US reimposes sanctions against Iran – and the EU responds

The US sanctions

As described in our previous news article, the US sanctions apply to European and Danish businesses whether or not their transactions involve US persons, companies or dollars. 

These sanctions may therefore – together with the last and more extensive tranche of sanctions – have severe consequences for Danish and other European businesses trading with Iran. Individuals or entities breaching the sanctions will be prevented from operating on the US market and getting access to US funding and will risk civil law sanctions, fines and imprisonment.

EU's Blocking Statute

In response to the US withdrawal from the JCPOA Agreement which resulted in a lifting of a substantial part of the US and EU sanctions against Iran, the EU has expanded the scope of the so-called "Blocking Statute". It is the second time in the history of the Statute, which has existed for 20 years, that the EU uses it to counteract “the unlawful effects of the extra-territorial application of legislation adopted by a third country [in both cases the USA] on EU businesses”. All the reinstated US sanctions against Iran are covered by the Statute.

The basic principle of the Statute is that EU businesses are not required to comply with the reimposed sanctions. On the contrary, Danish and European businesses, including EU subsidiaries of US entities, are actually prohibited from complying with the sanctions and from applying for an exemption from the US authorities.

Also, the Statute demands that European courts and authorities not enforce the US sanctions.

Consequences for Danish businesses

Danish companies whose business is affected by the reimposed sanctions must notify the Commission about this. Under Article 5(2) of the Statute, a business operator may apply to the Commission for authorisation to comply with the US sanctions if not doing so would “seriously damage” its interests. This provision provides some opportunity for Danish businesses to solve the compliance dilemma that results from the conflicting US sanctions and EU rules.

Being an exception, the authorisation rule will, however, have to be interpreted restrictively by the authorities. The Commission notes in its Guidance Notes that it is clear “that not every nuisance or damage suffered by EU operators will entitle them to obtain an authorisation.” 

The Commission has in its Implementing Regulation (EU) 2018/1101 made a non-exhaustive list of criteria that may be taken into account when assessing whether non-compliance with the US sanctions will “seriously damage” an entity.

The criteria include i.a.:

• the entity’s connection(s) to the USA; 
• whether the entity would face significant economic losses that could  threaten its viability or pose a serious risk of bankruptcy;
• excessive difficulties in obtaining the necessary resources; 
• systemic implications of damage, etc. 

This quite extensive list shows the Commission’s wish to protect – and not hamper – EU operators engaging in lawful international trading.

Enforcement of the Blocking Statute

As described in our previous news article (see above), it is for the national authorities in the Member States to enforce the Blocking Statute.

In Denmark, violation of the Statute is punishable by a fine, but so far no individuals or entities have been charged or convicted since the Statute was adopted in 1996 in response to the US sanctions against Cuba. 

In the present political climate, the authorities may be likely to take a more consistent approach, however. Specific transactions should always be assessed on a case-by-case basis. 

Kromann Reumert’s assistance

Kromann Reumert’s specialist team has many years’ experience in assisting Danish and European businesses in their international trading activities. We follow the situation in Iran closely and are available to assess specific risks and advise on commercially feasible solutions.