What is the EU Blocking Statute?
Council Regulation (EC) No 2271/96 (as amended) (the Blocking Statute) is designed to counter specified third-country extra-territorial sanctions on “EU operators”, which includes EU nationals, any natural person resident in the EU and EU-incorporated companies. In short, the Blocking Statute seeks to protect EU operators engaging in lawful international trade and/or movement of capital as well as related commerce activities with third countries in accordance with EU law.
Background
The Blocking Statute was introduced by the EU in November 1996 in response to certain US extra-territorial sanctions legislation concerning Cuba, Iran and Libya. It is considered a significant unified EU action against the unlawful effects of extra-territorial legislation of third countries.
Following the United States’ announcement of its intention to abandon the Joint Comprehensive Plan of Action (JCPOA) on 8 May 2018, the EU responded by announcing its intention to remain compliant with the JCPOA and to reinvigorate the Blocking Statute. In particular, the EU updated the Annex to the Blocking Statute, which lists the relevant extra-territorial legislation covered by the Blocking Statute (the Listed Legislation), to protect EU operators from the effects of certain US secondary sanctions relating to Iran re-imposed in August and November 2018.
The updated Blocking Statute came into effect on 7 August 2018 to “mitigate the impact [of re-imposed US sanctions] on the interests of EU companies doing legitimate business in Iran”[1] and is directly applicable within all EU Member States.
Key operative provisions
The Blocking Statute seeks to protect EU operators in a number of ways. In summary, the Blocking Statute:
- prohibits EU operators from complying with the Listed Legislation;
- requires EU operators to inform the European Commission within 30 days of any events arising from the Listed Legislation or actions based thereon or resulting therefore, that affect, directly or indirectly, their economic or financial interests;
- nullifies the effect in the EU of any foreign decision, including court rulings or arbitration awards, based on the Listed Legislation or the acts and provisions adopted pursuant to them;
- allows EU operators to recover damages, including legal costs, arising from the application of the Listed Legislation from the natural or legal persons or entities causing them; and
- allows EU operators to request an authorisation to comply with the Listed Legislation, if not doing so would cause serious harm to their interests or the interests of the EU.
European Commission guidance makes clear that the Blocking Statute is not designed to force EU operators to do business with any country (including Iran); rather, the aim is to provide freedom to EU operators to engage in such business if they choose. In particular, the European Commission states (inter alia) that “EU operators are free to conduct their business as they see fit in accordance with EU law and national applicable laws.”
Penalties for non-compliance
The Blocking Statute provides that each Member State shall determine the sanctions to be imposed in the event of breach of any relevant provision of the regulation. Such sanctions must be “effective, proportional and dissuasive”. Failure to comply with the requirements of the Blocking Statute may therefore lead to penalties as prescribed by the competent authority of an individual Member State.
Potential impact for EU operators dealing in Iran
Historically, implementation and enforcement of the Blocking Statute has been limited and inconsistent. Some Member States do not appear to have introduced national legislation for the implementation of penalties for breach of the Blocking Statute. The updated Blocking Statute nonetheless presents a number of compliance challenges for EU operators, with regards to their activities in Iran, including the following:
- Conflicts of laws conundrum: EU operators could be placed in a conflicts of law situation whereby they are faced with the choice between complying with US secondary sanctions relating to Iran and risking penalties under the Blocking Statute; or complying with the Blocking Statute and potentially risking violating certain US sanctions.
- Increased risk of regulatory enforcement: The expanded scope of the Blocking Statute to include in the Annex certain US secondary sanctions re-imposed or to be re-imposed with regards to Iran increases the potential for EU operators to fall foul of the requirements of the Blocking Statute. While the Blocking Statute has not been rigorously enforced in the past, the current geopolitical climate and changeable relations between the US and the EU may increase the expediency for the EU to encourage more rigorous enforcement of the Blocking Statute by Member States, although such enforcement (if any) will be left to the approach of each Member State which varies from country to country.
- Increased litigation risk: Since the Blocking Statute allows for damages recovery by an EU operator where it incurs damages as a result of (inter alia) the application of the Listed Legislation, there could potentially be increased litigation risk for persons dealing with EU operators in a country with which the Listed Legislation is concerned (such as Iran).
- Authorisation potentially required for wind-down of Iran activities: EU operators with ongoing activities in Iran on or after 7 August 2018 could potentially require an authorisation from the European Commission to wind-down such activities to avoid breaching the Blocking Statute. There is currently uncertainty around the timing and nature of the authorisation process. In contrast, EU operators that fully terminated their activities in Iran before 7 August 2018 would technically fall outside the scope of the Blocking Statute with regards to activities in Iran.
[1] Updated Blocking Statute in support of Iran nuclear deal enters into force, European Commission – Press release, 6 August 2018, available at: http://europa.eu/rapid/press-release_IP-18-4805_en.htm
