Proposal for a COUNCIL REGULATION (EC) protecting against the effects of the application of certain legislation of certain third countries, and actions based thereon or resulting therefrom
Date: 1996-07-31
Institutions: European Commission
Subjects: EC Regulation, application of the law, extra-territoriality, international economic law, third country

COMMISSION OF THE EUROPEAN  COMMUNITIES 

Brussels,  31.07.1996 
COM(96) 420  final 

96/0217 (CNS) 

Proposal  for a 

COUNCIL REGULATION  fEO 

protecting  against  the  effects  of the  application  of  certain  legislation  of  certain 

third countries, and actions based thereon or resulting therefrom 

(presented by the Commission) 

EXPLANATORY  MEMORANDUM 

At  its  meeting  of  15 July  1996, the  Council  of  the  European  Union  identified  a 
range of  measures that could be deployed by the  EU in response to  damage to 
the  interests  of  EU companies  resulting  from  the  implementation  by the  US of 
the  Cuban  Liberty  and  Democratic  Solidarity  (Libertad)  Act  (the  Helms  Burton 
Act). The Council  instructed COREPER  to make the  necessary  preparations  for 
urgent Community and co-ordinated action. 

One  of  the  measures  identified  by  the  Council  was  "the  use/introduction  of 
legislation  by  the  EU  to  neutralise  the  extra-territorial  effects  of  the  US 
legislation".  The  present  Communication  contains  a  proposal  for  a  Council 
Regulation which would introduce legislation to this effect at  EU level. 

The  proposed  Community  legislation  aims  to  protect  the  legal  order  of  the 
European  Community  and  its  external  economic  interests  through  a  number  of 
specific  measures. 
It  aims  only  to  establish  a  defensive  mechanism  for  the 
Community  and  persons  resident  or  companies  incorporated  therein  against 
unlawful and damaging effects of US legislation and actions 

There  are  clear  advantages  to  be  gained  from  taking  these  measures  at 
Community,  rather than national, level. Politically  they would  constitute  a clear 
and united signal to the  US.  They would also  achieve  a level of  protection  that 
could  not  be  obtained  through  identical  or  comparable  (co-ordinated)  national 
measures,  not  least  because  certain  Member  States  have  indicated  that  they 
would  have  difficulty  in  introducing  such  legislation  at  national  level,  or  in 
identical  conditions  for 
introducing  it  rapidly.  Furthermore  the  assurance  of 
economic  operators  within  the  Community  will  help to  maintain  the  unity  of  the 
internal market, especially in circumstances where the US decided to avail of the 
power to differentiate  between countries or companies  in the continuation  of the 
suspension of the right to file under Title III.  Finally.Community legislation would 
provide  at Community  level for  a possibility to  "claw  back"  amounts  awarded to 
US  citizens/companies  by  enabling  Community  persons 
legal 
proceedings  anywhere  in  the  Community  where  those  US  citizens/companies 
hold assets. 

to  start 

With  regard to the individual Articles of the proposal, the following points can be 
made: 

Article  1 defines the scope of the legislation and actions against which protection 
should be provided. The legislation concerned  is to be listed in the Annex to the 
Regulation.  At  present,  only  the  extra-territorial  elements  of  US  legislation 
regarding  the  unilateral  embargo  of  Cuba  are  contained  in  the  Annex.  Any 
extension of the list in the Annex to other legislation (of the same third country or 
of another third country) would have to be decided by the Council on the basis of 
a  proposal  from  the  Commission. The  same  applies  in  case  of  the  removal  of 
items from the list of so-called primary legislation. 

Where the legislation of the third country forms the basis of secondary  legislation 
or similar  instruments, the Commission  may, in accordance with Article 7c,  add 
this  secondary  legislation  to  the  list  in  the  Annex,  in  conformity  with  the 
Committee  procedure  contained  in  Article  8.  Some  secondary  legislation  has 
already been listed in the Annex. 

In order to enable the Community to act quickly, adequately  and  proportionately 
to  defend  its  interests, the  Commission  should  be  provided  with  the  necessary 
information  by  the  natural  and  legal  persons  within  the  Community  whose 
economic  interests  are  being  negatively  affected  by  the  contested  legislation. 
Article 2 provides for notification to the Commission to that effect. 

Where the information provided under Article 2 might be of a confidential nature, 
an explicit guarantee of a confidential treatment is provided for in Article 3. 

Article 4 aims  at blocking the  recognition  or enforceability  within the  Community 
of  judgements by courts or tribunals outside the Community, which give effect to 
the contested  US legislation. The article will be effective  especially  in preventing 
the  enforcement  of  judgements  by  US  courts  based  on  Title  III  of  the  Helms-
Burton Act. 

Non-compliance  with  the  contested  elements  of  the  US  legislation  covered  by 
the  Regulation  is  obligatory  under  Article  5.  The  existence  of  such  a  rule  is 
intended to  be an effective  defence  in US courts  in cases where  persons  might 
be  sued  in  the  US  for  such  non-compliance.  (Similar  clauses  are  found  in 
legislation of the United Kingdom and Canada). 

Nevertheless,  under  certain  circumstances,  non-compliance  might  result  in 
disproportionate  damage to a person/company.  For this  reason the  possibility  is 
provided to obtain an authorisation for compliance. Such an authorisation  would 
be  given  by  the  Commission  in  conformity  with  the  Committee  procedure 
contained in Article 8. 

Article  6, the  "claw-back"  clause,  enables the  recovery  of  amounts  obtained  by 
US  persons  under  the  contested  US  legislation.  This  Article  will  be  especially 
the  suspension  of  the  possibility  to  start  legal  proceedings  under 
significant  if 
Title  III of the  Helms-Burton  Act  is not  extended  beyond  1 February  1997.  The 
present  proposal follows the Canadian  "blocking statute"  in that  it allows  for the 
recovery  of  the  full  amount,  and  not  only  for  the  part  of  the  amount  that  was 
obtained  by  doubling  or tripling the  original  compensation/payment  made  under 
a judgement of a US  court or tribunal. 

The Commission will be entrusted with certain tasks, such as the amendment  of 
the Annex  of  the  Regulation  and the  authorisation  of  compliance. Article  7  also 
obliges  the  Commission  to  keep  the  Council  informed  on  the  effects  of  the 
contested  US  legislation  and  actions  based  thereon  and  to  make  a  full  report 
annually.  Furthermore,  the  Commission  shall  publish  in the  Official  Journal  the 
judgements to which Article 4 applies. 

In  the  first  two  tasks  mentioned,  the  Commission  shall  be  assisted  by  a 
Committee  of  representatives  of the Member States, which should, in view of the 
importance  of  the  measures  to  be  taken  by  the  Commission,  operate  in 
accordance  with Article  2  (PROCEDURE  II)  of  Council  Decision  87/373/EEC  of 
13 July  1987 (OJ No L 197, p. 33,  18.7.1987). 

Article  9  obliges  Member  States  to  determine  penalties  to  be  imposed  in  the 
event  of  breach  of the  provisions  of the  Regulation.  Such  penalties  have  to  be 
effective, proportional and dissuasive. 

Article  10 provides for the mutual exchange of information on the  implementation 
of the  Regulation between the Member States and the Commission so as to help 
prevent discrepancies  in implementation. 

As to the  applicability  of the  Regulation, Article  11  stipulates that  the  Regulation 
not  only  has  a  territorial  limitation  but  will  also  be  limited  to  natural  or  legal 
persons,  private  or  public,  who  are  legally  resident  or  incorporated  and  actually 
domiciled within the Community.  Such a  limitation  is  desirable  to  avoid  natural 
or legal  persons  seeking  protection  under the  Regulation,  while  their  permanent 
interests  lie  outside  the  Community.  This  would  be  relevant  in  particular  with 
regard to persons normally resident or incorporated within the  US. 

Nevertheless,  consideration  could  be  given  to  extending  the  applicability  of  the 
Regulation  to  persons,  resident  or  incorporated  in a  third country  with  similar  or 
identical  legislation,  and which would  extend  the  applicability  of  its  legislation  to 
persons,  resident  or 
In  particular,  such 
reciprocity  could  render  the  claw-back  clause  even  more  effective,  because  it 
the  possibilities  to  have  access  to  assets  of  the  US 
would 
person/company from which amounts are to be recovered. 

in  the  Community. 

incorporated 

increase 

Proposal  for a 

COUNCIL  BJSQULATION (EC) 

protecting  against  the  effects  of  the  application  of  certain  legislation  of  certain 
third countries, and actions based thereon or resulting therefrom 

THE  COUNCIL  OF THE  EUROPEAN  UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in 
particular  113 and 235  thereof, 

Having regard to the proposal of the Commission, 

Having regard to the opinion of the European  Parliament1) 

Whereas  it  is  an  objective  of  the  EC  that  there  should  be  an  open  system  of 
international trade  and capital investment, 

Whereas  certain third countries  have  enacted  or are  likely to enact  certain laws, 
regulations,  and  other  legislative  instruments  which  purport  to  regulate  the 
activities  of  natural  and  legal  persons  under  the  jurisdiction  of  the  Member 
States of the  European  Community; 

Whereas  by  their  extra-territorial  application  such  laws,  regulations  and  other 
legislative  instruments violate international law; 

Whereas  these  laws  and actions  based thereon  or resulting therefrom,  including 
regulations  and  other  legislative  instruments,  affect  or  are  likely  to  affect  the 
established  legal  order  and  have  adverse  effects  on  the  external  economic 
interests of the  EC and the  interests of natural and legal persons  exercising their 
rights  in  accordance  with  the  common  import  and  export  regimes  and  on  the 
principle  of  free  movement  of  capital  between  the  Community  and  third 
countries; 

Whereas,  under these  exceptional  circumstances,  it is necessary  to  take  action 
at  the  Community  level  protecting  the  established  legal  order  and  the  external 
interests  of  these  persons,  in 
economic  interests  of  the  Community  and  the 
particular  by  removing,  neutralising,  blocking  or otherwise  countering the  effects 
of the foreign  legislation concerned; 

Whereas  the  Commission,  in the  implementation  of  this  Regulation,  should  be 
assisted by a committee composed of representatives of the Member States; 

Whereas  this  action takes the  form  of  measures  ancillary to the  achievement  of 
the objectives set out above; 

') Opinion delivered on ..... OJ nr. 

Whereas  the  Treaty  does  not  provide  for  the  adoption  of  certain  provisions  of 
this Regulation powers other than those of Article 235; 

HAS ADOPTED THIS  REGULATION: 

Scope of protection 

Article 1 

This  Regulation  provides  protection  against  and  counteracts  the  effects  of  the 
extra-territorial  application  of  the  laws  specified  in  the  Annex  and  of  actions 
based  thereon  or  resulting therefrom,  including  regulations  and  other  legislative 
instruments. 

On  the  basis  of  a  proposal  of  the  Commission,  the  Council  may  add  or  delete 
laws to or from the Annex. 

Notifications 

Article 2 

Any  person  shall  notify to the  European  Commission2)  any  information  obtained 
by that  person, with  regard to the  direct  or indirect  effects  of the  laws or  actions 
mentioned in Article  1,  on the economic and financial interests of that person. 

Confidentiality 

Article 3 

All  information  supplied  under  this  Regulation  shall  only  be  used  for  the 
purposes for which it was provided. 

Information  which  is by nature confidential  or which  is provided  on a  confidential 
basis  shall  be  covered  by the  obligation  of  professional  secrecy.  It  shall  not  be 
disclosed  by  the  Commission  without  the  express  permission  of  the  person 
providing it. 

Communication  of such information  shall be  permitted where  the  Commission  is 
obliged or authorised to do so, in particular  in connection with  legal  proceedings. 
Such  communication  must  take  into  account  the  legitimate  interests  of  the 
person concerned that his or her business secrets should not be divulged. 

This  Article  shall  not  preclude  the  disclosure  of  general  information  by  the 
Commission. 

2)  Information  should  be  supplied  to  the  following  address:  European  Commission,  Directorate 

General I, Rue de ta Loi/Wetstraat 200,1049 Brussels 

Non-recognition of  judgements 

Article 4 

No  judgement  of a court or tribunal located outside the Community giving effect, 
directly  or  indirectly,  to  the  laws  and  actions  mentioned  in  Article  1,  shall  be 
recognised or be enforceable  in any  manner. 

Non-compliance 

Article 5 

No  person  shall  comply,  whether  directly  or  through  a  subsidiary  or  other 
intermediary  person, actively or by deliberate  omission,  with any  requirement  or 
prohibition, including  requests of foreign courts, based on or resulting, directly or 
indirectly, from the laws and actions mentioned in Article  1. 

Persons  may  be  authorised,  in  accordance  with  the  procedures  provided  in 
Articles  7  and  8,  to  comply  fully  or  partially  to  the  extent  that  non-compliance 
would seriously damage their interests or those of the Community. 

Recovery of damages 

Article 6 

Any  person  shall  be  entitled  to  recover  any  amount  obtained  by  any  natural  or 
legal  person  in  whose  favour  a  judgement  by  a  non-Member  State  court  or 
tribunal  was  given,  to  the  extent  that  it  is  established  before  a  court  within  the 
Community  that  the  amount  awarded  was  based  on  the  laws  and  actions 
mentioned in Article  1. 

Such  recovery  may be obtained from the natural or legal person  in whose favour 
the  judgement  was  given,  or  from  any  legal  person  incorporated 
in  the 
Community and owned or controlled by such person.3 

3 A legal person incorporated in the Community is : 

"owned"  by  another  natural  or  legal  person  if  more  than  50  per  cent  of  the  equity 
interest in it is beneficially owned by that person; 

"controlled"  by another  natural or  legal  person  if  that  other  person  has the  power  to 
name a majority of its directors or otherwise to legally direct its actions. 

Management provisions 

Article 7 

For the implementation  of this Regulation the Commission shall: 

a.  inform the  Council  regularly  on the  effects  of the  laws,  regulations  and  other 
legislative  instruments  and  ensuing  actions  mentioned  in Article  1,  on the  basis 
of  the  information  obtained  under  this  Regulation,  and  to  make  yearly  a  full 
public report thereon; 

b. grant authorisations  under the conditions set forth in Article 5; 

c.  add  or  delete,  where  appropriate, 
references  to  secondary  regulations  or 
other  legislative  instruments  deriving  of  the  laws  specified  in  the  Annex,  and 
falling under the scope of this Regulation; 

d. to publish in the Official Journal of the  European Communities the judgements 
to which Article 4 applies; 

Article 8 

For the  purposes  of the  implementation  of  paragraphs  b.  and  c.  of  Article  7,  the 
Commission  shall  be  assisted  by a  committee  composed  of  the  representatives 
of the  Member States and chaired by the  representative  of the Commission. 

The  representative  of  the  Commission  shall  submit  to  the  committee  a  draft  of 
the  measures  to  be  taken.  The  committee  shall  deliver  its  opinion  on  the  draft 
within a time  limit which the chairman  may  lay down according to the  urgency of 
the  matter.  The  opinion  shall  be  delivered  by  the  majority  laid  down  in  Article 
148(2)  of  the  Treaty  in  the  case  of  decisions  which  the  Council  is  required  to 
adopt  on  a  proposal  from  the  Commission.  The  votes  of  the  representatives  of 
the  Member  States within the committee shall be weighted  in the  manner set out 
in that Article. The chairman shall not vote. 

The  Commission  shall adopt measures  which shall apply  immediately.  However, 
if these  measures  are  not  in accordance  with the  opinion of the  committee,  they 
shall be communicated  by the Commission to the Council forthwith. 

In that event the Commission  may defer application of the measures  which it has 
decided  for  a  period  of  not  more  than  one  month  from  the  date  of  such 
communication. 

The  Council,  acting  by  a  qualified  majority,  may  take  a  different  decision  within 
the time limit referred to in the previous paragraph. 

General  and final provisions 

Article  9 

Each  Member  State  shall determine  the  penalties to  be  imposed  in the  event of 
breach  of  the  provisions  of  this  Regulation.  Such  penalties  must  be  effective, 
proportional and dissuasive. 

Article  10 

The  Commission  and  the  Member  States  shall  inform  each  other  of  the 
measures  taken  to 
implement  this  Regulation  and  of  all  other  relevant 
information pertaining to this Regulation. 

Article 11 

This  Regulation  shall apply within the territory of the  Community,  including  its air 
space  and  in any  aircraft  or on  any vessel  under the jurisdiction  or control  of  a 
Member  State,  and  to  any  natural  or  legal  person,  private  or  public,  resident  or 
incorporated within the Community. 

Article  12 

This  Regulation  shall  enter  into force  on the  day  of  its publication  in the  Official 
Journal of  the European Communities. 

This  Regulation  shall  be  binding  in  its  entirety  and  directly  applicable  in  all 
Member States. 

Done at, 
For the Council 

The President 

A N N EX 

LAWS, REGULATIONS AND OTHER LEGISLATIVE  INSTRUMENTS 

referred to in Article 1 

COUNTRY:  UNITED STATES OF AMERICA 

ACTS 
1.  "National Defense Authorization Act for Fiscal Year  1993", Title XVII  - Cuban 
Democracy Act of 1992, section 1706. 

2. "Cuban Liberty and Democratic Solidarity Act of 1996. 

REGULATIONS 

1.  31  CFR  (Code  of  Federal  Regulations)  Ch.  V  (7-1-95  edition)  Part  515  -. 
Cuban  Assets  Control  Regulations,  subpart  E  -  Licenses,  Authorizations  and 
Statements of Licensing Policy. 

BSN 0254-1475 

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