EU to block US extraterritorial sanctions against Iran

Green light from EU leaders

Following the press release of the European Commission on May 18, 2018, the European Union (EU) demonstrated – once again – that it is committed to the continued, full and effective implementation of the Iran nuclear deal (JCPOA), so long as Iran also respects its obligations (see also our previous news brief). 

The EU leaders, having met at an informal meeting in Sofia last week, forged a united front by giving their green light and backing to put EU countermeasures in place in order to shield the EU businesses (EU subsidiaries of US companies as well as EU businesses falling outside the US jurisdiction) from the extraterritorial impact of US sanctions and ensure EU business continuity with Iran (even if this may be contrary to the re-imposed US sanctions).

EU countermeasures on four fronts

As a consequence, the European Commission took action by proposing the following countermeasures on four fronts:

1. Activate and apply the so-called EU Blocking Regulation;
2. Enable the European Investment Bank (EIB) to decide under the EU budget guarantee to finance activities outside the European Union, in Iran;
3. Strengthen the ongoing sectoral cooperation with, and assistance to, Iran, including in the energy sector and with regard to small and medium-sized companies; and
4. Encourage all EU Member States to explore the possibility of one-off bank transfers to the Central Bank of Iran.

EU Blocking Regulation

The goal and mechanism of the EU Blocking Regulation, dating back from 1996, was simple and straightforward: providing protection against and counteracting the effects of extra-territorial application of certain listed US sanctions against Iran (as known and valid at the time).

In order to do so, the EU Blocking Regulation includes several key provisions:

• EU businesses and persons residing in the EU being prohibited to comply actively or by deliberate omission with the listed US sanctions against Iran. However, the EU Blocking Regulation allows also EU businesses to comply fully or partially with US sanctions against Iran if their interests, or those of the EU, would seriously be threatened or damaged ( with the approval of the European Commission);
• prohibition to recognize or enforce any judgment of a court or tribunal or an administrative authority located in the US giving effect, directly or indirectly, to relevant listed US sanctions;
• entitlement to a restitution claim by allowing EU businesses and persons to seek recovery of damages arising from such sanctions from the person causing them in a European court.

The countermeasure as introduced by the European Commission basically aims to refurbish the EU Blocking Regulation by updating the list of US sanctions on Iran falling within its scope. The goal is to have the refurbished EU Blocking Regulation come into force before 6 August 2018, when the first batch of US sanctions take effect. 

EU businesses set for a "clash"

Following the move from the European Commission by among others reviving the EU Blocking Regulation, the EU businesses (EU subsidiaries of US companies as well as EU businesses falling outside the US jurisdiction) dealing with Iran are set for a clash between, on one side, the re-imposed US sanctions against Iran having extraterritorial reach in the EU, and, on the other side, the refurbished EU Blocking Regulation, and will see themselves confronted with imposed conflicting (compliance) obligations and requirements. In that regard, EU businesses dealing with Iran are recommended to take a prudent and risk-based approach in view of carrying out their due diligence and compliance measures and, where necessary, seek legal advice in case of any doubts about their exposure to compliance or reputational risks.

Bird & Bird's international Trade & Customs practice comprises some of Europe's leading sanctions and export control experts. The team also maintains close contacts with EU and national competent bodies and authorities regarding the implementation and enforcement of sanctions and export controls legislation. If you have any questions or need guidance, please do not hesitate to contact our Trade & Customs team.