On December 21, 2021, the Grand Chamber of the Court of Justice of the European Union (CJEU) ruled in the case Bank Melli Iran v Telekom Deutschland GmbH, concerning the interpretation of Regulation (EC) No. 2271/96, i.e. the EU blocking statute. The CJEU acted following the commencement of proceedings for a preliminary ruling under Article 267 of the Treaty on the Functioning of the European Union (TFEU) brought by the Hanseatisches Oberlandesgericht Hamburg, i.e. Hamburg Higher Regional Court, in the context of a dispute concerning the validity of the unilateral termination by Telekom Deutschland GmbH of the contracts for the provision of telecommunications services concluded with Bank Melli Iran (BMI).

The EU blocking statute was passed in 1996 in response to US legislative acts, namely the Cuban Democracy Act of 1992, the Cuban Liberty and Democratic Solidarity Act of 1996, and the Iran and Libya Sanctions Act of 1996. The purpose of the European blocking statute is to protect European entities from the legislation of third countries with ‘extraterritorial’ effects, such as the aforementioned acts, which imposed secondary sanctions against Cuba, Iran, and Libya. Unlike primary sanctions, which only have to be respected by the entities of the approving State, secondary sanctions must be respected by every entity, regardless of its nationality. Entities that violate this second type of sanctions generally cannot trade, or if they can trade they do so in a limited way, with the sanctioning State or have limited access to its financial system. Given the importance of the United States in the global marketplace, all third-State entities have no interest in violating these sanctions so as not to harm their business. Particularly those entities that conduct most of their business in US territory. Therefore, to this US attempt to influence the interests of foreign entities, several States in the international community have reacted by passing the aforementioned blocking statutes, of which the European one is an example.

The case of Bank Melli Iran v Telekom Deutschland GmbH concerns the US secondary sanctions against Iran, re-imposed in 2018 after Donald Trump’s decision to unilaterally exit the Joint Comprehensive Plan of Action (JCPoA). The JCPoA is an agreement signed on 14 July 2015 by China, France, Germany, Iran, the United Kingdom, Russia, the European Union, and the United States with the aim of monitoring and limiting Iran’s nuclear programme. In return, these States agree to remove sanctions previously imposed against Iran due to its plans to develop nuclear weapons. However, the US exit not only undermined relations between the US itself and the Islamic Republic, but also provoked the reintroduction of US sanctions against Iran, especially the secondary ones. In response to this US decision, the EU updated its blocking statute to include, among the acts it opposes, the secondary sanctions just re-imposed by the US against Iran.

In the case of Bank Melli Iran v Telekom Deutschland GmbH, a German company, Telekom Deutschland GmbH, was accused by an Iranian bank, Bank Melli Iran, of violating the EU blocking statute for complying with US sanctions against Iran. According to the Iranian bank, in fact, the German company had decided to stop providing its services to the said bank in order not to break these sanctions. However, the German Court of First Instance held that the German company had not committed any violation of the blocking statute, as the decision had not been taken following an order from the US authorities. Nevertheless, the German company could not have terminated the contract with immediate effect, but had to wait until its expiry. The Iranian bank, however, appealed to the Hamburg Higher Regional Court on the first point, arguing that the German company’s choice had clearly been influenced by the US sanctions, even though there had been no order from the US authorities. At this point, the Hamburg Higher Regional Court, through the preliminary ruling procedure, referred four questions concerning the correct interpretation of the blocking statute to the Court of Justice of the European Union.

According to Article 267 of the Treaty on the Functioning of the European Union, the preliminary ruling procedure allows the national courts of the member States to question the Court of Justice of the European Union on the interpretation of EU law or on the validity of acts of the European institutions. The first question submitted to the Court of Justice of the European Union concerns the interpretation of Article 5 of the EU blocking statute, which prohibits compliance with legislative acts to which the statute is opposed. In practice, the Court of Justice of the European Union had to specify whether or not a violation of the statute occurs only in the presence of a direct or indirect order by the US authorities. On the other hand, with the second question the German court wanted to clarify how a European entity can terminate a contract with a sanctioned entity without violating the blocking statute. In this case, the Court of Justice of the European Union had to clarify how a European entity can deny terminating a contract in order to comply with US sanctions, as was the case here. The German court also questioned whether, in the case of a violation of the blocking statute, it was sufficient to impose the sanctions provided by the member State of the European entity involved or whether it was also necessary to annul the action that violated the blocking statute, in this case the termination of the contract with the Iranian bank. Finally, the Court of Justice of the European Union had to clarify whether the statute disproportionately restricts Article 16 of the Charter of Fundamental Rights of the European Union, which recognises the right to conduct a business.

On the following questions, the Court of Justice of the European Union ruled on 21 December 2021. Regarding the first question, the Court of Justice of the European Union expressly stated that a violation of Article 5 occurs whenever the legislative acts to which the EU blocking statute is opposed affect a European entity. It therefore ruled out that such a breach only occurs when there is an order of the third country entity. Furthermore, it added that a European entity does not have to justify its choice to terminate a contract with a sanctioned entity unless there are conditions to think that the European entity’s choice was influenced by the legislative acts opposed by the blocking statute. Finally, in response to the third and fourth questions, the Court of Justice of the European Union specified that a violation of the blocking statute would lead to the imposition of the sanctions provided for in Article 9 of the statute, according to which it is the member States that approve the sanctions to be applied in the event of such a violation. In addition, there would also be the annulment of the action that led to the violation of the Statute. This means that if, for example, the German company were accused of violating the blocking statute, it would not only have to pay the penalty set by the German State, but would also have to respect the contract signed with the Iranian bank until the date set by the latter. However, the Court of Justice of the European Union added that the German court would have to verify that the economic damage that the German company would suffer in the event of reactivation of the aforementioned contract was not disproportionate to the objectives pursued by the blocking statute. Finally, it was also stated that the blocking statute and in particular Article 5 thereof do not disproportionately restrict Article 16 of the Charter of Fundamental Rights of the European Union, since the right to conduct a business is not absolute, but can be limited. However, such limitations must comply with the criteria set out in Article 52 of the Charter of Fundamental Rights of the European Union. Article 52(1) explains that limitations to the fundamental freedoms contained in the Charter of Fundamental Rights of the European Union are permitted when they are provided for by law, do not alter the essence of the right in question, are necessary, and respect the general objectives of the European Union. This control can be carried out by individual national courts on a case-by-case basis, but, in general, limitations on the freedom to conduct a business imposed by the blocking statute are legitimate and in line with the criteria of Article 52.

In light of the Court’s responses, it is conceivable that this ruling may change the relationship between the US and the EU, as clarity has been shed on issues often used as justification for not applying the blocking statute correctly. In addition, it is clear that the Court opted for a broad interpretation of the statute, in order not to limit its application to sporadic cases, but whenever there is an attempt to influence the affairs of European companies and/or a willingness on their part to violate the statute in order to comply with US interests.

This ruling seems even more important when one considers that the blocking statute is probably the best solution the EU has to counter US interference. Indeed, if one thinks of the possible alternatives, on the one hand there is the dispute settlement mechanism of the World Trade Organisation (WTO), which can be activated when a WTO member believes that another member has violated WTO rules. However, it is hard to believe that the EU could accuse the US, especially under the Biden administration, as this would only create new tensions with the US government, which could then worsen if the Republicans win the 2024 elections. On the other hand, the second alternative to the blocking statute could be an agreement between the Biden administration and Iran. However, soon after his election, the US President had already expressed his willingness to resume relations with the Iranian State, but the latter had categorically rejected the proposal and, as a result, no step was ever taken in this direction. Moreover, considering that in a little over a year there will be new presidential elections in the United States, it seems unlikely that Biden will be able to reach a new agreement with Iran at this time. All that remains, therefore, is to await the outcome of the 2024 elections, where a Biden victory could allow the current US President to reach such an agreement during his second term and establish more peaceful relations with both the Islamic Republic and the European Union. Conversely, a Republican victory would make US relations with Iran and its European allies even more difficult. Therefore, at the moment, a proper application of the blocking statute, in light of the Bank Melli Iran v Telekom Deutschland GmbH case, seems imperative to protect European interests from US ones.