EU issues draft update to block re-imposed US sanctions on Iran | White & Case LLP International Law Firm, Global Law Practice
EU issues draft update to block re-imposed US sanctions on Iran

EU issues draft update to block re-imposed US sanctions on Iran

The European Commission has proposed EU Blocking Regulation revisions to cover re-imposed US sanctions on Iran. The revisions are expected to enter into force on 6 August 2018, and have a big impact on EU companies aiming to comply with certain US sanctions targeting their activities in Iran.

On 6 June 2018, the European Commission issued draft updates1 to the list of foreign sanctions measures covered by the EU Blocking Regulation.2 This follows its 18 May announcement of measures to protect Iran-related interests of EU companies, and is part of the EU’s response to the recent US decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA) and re-impose certain sanctions against Iran.3

The EU Blocking Regulation aims to counteract the effects of certain extra-territorial sanctions by prohibiting compliance with specified foreign measures listed in its annex (unless authorisation is given by the European Commission). The updated annex – expected to enter into force on 6 August 2018 – would include certain US sanctions on Iran that were lifted under the JCPOA, but are now to be re-imposed and target (among others) activities of European companies in Iran.

More specifically, with respect to US sanctions against Iran, the EU Blocking Regulation would include:

  • Iran Sanctions Act of 1996
  • Iran Freedom and Counter-Proliferation Act of 2012
  • National Defense Authorization Act For Fiscal Year 2012
  • Iran Threat Reduction And Syria Human Rights Act Of 2012
  • Iranian Transactions and Sanctions Regulations

Notably, the list covers comprehensively all Iran-related US secondary sanctions (i.e., where no US nexus is required) and measures targeting non-US entities owned or controlled by US persons. The list also includes the primary sanctions prohibition on the re-export of any goods, technology, or services that (a) have been exported from the US and (b) are subject to export control rules in the US, if the export is made knowing or having reason to know that it is specifically intended for Iran or its Government. The re-export prohibition is punishable in the US with civil and criminal penalties. Any EU company ceasing business activities in Iran to comply with such US sanctions thus may be considered to violate the EU Blocking Regulation. It remains to be seen how Member States will prioritize enforcement of the Regulation.

The EU Blocking Regulation contains a number of other provisions which raise questions concerning how they will be applied and enforced. It provides that any foreign judgment or administrative decision giving effect to the specified US sanctions shall be unenforceable, and envisages the possibility for certain persons engaged in international trade, capital movement and related commercial activities between the EU and Iran to recover damages caused by the application of such sanctions. Finally, the EU Blocking Regulation imposes a reporting obligation on, inter alia, EU companies, nationals and residents; these must inform the Commission within 30 days of learning that their economic or financial interests are affected by the specified US sanctions.

The practical result is that EU companies with business interests in Iran will have to consider carefully their particular situation and exposure under both US and EU rules, before weighing up their options.

Meanwhile, the finance and foreign ministers of the UK, France and Germany, together with the EU’s High Representative of the Union for Foreign Affairs and Security Policy, have written to US Secretary Pompeo and Secretary Mnuchin, requesting that the US grant exemptions to EU companies from US secondary sanctions and other relevant measures impacting EU companies. The requests include grandfathering clauses, an extension of the winding-down periods, confirmation that secondary sanctions will not apply to pharmaceuticals and healthcare and exemptions for key sectors (energy, automotive, civil aviation and infrastructure) as well as enabling appropriate banking and financing channels.4

In parallel, and also to counter the effects of the re-imposed US sanctions, the Commission announced updates to the European Investment Bank’s External Lending Mandate to make Iran eligible for EIB investment activities.

 

1 The proposed updates to the EU Blocking Regulation can be found here and here.
2 Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom; the latest consolidated version of this Regulation (which does not include this update) is available here.
3 More information on the US announcement of re-imposition of sanctions against Iran and the EU’s response can be found in our Client Alerts from 11 May and 18 May, respectively.
4 The letter is available here.

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