The United States government currently has authority under its laws to impose secondary sanctions on non-US parties for dealings with third parties who are sanctioned under US law. In light of the potential modification of the EU blocking legislation to include the current US sanctions against Iran, as well as the recent implementation in Russia of its own countermeasures to foreign sanctions, parties in the EU may find themselves making some difficult choices.
US Secondary Sanctions Related to Russia and Crimea
Particular attention has been paid recently to the secondary sanctions associated with the United States’ sanctions against Russia and the Crimea region of the Ukraine. Pursuant to several sections of the Countering America’s Adversaries Through Sanctions (CAATS) Act passed in the United States in August 2018, several types of activities may trigger the imposition of secondary sanctions by the US government. In some cases (like with respect to certain investments in and transactions related to energy export pipelines from Russia), those sanctions are optional. In other cases, such as when a party knowingly engages in significant transactions with a party designated as a Specially Designated Nationals and Blocked Person (SDN), then that third party must itself be subject to secondary sanctions. The imposition of secondary sanctions often results in the third party itself being named as an SDN.
US Secondary Sanctions Related to Iran and Other Applicable US Sanctions
In addition, with the 8 May 2018 announcement by President Trump that the United States is withdrawing from the Joint Comprehensive Plan of Action (JCPOA), the nuclear sanctions previously imposed by the United States against Iran will be put back in place. Of specific note here are the secondary sanctions, as well as the expected withdrawal of General License H, which had authorized non-US subsidiaries of US entities to engage in certain transactions with Iran and the Government of Iran while the United States participated in the JCPOA. The secondary sanctions directed at financial institutions that engage in certain transactions involving Iran have the potential to be particularly onerous if triggered.
Impact of Secondary Sanctions
It is important to keep in mind that the imposition of secondary sanctions on a party does not mean that such party has violated US sanctions. It is more appropriate to say that the party on whom secondary sanctions are imposed acted contrary to US foreign policy interests. The result of secondary sanctions implementation is not involvement in an enforcement proceeding where the party generally has an opportunity to tell its version of what occurred and offer mitigating and other factors that may alter the outcome of the matter. Instead, secondary sanctions generally result in the party being placed on the SDN List and, effectively, being economically cut off from the United States and US persons wherever located. Moreover, there is not generally an opportunity for the party that becomes subject to the secondary sanctions to advocate on its own behalf in advance of the sanctions being imposed. So the impact can be significant and sudden.
When considering the impact of the blocking legislation and applicable US sanctions, it is also relevant that US ex-pats (US citizens and permanent resident aliens) who are working with organizations in the European Union continue to be fully subject to the US primary sanctions against Iran and Russia, irrespective of whether the sanctions apply directly to their organization. This means that even if it is legal under relevant local laws in the EU to engage in certain transactions involving Iran, participation in such transactions by any US ex-pats would violate the US sanctions directly unless OFAC authorized the activities through a specific or general license.
Rock and a Hard Place
The EU blocking legislation can create a conflict of laws with US law in a situation like this. And where does that leave European organizations? Directly between a rock and a hard place—having to choose between complying with EU law and becoming the subject of US secondary sanctions, thereby losing access to the US market. Is there a defense to compliance with the EU blocking legislation? What about US persons employed by organizations in the EU—what options are available to them? There will be discussion regarding how to mitigate this risk and where the EU legislation stands currently during the ICC Seminar being held 12 June 2018.
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