The Match Between the EU and the US (or the European Blocking Statute)

We, Romanians, have a saying – ”When 2 sides argue, the 3rd one wins”.

Well, international sanctions and the high-level relations between countries show us that sometimes when 2 sides argue, it is the 3rd one to lose.

Let’s now take the example of the quarrel between the European Union and the United States of America over their friendship with Iran.

In order to understand it, we need a short and simple historical reminder.

The Iran Nuclear Deal

After a long period of economic sanctions, in 2015, China, Russia, Germany, France, Britain, the European Union and the USA decided to become friends again with Iran. This is also known as the Joint Comprehensive Plan of Action (JCPOA), or the Iran Nuclear Deal. Basically, the Iran Nuclear Deal allowed the lifting of the economic sanctions against Iran, on the promise that Iran will behave nicely and will dismantle its nuclear program and comply with international atomic regulations.

After many of the UN, EU and USA sanctions on Iran were lifted, companies started doing business with and in Iran. Iran oil started to be exported visibly again, Iran ships started to be used, the financial sector opened to the Iranian people and business, international banks started preparations and discussions to open branches there.

But… on 8 May 2018, the USA announced that it no longer wanted to be friends with Iran and it quit the Iran Nuclear Deal. Of course, all the USA sanctions that were previously lifted would come back to haunt everybody again, in and outside the USA. The return of the sanctions is gradual and will be 100% in force by November 4th 2018, with an intermediary step in August 2018.

The European Union still wants to be friends with Iran as it considers that Iran implemented its nuclear-related commitments, based on the IAEA (International Atomic Energy Agency) inspections and conclusions. The remaining signatory countries of the Iran Deal also consider that this deal should be maintained.

The USA Sanctions have extra-territorial reach and slap all the companies that do business in the USA or with USD. In these conditions, how can the European Union really continue its friendship with Iran?

The European Blocking Statute seemed to be the answer for the European Union.

On 17 May 2018, the EU announced its intention to implement the European Blocking Statute in order to protect European companies that do business in Iran from future US sanctions, by prohibiting them to comply with US sanctions.

Before detailing the paradox of using the expressions “protecting European companies” and “prohibiting them” in the same phrase, lets first understand what the European Blocking Statute is.

The 1996 European Blocking Statute

The European Blocking Statute first appeared in 1996 as the response of the EU to the USA trade embargo on Cuba and sanctions related to Iran and Libya. The blocking statute would allow European companies to disregard US sanctions and would not recognize foreign court rulings enforcing them.

It was never actually enacted because at that time (Clinton’s time), the disagreements were settled politically. Basically, in 1996 the EU threatened the USA that it would use the European Blocking Statute and, at that time, it worked to a satisfactory degree.

The 2018 European Blocking Statute

According to the 2018 EU statements, “the Blocking Statute forbids EU persons from complying with US extraterritorial sanctions, allows companies to recover damages arising from such sanctions from the person causing them, and nullifies the effect in the EU of any foreign court judgements based on them. The aim is to have the measure in force before 6 August 2018, when the first batch of US sanctions take effect.”

In an ideal world, the EU would like to punch the arrogant Trump right in the nose with a blocking statute and have its European companies and banks defiantly continue to activate in and with Iran, despite the US sanctions in force.

The truth, however, is not idyllic at all.

The truth is that the EU cannot actually protect European companies that operate internationally (including in the USA or with USD) not to be excluded from the US market if they don’t obey US sanctions.

The truth is that the EU cannot protect European banks that transact USD from being prohibited by the USA to ever transact USD and thus be automatically excluded from the international market and … die (see the case of ABLV Bank from Latvia, march 2018).

The truth is that the EU cannot protect these companies and banks to receive enormous fines or settlements from OFAC. The US sanctions have become very well organized and their extra-territorial reach is incredible. Let’s only remember the fine of 8.9 billion USD received in 2014 by BNP Paribas, a French Bank, from OFAC.

In reality, the only companies that could actually benefit from the blocking statute would be small and medium companies that do not have any connections with the USA.

Many European leaders have agreed that the EU is limited in what it can do. Some see this Blocking Statute as a political tool in order for the EU to have some negotiation apples in its discussions with the USA. However, 1996 is not 2018 and Trump is not Clinton, so the threatening of the EU is very possible to leave him cold.

Now, let’s get back to our saying from the beginning of this article.

“When 2 sides argue, it is the 3rd one to lose.”

Considering that the USA imposes sanctions for dealing with Iran, and the EU considers imposing sanctions for withdrawing from Iran, what should European companies do? Whose sanctions should they choose?

Well, the answer seems to be actually very simple. Considering that the US sanctions were heavily felt by many companies throughout the last years, while the EU sanctions are still vague… in the match between the EU and the US, it is unfortunately 0 – 1.

And thus, many European companies have already declared that they will withdraw from Iran by the time the US sanctions enter into force (the Dutch airline KLM, the French-owned CMA CGM which is the world’s third largest shipping container group, the French oil company Total Sa, Peugeot, etc.).

Maybe the European Union will manage to find ways to remain friends with Iran. However, sanctioning European companies for their decision not to expose themselves to US sanctions contradicts the very idea of protecting them. And that is exactly the idea so strongly stated by the EU in its European Blocking Statute – to protect European companies.

If you want to know more about International Sanctions and the extra-territorial reach of the US sanctions, you can view the ppt. presentation – The ABC of International Sanctions.

By Andreea Tampu, ACAMS