European Union Countermeasures to Block Foreign Legislation on Extraterritorial Sanctions

The Union (EU), but also blocking measures aimed at excluding the impact of secondary sanctions imposed by other countries, primarily the United States. The extraterritorial consequences of sanctions imposed by the US against countries such as Iran, Libya, and Cuba not only pose an economic problem and geopolitical challenge but also directly affect the EU. Despite the fact that these restrictions are not applied within the EU, European corporations are sometimes forced to comply with them. To counter the negative consequences of US secondary sanctions, the EU Regulation on protecting against the effects of the extra‑territorial application of legislation adopted by a third country, also known as the Blocking Statute, primarily imposes a number of obligations on European economic operators, such as the obligation to report and non‑compliance. The implementation of the non‑compliance provision has been sharply criticized for creating a situation in which private operators face a dilemma: in which case will compliance with the Blocking Statute lead to a violation of U.S. sanctions rules, and in which case will it not. The problem of private entities being, figuratively speaking, between a hammer and an anvil in such cases is vividly illustrated in the case of “Bank Melli Iran v. Telekom Deutschland GmBH”. The EU Court in its decision on this case first clarified a number of key issues. First, EU operators who comply with extraterritorial sanctions legislation of a third country and on this basis terminate contractual relations violate the said Regulation, even if there is no official decision by a third country authority requiring them to comply with such sanctions. Such sanctions laws can have serious consequences, even if the threat of legal consequences in case of their violation is only potential in nature. Secondly, operators from the EU are obliged to specify the reasons for terminating contractual relations, at least in the context of civil proceedings initiated by the other party to the contract; such reasons cannot be related to the intention to comply with extraterritorial sanctions of a third state. A European operator is not obliged to specify the reasons as such, but in the event of a claim being filed against them, as soon as the counterparty prima facie states that this operator sought to comply with the extraterritorial laws of a third state, they will bear the burden of proving that the purpose of terminating the contract was not to comply with foreign sanctions.