Conflicting Sanctions Regimes and Blocking Statutes

1. Why This Topic Matters

Financial institutions rarely operate under a single sanctions regime. A bank headquartered in Frankfurt may clear US dollars through New York, have a branch in London, serve clients in Dubai, and hold correspondent relationships in Hong Kong. Each of those touchpoints pulls in a different sanctions authority: the EU Council, the US Office of Foreign Assets Control (OFAC), the UK Office of Financial Sanctions Implementation (OFSI), the United Nations Security Council, and local regulators. Most of the time these regimes overlap or complement one another. Occasionally, however, they directly contradict each other: one jurisdiction prohibits a transaction while another jurisdiction prohibits refusing that very same transaction.

This is the compliance officer's dilemma. Complying with one law may mean breaking another. For the CAMS exam, this topic is important because it tests whether you understand that sanctions compliance is not simply a matter of applying the strictest standard everywhere. It requires a conflict-of-laws analysis, legal judgment, governance, and documentation. ACAMS expects candidates to recognize the problem, know the principal blocking statutes, and identify a defensible, risk-based course of action.

2. What the Concept Covers

2.1 Conflicting Sanctions Regimes
A conflict arises when two or more jurisdictions with authority over the same institution, person, or transaction impose incompatible obligations. Typical sources of conflict include:

• Differences in designated parties. An entity may be listed by OFAC but not by the EU or UN, or vice versa. Russia-related sanctions after 2014 and 2022 produced many such divergences.
• Differences in scope. The United States maintains comprehensive embargoes on Cuba and Iran; the EU does not embargo Cuba and historically sought to preserve trade with Iran under the Joint Comprehensive Plan of Action (JCPOA).
• Extraterritorial reach. US sanctions sometimes apply to non-US persons through secondary sanctions, meaning a foreign bank risks losing access to the US financial system if it deals with certain targets, even when no US nexus exists in the transaction.
• Local counter-measures. Some countries enact laws that penalize their own companies for obeying foreign sanctions they consider illegitimate.

2.2 Primary versus Secondary Sanctions
Primary sanctions apply to persons subject to the sanctioning country's jurisdiction: citizens, residents, companies organized under its laws, their foreign branches (in some programs), and anyone acting within its territory or using its financial system. For the United States, routing a dollar payment through a US correspondent bank creates a US nexus and brings the transaction within primary jurisdiction.

Secondary sanctions target non-US persons who engage in specified conduct, such as significant transactions with designated Iranian or Russian entities. The penalty is not a fine in the ordinary sense; it is the threat of being cut off from the US dollar system or being designated oneself. Because secondary sanctions reach conduct with no US nexus, they are the main trigger for blocking statutes.

2.3 Blocking Statutes
A blocking statute is a law enacted by one jurisdiction to counteract the extraterritorial application of another jurisdiction's laws. It typically does four things:

1. Prohibits persons in the enacting jurisdiction from complying with the specified foreign laws.
2. Refuses to recognize or enforce foreign court judgments or administrative decisions based on those laws.
3. Allows persons harmed by the foreign law to recover damages from the party that caused the harm.
4. Requires affected persons to report to their own authorities when the foreign law affects their interests.

3. The Principal Blocking Statutes You Should Know

3.1 The EU Blocking Regulation (Council Regulation (EC) No 2271/96)
Adopted in 1996 in response to the US Helms-Burton Act (Cuba) and the Iran and Libya Sanctions Act, the regulation was largely dormant for two decades. In August 2018, after the United States withdrew from the JCPOA and reimposed Iran sanctions, the European Commission updated the annex to include the re-imposed US extraterritorial Iran measures.

Key provisions:
• Article 5: EU operators shall not comply, directly or through a subsidiary or intermediary, actively or by deliberate omission, with the listed foreign laws or with decisions based on them.
• Article 2: EU operators whose economic or financial interests are affected must inform the European Commission within 30 days.
• Article 4: Foreign judgments and decisions giving effect to the listed laws are not recognized or enforceable in the EU.
• Article 6: EU operators may recover damages, including legal costs, caused by application of the listed laws.
• Authorization: The Commission may authorize an operator to comply fully or partially with the foreign law if non-compliance would seriously damage the operator's interests or the interests of the EU. Applications are assessed on criteria set out in Commission Implementing Regulation (EU) 2018/1101.
• Enforcement: Penalties are set by each Member State and must be effective, proportionate, and dissuasive. Enforcement has historically been limited, but the law is binding and creates genuine legal exposure.

The 2021 judgment of the Court of Justice of the European Union in Bank Melli Iran v Telekom Deutschland confirmed that the prohibition can be invoked by a sanctioned party in civil litigation, that an EU company terminating a contract with a US-sanctioned entity may have to show that it did so for reasons other than compliance with US sanctions, and that national courts must weigh the blocking statute against the company's freedom to conduct business. This case is a useful illustration that the blocking statute has real teeth.

3.2 Canada: Foreign Extraterritorial Measures Act (FEMA)
FEMA allows the Attorney General to issue orders blocking compliance with foreign measures. The 1992 order targeting US Cuba sanctions prohibits Canadian corporations from complying with the US embargo and requires them to notify the Attorney General of any communication relating to such compliance. Violations carry criminal penalties.

3.3 Mexico: Law to Protect Trade and Investment from Foreign Norms that Contravene International Law (1996)
Often called the Antidote Law, it prohibits Mexican persons from complying with foreign extraterritorial laws affecting trade with another country, again primarily aimed at Helms-Burton.

3.4 China: Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation (2021) and the Anti-Foreign Sanctions Law (2021)
The Ministry of Commerce rules allow China to issue prohibition orders forbidding Chinese persons from complying with specified foreign laws, with a reporting obligation within 30 days. The Anti-Foreign Sanctions Law goes further, authorizing counter-measures (asset freezes, entry bans) against persons who implement foreign sanctions against Chinese entities and giving Chinese parties a right to sue for damages. For global banks with Chinese operations, these laws create a direct tension with US and EU Russia- or Hong Kong-related sanctions.

3.5 Russia
Russia has adopted counter-sanctions legislation and administrative measures that penalize compliance with Western sanctions in certain circumstances, which has caused significant difficulty for foreign institutions exiting the Russian market.

3.6 Other Jurisdictions
The United Kingdom retained the EU Blocking Regulation in domestic law after Brexit (the Protecting against the Effects of the Extraterritorial Application of Third Country Legislation (Amendment) (EU Exit) Regulations 2020), so UK operators face the same prohibition on complying with the listed US Cuba and Iran measures. Several other countries have statutes or constitutional principles that limit the enforcement of foreign sanctions.

4. How Conflicts Arise in Practice

Scenario A: The dollar payment. A German exporter asks its German bank to process a euro payment from an Iranian non-designated buyer. US secondary sanctions threaten the bank's US correspondent relationships if the Iranian counterparty is in a targeted sector. The EU Blocking Regulation prohibits the bank from refusing the transaction because of US sanctions. The bank faces a genuine conflict.

Scenario B: The de-risking decision. A multinational bank decides to close all accounts connected to Cuba. In its US operations this is mandatory. In its Canadian subsidiary, closing those accounts in compliance with US law could violate FEMA. The bank must localize its approach.

Scenario C: The Chinese subsidiary. A European bank's Shanghai branch receives instructions from head office to freeze the assets of an entity recently designated by OFAC under Hong Kong-related sanctions. Chinese counter-sanctions law may treat that freeze as unlawful compliance with foreign sanctions.

Scenario D: Divergent lists. An entity is designated by OFAC but not by the EU. A French bank has no legal duty under EU law to freeze its assets, but any dollar transaction for that entity would require blocking by the US correspondent. The French bank must decide whether to route payments in other currencies, decline on commercial grounds, or seek guidance.

5. How Institutions Manage the Conflict

There is no formula that eliminates the dilemma, but regulators and ACAMS expect a structured, defensible process:

5.1 Map the regimes. The sanctions risk assessment must identify every jurisdiction whose laws apply to each legal entity, branch, product, currency, and customer base. A group policy that simply says we apply OFAC globally is a red flag because it ignores blocking statutes.

5.2 Determine the nexus. Before concluding that a foreign law applies, establish the actual jurisdictional hook: is there a US person, a US dollar, US-origin goods, a US-based server, or only secondary-sanctions exposure? The answer changes the legal analysis entirely.

5.3 Obtain qualified legal advice. Conflicting-law questions are legal questions. The compliance function should document the advice received in each relevant jurisdiction and should not rely on head-office assumptions.

5.4 Consider licenses and authorizations. OFAC may issue a specific license; the European Commission may authorize compliance with US law under Article 5 of the Blocking Regulation; Canada or China may grant exemptions. Applying for authorization is almost always a more defensible step than silently choosing one law over the other.

5.5 Make and document a risk-based decision. If no authorization resolves the conflict, senior management, with board awareness, must decide which legal risk to accept. The record should set out the laws considered, the options, the commercial and legal consequences, and the rationale. Regulators on both sides view a thoughtful, documented decision far more favorably than an undocumented one.

5.6 Be careful about stated reasons. Because blocking statutes prohibit compliance motivated by the foreign law, institutions often decline business on legitimate independent grounds such as commercial strategy, credit appetite, or reputational risk. However, pretextual reasoning that is contradicted by internal emails will not survive scrutiny, as the Bank Melli litigation showed. Internal communications should be accurate and professional.

5.7 Meet reporting obligations. The EU Blocking Regulation and the Chinese rules both require notification to the authorities within 30 days when the foreign law affects the operator's interests. Failure to report is itself a violation.

5.8 Structure the organization. Some groups ring-fence business lines so that entities with no US nexus can lawfully serve markets that US entities cannot, while ensuring no US persons are involved in approving, facilitating, or processing those transactions. Facilitation by US persons is itself prohibited under OFAC rules, so ring-fencing must be genuine.

5.9 Train staff and escalate. Front-line staff should recognize conflict indicators (Cuba, Iran, Russia, Chinese designated entities, dual-listed parties) and escalate rather than improvise.

6. Important Distinctions Often Tested

• A blocking statute does not make a foreign sanctions law disappear; it creates a competing domestic obligation.
• Blocking statutes generally target extraterritorial foreign laws, not foreign laws legitimately applied to transactions with a genuine nexus to the foreign country. A euro payment that touches no US element is the classic protected case; a dollar payment through New York is not protected by the EU Blocking Regulation from OFAC's perspective, even if the EU would still prohibit a refusal motivated by US law.
• The EU Blocking Regulation covers only the laws listed in its annex (principally US Cuba and Iran measures), not every US sanctions program. US Russia sanctions, for example, are not in the annex.
• UN sanctions do not create blocking-statute conflicts because all member states are obliged to implement them; conflicts arise from unilateral measures.
• The Commission authorization under the EU Blocking Regulation is an exception that must be applied for; it is not automatic.
• The EU regulation prohibits compliance by deliberate omission as well as active compliance, so quietly declining to act can still be a violation.

7. Exam Tips: Answering Questions on Conflicting Sanctions Regimes and Blocking Statutes

Tip 1: Identify the jurisdictions in the fact pattern first. List every country mentioned and every element that creates a nexus (currency, location of the branch, nationality of staff, location of the correspondent). The correct answer usually depends on recognizing that more than one regime applies.

Tip 2: Beware the answer that says apply the strictest standard globally. In many sanctions questions this is correct, but where a blocking statute is in play it is a trap. Applying US sanctions in Canada, the EU, or China may itself be unlawful. Look for the option that recognizes the conflict rather than ignoring it.

Tip 3: Favor process over unilateral action. ACAMS answer keys reward escalating to legal counsel and senior management, seeking a license or authorization, documenting the decision, and notifying the relevant authority. They penalize options such as process the payment and do not tell anyone, refuse the payment and cite OFAC, or ignore the EU Blocking Regulation because it is rarely enforced.

Tip 4: Know the key facts about the EU Blocking Regulation. Be ready to recall: Regulation 2271/96; adopted 1996; updated in 2018 to cover re-imposed US Iran sanctions; prohibition on compliance in Article 5; 30-day reporting to the Commission; non-recognition of foreign judgments; right to recover damages; Commission may grant authorization to comply; penalties set by Member States.

Tip 5: Distinguish primary from secondary sanctions. If a question describes a non-US bank with no US nexus facing a threat to its correspondent access, that is secondary sanctions exposure, and it is precisely the scenario blocking statutes were designed for. If the question involves a US dollar payment, OFAC jurisdiction is direct and the analysis shifts.

Tip 6: Remember the facilitation rule. If an option suggests that US staff at head office can approve or help structure a transaction that a non-US affiliate carries out to avoid US sanctions, that option is wrong because US persons may not facilitate transactions they could not perform themselves.

Tip 7: Watch for the word because. Blocking statutes prohibit refusing business because of the foreign sanctions. A question may test whether a bank can decline a customer for an independent commercial reason. The best answer acknowledges that independent reasons are permissible but must be genuine and documented, not pretextual.

Tip 8: Recognize that UN sanctions are not the source of the conflict. If an answer option blames UN measures for a conflict with a blocking statute, it is almost certainly incorrect.

Tip 9: In risk-assessment questions, look for the enterprise-wide view. The correct answer typically states that the sanctions risk assessment must account for all regimes applicable to each legal entity, including local counter-measures, and that policies must be tailored by jurisdiction rather than copied from head office.

Tip 10: Eliminate absolutes. Options containing always, never, or must immediately terminate are usually wrong in this area because the whole point of the topic is that the right answer is a reasoned, documented, risk-based judgment.

8. Sample Question Walk-Through

A bank incorporated in the Netherlands, with no US branches, receives a euro payment instruction from a long-standing Dutch client to a non-designated Iranian company in the Iranian petrochemical sector. The bank's compliance officer notes US secondary sanctions risk. What is the most appropriate initial action?

Option A: Reject the payment and inform the client that OFAC sanctions prohibit it.
Option B: Process the payment without further review because EU law requires it.
Option C: Escalate to legal and senior management, assess the EU Blocking Regulation obligations including notification, evaluate secondary sanctions exposure, and consider seeking Commission authorization if the bank believes it cannot proceed.
Option D: Route the payment through the bank's US correspondent so OFAC can decide.

Option A violates the EU Blocking Regulation by citing US law as the reason. Option B ignores genuine secondary-sanctions risk and the need for due diligence. Option D creates a US nexus where none existed and would likely result in the funds being blocked. Option C reflects the structured approach the exam expects.

9. One-Paragraph Summary for Revision

Conflicting sanctions regimes occur when overlapping jurisdictions impose incompatible obligations, most often because of the extraterritorial reach of US secondary sanctions. Blocking statutes, such as the EU Blocking Regulation 2271/96 (updated 2018), Canada's FEMA, Mexico's Antidote Law, and China's 2021 counter-measures, prohibit local persons from complying with specified foreign laws, nullify related foreign judgments, allow damages claims, and impose reporting duties. Institutions manage the conflict by mapping applicable regimes, establishing the true nexus, obtaining legal advice, seeking licenses or authorizations, making documented risk-based decisions at senior level, ensuring stated reasons are genuine, meeting notification deadlines, and avoiding US-person facilitation. In the exam, choose the answer that recognizes the conflict and follows a governed process rather than one that blindly applies the strictest standard or ignores either side of the dilemma.