Further to our previous blog posts of 18 May 2018 and 7 June 2018, the updated Blocking Regulation (Regulation 2271/96) entered into force on 7 August 2018. The effect is to block the application in the EU of extraterritorial U.S. sanctions targeting Iran.
The update was triggered by the U.S.’ unilateral decision on 8 May 2018 to withdraw from the Joint Comprehensive Plan of Action, and the subsequent reimposition of extraterritorial sanctions. The full list of extraterritorial measures blocked by the EU can be found here.
What does the Blocking Regulation do?
In short, the Blocking Regulation:
- prohibits EU persons from complying with the blocked U.S. measures;
- requires EU persons to notify the European Commission of any effects on their economic or financial interests caused by a blocked measure;
- prevents the enforcement and/or recognition of any judgment or decision of a non-EU authority that gives effect to a blocked measure; and
- allows EU persons to recover damages arising from the application of the blocked measures.
The Blocking Regulation applies to EU entities, EU residents, EU nationals based outside the EU, and other persons located within the EU and acting in a professional capacity. Non-EU subsidiaries of EU entities are not required to comply; however, EU subsidiaries of non-EU companies (including U.S. parent companies) are required to comply with all provisions of the Blocking Regulation.
Enforcement of the Blocking Regulation falls within the remit of Member States. Some Member States (including the UK, Sweden and the Netherlands) impose criminal penalties for violations; some other Member States impose civil/administrative penalties (including Germany, Austria, Spain and Italy). Some Member States (such as France) have yet to introduce penalties for violations. To-date, enforcement of the Blocking Regulation has not been a priority for the EU Member States.
Nonetheless, companies with an EU nexus will need to consider carefully any decision to withdraw from business involving Iran in order to balance their obligations under the Blocking Regulation with potential risks under U.S. sanctions.
The EU has also issued a guidance note on the application of the Blocking Regulation, available here.
Is there scope for a waiver from the requirements of the Blocking Regulation?
Yes, the European Commission can authorise EU persons to comply with the U.S. measures in full or in part, where “non-compliance would seriously damage their interests or those of the Community”.
The 14 criteria for authorisation are set out in Regulation 2018/1101 (available here). These include the following criteria of particular interest:
- the existence of an ongoing administrative or judicial investigation against the applicant from, or a prior settlement agreement with, the third country which is at the origin of the listed extra-territorial legislation (in this context, the U.S.); and
- the existence of a substantial connecting link with the third country (again, the U.S. in this context) which is at the origin of the listed extraterritorial legislation or the subsequent actions; for example the applicant has parent companies or subsidiaries, or participation of natural or legal persons subject to the primary jurisdiction of the third country which is at the origin of the listed extra-territorial legislation or the subsequent actions.
In other words, it may be possible to obtain an authorisation where (for example) a U.S. authority such as OFAC has reached a settlement with an EU entity in relation to violations of U.S. sanctions, and that settlement requires the EU entity to comply with the blocked measures.
The Commission will consider applications on a case-by case basis, and there is no guarantee that it will grant any authorisation.