On May 8, 2018, the United States announced the reinstatement of widespread economic sanctions targeting Iran, with a 90-day or 180-day wind-down period for activities that were previously permitted. The economic sanctions will apply not only to U.S. entities but also to U.S.-owned or -controlled foreign entities. Noncompliance with U.S. economic sanctions may lead these non-U.S. entities to being cutoff from the U.S. financial system or public procurement.
The U.S. reinstated the economic sanctions against Iran on the grounds that Iran violated the 2016 Iran nuclear deal (called the Joint Comprehensive Plan of Action, or JCPOA).1 The European Union (EU) does not agree that Iran violated the 2016 nuclear deal and, on May 18, announced its continued commitment to the 2016 nuclear deal.
The European Commission has proposed the following countermeasures to ensure that EU companies will (under certain conditions) be allowed to continue doing business with Iran even if such business is prohibited under the reinstated U.S. economic sanctions:
1. Applying the so-called “EU Blocking Statute” to U.S. economic sanctions against Iran.The EU Blocking Statute prohibits EU companies from complying with the extraterritorial effects of U.S. sanctions. It also allows them to recover damages arising from such sanctions from the person causing them and nullifies the effect in the EU of any foreign court judgments based on them.2
In effect, EU companies dealing with Iran that are U.S.-owned or -controlled will need to decide whether to comply with U.S. economic sanctions law (requiring them to wind down business) or with the EU Blocking Statute (prohibiting them from complying with U.S. economic sanctions).
It is difficult to assess the consequences of noncompliance with the EU Blocking Statute for EU companies as this may differ according to Member States, which are in charge of enforcement. In fact, the level of implementation of the EU Blocking Statute has differed significantly among Member States. While some Member States have not adopted specific enforcement legislation, others have adopted penalties amounting to an administrative infringement or in some instances a criminal offense punishable by monetary fines or imprisonment.
In any event, the process of updating the EU Blocking Statute at the EU level is estimated to take at least two months to allow the European Parliament and the Council of the EU to object before a new version enters into force. The aim is to have the EU Blocking Statute in force before August 6, 2018, when the first batch of U.S. sanctions takes effect.
2. Removing obstacles for the European Investment Bank to finance activities and facilitate EU companies’ investment in Iran.
3. Strengthening the ongoing sectoral cooperation with, and assistance to, Iran, including in the energy sector and with regard to small and medium-sized companies.
4. Encouraging Member States to explore the possibility of one-off bank transfers to the Central Bank of Iran.