Documents considered by the Committee on 27 June 2018 Contents

9US sanctions against EU firms with operations in or with Iran

Committee’s assessment

Politically important

Committee’s decision

Cleared from scrutiny; drawn to the attention of the Defence Committee, Foreign Affairs Committee and the International Trade Committee

Document details

Commission Delegated Regulation amending the Annex to Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom

Legal base

Article 1 of Council Regulation (EC) No 2271/96;—


International Trade

Document Number

(39872), 9831/18 + ADD 1, C(18) 3572

Summary and Committee’s conclusions

9.1In July 2015, the EU, China, France, Germany, Russia, the UK and the US reached an agreement with Iran on the dismantling of the latter’s nuclear weapons programme. The agreement is known as the Joint Comprehensive Plan of Action or JCPOA. In January 2016, after international monitors concluded Iran had fulfilled its initial requirements under the agreement, the EU and the US lifted specific sanctions against Iran including a ban on exploitation, sale or purchase of Iranian oil (a significant source of revenue for the country).

9.2On 8 May 2018, US President Donald Trump decided to withdraw his country from the JCPOA and to reinstate all sanctions that had been lifted as a result of the Agreement. The re-imposed US sanctions will all take effect between 6 August and 4 November 2018, including a ban on exploitation of Iran’s oil fields. Crucially, the American decision also creates secondary sanctions for any foreign (e.g. EU-based) companies that do business in or with Iran after the US deadline.76 The EU, with the UK’s support, remains committed to the JCPOA. It has decided to maintain current ties with Iran (for example through cooperation on energy matters and levels of bilateral trade), and attempt to mitigate the impact of the US sanctions on EU companies engaged in trade with Iran.

9.3In particular, the European Commission has proposed the reactivation of the EU’s ‘Blocking Statute‘, which will legally prohibit companies based in the EU from complying with the extraterritorial effects of US sanctions (except if they have been expressly authorised to do so by the Commission);77 allow them to seek recovery of damages arising from them; and prevent any court judgements based on the sanctions from having effect in the EU. Enforcement of the Statute is the responsibility of individual Member States, which must “determine the sanctions to be imposed in the event of breach of any relevant provisions of this Regulation”, which “must be effective, proportional and dissuasive”.

9.4A formal proposal to reactivate the Blocking Statute in response to the re-imposition of US sanctions, in the form of a Delegated Commission Regulation, was published on 6 June 2018. It will take effect on or before 6 August, unless either a qualified majority of Member States or a simple majority in the European Parliament veto the measure.

9.5The Secretary of State for International Trade (Dr Liam Fox) submitted an Explanatory Memorandum on the proposal on 18 June, explaining that the Government supports the measure given its “long-held position […] to oppose US extra-territorial sanctions in relation to Iran, Libya and Cuba, that target persons without any connection to the US and are otherwise outside of the US’ jurisdiction”. As such, the Government also “intend[s] to uphold the policy intent of this regulation in our statute book once we have left the EU, so that we can mitigate the impact of extra-territorial sanctions on [UK] trading interests”. The Secretary of State also writes that the UK “will be engaging at a national level and EU level to ensure that business gets as much clarity and guidance as possible” on how to comply with the amended legislation.

9.6We thank the Secretary of State for the information provided he has provided on the Blocking Statute, and note the Government’s support for the measure to limit the extraterritorial effect of US sanctions on UK and EU firms.

9.7However, the practical impact of the measure is not yet clear, as we understand its enforcement in the 1990s in response to the extraterritorial effects of previous US sanctions—targeting commercial links with Iran, Libya and Cuba—was fragmented at best. If the US administration is not responsive to the pressure exerted by the reactivation of the Statute, it puts EU and UK companies in the position of having to choose between risking enforcement measures at home (if they choose to comply with the American sanctions) or in the US (if they abide by the Blocking Statute and ignore the US legislation). We note that the European Investment Bank, which is owned by the EU’s Member States, has already expressed concern about being asked to provide investment support for Iran to compensate for restrictions on private investment78 because it requires access to US capital markets for its general operations.79 Given the potential commercial ramifications of being shut out of the American market, similar concerns are likely to abound in the private sector as well; we therefore welcome the fact the Secretary of State is pressing the European Commission for guidance for businesses.

9.8Nevertheless, we appreciate the Government’s position and now clear the Delegated Regulation from scrutiny, on the condition that the Minister inform us if either the European Parliament or the Council vote to reject the proposal. We draw these developments to the attention of the Defence, Foreign Affairs and International Trade Committees. We also ask the Minister to inform us of any official guidance to be issued by the European Commission to companies on how to ensure compliance with the amended Blocking Statute.

Full details of the documents

Commission Delegated Regulation amending the Annex to Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom: (39872), 9831/18 + ADD 1, C(18) 3572.


The Joint Comprehensive Plan of Action

9.9Since 2006, the EU has been involved in diplomatic efforts between China, France, Germany, Russia, the UK and the US on the one hand, and Iran on the other, to bring an end to the nuclear weapons programme of the latter. This resulted in the Joint Comprehensive Plan of Action (JCPOA) in July 2015. The JCPOA requires Iran to use its nuclear programme exclusively for peaceful purposes. In return the UN, US and EU would lift their nuclear-related sanctions80 against the country (which included an import ban on Iranian oil). The Plan of Action is overseen by a Joint Commission where the seven countries party to the negotiations, plus the EU, are represented.

9.10The Plan of Action took effect in October 2015 (‘Adoption Day’), when the EU adopted the necessary legislation allowing it to lift its nuclear-related economic and financial sanctions81 against Iran when the latter had ended its military nuclear programme.82 In January 2016, the International Atomic Energy Agency (IAEA) certified that the Iranian Government fulfilled its commitments under the agreement, and at that point, the EU, US and UN revoked their sanctions (‘Implementation Day’).83

US withdrawal from the JCPOA and EU response

9.11The next stage of the JCPOA is ’Transition Day’, had been due to take place in October 2023 (or earlier if the IAEA concludes before then that all remaining nuclear material in Iran is used only for peaceful activities). This would trigger the lifting of the remaining nuclear-related sanctions.84 The final stage of the Plan of Action, ‘Termination Day’, would then take place in 2025 at which point all remaining sanctions would be terminated.

9.12However, on 8 May 2018 US President Donald Trump announced that he was withdrawing America from the JCPOA and would be reinstating the US sanctions against Iran which had been in place prior to ‘Implementation Day’ (see above). Those sanctions would also affect any companies, American or not, which continued to maintain commercial links in or with Iran in contravention of US law. On 9 May, the EU issued a declaration reconfirming its commitment to the continued full and effective implementation of the JCPOA and its “determination to work with the international community to preserve it, so long as Iran continues to respects its commitments”. On 15 May, the EU’s High Representative Federica Mogherini met with the Foreign Ministers of France, Germany, the United Kingdom and Iran to discuss the US decision, and agree on a common set of lines of action and measures to put in place.

9.13Subsequently, the European Commission proposed a number of actions to demonstrate the EU’s commitment to the Joint Plan despite the US withdrawal, and to protect EU companies with operations in Iran from being adversely affected by the re-imposition of American sanctions. These measures are:

The EU’s “Blocking Statute”

9.14The EU’s Blocking Statute (Regulation 2271/96) aims to protect EU businesses “against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom”. It was approved by the EU’s Member States in the 1990s in response to the extraterritorial effects of US sanctions against Cuba, Libya and Iran adopted during Bill Clinton’s presidency. It has not been updated since in response to any other sanctions.86

9.15The Regulation provides protection against specific overseas legislation (in practice, US laws) listed in its Annex where it affects EU companies “engaging in international trade and/or the movement of capital and related commercial activities between the [EU] and third countries”. Any persons whose economic and financial interests are affected by the foreign legislation listed must inform the European Commission accordingly within 30 days from the date on which it obtained such information.87 Concretely, for overseas sanctions listed in the Regulation, the law legally prohibits companies based in the EU from complying with them in their dealings with Iran. It also allows them to recover damages arising from such sanctions from the person causing them, and bars any non-EU court judgements based on those sanctions from having effect in any EU Member State. As the Blocking Statute is an EU Regulation, it is directly applicable in all Member States and does not require any national implementing legislation.

9.16Following discussions with the Member States and the European Parliament in late May, the European Commission announced measures to preserve the JCPOA despite the US’ withdrawal (see paragraph 9.12 above) including the reactivation of the Blocking Statute because the American sanctions “unduly affect the interests of natural and legal persons established in the Union and engaging in trade and/or the movement of capital and related commercial activities between the Union and Iran” and “violate international law and impede the attainment of the Union’s objectives”.

9.17On 6 June 2018, the European Commission therefore formally proposed the reactivation of the Blocking Statute (which requires a Delegated Regulation) by amending the Annex, which lists the US legal acts from which the EU is seeking to protect its companies. This proposed Annex enumerates the specific US sanctions of which the EU is seeking to limit the extraterritorial effects, such as the ‘Iran Freedom and Counter-Proliferation Act of 2012’ (which requires US banks not to provide financial services to EU companies involve in trade with Iran). The practical impact of the new Blocking Statute remains to be seen as enforcement—i.e. ensuring that companies do not comply with the sanctions unless authorised to do so by the Commission—is largely the responsibility of individual Member States. In the UK, the original Blocking Statute was given ‘teeth’ by means of the Extraterritorial US Legislation Order 1996.

9.18The Secretary of State for International Trade (Dr Liam Fox) submitted an Explanatory Memorandum on the Blocking Statute on 18 June 2018, expressing the Government’s support for the measure. The aim is to have the amendments to the Blocking Statute take effect before 6 August 2018, when the first batch of US sanctions is due to take effect.

9.19The Delegated Regulation was formally published on 6 June, and under EU law the Council and the European Parliament have a maximum of two months to block the measure (by qualified majority in the Council or by simple majority in the Parliament).88 However, either institution can pass a motion before the deadline to notify the Commission that it intends not to object to the Delegated Regulation. Member State diplomats had a first exchange of views on the proposal on 7 June. It is now expected to be discussed at ambassador level in COREPER on 11 July, ahead of formal consideration by Ministers at the Foreign Affairs Council on 16 July 2018.

Previous Committee Reports


76 For example, French energy company Total has said it will pull out of an energy deal with Iran unless it can be protected from the EU’s secondary sanctions.

78 See paragraph 9.13 for more information on the role of the European Investment Bank in Iran.

80 Sanctions imposed by the EU in view of the human rights situation in Iran, support for terrorism and other grounds are not part of the JCPOA.

81 The sanctions lifted by the EU in January 2016 included the buying and selling of oil; the provision of banking and insurance services; and shipping and transport services.

83 See the Council Decision 2016/37. This set the date of entry into force of the revocation of the EU’s nuclear-related sanctions at 16 January 2016. The JCPOA contains a ‘snapback’ mechanism allowing the EU to reinstate sanctions if Iran fails to meet its obligations.

84 The remaining sanctions relate primarily to the arms embargo, sanctions related to missile technology, restrictions on certain nuclear-related transfers and activities, provisions concerning certain metals and software which are subject to an authorisation regime.

85 The Commission is also expected to provide financial assistance for Iran’s economic development under the EU’s Development Cooperation Instrument and the Partnership Instrument.

86 The European Commission proposed a recast of the Regulation in 2015, but this proposal was never formally adopted. See also the previous Committee’s Reports of 18 March 2015 and 9 September 2015.

87 The European Commission can authorise compliance with the US sanctions on a case-by-case basis if non-compliance could “seriously damage their interests or those of the [EU]”.

88 See article 8 of the Blocking Statute and Article 290(2)(b). As this is not a proposal which requires the approval of the Council, the House of Commons scrutiny reserve does not apply.

Published: 3 July 2018