Extraterritoriale sancties van de VS tegen Iran: mogen bedrijven uit de EU ze volgens het EU-recht naleven?

Extraterritoriale sancties van de VS tegen Iran: mogen bedrijven uit de EU ze volgens het EU-recht naleven?

With a view to counteracting the extraterritorial effect of the sanctions the United States re-imposed on Iranian companies and entities in 2018 (in the wake of the U.S. withdrawal from the 2015 “Iran nuclear deal”), the European Union (EU) re-activated its so-called blocking statute initially adopted in 1996: the core provisions of this instrument prohibit, in essence, EU companies from complying with the U.S. sanctions. Incidentally to a litigation pending before the German courts, the Advocate General to the EU Court of Justice delivered his opinion on 12 May 2021 (Case C-124/20, Bank Melli Iran v. Telekom Deutschland GmbH), in which he confirmed the far-reaching scope of the blocking statute while regretting that the EU companies may then face severe consequences in their U.S. operations.

The U.S. sanctions against Iran mainly apply to U.S. persons and non-U.S. persons within U.S. jurisdiction (so-called primary sanctions). However, some of them also target non-U.S. companies and activities outside the U.S. jurisdiction, for example EU undertakings that trade or invest with Iranian companies and entities (so-called secondary sanctions): these EU undertakings face, among others, large fines for their subsidiaries on U.S. territory, or even restrictions of access to the U.S. market. Such secondary sanctions have, to that extent, an extraterritorial effect, the legality of which under international law is debatable.

In order to neutralize, within the EU, the extraterritorial effect of older U.S. secondary sanctions, the EU had adopted a specific Regulation (the so-called blocking statute) back in 1996 (Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extraterritorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom). In 2018, the EU added the new U.S. sanctions legislation against Iran to the list (in the Annex to the Regulation) of foreign provisions that trigger the application of the blocking mechanism. Article 5(1) of the Regulation provides, in a nutshell, that EU companies are not allowed to comply with sanctions specified in the Annex (thus including U.S. sanctions against Iran) and related court orders.

It is against that background that a dispute arose in Germany. Bank Melli, an Iranian bank, had entered into contracts with Telekom Deutschland, a subsidiary of Deutsche Telekom. In 2018, Bank Melli was placed on the U.S. list of Iranian entities subject to the re-activated sanctions. A few days later, Telekom Deutschland terminated all contracts with Bank Melli, with immediate effect – i.e. before the expiry of the ordinary notice period applicable under German law. Subsequently, Telekom Deutschland also gave notice of ordinary termination as of the earliest possible date.

In proceedings it brought before the German courts, Bank Melli claimed that even the notice of ordinary termination given by Telekom Deutschland infringes Article 5(1) of the EU blocking statute and should therefore be considered ineffective, since it was motivated solely by Telekom Deutschland’s desire to comply with the U.S. sanctions. Telekom Deutschland replied that Article 5(1) of the blocking statute does not affect its right of ordinary termination, which does not depend upon a specific reason, and leaves it free to end its business relationships for economic motives. In this context, the Hanseatisches Oberlandesgericht Hamburg referred questions to the EU Court of Justice for a preliminary ruling on the interpretation of Article 5(1).

In his opinion, Advocate General Hogan first considered that the prohibition in Article 5(1) applies even in the event that an EU economic operator complies with the foreign legislation containing secondary sanctions without first having been compelled by a foreign administrative or judicial agency to do so: in the case at hand, Telekom Deutschland had not received, indeed, any specific instructions from U.S. authorities.

Secondly, the Advocate General stressed that, from the clear terms of Article 5(1), it results that an undertaking seeking to terminate an otherwise valid contract with an Iranian entity subject to the U.S. sanctions must demonstrate to the satisfaction of the domestic court that it did not do so by reason of its desire to comply with those sanctions. In his opinion, it was, in the dispute at stake, for Telekom Deutschland to establish that there was an objective reason, other than the fact that Bank Melli was subject to primary sanctions, to terminate the contracts at issue; and it was for the domestic court to verify the veracity of such grounds.

Finally, the Advocate General submitted that, where an EU company has failed to observe the prohibition in Article 5(1), by terminating contracts in order to comply with U.S. sanctions, the national court seized by the contracting party subject to primary sanctions is required to order the EU company to maintain the contracts. And this is the case even if such an injunction is liable to infringe Article 16 of the Charter of Fundamental Rights of the European Union (protecting the freedom of enterprise, which includes the freedom to contract and therefore, necessarily, also the freedom not to contract); and even if the EU company then becomes liable to be severely penalized in the U.S. (financial penalties, business disruptions, etc.).

It now remains to be seen whether the Court of Justice, in its forthcoming judgment, will follow the Advocate General’s opinion.

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