The UK updates penalties for breaches of the EU Blocking Statute

A new UK law[1] enters into force today making it a criminal offence to breach the so-called ‘EU Blocking Statute’[2] in relation to Iran.

The Blocking Statute in the UK – the legislative landscape 

On 8 May 2018, President Trump announced the decision to withdraw from the Joint Comprehensive Plan of Action (the Iran Deal) and re-impose extraterritorial sanctions on Iran. The EU responded to the US withdrawal from the Iran Deal by amending the annex to the Blocking Statute (which generally prohibits EU persons from complying with specific US extraterritorial sanctions listed in the annex) to include those US extraterritorial sanctions which were re-imposed.[3]

The Blocking Statute leaves it to each Member State to come up with “effective, proportional and dissuasive” criminal or civil penalties under national law for breaches of the Statute.[4]

In the UK, any UK entity or individual that breaches the Blocking Statute shall be guilty of an offence punishable by:[5]

1.  an unlimited fine on indictment; or
2. a fine not exceeding the statutory maximum on summary conviction.

From 1 February 2019, this includes certain actions taken by UK entities in compliance with the re-imposed US extraterritorial sanctions on Iran. The law does not create any substantive obligations on companies or individuals, but rather sets out the penalties for breaches of the Blocking Statute in the UK.

See the legislative timeline below for more details.

The Blocking Statute vs. US extraterritorial sanctions

EU entities could face conflicting legal obligations as - under the Blocking Statute - they may be prohibited from complying with US extraterritorial sanctions on Iran whilst at the same time – under US sanctions laws - may also be prohibited from undertaking a wide variety of business activities with Iranian counterparties. 

However, according to official guidance, EU operators remain “free” to choose “whether to engage in an economic sector on the basis of their assessment of the economic situation”. This may be a reason why there has been such limited enforcement activity by EU Member States for breaches of the Blocking Statute.

At present, there is clear tension in this area between the objectives of the Blocking Statute and the re-imposed US extraterritorial sanctions on Iran. This tension – coupled with an apparent divergence in political objectives between the EU and US in relation to Iran – may well result in a possible increase in EU Member State Blocking Statute enforcement activity. In the future, companies may wish to exercise some caution in assuming that enforcement under the Blocking Statute/UK Blocking Order will be as limited going forward as it has been to date.

Your Blocking Statute risk profile – 3 preliminary steps

Companies within the UK now facing potential criminal penalties for breaches of the amended Blocking Statute should take the following three preliminary steps to manage their Blocking Statute risk profile:

1. Assess requirements – review your existing and proposed business activities and consider whether any authorisations are required from either US or EU authorities. This can be done, for instance, by utilising the Blocking Statute’s process for obtaining EU Commission authorisation to comply with specified US extraterritorial sanctions;
2. Look ahead – weigh up the risks associated with breaches of US extraterritorial sanctions against the risks of breaches of the Blocking Statute to your business and consider corresponding updates to internal policies, protocols, business plans in light of the updated Blocking Statute (especially in respect of any existing or potential business activity with Iranian counterparties); and
3. Monitor – the law and practice in this area continues to change and develop (often at a rapid pace). As such, companies should monitor the existing legal and enforcement landscape and be quick to respond if new precedents or information come to light (particularly in relation to US extraterritorial sanctions laws or EU Member State Blocking Statute enforcement activity).

[1] Extraterritorial US Legislation (Sanctions against Cuba, Iran and Libya) (Protection of Trading Interests) (Amendment) Order 2018 (SI 2018/1357) (the UK Amendment Order)

[2] EU Council Regulation No. 2271/1996

[3] See the EU Commission Delegated Regulation 2018/1100 (the EU Amendment Regulation)

[4] See Art 9. of the Blocking Statute

[5] See s. 2 of the UK Blocking Order