I. Introduction
On the 8th of May, President Trump announced that the United States was abandoning the Joint Comprehensive Plan of Action (JCPOA), signed in 2015 between the P5+1 countries and Iran which had heralded the suspension of many of the sanctions that had been imposed on Iran as a result of their nuclear programme and ballistic missiles.
This decision by the US Administration has the worrying consequence, among others, of reintroducing a multitude of Secondary Sanctions, that is, those which affect non-US Persons – a physical or legal entity that does not have American nationality or any link with the United States. For example, the Secondary Sanctions can affect Spanish businessmen with factories in Spain who invest in, or trade with, certain companies in Iran.
While the US complied with the JCPOA, the Secondary Sanctions focussed fundamentally on two important aspects: not allowing the use of the US financial system in transactions with Iran and not being able to export products or technologies to Iran where the product incorporates American components that exceed 10% of the total value.
However, the situation has worsened substantially since Trump´s announcement on the 8th May. 90 days after the 8th of May, on the 7th August 2018, secondary sanctions were introduced relating to A) the acquisition of dollars by the Iranian Government; B) the sale of gold or precious metals with Iran; C) the provision or supply, directly or indirectly to Iran, of graphite, raw or semi-finished metals such as aluminium and steel, coal and software for integrating industrial processes; D) significant transactions related to the sale or purchase of Iranian-rials or the maintenance of significant funds or accounts of rials outside of Iran; E) the purchase, subscription or facilitation of the issuance of Iranian sovereign debt; F) the Iranian automotive sector.
180 days after the 8th of May, on the 4th of November 2018, secondary sanctions will be reintroduced that relate to A) Iran´s port operations, shipping and shipbuilding sectors; B) Petroleum-related transactions with the main Iranian oil companies, including the purchase of petroleum, petroleum products or petrochemical products from Iran; C) Transactions by foreign financial institutions with Iran´s Central Bank and other designated Iranian financial institutions; D) the provision of specialised financial messaging services to Iran´s Central Bank and other designated Iranian financial institutions; E) the provision of insurance and reinsurance services for transactions with Iran; F) sanctions on Iran´s energy sector.
Furthermore, no later than the 5th of November 2018, sanctions will be reintroduced to certain natural and legal persons included in the List of Specially Designated Nationals and Blocked Persons (SDN List) and in other lists published by the US authorities on the 16th January 2016. From the moment of reintroduction, the execution of transactions with these natural or legal persons may involve the imposition of sanctions.
All these secondary sanctions, which can affect any company even if they have no relationship with the United States, must be taken into account by any company, Spanish or otherwise, as they pose a serious problem when it comes to operating with Iran.
II. The EU Blocking Statute
- Definition and legal instruments
The blocking statute, also sometimes referred to as an antidote norm, is intended to counteract or limit the extraterritorial effects – deemed illegal by the international community – of sanctions imposed by other states and thus protect EU companies or investment operations in relation to the States subject to sanctions.
The European blocking statute is mainly contained in Regulation (EC) 2271/96, of the 22nd of November 1996, which was issued to deal with the extraterritorial effects of legislation adopted by other countries and the actions based on and derived from it[1]. It has recently been updated and clarified in Delegated Regulation (EU) 2018/1100, published on the 6th June 2018 which protects against the effects of extraterritorial application of legislation adopted by another country and the actions based on and derived from it[2] and Implementing Regulation (EC) 2018/1101 of the 3rd of August 2018, which establishes the criteria for the application of the second paragraph of Article 5 of Regulation (EC) 2271/96[3].
- Contents of the blocking statute
The blocking statute operates against the extraterritorial legislation of a third State listed in its annex. In 1996 it included American sanctions against Cuba, Iran and Libya; until now it applied provisions concerning Cuba and Iran. Published in the OJEU on the 7th of August, the reform also included the subsequent US legislation regarding Iran.
It applies to, and therefore protects, what the Commission calls “EU operators”, which are: A) any natural person being a resident in the Union and a national of a Member State; B) any legal person incorporated within the Union; C) any national of a Member State established outside the Union and any shipping company established outside the Union and controlled by nationals of a Member State, if their vessels are registered in that Member State in accordance with its legislation; D) any other natural person being a resident in the Union, unless that person is in the country of which he is a national; E) any other natural person within the Union, including its territorial waters and air space and in any aircraft or on any vessel under the jurisdiction or control of a Member State, acting in a professional capacity (Article 11). Furthermore, it extends to EU operators which are subsidiaries of US companies where they are incorporated in accordance with the legislation of a Member State and have their registered office, central administration or principal place of business in the EU.
The fundamental mandate of the blocking statute is that EU operators must not respect or comply in any way – directly or indirectly, through a subsidiary or intermediary, or by deliberate action or omission – with the extraterritorial legislation set out in the Annex (Article 5, first paragraph). However, EU operators may request an authorisation from the Commission to comply with such legislation if their failure to do so could cause serious harm to their interests or to those of the EU itself (Article 5, second paragraph).
The protection of EU operators is fundamentally articulated through two mechanisms. The first consists of cancelling the effects of any kind of decision (such as judicial, administrative, arbitral award, etc.) issued by authorities located outside the EU on the basis of extraterritorial legislation, i.e. such decisions will not have any effect on the territory of the EU, and in such a way that they will not be recognised and cannot be fulfilled in any way (Article 4).
The second mechanism of protection is that EU operators will have the right to compensation for any damages, including procedural costs, caused by the application of the rules listed in the Annex of the Regulation or actions based on them or derived from them. Therefore, they may claim economic compensation of all kinds from legal persons or entities causing the damages, for example, they may sue a US company that hasn’t fulfilled a contract due to the application of extraterritorial sanctions.
Compensation will be demanded before jurisdictional bodies: the international judicial competence of said bodies will be determined in accordance with Regulation (EU) 1215/2012, 12th of December, on the jurisdiction, recognition and enforcement of judicial decisions in civil and commercial matters[4].
Regulation (EC) 2271/96 also regulates the procedures that EU operators must follow when their economic or financial interests are affected by the laws listed in its annex.
- Main updates introduced by the recently enacted provision
Delegated Regulation (EU) 2018/1100 reforms the Annex of Regulation (EC) 2271/96 by adding the US sanctions that have extraterritorial effect relating to Iran introduced after 1996. Specifically, it introduces: A) Iran Sanctions Act of 1996 in its updated version; B) Iran Freedom and Counter-Proliferation Act of 2012; C) National Defense Authorisation Act for Fiscal Year 2012; D) Iran Threat Reduction and Syria Human Rights Act of 2012 and E) Iran Transactions and Sanction Regulations.
For its part, the Implementation Regulation (EU) 2018/1101 performs a very important function of indicating the criteria for the application of the second paragraph of Article 5 of Regulation (EC) 2271/96. As previously mentioned, based on this Article, European operators can ask the Commission for authorisation to comply with US extraterritorial legislation when their failure to do so could cause them serious harm. The recent Regulation, in addition to procedural aspects, regulates in detail, the evaluation of applications and enumerates, in an open manner, the criteria that the Commission must consider in order to grant or deny the compliance application.
Implementation Regulation (EU) 2018/1101 lists a total of 14 criteria, but it is not a closed list, and, in any case, the Commission has great freedom as the last criterion is: “n) any other relevant factor”.
Among the criteria that are stated, we believe that the following should be highlighted: “(c) the existence of a substantial link with the third country from which the extraterritorial legislation is enumerated or the subsequent actions emanate; for example, the fact that the applicant has either parent or subsidiary companies, or participation of legal persons, subject to the primary jurisdiction of the third country from which the extraterritorial legislation or subsequent actions emanate”; (b) the existence of a current administrative or judicial investigation against the applicant by the third country from which the above-mentioned extraterritorial legislation emanates, or of a prior resolution agreement with said country”; (d) if the applicant could reasonably take measures to avoid or mitigate the damage”, etc.
- Application of the blocking statute by member states of the EU. Legislative consequences.
The authorities of EU member states are responsible for applying the blocking statute; they are also responsible for dictating the laws in their respective national ordinances, containing sanctions for infringements of the statute, and of applying the said sanctions. As we are dealing with national laws, their content and consequences may be marginally different in each of the 28 European States. To this effect, Spain established Law 27/1998 on the 13th of July 2998. This law has become obsolete and it is reasonable to suppose it will now be the object of a significant update, particularly the quantities of the fines it imposes.
III. Final Considerations
We do not wish to conclude without pointing out some relevant considerations. The first of these being that the rules promulgated on the 7th of August are a clear manifestation of the attitude of European authorities with respect to safeguarding the 2015 Joint Comprehensive Plan of Action (JCPOA), since they believe Iran has fulfilled their JCPOA obligations and that there is therefore no reason to reintroduce sanctions. They also highlight that said authorities deem the secondary sanctions inadmissible, as they are in conflict with International Law. Secondly, it is important to emphasise that the current position of the EU may prompt the United States to negotiate with Europe or mitigate their secondary sanctions; we must remember the events of 1998 that led to the US and the EU agreeing on a Memorandum of Understanding, whereby the US suspended certain aspects of the extraterritorial sanctions on Cuba in exchange for the EU establishing certain political positions in relation to the island. Finally, we must take into account that the blocking statute protects the operatives of the EU within its territories, but not outside them.
[1] OJEU L 309, of the 29th of November 1996, p. 1.
[2] OJEU L 199, of the 7th of August 2018, p. 1.
[3] OJEU L 199, of the 7th of August 2018, p. 17.
[4] OJEU L 351, of the 20th of December 2012, p.1.
