European Union’s blocking statute in support of the Iran Nuclear Deal – An Update

Written by Parastu Aghai


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On Wednesday, 12 May 2021 the European Union’s highest court clarified the regulation blocking US sanctions.

A. Introduction
The legal adviser to the European Union’s court said that a German company was wrong to terminate its contract with an Iranian bank if its only justification was concern about becoming entangled in U.S. sanctions on Iran. Hogan’s opinion statement also said Iranian companies should be able to invoke EU law blocking so-called U.S. secondary sanctions before the courts of EU states. The court adviser said the blocking statute should still oblige EU companies to explain to an Iranian company under U.S. sanctions why they are ending commercial relationships. “If it were otherwise, an entity could quietly decide to give effect to the U.S. sanctions legislation and … the major policy objectives of the EU blocking statute would be compromised and set at naught, as seems to have happened here,” Hogan said of the Telekom Deutschland case.

B. Background
Telekom Deutschland had previously entered into a framework agreement with the German branch of Bank Melli Iran and issued corresponding purchase orders to provide the bank’s internal and external communication structures in Germany. 

After its withdrawal from the Joint Comprehensive Plan of Action (JCPOA), also known as the ‘Iran nuclear deal’, the United States announced that it would be re-imposing sanctions on Iran as from 7 August 2018. Following this announcement, Telekom Deutschland notified Bank Melli and terminated all existing contracts. The reason for termination was the bank’s designation as a SDN and the cutoff from the SWIFT financial messaging system. 

Telekom Deutschland’s concern was to be added to the SDN list because upon withdrawal from the JCPOA, OFAC was authorized to block the assets of any person or entity who on or after the 5th of November 2018 has materially assisted, sponsored or provided financial, material, or technological support, or goods or services to any designated Iranian person / entity. 

Bank Melli Iran sought relief before a German court of first instance by requesting the court to order that Telekom Deutschland shall be bound by its contractually agreed obligations and continue providing the services.

The Regional Court of Hamburg ordered Telekom Deutschland to perform the existing contracts, but only until the end of the notice period provided in the contracts for ordinary termination. The court held, in particular, that the ordinary termination of the disputed agreement by Telekom Deutschland after the notice period was observed was effective and did not infringe Article 5 of the EU Blocking Statute.

In response, Bank Melli lodged an appeal against the judgment, arguing that the notice of ordinary termination given by Telekom Deutschland infringed the EU Blocking Statute and was therefore ineffective.

The Hanseatic Higher Regional Court, had to decide:

  1. whether the Telekom Deutschland was entitled to terminate the contract and
  2. whether such termination infringes the EU Blocking Statute.

On March 5, 2020, the Hanseatic Higher Regional court lodged a request for a preliminary ruling before the European Court of Justice and referred four questions to the European Court of Justice relating to the interpretation of the first paragraph of Article 5 of Regulation (EC) 2271/96 (the “EU Blocking Statute”).

C. The EU Blocking Statue
A EU blocking statute was originally enacted in 1996 to “counteract” the sanctions imposed by the United States against Cuba, Iran and Libya.

The purpose of the EU Blocking Statue is to protect EU operators from the extra-territorial application of third country laws. The European Union does not recognise the extra-territorial application of laws adopted by third countries and considers such effects to be contrary to international law.

The EU Blocking Statute prohibits any EU person or entity from complying with certain of the re-imposed U.S. extraterritorial sanctions. The Blocking Regulation also provides protection to

EU persons and entities by containing:

  • an assurance that any U.S. court judgment or administrative determination against an EU person or entity giving effect to the U.S. sanctions listed in its annex will not be enforced in an EU court; and
  • a right for any EU person or entity suffering damage as a result of a person complying with the listed U.S. sanctions to recover those damages from that person.

As a result of the US’s withdrawal from the JCPOA, the EU Commission in response updated the EU Blocking Statute in order to include in its annex the re-imposed extra territorial U.S. sanctions, thereby mitigating the impact of these sanctions on EU operators doing legitimate business in and with Iran.

D. Conclusion
The EU Blocking Statute itself however does not impose any penalties for the breach of its requirements. Nonetheless, pursuant to its provisions, EU Member States are under an obligation to impose sanctions which are “effective, proportional and dissuasive” where a breach arises. That said, it is widely understood that the EU Blocking Statute has not been heavily enforced to date. No jurisprudence is believed to exist at the EU level, and only one enforcement action is heavily reported, being an Austrian case, which dates to 2007. Organizations being exposed to the US sanction regime and at the same time subject to the EU Blocking Statute are well advised to evaluate periodically proactively their transactions and business operations in view of the changing legal and regulatory requirements with regard to trade with Iran in order to mitigate and prevent any sanction violation risk.

E. How can we be of help?
Our team of international legal and risk advisors specialized in sanction compliance, embargoes and export control have profound expertise in advising clients on legal requirements and risks associated with foreign trade and are well placed to help clients to questions or concerns related to export control and foreign trade. Please get in contact with us.

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