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From convergence to divergence – new US sanctions force EU to act

  • United Kingdom
  • Financial services disputes and investigations

07-08-2018

US position

As per our previous briefing, on 8 May 2018, President Trump announced that the US was withdrawing from the Iran nuclear deal and would begin re-imposing those sanctions which were lifted as part of the Joint Comprehensive Plan of Action (“JCPOA”).  On 27 June 2018, the US Office of Foreign Assets Control (“OFAC”) announced that it was amending certain General Licences[1] relating to Iran and issued “wind-down licences” which authorised the wind-down of certain activities by 6 August and 4 November 2018 (respectively).

In light of the first wind-down period coming to an end, President Trump issued  a new Iran-related Executive order entitled “Reimposing Certain Sanctions with Respect to Iran” (the “New Iran E.O.”).  The New Iran E.O. re-imposes a series of sanctions previously provided for in a number of previously revoked Executive Orders, including additional blocking sanctions (i.e. asset freezes).

Of important  note to non-US financial institutions is section 2 and section 6 of the New Iran E.O. which authorises correspondent and payable-through account sanctions on foreign financial institutions (“FFIs”) which are determined to have maintained significant funds or accounts outside the territory of Iran denominated in the Iranian Rial or which are determined to have knowingly conducted or facilitated any significant transactions on or after 7 August 2018 (i) for the sale, supply or transfer to Iran of significant goods or services used in connection with Iran’s automotive sector (ii) related to the purchase or sale of Iranian Rials or a derivative, swap, future, forward etc which is based on the exchange rate of the Iranian Rial.  In addition the New Iran E.O authorises the imposition of correspondent and payable-through account sanctions on FFIs  who engage in a variety of other significant transactions on or after 5 November 2018 (including those relating to petrochemical products from Iran and any transactions on behalf of an Iranian person on the SDN List).

OFAC has published Frequently Asked Questions relating to the New Iran E.O.

EU position

In parallel to the updates from the US, yesterday the EU announced that amendments to the EU Blocking Regulation[2] were coming into effect on 7 August 2018 which extends its application to the US sanctions against Iran (our previous briefing on the EU Blocking Regulation updating process can be found here and the updated annex to the EU Blocking Regulation can be found here). 

In order to assist EU persons with understanding the application of the EU Blocking Regulation to Iran, the European Commission has issued a guidance note

The EU Blocking Regulation prohibits EU persons from complying with US sanctions against Iran (including applying to OFAC for a licence –which the EU has determined to be an act which recognises the jurisdiction of the US over EU entities), unless the European Commission provides an exception (the criteria for which can be found here).  It aims to protect EU operators in respect of Iran by:

  • nullifying the effect, in the EU, of any foreign decision (including court rulings and arbitration awards) based on the US sanctions against Iran – meaning that no decision requiring the seizure or enforcement of any economic penalty against an EU operator will be executed in the EU; and
  • enabling EU operators to recover damages arising from the application of US sanctions against Iran from any person or entity which caused the damage.

The guidance also provides some information in respect of subsidiaries and branches noting that:

  • EU subsidiaries of US companies (which are incorporated in an EU Member State) are EU operators and must comply with the EU blocking Regulation;
  • EU branches of US companies are not EU operators and fall outside of scope of the EU Blocking Regulation;
  • Subsidiaries of EU companies in the US are incorporated in the US and as such are not EU operators and the EU Blocking Regulation does not apply.

Our thoughts

Although this recent action by both the US and EU has been anticipated for some months,  the fact that both sides have held true to their word creates a real dilemma for non-US persons operating in the EU.  There is a real risk of litigation being taken against banks within the EU (and potentially other types of companies) by other EU entities as a result of the re-imposition of US sanctions.

Although the EU is acting with the best of intentions in order to ensure the continuation of the JCPOA, the EU Blocking Regulation will undoubtedly cause significant confusion, particularly for FFIs which have US correspondent relationships. 


[1]                 31 C.F.R § 560.537 and 31 C.F.R § 560.536

[2]                 Which has been in force since 1996 in respect of US sanctions against Cuba

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