Cambridge Yearbook of European Legal Studies (2023), 1–17

doi:10.1017/cel.2023.14

RESEARCH ARTICLE

Building Castles in the Air? The EU Blocking Regulation

and the Protection of the Interests of Private Parties
Tamás Szabados
Associate Professor, ELTE Eötvös Loránd University, Budapest, Hungary
Email: szabados@ajk.elte.hu

Abstract
The EU Blocking Regulation intends to exclude the effects of extraterritorial legislation by third countries
and, in particular, those of US economic sanctions, to protect the interests of economic actors in the EU.
The goals of the Regulation—effective enforcement of EU law and the protection of the interests of EU
economic actors—give rise to an enforcement paradox: a lack of enforcement by the Commission and
the state authorities. The Bank Melli case not only demonstrates a shift in the enforcement of the
Blocking Regulation to private parties but also sheds light anew on the doubts about its ability to protect
private interests.

Keywords: economic sanctions; blocking statutes; compliance; extraterritoriality; enforcement paradox; clawback;
authorisation

I. Introduction
‘How the EU Learned to Love Sanctions?’ This is the title of an article written by a political scientist,
Clara Portela, who describes the increasing use of economic sanctions by the EU.1 In the current
war between Russia and Ukraine, the successive sanction packages of the European Union (‘EU’)
suggest that the EU ‘loves’ sanctions and is indeed committed to bring about a change in the
chain of events.2 However, even if the EU does love its own sanctions, it does not necessarily
like those of other countries. As a consequence, the EU sanctions policy not only embraces restrict-
ive measures imposed by the EU, but also its blocking measures, which aim to exclude the effects of
other countries’ extraterritorial sanctions, most notably those of the United States of America (‘US’).
At the moment, these measures are contained in Council Regulation 2271/96/EC protecting
against the effects of the extra-territorial application of legislation adopted by a third country,
and actions based thereon or resulting therefrom, the so-called Blocking Regulation.3 One of the
declared objectives of the Blocking Regulation is to protect the interests of EU economic operators.
For this reason, the Regulation prohibits compliance with the foreign extraterritorial laws listed in
its annex, rules out the recognition of foreign decisions based on them, contains a clawback provi-
sion to cover the damage suffered by EU economic operators as a result of the application of the
listed extraterritorial legislation and includes an authorisation procedure to allow compliance in
exceptional cases.
1
C Portela, ‘How the EU learned to love sanctions’ in M Leonard (ed), Connectivity Wars: The Geo-economic Battlegrounds
of the Future (European Council on Foreign Relations, 2016), p 36, https://ecfr.eu/article/essay_how_the_eu_learned_
to_love_sanctions/.
2
Until the time of writing this article, the EU adopted eleven sanction packages since the outbreak of the war in February
2022.
3
Council Regulation (EC) No 2271/96 [1996] OJ L309/1.
© The Author(s), 2023. Published by Cambridge University Press on behalf of Centre for European Legal Studies, Faculty of Law, University of
Cambridge. This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.
org/licenses/by/4.0/), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.

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 2 Tamás Szabados

While the EU regulatory approach has been seen by certain authors as a model for the legislation
of other countries,4 other commentators regard the EU Blocking Regulation as nothing more than a
‘paper tiger’,5 they contend that it is ‘dysfunctional’6 and demonstrates the inability of the EU to
counter extraterritorial US trade regulation. In relation to the Blocking Regulation, it was even sug-
gested that the addressees are worse off than they would be without it.7 The European Commission
(‘Commission’) did not conceal the flaws in the Blocking Regulations, and it has recently envisaged
modernising it. In the course of the open public consultation on its review, the majority of respon-
dents thought that the Blocking Regulation ‘has been unsuccessful in achieving its objective of pro-
tecting EU operators’ from the extraterritorial enforcement of US sanctions.8 Undeniably, these
statements do not paint a very flattering picture of the Blocking Regulation. Therefore, the question
must be posed whether the Blocking Regulation can indeed contribute to the effective enforcement
of EU law and policy interests, as well as the simultaneous protection of the interests of the EU eco-
nomic operators, or it is only a castle in the air built by the EU legislature. In the light of the recent
Bank Melli judgment of the Court of Justice of the European Union (‘CJEU’),9 and amidst the
ongoing review of the EU Blocking Regulation, it is worth reassessing it, in particular from the per-
spective of protecting private interests. This article can make a contribution to the existing schol-
arship by addressing the broader policy implications of this judgment, which has been so far less
discussed in the legal literature, and the ways for reconsidering the EU’s approach to countering
foreign extraterritorial sanctions.
It is often overlooked that the Commission and the competent national authorities face the con-
flicting expectations of ensuring the effective enforcement of EU law and safeguarding the interests of
EU economic operators. This gives rise to an enforcement paradox, manifesting in the authorities’
reluctance to enforce the EU Blocking Regulation against EU economic operators. In fact, enforce-
ment is shifted to private parties, which often intend to compel their contractual partners to observe
the provisions of the Blocking Regulation before the courts of the Member States. Bank Melli is an
illustration for enforcing the provisions of the Blocking Regulation by a private party, a third-country
entity, the target of US sanctions with a view to escape from the effects of those sanctions even if
their contractual partner, an EU economic operator, would have tended to observe the US sanctions.
The Bank Melli case brings a typical situation to the fore. Since EU companies do not want to
lose their access to the US market, they often want to conform to US sanctions, while this is pro-
hibited by the EU Blocking Regulation.10 EU economic operators are thus exposed to conflicting
obligations concerning the application of US sanctions. This article submits that, despite the stated
objective of the Blocking Regulation, the EU failed to protect private interests appropriately and, as
witnessed by Bank Melli, had largely left the task of enforcing the Regulation to the private sector

4
D Senz and H Charlesworth, ‘Building Blocks: Australia’s Response to Foreign Extraterritorial Legislation’ (2001) 2(1)
Melbourne Journal of International Law 69, pp 118–20.
5
M Jennison, ‘The More Things Change, the More They Stay the Same: The United States, Trade Sanctions, and
International Blocking Acts’ (2020) 69(1) Catholic University Law Review 163, p 174; T Ruys and C Ryngaert, ‘Secondary
Sanctions: A Weapon out of Control? The International Legality of, and European Responses to, US Secondary Sanctions’
(2020) British Yearbook of International Law 1, pp 98, 115.
6
J Hackenbroich, ‘Reviewing the EU Blocking Statute’ in J Hackenbroich (ed), Defending Europe’s Economic Sovereignty:
New Ways to Resist Economic Coercion (European Council of Foreign Relations, 2020), p 14, https://ecfr.eu/publication/
defending_europe_economic_sovereignty_new_ways_to_resist_economic_coercion/.
7
M Lieberknecht, ‘Die Blocking-Verordnung: Das IPR als Instrument der Außenpolitik’ (2018) 38(6) Praxis des
Internationalen Privat- und Verfahrensrechts (IPRax) 573, p 579.
8
European Commission, Amendment of the Blocking Statute – Summary of the Results of the Open Public Consultation
on the Review of the Blocking Statute (European Union, 2021), p 3.
9
Bank Melli Iran v Telekom Deutschland GmbH, C-124/20, EU:C:2021:1035.
10
C Beaucillon, ‘An Introduction to Unilateral and Extraterritorial Sanctions: Definitions, State of Practice and
Contemporary Challenges’ in C Beaucillon (ed), Research Handbook on Unilateral and Extraterritorial Sanctions (Elgar,
2021), p 13.

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 Cambridge Yearbook of European Legal Studies 3

itself. The measures envisaged by the Blocking Regulation—obligation of non-compliance with the
extraterritorial measures, the prohibition of recognising and enforcing foreign decisions giving effect
to those measures, the clawback provision and the authorisation procedure—do not provide suffi-
cient safeguards for business actors from the EU against disregarding the extraterritorial sanctions
imposed by the US and the threat of serious penalties levied by US authorities.
The above considerations underline the need for an overhaul of the EU policy concerning foreign
extraterritorial legislation and economic sanctions in particular. The EU must pursue a holistic
approach, in which the synergy between the various regulatory elements (among which the EU
Blocking Regulation is only one) can contribute to the effective enforcement of EU law and the pro-
tection of private interests at the same time.

II. The EU Blocking Regulation

The EU Blocking Regulation is a reaction to the adoption of extraterritorial legislation, including eco-
nomic sanctions, by other countries. The goal of blocking statutes is to exclude the effects of foreign
legislation claiming application without or based on a weak territorial connection to the factual situ-
ation. Using blocking statutes against the extraterritorial legislation of other countries is not an innov-
ation of the EU. Sometimes, it is the target state that adopts countermeasures to exclude the effects of
the sanctions imposed against it. For instance, Iraq intended to bar the effects of the international
sanctions during the Gulf War.11 Other countries may similarly enact blocking laws to counter extra-
territorial legislation and in particular economic sanctions that are not imposed on them, but never-
theless affect their economic operators trading with the target state or entities from the target state.
Among such blocking laws, one can refer to the Canadian Foreign Extraterritorial Measures Act,12
the Australian Foreign Proceedings (Excess of Jurisdiction) Act13 and the Mexican Act on the protec-
tion of commerce and investment from foreign norms which violate international law.14 Most
recently, China enacted the Anti-Foreign Sanctions Law to exclude the effects of ‘discriminatory
and restrictive’ measures imposed by foreign states against Chinese entities.15
The EU Blocking Regulation was inspired by the UK Protection of Trading Interests Act of 1980,
which was mainly concerned with the extraterritorial application of US antitrust law.16 Even though
the EU Blocking Regulation is generally tailored and can be invoked against the extraterritorial acts
of any state (provided that the act is listed in the Regulation), only US economic sanctions laws and
regulations have been its targets since its inception.
The stated objectives of the EU Blocking Regulation include remedying a situation deemed to be
violating international law, ensuring the free movement of capital and providing protection against
extraterritorial measures for private parties. The latter objective is expressed in Article 1 of the
Blocking Regulation, which lays down that the ‘Regulation provides protection against and counter-
acts the effects of the extra-territorial application of the laws specified in the Annex of this
Regulation … where such application affects the interests of persons … engaging in international
trade and/or the movement of capital and related commercial activities between the Community
and third countries’. The recitals also confirm the same when they point out that extraterritorial
legislation can ‘have adverse effects on the interests of the Community and the interests of natural
and legal persons exercising rights under the Treaty establishing the European Community’ and

11
Iraq Act No 57/1990. The text of the Act is reproduced and commented on in German by H Krüger, ‘Das irakische
Antiboykottgesetz 1990’ (1990) 36 Recht der Internationalen Wirtschaft (RIW) 934.
12
Foreign Extraterritorial Measures Act (RSC, 1985, C F-29), S 5.
13
Foreign Proceedings (Excess of Jurisdiction) Act 1984, S 13. See Senz and Charlesworth, note 4 above.
14
Ley de protección al comercio y la inversión de normas extranjeras que contravengan el derecho internacional, 23 de
octubre de 1996.
15
Law of the PRC on Countering Foreign Sanctions, 10 June 2021.
16
Protection of Trading Interests Act 1980, 1980 C 11.

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 4 Tamás Szabados

therefore ‘it is necessary to take action … to protect … the interests of the said natural and legal
persons, in particular by removing, neutralising, blocking or otherwise countering the effects of
the foreign legislation concerned’. The need for protecting the EU economic operators’ interests
was also underscored at the political level. In 2018, President Trump decided on the withdrawal
of the US from the Joint Comprehensive Plan of Action (‘JCPOA’), also known as the Iran
Nuclear Deal, and the reinstatement of US sanction measures against Iran, some applied extrater-
ritorially. As a response, the EU amended and reactivated the Blocking Regulation to exclude the
application of the US sanctions against Iran and to prevent any economic harm to EU economic
operators resulting from the application of these sanctions. Following the reactivation of the EU
Blocking Regulation, Jean-Claude Juncker, then the president of the Commission, stated that the
Commission and the EU have the duty to protect European businesses, especially small and
medium-sized enterprises (‘SMEs’).17
The idea of protecting private interests is well-founded. The US measures targeted by the EU
Blocking Regulation can impose a considerable burden of compliance on EU economic operators.
They require EU companies to terminate business activity with entities sanctioned by the US, even
if maintaining the business relations would be permitted under EU law. Although the intention of
the EU Blocking Regulation is to mitigate this strain, what in fact it has done is to expose EU business
actors to conflicting obligations. From one side, they are expected to comply with US sanctions or be
subject to strict penalties, including heavy fines, a prison sentence and exclusion from the US market;
from the other side, they cannot comply with the same sanctions due to the Blocking Regulation of the
EU (unless they do not obtain an authorisation from the Commission to comply with the US sanc-
tions). As a consequence, they must take a hard business and legal decision: to comply with the US
sanctions (even though this is prohibited by the Blocking Regulation) or to yield to the prohibition
of compliance in the Blocking Regulation even taking the risk of losing their access to the US market.

III. The Failed Target: The Protection of Private Parties’ Interests

We have seen that a Leitmotiv of the EU Blocking Regulation is the goal of protecting private parties
affected by the listed extraterritorial laws. The question of whether the provisions of the Regulation
are indeed capable of promoting this objective must therefore be posed. For this purpose, those pro-
visions of the Blocking Regulation that intend to protect EU economic operators (the prohibition of
recognising and enforcing decisions giving effect to extraterritorial legislation, the clawback clause
and the authorisation procedure) need to be assessed. The examination must start, however, with
the obligation of non-compliance, which is the cornerstone of the Blocking Regulation and
which had to be interpreted by the CJEU in the Bank Melli case. As explained, the extensive appli-
cation of economic sanctions by the imposing state and the response of blocking measures drive
economic operators to a situation of conflict, but this is only a real conflict if both the imposing
state and the blocking state enforce their legislation. The recent Bank Melli judgment not only
demonstrates the difficulties resulting from conflicting obligations, but also confirms the CJEU’s
willingness to enforce compliance with the Blocking Regulation.

A. Prohibition of Compliance
1. The content and the enforcement of the prohibition of compliance
Article 5 of the EU Blocking Regulation forbids EU economic actors to comply, directly or indir-
ectly, actively or by deliberate omission, with the laws specified in its annex. This provision can
be seen as protective as long as an EU economic operator does not want to comply with the listed

17
Press release, European Commission Acts to Protect the Interests of EU Companies Investing in Iran as Part of the EU’s
Continued Commitment to the Joint Comprehensive Plan of Action, IP/18/3861 (18 May 2018).

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 Cambridge Yearbook of European Legal Studies 5

extraterritorial legislation. Nevertheless, non-compliance does not depend on the will of EU eco-
nomic operators, but means an obligation for them.
The obligation of non-compliance can only be actually enforced if the competent authorities
learn about the identity of persons and the existence of contracts subject simultaneously to the
US sanctions and the EU blocking measures. In order to give teeth to the obligation of non-
compliance, the Blocking Regulation attaches an obligation of notification to it. Under it, persons
whose economic and/or financial interests are directly or indirectly affected by the listed extrater-
ritorial legislation must inform the Commission.18 This requirement is not subject to any exception.
The notification is to be made to the Commission or the competent authorities of the Member
States. In the former case, the Commission shall notify the competent authorities of the Member
State of the residence or place of registration of the person concerned without delay.
Even if the obligation of notification intends to boost the chances of the enforcement of the
Blocking Regulation, very few cases are known where the authorities in an EU Member State initiated
proceedings against private entities for non-compliance with the EU Blocking Regulation.19 Without
doubt, this can be explained by the lack of notifications by operators. This unwillingness can prob-
ably be explained by the fear that, once a national authority learns of the exposure of an operator to a
listed sanction, it will follow its compliance with the Blocking Regulation with close attention.20 More
importantly, however, the absence of procedures initiated by the competent authorities against EU
economic operators can be traced back primarily to an enforcement paradox. Ensuring the effet
utile of EU law and achieving the foreign and commercial policy objectives of the EU require the
enforcement of the Blocking Regulation. Even if these goals make it the task of the Commission
and the authorities of the Member States to enforce the obligation of non-compliance, even against
EU economic operators, the declared objective of the Blocking Regulation, to protect them may tem-
per the zeal to punish EU companies. The risk of public outcry in the event of proceedings against
EU business actors may also discourage enforcement.21 The tension between the effective enforce-
ment of EU law, as well as foreign and commercial policy considerations and the protection of pri-
vate parties, is answered in reality by the competent authorities not enforcing the prohibition of
compliance. The lack of, or at the best sporadic, enforcement of the prohibition of compliance under-
mines the credibility of enforcement and the motivation of EU economic actors to observe the
Blocking Regulation. This enforcement paradox at the same time highlights the role of the enforce-
ment of the Blocking Regulation by private parties in private law proceedings against other private
parties. The number of instances where courts in the Member States have to decide on the applica-
tion of the Blocking Regulation in contractual disputes between private parties, where typically one of
them invokes the need to respect the prohibition of compliance with US sanctions by its contractual
partner, is growing. As a matter of fact, the principal enforcers of the EU Blocking Regulation are
currently not the Commission or the Member States, but private parties.
In the judicial practice of the Member States, courts had to decide the conflict between US sanc-
tions and the EU Blocking Regulation on several occasions. The Bank Melli case provided, however,
the first opportunity for the CJEU to interpret its provisions.22
18
EU Blocking Regulation, Art 2.
19
A rare instance is the proceedings brought by the Austrian government against BAWAG, an Austrian bank, for termin-
ating the bank accounts of Cuban clients in accordance with the US sanctions against Cuba. The intention of the bank was to
facilitate its acquisition by a US investor. The US authorities finally exempted BAWAG from the compliance with the sanc-
tion. This enabled BAWAG to maintain the bank accounts concerned and the Austrian authorities surrendered further
actions and this opened the door for the planned acquisition. See Jennison, note 5 above, p 174.
20
Ruys and Ryngaert, note 5 above, pp 83–84.
21
C Van Haute, S Nordin, and G Forwood, ‘The Reincarnation of the EU Blocking Regulation: Putting European
Companies Between a Rock and a Hard Place’ (2018) 13(11/12) Global Trade and Customs Journal 496, p 500.
22
The Bank Melli decision has already been discussed by the author in a case comment: T Szabados, ‘Nachkommen oder
nicht nachkommen, das ist hier die Frage… Das Dilemma der Wahl zwischen der Einhaltung der EU-Blocking-VO oder der
US-Sanktionen vor dem Europäischen Gerichtshof’ (2023) 31(1) Zeitschrift für Europäisches Privatrecht (ZEuP) 213.

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 6 Tamás Szabados

2. The Bank Melli judgment and the protection of private interests

Telekom, a subsidiary of Deutsche Telekom, which carries out significant economic activity in the
US, terminated its contracts entered into with Bank Melli Iran, an Iranian Bank with an establish-
ment in Hamburg after the latter had been put on the list of specially designated nationals and
blocked persons (‘SDN’) of the Office of Foreign Assets Control (‘OFAC’). The US measure was
based on the Iran Freedom and Counter-Proliferation Act of 2012, an act listed in the annex to
the EU Blocking Regulation and implied a prohibition of trading for any person, even outside
the territory of the USA, with Bank Melli. Telekom did not request an authorisation to comply
from the Commission under the Blocking Regulation before terminating the contract. The CJEU
had to decide essentially whether EU economic operators can terminate their contracts entered
into with parties subject to US extraterritorial sanctions or the EU Blocking Regulation rules out
such termination and requires the continuation of the contractual relationship.
In answering this question, the CJEU took the objectives of the EU Blocking Regulation into
account. Even if the recitals of the Regulation do not make such a distinction, the CJEU treated
the protection of the established legal order and the interests of the EU as the ‘main aim’ of the
Regulation, while the protection of the interests of EU economic operators was considered as a
‘complementary objective’.23 This may already indicate that the aim of protecting private interests,
including the economic operators’ freedom to conduct business and, through the latter, their con-
tractual freedom, is only secondary to other EU policy considerations. The CJEU instead saw a risk
in the EU economic operators which, in the course of their economic activity, ‘are capable of giving
extraterritorial effect to the laws specified in the annex’ to the Blocking Regulation.24
The CJEU stated that, in principle, Article 5(1) does not exclude the termination of a contract
(even without providing reasons for it) with a person subject to US sanctions. The termination
of a contract is excluded if its aim is to comply with the US sanctions listed and, in such a case,
the contract must be maintained. The obligation of maintaining a contract depends in this way
on the motivation of the party who intends to terminate the contract.
The CJEU eased the burden of proof for the party receiving the notice of termination when
invoking its unlawfulness under the EU Blocking Regulation. By this, the CJEU intended to
solve the problem that only the terminating party is in possession of all means of evidence that
enlighten the motivation for termination.25 At a first stage, the burden of proof is placed on the
party invoking a violation of the prohibition of compliance laid down in Article 5(1) to show
that the party terminating the contract wanted to comply with the US sanctions. At a second
stage, if the available evidence indicates prima facie that the termination of the contract served com-
pliance with the US sanctions, it is for the person terminating the contract to establish that their
conduct did not seek to comply with those sanctions. With this eased burden of proof, the
CJEU gave an advantage to persons, the direct targets of US sanctions, claiming the maintenance
of contractual relationships against EU economic operators, the interests of which the EU Blocking
Regulation should protect. In the case of the pretence of compliance with the listed extraterritorial
laws, the terminating party must provide an alternative explanation for the termination, either when
announcing the termination or at the latest in the course of the procedure of adducing evidence
before a court.
Establishing the nullity of the termination to the extent that it serves compliance with the sanc-
tions listed in the annex to the Blocking Regulation and requiring the continuation of the contrac-
tual relationship constitutes a restriction of the freedom to conduct a business laid down in Article

23
Bank Melli, note 9 above, para 50.
24
Ibid, para 57.
25
G Schwendinger and R Rehle, ‘Blocking-VO: Kündigung aufgrund drohender US-Sekundärsanktionen ohne Nennung
von Gründen gegenüber US-gelisteten Unternehmen’ (2022) 33(5) Europäische Zeitschrift für Wirtschaftsrecht (EuZW) 227,
p 235.

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 Cambridge Yearbook of European Legal Studies 7

16 of the EU Charter of the Fundamental Rights. The possibility of terminating a contract is part of
contractual freedom and, as such, the obligation of maintaining a contract based on Article 5(1) of
the Blocking Regulation constitutes a restriction of contractual freedom. However, the freedom to
conduct a business and contractual freedom are not absolute rights but can be subject to limitations,
which are provided for by law, respect the essence of the freedom concerned, pursue objectives of
general interest and are proportionate as specified in Article 52(1) of the Treaty on the Functioning
of the European Union.
Taking this into account, the CJEU held that the possibility of the annulment of the termination
of the contract cannot be excluded if it aims to comply with the laws listed in the annex of the
Blocking Regulation unless it would entail disproportionate effects on the person intending to ter-
minate the contract, having regard to the objectives of the Blocking Regulation. This interpretation
is not altered by the Commission’s statements in its Guidance Note on the application of the EU
Blocking Regulation. In the Commission’s view, the objective of the EU Blocking Regulation is
that ‘business decisions remain free i.e., are not forced upon EU operators by the listed extra-
territorial legislation’ and EU operators ‘are free to choose whether to start working, continue, or
cease business operations in Iran or Cuba’.26 This would suggest that the EU Blocking
Regulation should exclude the effects of extraterritorial measures by third countries, but does not
require them to keep business relations if they do not want to. The Commission’s approach, that
companies can decide whether to terminate or continue a contract, also appeared in domestic judi-
cial practice.27 The CJEU followed a different approach and ignored the Commission’s guidance
simply on the ground that the Regulation alone is binding, but not the Guidance Note. The inter-
pretation of the CJEU confirms that, in fact, it is the Blocking Regulation that compels economic
operators to follow a certain conduct, even against their own will.
The proportionality review is left, however, to the referring national court, so it still has a certain
leeway to give preference to the freedom to conduct a business and in particular contractual freedom
against the prohibition of the Blocking Regulation. The contractual freedom, and in particular the
economic operators’ freedom to terminate or maintain a contractual relationship, can be restored if
the proportionality review confirms that the maintenance of the contract and the penalties thereby
imposed by the US authorities can have disproportionate effects on the EU economic actors in com-
parison with the interests of the EU. Hence, it is required in the individual case to weigh the goals to
be achieved by the establishment of the ineffectiveness of the termination of a contract against the
probable economic losses and their extent to the terminating party. In this way, the CJEU creates an
exception for the party terminating the contract to the prohibition of compliance. When assessing
the losses to which the terminating party is exposed, the referring national court also has to evaluate
how the US authorities will probably proceed, and whether or not they shall impose a penalty on an
EU economic actor that maintains a contractual relationship with a listed entity in violation of the
US sanctions. The assessment of the probability of such penalties is without doubt challenging for
any court in the EU.28
More concretely, in the course of the proportionality review, the national court has to examine
whether an authorisation was requested. Obtaining an authorisation from the Commission that
enables the EU economic operator to comply with US sanctions constitutes a second exception
to the illegality and the potential ineffectiveness of the termination. Telekom did not request an
authorisation from the Commission and thereby deprived itself of a means to avoid the establish-
ment of the nullity of the termination of the contract under national law.

26
Guidance Note — Questions and Answers: Adoption of Update of the Blocking Statute [2018] OJ C277I/4, p 6 (Question 5).
27
LG Hamburg, Judgment, 318 O 330/18 (15 October 2018).
28
A Lippert and A-S Ghassabeh, ‘US-Sanktionen vs. EU-Recht: Weiterhin die Macht des Faktischen? – Zum EuGH-Urteil
in der Rs. Bank Melli Iran’ (2022) 7 Betriebs-Berater (BB) 329, p 332.

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 8 Tamás Szabados

In its Bank Melli judgment, the CJEU tries to strike a balance between the enforcement of the
foreign policy interests of the EU, as well as the effective enforcement of EU law, and the interests
of the EU economic operators affected by the US sanctions. As a main rule, the CJEU gives priority
to the prohibition of compliance laid down in the EU Blocking Regulation. In Bank Melli, the busi-
ness interests of the terminating party were upstaged to let the other party to continue its economic
activity, as the telecommunication services provided by Telekom were indispensable for Bank Melli.
The CJEU, however, did not question whether the same services could have been available from
another service provider. Based on this, it seems that, instead of protecting EU economic operators,
the prohibition of compliance puts a means into the hands of third-country economic actors, the
direct targets of the US sanctions, to make their European partners respect their agreement, even
against their will.29 However, as we have seen, the decision envisages two escape routes for EU eco-
nomic operators, which enable compliance with US sanctions.30 First, economic operators can
observe the US sanctions in possession of an authorisation granted by the Commission. Second,
the prohibition of compliance can be loosened in the framework of the proportionality review.
Nevertheless, access to these escape routes is limited.

3. Failed attempts? Attenuating the prohibition of compliance in the judicial practice of the
Member States
Sometimes, the courts of the Member States have intended to mitigate the rigidity of the prohibition
of compliance using various means. In particular, for the enforcement of the prohibition of com-
pliance, certain courts required an order by a court or authority of the state imposing the extrater-
ritorial legislation listed in the annex to the EU Blocking Regulation, directing the EU economic
operator to comply with that legislation. Following this approach, in the absence of such an
order, the prohibition of compliance could not exert its effect. In a similar vein, other courts recog-
nised the possibility of contractual arrangements by the parties to conform to US sanctions, pre-
cluding the impact of the Blocking Regulation.
First, in practice, there was uncertainty whether the prohibition of compliance applies only if
compliance with US sanctions had been ordered directly or indirectly by a US court or admin-
istrative authority, or even in the absence of such an order, when an EU economic operator
observes the sanction by itself, worrying about potential penalties imposed by the US authorities.
In a case similar to Bank Melli, where the defendant availed itself of an ordinary termination
concerning a contract on the provision of telecommunications services entered into with a
German subsidiary of an Iranian metal concern, the OLG Köln declared that the ineffectiveness
or the nullity of an ordinary termination without a direct or indirect order on the part of US
authorities or courts cannot be established.31 In the Bank Melli judgment, the CJEU held that
the objective of the prohibition of compliance is to counter the effects of extraterritorial legisla-
tion in general, and its application does not presuppose the adoption of any order by a court or
administrative authority in the third country enacting the extraterritorial law. The mere threat of
penalties for breaching the extraterritorial legislation can have a negative impact on the estab-
lished legal order and the interests of the EU. The CJEU found that this interpretation is also
in line with the protection of the interests of private parties from the effects of the listed extra-
territorial laws.
Second, certain courts recognised the possibility of including a clause in the parties’ contract that
enables one or more of them to observe US sanctions. In Mamancochet Mining v Aegis Managing
29
S Solé, Extraterritorialité du droit: Le lawfare ou l’utilisation du droit comme arme de guerre économique par les
États-Unis. Thesis (Faculté de droit et de criminologie, Université catholique de Louvain, 2021), p 51, http://hdl.handle.
net/2078.1/thesis:29348.
30
Schwendinger and Rehle, note 25 above, p 236; F Scott Kieff and T D Grant, ‘China’s Sanctions and Rule of Law: How to
Respond When China Targets Lawyers’ (2022) 55(1) International Lawyer 101, pp 115–16.
31
OLG Köln, Judgment, 19 U 118/19, para 41 (7 February 2020).

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 Cambridge Yearbook of European Legal Studies 9

Agency, an insurer denied payment to the insured Iranian person following the theft of the goods
insured, because the insurance policy contained a clause under which an insurer is not obliged to
satisfy a claim if this would expose the insurer to any sanction of the EU, the UK or the US.32 The
High Court of Justice held that, even after the announcement of the reinstatement of the US sanc-
tions against Iran as a result of the withdrawal of the US from the JCPOA, payment was possible
until the date of the commencement of the restoration of the US sanctions. For this reason, the
claimant’s argument that the EU Blocking Regulation required disregarding the listed US sanc-
tions did not have any relevance for the case. Even so, the court was inclined to accept the defen-
dants’ position that the Blocking Regulation is not applicable if payment is denied in accordance
with a sanctions clause. Acting in line with the contractual clause does not, in the court’s view,
constitute compliance with any extraterritorial legislation, but simply reliance on the terms of
the parties’ agreement on the possibility of denying payment.
In France, the French company Vivéo refused to perform its contracts concluded with Bank
Melli, which had an establishment in Paris, having regard to the reinstatement of the US sanctions
against Iran.33 The contract contained a force majeure clause that enabled the parties to terminate
the contract in the event of the intervention of unexpected and non-foreseeable regulatory, govern-
mental or legal restrictions in the course of the performance of the contract. The Tribunal de com-
merce de Paris did not accept Bank Melli’s argument that the Blocking Regulation excluded
compliance with US sanctions. The contractual clause reflected the parties’ will. Moreover, Vivéo
and its shareholder, a Swiss company, were equally exposed to a real and significant risk of
being penalised by US authorities.
It seems, therefore, that the courts in some Member States tended to limit the scope of the
Blocking Regulation and ease the rigidity of the prohibition of non-compliance, giving priority
to the contractual arrangements of the parties. Nevertheless, such contractual clauses can be con-
sidered as indirectly based on the extraterritorial legislation listed in the annex of the Blocking
Regulation.34 In view of the emphasis put by the CJEU in the Bank Melli judgment on the need
to ensure the full effectiveness of Article 5 of the Blocking Regulation,35 it is less likely that such
an approach would be confirmed by the CJEU.

B. Prohibition of Recognising and Enforcing Decisions

The recognition and enforcement of a foreign decision based on the listed legislation would mean
that the courts of the EU Member States would give a hand to the implementation of the extrater-
ritorial legislation. The private international law or the international civil procedure law of most
countries provides for the possibility of the denial of the recognition or the enforcement of foreign
decisions if they contravene the public policy of the state where the recognition or enforcement is
requested. In fact, this general public policy exception would be sufficient to reject the effects of such
foreign decisions, but a specific prohibition of recognition and enforcement makes the stance of the
EU clear and unequivocally determines the conduct to be followed by all courts in the Member
States.
However, the prohibition of recognising and enforcing foreign decisions based on the listed
extraterritorial legislation does not prevent the application and the effects of penalties imposed
by the US authorities if the European economic operator, which refuses to comply with the listed
legislation, has a parent company or a subsidiary in the US, which can be subject to prosecution and
32
Mamancochet Mining v Aegis Managing Agency [2018] EWHC 2643 (Comm). See also Lamesa Investments v Cynergy
Bank [2019] EWHC 1877; Lamesa Investments v Cynergy Bank [2020] EWCA Civ 821.
33
Tribunal de commerce de Paris, No 2019023091 (23 Janvier 2020).
34
D Ventura, ‘Contemporary Blocking Statutes and Regulations in the Face of Unilateral and Extraterritorial Sanctions’ in
C Beaucillon (ed), Research Handbook on Unilateral and Extraterritorial Sanctions (Elgar, 2021), p 229.
35
Bank Melli, note 9 above, paras 59, 65, 67.

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 10 Tamás Szabados

severe penalties.36 More generally, the EU Blocking Regulation, and in particular the prohibition of
recognising and enforcing foreign decisions, does not remedy the problem when the company sub-
ject to penalties or a condemning judgment in the US has assets in the US and enforcement can be
pursued against such assets.

C. Clawback Provision
Blocking statutes often contain clawback provisions, under which a person suffering harm result-
ing from the enforcement of the blocked foreign legislation can claim damages. The harm can be
due to a decision rendered in public or public proceedings against an economic operator from
the jurisdiction that introduced the blocking legislation. The Blocking Regulation contains
such a disposition in its Article 6, too. Damages can be recovered from ‘the natural or legal per-
son or any other entity causing the damages or from any person acting on its behalf or inter-
mediary’ in accordance with the rules of the Brussels I Regulation.37 The clawback provision
gains practical importance if the defendant has assets in the EU that can be subject to
enforcement.
Even so, the application of the clawback provision raises several questions. The first of these is
against whom it can be enforced. The injured party cannot claim damages from the state imposing
the sanction or its authorities due to state immunity. The scope of application of the Brussels I
Regulation covers civil and commercial matters, while ‘the liability of the State for acts and omis-
sions in the exercise of State authority (acta iure imperii)’ is explicitly excluded from its scope. The
immunity is not disregarded even if the US extraterritorial sanctions are considered as a violation of
international law by the EU.38 Hence, the provision can be invoked instead against contractual part-
ners who, for example, by complying with the listed extraterritorial legislation refuse to perform a
contract. They are, however, very often EU economic operators whom the EU Blocking Regulation
should protect.
Notwithstanding the reference to the Brussels I Regulation, establishing jurisdiction can raise
questions. In particular, the text of the Blocking Regulation does not give an answer to what hap-
pens if the damage resulting from the application of the extraterritorial legislation is suffered in
more than one country.39 They can be all EU Member States or EU Member States and third coun-
tries. In such a situation, it is not clear whether the court having jurisdiction under the Brussels I
Regulation can hear the case regarding the entire damage or only the damage occurred in the state
the court of which has been seized.
Furthermore, even if the clawback provision can be considered as an overriding mandatory
norm, the detailed rules of clawback claims are not specified in the Blocking Regulation. To ascer-
tain these rules, it must be established which law applies to the claim. If the extraterritorial legisla-
tion is enforced against an EU economic operator present in the US, the damage occurs in this
country and thus US law will be applicable under the Rome II Regulation.40 In accordance with
Article 15 of the Rome II Regulation, this law would also govern most issues related to the
claim, including prescription or division of liability, even if this is probably not the goal of the

36
See Van Haute, Nordin, and Forwood, note 21 above, p 499.
37
The Blocking Regulation refers to the Brussels Convention [1972] OJ L299/32, which has been replaced since then by the
Brussels I Regulation, see currently Regulation (EU) No 1215/2012 [2012] OJ L351/1.
38
See Jurisdictional Immunities of the States (Germany v Italy: Greece Intervening), Judgment, para 91 (Intl Ct Just 3
February 2012). See Lieberknecht, note 7 above, p 578; Ruys and Ryngaert, note 5 above, pp 96–97.
39
J Basedow, The Law of Open Societies – Private Ordering and Public Regulation of International Relations. Collected
Courses of the Hague Academy of International Law, Vol 360. (Martinus Nijhoff Publishers, 2013), pp 339–40; J Basedow,
‘Blocking Statutes’ in J Basedow, G Rühl, F Ferrari, and P de Miguel Asensio (eds), Encyclopedia of Private International
Law (Elgar, 2017), p 116.
40
Regulation (EC) No 864/2007 [2007] OJ L199/40.

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 Cambridge Yearbook of European Legal Studies 11

EU legislature. This is why, in the legal literature, it was proposed that such questions should be
governed by the lex fori instead of the lex loci damni.41

D. Authorisation Procedure
Sanctions regimes are often subject to an exception: an authorisation or licence can be requested
and, if granted, the applicant does not have to comply with a sanction. Analogously, the
Blocking Regulation exceptionally tolerates the non-observance of the Blocking Regulation and pro-
vides for an exemption from the prohibition of compliance with the listed legislation once this is
authorised by the Commission. Granting authorisation can, to a certain extent, ease the burden
on EU economic operators. However, as the result of the public consultation suggests, the rules
of the authorisation procedure and the criteria of the assessment of requests are not clear and it
takes too long for the Commission to make a decision.42 The authorisation procedure enables eco-
nomic operators to ‘comply fully or partially to the extent that non-compliance would seriously
damage their interests or those of the Community’.43 The Regulation, however, does not define
what kind of damage can be considered serious. The discretion of the Commission gives rise to
uncertainties, but it also indicates that enforcement is not complete, but can be subject to excep-
tions.44 The uncertainties were mitigated to a certain extent by adopting the Commission imple-
menting regulation 2018/1101/EU, which determines the assessment criteria used by the
Commission.45 The criteria listed are in connection either with the interests of the applicant or
the interests of the EU.
The Bank Melli judgment highlights that the CJEU considers the possession of an authorisation
as proof that the non-compliance with the listed sanctions would cause damage to the interests of
the economic operator or the EU, and this is taken into account in the course of the proportionality
review in favour of the party terminating the contract. It can be assumed that, in possession of the
authorisation to comply with the US sanctions, the termination is lawful.
In practical terms, however, the submission of a request for authorisation reveals the intention of
the applicant to comply with the third-country legislation. In the event of the rejection of the appli-
cation, the applicant practically loses their chances in the proportionality review. Moreover, the sub-
mission of an application for an authorisation does not have a postponing effect, in other words, the
applicant cannot comply with the sanctions listed in the annex to the Blocking Regulation until the
decision on its application and is in this way exposed to penalties imposed by the US authorities.46
These factors can discourage EU economic operators from asking for an authorisation.
The Commission’s Guidance Note clarifies that even a request for a licence from US authorities
submitted for the purpose of obtaining an exemption from compliance with the listed US sanctions
is prohibited, because such a procedure involves compliance with the US legislation.47 Such a
request can only be submitted to the US authorities if it has previously been authorised by the
Commission.
A further risk for EU economic operators is that persons subject to US sanctions can challenge
the Commission’s decisions authorising compliance with US sanctions. This can be illustrated by
the pending IFIC Holding v Commission case.48 Here, IFIC Holding AG, a wholly owned
German subsidiary of the Iran Foreign Investment Company (‘IFIC’), an Iranian company

41
Basedow, The Law of Open Societies, note 39 above, p 340.
42
European Commission, Summary of the Results of the Open Public Consultation, note 8 above, p 3.
43
EU Blocking Regulation, Art 5(2).
44
Ventura, note 34 above, pp 224–25.
45
Commission Implementing Regulation (EU) 2018/1101 [2018] OJ L199I/7.
46
Guidance Note, note 26 above, p 9 (Question 20); see Schwendinger and Rehle note 25 above, p 236.
47
Guidance Note, note 26 above, p 10 (Question 23).
48
IFIC Holding v Commission, T-8/21, Action Brought on 10 January 2021.

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 12 Tamás Szabados

owned by the Iranian government, brought an action before the General Court for the annulment of
the Commission decision granting authorisation to Clearstream Banking AG.

IV. Towards a Solution: The Need for a Holistic Approach and the Revision of the EU
Blocking Regulation
While the goal of the EU legislature by the adoption of the Blocking Regulation was to protect
private parties, it in fact drove them to the battlefield of US sanctions and EU countermeasures.
The burden of simultaneous compliance with US sanctions and the Blocking Regulation is placed
on EU economic operators, not only against the competent authorities in the EU and the US, but
also against counterparties wishing to escape from the effects of US sanctions.
Various measures have been proposed to counter the expansive application of the US sanctions:
legal and financial support for the EU economic operators affected by the extraterritorial legislation,
organisational measures, such as the establishment of an EU agency similar to the OFAC, the
creation of special vehicles (such as INSTEX) to bypass the need to rely on the US clearing system,
the introduction of trade restrictions by the EU, in particular the exclusion of the operators of the
imposing country from the EU financial or public procurement market. The respondents of the
open public consultation of the Commission on the review of the Blocking Regulation expressed
the view that the toolbox of the Blocking Regulation should be complemented and suggested
measures similar to those mentioned above.49 Most of these measures, however, clearly go beyond
a simple revision of the Blocking Regulation.
The EU Blocking Regulation does not stand alone. There is no doubt that the EU has to follow a
holistic approach to counter economic coercion by third countries and to protect EU economic
operators. Only a combination of various trade measures can ensure the achievement of these goals.

A. Strengthening Political Cooperation and Coordination

Most authors look for a solution outside the EU Blocking Regulation. Indeed, the source of the con-
flicting legislations and obligations is a political one. Therefore, the solution can also be of a political
nature. As broadly accepted in the legal literature, a potential way out of the clash of legislations
would be a better coordination of sanction policies. Sanctions could be adopted following bilateral
coordination between the EU and the US, or even in a broader multilateral framework.
However, it can be seen that EU and US cooperation is relatively intensive in sanctions policy.50
In the US, the Office of Sanctions Coordination has provided a formal framework for the alignment
of sanction policies with its allies under the Obama and Biden administration, and it happened that
the US Secretary of State was invited to the EU Foreign Affairs Council.51 The responsible author-
ities of the two sides held meetings to enhance the operation of their sanction policies.52
The tensions over the sanctions against Iran demonstrate that existence of formal and informal
mechanisms for coordination are not necessarily sufficient by themselves. Coordination must be
accompanied by the political will to recognise common values and interests instead of pursuing
a unilateral approach. An often evoked political compromise was born in 1998 when the EU and
the US entered into an agreement under which the EU withdrew its complaint submitted to the
World Trade Organization against the US for the extraterritorial application of the

49
European Commission, Summary of the Results of the Open Public Consultation, note 8 above, pp 5–6.
50
L Jianwei, ‘US-EU Cooperation on Economic Sanctions: Characteristics, Limitations and Prospects’ (2019) 79 China
International Studies, p 168.
51
US Department of State, Secretary Blinken’s Participation in the EU Foreign Affairs Council (22 February 2021), https://
www.state.gov/secretary-blinkens-participation-in-the-eu-foreign-affairs-council/.
52
European Commission, News, U.S. and EU Sanctions Teams Enhance Bilateral Partnership (16 May 2023), https://
finance.ec.europa.eu/news/us-and-eu-sanctions-teams-enhance-bilateral-partnership-2023-05-16_en.

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 Cambridge Yearbook of European Legal Studies 13

Helms-Burton Act and, in exchange, the US suspended the application of the most debated Title III
of the Act.53 The latter opened the way for damages actions by US nationals owning a claim to prop-
erty confiscated by the Cuban government in US courts against any persons (including EU eco-
nomic operators) trafficking such property.54
To promote a mutually acceptable sanctions policy, the EU should make efforts to liaise with the
US administration and the Congress, the main shapers of US sanctions policy.55 Coordination can
channel political compromises, which can render the blocking measures unnecessary.

B. Complementary Effects: The Proposal for the EU Anti-Coercion Instrument

In 2021, the Commission proposed the adoption of the EU Anti-Coercion Instrument, the effects of
which are intended to complement and strengthen the operation of the EU Blocking Regulation.
Based on the Commission’s proposal for the Anti-Coercion Instrument, in the event of economic
coercion by a third country, the EU could adopt countermeasures in a more flexible way.56 The
response measures target primarily the third states exerting pressure on the Union or a Member
State, but legal or natural persons connected or linked to the government of the third country con-
cerned and contributing to the economic coercion can be also designated by the Commission and
be subject to response measures. Countermeasures may include, among others, restrictions on trade
and investments and restrictions on banking, insurance, access to Union capital markets and other
financial service activities and exclusion from public procurement procedures.57 Accordingly, the
countermeasures of the Anti-Coercion Instrument largely correspond to those contemplated in
the legal literature and by the respondents of the public consultation in relation to the Blocking
Regulation. Moreover, like the Blocking Regulation, the proposal contains a clawback provision,
enabling Union natural or legal entities to recover any damage resulting from economic coercion
from entities designated by the Commission on the basis of their connection to the third country
applying the economic coercion or their involvement.58
Nevertheless, certain differences may help to differentiate the two ways of protection. While most
of the provisions of the Blocking Regulation take a negative stance, isolating EU economic operators
from the extraterritorial effects of the listed foreign legislation by imposing various negative obliga-
tions (non-compliance, non-recognition, and non-enforcement), the Proposal on economic coer-
cion instead prepares the ground for a broader range of positive actions by the EU. The
measures envisaged by the Blocking Regulation, including the obligation of notification, the prohib-
ition of compliance and the non-recognition of foreign decisions, are to be observed automatically
by EU economic operators and courts respectively based on the Regulation. The countermeasures of
the Anti-Coercion Instrument are not triggered automatically. They must be preceded by a deter-
mination by the Commission that the third-country measure constitutes economic coercion. If so,
the Commission must be open to settling the dispute with the third country, among other ways, by
negotiations, mediation or international adjudication. And even in the absence of an agreement at
this phase, the Commission has a considerable leeway to impose a response measure, since before

53
‘European Union-United States: Memorandum of Understanding Concerning the U.S. Helms-Burton Act and the U.S.
Iran and Libya Sanctions Act’ (1997) 36(3) International Legal Materials 529.
54
Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996 (Helms–Burton Act), Pub L 104–114. See S Smis and K
van der Borght, ‘The EU-U.S. Compromise on the Helms-Burton and D’Amato Acts’ (1999) 93(1) American Journal of
International Law 227.
55
C Portela, ‘Creativity Wanted – Countering the Extraterritorial Effects of US Sanctions’ (European Union Institute for
Security Studies, October 2021), BRIEF 22, p 6, https://www.iss.europa.eu/sites/default/files/EUISSFiles/Brief_22_2021_0.pdf.
56
COM(2021) 775 final, Proposal for a Regulation of the European Parliament and of the Council on the protection of the
Union and its Member States from economic coercion by third countries.
57
Anti-coercion Proposal, Annex I.
58
Ibid, Art 8.

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 14 Tamás Szabados

doing this it must ponder whether the countermeasure is necessary to protect the interests and
rights of the EU and the Member States and whether the action is in the Union’s interest.59
Although, as the public consultation highlighted, the co-existence of the two instruments should
ideally be characterised by complementarity,60 there is a risk of incoherence in applying the two
instruments due to their overlapping nature. It can be attempted to distinguish the scope of appli-
cation of the two instruments in accordance with their targets.61 The Blocking Regulation is
intended to counteract foreign extraterritorial laws affecting the interests of EU economic operators.
On the contrary, the proposed Anti-Coercion Instrument enables sanctioning interference with the
legitimate sovereign choices of the Union or a Member State. From this, it could be inferred that if a
third-country measure considered extraterritorial concerns EU economic operators, the Blocking
Regulation applies, whereas measures against the EU and the Member States can be counteracted
under the Anti-Coercive Instrument. It cannot be, however, overlooked that foreign secondary sanc-
tions against EU economic operators may also cause the EU or its Member States to align their for-
eign or commercial policy with the imposing state towards another country. This can trigger the
simultaneous application of both the Blocking Regulation and the Anti-Coercion Instrument. In
its recitals, the Blocking Regulation highlights the adverse impact of foreign extraterritorial laws
on the EU legal order and the Union interests and qualifies the protection against such interferences
as one of the objectives of the Regulation. Article 2 of the proposed Anti-Coercion Instrument does
not specify whether an indirect limitation of sovereign choices suffices for its application, but this is
not explicitly excluded either. Even though, concerning foreign extraterritorial laws, it can be argued
that the Blocking Regulation applies as a lex specialis to the more broadly tailored Anti-Coercion
Instrument, the Impact Assessment Report prepared for the latter rejects this interpretation.
According to it, just the Blocking Regulation applies if the extraterritorial measure only threatens
EU economic operators.62 Nevertheless, it states that there can be a ‘potential partial overlap’
between the two instruments if foreign extraterritorial laws have a coercive effect not only on EU
economic operators, but also on the EU or its Member States.63

C. Amendment of the EU Blocking Regulation

In 2021, a Commission communication envisaged the amendment of the EU Blocking Regulation.64
It contemplates in particular clarifying the clawback rules, strengthening national measures to block
the recognition and enforcement of foreign decisions based on the listed extra-territorial measures,
streamlining the processing of authorisation requests and the Commission possibly becoming
involved in foreign proceedings to support EU companies and individuals.65 Even if the details of
the planned amendment are not yet known, the ongoing revision of the Blocking Regulation
launched by the Commission can evidently contribute to the holistic approach needed. Regarding
the revision process, the question must be posed of what sorts of amendments would strengthen
the protection of private parties in accordance with the stated objectives of the Blocking Regulation.

59
T Ruys and F Rodríguez Silvestre, ‘The Union Strikes Back – The Proposed EU “Anti-Coercion Instrument” (ACI) Seen
Through the Lens of International Law’ (Grili Working Paper, December 2022), No 8, pp 3–4, https://www.law.ugent.be/grili/
sites/default/files/working-paper/aci_-_the_union_strikes_back.pdf.
60
European Commission, Summary of the Results of the Open Public Consultation, note 8 above, p 8.
61
Ruys and Rodríguez Silvestre, note 59 above, p 13.
62
SWD(2021) 371 final, Commission Staff Working Document Impact Assessment Report, Accompanying the document
Proposal for a Regulation of the European Parliament and of the Council on the protection of the Union and its Member
States from economic coercion by third countries, p 10.
63
Ibid, pp 6, 10,
64
COM (2021) 32 final, Communication from the Commission to the European Parliament, the Council, the European
Central Bank, the European Economic and Social Committee and the Committee of the Regions, The European economic
and financial system: fostering openness, strength and resilience.
65
Ibid, p 18.

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 Cambridge Yearbook of European Legal Studies 15

First, the view appears in the legal literature that the annex of the Regulation should be revised by
adding further laws, including certain US sanctions. The US sanctions imposed in relation to the
Nord Stream 2 project was mentioned earlier as a potential candidate.66 Amidst the joint efforts
of the EU and the US to maintain effective sanctions against Russia, it is not expected that the
EU would add further US laws to the list. Interestingly, it is also advocated that the protection
should look beyond the extraterritorial character of the targeted legislation and should have, as
its broader object, acts involving a violation of public international law.67 In this respect, certain
Chinese laws, such as the Anti-Secession Law and Hong Kong National Security Law, were referred
to in the legal literature.68
At the moment, the Blocking Regulation is focused on protection against the effects of the extra-
territorial application of the laws specified in its annex. Its targets are now US economic sanctions.
The recitals of the Regulation also refer to extraterritoriality as a violation of international law. No
other breaches of international law are mentioned. Finally, it can be noted that, for human rights
violations, the EU has another means it can apply, the EU Global Human Rights Sanctions
Regime, and more specifically the ‘EU Magnitsky Act’, which can be a basis for measures against
both state and non-state actors.69
In any case, the extension of the list of targeted legislation is, by itself, only a quantitative
change, but certain substantive changes could also be considered. Secondly, therefore, the
Blocking Regulation should also make clear in its text the overriding mandatory nature of its
most crucial rules, most notably that of the prohibition of compliance, to the effect that they can-
not be derogated by the parties’ contractual arrangements. This would imply that the listed legis-
lation could not even be observed, even if this would follow from a contractual clause determined
by the parties.
Third, even if the Blocking Regulation currently recognises the right of the Member States to
determine the legal consequences,70 the effectiveness of EU law would require the determination
of penalties at EU level in the Blocking Regulation. The only requirement imposed by the
Regulation is that the penalties ‘must be effective, proportional and dissuasive’. Leaving the deter-
mination of the sanctions of a breach to the Member States and imposing only these minimum
qualitative criteria is typical in EU sanctions and trade legislation. However, the legal consequences
applied in the criminal, administrative and private law of the Member States largely differ.71 The
public consultation of the Commission also confirmed that even a significant part of the respon-
dents, including business operators, are in favour of the harmonisation of penalties for the breaches
of the Blocking Regulation.72 Companies would not be treated differently in terms of the application
of diverse legal consequences depending on the Member States of the courts or authorities seized
and this would contribute to a level playing field in the EU. It must be noted here that, primarily
in view of the extensive application of sanctions against Russia for its military aggression in Ukraine,
the Commission put forward a proposal on the criminalisation of violations of Union restrictive
measures. Due to the Proposal, restrictive measures will be defined and the minimum rules of

66
S Blockmans, ‘Extraterritorial Sanctions with a Chinese Trademark’ (CEPS Policy Insights, January 2021), No PI2021-01,
p 15, https://www.ceps.eu/download/publication/?id=31956&pdf=CEPS-PI2021-01_Extraterritorial-sanctions-with-Chinese-
characteristics.pdf.
67
Kieff and Grant, note 30 above, p 121.
68
Blockmans, note 66 above, p 15.
69
Council Regulation (EU) 2020/1998 [2020] OJ L410I/1.
70
EU Blocking Regulation, Art 9.
71
The various sanctions determined by some of the Member States for the event of a breach of the Blocking Regulation are
outlined by D Rovetta, G Pandey, and A Smiatacz, ‘Don’t Wake up the (EU) Bear! The Scope of the EU Blocking Regulation
2271/96 in Light of the Recent Preliminary Ruling Reference in Bank Melli v Telekom Deutschland Case, C-124/20’ (2021) 16
(2) Global Trade and Customs Journal 44, pp 50–51.
72
European Commission, Summary of the Results of the Open Public Consultation, note 8 above, p 4.

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 16 Tamás Szabados

penalties will be determined at EU level.73 Once criminal penalties are determined at EU level, it is
hard to exclude a priori the possibility of adopting certain uniformly determined administrative or
private law consequences. The tenor of the Bank Melli judgment could be extrapolated to and gen-
eralised in the text of the Blocking Regulation. Ineffectiveness of legal acts made by any of the par-
ties in contravention of the prohibition of compliance laid down in the EU Blocking Regulation
could be established.
Finally, notwithstanding the current uncertainty around the contractual arrangements of the par-
ties, there is one method that may help economic operators to protect themselves. Pursuant to the
Bank Melli judgment, companies can protect themselves by more accurately documenting the rea-
sons for their business decisions and actions, in particular termination of contracts, to avoid even
the appearance that their conduct was motivated by the intention of complying with US sanctions.74
The recast of the Blocking Regulation could reflect the ruling of the CJEU by codifying that in civil
proceedings relating to the alleged infringement of the prohibition of compliance under Article 5,
where all the evidence available to the national court suggests prima facie that a person concerned
complied with the laws listed in the annex to the Regulation, without having an authorisation in that
respect, it is for that same person to establish to the requisite legal standard that their conduct was
not intended to comply with those laws.75
Despite the concerns about its effectiveness at protecting private interests, the ongoing revision
process suggests that the Commission does not want to give up the Blocking Regulation.
Relinquishing this much-contested instrument would amount to an unacceptable political surren-
der. Although the content of its revision is so far unknown, due to the conflicting goals pursued by
the Blocking Regulation, it can be expected that its amendment will produce a painkiller rather than
a remedy for all its flaws.

V. Conclusions
The EU Blocking Regulation may be praised for making a stand for the respect of international law
condemning foreign extraterritorial legislation and in particular for taking a firm political stance
against the extensive US sanctions policy.76 However, the Regulation does not seem to protect
the interests of private persons affected by the targeted extraterritorial measures adequately. In
fact, the Blocking Regulation exposes EU economic operators to conflicting obligations. EU com-
panies tend to conform to US sanctions in order not to lose their access to the US markets. At
the same time, this is prohibited by the EU Blocking Regulation, which excludes compliance
with the listed extraterritorial legislation.
However, not only EU economic operators can find themselves in a conflict of obligations, but also
the Commission and the competent national authorities. While they are obliged to enforce the provi-
sions of the Blocking Regulation, and in particular the prohibition of compliance, against EU economic
operators, one of the stated objectives of the Regulation is to protect the interests of these economic
players. This brings to an enforcement paradox, the result of which is the absence of enforcement
by authorities. From the competent authorities, enforcement is shifted to private parties, typically third-
country entities targeted by US sanctions, which want to compel EU economic actors, their contractual
partners, to disregard the US sanctions in question in conformity to the EU Blocking Regulation.

73
COM(2022) 684 final, Proposal for a Directive of the European Parliament and of the Council on the definition of crim-
inal offences and penalties for the violation of Union restrictive measures. See also COM(2022) 245 final, Proposal for a
Directive of the European Parliament and of the Council on asset recovery and confiscation.
74
H L Clark, ‘Dealing with U.S. Extraterritorial Sanctions and Foreign Countermeasures’ (1999) 20(1) University of
Pennsylvania Journal of International Economic Law 61, p 95.
75
Bank Melli, note 9 above, paras 67–68.
76
Ventura, note 34 above, p 238, who at the same time acknowledges that ‘blocking statutes fail to provide … an effective
remedy for domestic operators facing foreign extraterritorial sanctions regimes’. Ibid, p 237.

https://doi.org/10.1017/cel.2023.14 Published online by Cambridge University Press

 Cambridge Yearbook of European Legal Studies 17

The Bank Melli case illustrates this clearly: upon the claim of an Iranian party, the effective
enforcement of EU law and EU foreign policy considerations were given priority by the CJEU
over the parties’ contractual freedom. The case clearly demonstrates how political conflicts appear-
ing at the macro-level are precipitated at the micro-level of private law. The Bank Melli case was the
first occasion when the CJEU had to interpret the provisions of the EU Blocking Regulation, but
certainly not the last. This is demonstrated by the IFIC Holding v Commission case mentioned
above and the Pilatus Bank case, where the withdrawal of the authorisation of a Maltese bank by
the European Central Bank (‘ECB’) was challenged by the Maltese bank, among others, on the
grounds that the actions of the sole shareholder of the bank, whose good repute was called into
question by the ECB decision, acted in breach of US sanctions and the withdrawal of the author-
isation would involve compliance with US sanctions and in this way a violation of the EU
Blocking Regulation.77 The General Court rejected this argument because it examined only the
good repute of the company’s shareholder but not whether US law or EU law was infringed.
The Blocking Regulation has been widely criticised for not countering in fact the application of
the targeted US sanctions and for not being capable of protecting private interests.78 Despite these
criticisms, it cannot be expected that the Commission would give it up as a legal and political instru-
ment. Instead of simply surrendering the application of the Blocking Regulation, a holistic approach
is necessary. As often divergences in sanctions policies motivate the adoption of extraterritorial sec-
ondary sanctions and the need for blocking measures, an obvious solution is finding political com-
promises through stronger political cooperation and coordination. The Blocking Regulation (with
its negative exclusionary stance towards foreign extraterritorial legislation) and, in the event of its
adoption, the Anti-Coercion Proposal (which enables positive measures) have the potential to con-
tribute to synergies in enforcing the foreign and commercial policy interests of the EU.
A reform of the approach towards the application of extraterritorial sanction was called for on
both sides of the Atlantic.79 So far, however, not much has happened on either continent.
However, if the EU does not want to build just castles in the air then, in the course of the revision
of the Blocking Regulation, it has to find proper means to protect the interests of private parties.

77
Pilatus Bank plc and Pilatus Holding Ltd v European Central Bank, T-27/19, EU:T:2022:46. The decision of the General
Court has been appealed and now the case is pending before the Court, Pilatus Bank v ECB, C-256/22 P appeal brought on 12
April 2022 by Pilatus Bank plc against the judgment of the General Court (Ninth Chamber, Extended Composition) delivered
on 2 February 2022 in Case T-27/19.
78
See in particular Hackenbroich, note 6 above, p 14; Lieberknecht, note 7 above, p 579; N Maniaci, ‘The Helms-Burton
Act: Is the U.S. Shooting Itself in the Foot?’ (1998) 35(3) San Diego Law Review 897, p 917.
79
Proposals for increasing the resistance of the EU to extraterritorial legislation were outlined, among others, by J
Hackenbroich (ed), note 6 above. The need for a reform of US sanctions policy was highlighted by D Meagher, ‘Caught
in the Economic Crosshairs: Secondary Sanctions, Blocking Regulations, and the American Sanctions Regime’ (2020) 89
(3) Fordham Law Review 999.

Cite this article: Szabados Tamás (2023). Building Castles in the Air? The EU Blocking Regulation and the Protection of the
Interests of Private Parties. Cambridge Yearbook of European Legal Studies 1–17. https://doi.org/10.1017/cel.2023.14

https://doi.org/10.1017/cel.2023.14 Published online by Cambridge University Press