The way to protect Indian companies from secondary sanctions

A robust blocking statute must bar Indian persons and companies from complying with any extraterritorial sanctions that conflict with national law or policy.

By Faraz Alam Sagar  

Sanctions have become a preferred foreign-policy instrument—and their reach often extends well beyond a sanctioning state’s borders. The recent wave of U.S. Office of Foreign Assets Control (OFAC) penalties, specifically targeting Indian companies that deal with Iran has placed many Indian exporters, banks, and service providers squarely in the crosshairs.

Although fully compliant under Indian law, these firms now risk frozen dollar transactions, severed correspondent-banking ties, and denied cloud services—all because of dealings deemed illicit under U.S. regulations.

India’s commercial community confronts a stark choice: sacrifice profitable, legally permissible contracts or face the draconian consequences of secondary sanctions.

Under OFAC’s secondary-sanctions regime, even indirect support for a designated Iranian entity can trigger penalties. Small- and medium-sized exporters find their dollar earnings blocked. Financial institutions weigh the loss of U.S. market access against longstanding relationships in the Middle East. Overseas insurers, shipping lines, and joint-venture partners scramble to reassess risk, chilling trade that Indian law expressly allows.

Compounding the crisis is the absence of any domestic statute to guide Indian firms through this minefield. Our primary financial-compliance laws—FEMA, the Prevention of Money Laundering Act, and others—remain silent on extraterritorial coercion or protection.

OFAC issues no advance warnings before blacklisting, offers no transparent appeals process, and provides little guidance for third-country actors. The result: Indian businesses operate in a legal vacuum, often over-complying out of fear, abandoning legitimate deals and undermining India’s broader trade objectives.

EU provides a template

It’s time we learn from the Europeans. The European Union confronted a similar dilemma when the United States withdrew from the Iran nuclear deal in 2018 and reimposed sanctions on Tehran. To protect its companies, the EU strengthened its 1996 blocking regulation by updating it for Iran-related measures: Regulation (EU) 2018/1100.

This framework prohibits EU persons from complying with specified U.S. sanctions on Iranian oil, finance, and shipping. It nullifies extraterritorial U.S. judgments, forbids the recognition of foreign freezing orders on EU assets, and empowers the European Commission to grant authorizations where compliance with U.S. law is unavoidable. Crucially, it also allows EU firms to recover damages and legal costs arising from forced compliance with U.S. measures.

India needs a tailored legislation to counter secondary sanctions

India, too, needs a bespoke blocking statute—one calibrated to our unique geopolitical and commercial needs. Such a law would empower our Parliament to assert that only Indian legislation governs the conduct of Indian businesses.

In my view a robust blocking statute must bar Indian persons and companies from complying with any extraterritorial sanctions that conflict with national law or policy unless they obtain an explicit waiver from a designated Indian authority; establish a damages-recovery mechanism so firms coerced into complying can claim compensation for lost profits, legal fees, and related costs; prohibit Indian courts from recognizing or enforcing foreign orders or judgments grounded solely in extraterritorial sanctions; and create a transparent, expedited exemption process overseen by a newly formed Sanctions Appeal and Review Board within the Commerce Ministry, operating in close consultation with the Ministry of External Affairs.

By codifying these protections, India would send a powerful message: we respect the rule of law, but only our Parliament can bind our citizens and corporations.

This legal clarity would restore confidence to exporters, reassure financial institutions, and signal to foreign regulators that India tolerates no ambiguity in cross-border compliance.

Some may warn that a blocking statute risks diplomatic friction, especially with the United States. Yet the EU’s experience shows that a well-calibrated law—complete with case-by-case derogations for critical imports or services—need not rupture strategic partnerships. On the contrary, it can preserve market access while safeguarding economic sovereignty. We can design exemption mechanisms for defense supplies, pharmaceuticals, or energy purchases, ensuring our national security and humanitarian needs remain unhindered.

Sanctions are an extension of foreign policy, and India must treat them as such. To protect our economic interests and uphold democratic principles, we cannot remain passive observers.

A blocking statute is not an act of hostility; it is an assertion of sovereign authority. It guarantees that our companies operate under Indian law, with the backing of Parliament and the protection of our courts. By enacting this statute, India will chart an independent course—one that respects global considerations but never cedes control of its own economic destiny to distant capitals.

(Faraz Alam Sagar is Partner {Co-Head- White Collar & Investigations}, Cyril Amarchand Mangaldas. He represents companies and individuals before OFAC and the DoJ.)

 Views are personal and do not represent the stand of this publication.