The EU Blocking Regulation prohibits European businesses from complying with certain US extraterritorial sanctions and export controls targeting Iran and Cuba, catching them between a rock and a hard place.
The Belgian Act of 2 May 2019, which entered into force on 31 May 2019, gives teeth to the EU Blocking Regulation by providing for administrative fines of up to 10 % of a company’s turnover. The question is if and how these teeth will bite, but Belgian businesses are now faced with a “rock and an even harder place".
In August 2018, the EU amended Council Regulation n° 2271/96 protecting against the effects of the extra-territorial application of legislation adopted by a third country and actions based thereon or resulting therefrom dated 22 November 1996 (the EU Blocking Regulation) in response to the US’ withdrawal from the Joint Comprehensive Plan of Action and its reintroduction of previously lifted sanctions targeting Iran (announced on 8 May 2018).
The purpose of the EU Blocking Regulation has always been to ensure that EU businesses may continue to make investment decisions freely in spite of the strong extraterritorial reach of certain US sanctions and export controls. The August 2018 amendment seeks to consolidate that position for EU businesses active in Iran after the 2018 US policy changes.
In a nutshell, the EU Blocking Regulation provides for both protections and prohibitions:
•non-EU court judgments or administrative decisions giving effect to the listed US sanctions and export controls cannot be enforced in the EU (article 4); and
•EU persons suffering damage as a result of compliance with the listed US sanctions and export controls have the right to recover those damages (article 6).
EU persons are prohibited from complying with the listed US sanctions and export controls (unless exceptionally authorised to do so by the European Commission – article 5).
To ensure compliance with the EU Blocking Regulation, Member States must determine “effective, proportional and dissuasive” sanctions for any infringement in their jurisdiction of the obligations under the EU Blocking Regulation.
EU businesses between a rock and a hard place
As a result, EU businesses find themselves in a difficult predicament with no apparent solution:
•non-compliance with the US regime may lead to EU persons being targeted by US sanctions (eg resulting in restrictions or exclusion from the US market); yet
•EU persons are in breach of the EU Blocking Regulation if they comply with the very same US regime.
The implementation of the EU Blocking Regulation at national level, and in particular what enforcement measures are applied in the case of a breach, is a key influencing factor for EU persons in deciding what action to take.
The Belgian enforcement regime has long been criticised for being unclear. The purpose of the Act of 2 May 2019 is to establish a brand new enforcement regime for the EU Blocking Regulation, which will make it even more complicated for Belgian businesses to choose between the rock and the hard place.
A brand new enforcement regime for the EU Blocking Regulation
The Act of 2 May 2019 sets out the Belgian penalties for a breach of the EU Blocking Regulation, appoints a regulator to monitor compliance and implements a reporting system.
The Act of 2 May 2019 identifies the Treasury Administration of the Belgian Federal Public Service for Finance and for the Economy as the competent authority for monitoring compliance with the obligations under the EU Blocking Regulation.
The modalities should be further determined by Royal Decree.
Whenever a EU person’s economic or financial interests are affected by the US sanctions or export controls listed in the EU Blocking Regulation, that EU person must inform the European Commission “either directly or through the competent authorities of the Member States” (article 2).
In addition, EU Member States must inform the European Commission of the measures taken under the EU Blocking Regulation and of all other relevant information pertaining to the EU Blocking Regulation (article 10).
The Act of 2 May 2019 now identifies the Belgian Federal Public Service for Foreign Affairs as the Belgian authority responsible for reporting to the European Commission under the EU Blocking Regulation.
The Belgian Minister of Finance or Economy now has the authority to impose administrative fines for breaches of the reporting obligations and/or for breaches of the prohibition against complying with the listed US sanctions and export controls.
The fines range from:
•EUR 10,000 to 10% of the annual net turnover of the previous financial year for legal entities; and
•EUR 250 to EUR 5,000,000 for natural persons. These natural persons include the members of the statutory body and the executive committee of a legal entity or, if there is no executive committee, the persons participating in the effective leadership of that legal entity, to the extent that these individuals are responsible for the breach within that legal entity.
The amount of the fine will be determined taking into account all relevant circumstances, including: the seriousness and duration of the breach; the level of responsibility of the person concerned; the financial capacity of the person concerned (eg turnover or annual income); the benefit or advantage possibly obtained; the possible damage caused to third parties; the level of cooperation with the supervisory authorities; and any prior breaches by the person concerned.
The person concerned has the right to be heard by the authorities before a fine may be imposed.
The unexpected side dish: administrative fines for breach of EU sanctions
Since the recent amendments to the EU Blocking Regulation, there were discussions as to whether breaches of the EU Blocking Regulation were subject to criminal sanctions under the Act of 13 May 2003, which subjects breaches of EU sanctions to an imprisonment of between 8 days to 5 years and criminal fines of between EUR 200 to EUR 200,000 (after multiplication by 8 as a result of the Belgian surcharges applicable to criminal fines).
One would have expected the new Act of 2 May 2019 to clarify whether breaches of the EU Blocking Regulation were subject to the same regime.
Instead, the Act of 2 May 2019 simply cleans up out-dated references to the Treaty on the Functioning of the European Union and adds the possibility for the Belgian Minister of Finance to impose administrative fines ranging from EUR 250 to EUR 2,500,000 for breaches of EU sanctions regulations… Not a word on breaches of the EU Blocking Regulation.
So, contrary to what some had expected, the Act of 2 May 2019 does not extend the criminal penalties provided under the Act of 13 May 2003 to breaches of the EU Blocking Regulation.
We understand that the intention was effectively to subject breaches of the EU Blocking Regulation to administrative fines only (see above).
Our take aways
In summary, two parallel regimes now apply to sanctions-related breaches in Belgium, each with their own legal basis and penalties:
•breaches of the EU Blocking Regulation are subject to administrative fines under the new Act of 2 May 2019; and
•breaches of EU sanctions are subject to criminal and administrative sanctions under the Act of 13 May 2003 as amended by the Act of 2 May 2019. Note that the Act of 2 May 2019 does not establish any “una via” system to avoid the overlap of administrative and criminal sanctions (as is the case for instance in tax matters). Any combination of criminal and administrative sanctions will therefore need to be assessed against the ne bis in idem principle.
This is a patchy approach which might well be explained by the haste in which the Act of 2 May 2019 was finalised and enacted, a couple of weeks before the elections.
We are aware of talks regarding a comprehensive revision of the landscape of sanctions under Belgian law. This ambitious project appears to have been put off for now but, if it sees the day light in the future, it is said that the new system will be inspired by the principles underpinning the Belgian Anti-Money Laundering Act of 18 September 2017 in terms of supervision, reporting, liability and sanctions for breaches. A hint is already perceptible in the Act of 2 May 2019 as the administrative fines and related liability regime is identical to that of the Belgian AML Act.
With the Act of 2 May 2019, the “rock and a hard place” dilemma for Belgian businesses remains as troublesome as ever. With the Belgian authorities being granted extensive discretion in applying a wide range of administrative fines, it will remain to be seen if and how they will make the teeth to the EU Blocking Regulation bite.