The EU Blocking Regulation and its impact on European companies

The EU Blocking Regulation and its impact on European companies

The recent years have seen an escalation in economic sanctions, and particularly a divergence in the US and EU sanction policies. The US withdrawal from the ‘Iran deal’ and the immediate update of the EU Blocking Regulation to counter the US sanctions perfectly illustrate these developments. As a consequence, EU companies may find themselves having to navigate conflicting regulatory systems. This article provides some insight into the requirements and application of the EU Blocking Regulation, as well as the legal and practical issues EU companies may face.


The EU Blocking Regulation was first adopted in 1996 to protect EU companies from the effects of US sanctions against Cuba, Iran and Libya. In August 2018, the regulation was updated in response to re-imposed US sanctions against Iran.

Following the US withdrawal from the Joint Comprehensive Plan of Action (JCPoA), commonly referred to as the ‘Iran deal’, the US re-imposed sanctions against Iran which prohibited a range of commercial activities involving Iran. While US primary sanctions are directed towards US persons and entities, secondary sanctions target non-US persons and entities. Due to this extra-territorial reach, EU companies engaged in lawful activities subject to US sanctions risk far-reaching consequences, including exclusion from the US market and financial system – even when the activity has no US nexus. The Blocking Regulation therefore seeks to counter the extra-territorial effects of foreign laws, such as US sanctions, which prohibit activities that are considered lawful in the EU.

How does the Blocking Regulation work?

The regulation seeks to counteract and protect EU companies from the effects of blocked US sanctions in a number of ways:

  • It imposes a strict information duty on EU companies

The regulation explicitly provides that EU companies must inform the Commission within 30 days if their economic or financial interests are affected directly or indirectly by the blocked sanctions, or actions that are based or resulting from them. This duty applies to directors, managers and others with management responsibilities. Most Member States have national laws in place that provide for penalties for breach of this duty.

  • It prohibits EU operators from complying with blocked sanctions

The regulation prohibits compliance with foreign laws listed in its Annex. The prohibition applies to any type of compliance, whether it is direct or indirect through subsidiaries or intermediaries. This is particularly important for EU companies with US parent/subsidiary companies. Clear examples of prohibited actions are deciding to terminate, not continue or refrain from engaging in commercial activities due to concerns over US sanctions. Most Member States already have national laws in place that prescribe substantial fines and in certain cases sentences up to 12 months for breach of this prohibition. There have already been a number of recent cases, where courts have applied the regulation.

  • It provides the right to recover damages caused by the blocked sanctions

The regulation also grants EU companies the right to recover any damages, including legal costs, that are suffered as a result of the application of blocked sanctions or as a result of actions based thereon. Damages can be recovered before the national courts from any natural or legal person responsible, as well as any person acting on their behalf or acting as an intermediary. The scope of potential defendants is deliberately broad in order to include not only those directly responsible, but also their representatives. The type of damages that can be recovered may take the form of seizure and sale of assets in the EU. Further forms of recovery may be available under the applicable national law. 

  • It prohibits recognition and enforcement of judgments giving effect to blocked sanctions

Certain duties are also imposed on the Member States. The regulation prohibits Member States from recognising or enforcing judgments, decisions and awards based on or resulting from the blocked sanctions.

Authorisation to comply with US sanctions

In those cases where non-compliance with a blocked sanction is seriously damaging to an EU company, the regulation provides an authorisation mechanism, that allows companies to comply with specific blocked sanctions. Companies must apply for this authorisation, and the Commission will look at a series of factors when deciding. These include if the applicant is already subject to an investigation or a prior settlement agreement with foreign authorities and the risk of economic loss and bankruptcy. Moreover, the Commission takes into account the applicant’s connecting links with the sanctioning country. Such links include whether the applicant has parent companies, subsidiaries or participating natural or legal persons that are subject to the sanctioning country’s jurisdiction.

When does it apply?

The Blocking Regulation has immediate effect in all Member States and applies to all EU operators. EU operators are defined as natural persons resident in a Member State, legal persons incorporated in a Member State, and any other natural person within the EU acting in a professional capacity. It only applies to foreign laws listed in its Annex. It is important to note that the regulation does not force companies to continue activities that are subject to sanctions. Companies may therefore refrain from conducting or continuing such business as long as the decision is based on reasons other than compliance with the foreign sanctions.  

Recent application of the Blocking Regulation

Companies that are affected by blocked US sanctions will find that it is virtually impossible to comply with both regulatory regimes. The Blocking Regulation has had a reputation of not being enforced as heavily as the US sanctions, and for that reason companies could find that it would be less harmful to comply with US sanctions instead of the Blocking Regulation. However, with the recently increasing application of the Blocking Regulation by EU courts, this seems to no longer be the case. In the Netherlands, the District Court of The Hague recently ordered a Dutch company to continue to supply software to a company that distributed the software in Cuba. The Dutch company was acquired by a US company, and was therefore exposed to not only secondary but also primary sanctions. In Germany and Italy, courts recently ordered financial institutions and companies to continue to comply with their contracts, despite that this would expose them to US sanctions. In contrast, a recent English High Court judgment ruled in favor of an English bank that refused repayments to a Cyprus-based bank over US sanctions concerns. The High Court ruled that a contractual clause, which excused non-performance due to mandatory provisions of law, also included US sanctions.

Companies should therefore be mindful of the potential effects of US sanctions and the EU Blocking Regulation. This is not only important for companies in terms of how to navigate the conflicting regulatory requirements, but also when the performance by contractual parties is affected by US sanctions and the Blocking Regulation.

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