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EC Blocking Regulation Activated Commensurate with First US Wind-down Date on Iran

EC Blocking Regulation Activated Commensurate with First US Wind-down Date on Iran

On August 7th, the European Commission Delegated Regulation (EU) 2018/1100 (1) entered into force. Please see: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52018XC0807(01)&from=EN.    This Regulation amends the Annex to Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of extra-territorial application of legislation adopted by a third country.   In this case, the specific concern as spelled out in my blog post of May 22nd is the U.S. decision to withdraw from the Iranian Nuclear Deal this past May 8, 2018.

The basic principle of the Blocking Statute is that EU operators shall not:

  1. comply with the listed extra-territorial legislation, or any decision, ruling or award (Article 5, paragraph 1); and
  2. fail to inform the European Commission within 30 days of any events arising from listed extra-territorial legislation or actions that affect, directly or indirectly, their economic or financial interests (Article 2, paragraph 1);

The reporting obligation applies to EU directors, managers and other persons with management responsibilities and such reports can be made either directly to the EC or through the competent authorities of the Member States.

The Blocking Statute:
— Nullifies the effect in the EU of any foreign decision, including court rulings or arbitration awards, based on the listed extra-territorial legislation or the acts and provisions adopted pursuant to them (Article 4);

— Allows EU operators to recover damages arising from the application of the listed extra-territorial legislation from the natural or legal persons or entities causing them (Article 6); and

— Allows EU operators to request an authorization to comply with the listed extra-territorial legislation, if not doing so would cause serious harm to their interests or the interests of the EU (Article 5, paragraph 2).

 

 

EC raises 1996 Blocking Statute in Response to the U.S. Withdrawal from the Iranian Nuclear Deal

The EC Blocking Regulation

In response to U.S. President Trump’s withdrawal of his waiver relating to the Iran Nuclear Deal, the European Commission started the process of invoking its Blocking Regulation (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31996R2271:EN:HTML).

Response to the U.S. Iran Nuclear Deal Withdrawal

The U.S. withdrawal meant that U.S. sanctions in force prior to the Iran Nuclear Deal would be reinstated. Such reinstated sanctions can extend to foreign subsidiaries of U.S. companies as well as to non-U.S. persons through “secondary sanctions”.  Any person (even foreign persons acting wholly outside U.S. jurisdiction) can be subject to secondary sanctions.  This can happen if they engage in certain transactions, as defined by the relevant US laws and regulations.  These “sanctionable transactions” include dealings with specially designated nationals [SDNs] (even those initially removed in January 2016).  Designation of SDNs tends to target parties involved in Iranian malign activity including Iran’s nuclear program, Iran’s support for terrorism, ballistic missile program, human rights abuses, and destabilizing activity in the region.

Main Elements of the Blocking Regulation

The Blocking Regulation has four main elements.

1) it requires any EU person to notify the EC of any effects of the blocked measure (i.e., U.S. sanction) covered in the Annex;

2) it voids the effect of foreign judgements based on such sanctions in EU courts;

3) it prohibits EU persons from complying with U.S. extraterritorial sanctions against Iran (though there are instances where EU persons may be authorized to comply fully or partially when they can demonstrate serious damage to their interests); and

4) it permits EU companies to collect damages plus legal costs resulting from such sanctions.

Practical Impact of the Blocking Regulation

The practical impact of the Blocking Regulation will be to place EU business in the untenable position of having to decide whether to conduct business in Iran versus in the United States.   While there have been comments that international business will now attempt to wean itself off of the U.S. dollar reserve currency, the US financial system still remains very important to EU businesses.   Most will not risk being bared from the U.S. financial system.