EU Blocking Statute: a review of its attempt to maintain relations with Iran

January 30 2019

Kartik Mittal examines the contents of the EU Council's Blocking Statute that entered into force on 7 August 2018, and the impact it has had on the conduct of EU companies.

The Islamic Revolution began in February 1979 resulting in a series of sanctions against Iran imposed by the United States. Over the intervening 40 years, these sanctions have taken a major toll on Iran's economy and people as the United States has led international efforts to use these sanctions in order to influence Iranian government policy.

Most recently, in 2006, the UN Security Council passed a Resolution which demanded that Iran halt its uranium enrichment programme. But things began to change over the following decade as a thaw in relations developed between Iran and the major Western powers. President Obama became the chief instigator of the Joint Comprehensive Plan of Action (JCPOA), which was agreed by the five permanent members of the United Nations Security Council plus Germany: from January 2016, UN sanctions were lifted in return for limits on Iran’s nuclear programme.

Things changed again when Donald Trump was elected as US President. Last May, he made good on his election promise by announcing that the US would unilaterally dispense with the JCPOA agreement. The EU’s response was to confirm that it would aim to preserve the JCPOA and positively encourage Iran’s government not to allow US efforts to destroy it. In May 2018,  the European Commission (EC) began the process of updating the EU Blocking Statute (the Statute) .

The EC’s immediate response was to launch a formal process, under the EU budget guarantee, to remove obstacles for the European Investment Bank to finance activities in Iran. The EC also strengthened its sectoral cooperation with Iran. This included facilitating financial assistance through the Development Cooperation or Partnership Instruments. Finally, the EC encouraged EU Member States to explore the possibility of one-off bank transfers to the Central Bank of Iran, enabling the Iranian authorities to receive their oil-related revenues.

After two months of scrutiny by the European Parliament and the Council, the update became effective on 7th August 2018. The immediate catalyst was President Trump’s Executive Order which re-imposed secondary sanctions against Iran. By way of response, the aim of the updated Statute was to counter the effects of US sanctions re-imposed on EU companies. In addition, the EU reaffirmed its position in support of the continued lifting of sanctions against Iran under the international nuclear deal.

According to its published statement, the updated Statute is part of the EU’s support for the ‘continued full and effective implementation of the JCPOA, including by sustaining trade and economic relations between the EU and Iran’. When the first cluster of re-imposed US sanctions on Iran began to take effect in August, the stated aim of the updated Statute was ‘to mitigate the impact of these sanctions on the interests of EU companies doing legitimate business in Iran.’

The EU Council outlined measures in the updated Statute that would protect persons and companies of EU member states. Most notably, EU nationals (including those outside the EU), residents and companies (EU parties) are prohibited from actively complying with the US sanctions. The EC issued a Guidance Note which states that the Statute’s principal objective is to protect EU parties engaging in "lawful international trade and/or movement of capital as well as related commerce activities with third countries in accordance with EU law".

The Statute further clarifies the position on a variety of issues. 

It recognises that EU parties are free to choose whether or not to conduct further business activities in Iran "on the basis of their assessment of the economic situation". The Statute also confirms that foreign judgments or administrative decisions based on the listed US sanctions are unenforceable. EU Member State authorities are required to shield EU parties from any decision requiring, for example, seizure or enforcement of a penalty in the EU.

Although EU subsidiaries of US companies must comply under the Statute, EU branches of US companies are not required to because their legal personality is not distinct from their parent company. Meanwhile, EU parties can claim compensation before the courts of EU Member States for damages caused by applying the US sanctions.

The Statute also requires that EU parties report to the EC (or through a Member State authority) within 30 days of any event that results in an impact on their economic or financial interests, directly or indirectly, because of the US sanctions. In exceptional circumstances, the EC can authorise compliance with these sanctions if non-compliance would "seriously damage" the interests of EU parties or the EU as a whole. This does not, however, include "every nuisance or damage suffered" directly as a result of the sanctions.

It is therefore clear that applying for an exemption from US Authorities to continue activities in Iran would itself be a breach of EU law unless the EU authorises making such an application for an exemption to the US Authorities. As a result, the Statute sends out the strongest possible signal that the EU does not support the US decision to abandon the JCPOA and to re-impose sanctions on Iran.

Although EU businesses and individuals receive significant  protection under the Statute, it does not compel them from continuing their business activities in Iran: they are therefore entirely free to choose whether or not they want to cease doing business in Iran.

Events have put many EU companies in a very difficult position: the Statute makes it unlawful for them to comply with US measures while any breach of those measures will be also actionable in the US. Some big companies in the EU, such as Reuters and TOTAL, have already taken a decision to suspend doing business with Iran. It seems likely that businesses which have significant exposure in the US will continue that course of action. Nevertheless, the Statute does offer some comfort for SMEs in the EU which have minimal or no US presence because it affords the necessary protections to negate any actions that US authorities might take. 

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