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U.S. sanctions should not stop EU business with Iran, EU court adviser says

·2 min read

By Robin Emmott

BRUSSELS, May 12 (Reuters) - A legal adviser to the European Union's top court said on Wednesday that a German company was wrong to terminate its contract with an Iranian bank if its only justification was concern about becoming entangled in U.S. sanctions on Iran.

The opinion is not binding and the case will not go to the European Court of Justice, but it revives a transatlantic dispute over the international reach of U.S. economic sanctions and how they undermine European priorities.

The case was brought by Bank Melli Iran, which has a branch in Hamburg, and is being heard in German courts. German judges asked the EU's top court for advice.

Telekom Deutschland, part of the Deutsche Telekom group that generates half of its turnover in the United States, ended its contract with Bank Melli Iran after the United States reimposed sanctions on Iran in 2018.

Then U.S. President Donald Trump withdrew from the 2015 nuclear accord between Iran and world powers, including the European Union, and reimposed a wide array of sanctions on the Islamic Republic.

This left European allies scrambling to salvage the pact and European companies with big operations in the United States facing a dilemma of whether to continue business with Iran, seen by many of them as a potential growth market after the 2015 deal.

The international reach of the U.S. financial system and the U.S. presence of many European companies has been a big factor in dealings between Iran and its potential Western suppliers.

A decision by an EU company to stop doing business with an Iranian company "should be regarded as invalid if it cannot be justified on any ground other than the desire to comply with U.S. legislation," Advocate General Gerard Hogan said in a statement released by the court in Luxembourg.

Hogan's opinion statement also said Iranian companies should be able to invoke EU law blocking so-called U.S. secondary sanctions before the courts of EU states.

The EU has a blocking statute to counter U.S. sanctions, although it has never been used. It bans any EU company from complying with U.S. sanctions and does not recognise any court rulings that enforce American penalties.

The court adviser said the blocking statute should still oblige EU companies to explain to an Iranian company under U.S. sanctions why they are ending commercial relationships.

"If it were otherwise, an entity could quietly decide to give effect to the U.S. sanctions legislation and ... the major policy objectives of the EU blocking statute would be compromised and set at naught, as seems to have happened here," Hogan said of the Telekom Deutschland case. (Reporting by Robin Emmott, Editing by William Maclean)