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Lindsay Columbo: U.S.-EU dispute over Iran sanctions traps companies in legal abyss

The White House announced on May 8 that the United States would pull out of the Joint Comprehensive Plan of Action (JCPOA) and reinstate sanctions on Iran to address that country’s nuclear program.

The JCPOA was implemented in 2015 among the European Union (EU), the five permanent members of the United Nations Security Council, and Iran. 

Following the White House announcement, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) said the re-imposed sanctions would be subject to wind-down periods that will expire on August 6 and November 4 of this year.

The EU responded on May 17. European Commission President Jean-Claude Juncker said the EU would “stick to the [JCPOA].”

The next day, the EU announced it would revise its Blocking Statute to legally prohibit most EU persons and companies from complying with the re-instated U.S. sanctions against Iran.

The EU adopted the Blocking Statute in 1996 to protect “against the effects of the extra-territorial application of legislation adopted by a third country.” The Blocking Statute purports to prevent the application of laws of foreign jurisdictions on the EU and renders unenforceable foreign court judgments against EU people and companies for violations of third-party (i.e., U.S.) trade sanctions.

The EU Blocking Statute mentions three U.S. sanctions that were in effect in 1996: the Cuban Liberty and Democratic Solidarity Act of 1996, the Iran and Libyan Sanctions Act of 1996, and  the Cuban Assets Controls Regulations.

In its May 18 announcement, the EU said it would revise the Blocking Statute to include re-instated U.S. sanctions directed against Iran.

The original 1996 dispute that led the EU to enact the Blocking Statute was settled through political means, and no country has ever assessed a penalty under the Blocking Statute.

If the EU now revises the Blocking Statute, EU member states would need to amend or interpret their domestic laws to enable them to enforce penalties against violators (that is, persons or companies that complied with U.S. sanctions against Iran).

In light of the U.S.-EU dispute over the JCPOA, do businesses in the EU and elsewhere have a path forward to continue doing business in or with Iran?

There’s no clear answer, and that uncertainty has already been felt. French giants Total and Peugeot have said they will end operations in Iran unless they can obtain U.S. sanctions waivers.

Global banks are also unlikely to continue doing business with Iran if the risk includes a potential ban from the U.S. financial system.

The EU has tried to remove obstacles for EU companies by announcing Euros-only trade finance plans, thereby avoiding the U.S. financial system and the jurisdictional reach of the U.S. sanctions.

Still, uncertainty persists, and the impact of that uncertainty is likely to be widespread. For example, more than 10,000 German companies are now trading with Iran. Overall, European investment in Iran since 2016 has grown to more than €20 billion.

Companies and individuals in the EU that began doing business with Iran in reliance on the JCPOA now face a nearly impossible dilemma. Violating U.S. sanctions could expose them to billions of dollars in penalties, loss of U.S. export privileges, and blocked access to the U.S. financial system. On the other hand, a resuscitated EU Blocking Statute could criminalize any decision to comply with U.S. sanctions and stop doing business with Iran.

At this point, the best outcome the business community can hope for is another political accommodation between the United States and the EU that either preserves the JCPOA or replaces it with another approach that brings back legal certainty.

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Lindsay Columbo, Esq. is a founder of eSpear LLC, a developer of due diligence and screening solutions, where she serves as the Global VP of Compliance & Support Services. She previously served as Associate Corporate Counsel, Global Ethics & Compliance for Brightstar Corp. a SoftBank company headquartered in Miami, Florida. She can be contacted here.

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