U.S.’s Withdrawal from Iran Nuclear Deal: Consequences on Transnational Litigation
President Trump’s decision to pull the United States out of the Iran nuclear deal (also called JCPOA) is likely to have repercussions on U.S.-EU cross-border litigation. In this short article, I wanted to highlight the EU’s most likely response towards the re-instatement of U.S. sanctions: the expansion of the EU’s blocking statute.
U.S.’s Secondary Sanctions
While the U.S.’s withdrawal from the Iran nuclear deal definitely has a negative impact on U.S. companies doing business with Iran, it is also very likely to have a deterrence effect on non-U.S. companies involved in business relationships with this country.
Indeed, in addition to re-instating sanctions on Iran, President Trump’s decision also provides for the imposition of so-called “secondary sanctions” which typically include (i) prohibitions on imports and exports into and out of the United States; (ii) denial of entry into the United States; or (iii) other measures designed to limit access to the United States and its financial system to non-U.S. companies who engage in Iran-related activities (even though those activities have no link with the U.S.).
Consequently, through the imposition of these secondary sanctions, President Trump effectively gives non-U.S. companies the choice between either dealing with Iran or having access to the U.S. economy.
EU’s Response: Expansion of Blocking Regulation 2271/96
In response, the European Union announced a series of measures designed to protect the interests of European companies directly or indirectly involved in business transactions with Iran.
The most significant measure is the expansion of the EU’s blocking Regulation 2271/96 which was adopted in 1996 as a countermeasure to the U.S. sanctions against Cuba and pre-existing sanctions against Iran. Blocking statutes are legal provisions enacted in one jurisdiction to deter the application of a law enacted in another jurisdiction*.
With respect to transnational litigation, Regulation 2271/96 clearly offers the possibility to disregard the decisions of U.S. courts or of any U.S. authority giving effect to secondary sanctions. Article 4 and 5 of Regulation 2271/96 indeed provide the following:
No judgment of a court or tribunal and no decision of an administrative authority located outside the Community giving effect, directly or indirectly, to the laws specified in the Annex or to actions based thereon or resulting there from, shall be recognized or be enforceable in any manner.
No person […] shall comply, whether directly or through a subsidiary or other intermediary person, actively or by deliberate omission, with any requirement or prohibition, including requests of foreign courts, based on or resulting, directly or indirectly, from the laws specified in the Annex or from actions based thereon or resulting therefrom.
In order to extend the application of Regulation 2271/96 to encompass the secondary sanctions imposed by the United States after its withdrawal from the Iran nuclear deal, the European Union will need to update the annex of Regulation 2271/96. This process, however, can be done by the EU Commission acting by means of a delegated act and does not require a burdensome legislative process.
Will Regulation 2271/96 Be an Effective Tool?
Although Regulation 2271/96 prevents European companies from being exposed to the enforcement of U.S.’s secondary sanctions in Europe, it does not prevent them from being subject to the enforcement of those same sanctions on U.S. soil. Considering how important the U.S. financial system is to global and EU businesses, it remains to be seen whether Regulation 2271/96 will be an effective tool in the protection of European companies.
By means of example, foreign nations have enacted blocking statutes that prohibit their citizens and corporations to comply with U.S. discovery orders (e.g., U.S. Supreme Court cases: Société Internationale pour Participations Industrielles et Commerciales S.A. v. Rogers – 1958 and Société Nationale Industrielle Aérospatiale v. U.S. District Court – 1987).