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The US imposes draconian penalties for violations of its extraterritorial and globally prosecuted sanctions or “agrees” in advance by “settlement” on certain measures in appropriate cases (fines, external supervisors, personnel changes in management, etc.). The high risks that this can entail for EU-based companies are unfortunately as real as the “America First policy” of the deposed US President Trump. Although this slogan has disappeared, all US sanctions from this period remain basically unchanged. The new US administration does not yet want to turn away from there.

So it is not surprising that an EU-based company, such as Deutsche Telekom, which generates half of its revenue in the USA, wanted to terminate its business relations with the branch of the Iranian bank Melli in Germany as soon as possible, as the latter was and is included on a US black-list (SDN list). After the unilateral termination of the Iran Nuclear Agreement (JCPOA) by the USA under Trump in 2018, Bank Melli was once again black-listed for EU companies via the so-called “secondary sanctions”, which are thus prohibited from doing any business with these persons under US law.

Bank Melli, which is owned by the Iranian state, defended itself and brought an action against its extraordinary termination by Deutsche Telekom in the first instance before the Hamburg Regional Court. In support of its action, the bank relied on the EU Blocking Regulation (Reg. (EC) no. 2271/96 as amended), Article 5 para. 1 which prohibits EU companies from “complying” with certain US sanctions, which makes Deutsche Telekom’s termination ineffective or respectively void.

In the meantime, Deutsche Telekom changed its extraordinary termination to an ordinary termination, which it was also obliged to comply with by the Regional Court. Deutsche Telekom did not provide reasons for the ordinary termination since Deutsche Telekom invoked its entrepreneurial freedom to terminate contracts without justification within the time limit. Bank Melli’s further request for a continuation of the contractual relationship, on the other hand, was rejected by the Regional Court. Bank Melli appealed against this court decision to the Higher Regional Court in Hamburg, which before its judgment (not yet published) submitted four questions of legal interpretation of the Blocking Regulation – with a focus on Article 5 thereof – to the ECJ that were relevant to the German court.


At this point, the whole dilemma of the EU Blocking Regulation already becomes clear. For EU-based companies it is understood that they have to comply with the EU sanctions against Iran, which apply under the JCPOA. This is necessary and not a right to vote. Whether EU-based companies also want to adhere to the US sanctions against Iran “voluntarily” – for whatever special reason – has so far been the sole decision of the company and has not been regulated or even commented on by any EU authority. However, Article 5 para. 1 of the EU Blocking Regulation deprives EU companies of this freedom and imposes a ban on “complying” with certain US sanctions against Iran. Violations of this prohibition can be prosecuted under the German Foreign Trade and Payments Act with a fine of up to EUR 500,000 per action. However, these would not be the only imminent painful consequences of a legal nature that could arise from a violation of the EU Blocking Regulation.

Exemption with high hurdles

In principle, affected EU companies would have the option of applying for an exemption from the EU Commission in accordance with Article 5 para. 2 of the EU Blocking Regulation. According to the EU Guidelines of the EU Commission (2018/C 277 I/03) in point 16, the hurdles for granting an exemption are high. An exception is therefore only justified if there is otherwise a risk of “severe damage” to the interests of the applicant or the EU. This case-by-case assessment must also be carried out for the future (ex ante) and with a view to a “crystal ball”, since the actions of US authorities in the case of investigated or voluntarily reported sanction violations are not clearly foreseeable. Overall, Article 5 para. 2 of the EU Blocking Regulation is therefore less a life-saver than a burden. This also follows from the current ECJ ruling and the previous polemic remark of his Advocate General Hogan in his Opinion, to whom the case expressly “did not give pleasure” because the court must give effect to the words of the legislator of the Blocking Regulation, which “is a very blunt instrument.” 

Revision of the EU Blocking Regulation

However, the EU Commission has apparently heard the displeasure of the EU economy about the EU Blocking Regulation since 2018 and so it is currently in a consultation process for a possible revision. Presumably, the new ECJ ruling will also be used for this. A revision of the EU Blocking Regulation could certainly lead to improvements in its application. In my opinion, however, the biggest shortcoming of the Regulation lies in the fact that the cause of the extraterritorial application of US sanctions can actually only be dealt with and resolved at the appropriate political level. I consider it less suitable to fight this problem vicariously – quasi on the backs of the EU business enterprises with an EU Blocking Regulation that has not yet proven itself in practice.

Planned EU Anti-Coercion Instrument (ACI)

The EU initiative for a new Anti-Coercion Instrument (ACI) from December 2021 therefore sounds more promising and up-to-date than a possible revision of the EU Blocking Regulation from 1996. This instrument provides for a proportionate multi-stage procedure. Starting with the political level, a dialogue will be initiated with the responsible countries, which use coercion and trade defense measures against the EU. If such dialogues are inconclusive, tariffs, quotas and other measures against these countries can be applied by the EU. The planned instruments are thus aimed directly at the right initiators as a target and not, like the EU Blocking Regulation, at EU companies, which must be protected primarily as affected by such measures. Thus, those affected EU enterprises would not be exposed to the US authorities, third parties or the public. Ideally, this Anti-Coercion Instrument Initiative of the EU Commission should supersede the existing EU Blocking Regulation, as well as its revision, completely by including the topic of extraterritorial US sanctions in its scope of application.

Prevent further collateral damage through sanctions

EU and US sanctions always cause collateral damage to their own economies, so these effects should not be deepened further and unnecessarily. The EU Blocking Regulation of 1996, which was reactivated in 2018, gave a defiant political signal in Trump’s America First times for independence and more self-determination of the EU vis-à-vis the USA, as well as for the maintenance of the JCPOA. However, this has not helped to solve the dilemma of the extraterritorial application of US sanctions – on the contrary, the dilemma for EU companies is only made even greater, as the ECJ ruling vividly shows. The regained freedom of entrepreneurial decision propagated by the legislator by means of the EU Blocking Regulation only looks at one side of the coin, whereas globally active companies have to consider all sides of the coin for more complex risk reasons. The ECJ is aware of this and tries to take both sides reasonably into account with its decision on the basis of the Blocking Regulation.     

The decision of the ECJ on the Blocking Regulation

What exactly has the ECJ (C-124/20 as of 21.12.2021) decided against the background of civil proceedings on Deutsche Telekom’s right of termination vis-à-vis its contractual customer Bank Melli on the interpretation of the applicable EU Blocking Regulation:

  1. To the first question of the referring Hamburg court, whether the Blocking Regulation only applies if there is an express order from a US authority demanding compliance with the relevant US sanctions, the ECJ clearly answered no.

    The prohibition of the Blocking Regulation in Article 5 para. 1 is broadly defined. The Blocking Regulation must be designed in such a way that it directly prohibits EU companies from complying with the relevant US sanctions, even if there are no orders from the administrative or judicial authorities of the USA to comply with them.

  2. The second question referred, whether an EU economic operator must state a reason for terminating a contract with a person affected by the relevant US sanctions, has also been answered in the negative by the ECJ. However, the ECJ did so with some reservations.

    First of all, the ECJ stated that it must be possible to ensure compliance with the prohibition of Article 5 para. 1 so that the national courts in the EU can guarantee the full effectiveness of the Blocking Regulation in civil proceedings.

    In Germany, as in many other EU countries, the burden of proof usually lies with the person who claims that a contract has been unjustly terminated, e.g. in order to comply with the relevant US sanctions. However, this burden of proof rule is impossible or exceedingly difficult for this person to overcome, which would jeopardize the necessary effectiveness of the EU Blocking VO. For this reason, according to the ECJ, there is a reversal of the burden of proof for the terminating party, if the prima facie evidence indicates that there was no other reason for termination than to comply with the US sanctions.

  3. In response to questions three and four, whether, in the event of dismissal initially invalid under Article 5 para. 1, a national court may nevertheless decide that that dismissal is effective because of another threat of severe damage to the terminating party, in particular in the light of Articles 16 and 52 of the Charter of Fundamental Rights of the EU, that in individual cases a precise balancing and proportionality test is required. In particular, however, it must also be considered whether the terminating party has previously applied for an exemption to the EU Commission in accordance with Article 5 para. 2 of the EU Blocking Regulation or not.

Continuation of the proceedings

With this ECJ decision the existing dilemma for EU companies, which are already caught between EU law and extraterritorial US law, is only underlined even more. For the further proceedings, the ball is back in the court of the Higher Regional Court in Hamburg to decide on the effectiveness of the dismissal in the pending appeal proceedings there. The final outcome of the proceedings is therefore still completely open but the hurdles for Deutsche Telekom are likely to be high after the ECJ decision in order to be able to legally put the effectiveness of Deutsche Telekom’s termination against Bank Melli above the effectiveness of the prohibition of the Blocking Regulation in the present individual case. This applies in particular if Deutsche Telekom continues to present no reason(s) for its termination.


Should the EU Blocking Regulation be fundamentally revised in the near future or even completely replaced by the planned anti-coercion instrument, the decision of the ECJ and the thereupon awaited decision Higher Regional Court of Hamburg would probably lose importance, which in my opinion would be welcome as a development for the above reasons. EU Blocking Regulation and the Anti-Coercion Initiative are both currently in progress. Affected companies, their business associations and chambers etc. should use this opportunity accordingly so that the current dilemma for EU companies from a collision between EU and US law is solved and not instead or additionally threatens further adversity for EU companies.

If, on the other hand, the EU Blocking Regulation remains unchanged in the future, this will probably inevitably lead to further legal proceedings in the EU. In my view, the possible direction for legal arguments has already been hinted at in the Opinion of Advocate General Hogan and the judgment of the ECJ.