On June 6, and in furtherance of its May 16 announcement, the European Commission adopted a delegated act to amend the annex to the EU Blocking Statute by adding within its scope US Iran-related secondary sanctions that have extra-territorial application. The delegated act will enter into force once it is published in the EU Official Journal – probably well before the August 16 deadline set out for the re-imposition of the US secondary sanctions – unless the European Parliament or the Council (the Member States) object within a two-month scrutiny period.
List of US Secondary Sanctions Newly Targeted
The revised annex sets out the third-country measures to which the statute applies should it enter into force. The revised annex includes the same references to US sanctions laws that have previously been included in the annex, namely those that target US sanctions on Cuba. But it also lists the following new US sanctions laws and regulations specifically to address the reimposition of US sanctions pursuant to the US withdrawal of the JCPOA:
- Iran Sanctions Act of 1996 (ISA)
- Iran Freedom and Counter-Proliferation Act of 2012 (IFCA)
- National Defense Authorization Act For Fiscal Year 2012 (NDAA)
- Iran Threat Reduction And Syria Human Rights Act of 2012 (TRA)
- Iranian Transactions and Sanctions Regulations (ITSR)
The above US statutes largely contain the nuclear-related secondary sanctions that targeted certain sectors of Iran’s economy (e.g., Iran’s energy, shipping, shipbuilding, and automotive sectors) and that were lifted pursuant to the JCPOA. For example, section 1244 mandates five out of 12 ISA sanctions on US or non-US persons that provide goods or services to Iran’s energy, shipbuilding, and shipping sectors, or to port operations — or which provide insurance for such transactions.
Notably, the revised annex includes a reference to the ITSR, which primarily contain restrictions applicable to “US persons”, prohibiting virtually all trade and other transactions with Iran, directly or indirectly. While the revised annex does not cite to a specific provision of the ITSR, it references only the language found in ITSR section 560.205 restricting the reexport to Iran by a non-US person of US “controlled” (i.e. non-EAR99) items and non-US-origin items containing more than 10 percent US controlled content. Therefore, steps taken by EU entities to comply with other provisions of the ITSR would not appear to be caught within the scope of the blocking statute.
Nonetheless, the inclusion of this provision is notable. While this provision reaches the activities of non-US companies, it is a longstanding prohibition under US law, and the United States did not lift this as part of its secondary sanctions relief pursuant to the JCPOA. In other words, even if non-US persons have been engaging in activity consistent with the US sanctions relief provided for under the JCPOA, they long have been prohibited under US law from knowingly reexporting US-controlled items to Iran unless otherwise authorized. Therefore, the inclusion of this prohibition in the revised annex goes beyond addressing the US sanctions lifted as part of the JCPOA relief, and could create a direct conflict of laws situation for non-US companies seeking to comply with the reexport requirements under the US primary sanctions regime.
The above list of US secondary sanctions laws and regulations targeting Iran in the revised annex is comprehensive but not exhaustive. For example, the revised annex does not include a reference to the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, which sanctions activities of foreign financial institutions for certain conduct involving Iran. It also does not include a reference to the Countering America’s Adversaries Through Sanctions Act, which, among other things, imposes new sanctions on Iran. It also does not include any references to Executive Orders (EO), such as EO 13622 or EO 13645, which give the US president the authority to impose certain sanctions.
The US sanctions on Iran are a complex maze of authorities contained in statutes, regulations and executive orders so it would be difficult to enumerate every US sanctions authority. The revised annex does include a note that the main provisions of the laws, regulations and other instruments are “summarised only for information purposes and that the full overview of provisions and their exact content can be found in the relevant instruments.” It is unclear how expansively the Commission might interpret the application the US sanctions laws and regulations listed in the revised annex.
As we noted in our recent Advisory, the Trump Administration has not provided information regarding the precise US sanctions that will be reimposed after the 90- and 180-day wind-down periods. It will be important for companies that have been engaging in activity consistent with sanctions relief under the JCPOA to closely monitor and examine the activity, the specific US sanctions that are reimposed and the correlation to the revised annex once it enters into force.
The delegated act will be published in the EU Official Journal and enter into force if neither the European Parliament nor the Council (the Member States) oppose it within a two-month scrutiny period or if they inform the European Commission that they do not intend to object to the amendment before the expiry of the two-month period. The delegated act has immediately been referred to the Parliament Committee for International Trade (INTA) – which has already scheduled to debate it on June 20/21 – and to the Secretary General of the Council.
Despite concerns expressed by the European Commission itself on the effectiveness of a revised EU Blocking Statute, notably for financial institutions, it is likely that neither the Parliament nor the Council will object to the amendment, which seeks to demonstrate an immediate response to the re-imposition of US secondary sanctions.
However, and in parallel to this legislative initiative, diplomatic activity intensifies on the European side to maintain the current sanctions relief. The Economy and Foreign Affairs Ministers of France, Germany, the UK as well the High Representative of the EU on June 4 sent a joint letter to the Treasury Secretary and the Secretary of State asking that “the extra territorial effects of US secondary sanctions will not be enforced on EU entities and individuals” and that exemptions will be granted in key sectors such as energy, automotive, civil aviation and infrastructure.
Additional background on the EU Blocking Statute is available here.