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Freshfields Risk & Compliance

| 4 minutes read

EU takes new approach to strengthen its economic sanctions and push back on (US) extraterritorial sanctions

The EU is ramping up sanctions policy and practice by:  

  • laying out a roadmap to increase the efficiency of EU sanctions;
  • publishing a study on the impact of extraterritorial (or secondary) sanctions on EU trade and investments;
  • setting out measures to combat such extraterritorial sanctions;
  • issuing a statement opposing the use of secondary sanctions by third countries.

Meanwhile, at member-state level, courts are beginning to reject the reach of US secondary sanctions.

Key takeaways

  • The EU study shows the severe economic and sovereignty challenges for EU member states by (US) extraterritorial sanctions.
  • The EU plans to make its sanctions programmes more efficient, harmonised and transparent by:
    • reviewing existing measures and recent circumvention tools (such as the use of cryptoassets);
    • setting up a whistleblowing system; and
    • implementing a database on the implementation and enforcement of EU sanctions throughout member states.
  • The EU is warning that other international actors, such as China, are also expected to use extraterritorial sanctions in the future.
  • EU member states courts do not accept the reliance on US secondary sanctions by EU parties.
  • The EU suggests the creation of a sanctions agency, similar to the US Office of Foreign Assets Control, to strengthen its sanctions capabilities.
  • It also suggests other ways to fight extraterritorial sanctions, including:
    • stronger (blocking) legislation;
    • greater arbitration/litigation efforts;
    • increased political/diplomatic pressure; and
    • strengthening organisational measures.

The impact of extraterritorial sanctions

According to the recent EU study, US secondary sanctions against Iran, Cuba and Russia may ultimately affect the sovereignty of the EU and its member states. The study comprehensively assesses the legality of extraterritorial sanctions, showing that such measures can hardly be justified under international law.

It is also emphasises that EU businesses are particularly affected by the economic impact of extraterritorial sanctions. Such sanctions often disincentivise third parties (including EU entities) to conduct business with the targeted countries.

Extraterritorial sanctions imposed by other international actors

Countries like China are expected to use extraterritorial sanctions in the future, which makes it even more necessary to take strong and effective steps to counter such measures.

Court rejection of secondary sanctions

While there have been some decisions by European courts acknowledging US secondary sanctions risk for EU persons (eg in the UK and Switzerland), several EU member state courts have recently issued decisions confirming that EU persons cannot rely on US secondary sanctions to justify certain actions.

For example:

  • a Dutch court has ruled that US extraterritorial sanctions are no reason to reject the fulfillment of a contract and do not constitute force majeure; and
  • the French Court of Appeal has held that, in contrast to EU and UN sanctions, US extraterritorial sanctions are not mandatory over-riding provisions and are unlawful.

An EU-wide sanctions agency

The study proposes the establishment of an EU Agency of Foreign Assets Control (EU-AFAC) to promote the effectiveness of EU sanctions and provide a platform to respond to extraterritorial sanctions.

However, the creation of such an agency would most likely require a Treaty change and may therefore be subject to EU internal political discussions and delays.

EU countermeasures toolbox

The proposed ways that the EU might push back on secondary sanctions include the following.

Stronger (blocking) legislation

The study suggests revising the EU Blocking Regulation to also cover US sanctions against North Stream 2. While such action would make the EU anti-boycott rules more comprehensive, it would still not resolve the issue that EU companies with US business activities continue to be caught between a rock and a hard place when having to deal with contradicting EU and US sanctions obligations.

Greater arbitration/litigation efforts

EU companies should look to bring investor-state claims in arbitral tribunals and US courts, and to invite member states to bring inter-state disputes under bilateral friendship, commerce and navigation treaties. The EU should also consider bringing complaints against extraterritorial sanctions to the WTO.

Increased political/diplomatic pressure

The EU and its member states should, together with institutions and other affected third countries, argue more strongly that extraterritorial sanctions may not be legal.

The EU should also consider taking ‘unfriendly’ actions and countermeasures in response to extraterritorial sanctions. This might include acts that affect diplomatic and consular relations, and cultural exchanges. While this is a start, it may take even stronger efforts to change the US approach towards secondary sanctions.

Strengthening organisational measures 

Improve INSTEX

While the Instrument in Support of Trade Exchanges (INSTEX), the European system that helps facilitate non-US dollar and non-SWIFT transactions, has helped EU entities continue doing business in Iran, it has only been used in a very limited number of cases.

Foster the role of the euro in the international financial system

The EU should explore ways to diminish the role of the US dollar and strengthen the role of the euro.

Blocking SWIFT

As a severe countermeasure, blocking the usage of SWIFT for certain US-related financial transactions has been suggested, although how this would work in practice has yet to be specified.

Improving EU sanctions and their enforcement 

To make EU sanctions more efficient, harmonised and transparent, the European Commission plans to:

  • review existing sanctions measures;
  • review practices that circumvent and undermine sanctions, including the use of cryptoassets; and
  • set up a (confidential) whistleblowing/reporting system.

The Commission also plans to develop a database, the Sanctions Information Exchange Repository, to enable prompt reporting and exchange of information between member states and the Commission on the implementation and enforcement of EU sanctions.


EU companies are regularly in the difficult situation of having to choose to comply with US secondary sanctions or the EU Blocking Regulation (or other EU sanctions).

While the envisaged more aggressive approach of the EU towards secondary US sanctions sounds promising and is a highly welcome initiative from an EU sanctions perspective, it is not yet clear if the suggested measures will actually lead to a better and more uniform response of the EU and its member states towards foreign extraterritorial sanctions.


sanctions, europe