By Gabriel Orazi

On a number of occasions, the European Union has criticised the application of certain foreign extra-territorial sanctions imposed on EU individuals and companies. What exactly are these extra-territorial sanctions? Why are they so problematic? And what is the EU doing to address this issue?

Extra-territorial laws

Among the general principles of law is that of territoriality: except for a few limited exceptions, laws apply within the territory of the country imposing them, and they must only be complied with by those living or operating a business or a not-for-profit activity there. Consequently, their effect stops at the border of that country. This is why, when you travel around the world or even within the EU, you can encounter different rules, for example in relation to speed limits, working hours or healthcare systems.

Extra-territorial laws apply beyond the border of the country adopting them. While international law provides for certain exceptions where deemed legitimate, in recent years certain non-EU countries have leveraged their key position in international trade and finance to demand compliance with their sanctions laws by EU citizens, even when those EU individuals had no link to the countries in question.

For example, certain US sanctions explicitly prohibit foreign banks from doing business with Iran, even if the transaction does not involve the US dollar or a US bank. These sanctions can act as a significant deterrent because they put the foreign bank before the difficult choice of either following US sanctions or being excluded from the US market.

Extra-territorial sanctions affecting EU citizens are problematic for two reasons. First, they make the EU’s own policies less effective, because they often prohibit behaviour that the EU or its Member States allow or even encourage. Second,extra-territorial sanctions generate substantial economic losses for the EU. For example, according to figures from the European Council for Foreign Relations, since their re-imposition in 2018, US extra-territorial sanctions against Iran have cost EU businesses more than €18.8 billion in direct losses.

EU response

In 1996, the EU adopted the ‘blocking statute’, a regulation aimed at protecting EU individuals and companies from having to comply with specific extra-territorial foreign sanctions. It does so by:

• prohibiting compliance with these non-EU sanctions
• nullifying the effect in the EU of any foreign court ruling or administrative decision based on them
• allowing EU operators to recover damages caused by them in court

In an annex to the blocking statute is a list of foreign laws and regulations to which the protective provisions of the regulation apply. Currently, the list includes a number of US sanctions against Cuba and Iran.

In January 2021, the Commission announced a new strategy, aimed at helping Europe to play a more active role in promoting the openness, strength and resilience of the EU's economic and financial system for the years to come. One of the initiatives in the strategy is a review of the blocking statute. A review is necessary because of a number of significant changes in the global financial outlook. For instance: the increased reliance on global infrastructure and value chains; EU operators’ strong exposure to certain non-EU countries; and the proliferation and increased complexity of extra-territorial sanctions.

For example, according to figures from the Center for a New American Security, the number of certain US extra-territorial sanctions between 2018 and 2020 increased almost ten-fold, following the US withdrawal in 2018 from the Iran Nuclear Deal. Other countries are also mulling a number of extra-territorial measures.

The objective of the review of the blocking statute is two-fold. First, it aims to further deter and counteract foreign extra-territorial sanctions, by taking additional commercial, capital market or other measures to protect EU operators. Second, it aims to streamline the application of the current provisions, as well as reducing the administrative burden required for compliance with the blocking statute.

The Commission is currently carrying out a stakeholder consultation on the review of the blocking statute. There's still time to submit your feedback by replying to the public questionnaire that is available online until 4 November 2021.

Read more on the blocking statute and take part in the consultation

Gabriel Orazi is a policy officer working on extra-territoriality of sanctions in DG FISMA