Trade with Iran - Update of the EU Blocking Regulation

As a consequence of the US withdrawal and extra-territorial application of the re-instated US sanctions for EU companies when engaging in trade with Iran, the European Union ('EU') announced countermeasures in order to safeguard the interests of EU companies investing in and trading with Iran as part of the EU's continued commitment to the JCPOA. One of the EU countermeasures involves the update of the so-called EU Blocking Regulation which is to act as a protective shield for EU companies against the extra-territorial effects of US sanctions against Iran.

The EU Blocking Regulation

The EU Blocking Regulation is directly applicable in all EU Member States and obliges EU companies:

• to inform the European Commission ('Commission') if they are affected by US sanctions mentioned in its Annex;
• to refrain from complying "whether directly or through a subsidiary or other intermediary person, actively or by deliberate omission", with any requirement or prohibition based on or resulting from the US sanctions mentioned in its Annex.

In specific cases where non-compliance regarding US sanctions would seriously damage the interests of the EU company, the prohibition to comply with US sanctions can be waived upon Commission's approval. Further, the EU Blocking Regulation provides for the non-enforceability of decisions of US (judicial) authorities in the EU as well as for entitlement to recovery of any damages (including legal costs) caused to the EU company resulting from the listed US sanctions.

It is up to each EU Member State to enforce the EU Blocking Regulation in practice and specify the penalties for breaching its terms in national legislation. In certain EU Member States such as the Netherlands, any non-compliance with the EU Blocking Regulation is considered a criminal offence.

Update of the EU Blocking Regulation

Amendment of the Annex

The proposal for updating the EU Blocking Regulation – as set in the delegated act of 6 June 2018 adopted by the European Commission ('Commission') – consists of amending the Annex to the EU Blocking Regulation which covers US sanctions having extra-territorial application and effects for EU companies in view of their trade with Iran.

Both the European Parliament and the Council of the European Union ('Council') - whose involvement as legislative bodies is necessary to get the update of the EU Blocking Regulation passed into EU law - have been notified by the Commission on 6 June 2018 with regard to the proposed update in the delegated act. The European Parliament and the Council have a period of two months to object or give notice of no objection to the delegated act. Provided that no objections are made by either the European Parliament or the Council:

• the updated EU Blocking Regulation is to enter into force on 6 August 2018; or
• any time sooner where both the European Parliament and the Council actually signal their non-objection to the Commission.

Early this June, the European Parliament published a briefing on the US sanctions, the EU Blocking Regulation, mitigating effects as well as the latest on the SWIFT's services facilitating cross-border payments related to Iran. Furthermore, on 21 June 2018, the delegated act has been discussed and debated by the Committee on International Trade (INTA), being the European Parliament's responsible committee for this file.

So far, no objections by either INTA or the Council have been disclosed. The Commission is hoping that the update of the EU Blocking Regulation will be passed before the entry into force of the first set of re-instated US sanctions on 6 August 2018.

Coverage of the amended Annex

The proposed update of the Annex of the EU Blocking Regulation covers the following US sanctions having extra-territorial application with regard to Iran:

• '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'

The updated Annex refers only to certain main (summarised) provisions of the listed US sanctions on Iran whereby EU companies are advised to self-consult the listed US sanctions for a full overview of all their provisions.

Pending 'general update' since 2015

On a separate note, the EU Blocking Regulation was already subject to a general update which has been pending since 2015 when the European Commission submitted a proposal to recast the EU Blocking Regulation in the interests of:

1. creating clarity and transparency considering that the EU Blocking Regulation has been substantially amended several times since its entry into force in 1996; and
2. empowering the Commission to adopt delegated acts for the purpose of amending the Annex I of the EU Blocking Regulation as well as for establishing criteria for the authorisation of EU companies to comply fully or partially with any extra-territorial requirement or prohibition, including requests of foreign courts, in cases where non-compliance would seriously damage their interests or those of the Union.

At this stage, the general update of the EU Blocking Regulation is still in procedure awaiting a decision of INTA.

Companies dealing with Iran

Begin of June, ministers of EU Member States and the EU High Representative have requested the US secretaries of State and of the Treasury for certain exemptions from US sanctions for EU companies that initiated or concluded their contracts within the JCPOA framework. It remains to be seen whether and to what extent these requests will be taken into account.

Concerned EU companies having Iran-related operations should assess their exposure to the re-instated US sanctions on Iran as well as the updated EU Blocking Regulation and - more so - how these might affect their overall global markets business strategy.