Blocking statutes. A subject that is closely related to the extraterritoriality of sanctions: The so-called blocking statutes. A blocking statute is a law enacted by one jurisdiction to prevent the application of a law enacted by another jurisdiction. In 1996, the European Union proposed a blocking statute to overturn a US trade embargo on Cuba as well as sanctions against Iran and Libya that affected countries trading with the US and the named countries. Because the disagreements were resolved through other means, the 1996 statute was not enacted.
A blocking statute protects companies in its jurisdiction from sanctions by prohibiting them from complying with them and refusing to recognize foreign court rulings that enforce them.
In 1996, largely as a countermeasure to the US extraterritorial sanctions against Cuba and Iran, the EU passed legislation to address the US application of extraterritoriality. This is referred to as the “blocking regulation.” It can be found in Regulation number 2271/96. These regulations essentially ban Member States from complying or assisting the US in enforcing the restrictions imposed under these sanctions. Up until May 2018, the legislation was largely ignored.
However, on May 8, 2018, US President Donald J. Trump announced his decision to cease US participation in the Joint Comprehensive Plan of Action (JCPOA), or Iran nuclear deal, and to begin re-imposing the US nuclear-related sanctions that had been lifted as part of that agreement. In response, the European Commission launched the process to activate the EU blocking regulation by updating the list of US sanctions on Iran falling within its scope.
Once the re-imposed US sanctions were added, the blocking regulation required companies incorporated in the EU Member States to notify the European Commission within 30 days whenever the renewed US sanctions directly or indirectly affect their economic or financial interests; to not comply with the extraterritorial effects of these listed US sanctions, and to not enforce, within in the EU, any foreign court judgments or decisions of administrative bodies, such as OFAC, based on the reinstated US sanctions.
Article 5 Of The Blocking Regulation
Article 5 of the Blocking Regulation does provide a mechanism for EU companies to ask the European Commission for an exemption to the regulation “if they can demonstrate that compliance with the regulation would ‘seriously damage their interests’ or the interests of the EU.”
Additionally, the EU blocking regulation allows Member States of the EU to impose sanctions when there is a breach of the EU’s blocking regulation. Finally, the EU blocking regulation allows the EU person impacted by extraterritorial sanctions to recover damages for losses resulting from “the application of extraterritorial sanctions or actions based thereon or resulting therefrom.”
Historically, blocking regulations have not been enforced by the EU; however, other countries, such as Canada, have similar blocking regulations, and they take enforcement a bit more seriously.
Blocking Regulation In The EU
The blocking regulation in the EU has not been enforced because the US has stated that it is willing to impose secondary sanctions on those entities violating US sanctions, even if the sanctions being violated are extraterritorial. Within this context, the EU blocking regulation is only applicable to the extent that an EU entity makes its decision not to do business with a unilaterally US–sanctioned entity “based on or resulting” from US sanctions.
This requirement allows entities to base their decisions on various other reasons, such as human rights issues. Despite the EU blocking regulation, numerous EU companies have withdrawn their business from Iran to avoid the United States’ secondary sanctions. The Belgian-based SWIFT, which facilitates messaging and financial transactions across the world with more than 11,000 financial institutions, withdrew from Iran to continue supporting the global financial system without interruption. Other EU companies have likewise withdrawn with no indications of the fines or penalties having been levied.
European Union Blocking Statute
In 1996, the EU passed a blocking statute to “counteract” US sanctions against Cuba, Iran, and Libya.
Following the US withdrawal from an agreement that allowed trade if Iran curtailed its nuclear program, the European Commission announced on 17 May 2018 its intention to use the 1996 blocking statute to declare US sanctions against Iran null and void in Europe and prohibit European citizens and companies from complying with them. The European Commission also directed the European Investment Bank to make it easier for European businesses to invest in Iran.
The EU updated its blocking statute on August 7, 2018. The process of updating the EU blocking statute began on June 6, 2018, when the US re-imposed extraterritorial sanctions on Iran. The European Commission stated:
…In accordance with EU law and UN Security Council Resolution 2231, we are determined to protect European economic operators doing legitimate business with Iran… This is why, on August 7, the European Union’s updated Blocking Statute will take effect, protecting EU companies doing legitimate business with Iran from the effects of US extraterritorial sanctions.
The 2018 blocking statute essentially prohibits EU companies from complying with the laws listed in the US sanctions annex “directly” or “indirectly” (via subsidiaries or intermediary persons). It also does not recognize any court decisions enforcing US penalties. Through a special-purpose vehicle set up for this purpose, a to-be-established clearing house will facilitate trade with Iran by European companies, circumventing US sanctions.
The blocking statute is seen by European governments as “more of a political weapon than a regulation,” because the rules are “vague and difficult to enforce,” according to the report. The imposition of the blocking statute, according to a senior US administration official, is not “particularly concerning.”
The blocking statute is a significant achievement of unified EU action to protect EU operators, whether individuals or businesses, from extraterritoriality of third-country laws. The blocking statute of the European Union (Council Regulation (EC) No 2271/96) protects EU businesses from extraterritorial application of third-country laws. The European Union does not recognize the extraterritorial application of third-country laws and considers such effects to be illegal under international law.