On 12 May, Advocate General (“A-G“) Hogan issued an Opinion in a case before the Court of Justice of the European Union (“CJEU”) concerning the application of the EU Blocking Statute (Regulation (EC) No 2271/96). While the Opinion is not binding on the CJEU, it signals that the EU and Member State courts are likely to take a strict approach in their interpretation of the Blocking Regulation, and highlights the complexities that face European businesses impacted by US sanctions against Iran and/or Cuba.
The Blocking Statute prohibits EU businesses from complying with certain extraterritorial US sanctions targeting Iran and Cuba. It also gives EU parties a right of action where they suffer loss resulting from the blocked US sanctions. This direct conflict between the EU and US position often places businesses in a difficult position of ensuring compliance with EU law, whilst also seeking to minimise their risk under US extraterritorial sanctions.
In the case in question (C-124/20 Bank Melli Iran, Aktiengesellschaft nach iranischem Recht v Telekom Deutschland GmbH)a German telecommunications provider terminated its contract with a German branch of an Iranian bank shortly after the US tightened its sanctions against Iran in 2018. The bank was at the time listed on the US Specially Designated Nationals and Blocked Persons (“SDN“) List. The bank claimed that termination was motivated solely by the telecommunications provider’s desire to comply with US sanctions that created potential secondary sanctions risks for non-US businesses from trading with Iranian SDNs.
In the Opinion, the A-G sets out the following positions:
- the Blocking Statute places a burden of proof on the terminating party to demonstrate that the decision to terminate is not motivated by US sanctions;
- national courts must order the continued performance of a contract that has been unlawfully terminated due to the application of US sanctions; and
- the Blocking Statute prohibits any activity by an EU business intended to comply with the blocked US sanctions, even if no US court or agency has attempted to compel the EU business to comply.
The A-G, also refers to the Blocking Statute as “a very blunt instrument” that “gives rise to a series of hitherto unresolved legal issues and a variety of intensely practical problems”, and suggests that the EU institutions may wish to review the legislation. This is a rare form of judicial criticism, and could contribute to an impetus for reform of the Blocking Statute (including opportunities for business to contribute their experiences as part of the conversation around reform). The Opinion is not binding. However, A-G Opinions are highly persuasive and the CJEU follows them more often than not, so it is possible the CJEU may take a similarly robust stance when it hands down its judgment in due course. Businesses affected by the Blocking Statute would be advised to keep an eye out for the judgment, which may have a significant impact upon how businesses balance the risks under US sanctions with their obligations under EU law.