In a recent ruling, the Frankfurt Higher Regional Court (Oberlandesgericht Frankfurt a. M.) [11 U 180/21] determined that an EU person who finds itself in a conflict between US sanctions towards Iran and the EU Blocking Regulation may be exempt from private enforcement of the EU Blocking Regulation and may refuse fulfillment of its obligations that would put it at risk of US secondary sanctions as long as the formal approval procedure under Article 5 (2) of the EU Blocking Regulation has not been formally concluded. This ruling marks another development in the jurisprudence of European courts on how to resolve conflicts between US Sanctions and the EU Blocking Regulation that many international companies are facing.
EU companies, in particular those with a US parent and/or business both in the US and in Iran or Cuba may find themselves in a conflict between the threat of US secondary sanctions in the event of compliance with the EU Blocking Regulation and the threat of EU fines in the event of violation of the EU Blocking Regulation and compliance with the US sanctions.
The European Court of Justice had previously ruled in its judgment in Case [C-124/20 Bank Melli Iran] that any person subject to US sanctions can enforce the prohibition under Article 5 (1) of the EU Blocking Regulation in civil proceedings against the EU person disregarding the EU Blocking Regulation. The European Court of Justice has even essentially introduced a reversal of the burden of proof to the effect that there was an unlawful compliance with the US sanctions if the EU person acting objectively contrary to the EU Blocking Regulation cannot prove that its conduct was not aimed to comply with the respective US legislation. Any EU person may apply for an authorization pursuant to Article 5 (2) of the EU Blocking Regulation that must be obtained before the desired compliance with the US sanctions regulated by the EU Blocking Regulation. Principally, the applicant is obliged to fully comply with the provisions of the EU Blocking Regulation for the duration of the authorization procedure. Despite potential imminent US secondary sanctions, an authorization remains the only option for a company to act in accordance with the two conflicting laws. The European Court of Justice seems to encourage the application for an authorization by indicating that, as an aspect of the principle of proportionality, it has to be taken into account whether an application for an exemption has been made.
In the decided case by the Frankfurt Court, the plaintiff was an Iranian bank providing financial services in connection with foreign trade between Germany and Iran, and was subject to US sanctions. The defendant is the central securities depository in Germany and had no contractual relationship with the plaintiff directly, but only through a chain of custodian banks. When the plaintiff intended to sell securities through its own counterparty, the defendant froze all of the plaintiff’s securities with reference to US sanctions and refused to execute the sale order. The plaintiff considers the freezing to be unlawful and, inter alia, sought injunctive relief aimed at preventing actions directed at compliance with the US sanctions. At the time of the decision, the defendant had already filed an application for an exemption under Article 5 (2) of the EU Blocking Regulation.
The Frankfurt Court denied the injunction. It held that is was unreasonable for the defendant to comply with the EU Blocking Regulation during the time its application for an authorization was pending. Accordingly, the plaintiff had no right to demand compliance with the EU Blocking Regulation.
The effects of the EU Blocking Regulation during the pendency of the authorization procedure under Article 5 (2) of the EU Blocking Regulation have not yet been clarified by the German Federal Court of Justice. For this reason, the Frankfurt Court has granted leave to appeal on the grounds of the fundamental importance of the legal dispute.
Also, this decision only concerns the private enforcement of the EU Blocking Regulation in a civil proceeding. It did not elaborate on the question whether a regulatory authority may enforce the provisions if a EU person does not comply with them before the official authorization has been granted.
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