A Renewed Sanctions Strategy for the EU

Last week the European Commission released a communication on the future of Europe’s economic and financial system. This document, formally issued to European institutions including the Parliament, the Council and the Central Bank, places sanctions at the forefront as a key tool in the Commission’s strategy, especially when seen in contrast with previous publications of this type.

The Commission’s ambition for the economic and financial system relies on a vision for “openness, strength and resilience”, based on three pillars:

• “Promoting a stronger international role of the Euro”
• “Further developing EU financial market infrastructures and improving their resilience, including towards the extraterritorial application of sanctions by third countries”
• “Further promoting the uniform implementation and enforcement of the EU’s own sanctions”.

The Commission highlights 15 key actions to support these, eight of which focus on sanctions.

This pledge draws together foreign policy (particularly sanctions), economic stability and performance in an unprecedented manner. It ties the EU’s foreign policy ‘toolbox’ to the international role of the Euro and a resilient financial sector. Covering ambitious goals, most actions are set within a timeline of three years. Most of the groundwork and reviews will take place in 2021, while 2022 could see substantial legislative reform in the sanctions field. The eventual results will be reviewed in 2023.

The EU intends to strengthen the implementation and enforcement of its own sanctions, which it considers “not as uniform as it ought to be” across member states. Among key actions, the Commission will develop a “Sanctions Information Repository” to promote information sharing between member states and the Commission.

More strikingly, this document is a true step forward in reinforcing the importance and the need for proper implementation of the blocking statute. For decades the EU has repeated its calls against the extra-territorial application of sanctions [1] which it considers unlawful under international law, albeit with limited results. The Commission seems determined to mitigate the impact of extra-territorial sanctions, and refers to US sanctions without naming them as a threat to the integrity of the single market and the EU’s financial systems. The Commission also recognises these sanctions, clearly referring to sanctions against Iran, as a strain on legitimate trade and investment which has “seriously affected” the ability of the EU to “advance its own foreign policy objectives, to honour international agreements and to manage bilateral relations with sanctioned countries”.

Among key commitments surrounding this question, it should be noted that the Commission intends to put in place clearer procedures and rules to apply the clawback provision [2] of the blocking statute and will consider involvement in foreign proceedings to support EU companies and individuals. The Commission will also consider amendments to the legislation.

This paves the way to a “more comprehensive EU policy against extra-territoriality”, which includes but is not limited to the Blocking Statute. This will require a thorough engagement internationally with other partners to limit the use of extra-territorial sanctions as well as their impact. The Commission expressly refers to the G7 as the forum of choice for this.

From a UK perspective, some of these developments will be interesting to follow. Notably, the UK has retained the Blocking Statute legislation as part of its EU exit legislation. The results of the European review of the framework will not be translated into the retained legislation. The UK’s own foreign policy objectives, including in terms of economic resilience and in terms of its partnership with the USA, will likely guide the UK and might create potential divergence.

[1] In this paper, the Commission explains – “Legislative or regulatory measures that seek to apply beyond the territory of a sovereign, and without sufficient nexus with that country, are commonly considered ‘extra-territorial’ measures.” This refers to so-called secondary sanctions, but also potentially to enforcement of sanctions legislation and regulations where the Commission would consider the nexus too loose.

[2] Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom, Article 6.

Article credit: https://www.ukfinance.org.uk/news-and-insight/blogs/renewed-sanctions-strategy-eu