Iran Sues US Over Re-Imposition of Sanctions and EU Reactivates Blocking Regulation

By Fiona Luong and Geoff Wynne

On August 6, 2018 President Trump issued an executive order re-imposing certain sanctions that were lifted under the 2016 Joint Comprehensive Plan of Action ('JCPOA'). These include the prohibition of:

• The purchase or acquisition of US dollar banknotes by the Iranian government;
• Iran’s trade in gold or precious metals;
• The sale, supply or transfer (whether direct or indirect) to or from Iran of materials such as graphite, raw or semifinished metals, including aluminium and steel, coal and software, or integrating industrial processes;
• ‘Significant’ transactions involving the purchase or sale of Iranian rials, or maintenance of ‘significant’ funds or accounts outside Iran denominated in rials;
• The purchase, subscription to or facilitation of the issuance of Iranian sovereign debt; and
• Transactions within Iran’s automotive sector.

Iran subsequently issued proceedings in the International Court of Justice ('ICJ') in the Hague against the US in respect of the re-imposition of these sanctions. In its application, Iran states that the US has violated multiple provisions of the 1955 Treaty of Amity, Economic Relations and Consular Rights (which sets out the legal framework for bilateral relations between the US and Iran).

On October 3, 2018, the ICJ ordered the US to ease sanctions it re-imposed on Iran and ruled that the US must remove "any impediments" to the export of humanitarian goods, including food, medicine and aviation safety equipment.

However, although the rulings of the ICJ are binding, the court itself has no power to enforce them.

It is too early to assess what the ruling’s impact will be in practical terms, but the ruling puts on the record that the re-imposition of sanctions is viewed as illegal by the international community.

EU Blocking Regulation

In direct response to President Trump's decision to unilaterally withdraw the US from the Iran sanctions relief program, the European Commission passed Commission Delegated Regulation (EU) 2018/1100 (the "Blocking Regulation") to ensure that EU companies can continue to trade with Iran. This means that no judgment or requirements from an authority outside the EU concerning the re-imposition of US sanctions on Iran will be recognised, and that EU persons are prevented from complying with such requirements or prohibitions unless it would seriously damage their interests or those of the European Union.

However, this causes a new obstacle for companies operating in the EU and the US. Although the penalties for violating the EU Blocking Regulation depend on the domestic application in each EU Member State, for many multinational companies, none of those potential penalties compares to the consequences of violating US sanctions, which could lead to the prohibition from transacting with US persons and companies, use of US dollars, and access to the US banking system.

Hopefully both the US and the EU regulators will recognise the paradox companies now face and will exercise their enforcement discretion with this in mind.