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Legal Commentary on U.S. Iran Sanctions and the EU’s Blocking Statute

Summary:
Laurent Ruessmann and Jochen Beck, FieldFisher, 17 July 2018, International firms caught between US Iran sanctions and EU blocking statute. Several authors, Gibson, Dunn & Crutcher LLP, 9 August 2018, The “New” Iran E.O. and the “New” EU Blocking Sanctions—Navigating the Divide for International Business. The “primary sanctions” that limit U.S. companies and persons from engaging with Iran have on the whole never been lifted. The principal sanctions relief provided by the United States [until 2018] have been of “secondary sanctions” that focus on non-U.S. companies’ transactions with Iran. These measures are designed to force non-U.S. firms to choose to either engage with Iran or the United States. … All of the sanctions and [the EU’s] counter-sanctions are in large part discretionary.

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Laurent Ruessmann and Jochen Beck, FieldFisher, 17 July 2018, International firms caught between US Iran sanctions and EU blocking statute.

Several authors, Gibson, Dunn & Crutcher LLP, 9 August 2018, The “New” Iran E.O. and the “New” EU Blocking Sanctions—Navigating the Divide for International Business.

The “primary sanctions” that limit U.S. companies and persons from engaging with Iran have on the whole never been lifted. The principal sanctions relief provided by the United States [until 2018] have been of “secondary sanctions” that focus on non-U.S. companies’ transactions with Iran. These measures are designed to force non-U.S. firms to choose to either engage with Iran or the United States. …

All of the sanctions and [the EU’s] counter-sanctions are in large part discretionary. …

… the Blocking Statute allows EU operators to recover damages arising from the application of the extraterritorial measures. Though it is unclear how this would work in practice, it appears to allow an EU operator to exercise a private right of action and to be indemnified by companies that do comply with the U.S. laws if in so doing those companies injure the EU operator. …

The United Kingdom has in place a law … which broadly makes compliance with Blocked U.S. Sanctions a criminal offence. … other Member States have also opted for the creation of criminal offences, including Ireland, the Netherlands and Sweden. Other Member States, including Germany, Italy and Spain, have devised administrative penalties for non-compliance. Meanwhile some Member States, including France, Belgium and Luxembourg, do not appear ever to have even implemented the EU General Blocking Regulation …

… element of flexibility in the Blocking Statute is that EU operators will not be forced to continue business with Iran. Rather, the Guidance notes that EU operators are still free to conduct their business as they see fit …

Several authors, Dechert LLP, August 2018, Iran Sanctions—U.S. Reimposes Sanctions After JCPOA Withdrawal, First Measures Come Into Effect.

The practical effect of these developments is to return the U.S. secondary sanctions regime to the status quo pre-JCPOA. However, the New Iran E.O. does expand upon the U.S. primary sanctions regime in one critical respect: U.S. owned or controlled foreign entities … Until now, OFAC’s sanctions have not prohibited a foreign subsidiary from dealing with a non-Iranian SDN. Although many such transactions would likely have subjected U.S. owned and controlled foreign entities to potential secondary sanctions pre-JCPOA (on the basis that they were providing material support to an SDN), they may now result in civil or criminal liability under U.S. law.

For other foreign businesses … The New Iran E.O. does little to clarify the Administration’s current posture, but does grant it significant discretion to target a wide range of activity, effective immediately. Given the Trump Administration’s rapidly shifting approach on other issues relating to international trade and national security, from tariffs to North Korea, businesses should plan for the worst while continuing to strategize and advocate for a more pragmatic approach.

Jeremy Paner, Holland & Hart, 8 November 2018, The Return of All Financial Secondary Sanctions on Iran:

U.S. law currently authorizes OFAC to impose correspondent and payable-through account sanctions on non-U.S. financial institutions that knowingly conduct or facilitate any significant financial transaction involving the following:

  • the Central Bank of Iran;
  • a designated Iranian individual or entity, other than banks solely designated for being Iranian;
  • the automotive sector of Iran;
  • the National Iranian Oil Company (NIOC) or Naftiran Intertrade Company (NICO);
  • petroleum, petroleum products, or petrochemical products from Iran;
  • the purchase or sale of Iran rials; and
  • a derivative, swap, future, forward, or other similar contract whose value is based on the exchange rate of the Iranian rial.

Additionally, non-U.S. financial institutions that maintain Iranian rial denominated funds or accounts outside of Iran are exposed to potential correspondent and payable-through account sanctions.

Dirk Niepelt
Dirk Niepelt is Director of the Study Center Gerzensee and Professor at the University of Bern. A research fellow at the Centre for Economic Policy Research (CEPR, London), CESifo (Munich) research network member and member of the macroeconomic committee of the Verein für Socialpolitik, he served on the board of the Swiss Society of Economics and Statistics and was an invited professor at the University of Lausanne as well as a visiting professor at the Institute for International Economic Studies (IIES) at Stockholm University.

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