Ban on compliance with certain US sanctions: Advocate General grapples with EU blocking law Catch-22 | Jones Day


On May 12, 2021, Advocate General Hogan delivered his Opinion in Case C-124/20 Bank Melli Iran v Telekom Deutschland GmbH. This case should shed important light on certain aspects of Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extraterritorial application of legislation adopted by a third country, and actions based on this or resulting from it (“EU blocking status”).

The EU blocking law prohibits EU operators from joining certain US sanctions that the EU considers extraterritorial, as listed in the annex to the EU blocking law (“sanctions blocked ”). More specifically, the EU blocking law (Article 5) provides that no EU operator “shall comply, directly or through a subsidiary or other intermediary person, actively or by willful omission, a requirement or a prohibition, including requests of foreign jurisdictions, based on or resulting, directly or indirectly, from the…[blocked sanctions] … Or the actions which result from it or which result from it. “

The Advocate General’s opinion highlights the “impossible – and quite unfair – dilemmas caused by the application of two different and directly opposed legal regimes”. He nevertheless strictly interprets the EU blocking law, believing that the duty of the ECJ is to apply the terms of the duly adopted legislation. However, he specifies that the EU legislator “could with advantage review the way in which this statute currently functions”.

Although the EU legislator has yet to take concrete action, it appears that the current trend of the European Commission may be to strengthen the EU’s blocking law obligations, rather than attacking it. to the difficult situation they raise. The European Commission recently underlined (communication of January 19, 2021) its determination to strengthen existing tools to counter the extraterritorial application of sanctions by third countries. In this context, it provided for a possible modification of the EU blocking law, “to further deter and counteract the illegal extraterritorial application of unilateral sanctions by third countries to EU operators”.

The Advocate General’s opinions set out a proposal for a non-binding legal solution to cases brought before the ECJ. Some judgments of the ECJ have deviated considerably from the opinion of the Advocate General. Nevertheless, these opinions can provide useful indications since, in the great majority of cases, the ECJ will align itself with the opinion of the Advocate General.

Facts of Case C-124/20: EU operator terminates contractual relationship with Bank Melli Iran shortly after its designation on the SDN list

Case C ‑ 124/20 concerns the termination by Telekom Deutschland GmbH of its contractual relationship with Bank Melli Iran. Telekom Deutschland GmbH is a subsidiary of Deutsche Telekom, one of Germany’s leading providers of telecommunications services. Bank Melli Iran is an Iranian bank, in the form of a public limited company under Iranian law. It has a branch office in Hamburg, Germany, and its main activity is to settle foreign business transactions with Iran. The Deutsche Telekom group has more than 270,000 employees worldwide, including 50,000 in the United States, where it generates around 50% of its turnover. The contract with Bank Melli Iran generated a turnover of just over 2,000 euros / month.

In 2018, Bank Melli Iran was (again) named to the Specially Designated Nationals and Stranded Persons (“SDN”) list of the US Treasury Department, Office of Foreign Assets Control (“OFAC”). This follows the withdrawal of the United States from the Joint Comprehensive Plan of Action in May 2018.

Shortly after Bank Melli Iran’s reappearance on the SDN list, Telekom Deutschland GmbH terminated its contract with the bank on November 16, 2018. Bank Melli Iran opposed the termination, claiming that Telekom Deutschland had violated the law of blocking the EU. Faced with this dispute, the German court asked the ECJ to clarify certain aspects of the EU blocking law.

Notably, the Advocate General explained that the American regime “Prohibits any non-US business from doing business with any person subject to primary sanctions.” In fact, however, OFAC’s main sanctions do not in themselves prohibit a non-US company that is not a subsidiary of a US company from dealing with an SDN-listed entity such as Bank Melli Iran. . However, under the secondary sanctions, non-U.S. Individuals (whether or not they are part of a U.S. corporation) may face full block or menu-based penalties for performing certain transactions with listed entities. SDN, depending on the program in which the person was enrolled on this list. However, it is not clear whether such a distinction would have led the Advocate General to rule differently on certain aspects of the case. In general, the EU blocking statute does not refer to the distinction in US law between primary sanctions (that is, which generally target the activities of US nationals and, in some cases, non-affiliated subsidiaries. US nationals) and secondary sanctions (that is, generally targeting the activities of non-US individuals).

Opinion of the Advocate General

The views of the Advocate General are particularly important with regard to the burden of proof in the event of termination by an EU operator of a contractual relationship or a decision not to engage in certain activities. More precisely, he explains that it is first for the applicant who challenges the decisions of the EU operator to provide prima facie evidence that (i) the EU operator, with whom this applicant wishes establish or maintain a business relationship, may feel concerned by the blocked sanctions; and (ii) the applicant fulfilled the conditions expected to become or remain a customer of that company. If such a prima facie case is provided, the burden of proof lies with the EU operator. In such cases, the EU operator must justify its business decision to terminate the contract in question or to refuse this applicant as a customer. The Advocate General stressed the need to justify the decision, as well as to justify these reasons.

Such an approach implies the considerable importance for companies, when making business decisions involving Cuba or Iran, to keep records and to keep evidence of the reasons underlying those decisions, in order to be able to demonstrate that these decisions. decisions were not taken in violation of EU blocking law. .

The Advocate General gives an example of a possible justification. Specifically, it recognizes that many companies and individuals may have qualms and ethical reservations about doing business with countries such as the Islamic Republic of Iran, and it recognizes the right of a company to refuse to do business. with certain regimes, in accordance with its own ethical rules. sense of company values. The Advocate General adds, however, that to demonstrate the sincerity of such a justification, an EU operator must “demonstrate that it is actively engaged in a coherent and systematic corporate social responsibility (CSR) policy which requires it, among other things, to refuse to deal with any company having ties to the Iranian regime.

Another important conclusion of the Advocate General concerns how national courts should deal with a terminated contractual relationship in violation of EU blocking law. He explains that national courts must order the EU operator to maintain such a contractual relationship, under penalty of periodic penalty payments or other appropriate sanctions.

This question also raises the question of how OFAC would handle a situation in which a court orders an EU operator to continue a contractual relationship, despite the consequences of US sanctions.

In addition, violating EU blocking law would not only void an EU operator’s notice of termination, but also lead to potential criminal or administrative penalties. These EU operators could also face possible claims for damages.

The Advocate General further held that the prohibitions in the EU Blocking Act from adhering to certain US sanctions under Article 5 are not contrary to the freedom to conduct business protected by the Charter of Rights. fundamental principles of the European Union (Article 16). However, he warns that the European Commission, when adding legislation to the list of blocked sanctions in the annex to the EU blocking law, must exercise caution. More specifically, such inclusion of the legislation in the annex must serve the objectives of the EU blocking law and the consequences flowing from such inclusion must be justified and proportionate to the effects produced by the blocking law of the EU. ‘EU. The Advocate General has not commented on whether the current list of blocked sanctions meets this standard.

The Advocate General also recognizes a right of action for companies in third countries directly targeted by the US measures, such as Bank Melli Iran, under the EU blocking law, even though the EU blocking law is not intended to protect these companies.

The Advocate General further considered, unsurprisingly, that the EU’s blocking law’s prohibition against complying with certain US sanctions is not limited to situations in which a US administrative or judicial authority has directly or indirectly instructed an EU operator.

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