Advocate General of the Court of Justice Gerard Hogan rendered an Opinion in the first case before the Court of Justice of the European Union on the interpretation of the EU Blocking Statute. The case concerns Iranian bank Bank Melli Iran, which has a branch in Hamburg (Germany), and which claims before the German Courts that the notice of ordinary termination given by Telekom Deutschland with respect to their contracts for telecommunication services was motivated solely by Telekom Deutschland’s desire to comply with US sanctions legislation. Bank Melli Iran maintains that Telekom Deutschland violated the EU Blocking Statute, which prohibits EU undertakings (entities engaged in an economic activity, regardless of their legal form or the way in which they are financed) from complying with such extraterritorial US measures.
In its opinion, Advocate General Hogan finds that:
- The general prohibition contained in the EU Blocking Statute (which is directed against compliance with certain third country legislation providing for secondary sanctions) applies even in the event that such an undertaking complies with that legislation without first having been compelled by a foreign administrative or judicial agency to do so.
- An EU undertaking seeking to terminate an otherwise valid contract with an Iranian entity subject to the US sanctions must demonstrate to the satisfaction of the national court that it did not do so by reason of its desire to comply with those sanctions.
The Advocate General suggests that even though the EU Blocking Statute is not aimed at protecting third-country entities directly targeted by US measures, it confers on such entities, like Bank Melli Iran, a right of action. Moreover, the EU Blocking Statute should be understood in a way that it imposes an obligation to give reasons justifying the termination of a commercial relationship with a person subject to third-country primary sanctions. According to Advocate General Hogan, what matters is the intention of the economic operator to comply with the said sanctions, irrespective of whether it is actually concerned by their application. Economic operators could, however, demonstrate for this purpose in particular that they are actively engaged in a coherent and systematic corporate social responsibility policy which leads them, inter alia, to refuse to deal with any company having links with the Iranian regime.
Advocate General Hogan maintains that if an EU undertaking does not respect the prohibition contained in the EU Blocking Statute to comply with US legislation providing for secondary sanctions, the national court seized by its contracting party subject to US primary sanctions is required to order the EU undertaking to maintain their contractual relationship. The prohibition in question is not as such contrary to the freedom of enterprise as guaranteed by the Charter of the Fundamental Rights of the European Union, given in particular that economic operators may apply to the Commission for authorization to derogate from it.
While only the Court of Justice rulings are binding, advisory Advocate General Opinions remain influential and is often followed by the Court. In this instance, should the Court of Justice decide to follow Advocate General Hogan’s Opinion in its ruling, Iranian entities would be able to challenge, before EU Member States’ courts, the termination of contractual agreements by EU companies alleging the breach of Article 5(1) of the EU Blocking Statute.
Finally, it also remains to be seen how the Opinion could further impact transatlantic relations. There have been few instances where compliance with US sanctions has led to some form of action or response under a so-called blocking statute. In the past, non-US companies at risk of primary sanctions penalties or secondary sanctions restrictions have typically assessed the contending risks and decided to observe the sanctions.
However, if a European court were to order an EU entity to disregard US sanctions and maintain a commercial relationship with a sanctions target, a US court or regulatory agency (such as OFAC) would be reluctant to impose penalties, compel compliance with US law, or otherwise interfere with the authority of the EU court. If a license were an available vehicle, OFAC could issue one to the EU entity; or those responsible for administering secondary sanctions (e.g., OFAC or State Department officials) could exercise discretion and decline to act. But this remains to be seen and will depend in the first instance on what the Court of Justice decides.