On 18 may 2018, the European Commission has launched the process to "activate" EU Council Regulation No 2271/96 (EU Blocking Statute) and to expand the scope of the EU Blocking Statute to include the US sanctions against Iran.

The measure follows shortly after President Trump has decided on 8 May 2018 to withdraw from the Joint Comprehensive Plan of Action (“JCPOA”) and to re-impose US sanctions against Iran. President Trump's decision has severe consequences for all international companies, including European companies, that are already engaged in business with Iran or have substantially invested in potential projects. These companies will now run the risk of being sanctioned by the US Treasury Department’s Office of Foreign Assets Control (OFAC) for violating secondary US sanctions (i.e., measures which apply to non-U.S. persons operating outside of the U.S.). The EU and other international actors have stated that the US secondary sanctions and their extraterritorial application are a violation of accepted norms of public international law - as reflected in the preamble of the original EU Council Regulation No 2271/96.

The EU Blocking Statute, originally adopted in reaction to US sanctions against Cuba, is regarded as one of the stronger instruments in the EU's toolbox to protect European companies that do business with Iran from the extra-territorial application of US sanctions.

In view of such protection, the EU Blocking Statute specifically provides that:

  • No EU person shall comply with any requirement or prohibition resulting from targeted US sanctions
  • No judgement of a court or tribunal and no decision of an administrative authority applying the targeted US sanctions shall be recognized or enforceable
  • Any EU person shall be entitled to recover any damages, including legal costs, caused by the application of targeted US sanctions, from the person causing such damages.

The penalties for violating the provisions of the EU Blocking Statute are determined by the Member States.

The European Commission aims to have the EU Blocking Statute amended before 6 August 2018, i.e. the date that the first batch of secondary US sanctions against Iran will be re-imposed.

However, even then, it still remains to be seen how the EU Blocking Statute will eventually play out in practice, and if it will really provide European companies with adequate comfort to continue doing business with Iran. The reinforcement of the EU Blocking Statute would for instance put multinational companies into a difficult position since they will have to decide whether to comply with the EU Blocking Statute and not to apply US sanctions law, or the other way around. This might force such companies to choose between the pest and cholera (i.e. being sanctioned by the US or the EU).

Besides the EU Blocking Statute, the European Commission has also launched the formal process to remove obstacles for the European Investment Bank to decide under the EU budget guarantee to finance activities outside the EU, in Iran.

The European Parliament and the Council will have a period of 2 months to object both measures, once proposed, before they enter into force.

In addition to these two measures, several other initiatives are taken to underpin JCPOA and accelerate business projects in Iran permissible under JCPOA and international law. In this regard, the European Commission has indicated it will “continue and 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 will encourage Member States to explore the possibility of one-off bank transfers to the Central Bank of Iran. Additionally, the EU is exploring pan-European platforms bringing together business and government authorities in order to work on solutions to continue business with Iran.