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The EU responds: Can the EU Blocking Regulation protect EU-Iran business from renewed US sanctions?

On 18 May 2018, the European Commission announced a series of measures aimed at protecting the Iran-related business interests of European companies and individuals. The EU measures are in response to the announced US withdrawal from the Joint Comprehensive Plan of Action (JCPOA), commonly referred to as the ‘Iran Deal,’ that is expected to result in the re-imposition of the US secondary sanctions targeting certain Iran-related activities, including those of European companies and individuals, where there is no nexus to the United States. Our client briefing on the US withdrawal from the Iran Deal can be found here.

In its announcement, the European Commission stated that it is committed to mitigating the impact of re-imposed US secondary sanctions by re-activating EU Council Regulation (EC) No. 2271/1996, the so-called ‘EU Blocking Regulation,’ in relation to Iran. The European Commission is also proposing and considering further measures to make it easier for EU businesses to obtain financing for their Iran-related business and to process Iran-related money transfers.

What is the EU Blocking Regulation?

The EU Blocking Regulation has been in place since 22 November 1996 and is a reaction to the US embargo of Cuba, as well as certain US sanctions targeting Iran and Libya. Under the EU Blocking Regulation, EU persons are generally prohibited from complying with ‘any requirement or prohibition’ of a non-EU sanctions law listed in the Annex to the Regulation. As such, it is expected that the relevant US laws that impose secondary sanctions on Iran will be added to the Annex.

When will the EU Blocking Regulation be re-activated in relation to Iran?

On 18 May 2018, the European Commission launched a formal process to update the EU Blocking Regulation’s Annex to include certain US secondary sanctions on Iran. Subject to agreement among the European Council and the European Parliament, the expectation is that the EU blocking measures will be in force before 6 August 2018, when a first set of US secondary sanctions are slated to be re-imposed. The EU blocking measures might be in force sooner if there are no objections from either European body. The exact details of the amended Blocking Regulation, however, are still unclear.

Who is covered by the EU Blocking Regulation? What does the EU Blocking Regulation require?

The current version of the EU Blocking Regulation applies to all EU persons, including all (i) EU-incorporated companies; (ii) EU residents/nationals; and (iii) non-EU nationals resident in the EU in respect of their acts in a professional capacity.

The Blocking Regulation is designed to protect against and counteract the effects of the extra-territorial application of the relevant non-EU sanctions. Among other things, the Blocking Regulation prohibits subject EU persons from complying, ‘whether directly or through a subsidiary or other intermediary person,’ with any requirement or prohibition of the sanctions laws that are enumerated in the Annex. The EU Blocking Regulation is presumably intentionally worded broad and would also appear to include active compliance or compliance by ‘deliberate omission’ with the US sanctions requirements or prohibitions. The EU may in due course publish guidance or FAQs to clarify how it interprets the application of the EU Blocking Regulation to the US secondary sanctions on Iran.

Depending on how broadly or narrowly the Blocking Regulation is interpreted by the Commission and the Member States’ enforcement authorities, the range of restricted behaviour may potentially include the termination of Iran-related agreements; decisions to cease conducting Iran-related business; or even discontinuation of negotiations with Iranian counterparties.

These provisions, however, do not appear to be designed to require or compel EU companies to do business in Iran. It also remains to be seen whether the Blocking Regulation will provide enough assurance or certainty to EU companies such that they will decide to continue or enter into new Iran-related business. EU companies may still choose not to do business in Iran for various commercial reasons, so long as the decision is not undertaken in order to comply with the US sanctions on Iran enumerated in the EU Blocking Regulation.

Additionally, any judgments, awards or decisions of administrative authorities located outside the EU that give effect, directly or indirectly, to the relevant US sanctions on Iran would not be recognised or enforceable in the EU against EU persons.

As the EU Blocking Regulation is currently drafted, EU persons would also have an obligation to notify the EU authorities (either the European Commission or the relevant national authority) within 30 days of their economic or financial interests being affected, directly or indirectly, by the relevant US sanctions.

Can EU companies obtain a license or authorisation to comply with US sanctions targeted by the EU Blocking Regulation?

Yes. A complex procedure exists for an EU person to apply to the European Commission for authorisation to comply with the US sanctions targeted by the EU Blocking Regulation. The applicant would need to provide evidence that non-compliance with such US sanctions would cause serious damage to a person’s interests or the interests of the EU. The procedure is not straightforward and has a political element because it involves consultation with representatives of all EU Member States and any decision to grant an authorisation must be approved by the EU’s Council of Ministers.

What is the enforcement risk for breaching the EU Blocking Regulation?

An EU person who complies with US sanctions in breach of the Regulation may face two potential consequence:

  1. Penalty under the law of the relevant EU Member State, which may include ‘effective, proportional and dissuasive’ criminal/civil liability, fines or other consequences. For example, in the UK it is a criminal offence to breach the EU Blocking Regulation, carrying a penalty of an unlimited fine.
  2. Any person who suffers losses as a result of the EU person’s compliance with US sanctions in breach of the Regulation is entitled to claim damages against the EU person.

Historically, there have been few reported instances of an EU member state bringing an enforcement action based on a failure to comply with the EU Blocking Regulation.

What other EU measures are being taken to mitigate the negative effects on EU companies of the US withdrawal from the Iran Deal?

In addition to the EU Blocking Regulation, the European Commission has indicated that it will take steps to make it easier for EU companies to fund their Iran-related activities and to transfer funds to and from Iran. In particular, the European Commission has stated that it:

  • has launched a formal process to remove obstacles to the European Investment Bank (EIB) to finance activities outside the EU, such as in Iran, in order to help facilitate EIB support of EU investments in Iran;
  • will continue and seek to strengthen ongoing sectoral cooperation with, and assistance to, Iran, including in the energy sector and with regard to small and medium-sized companies; and
  • is encouraging EU Member States to explore the possibility of one-time bank transfers to the Central Bank of Iran.

What can EU companies do?

An EU company with conflicting obligations under the existing EU Blocking Regulation and US secondary sanctions risks might essentially have three options:

  • seek authorisation from the EU authorities to take steps to avoid US secondary sanction risks;
  • seek authorisation from the US authorities to conduct activities that would otherwise be targeted by US secondary sanctions; or
  • assess the risks of US secondary sanctions against the risks of the EU Blocking Regulation, which may provide certain protections in the EU but not in the United States.

An EU company should also consider the reputational harm that could potentially result from any chosen course of action.

How has the US reacted?

The United States does not appear at this stage to have publicly, formally responded to the EU Blocking Regulation. US government officials, including recently-appointed US Secretary of State Mike Pompeo, have nevertheless continued to express a hardline view on Iran and have called on European allies to support the US efforts to apply pressure on Iran. It is not clear at this time whether the EU Blocking Regulation will have any impact on the United States’ planned re-imposition of secondary sanctions on Iran.

What US secondary sanctions penalties could be imposed on EU companies that decide to ignore the re-imposition of US secondary sanctions?

Once the United States re-imposes a particular secondary sanction related to Iran, the US government will be authorized to impose a variety of sanctions penalties, up to and including being added to the List of Specially Designated Nationals and Blocked Persons (SDN list), on any EU or other non-US person who is (i) determined to have knowingly facilitated certain significant transactions for or on behalf of, or otherwise provided material support to, Iranians on the SDN list; or (ii) determined to be conducting certain activities that are targeted by US secondary sanctions. US secondary sanctions penalties typically result in restrictions on dealings related to the United States, including exclusion from the US financial system or the loss of US correspondent banking account rights, but generally do not include fines or monetary penalties.


For EU companies that have been conducting, or were considering, Iran-related business under the JCPOA’s sanctions relief, the announcement that the EU intends to apply the EU Blocking Regulation to re-imposed US secondary sanctions adds an additional layer of complexity, with potentially conflicting EU blocking and US sanctions compliance obligations. Now would be a good time for such companies to review their Iran-related business strategy and assess the legal and practical aspects of maintaining or terminating Iran-related business activities.

Our Global Sanctions and Trade team will continue to monitor sanctions on Iran and will provide additional updates on any significant further developments.

Please contact any member of our Global Sanctions and Trade team if you have any questions or would like to discuss any of these points.