector.14
172.
In an introductory statement, the CBB explains that the Rulebook contains "regulatory and supervisory authority for all financial institutions in Bahrain, issues regulatory instruments that licensees and other specified persons are legally obliged to comply with."15
173.
The Rulebook contains the following provisions on administration:

EN 8.1.1

Article 136 of the CBB Law empowers (but does not oblige) the CBB to assume the administration of a licensee in certain circumstances. These circumstances are outlined in the above Article and may include the following:

(a) The licensee has become insolvent;

(b) Its solvency is in jeopardy;

(c) Its continued activity is detrimental to the financial services industry in the Kingdom; or

(d) Its license has been cancelled.

EN 8.2.1

The CBB views the administration of a licensee as a very powerful sanction, and will generally only pursue this option if less severe measures are unlikely to achieve its supervisory objectives.

EN 8.2.2

Although Article 136 of the CBB Law specifies the circumstances in which the CBB may pursue an administration, it does not oblige the CBB to administer a licensee. The CBB may pursue other courses of action such as suspension of a license (under Article 131 of the CBB Law), if it considers that these are more likely to achieve the supervisory outcomes sought. Because an administration is likely to send a negative signal to the markets about the status of a licensee, other supervisory actions may in fact be preferable in terms of protecting the interests of those with a claim on the licensee.

EN 8.2.3

The criteria used by the CBB in deciding whether to seek an administration of a licensee include the following:

(a) the extent to which the interests of the market, its users and those who have a claim on the licensee would be best served by the administration of the license, for instance because of the potential impact on asset values arising from an administration;

(b) the extent to which other regulatory actions could reasonably be expected to achieve the CBB's desired supervisory objectives (such as restrictions on the licensee's operations, including limitations on new business and asset disposals);

(c) the extent to which the liquidity or solvency of the licensee is in jeopardy; and

(d) the extent to which the licensee has contravened the conditions of the CBB Law, including the extent to which the contraventions reflect more widespread or systemic weaknesses in controls and/or management.

EN 8.3 Procedure for Implementing an Administration

EN 8.3.1

All proposals for assuming the administration of a licensee are subject to a thorough review by the CBB of all relevant facts, assessed against the criteria outlined in Section EN 8.1.

EN 8.3.2

A formal notice of administration is issued to the licensee concerned and copies posted in every place of business of the licensee. As soon as practicable thereafter, the notice is also published in the Official Gazette and in one Arabic and one English newspapers in the Kingdom. The term "in administration" should be clearly marked in all Future Bank's correspondence and on its website, next to Future Bank's name.

EN 8.3.3

Article 136 of the CBB Law allows a licensee 10 days following the administration taking effect in which to appeal to the CBB. If the CBB refuses the appeal, the licensee has a further 30 calendar days from the date of the refusal in which to lodge an appeal at the courts. So as to reduce the potential damage of an administration order being applied and then withdrawn on appeal, where feasible the CBB will give advance notice to a licensee's Board of its intention to seek an administration, and allow the Board the right of appeal prior to an administration notice being formally served.16

174.
Volume 1 of the CBB Rulebook, which applies to all licensed conventional banks, provides a "comprehensive framework of Rules and Guidance aimed at combating money laundering and terrorist financing". Within Volume 1, the so-called Financial Crime Module (the "FC Module") places certain obligations on conventional banks which are summarized as follows:

The Module requires conventional bank licensees to have effective anti money laundering ('AML') policies and procedures, in addition to measures for combating the financing of terrorism ('CFT'). The Module contains detailed requirements relating to customer due diligence, reporting and the role and duties of the Money Laundering Reporting Officer (MLRO).17

175.
The CBB Rulebook is amended from time to time.

B. The Establishment of Future Bank (2004)

176.
BMI and BSI had been operating in Bahrain since 1971.18 According to the Claimants, Future Bank was established on the active encouragement of Bahrain19 following the conclusion in 2002 of the Memorandum of Understanding between the Central Bank of Iran and its Bahraini counterpart, the Bahrain Monetary Agency (the "BMA"), which was the predecessor of the CBB. In that Memorandum, the two signatories expressed their willingness to "allow the establishment of banks and financial institutions" in their respective jurisdictions.20
177.
For the Respondent, that Memorandum "was a far cry from inducement of the Claimants' specific investment in Future Bank".21 The Respondent avers that the Claimants established Future Bank as "it was in their commercial and strategic interests".22
178.
Officials of the BMA met with the general managers of the Bahrain branches of BMI and BSI to discuss a possible joint venture with a local bank for the mutual benefit of Iran and Bahrain.23
179.
On March 3, 2004, BMI, BSI, and a bank incorporated in Bahrain, AUB, signed a Shareholders' Agreement forming Future Bank, a commercial bank to be incorporated in Bahrain.24 The three banks hold an equal interest in Future Bank and the Shareholders' Agreement provides that each shareholder will nominate three members to the nine-member Board of Directors of Future Bank. It also addresses Future Bank's plan to establish a branch in the Kish Free Zone in Iran.25
180.
On June 23, 2004, the CBB issued a licence to Future Bank for the provision of regulated retail banking pursuant to Decree No. 64 of 2006,26 and on July 7, 2004 BMI, BSI, and AUB signed a Memorandum of Association to incorporate Future Bank.27
181.
According to the Respondent, a licensed "retail" bank may provide financial services "generally" to individuals or small institutions, by contrast to a licensed 'wholesale' bank, which provides financial services primarily to foreign banks, multinationals, and pension funds.28

C. Future Bank Operations (2005-2009)

1. Future Bank's Operations and Strategy 2005-2009

182.
According to the Claimants, Future Bank operated as a largely successful bank from its inception. Between 2004 and 2006, it had significantly increased its assets and saw an almost three-fold increase in net profits.29 The Claimants attribute this growth to the co operation between Bahraini and Iranian authorities.30
183.
By contrast, for the Respondent, Future Bank's growth was largely due to its dealings with Iran. The Respondent points to Future Bank's refinancing agreement of October 2, 2006 with the Central Bank of Iran, as an indication of Future Bank's dependence on Iranian business. Under this agreement, Future Bank was to "make available a facility for an amount of USD 400 million for refinancing [letters of credit] opened by [the Central Bank of Iran and other Iranian banks]".31 The Respondent alleges that, on the basis of this agreement, the Central Bank of Iran and other Iranian banks "would open letters of credit for buyers of goods or services in Iran and instruct Future Bank to pay beneficiaries of the letter of credit in Bahrain". The Respondent claims this was the reason Future Bank was able to grow and perform as well as it did by 2006.32
184.
The Claimants stress that Future Bank obtained the CBB's approval for the refinancing agreement with the Central Bank of Iran for this opening of a branch in the Kish Island Free Zone in Iran as contemplated in the Shareholders' Agreement among BMI, BSI, and AUB.33 In the following year, on August 6, 2007, the CBB informed Future Bank that it was in the process of reviewing Future Bank's proposal regarding the Kish Free Zone branch, and instructed it not to start activities until further notice.34
185.
The Claimants allege that the CBB demanded in 2007 that Future Bank submit to increased supervision and enhanced inspections, which the latter accepted.35 In spite of this "encumbering scrutiny"36, the Claimants argue, Future Bank maintained profitability, increasing net profits to USD 23.5 million by the end of 2007.37

2. Future Bank's Board of Directors

186.
In November 2007, the members of the Board of Directors that had been appointed by the AUB, Mr. Hamad Al Marzouq and Mr. Adel A. El-Labban, resigned and requested that the Board authorize the transfer of AUB's shareholding in Future Bank to a trust, in order to shield the AUB from "the very serious contagion effects of Iranian sanctions".38
187.
In their stead, Mr. A. Aziz Ahmed A. Malek and Mr. Abel Al Mannai were appointed by the entity which had taken over Dana Trust participation.39 The former was also appointed to the Board Audit Committee, with responsibilities including Future Bank's accounting policy, internal controls, compliance procedures, risk management function, and relations with external auditors and regulators.
188.
The Claimants allege that these two individuals were in fact appointed by the CBB in order to gain access to Future Bank's internal operations.40 The Respondent denies that these "independent board members […] somehow acted as the CBB 'pawns'".41

3. Sanctions Regime against Iran (2005-2008)

189.
On July 31, 2006, the United Nations Security Council ("UNSC") issued Resolution 1969, which noted the concern in respect of Iran's nuclear programme and called upon "all States, in accordance with their national legal authorities and legislation and consistent with international law, to exercise vigilance and prevent the transfer of any items, materials, goods and technology that could contribute to Iran's enrichment-related and reprocessing activities and ballistic missile programmes".42
190.
On December 23, 2006, the UNSC issued Resolution 1737, also regarding Iran's nuclear program, deciding that all States shall "freeze the funds, other financial assets and economic resources which are on their territories at the date of adoption of the resolution or at any time thereafter, that are owned or controlled by the persons or entities designated in the Annex, as well as those additional persons or entities designated by the Security Council […] and decides further that all States shall ensure that any funds, financial assets or economic resources are prevented from being made available by their nationals or by any person or entities within their territories, to or for the benefit of these [designated] persons and entities".43
191.
Following the adoption of the UNSC Resolution 1737, on February 27, 2007, the Council of the European Union (the "EU") issued a common position on the enactment of sanctions on listed persons, which included freezing "all funds and economic resources which belong to, are owned, held or controlled, directly or indirectly" to persons and entities designated in the annex to UNSC Resolution 1737.44
192.
On October 25, 2007, OFAC designated Bank Saderat under Executive Order 13224 and Bank Melli under Executive Order 13382 as sanctioned entities.45 On April 19, 2007, there followed Regulation No. 423/2007,46 which provided for freezing the property of listed persons, among them Bank Melli as of June 23, 2008,47 and Bank Saderat and Future Bank, as of July 26, 2010.48
193.
On March 3, 2008, the UNSC issued Resolution 1803 calling on all States to "exercise vigilance" over "the activities of financial institutions in their territories with all banks domiciled in Iran, in particular with Bank Melli and Bank Saderat, and their branches and subsidiaries abroad".49
194.
Consequently, on March 12, 2008, the CBB issued a directive with respect to UN Resolutions 1737 and 1803 requiring in relevant part that:

licensees […] exercise vigilance and enhanced due diligence over the following:

• When entering into new commitments for public provided financial support for trade with Iran, including the granting of export credits, guarantees or insurance, to their nationals or entities involved in such trade.

• Over activities with all bank domiciled in Iran, in particular with Bank Melli and Bank Saderat, and their branches and subsidiaries abroad.50

195.
The Claimant alleges that, between 2007 and 2008, the U.S. exerted pressure on Bahrain in an effort to end Future Bank's activities and close the bank.51 This allegedly led Bahrain's Undersecretary of Foreign Affairs to state his intention to obtain a "political decision to shut down Future Bank before March 11, [2008]".52 In a letter to the Bahraini Minister of Foreign Affairs, Sheikh Al Khalifeh, the Ambassador of Bahrain in the U.S. Al Baloushi noted that the U.S. Undersecretary for Terrorism and Financial Intelligence had informed him of the U.S.' intention to designate Future Bank as a sanctioned entity, emphasizing the interest of Bahrain in "clos[ing Future Bank] a few days before the Department of Treasury does so".53
196.
The Claimants aver that throughout this period the CBB, among other Bahraini authorities, expressed their support for Future Bank and assured it of forthcoming improvements in the relationship with the U.S..54

4. Future Bank's Compliance with the CBB Framework (2006-2008)

(a)The BMA 2006 Compliance Report

197.
On August 6, 2006, the BMA communicated to Future Bank a copy of the anti-money laundering report (the "2006 Compliance Report"),55 of the same date relating to an examination carried out between May 29 and June 4, 2006. The 2006 Compliance Report contained the following findings and conclusions:

a. certain procedures needed to be put in place, including with respect to enhanced due diligence ("EDD") with regard to charities, clubs and other societies, as well as persons identified as politically exposed persons ("PEPs") at the time of opening an account;

b. weaknesses in customer due diligence ("CDD") were found in the identification documentation and background information on clients referring to the nature of the account and the anticipated activity. In particular, some documentation in CDD reports had been outdated as they must have been updated every three years;

c. the bank's money laundering reporting officer (the "MLRO") had failed to report unusual transactions, acknowledging that the anti-money laundering ("AML")/ ("CFT") procedures had been implemented in April 2006, with the result that their effectiveness could not yet be assessed; and

d. additional training of employees was required for purposes of suspicious transaction reporting ("STR").56

198.
The 2006 Compliance Report also noted that examiners had reviewed a random sampling of inward wire transfers and found that there were cases where originator information was missing,57 a failure related to the wire stripping issue that would resurface later.58
199.
Future Bank reacted on September 4, 2006, conveying the management's responses to the issues raised by the BM. The response acknowledged a number of shortcomings identified in the 2006 Compliance Report and set out the measures that Future Bank took or contemplated taking in order to address such shortcomings. In particular, the bank represented that the trade finance department would ensure that all inward transfers would include originator information and that it was in the process of updating all customer account profiles in order to address the issue of incomplete customer identification documentation.

(b) The 2006 CBB Inspection Report

200.
During the month of August 2006, the Inspection Directorate of the CBB performed an examination of Future Bank and issued a report dated March 5, 2007 (the "2006 CBB Inspection Report").59
201.
The executive summary of the 2006 CBB Inspection Report's executive summary provides as follows:

To embrace best practice corporate governance the Board is required to implement control framework which is robust focused towards risk and is sufficiently documented to provide direction to staff in the execution of their duties.

The Board is alerted to the significant number of non-compliance issues raised in this report. Immediate Board attention is warranted to ensure there is proper and effective compliance environment within Future Bank. The Board must therefore submit to the CBB by the end of April 2007 an action plan on establishing both compliance culture and compliance function.

Moreover all outstanding issues in the external auditors Management Letter and Internal Audit reports need to be resolved within the first half of 2007 to enhance Future Banks' internal control environment.

Management is required to improve the credit culture of Future Bank by ensuring that measures such as credit assessment and review are undertaken to facilitate effective credit portfolio management.

Serious misrepresentations made by previous Management regarding the provision of consumer finance were uncovered during the examination and the Board is required to submit immediate proposals to the CBB detailing the actions they propose to take in respect of such finance.

Management is also required to establish connection with the Credit Reference Bureau regarding the existing consumer loans.60

202.
Future Bank responded on March 29, 2007, with a detailed action plan, indicating that more than half of the points had been addressed and that the remaining issues would be addressed by September 2007.61

(c) Political Tensions and August 2007 Meeting

203.
As sanctions against Iran gradually gained ground, Bahrain came under increased pressure due to its political and economic ties with Iran. This created an internal political tension in Bahrain. The Respondent also stresses that the Financial Action Task Force (the "FATF"), an intergovernmental organization founded to develop policies to combat money laundering, declared in 2007 that it was "concerned that the Islamic Republic of Iran's lack of a comprehensive [AML/CFT] regime represents a significant vulnerability within the international financial system".62
204.
In this context, on August 9, 2007 Dr. Seif, the CEO and Managing Director of Future Bank, met with Mr. Hamad, the Executive Director of Banking Supervision at the CBB, to discuss the adverse effects of these developments on Future Bank's business.
205.
After that meeting, Dr. Seif wrote to record the CBB's recommendations that Future Bank maintain sufficient liquidity to respond to mass withdrawal of deposits and not to assume new risks on Iran. He also stated the bank reduce its share of business involving Iranian trade, and shift to Bahrain based activities. He in particular concluded that trade related activities would be under enhanced supervision and control.63 The CBB also required Future Bank to submit weekly audits by independent auditors, together with usual compliance and risk reports, and regular updates on its Iran exposure.

(d) The 2008 CBB Report

206.
The CBB's Inspection Directorate conducted an on-site examination of Future Bank between November 9, 2008 and December 14, 2008, producing a report (the "2008 CBB Report")64 in which it found that Future Bank had "failed to implement substantial improvements in the control environment since the previous examination in 2006",65 especially in connection with credit controls. Among other matters, the report noted, that the CBB has "temporarily allowed" Future Bank's exposure to BMI and BSI, provided that it would not exceed 60% of the bank's capital base. At that time, the direct exposure to BMI and BSI reportedly amounted to 58.8%.66 Through credit facilities extended to BMIIC International General Trading and Ghadir Investment Company, that percentage increased to 83.06%.67 The 2008 CBB Report also noted that Future Bank's "Core Banking System did not have the capability to automatically generate timely and tailor- made [Management Information System] reports", which meant that "reports were not accurate [or] reliable".68
207.
The executive summary of the Report highlighted these matters in the following terms:

It was evident that the Bank failed to implement substantial improvements in the control environment since the previous examination in 2006. One of the implications of this failure is that the Bank's credit culture remains unsound. The Bank was heavily reliant on collateral when granting credit. This control weakness was exacerbated where the financial health of the borrower was in question.

The Bank also lacked effective monitoring over shares and properties used to secure the credit facilities. Moreover, compliance with consumer finance regulations was not demonstrated in a number of instances. Such practices violate the rules and the guidelines outlined in "Credit Risk Management" Module of the CBB Rulebook.

In addition, the credit rating system was not consistently applied across facilities, and there was a lack of periodical credit reviews for a number of facilities despite this being recommended by the CBB in the last examination report. The credit files did not include important documents such as those related to the borrower's financial conditions; know your customer regulation, and property valuations.

The Board must immediately adopt corrective measures to address the unsound credit culture of the Bank, comply with the requirements of the CBB Rulebook,

including a plan for enhancing compliance, and advise the CBB of the action taken accordingly.

The Bank lacked a corporate strategy and a detailed business plan. This does not demonstrate good business practice, and it also constitutes a violation to the "High Level Controls" Module of the CBB Rulebook.

In respect of liabilities, the Bank did not have a diversified base of depositors. The top ten non-bank depositors constituted approximately 59% of total non bank deposits.

The effectiveness of the critical support functions, namely Internal Audit and Risk Management, was considered to be significantly compromised. The Board must immediately rectify this, including but not limited to, the implementation of practices which demonstrates the independence of each of the support functions noted.69

208.
Although not reflected in the executive summary, the Report also noted that, in five instances, Future Bank overstepped the precautionary cap on Iranian exposure, which the CBB had set at USD 1,019m in its country exposure report of September 30, 2008. The Board was thus required to establish robust controls over the exposures to Iran to ensure full compliance with the CBB requirements.70
209.
On May 6, 2009, Dr. Seif, the CEO and Managing Director of Future Bank responded to the Inspection Report.71 He observed that, since receiving the 2006 CBB Inspection Report in 2007, Future Bank had taken the opportunity to pro-actively strengthen corporate governance, internal controls, risk management and controls and credit culture, including through the appointment of KPMG and Ernst & Young to advise on policies and procedures. To his letter, Dr. Seif attached an action plan addressing the issues raised by the Inspection Report, and in particular, stating that, in the five instances identified by the CBB where the Iranian exposure limit was exceeded, there was no actual excess. In reality, Future Bank's report contained errors, and they were rectified because it was clear that the exposure was within the prescribed limits.

(e) Subsequent CBB Reports and Examinations

210.
On April 12, 2009, Future Bank wrote to the CBB requesting an extension of its exemption from limitations to the exposure to its Iranian shareholders, which were set to expire on June 30, 2009 until June 30, 2011. Future Bank requested the approval of the extension in return for a commitment of limiting its exposure to its shareholders, BMI and BSI, to 60% of its capital base. Following a meeting with the CBB, Future Bank explained that such extension was required to maintain its profitability, including due to the fact that its "Iranian shareholder banks together have more than 50% of the Iran import market share".72
211.
The CBB answered on July 21, 2009 demanding that Future Bank diversify its exposures "over a wider range of counterparties" and to limit its exposure to BMI and BSI to 40% of its capital base by September 2009.73
212.
In the meantime, on April 23, 2009, the CBB had directed Future Bank to (a) "immediately cease all non-trade related cross border transactions similar to those provided on behalf of Post Bank of Iran and Export Development Bank of Iran"; (b) amend its existing account criteria classification and implement criteria in compliance with the CBB requirements, in relation to wholesale and retail accounts held at Future Bank; (c) seek and obtain the prior written approval of the CBB's Compliance Directorate on the appointment of an external auditor for the 2010 AML/CFT audit; and (d) "provide detailed analysis on the account of Intra National Industrial Company", in particular, in connection with wire transfers and the veracity of the line of credit documents.74
213.
In the same letter, the CBB requested that Future Bank review the attached Anti-Money Laundering and Terrorism Financing Report (the "2009 CBB Report"), and requested comments within one month.75

(f) The 2009 CBB Report

214.
In the 2009 CBB Report, the CBB examined Future Bank's compliance with its money laundering regulations. Among other matters, the report noted the following:

a. The majority of client files reviewed contained the required legal and identification documents, but raised concerns about know-your-customer ("KYC") due diligence. Accordingly, the CBB required Future Bank to establish and maintain thorough Original Identification Documents ("OID") procedures, especially in respect of Intra National Industrial Chemicals Company;

b. Future Bank did not have an automated system to monitor high-risk accounts. Hence, the CBB directed Future Bank to establish such a system to allow the identification of a significant or abnormal activity on accounts held in particular by PEPs and charities;

c. The CBB was concerned that Future Bank may have caused a European counterpart to contravene Iran sanctions, by accepting instructions from Iranian banks to forward funds without including all originator information when making the transfers. It concluded that Future Bank needed full originator information for cross-border transactions;

d. The CBB was also apprehensive of the due diligence taken in collecting customer information, especially since the majority of wholesale customers were not account holders and thus high risk;

e. Future Bank was accepting business introduced by Post Bank of Iran and Export Development Bank of Iran, the latter being an OFAC designated sanctioned entity. These banks were routing funds through Future Bank due to the UN sanctions. In several instances, Future Bank had not included all originator information in the swift transfers, thus not disclosing the true origin of the funds. As a result, Future Bank may have unintentionally caused its European counterpart to unknowingly contravene UN and other sanctions.76

215.
In the covering letter enclosing the 2009 CBB Report, the CBB directed that Future Bank take the following actions:

a. To immediately cease all non-trade related cross border transactions similar to those on behalf of Post Bank of Iran and Export Development Bank of Iran;

b. To rectify the account criteria classification pertaining to wholesale and retail accounts to ensure full compliance with the CBB requirements;

c. To seek the necessary prior written approval from the CBB's Compliance Directorate on the appointment of an external auditor for next year's AML/CFT audit;

d. To provide a detailed analysis of the account of Intra National Industrial Chemicals Company, specifically justifications for the wire transfers and genuineness of the letter of credit documentation.77

216.
In answer, on May 20, 2009, Future Bank affirmed that it had resolved all shortcomings identified in the Report, except for the following:

a. It was finalizing an automated AML system, which would also monitor high-risk accounts, including those held by PEPs and charities. The bank represented that it expected to implement the system by the end of 2009. This system would also assist Future Bank in monitoring compliance with the CBB's directions in respect of the UNSC resolutions on terrorist financing, which were at that time manually verified;

b. It would submit a "detailed report" on Intra National Industrial Chemicals company by the end of May 2009; and

c. It would review its account classification criteria and bring them in line with the CBB guidelines.78

(g) Ernst & Young Report for 2009

217.
On April 28, 2010, Future Bank supplied a report prepared by Ernst & Young to the CBB Retail Banking Supervision Directorate (the "Ernst & Young Report for 2009"). 79 It is common ground that this report (and subsequent reports prepared by Ernst & Young and, later, KPMG) is not an audit.
218.
While largely positive in its assessment of the activities of Future Bank, the Ernst & Young Report for 2009 identified a few of areas for Future Bank's improvement. In particular, the findings of the Report can be summarized as follows:

a. The policy and procedural framework complied with the CBB Rulebook;

b. An effectiveness testing of ten payments (five outward and five inward wire transfers) showed that all originator information was on file, which was an improvement compared to the deficiency recorded in the 2009 CBB Report;

c. A due diligence sample on five correspondent banks showed compliance with relevant requirements of the FC Module;

d. The procedures to identify PEPs at the time of establishing business relationships and thereafter were adequate;

e. CDD and EDD requirements were largely complied with, while some samples revealed occasional shortcomings, they were exceptional; and

f. A weakness was identified in relation to verifying the source of funds for transactions over BHD 6,000.80

(h) The 2010 CBB Report

219.
On May 23, 2010, the CBB issued a follow-up report based on an inspection conducted by the competent Directorate from January 21, 2010 to February 25, 2010 (the "2010 CBB Report").81
220.
The 2010 CBB Report found "weaknesses [constituting] violations of the CBB regulations in respect of High Level Controls, Financial Crime and Credit Risk Management". It noted that, while Future Bank had made "substantial efforts" to remedy deficiencies raised in previous reports, several matters required attention:

The Board must ensure that systems are in place to identify, measure and control the risks to which Future Bank is exposed in its business activities. In fulfilling such responsibilities towards risk recognition and assessment the Board and Management should give due consideration to the views raised by Risk Management. This would facilitate the implementation of proper risk mitigants. The Board is also required to establish robust monitoring controls over the exposures to Iran to ensure full compliance with the CBB requirements.

Finally the Board is encouraged to enhance the overall credit culture in Future Bank. The Board also needs to consider the consistent implementation of Ernst and Young's proposed rating system and enhance the diversification of the credit portfolio across various security types and economic sectors.82

221.
In connection to Future Bank's Iranian exposure, a review of the position on December 1, 2009 had revealed that such exposure stood at BHD 367.043 million against the precautionary cap of BHD 84.329 million. The 2009 country exposure reports prepared by Future Bank mentioned 14 cases of violations of the cap, which had not been reported to the competent Directorate,83 and which called for controls to avoid recurring breaches in the future.84
222.
According to the Respondent, Future Bank was then contemplating an automated system called SafeWatch, but postponed its installation while simultaneously representing to the CBB that it was working on installing an automated solution.85 The Respondent alleges that SafeWatch was not installed until 2012.86 In any event, according to the Respondent, Future Bank used a system to override SafeWatch's filters (through the so-called "Good Guys List") allowing transactions with sanctioned entities.87
223.
The Claimants do not deny the existence of the so-called "Good Guys List". They point out, however, that these allegations relate to events in 2009 when Future Bank was not bound by the U.S. sanctions, and the Respondent has not demonstrated that any entities in the "Good Guys List" fell under sanctions that applied in Bahrain.88
224.
The Respondent points to an incident uncovered when Future Bank was under administration, involving the Islamic Revolutionary Guard Corps ("IRGC"), a sanctioned entity as an example of Future Bank's intentionally misleading the CBB.89 The incident turned on a high-performance powerboat, Bladerunner 51, manufactured in the UK. According to the Respondent, export of the powerboat was restricted by the U.S.; however, in 2009, Future Bank funded the unlawful shipment of this powerboat to an Iranian entity, in breach of the U.S. sanctions.90
225.
On June 10, 2010, the Future Bank CEO Dr. Seif wrote to the CBB that Future Bank had put in place procedures to monitor country exposure. He accepted that breaches had occurred on the days identified by the 2010 CBB Report, but not to the extent alleged there. The breaches were due to currency fluctuations. Asked to clarify its position on currency fluctuations, the CBB had advised Future Bank that such breaches did not need reporting. Hence, said Dr. Seif, all breaches could be accounted for, save for a purely technical one.91
226.
Subsequently, Future Bank's Audit Committee92 as well as the Board minutes93 recorded that all outstanding issues had been resolved by December 12, 2010.

D. The CBB Directive of 8 September 2010 and the Events of 2011

1. UNSC Resolution 1929 and the 2010 CBB Directive

227.
On June 9, 2010, the UNSC adopted Resolution 1929, recalling its previous resolutions concerning Iran's nuclear programme and calling upon all States to:

prevent the provision of financial services, including insurance or re insurance, or the transfer to, through, or from their territory, or to or by their nationals or entities organized under their laws (including branches abroad), or persons or financial institutions in their territory, of any financial or other assets or resources if they have information that provides reasonable grounds to believe that such services, assets or resources could contribute to Iran's proliferation-sensitive nuclear activities, or the development of nuclear weapon delivery systems, including by freezing any financial or other assets or resources on their territories or that hereafter come within their territories, or that are subject to their jurisdiction or that hereafter become subject to their jurisdiction, that are related to such programmes or activities and applying enhanced monitoring to prevent all such transactions in accordance with their national authorities and legislation;

[…] require their nationals, persons subject to their jurisdiction and firms incorporated in their territory or subject to their jurisdiction to exercise vigilance when doing business with entities incorporated in Iran or subject to Iran's jurisdiction, including those of the IRGC and IRISL, and any individuals or entities acting on their behalf or at their direction, and entities owned or controlled by them, including through illicit means, if they have information that provides reasonable grounds to believe that such business could contribute to Iran's proliferation-sensitive nuclear activities or the development of nuclear weapon delivery systems or to violations of resolutions 1737 (2006), 1747 (2007), 1803 (2008) or this resolution;

[…] take appropriate measures that prohibit in their territories the opening of new branches, subsidiaries, or representative offices of Iranian banks, and also that prohibit Iranian banks from establishing new joint ventures, taking an ownership interest in or establishing or maintaining correspondent relationships with banks in their jurisdiction to prevent the provision of financial services if they have information that provides reasonable grounds to believe that these activities could contribute to Iran's proliferation sensitive nuclear activities or the development of nuclear weapon delivery systems

[…] take appropriate measures that prohibit financial institutions within their territories or under their jurisdiction from opening representative offices or subsidiaries or banking accounts in Iran if they have information that provides reasonable grounds to believe that such financial services could contribute to Iran's proliferation-sensitive nuclear activities or the development of nuclear weapon delivery systems.

[supply] any information at their disposal on the implementation of the measures decided in resolutions 1737 (2006), 1747 (2007), 1803 (2008) and this resolution, in particular incidents of non-compliance.94

228.
Following up on this Resolution, on September 8, 2010, the CBB issued a directive to all banks requiring that "all licenses [sic] in the Kingdom of Bahrain must ensure that they are fully compliant with the requirements of all United Nations Security Council Resolutions imposing sanctions on the Islamic Republic of Iran, most recently UNSC Resolution No. 1929 of 2010" (the "CBB Directive").95 The CBB Directive also required licensed institutions to familiarize themselves with the sanctions imposed by the U.S. pursuant to the Comprehensive Iran Sanctions, Accountability, and Divesture Act of 2010, and "ensure that they do not fall foul of its provisions".96

2. The Events of 2011

229.
On June 5, 2011, Future Bank's then CEO, Mr. Gholam Souri, and representatives of the AUB attended a meeting with the Executive Director of the Banking Supervision Division of the CBB, Mr. Khalid Hamad. According to the Claimants, Mr. Hamad told the representatives of Future Bank that the CBB had decided to revoke Future Bank's license.97 Mr. Hamad also invited the Bank's representatives to convey to their shareholders that the CBB recommended that they consider voluntary liquidation.
230.
The Respondent disagrees with this narrative of the 2011 meeting. Governor Al Maraj recalls that the meeting was an invitation to "consider voluntarily winding up Future Bank" to "underscore just how urgently Future Bank needed to reform and live up to its commitments".98
231.
In a letter addressed to Governor Al Maraj a few days later on June 10, 2011, the shareholders of Future Bank referred to the CBB's decision to "revoke the license of FB and its request for the FB shareholders to consider a voluntary liquidation process",99 and stated their intention to take this recommendation under consideration. They also requested a meeting to seek advice on an action plan.
232.
On June 15, 2011, Iran's Minister of Economic Affairs and Finance, H.E. Mr. Seyed Shamseddin Hosseini wrote to his Bahraini counterpart, H.E. Mr. Sheikh Ahmad Bin Mohammed Al Khalifeh, about the CBB "orally stating that [Future Bank] has to be closed down instantly" and requested that H.E. Mr. Al Khalifeh "investigate the matter and cancel the order".100
233.
It is the Claimants' case that Bahrain's action was politically motivated in the light of the events in Bahrain linked to the Arab Spring and allegations of Iran's involvement in these events. The Claimants consider that Bahrain's Report to the UNSC on October 31, 2011, given pursuant to its reporting obligations under UNSC 1929, was one of the reasons that this "revocation" never materialized. In this report, Bahrain stated that "Future Bank and financial institutions licensed by the [CBB] have confirmed that no financial assets are held by the individuals and organizations referred to in the resolution".101
234.
On the other hand, the Respondent speaks of a "warning"102 for Future Bank's repeated violations of the CBB regulations, alleging, for example, that in April 2011, a prominent PEP, Mr. Isa Qassim, had been found to hold approximately USD 10.6 million at Future Bank.103 The Respondent argues that the Financial Intelligence Directorate ("FID") of Bahrain's Ministry of the Interior had notified the CBB of Mr. Qassim's holding and that the CBB was under "intense public pressure" to take action against Future Bank.104 While the Respondent acknowledges that Future Bank submitted an STR concerning Mr. Qassim, it contends that this does not show a proactive compliance by the bank, since the filing of the STR had instead been prompted by the CBB's express request that Future Bank investigate Mr. Qassim.105

E. Future Bank's Operations and Compliance with Bahraini Law (2011 2015)

1. Future Bank's Activities (2011-2014)

235.
In January 2011, following the CBB's directions, Future Bank developed a "Revised Strategies and Business Plan" for 2011-2013, under which Future Bank would (i) focus on Bahraini business for future growth; (ii) venture into new business lines to diversify income streams; (iii) expand into new countries; and (iv) reduce Iranian exposures "in a phased and prudent manner".106
236.
In its annual report for 2011, Future Bank reported healthy profits (with an increase of 7.1% over the previous year). According to the Claimants, it had decided to put on hold its intention to expand its business into new countries and "reassessed its expansion plans within the Kingdom of Bahrain".107 In the same year, Future Bank had developed several business models, including a so-called "Core Bank System" named TEMENOS to ensure "compliance with a higher regulatory environment".108
237.
The Respondent contends that TEMENOS could not ensure compliance, as it was not a compliance software system and was distinctively not the automated, risk-based AML/CFT system which Future Bank was required to implement. Instead, according to the Respondent, it was a system assisting operational efficiency, which even in this respect, produced inaccurate management information systems ("MIS") reports.109
238.
In 2013, Future Bank moved to the "Future Bank Tower", a large building whose construction had cost it approximately USD 18.5 million, located in the Seef district in Bahrain's capital, Manama.110 In the same year, Future Bank also upgraded the operating systems of its ATMs. According to the Claimants, both developments required advance approval from the CBB and were therefore an indication of the CBB's satisfaction with Future Bank's operations. The Respondent disputes this characterization; Governor Mr. Al Maraj describes the approvals as a way for the CBB to protect Future Bank's Bahraini customers.111
239.
Reporting on its yearly earnings, Future Bank noted a "record net profit of BD 11.0 million [in 2013], as compared to BD 7.9 million in the previous year".112 In 2014, Future Bank reported net profits of BD 17.9 million,113 and ranked best performing Bahraini bank and 7th best performing bank in the GCC.114

2. The 2011 CBB Report

240.
Following an inspection of Future Bank between September 29, 2011 and October 25, 2011, the CBB issued a report on March 20, 2012 (the "2011 CBB Report"). The Executive Summary to this report provides in pertinent parts as follows:

The inspection process focused on the credit practices of Future Bank and demonstrated that Future Bank has continued to follow lenient approach in sanctioning credit facilities, resulting in substantial deterioration in the quality of credit portfolio during 2011. […]

For several restructured/new loans sanctioned by Future Bank the credit committee of Future Bank has ignored the concerns raised by risk management function regarding the ability of the borrower to service the facilities.

Furthermore the credit monitoring process of Future Bank was found to be weak as Future Bank had not obtained cash flow assessments to ascertain utilization of funds for the purpose for which the loans were granted.

Moreover deviating from its policy of sanctioning overdrafts for short-term working capital mismatches, Future Bank has routinely renewed overdraft facilities without detailed assessment of fund utilization or cash flow position of the licensee. Additionally, it was noted that loan tranches and overdrafts were disbursed without corresponding endorsement from approving authority This raised grave concerns of operational risks arising from deficient control framework within Future Bank. Therefore, Future Bank needs to explore the control weaknesses behind such disbursals and avoid the recurrence of the same in future.

The Board is required to consider the findings of the examination report with a view to enhance controls over credit review and administrative processes and to ensure that sound credit culture is established within Future Bank. As such, the Board must commission an external skilled consulting firm to review the credit culture of Future Bank and report back to the CBB the results accordingly.115

241.
Future Bank submitted a lengthy response on April 15, 2012, in which it noted that it had instructed external auditors to conduct a second review of all the accounts perused by the CBB.116 These auditors had reportedly completed their review issuing a report on February 4, 2012, in which they concluded that there were no serious concerns.

3. The Ernst & Young Report for 2011

242.
On May 23, 2012, Ernst & Young submitted its report for 2011 to Future Bank.117 This report provided as follows:

a. In a sample of 10 high risk customer files relating to charities, clubs and other societies, Future Bank was found to have met all identification requirements, including confirming the identities of those purporting to act on behalf of the entities;

b. For a sample of five correspondent banks, Future Bank had fully complied with EDD requirements;

c. Effectiveness testing of 10 payments (five outward wire transfers and five inward wire transfers) noted that all originator information was on file;

d. In a sample of five customer files, all records were retained in line with the CBB requirements;

e. CDD weaknesses were identified across both individual and entity accounts in the samples tested by Ernst & Young; and

f. There had been no AML training delivered in 2011.

4. The 2012 SWIFT Ban

243.
On March 21, 2012, Future Bank was disconnected from the Society for Worldwide Interbank Financial Telecommunication ("SWIFT") code registry. Future Bank reported that as a result, it had made "payment arrangements through test key mechanism separately entered into with correspondent banks" to effect payments.118
244.
On March 26, 2012, the CBB, following this disconnection, sent a letter to Mr. Souri of Future Bank, notifying him of the CBB's decision to suspend Future Bank's membership of two other financial settlement systems (Real Time Gross Settlement System and Scripless Securities Settlement System) "to eliminate any prospective risks to the financial sector".119
245.
On the same day, the CBB sent a circular to all banks operating in Bahrain stating that, following Future Bank's disconnection from SWIFT, their dealings with Future Bank were to be "at their own risk".120 On April 1, 2012, after a meeting between the CBB and Future Bank, the CBB issued a second circular in relation to the matter, advising banks to disregard the earlier March 26 circular.121
246.
The SWIFT cut-off led the CBB to suspend from April 2, 2012 Future Bank's membership from two other financial settlement systems (the Real Time Gross Settlement System (RTGS) and the Scripless Securities Settlement System (SSS)) "to eliminate any prospective risks to the financial sector", while noting that this "suspension does not extinguish Future Bank's responsibilities and potential liabilities at law".122 As a result, the cut-off from SWIFT made Future Bank lose access to international banking, and other banks in Bahrain were no longer willing to transact with Future Bank or accept its cheques.123
247.
According to the Claimants, the CBB assisted Future Bank with its transactions following the disconnection by handling and clearing, on a daily basis, Future Bank's transactions.124 The Respondent rejects the implication that this amounted to implicit support from the CBB, noting that this mechanism for clearing local transactions was borne of an intention to minimize disruptions to Bahrain customers, and "protect […] local depositors and transactions of Bahraini-based customers".125
248.
The system adopted by Future Bank as an alternative to SWIFT was the Test Key mechanism.126
249.
The Respondent further contends that Future Bank had implemented an alternative messaging system ("AMS") many years prior to the disconnection from SWIFT, and had concealed this use from the Bahraini authorities.127 The Respondent accepts that AMS, with "ordinary due diligence, record-keeping and reporting requirements would be consistent with the CBB laws and regulations", and it finds the concealment and the "misrepresentation about Future Bank's extensive use of AMS prior to 17 March 2012, as prohibited under Article 163 of the CBB Law".128
250.
The Claimants reject these statements, asserting that "it is simply not plausible that any alleged use by Future Bank of the Test Key mechanism prior to 2012 would have gone unnoticed by the CBB…given the extent of internal checks and balances, external audits, inspections undertaken by the CBB".129 The Claimants refer to an internal Compliance Department Update that was prepared for the Audit Committee, in which Future Bank had contemplated keeping "the Fully [sic] automated AML System on hold for the time being until reinstatement of SWIFT".130 The Claimants recall that Mr. Malek sat as Chairman of this Audit Committee. The Claimants explain that as a result of the cut-off, the number of transactions and new customers giving rise to suspicion was significantly reduced, and therefore it was no longer warranted for the implementation of such an automated system.131
251.
According to the Respondent, such a failure to detect the illicit use of AMS is unsurprising as the first internal audit on its use came in 2012,132 and that AMS was not listed in Future Bank's policies and procedures before that date.133 The Respondent alleges that this practice took place before the SWIFT cut off.

5. The 2012 CBB Report

252.
The CBB's Compliance Department conducted an assessment of Future Bank in April 2012 in order to examine Future Bank's compliance with the FC Module. This assessment resulted in the production of a report dated October 31, 2012 (the "2012 CBB Report").134
253.
The covering letter to the 2012 CBB Report provided as follows:

Future Bank was found to be in breach of several requirements stipulated under FC Module of Volume 1. Furthermore, Future Bank failed to address most of the deficiencies raised previously in the licensee's AML/CFT report in 2006.

Below is a summary of the issues that were pointed out in the report, which will have to be addressed in Future Bank's response to the CBB:

• Future Bank fell short in implementing the rules and regulations stipulated under the CBB's FC Module and, therefore, found to be in breach of key regulatory requirements.

• Major deficiencies were noted regarding the licensee's compliance with customer identification requirements.

• The customer due diligence performed by Future Bank with respect to Politically Exposed Persons fell short of the FC Module EDD requirements.

• No evidence of Enhanced Due Diligence was found in the KYC files of non-profit organizations' accounts and a significant number of the selected accounts included expired and/or missing KYC documents.

• Future Bank lacks an automated transaction monitoring system that can efficiently and reliably detect significant or abnormal transactions.

• The fact that Future Bank has submitted only one STR in 2011 raises the examination team's concern regarding the effectiveness of the manual monitoring process implemented by Future Bank.

• Future Bank refrained from producing KYC records in relation to two Iranian financial institutions and failed to state a justification for the unavailability of such documents. The examination team has also observed inconsistent formats of account statements among the various financial institutions requested as part of the selected sample.

• Future Bank was found to be in breach of the CBB Directive EDFIS/C/021/2010 issued on 8 September 2010 regarding sanctions against the Islamic Republic of Iran.

Considering the seriousness, duration and potential consequences of the breaches found in Future Bank's AML/CFT frame-work, your bank is required to submit to the CBB, within a period of one month from the date of this letter- an action plan with definitive target dates to resolve all the issues raised in the attached AML/CFT examination report.135

254.
The 2012 CBB Report also noted the following:

a. whilst Future Bank checked against the CBB-issued list of sanctioned persons and entities before opening an account, Future Bank was found to be "in breach" of the CBB Directive for conducting U.S. dollar-denominated "dealings with Iranian Financial institutions", and for continuing to maintain business with "sanctioned entities";136

b. that Future Bank failed to incorporate an "automated transaction monitoring system that can effectively and reliably detect significant or abnormal transactions", instead leaving it to the MLRO to manually conduct a daily review of transactions exceeding BD 6,000;137

c. there was no indication that Future Bank was to decrease its current exposure in relation to sanctioned entities, and further notes that "the fact that [Future Bank] continued its dealing with the Central Bank of Iran and other Iranian institutions after the CBB Directive was issued raises serious concerns regarding Future Bank's commitment to directives and regulations enforced by [the CBB]". 138

255.
Future Bank submitted its comments on November 29, 2012, noting:

a. Acceptance that there could have been a few lapses relating to updating KYC records;

b. No corresponding banking relationship had been established without the approval of the appropriate authority;

c. Future Bank's MLRO reviewed reports generated and inquired about any unusual transactions, and fewer STRs by itself did not indicate that there was a lack of monitoring or staff members lacked training but that Future Bank's transaction volume (and thus the number of potentially suspicious transactions) had come down drastically due to sanctions;

d. Future Bank was not in breach of the 2010 CBB sanctions directive. It continued the relationship with Iranian banks/financial institutions/Central Bank of Iran only to the extent that it facilitated funding of existing assets/liquidity management. Future Bank's exposure to Iran had decreased from BD 371.746 million (as of October 31, 2010) to BD 347.741 million (as of November 22, 2012), which it claimed testified that Future Bank was making sincere efforts to comply with the CBB's sanctions directive;

e. Future Bank continued its relationship with Iranian banks/Central Bank of Iran for reasons explained to the CBB, namely that Future Bank relied on deposits from the Central Bank of Iran for funding and liquidity needs, and the need to keep Iranian banks as correspondent banks to manage Future Bank's assets portfolio in Iran.139

256.
The Claimants submit that through this letter, Future Bank "expressly communicated to the CBB" the "fact that Future Bank would rely on […] an alternative system", referring to the 'Test Key system' alleged to be a violation of applicable laws and regulations by the Respondent.140
257.
On December 3, 2012 Mr. Al-Najem sent a memorandum to Mr. Swailim, Head of Investigations, to say that notwithstanding Future Bank's letter, it was in breach of the CBB 2010 Directive on sanctions.141 The memorandum outlined the examination team's concerns about Future Bank's response to the examination conducted in April 2012. It highlighted the following matters:

a. Future Bank failed to explain the absence of a sound methodology to assess the client's AML/CFT risk;

b. There was no appropriate action plan for KYC-related issues in relation to PEP accounts;

c. Future Bank was in breach of the CBB Directive of September 8, 2010, since it had failed to cease its business relationships with Iranian financial institutions and the Central Bank of Iran;

d. It was in breach of UN Security Council Resolution UNSC 1929 in its relations with the Central Bank of Iran, the maintenance of which Future Bank said was vital as it was its main depositor;

e. Notwithstanding Future Bank's disconnection from the SWIFT network, it was conducting dollar-denominated transactions with Iranian financial institutions, and had given no written explanation;

f. Future Bank claimed that its Iranian exposure had been decreasing during 2010-2012, but its quarterly reports showed that it was increasing. The net decline of approximately BD 24 million was measured based on Future Bank's initial total exposure and not its ongoing progress.142

258.
A handwritten note on the memorandum suggested that there should be a meeting with Future Bank.143
259.
This meeting took place on December 11, 2012. The CBB and Future Bank met on this date to discuss a number of matters, including Future Bank's difficulties following the SWIFT disconnection as well as its exposure to Iranian sanctioned entities. At this meeting, Future Bank expressed its thanks to the CBB for supporting it and enabling it to maintain and increase banking operations in Bahrain following the SWIFT disconnection. Among other matters, the attendees discussed Future Bank's plans, which included mobile banking, relocation of ATMs, and Future Bank's Iran exposure. Noting an increase in such exposure, the CBB inquired as to Future Bank's exposure to connected counterparties (BSI and BMI) and "reiterated to Future Bank that it must further reduce its exposure to Iran".144 Future Bank explained that the short-term exposure (less than 3 months) consisted of the amounts in current accounts and placements only, whereas the longer-term exposure had "reduced significantly".145
260.
On February 14, 2013, Future Bank wrote to the CBB following up on the meeting of December 11, outlining an action plan to:

a. reduce Future Bank's Iran exposure, highlighting that Future Bank's "Iran Loans & Advances portfolio has continuously dropped in the last three years", and explaining that the loan repayments from Iran and UAE-based customers has been credited to Future Bank's Nostro accounts with BMI and BSI, as Future Bank has been unable to build relationships with non-Iranian correspondent banks due to international sanctions in relation to such transactions;

b. resolve the final issue highlighted in the 2012 CBB Report, as all other matters have been "closed & resolved"; and

c. establish a Special Asset Management unit in order to monitor Future Bank's nonperforming loans portfolio.146

6. The Ernst & Young Report for 2012

261.
On April 30, 2013, Future Bank submitted a report to the CBB confirming that it had addressed all issues identified in the Ernst & Young external audit of May 23, 2012,147 concerning Future Bank's AML/CFT procedures, systems and protocols.148
262.
The Ernst & Young Report for 2012 stated as follows:

• The Bank's policy and procedural framework complied with the CBB Rulebook.

• Effectiveness testing of 10 payments (five outward wire transfers and five inward wire transfers) noted that all originator information was on file.

• EDD was applied to a sample of high risk relationships.

• For a sample of 10 high risk customer files relating to charities, clubs and other societies Future Bank was found to have met all identification requirements, including confirming the identities of those purporting to act on behalf of the entities.

• For a sample of five respondent banks, Future Bank had fully complied with EDD requirements.

• Some of the customer files sampled displayed CDD weaknesses, particularly legal entities; in addition for some PEP files source of funds, source of wealth and expected activity could all be improved.

• There were instances in transactions over BD 6,000 where the source of funds was not verified.149

263.
An internal Future Bank report was produced by Future Bank's Compliance Department in April 2013, in which it was noted that Future Bank was working on acquiring a risk based monitoring system for AML that would identify "significant or abnormal transactions or patterns of activity".150 The Claimants argue that Future Bank had worked to identify such a system in the period between April and June 2013,151 but ultimately found that this type of system was not necessary in the light of the "low volume of business" and that it would instead implement a "compliance monitoring system to concentrate and focus closely on the daily transactions".152

7. The 2013 KPMG Report

264.
On November 11, 2012 the CBB notified Future Bank that it had decided to appoint KPMG as an appointed expert for Future Bank to examine Future Bank's internal audit function, compliance function, and internal controls.153 On July 4, 2013, KPMG produced a report on Future Bank's operational risk activities, internal system controls, and compliance with the 2012 CBB Report.
265.
On July 4, 2013, Mr. Hamad (CBB) wrote to Mr. Souri (Future Bank) enclosing the KPMG Report and stating the following:

[…] The Report reflects significant shortcomings in relation to the sound credit assessment and credit review as well as compliance with the CBB's Consumer Finance Regulations. It shows weaknesses in the implementation of strong internal controls for credit portfolio. The internal audit review, operational risk assessment including KYC documentation and compliance monitoring of Future Bank are not in line with the best practices and the CBB 's rules and regulations. These shortcomings have resulted in serious deterioration of the loans portfolio and poor oversight of internal controls over the credit assessment and extension.

The CBB is concerned about this situation and expects Future Bank to fully comply with the relevant rules and regulations.

Future Bank is directed to undertake a thorough review of the enclosed report and submit an action plan to the CBB · detailing steps to be taken to address and rectify the gaps identified in the aforesaid report, by no later than 4111 August 2013. Subsequently, Future Bank must provide the CBB with a quarterly progress report starting from the end of October, 2013, until all the outstanding issues in the attached report have been addressed to the CBB's satisfaction.154

266.
In response, Mr. Souri (Future Bank) wrote to Mr. Hamad (CBB) on July 24, 2013 noting that the report identified gaps in corporate and retail credit, as well as operational risk activities, and informed the CBB that it had developed a plan to address all such gaps. The letter enclosed a gap analysis report and an action plan for the gaps identified. The CBB was assured that Future Bank would provide a quarterly progress report.155
267.
Future Bank reported that it had addressed almost all the issues identified by the 2013 KPMG Report by December 31, 2013, specifically that 54 out of 56 recommendations had been implemented. Per the CBB's advice in this regard, Future Bank submitted a quarterly progress report starting from the end of October 2013 until all the outstanding issues in the report were addressed. The first progress report was sent to the CBB on January 29, 2014.156

8. Special Inspection Reports November-December 2013

268.
A special inspection of Future Bank had been made during the period between October 3, 2013 and October 12, 2013 with the purpose of examining cash inflows and outflows in the Nostro and Vostro accounts in order to verify Nostro and Vostro Account reconciliations conducted by Future Bank, and of reviewing letters of credit issued by Future Bank during the period between June 2013 and September 30, 2013.157
269.
Two memoranda were circulated internally within the CBB following this examination, but were not shared with Future Bank. The first was sent on November 24, 2013 from Mr. Hamad to Mr. Abdulla (Director, Inspection Directorate) noting that Future Bank had increased its exposure to Pars Oil and Gas Company ("POGC"), an Iranian energy sector company currently under OFAC SDN List and also under U.S. sanctions, and that therefore Future Bank had not adhered to the CBB circulars on U.S. sanctions. Moreover, the memorandum reported that a fresh AED 50 million loan had been sanctioned to MAPNA International, FZE, a company engaged in "developing the FARS GAS Power Plant Project in Iran". The CBB found that MAPNA International's parent company, "MPNA", a Tehran-based company, was the project manager in one oilfield of Pars Oil & Gas Company and so there was indirect involvement with an OFAC related entity.158
270.
The second internal memorandum was produced on December 30, 2013. This memorandum, which was sent from Mr. Abdulla to Mr. Mumtaia, Director, Compliance Directorate (with a copy to Mr. Hamad), notes that the inspection team had observed two cases where Future Bank appeared to be in "contravention of the CBB circulars on U.S. sanctions and OFAC restrictions".159 These incidents related again to POGC and MAPNA. The CBB observed that Future Bank, when alerted to POGC's designation under OFAC, explained that no new investments had been made following the CBB Directive. The CBB finds that Future Bank had reinvested the proceeds from its original investment in the Eurobonds in March and May 2010, into additional Eurobonds issued by that company when they became available. As such, the CBB recommended that "a penalty of BD 20,000" be issued and to "refer the matter to the Compliance Directorate for assessment and action".160
271.
The CBB reiterated Future Bank's interactions with MAPNA, concluding that "this [is] another instance where Future Bank evaded the restrictions placed on entities connected to the Iranian energy sector".161
272.
According to the Respondent, Future Bank's investments with POGC in the period between 2010 and 2015 amounted to a violation of "the CBB's Directive of 8 September 2010", as 23 Eurobonds were purchased on or after January 1, 2011, i.e., following the issue of the CBB Directive.162 Accepting repayments for the bonds in 2013 and "purchasing new POGC bonds in the same year", amounted to a violation of U.S. sanctions, and by extension, the CBB Directive.163 The Respondent argues that Future Bank had misrepresented the 2013 POGC investments as "rollovers and not new investments",164 following an external examination by the CBB. Future Bank then amended this explanation upon being confronted with new evidence to concede that the proceeds of the 2010 investment had been put in interbank placements before Future Bank reinvested them in Eurobonds, when such bonds became available.165
273.
The Claimants, on the other hand, reaffirm Future Bank's explanation that at the time the investment in the POGC bonds was made, the company was not under any sanctions and the repayments from POGC occurred between March and May 2013. Future Bank denies all allegations of any subsequent, additional investments in POGC bonds. The Claimants dispute the accuracy of the documents on which these allegations rest, which in their submission, are erroneous entries in fact referring to the original investment of 2010.166
274.
The Claimants also assert that Future Bank had been entirely transparent on these purchases on the secondary market, having informed the CBB that when the POGC bonds matured in the first half of 2013, Future Bank used the proceeds, parked them in interbank placements with BSI,167 and from there decided to "reinvest this available euro liquidity in POGC Eurobonds, as and when available on the secondary market, given the comparatively high rate of return of the same, and limited risk involved".168

9. The Ernst & Young Report for 2013

275.
On March 27, 2014, Future Bank provided to the CBB an audit report for the year 2013, produced by its external auditor, Ernst & Young (the "Ernst & Young Report for 2013").169 The report examined the bank's system of internal control and identified several weaknesses, which it rated with three different degrees of importance:

Rating Explanation
High Issues which need to be addressed on an urgent basis.
Medium risk Issues which need to be addressed at the first available opportunity.
Low risk Issues which have little impact on the operations but considered industry best practice if implemented.

276.
So far as relevant, the Ernst & Young Report for 2013 identified the lack of appropriate KYC procedure as low risk, and recommended that the bank "put dedicated resources to remedy the situation and improve the KYC documentation".170 With respect to this item, the Claimants submit that Future Bank accounted for this risk by installing and integrating a "compliance monitoring" software provided by "Bench Matrix" in January 2014, which assisted in creating a comprehensive risk assessment framework within Future Bank.171
277.
Among the matters classified as medium risk, Ernst & Young identified that the nostro reconciliations prepared for one of the bank's shareholders, BMI, were inaccurate and the reconciled balance did not match the amount in the account and recommended that senior staff accurately review each nostro reconciliation before signing off.172 The report also noted, as a matter of medium risk, that Future Bank had granted credit facilities to 25 companies, amongst them National Iranian Tanker Co. and Adel Interntional Equipment Co FZE, without obtaining their latest financial statements, and recommended that the bank grant credit facilities after receiving the required financial information.173 The report did not identify any items as high risk.

10. The KPMG Report for 2014

278.
In 2014 Future Bank decided to appoint KPMG as external auditor,174 and this decision was approved by the CBB.
279.
On April 29, 2015, Future Bank submitted an external report by KPMG on Future Bank's compliance with the provisions of "the Financial Crime Module of Vol. 1 of the CBB Rule Book", as required under the CBB Rulebook175 dated April 28, 2015 (the "KPMG Report for 2014"). The purpose of the report was to examine Future Bank's compliance with the FC Module.176
280.
The covering letter to the 2015 KPMG Report notes that the report "does not constitute either an audit or review made in accordance with the International Standards on Auditing".177 The 2015 KPMG Report notes general compliance with the FC Module, and makes certain specific findings, including:

a. For domestic and cross border wire transfers, KPMG selected a representative sample of payments and verified whether Originator Information and required beneficiary information had been included with all electronic transfers of funds they made on behalf of, including name, address and account number of the payer (FC 3.1.1), and the report stated "no exceptions noted."178

b. In relation to CDD, KPMG selected a representative sample of customers covering existing and new (individuals, corporates, trusts, GCC nationals, non-residents) and tested the CDD on file against the requirements of 1.2 of the FC Module, and reported that for 9 of 25 corporates Future Bank did not hold the most up to date audited financial statements.179

c. In relation to Enhanced Due Diligence for Charities, Clubs and other Societies, KPMG selected a representative sample of customers who were charitable funds and religious, sporting, social, cooperative, and professional societies and tested whether Future Bank had obtained identities of such customers from the relevant Ministry confirming the identities of those purporting to act on their behalf, and for any incoming or outgoing wire transfer from or to any foreign country on behalf of charity and non-profit organizations licensed by the Ministry of Social Development were obtained. The report stated "no exceptions noted."180

d. A representative sample of correspondent banks were selected and the level of Enhanced Due Diligence for Correspondent Banking Relationships was tested, which included a review of correspondent banks' ownership structures, location of the correspondent and its customers, the respondent's AML/CFT controls, purpose of the account and senior management approval. The report stated "no exceptions noted."181

e. KPMG tested Future Bank's record keeping controls by selecting a sample of business relationship records, transaction documents, compliance records and training records to determine whether these policies were being complied with, and stated "no exceptions noted."182

f. KPMG also reviewed Future Bank's risk management systems for determining whether a customer was a PEP at the time of opening the account relationship and thereafter on a periodic basis, and the report stated "no exceptions noted".183

F. Future BanK's Iranian Exposure

281.
The Parties dispute whether Future Bank violated the CBB's instructions with respect of the bank's exposure to Iranian entities. The CBB's instructions on Future Bank's Iranian exposure can be divided in two parts: (a) those related to the bank's exposure to Iranian entities in general, and (b) those in respect of the bank's exposure to its Iranian shareholders. While the Parties dispute the legal nature of the CBB's instructions, the following communications are relevant in this respect:

• Future Bank's letter to the CBB summarizing the meeting of August 9, 2007 between the CBB and Future Bank shows that the CBB had "recommended" that Future Bank not "assume new risks on Iran."184 In the same letter, Future Bank represented that it would "attempt to source its assets and liabilities to the extent possible from Bahrain and other GCC countries"; "reduce the share of activities involving Iranian trade"; and "avoid enlarging our current exposure to Iran"185, which amounted to USD 1,019 million (equivalent to BHD 384 million).

282.
This letter of Future Bank is not clear on whether the CBB had issued a mandatory instruction capping the bank's Iranian exposure. However, in the 2008 CBB Report, the CBB referred to the USD 1,019 million limit as a "precautionary cap placed by the CBB" on Future Bank's Iranian exposure and required the Bank to establish robust controls over the exposures to Iran to ensure compliance with the cap.186
283.
The record shows that, in the period leading up to the impugned measures, Future Bank's Iranian exposure fluctuated as follows:
Date Iran Exposure Evidence
August 11, 2007 BHD 365.848 million (USD 973 million) Balance sheet attached to Letter from Mr. Seif (Future Bank) to Mr. Hamad (CBB), August 12, 2007 (R-77), p. 2
Various dates in 2008 The CBB found that Future Bank exceeded the cap on five individual dates in 2008. Letter from Governor Al Maraj to Mr. Hamid Borhani, attaching the Central Bank of Bahrain Inspection Directorate Examination Report of Future Bank B.S.C. (c), April 2009 (R-83), ¶ 4.17

December 31, 2009 BHD 367,329 million But the CBB also found that Future Bank exceeded the cap on 14 individual dates in 2009.187 Central Bank of Bahrain, Inspection Directorate Examination Follow-up Report: Future Bank B.S.C. (c), May 23, 2010 (R-92), ¶ 5.6
December 31, 2012 BHD 370,213 million Balance sheet attached to letter from Future Bank to the CBB regarding Iran exposure in December 2012, January and February 2013, March 17, 2013 (C-220)
January 31, 2013 BHD 375,697 million Balance sheet attached to letter from Future Bank to the CBB regarding Iran exposure in December 2012, January and February 2013 , March 17, 2013 (C-220)
February 28, 2013 BHD 367,797 million Balance sheet attached to letter from Future Bank to the CBB regarding Iran exposure in December 2012, January and February 2013, March 17, 2013 (C-220)
March 31, 2013 BHD 371,851 million Balance sheet attached to letter from Future Bank to CBB attaching report on Iran exposure in March 2013, April 14, 2013 (C-217)
March 31, 2014 BHD 350,762 million Balance sheet attached to letter from Future Bank to the CBB regarding Exposure to Iran as of March 31, 2014, April 22, 2014 (C-221)
July 31, 2014 BHD 345,421 million Balance sheet attached to letter from Future Bank to CBB attaching report on Iran exposure in July 2014, August 11, 2014 (C-223)
August 31, 2014 BHD 349,971 million Balance sheet attached to letter from Future Bank to CBB attaching report on Iran exposure in August 2014, September 10, 2014 (C-218)
September 30, 2014 BHD 342,839 million Balance sheet attached to letter from Future Bank to CBB regarding Iran
Exposure as on September 30, 2014, October 8, 2014 (C-159)
December 31, 2014 BHD 342,085 million Balance sheet attached to letter from Future Bank to the CBB regarding Exposure to Iran as of December 31, 2014, January 13, 2015 (C-222)
March 31, 2015 BHD 329,847 million Balance sheet attached to letter from Future Bank to the CBB regarding Iran Exposure as on March 31, 2015, April 16, 2015 (C-160)

284.
As for Future Bank's exposure to its own shareholders, the record shows that, on July 21, 2009, the CBB instructed Future Bank to reduce its exposure to 40% of the capital base (total assets) by September 2009.188
285.
Furthermore, on April 1, 2014, the CBB instructed Future Bank to "immediately reduce its exposure limits to its shareholders, BSI and BMI and bring such limits down to the outstanding balances as of end of December 2013 [amounting to BHD 174,033 million], while not undertaking any new exposure to these shareholders".189 It further requested Future Bank to "initiate measures to bring down such exposures to nil, in line with the CBB's requirement under the CBB Rule CM-5.5.12 which stipulates that banks must not undertake any exposures to shareholders with significant ownership (i.e., 10% or more) of the bank's capital base".190
286.
Against the background of these instructions, Future Bank's exposure to its shareholders fluctuated as follows:
Date Shareholder Exposure Evidence
December 31, 2009 BHD 233,406 million Second Davies Report, February 27, 2018 (RER-4), Appendix GD2-2.4

Date Shareholder Exposure Evidence
(= 42.63% of total assets)
December 31, 2010 BHD 183,701 million (= 35% of total assets) Second Davies Report, February 27, 2018 (RER-4), Appendix GD2-2.4
December 31, 2011 BHD 110,854 million (= 36% of total assets) Second Davies Report, February 27, 2018 (RER-4), Appendix GD2-2.4
December 31, 2012 BHD 164,726 million (=30.15% of total assets) Second Davies Report, February 27, 2018 (RER-4), Appendix GD2-2.4
December 31, 2013 BHD 174,033 million (= 30.06% of total assets) Second Davies Report, February 27, 2018 (RER-4), Appendix GD2-2.4 Letter from Future Bank to the CBB, October 22, 2014 (PS-53)
March 31, 2014 BHD 167,53 million Letter from Future Bank to the CBB, June19, 2014 (PS-51)
June 30, 2014 BHD 183,53 million Letter from Future Bank to the CBB, October 22, 2014 (PS-53)
September 30, 2014 BHD 176,26 million Letter from Future Bank to the CBB, October 22, 2014 (PS-53)
December 31, 2014 BHD 173,903 million (= 29.12% of total assets) Second Davies Report, February 27, 2018 (RER-4), Appendix GD2-2.4

G. The JCPOA

287.
On July 14, 2015, Iran, China, France, Germany, Russia, the United Kingdom and the U.S. signed the Joint Comprehensive Plan of Action ("JCPOA").191 The JCPOA provided for a lifting of sanctions against Iran upon the confirmation by the International Atomic Energy Agency ("IAEA") of certain commitments undertaken by Iran, in respect of peaceful nature of its nuclear programme.192
288.
The IAEA established that Iran had implemented these commitments on January 16, 2016.193 Soon thereafter, the U.S.,194 the UN195 and the EU196 began easing sanctions against Iran.
289.
The Claimants argue that in anticipation of the JCPOA, it had informed the CBB on December 4, 2014, of its intention to expand its international operations into countries including Iran, Oman, and Malaysia.197 The Claimants further assert that in the light of "improvement of the international situation", Future Bank's Board of Directors projected an equity return of 20%, an improvement over the 14% in 2014.198
290.
The Claimants assert that while the international community welcomed the JCPOA, it "hit on [Saudi Arabia's] fears that the United States wants to abandon them in order to ally with Iran"199 and "jeopardize the Saudi hegemony in the Gulf and the Middle East region".200 According to the Claimants, this led to Saudi political pressure on Gulf States to cut their ties with Iran, which gave rise to the CBB's politically motivated measures against Future Bank.
291.
The Respondent argues that Future Bank could in no way predict whether sanctions would be lifted at the time it made these projections.201 It denies that the CBB's measures were informed by the political considerations arising out of the conclusion of the JCPOA.

H. The Administration and Subsequent Liquidation of Future Bank

1. Placement of Future Bank under Administration

292.
The Respondent asserts that, on April 30, 2015, the Crisis Management Committee of the CBB met and decided to place Future Bank under administration pursuant to Article 136 of the CBB Law. It produced a set of minutes of that meeting, which appears to record that the Committee recommended this action on the grounds that allowing the two companies to continue to offer their "services under supervision will cause harm to the production of financial services and the general interest in the Kingdom".202 The minutes are reproduced in full as follows:

Minutes of the Meeting of the Crisis Management Committee

Date: Thursday April 30, 2015

Time: 3pm

Place: Fifth floor

Presence:

1. Sheikh Salman Ben Issa Al Khalifa, executive director of banking operations – head of the committee

2. Mr. Khaled Hamad Abdel Rahman, executive director of Future Banking supervision body

3. Mr. Abdel Rahman Mohamad Baker, executive director of the financial institution supervision body

4. Mr. Manar Mostafa Al Sayed, Assistant to the general advisor

The following topic was discussed:

1. Putting Future Bank under administration

2. Putting the Iranian Insurance Company under administration

Based on article 136 of the Law regarding the Bahrain Central Bank, and given the fact that Future Bank and the Iranian Insurance Company are still offering services under supervision will cause harm to the production of financial services and the general interest in the Kingdom, the committee recommends the following:

"Putting Future Bank and the Iranian Insurance Company under the administration of the Bahrain Central Bank".

[Signatures]203

293.
The Claimants dispute that such meeting took place at all. They point to the fact that the meeting was allegedly held after office hours and that an administrator was available on the same day.204
294.
On the same day, the Director of the CBB Banking Services Directorate, Mr. Ahmed Buhiji, delivered a letter from Governor Al Maraj addressed to Mr. Souri, the CEO of Future Bank, containing the CBB's decision to place Future Bank into administration (the "CBB Decision").205 The relevant part of the letter reads as follows:

By virtue of the power vested in the Central Bank of Bahrain ("CBB") by Article 136 of the Central Bank of Bahrain and Financial Institutions Law (Decree No. 64 of 2006, the "CBB Law"), the CBB has today resolved to place Future Bank into administration.

Your company is required to cease trading immediately. You must give the CBB's representative, Mr. Ahmed Buhiji, Director of Banking Services Directorate who is delivering this letter to you, full access to your premises and business, its records and its systems. Your staff must comply with our instructions going forward. The legal rights of all directors, management and shareholders in relation to the company, are now suspended. The CBB has assumed full managerial control over your business.206

295.
Thus, the CBB ordered Future Bank to "cease trading immediately" and provide Mr. Buhjji, the CBB representative, full access to the premises as well as Future Bank's records and systems, asserting that the CBB had assumed "full managerial control".207
296.
Accordingly, in the evening of April 30, 2015 the CBB took control of Future Bank by securing the premises with the assistance of the security personnel of the Ministry of Interior, and excluding the bank's senior management from the premises.208
297.
On May 3, 2015, the CBB's Executive Director, Mr. Khalid Hamad, met with Future Bank's CEO and Deputy CEO, Mr. Gholam Souri and Mr. Abbas Fatemi, to discuss the reasons for Future Bank's placement under administration. The only documentary evidence of the meeting are the Claimants' contemporaneous minutes, which record Mr. Hamad of the CBB informing the representatives of Future Bank that it was a "Sovereign Decision to put the Bank into Administration".209 Future Bank was further informed that the CBB "officials will […] act as the CEO of Future Bank and will run Future Bank with the help of the Heads of Departments […] of Future Bank and a team of officials of the CBB", and that Mr. Ahmed Buhjji was appointed as the administrator of Future Bank.210 According to the minutes, the CBB informed Future Bank at this meeting that it had "decided to liquidate Future Bank", inviting the Claimants to agree to "voluntary liquidation" and that of Future Bank's four branches, two will be "closed immediately".211
298.
Following the appointment as the administrator, Mr. Buhjji began issuing first instructions to Future Bank's management on May 4, 2015.212
299.
On May 7, 2015, the CBB published its decision on the placement of Future Bank into administration in the Official Gazette (the "Published CBB Decision").213 Pursuant to Article 138 of the CBB Law, "the appointment of the Administrator shall only have effect on the day following the publication of such notice [in the Official Gazette]".214
300.
The Published CBB Decision stated that the grounds on which Future Bank had been placed under administration included the fact that Future Bank offered services that could "cause harm to the industry of financial services in the Kingdom of Bahrain".215
301.
On the date of the publication of the decision, Future Bank sent a letter to the CBB, which they referred to as a formal appeal against the CBB's decision to place the bank into administration.216 In the letter, the Claimants emphasized, inter alia, that (i) they had been present in Bahrain since 1971, and were two of the oldest banks continuously operating there; (ii) they had invested in Future Bank at the invitation, and with the blessing of the Governments of both Bahrain and Iran; (iii) ever since its incorporation in 2004, Future Bank had conducted its activity in a transparent manner, providing all the information and clarifications required by the CBB, and it had a track record of minimal fines or penalties from the CBB; and (iv) since 2007, the CBB had appointed and maintained on Future Bank's Board of Directors two independent Bahraini directors, whose sole mandate was to oversee and monitor, on behalf of the Government of Bahrain, the overall functioning of Future Bank, without ever finding any material shortcomings, infringements, or breaches.
302.
The CBB dismissed the appeal on May 18, 2015 with the following explanations:

Due to the existence of violations of what was decreed by Law number 4 for the year 2001 regarding the Prohibition of Money Laundering and its amendments, as well as violations of the Law on the Central Bank of Bahrain and Financial Institutions, issued by the law number 64 for the year 2006, in addition to violations of the local and international regulations in relation to bank transactions with institutions that are subject to international sanctions;

The Central Bank of Bahrain deems that the fact for Future Bank to continue to offer services subject to scrutiny by the CBB will cause harm to the industry of financial services in the Kingdom of Bahrain as well as consequences of said violations in terms of damage to the reputation of the financial and banks sector in the Kingdom of Bahrain. 217

303.
By this time, Mr. Al-Najem was conducting an enquiry into Future Bank's affairs, and had provided progress reports on May 5, 2015218 and May 9, 2015.219 The Respondent says that the CBB's denial of Future Bank's appeal was the product of the CBB's careful consideration of Future Bank's violations of the applicable regulations. The Respondent contends that it took into account the results of Mr. Al-Najem's ongoing investigation, which was revealing a fuller picture of Future Bank's wrongdoings.220
304.
On May 26, 2015, Dr. Hemmati, the dismissed Chairman of Future Bank, sent a letter to the CBB, requesting that the CBB reconsider its decision to place Future Bank under administration.221 Dr. Hemmati referred to Future Bank's adherence to the CBB regulations and emphasized that the bank had submitted itself to the CBB's supervision and examination, as well as to multiple external audits. He further emphasized the fact that Future Bank's Management Committee, including the two members elected and appointed by the CBB, had reviewed and approved the various examination reports of the bank. The letter enclosed a copy of the latest report, the KPMG Report for 2014. According to Dr. Hemmati, Future Bank had not caused any harm to the financial and banking system of Bahrain. The letter referred to the BIT and requested negotiation and exchange of opinions between the Bahraini Government and the Claimants.222 This letter received no response.

2. The 2015 CBB Report

305.
The Respondent asserts that, two days after the placement of Future Bank into administration, on May 5, 2015, the CBB initiated an investigation into Future Bank's activities.223 The record contains no contemporaneous documentary evidence demonstrating the initiation of the investigation. It does show, however, that, on May 24, 2015, the CBB issued an Investigation Report (the "2015 CBB Report").224
306.
The Claimants contest the authenticity of the 2015 CBB Report, citing the lack of corroborating evidence that the Report was indeed produced on the indicated date.225 They note that the Report was never shared with Future Bank or its shareholders, nor were they requested to comment at the time.226 The Claimants further contend that the Respondent mischaracterizes the contents of the report as "recent discoveries". According to the Claimants, the information on the transactions discussed in the 2015 CBB Report had been consistently disclosed to the CBB in the course of multiple inspection and audit reports.227
307.
The Respondent asserts that the 2015 CBB Report was a product of an investigation, which the CBB commenced immediately after it put Future Bank into administration. It refers to the witness statements of Mr. Al-Najem and Governor Al Maraj who attest to the drafting of the 2015 CBB Report on the date specified in the report.228 Mr. Swailim, an employee of the Central Bank of Bahrain corroborated this in his oral testimony, asserting that once Future Bank was placed under administration, on May 4, 2015, Mr. Bumtaia, the director of the CBB at the time, requested him to perform the investigation into Future Bank.229
308.
The content of the 2015 CBB Report relates to Future Bank's multiple alleged violations of applicable regulations. In particular, the report found that Future Bank violated the United Nations Security Council (UNSC) Resolution 1747 (2007), UNSC Resolution 1803 (2008) and UNSC Resolution 1929 (2010) as it provided loans and continued to provide financial assistance to legal entities that were directly and indirectly owned by the Government of Iran.230 According to the report, Future Bank was "in direct breach of the [CBB Directive]…as the Bank failed to adhere to its provisions by providing financial support and maintaining business relationships, including correspondent banking relationships, with OFAC sanctioned entities".231 The Report also maintained that Future Bank was in breach of regulations in relation to credit facilities, misuse of accounts, and filing of timely STRs.232
309.
The 2015 CBB Report went on to describe Future Bank's transactions with specific clients, which according to the report constituted violations of various applicable regulations. These included granting credit facilities with no apparent commercial purposes, failing to report timely STRs, processing large volumes of cash transactions without obtaining the customer due diligence documentation, approving loans that supported the financing of terrorist organizations, providing credit facilities to at least 8 Iranian sanctioned entities, and allowing its exposure to BMI and BSI to exceed the limits set by the CBB.233
310.
With respect to a number of alleged violations, the 2015 CBB Report was inconclusive and indicated that further investigation was required.

3. The Liquidation of Future Bank

311.
On December 22, 2016, the CBB resolved to liquidate Future Bank and published its decision in the Official Gazette.234
312.
According to the Respondent, it was on the basis of the 2015 CBB Report that the CBB determined that the extent of Future Bank's wrongdoings made it necessary to proceed to liquidation. 235 Conversely, the Claimants contend that the Respondent had resolved to liquidate Future Bank from the outset of the administration, and point to their minutes of the meeting of May 3, 2015 at which the CBB's representatives are recorded saying that the bank had to be liquidated.236
313.
Following the CBB's decision of December 22, 2016, the liquidation process has progressed without the participation of the Claimants. The Respondent asserts that the Claimants are entitled to the proceeds of the liquidation once the process is complete.237 As the record stands at the time of the issue of this Award, the liquidation is still ongoing and the Claimants still maintain their nominal shareholding in Future Bank.

4. The 2018 CBB Report

314.
In August 2017, following the commencement of this Arbitration, the CBB ordered a comprehensive investigation into Future Bank's activities in the period from July 1, 2004 to April 30, 2015. What ensued from the investigation was a report, dated February 16, 2018 (the "2018 CBB Report"), which concluded that Future Bank had misrepresented its use of an alternative messaging system to the CBB, wire stripped transactions with a total value of over USD 4.5 billion, engaged in systematic violations of the AML/CFT Law, the CBB Law, the Financial Crimes Module of the CBB Rulebook, as well as the CBB Directives implementing the UNSC and OFAC sanctions.238
315.
While the Respondent has filed the report as a factual exhibit, the Claimants dispute its probative value. They refer to the 2018 CBB Report "as some sort of sui generis evidence" and point to the fact that it is a document produced in the course of this Arbitration in support of the Respondent's allegations.239
316.
Given that the findings of the 2018 CBB Report are not established facts, but are instead at the centre of the Parties' dispute, the Tribunal will provide a more detailed summary of the report's findings as part of the Parties' positions and the analysis in the relevant subsequent parts of the Award.

IV. REQUESTS FOR RELIEF

A. The Claimants' Request for Relief

317.
In their Statement of Claim, the Claimants request the Tribunal to:

a. Declare that the Tribunal has jurisdiction over this dispute; and

b. Declare that Respondent has breached its obligations under the BIT and/or international law, and in particular its obligations under Article 4, 5, and 6 of the BIT; and

Order Respondent to:

a. Reinstate Bank Melli Iran and Bank Saderat Iran in all of their rights as shareholders of Future Bank, and Future Bank in all of its rights and licenses prior to the taking; and

b. Pay Bank Melli Iran and Bank Saderat Iran compensation for the material damages incurred in the meantime, namely the difference between the fair market value of Claimants' investment at the Expropriation Date, expressed at its value at the date of restitution, and the fair market value of Claimants' investment at the hypothetical date of restitution, to be quantified in due course […], as well as those additional damages that Claimants will inevitably incur for some time once they are restored in their rights because of Respondent's acts and omissions.

Alternatively, order Respondent to pay Bank Melli Iran and Bank Saderat Iran full compensation for the damages they suffered as a result of Respondent's breaches, including:

a. EUR 280.3 million as compensation for the fair market value of Claimants' investment, as quantified by Fair Links […], or alternatively any other amount which the Tribunal deems appropriate; and

b. EUR 92.2 million as compensation for the loss of business opportunities incurred by Claimants, as quantified by Fair Links, or alternatively any other amount which the Tribunal deems appropriate; and

In any event:

a. Order Respondent to compensate Bank Melli Iran and Bank Saderat Iran for the moral and/or reputational damages they have incurred in the amount of EUR 10 million; and

b. Order Respondent to pay the costs of this arbitration, including all expenses incurred by Bank Melli Iran and Bank Saderat Iran, including all of the fees and expenses of the arbitrators, legal counsel, experts and consultants, as well as Bank Melli Iran and Bank Saderat Iran's internal costs associated with the management of these arbitral proceedings; and

c. Order Respondent to pay post-award interest on any amounts awarded to Claimants at a Libor + 2% rate, compounded semi-annually, as of the date these amounts are determined to have been due to Bank Melli Iran and Bank Saderat Iran, until the date of payment; and

d. Order any other relief that the Tribunal deems appropriate.240

318.
In their Reply, the Claimants request that the Tribunal:

a. Declare that the Tribunal has jurisdiction over this dispute; and

b. Declare that Respondent has breached its obligations under the BIT and/or international law, and in particular its obligations under Article 4, 5, and 6 of the BIT; and

Order Respondent to:

a. Reinstate Bank Melli Iran and Bank Saderat Iran in all of their rights as shareholders of Future Bank, and Future Bank in all of its rights and licenses prior to the taking; and

b. Pay Bank Melli Iran and Bank Saderat Iran compensation for the material damages incurred in the meantime, namely the difference between the fair market value of Claimants' investment at the Expropriation Date, expressed at its value at the date of restitution, and the fair market value of Claimants' investment at the hypothetical date of restitution, as well as those additional damages that Claimants will inevitably incur for some time once they are restored in their rights because of Respondent's acts and omissions; or

Alternatively, order Respondent to pay Bank Melli Iran and Bank Saderat Iran full compensation for the damages they suffered as a result of Respondent's breaches, including:

a. EUR 300.9 million as compensation for the fair market value of Claimants' investment, as quantified by Fair Links […], or alternatively any other amount which the Tribunal deems appropriate; and

b. EUR 133.4 million as compensation for the loss of business opportunities incurred by Claimants, as quantified by Fair Links, or alternatively any other amount which the Tribunal deems appropriate; and

In any event:

a. Order Respondent to compensate Bank Melli Iran and Bank Saderat Iran for the moral and/or reputational damages they have incurred in the amount of EUR 10 million; and

b. Order Respondent to pay the costs of this arbitration, including all expenses incurred by Bank Melli Iran and Bank Saderat Iran, including all of the fees and expenses of the arbitrators, legal counsel, experts and consultants, as well as Bank Melli Iran and Bank Saderat Iran's internal costs associated with the management of these arbitral proceedings; and

c. Order Respondent to pay post-award interest on any amounts awarded to Claimants at a Libor + 2% rate, compounded semi-annually, as of the date these amounts are determined to have been due to Bank Melli Iran and Bank Saderat Iran, until the date of payment; and

d. Order any other relief that the Tribunal deems appropriate.241

319.
At the Hearing, the Claimants amended their request for relief, withdrawing their request for restitution and claiming monetary damages only. The Claimants also requested, as a minimum, pre-Award interest at Libor + 2%.242
320.
In a letter of July 28, 2020, the Claimants requested that "any monetary relief awarded by the Tribunal be accompanied by language expressly setting out that such monetary relief shall not be capable of set off against any other amounts allegedly owed by Future Bank, Claimants, or their respective representatives, in the context of other actions initiated by Bahrain".
321.
At the Re-hearing, in response to a question from the Tribunal, the Claimants clarified their request for relief as follows: "Bank Melli and Bank Saderat each are entitled to equal share of any monetary award, because they have the same shareholding in Future Bank."243
322.
These requests remained unchanged.

B. The Respondent's Request for Relief

323.
The Respondent has not indicated its request for relief in a specific manner in its written submissions. However, throughout its submissions it has requested the Tribunal do dismiss the claims for lack of jurisdiction, as inadmissible or, in any event, as unsubstantiated on the merits. At the Re-Hearing, the Tribunal asked the Respondent to confirm that its request for relief is as follows:

PRESIDING ARBITRATOR: Then I have a question about Request for Relief for the Respondent. I have not found in the record, and if I have not looked well you will point me to it, an actual Request for Relief, and I understand from your submissions that you ask for a decision that there is no jurisdiction, and you will confirm this? As a result of the illegality in making the investment. You also ask for dismissal on the merits. I think that is it. And of course both parties also have claims in respect of costs which are specified in your submission on costs.

Can you confirm that the way I phrased your Request for Relief is correct? It goes to jurisdiction first and then a dismissal on the merits. 244

324.
In response, the Respondent clarified the content of its request for relief as follows:

PROFESSOR PAULSSON: Yes. We have observed that tribunals sometimes have different ways of approaching the distinction between admissibility and jurisdiction, and so in that respect the factual predicates of either relief as a matter of jurisdiction or admissibility might be the same, but it is a matter of indifference to us whether the dismissal is on either one of those, but we are not dropping one for the other.245

V. PRELIMINARY OBJECTIONS

325.
The Parties disagree on whether the claims are admissible. In particular, they dispute whether Future Bank's alleged illegal activities render the claims inadmissible under the doctrines of clean hands and international public policy ((A) below), and whether the Claimants had to exhaust local remedies before submitting their claims to international arbitration ((B) below).
326.
The Tribunal will address each of these positions in turn. Before doing so, it notes that the Respondent has not raised any other objections to the Tribunal's jurisdiction or to the admissibility of the claims.

A. Alleged Illegal Activities of Future Bank

327.
The Parties dispute whether Future Bank engaged in systematic illegal activities, such as sanctions violations and money laundering, and whether such activities constitute a bar to the Tribunal's jurisdiction and/or render the claims inadmissible. Before setting out its analysis on this objection, the Tribunal will summarize the Parties' positions.

1. The Respondent's Position

328.
The Respondent argues that the claims are "inadmissible by reason of the Claimants' unclean hands or, alternatively, their violation of international public order."246
329.
According to the Respondent, the clean hands doctrine is a "fundamental principle of international law and a prerequisite for legal claims", and is widely recognized in both the common and the civil law tradition.247 Among the awards having applied the unclean hands doctrine,248 Bahrain considers Al Warraq v. Indonesia as a particularly instructive example. That decision, the Respondent explains, held that an investor relinquishes the protection of an investment treaty where its conduct is "prejudicial to the public interest", irrespective of any hypothetical treaty breach by the host State.249
330.
The Respondent rejects the Claimants' attempt to distinguish Al Warraq v. Indonesia on the basis of a specific provision found in the applicable treaty, arguing that the "reasoning makes clear that the tribunal's reliance on the general principle of unclean hands […] was a distinct basis on which it dismissed the investor's claim as inadmissible".250 Thus, the principle governs irrespective of whether it is "expressly embodied in the text of the applicable treaty".251 Nothing suggests here that the Contracting Parties intended to exclude the application of general principles of law, such as the clean hands doctrine.252
331.
Moreover, in connection with situations such as the present one and the one found in Al Warraq v. Indonesia, where the investor's wrongdoings post-date the making of the investment, the Respondent refers to the Paris Court of Appeal annulment of the award in Belokon v. Kyrgyz Republic on grounds of international public policy. In that case, the investor had engaged in money laundering operations throughout the life of the investment.253
332.
The Respondent further submits that the present case is distinguishable from all the authorities on which the Claimants rely on the basis of the nature and scale of the investors' wrongdoing.254 For the Respondent, the clean hands doctrine "should be triggered […] in cases where: (a) an investor engages in serious and/or repeated wrongdoing by, inter alia, making false statements to a State authority; (b) that wrongdoing is closely connected with the claim […]; and (c) dismissing the claims in all the circumstances [is] appropriate, considering such key factors as the gravity and extent of the wrongdoing, and the absence of te State's appropriation of the investor's property for its own benefit".255
333.
According to the Respondent, the facts set forth in the 2018 CBB Report satisfy these conditions in the light of the repeated "false statements to the CBB" and the facilitation of "serious criminal conduct".256 To establish the wrongdoing, the Respondent urges the Tribunal to "consider whether the Claimants' hands were clean throughout the duration of the investment, not merely when the investment is made".257 More specifically, the inadmissibility need not be premised on illegality at the time of making the investment.258 In the Respondent's submission, the principle of unclean hands is not "subject to any arbitrary division between hands that are unclean at the time an investment is made and hands that are unclean by virtue of conduct after the investment is made".259 Otherwise, foreign investors would be free to commit all kinds of wrongs as long as they complied with the host State's laws at the time of the investment.260
334.
In any event, the Respondent alleges that the Claimants' conduct at the time of making the investment also falls under the unclean hands doctrine. It points to alleged misrepresentations at the time of the investment according to which they would operate Future Bank in accordance with Bahraini law, while directing Future Bank's staff to continue Bank Saderat Bahrain's illegal practice of wire stripping.261 The Respondent relies on Inceysa Vallisoletana, v. El Salvador and Plama v. Bulgaria to support the argument that misrepresentations at the time of making an investment preclude a tribunal's jurisdiction.262
335.
The Respondent thus contends that to entertain a claim in circumstances where the Claimants' conduct breaches the clean hands doctrine, at the time of the investment or thereafter, would be in violation of the integrity of the arbitral process.263
336.
In addition, the Respondent argues that the "Claimant's violations and outright contempt of the international order […] require dismissal of this case."264 Relying on World Duty Free v. Kenya, it submits that the claims are precluded in the light of the Claimants' "illicit activities [which] implicate public international law and the clearest form of international public policy – UN Security Council Resolutions", including international sanctions intended to "combat […] terrorism, money laundering, and proliferation of weapons of mass destruction", forming an "international consensus against [the Claimants'] unlawful behavior."265
337.
The Respondent also emphasizes that, pursuant to the UN Charter, a State's obligations under UNSC resolutions prevail over its other international obligations.266 Hence, non compliance cannot be disregarded based on the expectation that the sanctions would be lifted in April 2015.267
338.
Similarly, the Paris Court of Appeal, in setting aside the award in Belokon v. Kyrgyz Republic, held that "declining to set aside the award would mean that the investor would benefit from its unlawful acts, which would be contrary to international public policy".268
339.
Apart from acts contrary to UNSC resolutions, for the Respondent, the Claimants' behaviour also threatened "the health of the international financial system", which qualifies also as a violation of international public policy.269 Indeed, investment tribunals have found fraudulent misrepresentation to constitute an affront to international public policy,270 and the same is true of money laundering.271
340.
For the Respondent, such breaches of international public policy must be considered as a matter of admissibility in circumstances where "so much of the conduct was concealed from the regulator at the time that the regulatory acts in question took place and where the dismissal of the case would be a proportionate response in the light of the seriousness of the Claimants' wrongdoing".272
341.
On this basis, the Respondent requests the Tribunal to rule the claims inadmissible "not least because entertaining such claims would encourage the Claimants to pursue similar enterprise elsewhere",273 but also because the Tribunal has a duty to preserve the values of the international legal system.274

2. The Claimants' Position

342.
The Claimants argue that no precedent exists in investor-State arbitration for the Respondent's submissions in respect of alleged illegalities. They also claim that the Respondent misrepresents Al Warraq v. Indonesia and erroneously invokes that decision.275 The tribunal in Al Warraq v. Indonesia was asked to interpret a sui generis treaty provision pursuant to which

[t]he investor shall be bound by the laws and regulations in force in the host state and shall refrain from all acts that may disturb public order or morals or that may be prejudicial to the public interest. He is also to refrain from exercising restrictive practices and from trying to achieve gains through unlawful means.276

343.
For the Claimants, it was on the basis of that provision that the Al Warraq v. Indonesia tribunal held that the investor forfeited treaty protection. While the tribunal found that the claimant's conduct in breach of this provision also fell within the wider principle of "unclean hands", the claims were not deemed inadmissible on the "basis of a self standing 'clean hands' doctrine".277 The tribunal's determination was only "rendered possible, or rather necessary" through the specific treaty provision.278 Since the BIT in the present case contains no similar provision, reliance on Al Warraq v. Indonesia is inapposite.279
344.
Further, it is to the Claimants' submission that the other cases which the Respondent invokes refer to "unclean hands" when making the investment. They do not address unclean hands "during the life of the investment".280 Moreover, those tribunals' reasoning centres on express or implied treaty requirements that investments be made in compliance with applicable laws.281 These cases, so the Claimants, are in contrast to the present one where the investment was made in compliance with Bahraini law.282
345.
More generally, the Claimants argue that "investment treaties […] provide for specific, self-contained, and negotiated frameworks of treatment, which were expressly consented to by the contracting States, and relied upon by investors" and are lex specialis to general international law. Therefore, an investment made in accordance with the terms of a BIT should be governed by that BIT and "any allegations of illegality with respect to an investment, absent any express term to the contrary, ought to be decided only in the context of the substantive, procedural and other safeguards provided therein".283
346.
For the Claimants, this position has been adopted by a number of investment tribunals. For example, Oxus Gold v. Uzbekistan dismissed the admissibility objection grounded on the investor's illegal activity during the life of the investment, considering it as a "question which relates to the merits of the case and not to the issues of jurisdiction or admissibility."284 The Claimants also draw the Tribunal's attention to Khan Resources v. Mongolia, which held that "there is no compelling reason to altogether deny the right to invoke the [Energy Charter Treaty] to any investor who has breached the law of the host state in the course of its investment", and that "[i]t would undermine the purpose and object of the Treaty to deny the investor the right to make its case before an arbitral tribunal based on the same alleged violations the existence of which the investor seeks to dispute on the merits".285
347.
According to the Claimants, even if an unclean hands doctrine existed under international law and were to be applied to the present case, the Respondent would still have failed to prove any illegality during the life of the Claimants' investment.286
348.
The Claimants further submit that the Respondent's objection to admissibility on grounds of international public policy should be dismissed because it finds no support in investment jurisprudence. No arbitral decision has held a claim inadmissible due to violations of international public policy during the life of the investment. The only case relied upon by the Respondent in this regard is World Duty Free v. Kenya, which concerned an investment that had "originally been procured by corruption".287
349.
Moreover, as confirmed by several investment treaty decisions, any alleged violations of international public policy are a matter of substance and therefore, while potentially relevant for the merits, not a "procedural test for admissibility".288
350.
Finally, the Claimants contend these allegations of illegality were advanced many years after the CBB Decision and must thus be viewed with caution. The Claimants refer to Unión Fenosa Gas, S.A. v. Arab Republic of Egypt in which the tribunal found that "while the lapse in time provides, by itself, no complete answer to the Respondent's allegations under international law, it raises doubts as to why such allegations were not raised and investigated by the Respondent's criminal authorities long before".289

3. Analysis

351.
The Parties disagree on whether the Tribunal has jurisdiction and whether the claims are admissible. The Respondent argues that the Claimants' violations of Bahraini law and international sanctions against Iran result in the lack of jurisdiction of the Tribunal and/or render the claims inadmissible on grounds of the clean hands doctrine and of international public policy. Specifically, the Respondent submits that Future Bank engaged in systematic illegal activities, including sanctions violations, non-compliance with rules against money laundering and financing of terrorism, and other breaches of Bahraini laws.
352.
The Tribunal will thus first examine whether the alleged illegal activities of Future Bank constitute a bar to its jurisdiction or to the admissibility of the claims.

(a) Can the Alleged Illegalities Constitute a Jurisdictional Bar?

353.
The Parties put forward conflicting views on whether the Respondent's objection concerning the illegal activities of Future Bank relates to the Tribunal's jurisdiction. While the Respondent primarily argues that the defence is one of admissibility, it has signaled that it may also be characterized as jurisdictional.290 For the Claimants, by contrast, Future Bank's alleged illegal activities can only relate to the merits of the claims.291
354.
The Claimants invoke the arbitration clause contained in Article 11 of the BIT as the basis of the Tribunal's jurisdiction. The clause provides for broad jurisdiction to resolve "any dispute aris[ing] between the host Contracting Party and investor(s) of the other Contracting Party with respect to an investment".292 In turn, Article 1(1) of the BIT defines the term "investment" as "every kind of asset, invested by the investors of one Contracting Party in the territory of the other Contracting Party in accordance with the laws and regulations of the other Contracting Party […]."293
355.
Therefore, for the present dispute to come within the Tribunal's jurisdiction, it must have arisen out of assets "invested […] in accordance with the laws and regulations" of Bahrain. The ordinary meaning of this formulation leaves no doubt that it requires that investments be "invested", or in other words made in accordance with local law. It does not address the consequences of any illegal activities in which the investor may engage after making the investment.
356.
This is not to suggest that the BIT constitutes an insurance policy for an investor who engages in unlawful activities. However, unlike the illegality that affects the making of the investment, which places the investment – and thus any related disputes – outside the scope of the treaty and the treaty tribunal's jurisdiction, subsequent illegal activities and their consequences are for the treaty tribunal to rule upon. In other words, once the investment is lawfully made (and subject to other jurisdictional requirements not at issue here), the Contracting States have consented to give the treaty tribunal the competence to adjudicate the disputes arising out of such investment, including disputes about alleged subsequent illegal activities and their consequences.
357.
This explains why investment tribunals have consistently interpreted provisions similar to Article 1(1) of the BIT to be temporally limited to the making of the investment.294 To quote one of many examples, the tribunal in Kim v. Uzbekistan reasoned that the clause requiring investments to be "made" lawfully was limited in time:

The Tribunal finds that the legality requirement has a temporal dimension. The word 'made', both in terms of its ordinary meaning and its use in the past tense, indicates that the test applies at the time the investment is established. It is not a requirement subsequent to the making of the investment. Indeed, if this were not so, the second use of the word 'made' in Article 12 of the BIT would make no sense […].295

358.
The temporal limitation of the legality clause is not an arbitrary requirement, but one based on the text of the treaty. Nor is it a declaration that subsequent illegal activities are acceptable. Rather, the limitation circumscribes the scope of the tribunal's jurisdiction, by defining which illegal conduct is within the tribunal's competence and which is not.
359.
In the present case, the Respondent's allegations of illegal conduct do not pertain to the Claimants' making of their investment in Bahrain. As further detailed in the following subsection, while there is evidence of certain wrongdoings by Future Bank, the record contains insufficient evidence to demonstrate that the Claimants have initially made their investment unlawfully or for the overarching purpose of engaging in illegal activities, such as money laundering or evasion of sanctions. This distinguishes the present dispute from Belokon v. Kyrgyz Republic on which the Respondent relies. In that case, the Paris Court of Appeal annulled the arbitral award because the investment was made through an illegal collusion with representatives of local authorities and with the goal of engaging in recurrent money laundering. More precisely, the court found:

serious, precise, and concurring evidence that Insan Bank was taken over by Mr. Belokon in order to develop, in a State [the Kyrgyz Republic] in which his privileged relations with the holder of economic power would guarantee him a lack of any actual oversight over his activities, money laundering schemes that had not been able to flourish in Latvia's less favorable environment.296

360.
In the present case, the evidence of the alleged unlawful conduct proffered by the Respondent pertains to activities post-dating the establishment of Future Bank by the Claimants. The record does not show that the Claimants set up the bank as part of an illicit scheme or with the primary purpose of engaging in unlawful activities.
361.
Therefore, Future Bank's alleged illegal activities do not call into question the legality of the Claimants' actions when establishing the investment pursuant to Article 1(1) of the BIT. As a result, this objection does not pertain to the Tribunal's jurisdiction. Put differently, it is within the Tribunal's competence to resolve the present dispute, including the issues of Future Bank's alleged illegal activities and their consequences.

(b) Can the Alleged Illegalities Constitute an Admissibility Bar?

362.
The Parties dispute whether the alleged unlawful conduct of Future Bank may constitute a bar to the admissibility of the claims raised in this arbitration under doctrines or principles, such as international public policy and unclean hands.
363.
The Claimants argue that an investor's claims are not inadmissible "by reason of the fact that the investor's conduct during the life of the investment had breached any so-called international public policy."297 According to them, if the unlawful conduct does not relate to the acquisition or procurement of the investment, it does not constitute an admissibility obstacle to the investor's claims. In contrast, the Respondent calls this temporal limitation artificial and arbitrary and argues that the general principles of good faith and unclean hands as well as the doctrine of international public policy compel an international tribunal not to entertain claims tainted by serious wrongdoing of the investor, irrespective of the timing of such wrongdoing.298
364.
As explained in the previous subsection, unlike the illegality that taints the establishment or acquisition of the investment, which places the investment and any resulting disputes outside the scope of the treaty and the treaty tribunal's jurisdiction, subsequent illegal activities do not affect the Parties' consent to arbitration.
365.
That being so, the rationale for the temporal restriction of the jurisdictional legality defence, which is not to grant treaty protection to an investment made illegally, does not apply to an admissibility defence under the doctrines of international public policy and unclean hands. The reason why serious violations such as a breach of international public policy may bar the admissibility of claims is that international adjudicatory bodies have a duty not to entertain claims tainted by violations of certain universally accepted norms pursuant to general principles of good faith and nemo auditur propiam turpitudinem allegans.299
366.
For instance, faced with evidence of bribery, the tribunal in World Duty Free v. Kenya declared the claims inadmissible on the ground that the claimant was "not legally entitled to maintain any of its pleaded claims in these proceedings on the ground of ex turpi causa non oritur action."300 It is true that this case related to an investment that had been acquired using corrupt practices. However, its reasoning as to why violations of fundamental norms render the investor's claims inadmissible is relevant to post acquisition violations as well.
367.
While in investment arbitration, international public policy has primarily been invoked in the context of illegalities affecting the making of the investment,301 the underlying rationale also applies to subsequent illegalities, if they are severe and taint the claims in arbitration. According to Douglas, an investor whose claims are tainted by a breach of international public policy must not be "assisted in any way by the arbitral process":

The justification for treating a violation of international public policy as a ground of inadmissibility is as follows. The concept of international public policy vests a tribunal with a particular responsibility to condemn any violation regardless of the law applicable to the particular issues in dispute and regardless of whether it is specifically raised by one of the parties. That condemnation must entail that a party that has engaged in a violation of international public policy is not assisted in any way by the arbitral process in the vindication of any rights that are asserted by that party under any law.302

368.
While this quotation is excerpted from a section discussing illegalities at the inception of an investment, the rationale that Douglas sets out applies with equal force to illegalities in the course of the life of the investment. Indeed, if the rationale for the inadmissibility of claims tainted by serious illegalities is the international tribunal's "responsibility to condemn any violation regardless of the law applicable to the particular issues in dispute", and the idea that the party having engaged in such illegalities must "not be assisted in any way by the arbitral process", there is no reason why the inadmissibility should be limited to illegalities at the time of the making of the investment.
369.
In one form or another, scholars and adjudicators have recognized that adjudicatory bodies must not aid a party that engages in unlawful conduct, if the claims are affected by severe wrongdoings.303 Based on the analysis of the decisions of international courts and tribunals, Kreindler concludes that the rules that "[n]o one should be allowed to reap advantages from his own wrong" and that "an unlawful act cannot serve as the basis of an action in law" are manifestations of the general principle of good faith.304
370.
There is no justification for the proposition that the unlawful conduct must necessarily relate to the acquisition of the investment for purposes of the admissibility of claims as opposed to the jurisdictional requirement of legality of the investment. It is true that, for the purposes of the jurisdictional legality requirement, the violation must taint the making of the investment and that, when it comes to admissibility, what matters is whether the unlawful conduct taints the claims. While the two instances often overlap in practice, they are conceptually distinct.
371.
Pursuant to the rule of systemic integration embodied in Article 31(3)(c) of the Vienna Convention on the Law of Treaties (VCLT), the Tribunal must interpret the BIT taking into account "[a]ny relevant rules of international law applicable in the relations between the parties",305 which includes general principles of law, 306 such as the principle of good faith and those principles underlying international public policy.
372.
In this respect, the Tribunal cannot accept the Claimants' argument that investment treaties provide for a "self-contained" regime and that "any allegations of illegality with respect to an investment ought to be decided only in the context of the substantive, procedural, and other safeguards provided therein."307 The authorities that the Claimants cite in this respect confirm the uncontroversial proposition that investment tribunals have resolved jurisdictional legality objections based on the legality provisions of the applicable treaties.308 They do not state or imply that general principles of law are irrelevant to the admissibility of claims in investment treaty arbitrations.
373.
Thus, the Tribunal's mandate under the Bahrain-Iran BIT does not exist in isolation, but in the framework of general international law. The rule of systemic interpretation dictates that the Tribunal take into account general principles that govern the exercise of its jurisdiction under that treaty, one of such principles being that claims tainted by serious wrongdoings are not admissible.
374.
It was on the basis of such principle that the tribunal in Al Warraq v. Indonesia held that the claimant's unlawful conduct rendered the claims inadmissible.309 Although the applicable treaty contained a specific provision requiring investors to "refrain from all acts that may disturb public order or morals or that may be prejudicial to the public interest", the reasoning of the tribunal indicates that, in addition to this provision, it distinctly relied on the clean hands doctrine as a general principle of law. In particular, the tribunal cited the expert opinion of Professor Crawford who observed that "the 'clean hands' principle has been invoked in the context of the admissibility of claims before international courts and tribunals."310 The tribunal added that "the Claimant's conduct falls within the scope of application of the 'clean hands' doctrine, and therefore cannot benefit from the protection afforded by the OIC Agreement."311
375.
The Tribunal does not consider it necessary to determine whether the clean hands doctrine is an established general principle of law. As described above, international tribunals have commonly recognized that claims tainted by serious wrongful conduct are inadmissible, be it under the doctrine of clean hands, international public policy, or other general principles such as good faith, ex turpi causa non oritur action, or nemo auditur propiam turpitudinem allegans. For present purposes, it is sufficient to observe that the common rationale behind these principles applies not only to violations that concern the making of the investment, but also to post-establishment breaches that may taint the claims put forward before an international tribunal.
376.
That being so, not every unlawful activity will render an investor's claims inadmissible in international adjudications. To have this effect, the illegal conduct must be (i) serious and widespread and (ii) bear a close relationship to the claims.312 On the one hand, sporadic and trivial violations of the law will not trigger the inadmissibility of the claims. On the other hand, the fact that an investor has committed serious violations of the law does not mean that such investor must be denied access to international treaty arbitration as a blanket measure even in a situation where the particular claims do not arise out of these illegal activities. To warrant a sanction as stringent as the inadmissibility of the claims, the two requirements of seriousness and connexity must be cumulatively satisfied. The Tribunal now proceeds to assessing whether these requirements are met on the basis of the record.

(c) Did Future Bank Engage in Serious Illegal Activities?

377.
To result in the inadmissibility of the claims, the investor's unlawful conduct must be severe. 313 The Respondent appears to acknowledge this condition when it insists that it was the Claimants' "serious and repeated wrongdoing" that constituted a violation of international public policy.314
378.
In a business as complex and heavily regulated as banking, certain violations are bound to occur. Even serious violations, such as the facilitation of money laundering or sanction violations, would not necessarily result in the inadmissibility of the investor's international claims as a blanket measure, if they were infrequent and the bank remedied their consequences and took action to avoid repetitions.315 By contrast, the position would be different in circumstances involving pervasive violations forming part of a business strategy, furthered through non-disclosure or concealment and misrepresentation of relevant information to the regulator instead of implementing proper checks and balances. 316
379.
In reliance on the reports of the CBB, the Respondent submits that, between Future Bank's inception in July 2004 and the start of its administration in April 2015, the bank committed innumerable illegal acts. In particular, the Respondent alleges that Future Bank systematically violated international sanctions against Iranian entities (i); failed to monitor and disclose suspicious transactions (ii); engaged in recurrent wire stripping (iii); used the unauthorized Alternative Messaging System (AMS) (iv); and misrepresented its exposure to Iranian entities. The Tribunal will address each of these allegations in turn.

i. Violations of the Iran Sanctions

380.
The Parties diverge on whether Future Bank engaged in activities contrary to the sanctions that the UN, U.S. and EU imposed against Iran and multiple Iranian entities from 2006 until the bank was put in administration in 2015. Several threshold questions arise in this respect, which the Tribunal must answer before it enters the analysis of the specific allegations.
381.
First, as explained above, to justify the inadmissibility of claims, the investor's wrongful conduct must relate to a fundamental rule of law. Not all international sanctions constitute fundamental rules of international law, as some may seek to advance non-universal political or economic interests of specific States. The Tribunal must therefore determine whether the sanctions at issue were based on fundamental norms of international law, the violation of which could render the claims inadmissible. The international legal norms that underlie the sanctions regime that the UN Security Council has introduced against Iran starting from its Resolution 1696 (2006) concern the prevention of the proliferation of nuclear weapons pursuant to the 1968 Treaty on the Non-Proliferation of Nuclear Weapons and the preservation of international peace and security under Chapter VII of the UN Charter.317 These are some of the most fundamental norms of international law and as such form part of international public policy.
382.
The sensitivity and universality of the international concern over Iran's nuclear programme is confirmed by the very fact that the UN Security Council managed to reach a hardly attainable consensus and adopted several Chapter VII resolutions to address this issue. Importantly, pursuant to Article 103 of the UN Charter, Chapter VII resolutions take precedence over all other international agreements.318 In the context of international dispute resolution, Böckstiegel for instance writes that UN sanctions are "part of mandatory public international law" and they "will have to be applied by the arbitral tribunal".319 Thus, the sanctions introduced by the UN Security Council qualify as norms of what is generally called transnational or truly international public policy.320
383.
National (US/OFAC) and regional (EU) sanctions are different in the sense that they lack the degree of universality that characterizes UN sanctions. While the U.S. and EU sanctions shared in the global effort against Iran's nuclear program,321 they did not themselves constitute fundamental rules of law forming part of international public policy, insofar as they diverged from the scope of the UN sanctions. More specifically, not all the persons that the U.S. and EU included in their respective lists of sanctioned entities featured in the UN sanctions. The record is scarce on the reasons leading the U.S. or the EU to sanction specific entities that the UN had not designated. Therefore, the Tribunal will take the UN sanctions as the basis of its analysis of the alleged violation of international public policy.
384.
Second, the Parties diverge on whether the sanctions imposed on Iran and Iranian entities by the UN, U.S. and EU were opposable to Future Bank. To state the obvious, the UN Security Council Resolutions apply to States, which are required to implement the resolutions pursuant to the UN Charter,322 and Bahrain is a member of the UN. The U.S. and EU sanctions in turn apply to persons that are within the prescriptive or enforcement jurisdiction of the U.S. or the EU.323 Therefore, none of these sanctions apply directly to Bahraini entities, such as Future Bank.
385.
That being said, Bahrain gave effect to the international sanctions against Iran in various forms starting in 2007.324 In February 2007, the CBB issued a circular, implementing UNSC Resolution 1737 (2006), directing its licensees not to deal with UN sanctioned entities:

Licensees are directed to prohibit dealing with the designated individuals and entities, and immediately report to the CBB details of: A. Funds or other financial assets or economic resources or insurance policies held with them. B. All claims whether actual or contingent, which they have with any of these individuals or entities.325

386.
In March 2008, the CBB further implemented UNSC Resolution 1803 (2008), directing its licensees "to exercise vigilance and enhanced due diligence over […] activities with all banks domiciled in Iran, in particular with Bank Melli and Bank Saderat, and their branches and subsidiaries abroad."326
387.
A more comprehensive implementation of the international sanctions came with the CBB Directive of 8 September 2010, which required the licensed financial institutions to comply with the UN and U.S. sanctions as follows:

With immediate effect, all licensees in the Kingdom of Bahrain must ensure that they are fully compliant with all United Nations Security Council Resolutions imposing sanctions on the Islamic Republic of Iran, most recently UNSC Resolution 1929 of 2010.

Additionally, with immediate effect, all licensees in the Kingdom of Bahrain must familiarize themselves with the US Comprehensive Iran Sanctions Accountability and Divesture Act of 2010 and ensure that they do not fall foul of its provisions.327

388.
The difference in the language between the two paragraphs just quoted suggests that Bahrain implemented the UN and U.S. sanctions with different levels of binding force. The first paragraph requires the licensees to comply with the UN sanctions in unequivocal terms. By contrast, it is not clear whether the second paragraph formally transposes the U.S. sanctions or merely warns the licensees not to violate such sanctions whenever they may apply pursuant to their own terms.