EU Magistrate: Law Against US Sanctions on Iran Must Be Enforced

(CN) --- In a setback for U.S. ambitions to hurt its geopolitical rivals such as Iran and Russia through worldwide economic sanctions, a magistrate at Europe's top court declared Wednesday that a German telecommunications firm breached European Union law by suddenly dropping its contract with an Iranian bank branch in Hamburg shortly after the Trump administration reimposed sanctions on Tehran.

The magistrate's advisory opinion serves as legal guidance for a panel of judges at the European Court of Justice weighing in on a legal fight over the reach of U.S. sanctions on European companies. In recent years, the U.S. has angered many in Europe by broadening its sanctions regime to include non-U.S. companies doing business with Iran and working with Russia on a controversial gas pipeline to Germany known as Nord Stream 2.

In delivering his nonbinding legal opinion, Advocate General Gerard Hogan agonized over the difficulties his legal reading could cause for European companies worried about running afoul of U.S. sanctions and potentially losing American business. He suggested it is for EU lawmakers and not the courts to resolve the dilemma.

Specifically, Hogan examined a legal case arising from Telekom Deutschland's decision in November 2018 to cancel its telephone services to the Hamburg branch of Bank Melli Iran, Iran's largest private bank.

Only weeks before, then-U.S. President Donald Trump signed an executive order reviving harsh sanctions against Iran following his decision to drop out of the Iran nuclear deal. Around the same time, Krone, another major German company, canceled elevator maintenance services at the Iranian bank building.

Without phone services, the Bank Melli Iran branch in Hamburg was effectively paralyzed and it sued Telekom Deutschland in the German courts. The Hamburg branch was established in 1965 and serves as a main bank for transactions between Germany and Iran. After U.S. sanctions were revived, growing trade between Germany and Iran fell off dramatically.

Telekom Deutschland, a subsidiary of German telecommunications giant Deutsche Telekom, did not specify why it dropped the contract and cited German laws that do not require a company to give a reason for canceling a contract.

But on Wednesday, Hogan said it was obvious Deutsche Telekom canceled the contract to protect its massive business interests in the U.S., where it employs about 50,000 workers and generates about half of its global revenue.

By refusing to do business with the Iranian bank in Hamburg, Hogan said, Deutsche Telekom breached a set of EU laws designed to protect European companies from the effects of extraterritorial laws, such as the U.S. sanctions against Iran. Indeed, in June 2018 the European Commission, the EU's executive body, added the U.S. sanctions against Iran to its list of extraterritorial laws without legal force in the EU.

“These attempts at U.S. extraterritorial jurisdiction have historically been criticized at EU level,” Hogan wrote. He said European businesses object to them because they mostly affect non-U.S. companies.

The Irish jurist said the expansive American sanctions regime is viewed by many legal experts as a “form of exorbitant jurisdiction which some think is not easily reconciled with general principles of public international law.”

In response, he said the EU enacted a so-called “blocking statute” in 1996 to parry extraterritorial sanctions. Under that statute, European companies are prohibited from complying with U.S. measures, Hogan said.

The present case, the magistrate wrote, highlights the “tensions between the two legal regimes” and presents “potential geopolitical problems, not only in terms of conflict of sovereignty, but also in terms of the competing regulatory barriers in the EU and U.S. markets.”

The EU's blocking statute “gives rise to a series of hitherto unresolved legal issues and a variety of intensely practical problems,” Hogan said. “Not least of which is that European companies find themselves facing impossible – and quite unfair – dilemmas brought about by the application of two different and directly opposing legal regimes.”

Hogan faulted the EU for failing to “provide clear guidance on important legal issues which directly arise from the operation of the EU blocking statute” and advised EU lawmakers to “review the manner in which that statute presently operates.”

In the case of Telekom Deutschland, Hogan said the company was obligated under the EU's blocking statute to prove that it didn't cancel its contract with the Iranian bank because of the U.S. sanctions, something the German company didn't do.

Hogan noted that the blocking statute's purpose of defending the primacy of EU law and protecting all European businesses from extraterritorial sanctions would be eroded if companies simply ignored the legal basis of the blocking statute.

He argued that if some EU nations become “reluctant to enforce the blocking statute” then “a large economic operator such as Telekom Deutschland could decide actively to comply with the U.S. sanctions regime.”

As a consequence, he said, “where they led, others would surely follow, and the entire public policy behind the EU blocking statute could be quickly undermined by a state of affairs in which many European entities quietly decide to comply (even indirectly) with those sanctions.” (Parentheses in original.)

Hogan pointed out enforcing the blocking statute may end up helping a foreign company, such as the Bank Melli Iran, and hurting European ones.

“Yet, unsatisfactory as it may seem to some, I see no other alternative if the court is to uphold the public-policy objectives” of the blocking statute, he wrote.

“I cannot avoid observing that it gives me no particular pleasure to arrive at this particular result,” Hogan commented at the conclusion of his opinion.

He called the EU's blocking statute against the U.S. sanctions regime “a very blunt instrument … to sterilize the intrusive extraterritorial effects of U.S. sanctions within the union.”

“This sterilization method will inevitably bring casualties in its wake and many may think that Telekom Deutschland will be among the first to suffer, not least given its large U.S. operations,” Hogan said. “As I have already hinted, these are matters which the EU legislature may well wish to ponder and consider.”

Courthouse News reporter Cain Burdeau is based in the European Union.

Follow @cainburdeau

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