New European Union (“EU”) approach to unilateral sanctions with extra-territorial effect



Most commonly, sanctions and other restrictive measures apply only to persons and entities within the jurisdiction of the issuing country. However, the so-called United States (“U.S.”) “secondary” sanctions have a much wider scope of application in that they have a significant constraining effect on all persons and entities regardless of the location, place of incorporation or national identity. In the EU, measures having such an effect are referred to as extra-territorial measures.1 The impact of extra-territorial measures on the EU economy has not been insignificant: Since 2018, Airbus lost an estimated €17 billion, having to walk away from a contract with Iran Air, Daimler was forced to terminate its joint venture with an Iranian car manufacturer, French car manufacturers PSA and Renault lost approximately €850 million due to a cancelled deal, and Total had to abandon a €4.25 billion development in the Iranian South Pars gas field.2

The effects of U.S. secondary sanctions are particularly invasive, given that in response to non-compliance the U.S. can cut firms’ access to U.S. dollar transactions and business. With the U.S. dollar being a de facto global reserve currency, businesses of all sizes and representing all sectors, wherever they are located, feel pressured to comply with what is effectively foreign legislation. To counter these effects and shield EU businesses, on January 19, 2021, the EU Commission released a three-pillar strategy3 for dealing with sanctions having extra-territorial effects.

1. Strengthening the international role of the euro – a green euro, followed by a digital euro

During the COVID-19 pandemic, the EU took the unprecedented step of issuing direct debt, and it intends to issue to €1 trillion in new debt by 2026. The rationale behind it is to increase euro-denominated trade in debt instruments and to give the euro a more central role in international finance. If this does not sound ambitious enough, the EU has not forgotten its European Green Deal pledge and intends to issues 30% of its debt in green bonds. The next step in enhancing the euro would be to champion the “digital euro”,4 which is expected to happen in the not too distant future.

2. Increasing the resilience of the EU financial market

Strengthening the euro will not be sufficient if the international financial markets remain primarily U.S. dollar dominated. That is why, with a view to counteract the unwanted effects of extra-territorial sanctions, the Commission is testing and developing new business models, infrastructures and tools to be deployed on the financial markets. It is also proposing to improve the effectiveness of INSTEX, the Instrument in Support of Trade Exchanges, which was set up in 2019 to facilitate payments for legitimate trade between the EU and Iran. It also plans to adopt other methods to facilitate clearing euro-denominated contracts outside the EU.

Finally, the Commission will mandate a study into EU banks’ dependence on funding in foreign currency with a view to explore new ways to further ensure the flow of funds involving Iran and Cuba

3. Strengthening the implementation and enforcement of EU sanctions

The last element in the EU Commission three-pillar strategy for dealing with sanctions having extra-territorial effects is strengthening the implementation and enforcement of EU sanctions. As chief monitor and coordinator for sanctions implementation, the Commission will develop a database5 for information exchanges with the EU Member States to ensure effective cross-border coordination. The Commission will also set up a whistleblower system for anonymous reporting of sanctions violations and will look into strengthening cooperation on sanctions with its G-7 partners.

Separate from dealing with extraterritorial measures through new tools, the Commission also suggests making better use of existing tools such as the EU Blocking Statute.6 In this context, the Commission proposes:

  1. Clearer procedures and rules to facilitate the recovery of defendants’ assets across the EU7;
  2. Strengthened national measures blocking the recognition and enforcement of foreign decisions and judgments based on extra-territorial measures8;
  3. Streamlined processing of authorization requests to comply with extra-territorial measures9;
  4. Possible involvement in foreign proceedings in support of EU companies and individuals.

What next?

Preceding the EU three-pillar strategy discussed above was a November 2020 study,10 which found that the EU was particularly affected by extra-territorial foreign legislation. The Commission relied heavily on the recommendations of that study, although it did not transpose it entirely. Therefore, in the future, unless indefinitely discarded, one may expect to see some of the following policy initiatives put in action:

  • EU bringing World Trade Organization (“WTO”) complaints against extra-territorial measures11;
  • Encouraging and assisting EU business in bringing claims before international investor-state arbitration tribunals and U.S. courts;
  • Using diplomatic relations and cultural exchanges as counter-measures against illicit sanctions;
  • Using the SWIFT international financial transaction payment system to block transactions as retaliation;
  • Establishing an EU agency for Foreign Assets Control.


1 The EU Commission defines “extra-territorial measures” as “legislative or regulatory measures that seek to apply beyond the territory of a sovereign, and without a sufficient nexus with that country”. See footnote 2, Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions, COM (2021) 32, Brussels, 19.1.2021.

The study was commissioned by the EU Parliament. See Study of the European Parliament on Extraterritorial sanctions on trade and investments and European responses, Directorate General for External Policies of the Union, November 2020, available at:
, table 8, p. 92.

Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions, COM (2021) 32, Brussels, 19.1.2021.

4 See the Report on a digital euro, European Central Bank, October 2020, available at:

The database will be called the Sanctions Information Exchange Repository.

Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extraterritorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom (OJ L 309, 29.11.1996, p. 1–6), as amended. 

See Article 6 of the Blocking Statute.

See Article 4 of the Blocking Statute.

See Article 7, paragraph 2 of the Blocking Statute.

10 Study of the European Parliament on Extraterritorial sanctions on trade and investments and European responses, Directorate General for External Policies of the Union, November 2020, available at:

11 The EU had done so in 1996 when, at that time - the European Communities (“EC”), challenged the U.S. Cuban Liberty and Democratic Solidarity Act in the WTO. The European Communities claimed that U.S. trade restrictions on goods of Cuban origin, as well as the possible refusal of visas and the exclusion of non-US nationals from US territory, are inconsistent with the U.S. obligations under the WTO GATT Articles I, III, V, XI and XIII, and GATS Articles I, III, VI, XVI and XVII. The EC also alleged that even if the U.S. measures at issue were not in violation of specific provisions of GATT or GATS, they nevertheless nullified or impaired its expected benefits under GATT 1994 and GATS and impeded the attainment of the objectives of GATT 1994. The WTO’s panel established in November 1996 had later suspended its work at the request of the European Communities with the panel’s authority lapsing on April 22, 1998. As such, the case was not heard in substance. See, DS38: United States — The Cuban Liberty and Democratic Solidarity Act.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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