OFAC Effects in Europe: EU Blocking Regulation and Bank Account Closures

By Dr. Julius Hagen, Attorney-at-Law

The EU Blocking Regulation as Europe’s Response to Extraterritorial US Sanctions

The EU Blocking Regulation is the European Union’s central legal response to certain extraterritorial sanctions measures adopted by third countries. Its purpose is to protect persons and businesses in the Union against the effects of such measures and to resist their enforcement within the internal market. The governing instrument is Council Regulation (EC) No 2271/96, whose Annex was updated in 2018 in connection with the reactivated US Iran sanctions. The Regulation does not respond to every form of US sanctions pressure. It addresses only those laws, regulations, and resulting measures expressly listed in the Annex.

That limitation is decisive in practice. The Blocking Regulation is not a general European remedy against every OFAC-related market reaction. It applies only where the relevant pressure stems from the listed US laws or from measures based on them. At the outset, it is therefore essential to determine whether the case actually falls within the Annex or whether there is severe economic pressure linked to US sanctions law but no viable Blocking Regulation case as a matter of threshold applicability.

When the Blocking Regulation Becomes Practically Relevant in Europe

In practice, the Blocking Regulation usually arises not in the abstract but in commercially sensitive crisis situations. Typical examples include bank account closures, termination of supply or service contracts, blocked payments, investor withdrawals, cancellation of insurance or logistics relationships, and internal escalation by compliance teams or group headquarters. In many cases, the relevant party does not openly state that the measure is driven by US sanctions. That is precisely why legal qualification is often difficult.

The commercial severity often lies not in any European enforcement of US law, but in defensive market behaviour. Banks, payment providers, and counterparties do not want to endanger access to the US market, the US dollar system, or international correspondent banking channels. The Blocking Regulation is designed to counter exactly that adaptation pressure, but in practice it faces limits where companies rely on alternative formal justifications or frame their conduct as general risk management.

The Core Prohibition in Article 5 of the Blocking Regulation

The centrepiece of the Blocking Regulation is Article 5. Under that provision, persons covered by the Regulation may not comply, directly or through deliberate omission, with requirements or prohibitions based on the foreign laws listed in the Annex or on resulting measures. The prohibition is therefore not limited to express obedience. It may also cover indirect or conscious submission to the extraterritorial pressure created by those listed sanctions measures. That is why Article 5 is so sensitive for European banks, businesses, and group structures.

At the same time, the provision does not create a simple automatic outcome. In practice, anyone invoking Article 5 will usually need to show that the measure at issue was taken because of the listed US rules or at least under pressure generated by them. That is often the real point of dispute. Companies frequently do not justify a termination or risk decision openly by reference to US sanctions law, but instead rely on internal compliance policies, global risk models, or general business judgments. Whether such conduct nevertheless amounts to prohibited compliance under Article 5 is often the central legal issue.

Bank Melli Iran: What the Court of Justice Clarified About Terminations and Contractual Relationships

The leading case on the Blocking Regulation is the judgment of the Court of Justice in C-124/20, Bank Melli Iran. The case arose from the termination of contractual relationships with an Iranian bank after the reactivation of US Iran sanctions. The Court clarified that Article 5 of the Blocking Regulation can have real effects in private-law disputes and that a termination contrary to the prohibition on compliance may in principle be contrary to EU law. At the same time, the Court also made clear that the Regulation raises difficult questions of proof and balancing.

The decision matters greatly for European practice because it moved the Blocking Regulation from the realm of policy into concrete contractual conflict. After Bank Melli Iran, account closures and contract terminations linked to Iran-related sanctions exposure can no longer automatically be treated as purely free business choices. Yet the judgment did not make the defence easy. A party relying on the Regulation must still establish a plausible connection to the listed US sanctions framework, while the terminating company may invoke serious risk to its own interests.

Article 6: Damages and European Civil-Law Response

In addition to the prohibition on compliance, the Blocking Regulation contains a damages mechanism in Article 6. Persons affected by the application of the listed laws or by actions based on them may seek compensation for the damage caused. That gives the Regulation significance not only as a defensive norm, but also as a civil-law instrument. In cases involving account closures, contract terminations, or broader commercial exclusion, it may therefore be necessary to assess whether damages claims against the relevant market actor are available.

That does not mean that every economic loss will automatically be recoverable. Before reaching damages, one must first determine whether the Regulation applies at all and whether the conduct in question actually rests on listed US measures. Questions of causation, pleading, and enforceability then follow. This is one reason why European court practice under the Regulation has remained difficult and uneven.

The Key Limitation: The Blocking Regulation Does Not Cover Every OFAC Scenario

For OFAC-related matters, the most important practical limitation is that the Blocking Regulation does not cover every US sanctions basis. What matters is exclusively what appears in the Annex. Following the 2018 update, that concerns in particular certain US Iran sanctions rules. Many other OFAC programs, Executive Orders, or general US statutory foundations are not automatically covered. Severe commercial pressure linked to US sanctions may therefore exist without producing a viable European Blocking Regulation case.

That limitation is critical in legal practice. If every OFAC-related account closure or contract termination is treated too quickly as a Blocking Regulation case, the legal strategy may fail from the outset. Conversely, in genuinely covered cases, the Regulation may carry substantial weight.

Authorisation Under Article 5(2): When the Commission May Permit Compliance

The Blocking Regulation is not an inflexible all-or-nothing instrument. Under Article 5(2), the European Commission may in certain circumstances authorise compliance with the listed foreign requirements where non-compliance would seriously damage the interests of the operator or of the Union. The criteria for this authorisation mechanism are set out in Implementing Regulation (EU) 2018/1101. The existence of that framework reflects the reality that the Regulation can place companies in severe conflict situations.

In practice, that has two consequences. First, the possibility of Commission authorisation may become strategically central in the right case. Second, the very existence of the mechanism shows that the Blocking Regulation does not operate through a simplistic black-and-white logic. Businesses caught between European prohibitions and US sanctions pressure often face a genuine dilemma.

Bank Account Closures, Refusals of Performance, and Contract Terminations Under the EU Blocking Regulation

The EU Blocking Regulation becomes particularly relevant where banks, payment providers, insurers, suppliers, or other counterparties in Europe close accounts, block payments, refuse performance, or terminate contracts because of US sanctions exposure. The central question is then whether the measure reflects an independent commercial decision or amounts, in substance, to prohibited compliance with the foreign sanctions rules covered by the Annex to the Regulation.

This distinction is often difficult because companies rarely state openly that they are acting in response to US sanctions pressure. In practice, these cases therefore depend heavily on documentation, internal communications, compliance records, contractual wording, and the surrounding factual context. A mere reference to “compliance” or to OFAC risk is not enough. What matters is the actual basis of the account closure, refusal of performance, or termination, whether the relevant US legal regime is covered by the Annex, and whether there are genuine commercial reasons independent of the listed sanctions framework.

That is also why these disputes are no longer merely theoretical. Recent case law on account closures and refusals of performance shows that ordinary termination rights and contractual discretion do not automatically prevail where the real purpose of the measure is to comply with covered US sanctions rules without the required authorisation. In the right case, the Blocking Regulation may therefore become relevant both as a shield against performance refusal and as part of a broader damages strategy.

For that reason, legal analysis should begin early. Before payment channels collapse completely and contractual relationships are fully terminated, it is often critical to preserve the record: who communicated what, on which grounds, and in response to which sanctions-related concern. Without that factual basis, reliance on the Blocking Regulation often remains too general. With it, the Regulation may become a meaningful European response instrument.

Our Work in Matters Involving OFAC Effects in Europe and the EU Blocking Regulation

We advise companies, directors, beneficial owners, and other affected persons on whether OFAC-related market reactions in Europe may fall within the Blocking Regulation and what consequences follow from that assessment. Our work includes analysing the relevant US sanctions basis, mapping the European legal response framework, reviewing account closures and contract terminations, assessing possible damages claims, and coordinating with banks, counterparties, and internal compliance functions.

In many matters, more than one legal issue is in play. Secondary sanctions exposure, reputational pressure, payment disruption, group governance, and European response mechanisms often intersect. Sound representation therefore begins by separating these layers: what is US sanctions pressure, what is a defensive market reaction, what is a possible Blocking Regulation case, and which steps are commercially and procedurally sensible.

In matters involving account closures, refusals of performance, or blocked payment flows, the sequence of steps is often decisive. It may first be necessary to preserve communications and documents, identify the actual US legal basis at issue, and separate possible de-listing questions from secondary-sanctions exposure and European civil-law responses.

Conclusion on the EU Blocking Regulation and OFAC Effects in Europe

The EU Blocking Regulation is an important but limited instrument against certain extraterritorial US sanctions effects in Europe. It can become highly relevant in disputes involving account closures, refusals of performance, contract terminations, and other market reactions where the conduct is based on the US rules listed in the Annex or on measures derived from them. At the same time, it is not a universal lever against every OFAC-related form of commercial exclusion.

The decisive issue is therefore always the same: whether the Regulation applies at all, which claims or defences may arise, and how any European response must be coordinated with the underlying sanctions risk. Because de-listing issues, secondary sanctions exposure, and European follow-on disputes often overlap in practice, effective representation in this area requires not only doctrinal precision but a coherent overall strategy.