EU Wants to Work More Closely With US to Counter Rise in Secondary Sanctions, Official Says

The European Union won’t hesitate to push back on U.S. extraterritorial sanctions but wants to work more closely with the Biden administration on sanctions programs to ease compliance burdens for EU companies, a top EU official said. “There is no better way to protect against extraterritorial sanctions than to align sanctions implementation with partners like the United States,” said Mairead McGuinness, an EU commissioner overseeing financial markets.

McGuinness said the EU would like to learn more about sanctions implementation and guidance from the Treasury’s Office of Foreign Assets Control and hopes to issue more sanctions in conjunction with the U.S. Not only would that collaboration increase the sanctions' effectiveness, she said, but it may also minimize the impact of U.S. secondary sanctions on EU companies, speaking during a Feb. 17 Atlantic Council online event.

“The idea would be that there wouldn't be extraterritorial impacts on our operators and that they could continue to do business abiding by EU law, McGuinness said. “But this is probably more of a wish than a reality.” She said she plans to discuss the issue with Treasury Secretary Janet Yellen.

McGuinness said the EU is seeing a rise in secondary sanctions from a variety of third countries -- not just the U.S. -- to “control the conduct of EU operators.” The EU enforces a blocking statute that is intended to shield its companies from complying with extraterritorial sanctions, but the method doesn’t always work, she said.

“Even with the EU taking action to protect our own operators, the operators themselves are just too frightened, because [the sanctions] have other implications for other aspects of their business globally,” McGuinness said, adding that the EU has debated whether to strengthen the statute. “There is no silver bullet to remedy this situation.” She suggested the EU “renew our efforts to protect EU operators” and “consider whether other tools are needed.”

The EU in 2019 created Instrument in Support of Trade Exchanges (INSTEX), a European payment system designed to allow countries to trade with Iran despite U.S. sanctions (see 1905300035). Although INSTEX has facilitated some transactions (see 2002280029), it has not abated industry fears of potentially violating U.S. sanctions. “It's very much a work in progress,” McGuinness said. “We are certainly always keeping an eye out to see what we might do better.”

McGuinness said the EU “of course” wants the U.S. to rejoin the Iran nuclear deal and lift its Iran sanctions but said those conversations are just starting (see 2102030052 and 2101280043). “I would hope we would find the space -- with all of the other complications that we are living with and trying to cope with -- to agree on a shared agenda and look at how we can work together,” she said.

The U.S. and the EU also need to work together to confront China, especially as it deploys its own set of extraterritorial sanctions (see 2012170041), said Adam Szubin, a lawyer with Sullivan & Cromwell and a former senior Treasury official. Because of the increasing number of competing sanctions programs, companies can “very readily” find themselves “in a place of dueling sanctions, or maybe even a conflict of law,” Szubin said during the event.

“That's a very challenging world to live in,” he said. “That's a challenge that is not going to be able to be addressed by any jurisdiction on its own, whether that's the U.S., the EU or the [United Kingdom]. I think it will really require an alignment of thinking and of concerted diplomacy.”