Worldwide: Stuck In The Middle With You: EU Blocking Statutes, Iran Sanctions, And The Thousands Of Businesses Caught In Between

Imagine telling your company's Board of Directors that the company will have to knowingly violate the law. Further, you might note, the American Law Institute’s Principles of Corporate Governance state that, with very limited exceptions, a director who knowingly causes the corporation to disobey the law violates his duty of care. The protections of the Business Judgement Rule may not be available to a board member who, charged with navigating the Scylla and Charybdis of a conflict of laws, steers right into the shoals of noncompliance.

Beginning August 6, that will be the situation facing the thousands of companies that are subject to U.S. sanctions on Iran and to EU regulations blocking those sanctions. While it appears to be a stark choice, some nuances to the regulations may make navigating the narrow straights of the conflict of laws a less Odyssean and more practically manageable.

The Rock: U.S. Secondary Sanctions with Extraterritorial Applications

Beginning August 6, the United States will begin enforcing certain secondary sanctions applicable to Iran pursuant to the U.S. withdrawal from the Iran nuclear agreement known as the Joint Comprehensive Plan of Action (JCPOA). The United States will reimplement the rest of the secondary sanctions after November 4, 2018.

Secondary sanctions are those that apply to transactions with no U.S. nexus: where a non-U.S. company deals with Iran outside of the United States and not involving U.S. persons or the U.S. banking system. Non-U.S. companies that violate secondary sanctions are subject to being sanctioned themselves by the U.S. government. Non-U.S. financial institutions that violate secondary sanctions are subject to restrictions or prohibitions on U.S. correspondent or payable through accounts (read: restricting their access to the U.S. dollar).

The Hard Place: EU Blocking Resolution

On June 6, 2018 the European Commission adopted an amendment to its Blocking Regulation (originally propounded to block the effect of U.S. secondary sanctions on Cuba) to counteract the effects of the extraterritorial application of U.S. sanctions on Iran. Broadly, the resolution's main provisions are as follows:

  • Coverage. Natural and legal persons resident or organized in the EU that engage in international trade or commercial activities.
  • Requirements. Covered persons affected by U.S. sanctions on Iran must report to the European commission.
  • Prohibitions. Covered persons are prohibited from complying, directly or through a subsidiary or intermediary, actively or by deliberate omission.
  • Rights of Action. EU persons have the right to recover any damages, including legal costs, where those damages arise from a covered person's compliance with U.S. sanctions on Iran. Recovery could take the form of "seizure and sale of assets held by those persons or entities." (EC No 2271/96, Art. 6)
  • Penalties. Each EU Member State is tasked with deciding the penalties for breach of the blocking regulation. The regulation merely requires that sanctions be "effective, proportional and dissuasive."

Shooting the Gap: EU Authorization to Comply with U.S. Law

Article 5 of the EU blocking resolution states that covered persons may be authorized by the committee to comply with U.S. sanctions on Iran where there is sufficient evidence that non-compliance would cause serious damage to a natural or legal person. The resolution does not state how companies go about applying for that authorization. However, our (rather persistent) calls to our contacts in the Commission offices (finally) yielded the following response:

The criteria for the application of the second paragraph of Article 5 will be laid down in a Commission Implementing Regulation that will also be published and will enter into force on 7 August.

It is not clear how long the application approval process may take or the likelihood of approval, but an authorization form and guidance were published on August 7.

The process does provide companies at least a theoretical easing of their conflict of laws dilemma. Although the authorization application does not have a suspensive effect on the blocking statute, if a company applies for authorization to comply with U.S. regulations, then continues to comply with U.S. regulations, it is possible that the company's good faith efforts to comply with both applicable legal regimes may mitigate its risks with respect to potential prosecutions by the government or suits for damages from affected persons.

However, application brings with it the same risk that a company notifying the Commission of its U.S. sanctions issues: it alerts authorities that that the company may be in violation of the blocking regulation. Further, where the Commission rejects a company's application for authorization to comply with U.S. sanctions, that company may feel doubly threatened, as the Commission and, presumably, domestic regulators will be aware that the company has continued to comply with U.S. sanctions.

The Lesser of Two Evils: Risk Mitigation Where Risk Elimination is Impossible

According to Homer, Odysseus steered close to the monster Scylla, losing only a few sailors, rather than the whirlpool Charybdis, where he risked the loss of his entire ship. Companies may face a similar choice of which regulator is scarier, and that choice is clear. The penalties for violating the EU blocking regulation depend on the domestic application in each EU member state, but for many multinational companies, none of those potential penalties comes close to the devastation possible pursuant to U.S. secondary sanctions enforcement. The effect on a multinational business of being prohibited from any transaction with U.S. persons – no importing, no exporting, and, generally, no use of U.S. dollars – could be a death sentence. It could be equally injurious to a foreign financial institution with international customers to be cut off from access to the U.S. banking system.

For that reason, many companies will be tempted to honor the EU blocking regulations in the breach. However, on a case-by-case basis, companies may identify ways to manage the risks of doing business under both legal regimes based on the particular facts of their business arrangements.

We recommend that subject companies discuss the conundrum with experts in U.S. and EU law (and the law of their particular EU member state) to develop a plan to navigate the narrow passage between U.S. sanctions and the EU blocking resolution. The one solution that neither we, nor Homer, would recommend, is sailing straight ahead without a plan, blind to the dangers and exposed to the risks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
6 Aug 2019, Seminar, Los Angeles, United States

The semi-annual seminar addressing changes and developments in state and federal wage and hour laws is a unique one-day program and hundreds of California employers, personnel managers, controllers, attorneys, payroll managers, and supervisors attend each year.

24 Sep 2019, Other, Los Angeles, United States

There will be networking prior to the panel from 6:30-7:00 p.m. and more networking with demo pitches from 8:00-8:30 p.m.

25 Sep 2019, Other, Los Angeles, United States

Please join Sheppard Mullin for a reception during Solar Power International 2019

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions