Politico Europe: EU Shield Looks Flimsy Against US Sanctions

Brussels moved one step closer this week to imposing a so-called blocking statute, which is meant to shield European firms from US sanctions over ties to Iran, reads an article published by Politico.eu. According to Financial Tribune, below is the full text:

The statute makes American court decisions and administrative actions regarding sanctions against Iran void in Europe. It also prohibits Europe-based firms from discontinuing their business ties to Iran due to foreign sanctions.

The green light for the measure from EU foreign ministers on Monday is part of the EU’s reaction to US President Donald Trump’s decision in May to pull the United States out of the deal.

The bloc aims both to protect European companies from US sanctions and persuade Tehran that the deal is still in its economic interests. Under the terms of the pact, international sanctions on Iran were lifted after Tehran agreed to accept strict limits on its nuclear program, verified by regular inspections and monitoring.

EU foreign policy chief, Federica Mogherini, hailed the latest move on Monday as a “consistent step forward in the set of measures that the European Union has put in place to make sure that the economic benefits deriving from the nuclear deal can continue to be in place for Iran”.

“We are working full speed,” Mogherini said, noting US sanctions are due to come into force in August and November.

“It’s a difficult exercise,” she acknowledged, “because the weight of the US in the global economy and financial system is obviously relevant. But we are determined to preserve this deal.”

However, experts say the EU’s moves are unlikely to have the desired effect.

“The EU’s blocking statute only creates legal burdens and headaches for European companies,” said former US official Richard Nephew, who served as the lead sanctions expert for the American team negotiating the 2015 Iran deal.

“It doesn’t really force EU companies to stay in Iran, just to find excuses to leave that don’t involve US sanctions compliance. That’s because the real problem is the business interests that European companies have in the United States or that their banks have in the United States.”

The blocking statute applies to what goes on inside the EU and cannot prevent the US from targeting American branches and assets of Europe-based companies.

“European governments have been fairly clear that European companies would be on their own and, on their own, they’ll make the decisions they need. Other EU actions, such as creating separate financial channels, may help sway European business decisions but, left to only the blocking device, this initiative will fail,” Nephew said.

  Cuban Precedent

The blocking statute was originally created in 1996, as the EU was grappling with the impact of US sanctions on Cuba. But that statute was never fully implemented, creating uncertainty over how it would function in practice.

“We have a number of questions on how this blocking statute is going to work,” said Luisa Santos, director for international relations at BusinessEurope, the leading lobby group representing European firms.

Companies fear that they now need to choose between continuing their operations in Iran and facing penalties in the United States, or discontinuing their operations in Iran and suffering potential legal consequences in the EU.

“We might suffer from both sides and this is an issue,” Santos said.

Firms like Airbus and Siemens are among those now facing hard choices.

French company Total already announced that it will unwind all operations in Iran unless it is “granted a specific project waiver by the US authorities with the support of the French and European authorities”.

Another major company impacted is SWIFT, which enables financial institutions worldwide to send and receive information about transactions.

In 2012, SWIFT was compelled under EU and US legislation to disconnect sanctioned Iranian banks from its system. Following the Iran deal, in January 2016, many Iranian banks were able to reconnect to SWIFT. With the clock ticking down to the reimposition of US sanctions, it is unclear whether SWIFT, which is headquartered in Belgium, will be forced to disconnect the Iranian banks once again.

“As there has been no related change to EU legislation, we will naturally be consulting with and seeking clarification from both EU and US authorities,” a spokesperson for SWIFT said.

Some small- and medium-sized European businesses are also grappling with how to proceed.

“Most companies want to stay in Iran,” Santos said, while noting also that “most companies have, directly or indirectly, business with the US”.

“Companies are not sure how to act,” she said, adding that firms are now waiting for Brussels to issue guidelines on how the statute will be implemented.

“We don’t have a lot of time; we would need these guidelines very fast,” Santos said. A spokesperson for the European Commission declined to comment before the statute is finalized in August.