The U.S. withdrawal from the JCPOA and the reactivation of the Blocking Statute by the EU – Implications for European Companies in Foreign Trade

On May 8, 2018, U.S. President Donald J. Trump announced that he would end U.S. participation in the nuclear agreement reached with Iran – the Joint Comprehensive Plan of Action (JCPOA).

Following the U.S. withdrawal from the nuclear deal and the expiration of a wind-down period, the financial and economic sanctions imposed by the U.S. against Iran are to be gradually reinstated. Within the wind-down periods, which are 90 and 180 days and end on August 6, 2018 and November 4, 2018, respectively, companies should wind down and terminate existing business relationships in Iran.

After the first wind-down period expires on August 6, 2018, sanctions related to foreign exchange and commodity trading, as well as against Iran’s automotive industry, among others, will resume. Finally, after the expiration of the second wind-down period, i.e., on November 4, 2018, sanctions against the oil industry, the energy sector, and the financial and insurance industries will revive. The U.S., for example, is already pushing for a global import ban on Iranian oil and has announced it will not make exceptions for the European Union (EU).

Response by the EU

The U.S. withdrawal from the Iran nuclear deal has drawn criticism. The EU, as well as the other signatories of the agreement, have explicitly expressed their support for the preservation of the nuclear agreement with Iran and want to maintain their economic relations in Iran.

To save the nuclear deal, the EU Commission has initiated the formal procedure to reactivate the so-called Blocking Statute (Regulation (EC) No. 2271/96). This anti-boycott provision aims to prevent the extraterritorial application of U.S. sanctions. The Blocking Statute thereby criminalizes participation in the Iran sanctions imposed by the U.S. on companies, but at the same time provides for the possibility of applying for exemptions.

The law is scheduled to take effect before August 6, 2018, the end of the first wind-down period.

Implications for exporting companies

However, European companies operating internationally are thus faced with the dilemma that compliance with the European anti-boycott regulation simultaneously leads to a violation of U.S. embargo provisions. This is compounded by the fact that failure to comply with U.S. sanctions can lead to serious consequences and drastic fines for companies. In addition, past experience has shown that the U.S. administration also consistently takes action against embargo violations by foreign companies.

The Blocking Statute, on the other hand, has not yet been applied in the past. The dispute at the time over sanctions against Cuba, Iran and Libya was settled. In this respect, it remains to be seen how the situation will develop and how the EU, in the event of a violation of the anti-boycott regulation, will react.

Update

Following the expiration of the first wind-down period, a large number of sanctions originally suspended by the JCPOA re-entered into force on August 7, 2018. The following activities, among others, are now sanctioned again:

• The purchase or acquisition of U.S. banknotes by the Government of Iran.
• Trading in gold or its precious metals
• The sale, supply or transfer of graphite, metals such as aluminum or steel, coal and software to integrate industrial processes to and from Iran.
• Significant transactions related to the purchase or sale of the Iranian currency Rial.
• The purchase, subscription or facilitation of the issuance of Iranian government bonds.

Sanctions against the Iranian automotive sector have also been reimposed.

Furthermore, the U.S. has the authority to

• the import of foodstuffs and carpets from Iran, and
• revoke all activities related to the export or re-export of commercial passenger aircraft and related parts and services to Iran.

In connection with the sanctions, the Office of Foreign Assets Control (OFAC) has posted FAQs on sanctions and settlement deadlines, as well as FAQs on the Executive Order itself, on its website.

Entry into force of the EU Blocking Regulation

Simultaneously with the revival of U.S. sanctions, the EU’s updated Blocking Regulation – (EC) No. 2271/96 – also entered into force on August 7, 2018.

In order to support EU economic operators in the application of the Blocking Statute, the EU Commission has published a guide on this subject.

In addition, the Commission has provided a template to assist EU economic operators in preparing and submitting a request for exemption.

The Federal Ministry for Economic Affairs and Energy (BMWi) has also set up a “Contact Point Iran” for affected German companies. They can contact the BMWi directly at Kontaktstelle@bmwi.bund.de.

Current developments

In connection with the new sanctions against Iran, the carmaker Daimler, for example, has already announced that its “already limited activities have been suspended until further notice”. The carmakers Renault and Peugeot have also made corresponding announcements.