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European banks and firms fear the enforcement mechanisms managed by
the US Office of Foreign Assets Control (OFAC). This concern of European
companies is especially acute at times when OFAC, as part of its strategic
choice, is increasingly focusing on foreign agents: between 2003 and 2018,
OFAC enforcement actions against foreign entities increased from 4 per
cent to 43 per cent.
In response, the EU has taken a number of actions to tackle the
extraterritorial effects of US sanctions, including in the recent case of US
sanctions against Iran (Early and Preble 2020; Portela 2021). Ihis time the
European Commission reactivated its Blocking Statute of 1996 to mitigate
impact by allowing EU operators to recover their related losses and damages,
and nullifying the effects within the Union of any related foreign court
rulings (European Commission 2018). Nevertheless, EU firms have been
facing the hard choice between excluding themselves from US markets, or
breaching EU law.
At the same time, in 2019, France, Germany, and the UK established the
Instrument in Support of Trade Exchanges (INSTEX), later joined by a number
of other European states, which kept open a channel for transactions with
Iran. Still, while the first transaction was successfully made in early 2020,
the mitigating impact of INSTEX has proven to be modest after all, given
that EU firms seek to avoid OFAC fines. As Pierre Vimont, former Secretary¬
General of the European External Action Service (EEAS), emphasised,
“INSTEX was never thought of as economically efficient” but rather as “a
political answer to underline to Iran that we ... are still committed to the
nuclear deal” (Portela 2021, 4).
In the light of this geopolitical factor, it is not surprising that the new
European Commission, elected in 2019, made some important decisions to
tackle extraterritorial sanctions. Its ambitions to strengthen the Unions global
economic posture has also been demonstrated by moving the preparation of
EU sanctions from the Service for Foreign Policy Instruments (FPI) to the
Directorate-General for Financial Stability, Financial Services and Capital
Markets Union (DG FISMA) at the European Commission (Dall 2019). As
DG FISMA is also responsible for fostering the international role of the euro
in commercial transactions, this move is expected to mitigate the impact of
extraterritorial sanctions on EU operators (European Commission 2021).
There are also a number of proposals floated by EU policymakers on how to
deal with extraterritorial sanctions in the future. Apart from the need to reform
the Union's Blocking Statute and strengthen the role of the euro in global
commercial transactions, there is an initiative to create, under the supervision
of the European Commission, a compensation fund for EU companies and
6 One consequence ofthis is that banks, even ifthey could accept certain transactions, often
over-comply with the sanctions in place and reject transactions that would otherwise be
legally possible.