Sanctions Law 9781509900145, 9781509900152, 9781509900121

This book aims to create a user-friendly, accessible guide to the complex area of sanctions law. In particular, the book

244 55 8MB

English Pages [335] Year 2019

Table of contents :
Foreword
Preface
Brief Contents
Table of Contents
Table of Cases
Table of Legislation
Introduction
What Do We Mean by 'Sanctions'?
The Sources of Sanctions Law
Sanctions Regimes
Using this Book
PART I: SANCTIONS REGIMES AND HOW THEY WORK
1. UN Sanctions
Introduction
The Legal Basis of UN Sanctions
Content and Interpretation
A Brief History of UN Sanctions
Key Resources
UN Sanctions Regimes
2. EU Sanctions
Introduction
The Legal Basis of EU Sanctions
Content and Interpretation
Key Resources
3. UK Sanctions
Introduction
Brexit
Financial Sanctions
Trade Sanctions
Travel Bans
Key Resources
4. US Sanctions
Introduction
The Legal Basis of US Sanctions
Content and Interpretation
Key Resources
PART II: CHALLENGING SANCTIONS
5. Challenging Sanctions at the UN Level
UN Sanctions Regimes
Introduction
Reviewing UN Sanctions
The Future
6. Challenging Sanctions at the EU Level
Relevant European Legislation
The Cases
Overview
Preliminary Issues
Essential Principles
Procedural Issues
Damages Claims
The Future
7. Challenging Sanctions at the UK Level
Relevant UK Legislation
The Cases
Overview
Preliminary Issues
Unilateral Sanctions
Multilateral Sanctions
Damages
The Future
8. Challenging Sanctions at the ECHR Level
Relevant ECHR Provisions
The Cases
Overview
Jurisdictional Issues
Essential Principles
Damages
The Future
9. Challenging Sanctions in the US
Relevant US Legislation
The Cases
Introduction
Preliminary Issues
Essential Principles
PART III: SANCTIONS AND BUSINESS
10. Sanctions and Contracts
Introduction
Contractual Disputes
Sanctions Clauses
11. Private Sector Implementation of Sanctions
Introduction
Financial Sanctions
Export Controls
US Sanctions for Non-US Businesses

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Sanctions Law
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Smyth Michael
Tom Cornell

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SANCTIONS LAW This book aims to create a user-friendly, accessible guide to the complex area of s anctions law. In particular, the book will examine how sanctions restrictions work in practice, and what the implications are for multinational businesses operating across numerous sanctions regimes. To this extent, the book considers the interrelationship between sanctions at the supranational and national levels, including the impact of the far-reaching US sanctions regime. The book’s aim is not to provide an exhaustive list of sanctions regulations, but rather a framework for engaging with the relevant legislation and the main issues arising therefrom. Reinforcing this practical and commercially-focused approach, each chapter is written in a format that enables easy reading and rapid assimilation. Where there are relevant materials, be they legislative or case-law, these are outlined at the start of each chapter. In addition, the chapters dealing with challenges to sanctions designations each include a section with key principles, providing the clearest possible treatment of the subject.

ii

Sanctions Law Richard Gordon QC Michael Smyth CBE QC (Hon) and

Tom Cornell

HART PUBLISHING Bloomsbury Publishing Plc Kemp House, Chawley Park, Cumnor Hill, Oxford, OX2 9PH, UK HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published in Great Britain 2019 Copyright © Richard Gordon QC, Michael Smyth CBE QC (Hon) and Tom Cornell, 2019 Richard Gordon QC, Michael Smyth CBE QC (Hon) and Tom Cornell have asserted their right under the Copyright, Designs and Patents Act 1988 to be identified as Authors of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www. nationalarchives.gov.uk/doc/open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2019. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication data Names: Gordon, R. J. F. (Richard John Francis), author. | Smyth, Michael, author. | Cornell, Tom (Lawyer), author. Title: Sanctions law / Richard Gordon QC, Michael Smyth, Tom Cornell. Description: Oxford, UK ; Portland, Oregon : Hart Publishing, 2019. Identifiers: LCCN 2018049637 (print) | LCCN 2018051096 (ebook) | ISBN 9781509900138 (Epub) | ISBN 9781509900145 (hardback) Subjects: LCSH: Sanctions (International law) | Economic sanctions, American. | Economic sanctions, Britsh. | Economic sanctions, European. | United Nations—Sanctions. Classification: LCC KZ6373 (ebook) | LCC KZ6373 .G67 2019 (print) | DDC 341.5/82—dc23 LC record available at https://lccn.loc.gov/2018049637 ISBN: HB: 978-1-50990-014-5 ePDF: 978-1-50990-012-1 ePub: 978-1-50990-013-8 Typeset by Compuscript Ltd, Shannon To find out more about our authors and books visit www.hartpublishing.co.uk. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters.

FOREWORD As Ombudsperson for the Security Council Al-Qaida Sanctions Committee, I often remarked that I worked in a vortex where politics intersected with law, with less than desirable results. One of the core problems in dealing with this challenging role was the complete lack of understanding, in many quarters, of how important the law had become to sanctions practice. This book brings much welcome focus to that reality – law can no longer be ignored in the sanctions world. The past 20 years has brought essentially a revolution in the field of sanctions. In the 1990s there was a sudden resurrection of a dormant power of the Security Council under Article 41 of the UN Charter, not utilised since the measures aimed at the apartheid regimes in South Africa and Rhodesia in the 1960s and 1970s. Since the initial comprehensive regime imposed on Iraq in August 1990, there has been a proliferation of Security Council sanctions on a global scale and the creation of elaborate structures – including panels of experts and monitoring teams – to support them. In addition, there have been many innovations in Security Council practice, including the use of sophisticated sanctions measures and the migration from comprehensive to targeted schemes. Within that migration there has also been an expansion of targets from state sectors to state officials and to non-state actors. In parallel to these developments at the UN level, sanctions have become a popular tool of other multilateral institutions – most notably the European Union – and we have seen innovative use of unilateral sanctions by states in a broad range of circumstances. It was inevitable that this increased activity in the use of measures which affect economies, industry, financial services and individual rights would generate complex legal issues and challenges. Much has been written about the use of sanctions in terms of policy objectives and effectiveness. There has also been scholarly examination of the substance of legal challenges, particularly in the context of targeted sanctions. But this book makes a unique contribution with its focus on the ‘how’ of sanctions in legal practice – how the sanctions themselves are implemented, how the types of laws are used, how the sanctions can be challenged in various fora and practical issues for the private sector. This book will be helpful to lead practitioners and academics alike through the ever-expanding quagmire of sanctions law. Classically, sanctions aim to prevent, deter and stigmatise. To be effective in achieving these goals, sanctions have to be implemented or they will remain purely political statements. In most instances, modern sanctions involve financial, trade or travel restrictions, and require the adoption or amendment of laws for implementation. This is an especially complex process when the sanctions are decided upon and imposed by a multilateral institution at the international level, but where the laws themselves which give them effect have to be adopted at the individual state level. Perhaps the most complex in that regard is the implementation of EU sanctions, which can take place through laws adopted by the

vi Foreword EU or individual states or sometimes both. One of the important contributions of this text is that it provides a comprehensive overview of the kinds of legal measures used to implement UN and EU sanctions, and gives examples of state implementation in the UK and US. To the extent that part of the legal challenge is the lack of clarity surrounding the adoption of sanctions, it is helpful as well that there is a description of the process by which sanctions are originally adopted in international fora. While the implementation of sanctions is an important part of sanctions law, unquestionably the area of law which has seen the largest explosion of activity over the past 10 years is sanctions-related litigation. In relation to United Nations sanctions, the starting point was the adoption of resolution 1267 in 1999, which created a targeted sanction regime aimed initially at the Taliban and, a year later, incorporating Osama bin Laden and Al-Qaida. The goal of the sanctions measures was to compel the Taliban to turn over bin Laden, who had been identified as the suspected organiser of the 1998 bombings of the American embassies in Kenya and Tanzania. At the time of the adoption of the resolution, he was being sheltered within Afghanistan by the Taliban. Whilst the list of targeted individuals was initially quite limited, after the tragic events of 11 September 2001 in the United States hundreds of individuals and entities – said to be associated to Al-Qaida – were added to the list. The further complication, not seen before with other lists, was the geographic scope of resolution 1267, which triggered the inclusion of individuals and entities from across the globe. The result was greatly increased anxiety about due process surrounding Security Council sanctions. Without notice, reasons or recourse hundreds of individuals had their assets frozen and were prohibited from travel on a worldwide basis. Left simmering for many years with only modest improvements by the Security Council, the situation generated litigation in national courts and most significantly before the European Union’s own Court – the ECJ. Ultimately, the landmark decision in Yassin Abdullah Kadi and Al Barakaat International Foundation v Council of the European Union and Commission of the European Communities triggered the creation of another forum for challenging sanctions – this one at the UN level – an Ombudsperson for the 1267 regime. In parallel to these developments, the increased use of sanctions by the European Union for broader policy reasons triggered a wave of litigation against sanctions imposed under the EU’s autonomous regimes. In addition, there continued to be litigation on a national level in relation to both internationally and nationally generated sanctions. All of this together created what is perhaps best described as a chaotic web of litigation options in the field of sanctions law. The benefit of the approach in this text is that the focus is not merely on the substantive case law but also on the practice of litigating sanctions in these different fora. As such, it provides a useful guide for practitioners considering litigation options and more broadly an overview which will be helpful in many other contexts. Lastly, the book provides much-needed consideration of sanctions from the perspective of business – the legal implications for commercial law and the array of legal challenges in the context of compliance. These are important topics, particularly as reliance is increasingly placed on the private sector to implement economic sanctions which are becoming ever more intricate and complex in design and function.

Foreword vii As the use of sanctions shows no signs of abating – to the contrary in fact – the number of interested practitioners will continue to expand. A practical guide of this nature – with manageable content and length – will be a valuable asset. And more generally the book will make an important contribution in focusing attention on this growing area of national and international law. As such it will help advance the important concept that sanctions policy and practice must be properly managed in accordance with the rule of law. Kimberly Prost Judge of the International Criminal Court and former Ombudsperson for the UN Security Council Al-Qaida Sanctions Committee The Hague July 2018

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PREFACE When we first had the idea for this book we were struck by the absence of any p ractitioners’ texts dealing with sanctions law in its own right. There were good reasons for that. Sanctions law is highly technical, involving questions not only of international law, but also of regional and domestic law, depending on where the sanctions are drawn up, implemented and enforced. It is also multi-polar and fast-moving, sanctions having become an increasingly popular tool of foreign policy for states and international organisations such as the UN and the EU. To this extent, sanctions law changes from week to week in line with governmental imperatives. Given this, we decided to focus on the broad framework of sanctions law at the UN, EU, UK and US levels; in other words, on the ‘how?’ of sanctions law, as opposed to the ‘why?’. Not that the ‘why?’ is unimportant. Sanctions have much more salience than hitherto because of the need to restrict the kind of capital flows that are facilitated by globalisation and digital technology. Enforcement of sanctions was once a matter solely for naval officers and customs officials; now it requires to be a priority item for anyone engaged in international trade and those advising such traders, to say nothing of high-end London estate agents and private jet operators. This book is for them too and not just the lawyers. The framework of sanctions law has been updated and amended on multiple occasions since we started writing, not least as a result of Brexit. A new UK financial sanctions regulator – the Office of Financial Sanctions Implementation (OFSI) – was set up in June 2016 and then followed by the creation of new enforcement powers under the Policing and Crime Act 2017. More recently, the UK’s sanctions framework has been overhauled by the Sanctions and Money-Laundering Act 2018, which received royal assent on 23 May 2018 but which will not come into force until the Brexit process is complete. The book reflects the situation as fully as possible as at 1 June 2018, but there will inevitably be further developments in these turbulent times. Indeed, the next few years will be busy for sanctions law practitioners. Our hope is that this book can serve as a useful starting point for u nderstanding where the law has got to and where it might go from here. The aim of the book is to serve as a practical guide to sanctions law as it operates both internationally and at the EU, UK and US levels. It is not, for the reasons discussed above, anything like a comprehensive compendium of the law that exists in this area. The book sets out first to explain how sanctions law works at various levels, and then to grapple with some of the main ways in which it engages individual rights and business interests. Part 1 aims to provide an overview of how sanctions policy becomes law in various jurisdictions, including how sanctions policy decided at the international level is implemented domestically. Part 2 deals with challenges to sanctions designations in the courts and the expanding body of case law in this area. Finally, Part 3 looks at sanctions law from a business perspective, focussing on the impact of sanctions on commercial contracts and the compliance requirements for businesses operating in the UK.

x Preface Due to the breadth of the area covered, we have needed, at various stages in the rafting process, help from a long list of people. We owe a special debt of gratitude to d Adam M. Smith, partner in the Washington D.C. office of Gibson, Dunn & Crutcher, who helped us at short notice to navigate the murky waters of US sanctions law. Closer to home, thanks are due in particular to Nicky Smith, Head of the International Institutions and Security Policy Team in the Legal Directorate of the UK Foreign and Commonwealth Office, as well as Crown Advocate Kate Rabey from the Law Officers’ chambers in Guernsey, and Luigi Lonardo, research student at King’s College London, for their help with the EU aspects of the book. Gavin Irwin, barrister at 2 Hare Court, provided much-needed feedback in relation to the implementation and enforcement of sanctions law in the UK. In terms of litigation, Richard Blakeley of Brick Court Chambers alerted us to a number of important developments in the EU courts. Similarly, Richard Eschwege, also of Brick Court Chambers, helped clarify some of the recent case law involving sanctions in the courts of England and Wales. Nick Petrie, research student at Cambridge University, deserves thanks for commenting on the international law points raised in the book. Finally, we must mention Maziar Jamnejad, Global Head of Legal Innovation at Freshfields Bruckhaus Deringer LLP, who has on numerous occasions been willing to assist us in our battle to understand the private sector implications of sanctions law. Needless to say, any errors in law or exposition are entirely our own. We have endeavoured to state the law as at 1 June 2018. Richard Gordon QC Michael Smyth CBE QC (Hon.) Tom Cornell London June 2018

BRIEF CONTENTS Foreword�� v Preface�� ix Table of Contents��xiii Table of Cases�� xxi Table of Legislation�� xxix Introduction��1 PART I SANCTIONS REGIMES AND HOW THEY WORK 1. UN Sanctions��11 2. EU Sanctions��35 3. UK Sanctions��56 4. US Sanctions��108 PART II CHALLENGING SANCTIONS 5. Challenging Sanctions at the UN Level��127 6. Challenging Sanctions at the EU Level��143 7. Challenging Sanctions at the UK Level��171 8. Challenging Sanctions at the ECHR Level��204 9. Challenging Sanctions in the US��228 PART III SANCTIONS AND BUSINESS 10. Sanctions and Contracts��243 11. Private Sector Implementation of Sanctions��257 Index�� 277

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TABLE OF CONTENTS Foreword�� v Preface�� ix Brief Contents�� xi Table of Cases�� xxi Table of Legislation�� xxix Introduction��1 What Do We Mean by ‘Sanctions’?��1 The Sources of Sanctions Law��4 Sanctions Regimes��6 Using this Book��7 PART I SANCTIONS REGIMES AND HOW THEY WORK 1. UN Sanctions��11 Introduction��11 The Legal Basis of UN Sanctions��12 UN Sanctions in International Law��12 Types of Sanctions Measures��17 Asset Freezes��17 Arms Embargoes��17 Commodity Interdictions��18 Travel Bans��18 Diplomatic Sanctions��18 Establishment of UN Sanctions Regimes��19 Implementation of Sanctions Measures��20 Interaction with Other Institutions��21 Content and Interpretation��22 Mechanics of Sanctions Regimes��22 Sanctions Committees��23 Listing��23 Exemptions��24 Monitoring Team/Group of Experts��25 Case Study: The 1718 Regime (North Korea/DPRK)��25 Interpretation of Security Council Resolutions��27 A Brief History of UN Sanctions��29 Key Resources��32 UN Sanctions Regimes��32

xiv Table of Contents 2. EU Sanctions��35 Introduction��35 The Legal Basis of EU Sanctions��36 Sanctions Under EU Law��36 Mechanics of Sanctions Implementation/Legislative Process��39 Amending and Updating EU Sanctions Measures��41 Amending Lists of Designated Persons��42 Substantive Amendments to Restrictive Measures��42 Implementation of UN Security Council Resolutions��43 Content and Interpretation��45 Common Provisions in EU Instruments Setting Out Restrictive Measures��46 Financial Sanctions��46 Arms Embargoes��48 Travel Bans��49 Derogations and Exemptions��49 Non-liability Clauses��50 No Claims Clauses��50 Circumvention��51 Interpretation of EU Instruments Setting Out Restrictive Measures��51 Jurisdiction of the EU Courts to Review and Interpret Restrictive Measures��52 General Principles of Interpretation��54 Key Resources��55 3. UK Sanctions��56 Introduction��56 Brexit��57 Financial Sanctions��62 Overview��62 Implementation��64 International Financial Sanctions��65 UN Financial Sanctions��65 EU Financial Sanctions��65 Domestic Financial Sanctions��66 Terrorism Asset-Freezing etc Act 2010��66 Counter-Terrorism Act 2008��68 Anti-Terrorism, Crime and Security Act 2001��69 Interpretation��69 Jurisdiction��70 Basic Prohibitions��71 Ownership and Control��73 Notification Requirements��73 Other Restrictions��74 Syria��74 Russia/Ukraine��75

Table of Contents xv Exemptions and Licensing��76 Licences��76 Licensing for EU Financial Sanctions��76 Licensing in Terrorism Cases��79 Penalties and Enforcement��80 Criminal Penalties��81 Civil Penalties��83 Trade Sanctions��84 Overview��84 Trade Sanctions: Export Controls��85 Implementation��85 Domestic Export Controls��87 Export Control Act 2002��87 Export Control Order 2008��87 Export of Radioactive Sources Control Order 2006��89 Customs and Excise Management Act 1979��89 Other Secondary Legislation��89 International Export Controls��90 Regulation (EU) No 428/2009 (the ‘Dual-use Regulation’)��90 Regulation (EU) No 1236/2005 (the ‘Torture Regulation’)��91 Licensing��91 Penalties and Enforcement��94 Criminal Penalties��94 Civil Penalties��95 Trade Sanctions: Import Controls��95 Domestic Import Controls��96 Import, Export and Customs Powers (Defence) Act 1939��96 UK Import Controls in Relation to Specific Goods��97 EU Import Controls��97 Regulation (EU) No 1236/2005��97 Council Decision 2014/512/CFSP��98 Regulation (EU) No 36/2012��98 Licensing��98 Penalties and Enforcement��99 Criminal Penalties��99 Civil Penalties��99 Trade Sanctions: Miscellaneous Provisions��99 Dealing in Cultural Objects��100 Trading with the Enemy��100 Travel Bans��101 Overview��101 Implementation��102 International Travel Bans��103 Travel Bans in Relation to North Korea��103 Travel Bans in Relation to Syria��104

xvi Table of Contents Domestic Travel Bans��104 Exclusion of EEA Nationals��104 Exclusion of Non-EEA Nationals��105 Key Resources��106 4. US Sanctions��108 Introduction��108 The Legal Basis of US Sanctions��109 US Sanctions Programs��109 Implementation of International Measures��112 Jurisdiction��113 Extra-territoriality��114 Content and Interpretation��115 Financial Sanctions��116 Transaction Controls��117 Transshipment of US-origin Goods��117 Facilitation��118 Licensing and Exemptions��119 Penalties and Enforcement��120 Civil Penalties��120 Calculation of Penalty Amount��122 Settlement��122 Criminal Penalties��122 Key Resources��123 PART II CHALLENGING SANCTIONS 5. Challenging Sanctions at the UN Level��127 UN Sanctions Regimes��127 Introduction��131 Reviewing UN Sanctions��134 Focal Point for De-listing��135 The Office of the Ombudsperson��137 The Future��140 6. Challenging Sanctions at the EU Level��143 Relevant European Legislation��143 The Cases��145 Overview��151 Preliminary Issues��154 Standing��154 Timing of Applications to the General Court��155 Essential Principles��156 Challenges to Targeted Measures��156 Effective Judicial Protection��157

Table of Contents xvii Rights of Defence��157 Quality of Evidence Relied on and Disclosure to Relevant Persons��157 Obligation to State Reasons��158 Requirements of Statement of Reasons��158 Unjustified or Disproportionate Restriction of Fundamental Rights��159 Unsubstantiated Reasons and Manifest Error of Assessment��160 Infringement of the Applicant’s Legitimate Expectations��161 Abuse of Powers��161 Challenges to General Measures��161 Procedural Issues��162 Closed Material Procedure��162 Re-listing��163 Interim Relief��164 Appeals��165 Damages Claims��165 Sufficiently Serious Breach��165 Actual Damage��166 Causal Link��166 The Future��167 Brexit��167 Joint Common Plan of Action (JCPOA)��168 Other Changes in EU Sanctions Policy��169 7. Challenging Sanctions at the UK Level��171 Relevant UK Legislation��171 The Cases��173 Overview��179 Preliminary Issues��181 Closed Material Procedures��182 Disclosure��183 Interim Relief��184 American Cyanamid Test��185 Zuckerfabrik Test��185 Unilateral Sanctions��186 Challenges to Designations Under CTA 2008��187 Substantive Grounds��188 Procedural Grounds��189 Challenges to Designations Under TAFA 2010��189 Challenges to Designations Under SAMLA 2018��191 Multilateral Sanctions��191 Challenging the Manner in which International Measures are Implemented in the UK��192 Challenging the UK’s Contribution to International Decision-making Concerning Sanctions Measures��196 Brexit��198

xviii Table of Contents Damages��198 Disclosure��199 Preconditions and General Principles��199 The Future��201 8. Challenging Sanctions at the ECHR Level��204 Relevant ECHR Provisions��204 The Cases��206 Overview��207 Jurisdictional Issues��209 Standing��209 Exhaustion of Domestic Remedies��210 Parallel International Proceedings��210 Timing��211 Jurisdiction��211 Ratione personae��211 Ratione materiae��212 Ratione loci��213 Ratione temporis��213 Interim Measures��213 Essential Principles��213 The Bosphorus Presumption��214 Competing Obligations in International Law��215 Interference with ECHR Rights��219 The Right to Property��219 The Right to an Effective Judicial Remedy��221 The Right to Private and Family Life��223 The Right to Liberty��224 The Right to Liberty of Movement��225 Damages��226 The Future��227 9. Challenging Sanctions in the US��228 Relevant US Legislation��228 The Cases��229 Introduction��231 Preliminary Issues��231 Standing��231 Constitutional Protection��232 Timing��233 Essential Principles��233 Administrative Reconsideration��233 Notice��234 Opportunity to be Heard��235

Table of Contents xix Judicial Review��236 Standard of Review��236 Administrative Record and Use of Classified Material��237 Remedies��238 PART III SANCTIONS AND BUSINESS 10. Sanctions and Contracts��243 Introduction��243 Prohibitions��244 Contractual Disputes��246 Sanctions with Direct Effect in England and Wales��246 Non-liability Clauses��246 No Claims Clauses��247 Frustration and Illegality��248 Human Rights��251 Sanctions Implemented and Enforced by Third States��252 Sanctions Clauses��253 Force majeure�� 253 Drafting Sanctions Clauses��254 11. Private Sector Implementation of Sanctions��257 Introduction��257 Brexit��260 Financial Sanctions��261 Overview of UK Financial Sanctions��261 Who is Concerned by UK Financial Sanctions Law?��261 Basic Prohibitions��262 Other Prohibitions��264 Reporting Obligations��264 Compliance Obligations��266 Penalties and Enforcement in the UK��267 Export Controls��268 Overview of UK Export Controls��268 Who Does UK Export Control Law Apply To?��270 Compliance Obligations��270 Penalties and Enforcement of UK Export Control Law��271 US Sanctions for Non-US Businesses��272 Enforcement of US Sanctions Breaches by Non-US Persons��272 Processing US-dollar Transactions��273 Causing a Violation in the US��274 Index�� 277

xx

TABLE OF CASES United Kingdom (England & Wales, Scotland) A v Secretary of State for the Home Department [2004] EWCA Civ 1123, [2005] 1 WLR 414��190 A v Secretary of State for the Home Department [2004] UKHL 56, [2005] 2 AC 68��188 Agrokor AG v Tradigrain SA [2000] 1 Lloyd’s Rep 497��254 Ahmed v HM Treasury [2010] UKSC 2, [2010] 2 AC 534, [2010] 2 WLR 378�� 58, 132–33, 141, 174, 189, 191, 193–95, 202 Al Rawi v Security Service [2012] 1 AC 531��182 Al-Kishtaini v Shanshal [2001] EWCA Civ 264, [2001] 2 All ER (Comm) 601��251 American Cyanamid Co v Ethicon Ltd (No 1) [1975] AC 396, [1975] 2 WLR 316�� 184–85 Amin v Brown [2005] EWHC 1670 (Ch), [2006] IL Pr 5��100 Anufrijeva v Southwark London Borough Council [2003] EWCA Civ 1406��200 Arash Shipping Enterprises Co Ltd v Groupama Transport [2011] EWCA Civ 620�� 255–56 Arnold v Britton [2015] AC 1619��253 Bank Mellat v HM Treasury [2012] QB 91��184 Bank Mellat v HM Treasury (No 1) [2013] UKSC 38, [2014] AC 700�� 175, 182, 187 Bank Mellat v HM Treasury (No 2) [2013] UKSC 39, [2014] AC 700, [2013] 3 WLR 179��69, 175, 177–78, 187–89, 199 Bank Mellat v HM Treasury [2015] EWHC 1258 (Comm), [2016] 1 All ER (Comm) 766��177–78, 200–1 Bank Mellat v HM Treasury [2016] EWCA Civ 452, [2017] QB 67��177–78, 201 Bank Mellat v HM Treasury [2017] EWHC 2409 (Comm)�� 179, 199 Bank Voor Handel en Scheepvaart NV v Administrator of Hungarian Property [1954] AC 584��101 Begg v HM Treasury [2016] EWCA Civ 568��67 C v HM Treasury [2016] EWHC 2039 (Admin)�� 67, 179, 190 Calvin’s Case (1608) Co Rep 1a��100 David Taylor & Son v Barnett Trading Co [1953] 1 WLR 562, [1953] 1 All ER 843��248 Davis Contractors Ltd v Fareham UDC [1956] AC 696��249 DVB Banks SE v Shere Shipping Co Ltd [2013] EWHC 2321 (Comm)��250 Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage and Towage) Ltd [2007] 2 Lloyd’s Rep 517��249 Elaine Hmicho v Barclays Bank Plc [2015] EWHC 1757 (QB)�� 64, 71, 263 HMA v Weir Group PLC (Sentencing Statements)��268

xxii Table of Cases Islamic Republic of Iran Shipping Lines v Steamship Mutual Underwriting Association (Bermuda) Ltd [2010] EWHC 2661 (Comm), [2011] 2 All ER (Comm) 609��245, 248–49 Johnson v Gore Wood [2002] 2 AC 1��200 Krell v Henry [1903] 2 KB 740��249 Lauritzen AS v Wijsmuller BV [1990] 1 Lloyd’s Rep 1��249 Libyan Arab Foreign Bank v Bankers Trust [1989] QC 728��252 Mamidoil Jetoil Greek Petroleum v Okta Crude Oil Refinery (No 2) [2003] EWCA Civ 1031, [2003] 2 Lloyd’s Rep 635��254 Matsoukis v Priestman & Co [1915] 1 KB 681��253 Maud v LIA [2016] EWCA Civ 788�� 245, 248 Millar & Co Ltd v Taylor & Co Ltd [1916] 1 KB 402��250 National Carriers Limited v Panalpina (Northern) Limited [1981] AC 675��249 Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724��249 R (Actis SA) v Secretary of State for Communities and Local Government [2007] EWHC 344 (Admin)��183 R (Al-Jedda) v Secretary of State for Defence [2007] UKHL 58��168 R (Al-Jedda) v Secretary of State for Defence [2007] UKHL 58, [2008] 1 AC 332��202 R (Campaign Against Arms Trade) v Secretary of State for International Trade [2017] EWHC 1726 (QB)��93, 270 R (Ezz) v HM Treasury [2016] EWHC 1470 (Admin)�� 77–78 R (Faulkner) v Secretary of State for Justice [2013] UKSC 23��200 R (Greenfield) v Secretary of State for the Home Department [2005] UKHL 14��199 R (John Arnold Bredenkamp) v Secretary of State for Foreign and Commonwealth Affairs [2012] EWHC 3297 (Admin), [2013] 2 CMLR 10�� 174, 197 R (John Arnold Bredenkamp) v Secretary of State for Foreign and Commonwealth Affairs [2013] EWHC 2480 (Admin), [2013] Lloyd’s Rep FC 690�� 175, 183 R (Kaplan) v Enemy Property Claims Appeal Adjudicator [2004] EWHC 485 (Admin)��101 R (Melli Bank plc) v HM Treasury and Others [2008] EWHC 1661 (Admin)��173, 196, 244, 250 R (OJSC Rosneft Oil Company) v HM Treasury and Others [2015] EWHC 248 (Admin)��52, 70, 176, 195–96 R (Quark Fishing Ltd) v Foreign Secretary [2005] UKHL 57��199 R (Sarkandi and Others) v Secretary of State for Foreign and Commonwealth Affairs [2015] EWCA Civ 687, [2016] 3 All ER 837�� 178, 183 R v Faulkner [2011] EWCA Crim 962, [2011] 2 Cr App R (S) 117��94 R v Gul [2013] UKSC 64��67 R v IRC, Ex parte National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617��192 R v Knight [2008] EWCA Crim 478, [2008] 2 Cr App R (S) 76��95 R v Pouladian-Kari [2013] EWCA Crim 158, [2013] Crim LR 510��94 R v R [2015] EWCA Civ 796, [2016] 2 WLR 127�� 51, 54, 72, 245

Table of Cases xxiii R v Secretary of State for Foreign and Commonwealth Affairs, Ex parte World Development Movement Ltd [1995] 1 WLR 386��192 R v Secretary of State for Transport Ex parte Factortame Ltd (No 2) [1991] 1 AC 603, [1990] 3 WLR 818��184 Rainy Sky v Kookmin [2011] 1 WLR 2900��253 Regazzoni v KC Sethia [1958] AC 301��252 Secretary of State for the Home Department v AF (No 3) [2010] 2 AC 269�� 176, 184 Secretary of State for the Home Department v CC and CF [2012] EWHC 2837 (Admin), [2013] 1 WLR 2171��190 Secretary of State for the Home Department v MB [2006] EWCA Civ 1140, [2007] QB 415��190 Soeximex SAS v Agrocorp International PTE Ltd [2011] EWHC 2743 (Comm), [2012] 1 Lloyd’s Rep 52��247 Sovracht (V/O) v Van Udens Scheepvaart en Agentuur Maatshappij [1943] AC 203��100 Springwell Navigation Corporation v JP Morgan Chase Bank and others [2010] EWCA Civ 1221��254 Tariq v Home Office [2012] 1 AC 452��184 Tweed v Parades Commission [2006] UKHL 53��183 Wood v Capita Insurance Services [2017] AC 1173��253 Youssef v Secretary of State for Foreign and Commonwealth Affairs [2016] UKSC 3, [2016] AC 1457, [2016] 2 WLR 509�� 59, 179, 191, 194–95, 198 Yrazu v Astral Shipping Co (1904) 20 TLR 153��254 European Union Abdulrahim v Council and Commission (Case C-239/12 P)�� 147, 155 Afrasiabi (Case C-72/11) [2011] ECR I-14285�� 47, 51, 54, 72 Al-Ghabra v Commission (Case T-248/13)��160 Anbouba v Council (C-630/13 P) [2015] All ER (D) 178��149 Bank Mellat v Council (Case C-176/13P) [2016] 4 WLR 84�� 149, 156, 158–60, 175, 184, 189 Bank Mellat v Council (Case T-160/13)��150–52, 154, 161–62, 176, 183–84 Bank Mellat v Council (Case T-496/10)��175 Bank Melli Iran v Council of the European Union (Case T-390/08 R)��173 Bank Tejarat v Council (Case T-176/12) [2015] All ER (D) 175�� 148, 160 Bredenkamp and Others v Commission (Case T-145/09)��174 Bredenkamp and Others v Council and Commission (Case T-66/14)��174 Chyzh (Case T-267/12)��160 CIG (Case C-241/99) [2001] ECR I-5139��77 Costa v ENEL (Case 6/64) [1964] ECR 585��39 Council v Bamba (Case C-417/11 P) [2013] CMLR 1434�� 147, 157, 159 Council v Bank Saderat (Case C-200/13) [2016] All ER (D) 176�� 149–50

xxiv Table of Cases Council v Fulmen and Fereydoun Mahmoudian (Case C-280/12 P) [2013] All ER (D) 38�� 148, 160 Council v Manufacturing Support & Procurement Kala Naft Co, Tehran (Case C-348/12 P) [2013] All ER (D) 93�� 147, 152, 169 E & F (Case C-550/09) [2010] ECR I-6213��47, 54 Europaisch-Iranisch Handelsbank AG v Council (Case C-585/13 P) [2015] 1 WLR 3995��148–49, 161 Europäisch-Iranische Handelsbank AG (Case C-585/13P) [2015] 1 WLR 3995��49, 76 Fard and Sarkandi v Council (Case T-439/13)��178 Firma Foto-Frost v Hauptzollamt Lubeck-Ost (Case 314/85) [1987] ECR 4199��174, 176, 196–98 Gbagbo and Others v Council (Joined Cases C-478/11 P to C-482 P) [2013] All ER (D) 90��53 Group Josi Reinsurance Co (Case C-412/82) [2000] ECR I-5925��77 Hamcho v Council (Case T-153/15 R)��164 Hauptzollamt Bremen v JE Tyson Parketthandel GmbH hanse j (Case C-134/08) [2009] ECR I-2875��54 Heininger (Case C-481/99) [2001] ECR I-9945��77 Iran Transfo v Council (Case T-392/11) (Iran Transfo)�� 147, 156 Iranian Aluminium Co. (Iralco) v Council (Case T-158/13)�� 149, 156, 160 IRISL v Council (Case T-489/10)�� 160, 178, 245 Islamic Republic of Iran Shipping Lines (Case T-489/10)��160 Jaber v Council (Case T-154/15)��164 Kaddour v Council (Case T-155/15)��164 Kadi v Council and Commission (Case T-315/01), 21 September 2005 (2006) 45 ILM 81��14, 153 Kadi v Council and Commission (Joined Cases C-584/10 P, C-593/10 P & C-595/10 P) [2013] All ER (D) 411��31, 133, 140, 142, 147, 156–57, 159–60, 162, 215 Kadi and Al Barakaat International Foundation v Council and Commission (Case C-402/05) [2008] ECR I-6351�� 6, 13, 15, 31, 37, 132–33, 137, 146, 151, 153–54, 156–60, 168, 202, 218 Klyuyev (Case T-340/14)��160 Manufacturing Support & Procurement Kala Naft v Council (Case T-509/10) (General Court, 25 April 2012)��53 Melli Bank plc v Council of the European Union (Case C-380/09 P)��173 Melli Bank Plc v Council of the European Union (Case T-246/08 R)��173 Melli Bank Plc v Council of the European Union (Case T-332/08)��173 Melli Bank plc v Council of the European Union (Case T-492/10)��173 Ministry of Energy of Iran v Council (Case T-564/12)�� 149, 155 Mӧllendorf and Mӧllendorf-Niehuus (Case C-117/06) [2007] ECR I-8361�� 47, 52, 54 Nabipour and Others v Council (Case T-58/12)�� 177–78 National Iranian Tanker Company v Council (Case T-207/15)�� 150, 161, 164, 177, 184–85, 196–97 NK Rosneft v Council (T-715/14)��176

Table of Cases xxv Oil Pension Fund Investment Co (Case T-121/13)��160 Parti Ecologiste ‘Les Verts’ v European Parliament (Case 294/83) [1986] 1339��54 People’s Mojahedin Organization of Iran v Council (Case C-27/09) [2011] ECR I-13427��146–47, 158 People’s Mojahedin Organization of Iran v Council (Case T-228/02) [2006] ECR II-04665��145, 153, 157–59 People’s Mojahedin Organization of Iran v Council (Case T-256/07) [2008] ECR II-3019��146 Pye Phyo Tay Za v Council (Case C-376/10 P) [2012] 2 CMLR 769��147, 157–58 Rosneft Oil Company OJSC v HM Treasury and Others (Case C-72/15) [2018] QB 1, [2017] 3 WLR 1031�� 52–53, 150, 152, 154, 161, 176, 184–85, 195 Safa Nicu Sepahan v Council (Case C-45/15 P)�� 148, 160–61, 165–67 Safa Nicu Sepahan v Council (Case T-384/11)��148 Sjoberg (Case C-387/96) [1998] ECR I-1225��77 Technische Glaswerke Ilmenau v Commission (Case C-404/04 P-R)��164 Tri Ocean Energy (Case T-719/14)��160 Uganda Commercial Impex Ltd v Council (Joined Cases T-107/15 and T-347/15)��151, 154, 158, 160 Van Gend en Loos (Case 26/62) [1963] ECR 1��39 Yusuf and Al Barakaat International Foundation v Council and Commission (Case T-306/10)��179 Zuckerfabrik (Joined Cases C-143/88 and C-92/89) [1991] ECR I-415��185 European Court of Human Rights Agrotexim v Greece (1996) EHRR 250��200 Al-Dulimi and Montana Management Inc v Switzerland (2016) 42 EHRC 163�� 58, 61, 132, 141, 202, 206, 208, 212, 215, 218–19, 221–22 Al-Jedda and Others (intervening) v United Kingdom, App No 27021/08, (2011) 53 EHRR 23, [2011] ECHR 1092, 30 BHRC 637, IHRL 206 (ECHR 2011)�� 168, 202, 206, 216–17 Al-Skeini v United Kingdom (2011) 53 EHRR 18��213 Bankovic and Others v Belgium and Others (2007) 44 EHRR SE5��213 Behrami and Behrami v France, Saramati v France, Germany and Norway (2007) 45 EHRR SE10, App Nos 71412/01 & 78166/01��212 Blecic v Croatia (2006) 43 EHRR 48��213 Bosphorus Hava Yollari Turizm ve Ticaret Anonim Şirketi v Ireland, App No 45036/98, (2006) 42 EHRR 1, IHRL 3264 (ECHR 2005)�� 206, 208, 212, 214–15, 220–21, 227 Case ‘relating to certain aspects of the laws on the use of languages in education in Belgium,’ App No 1474/62, 23 July 1968��207 Castells v Spain (1992) 14 EHRR 445��210 Gäfgen v Germany (2011) 52 EHRR 1��210

xxvi Table of Cases Jabari v Turkey (2000) 29 EHRR CD178��213 Karacsony v Hungary (2017) 64 EHRR 10��226 Kozlova and Smirnova v Latvia, App No 57381/00��213 Loizidou v Turkey (1997) 23 EHRR 513��213 ME v Sweden, App No 71398/12, Unreported��213 Nada v Switzerland, App. No 10593/08, [2012] ECHR 1691, IHRL 2059 (ECHR 2012)��206, 208–10, 212, 215–19, 221, 223–26 Nagmetov v Russia (2017), App No 35589/08, Unreported��226 Ocalan v Turkey (2005) 41 EHRR 45��213 Otto v Germany (2009), App No 21425/06, Unreported��211 Radio France and Others v France (2005) 40 EHRR 706��209 Schneider Austria GmbH v Austria, App No 21354/93��220 Scordino v Italy (2007) 45 EHRR 7��209 Sejdovic v Italy (2006), App No 56581/00, Unreported��210 Sharxhi v Albania (2018) 67 EHRR 7��220 Tănase v Moldova (2010) 53 EHRR 22��209 Tsomtsos and Others v Greece (1996), App No 20680/92, Unreported��210 TW v Malta (2000) 29 EHRR 185��210 Van der Tang v Spain (1995) 22 EHRR 363��209 Varnava and Others v Turkey (2009) 50 EHRR 21��209 Yukos v Russia (2012) 54 EHRR 19��210 United States and Canada Abdelrazik v Minister of Foreign Affairs and Attorney General of Canada [2009] FC 580��132 Al Haramain v Treasury Department 686 F 3d 965 (9th Cir 2012)�� 230, 235–36, 238–39 Bennett v Spear 520 US 154, 178 (1997)��232 Citizens to Preserve Overton Park, Inc v Volpe 401 US 402, 416 (1971)��236 Holy Land Foundation v Ashcroft 333 F 3d 156 (2003)��230, 235–37 Islamic American Relief Agency (IARA–USA) v Gonzales 477 F 3d 728 (2007)�� 230, 236 Kadi v Geithner 42 F Supp 3d 1 (2012)��230, 232, 235–37 KindHearts for Charitable Humanitarian Dev, Inc v Geithner 647 F Supp 2d 857 (2009)�� 113, 230 Mathews v Eldridge 424 US 319, 334–35 (1976)��234 National Council of Resistance of Iran v Department of State 251 F 3d 192 (2001)�� 229, 232, 234–35, 237, 239 People’s Mohajedin Organization of Iran v Department of State 182 F 3d 17 (1999)�� 229, 232, 234, 236–37 People’s Mohajedin Organization of Iran v Department of State 327 F 3d 1238 (2003)��229 People’s Mohajedin Organization of Iran v Department of State 613 F 3d 220 (2010)�� 230, 237, 239 Reiter v Cooper 507 US 258 (1993)��233

Table of Cases xxvii United States v BNP Paribas, SA, (SDNY 2014)��258 United States v Reza Zarrab US District Court 15 Cr 867 (SDNY)��275 Verdugo-Urquidez 494 US 259, 271 (1990)��232 Zevallos v Obama, CV 13-0390 (RC), 2014 WL 197864 (DDC 17 January 2014)�� 120, 230, 236 International Accordance with International Law of the Unilateral Declaration of Independence in Respect of Kosovo (Advisory Opinion) [2010] ICJ Rep 403�� 27–28 Certain Expenses of the United Nations (Advisory Opinion) [1962] ICJ Rep 151��20 Conditions of Admission of a State to Membership of the United Nations (Advisory Opinion) [1948] ICJ Rep 57��14 Gabčikovo-Nagymaros Project, Hungary v Slovakia (Judgment, Merits) [1997] ICJ Rep 7��14 Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) Notwithstanding Security Council Resolution 276 (Advisory Opinion) [1971] ICJ Rep 16��13 Legality of the Threat or Use of Nuclear Weapons (Advisory Opinion) [1996] ICJ Rep 226��14 Obligation to Prosecute or Extradite, Belgium v Senegal (Judgment) [2012] ICJ Rep 422��15 Reparation for Injuries Suffered in the Service of the United Nations (Advisory Opinion) [1949] ICJ Rep 174��13 Tadíc IT-94–1-AR72 (ICTY Appeals Chamber) 35 ILM (1996)��13

xxviii

TABLE OF LEGISLATION European Union Regulation (EU) No 1236/2005��89, 91, 97–98 Art 3��91, 97 Art 3(2)��91 Art 4��97 Art 4(1)��97 Art 4(2)��97 Art 5��91 Ann II��91, 97 Ann III��91 Regulation (EU) No 270/2011, Art 4(2)��79 Regulation (EU) No 296/2014��261 Charter of Fundamental Rights of the European Union��157, 159, 187, 207 Art 47��157 Common Position 2008/944/CFSP�� 86, 88, 90, 92 Art 2��90 Art 2(1)��48 Art 12��48 Decision 2008/475/EC��250 Decision 2010/413/CFSP�� 53, 162, 168 Art 4��53 Decision 2011/101/CFSP, Art 5��46 Decision 2012/237/CFSP��44 Decision 2012/285/CFSP��44 Decision 2012/739/CFSP, Art 24��104 Decision 2013/255/CFSP��45 Art 27��104 Art 28��46 Decision 2013/798/CFSP, Art 1��86 Decision 2014/512/CFSP��98 Art 2(3)��98 Art 4��53 Art 4a��53 Decision 2015/1863/CFSP��168 Decision 2016/17/CFSP��168 Decision 2016/849/CFSP�� 102–3, 260 Art 23(1)��102 Art 23(1)(a)��103 Art 23(1)(b)��104

xxx Table of Legislation Art 27��46 Art 27(1)��102 Ann I��102 Ann II��104 Directive 2004/38/EC�� 104–5 Art 27��105 Regulation (EEC) No 990/93��214 Regulation (EC) No 2271/96�� 108–9, 168–69, 257 Regulation (EC) No 2580/2001��63, 67 Art 5(2)��79 Regulation (EU) No 881/2002�� 41–42, 64, 73, 78–79, 81, 151, 153, 194, 246 Art 2a��79 Art 5��73 Art 7c��151 Art 16(e)–(f)��78 Regulation (EU) No 329/2007��65, 244 Art 2(4)(a)��98 Art 2(5)(a)��98 Art 7(3)��79 Regulation (EU) No 423/2007��54, 173 Regulation (EU) No 194/2008, Art 14��247 Regulation (EU) No 450/2008, Art 3��88 Regulation (EU) No 428/2009��48, 90–91, 269, 272 Art 3��90 Art 4��90 Art 22��90 Ann I�� 90–91 Ann II��91 Ann IV�� 90–91 Regulation (EU) No 1286/2009��151 Regulation (EU) No 961/2010��255 Regulation (EU) No 182/2011��42 Art 5(4)(c)��42 Regulation (EU) No 204/2011 Art 5(1)��245 Art 5(2)��245 Art 12��248 Regulation (EU) No 753/2011��63 Regulation (EU) No 36/2012�� 2–3, 71–73, 90, 98 Arts 2–11��3 Art 6��98 Art 14��2, 244 Art 14(1)��71 Art 14(2)��71 Art 14(3)��72

Table of Legislation xxxi Art 19��76 Art 24��74 Art 29��73 Ann II��2 Regulation (EU) No 267/2012�� 162, 177 Regulation (EU) No 401/2013, Art 8(1)��45 Regulation (EU) No 208/2014��261 Regulation (EU) No 224/2014��63, 87 Regulation (EU) No 269/2014��21 Art 8��265 Art 9��51, 73 Regulation (EU) No 692/2014��261 Regulation (EU) No 747/2014 Art 5��244 Art 6(1)(b)��79 Art 17(1)��45 Regulation (EU) No 833/2014��3, 45, 51–52, 55, 75, 244, 259, 261 Art 5��3, 45, 52 Art 25��75 Art 26��75 Regulation (EU) No 44/2016 Art 5��244 Art 22(1)��45 Regulation (EU) No 1509/2017, Art 34(3)��46, 260 Regulation (EU) No 1100/2018��169 Rules of Procedure of the General Court Art 59��155 Art 60��155 Art 105��145, 162–63 Art 105(3)–(6)��163 Statute of the Court of Justice of the European Union Art 56�� 145, 154, 165 Art 58��165 Art 60�� 145, 163 Treaty of Lisbon��35, 43–44, 207 Treaty on European Union�� 35, 42, 52, 152 Art 3(5)��37, 43 Art 5(2)��35 Art 6(3)��38 Art 19(1)��53 Art 21(1)��43 Art 21(2)��36 Art 22(2)��40 Arts 23–46��53 Art 24��41, 152 Art 24(1)�� 35–38, 40, 52–53, 161

xxxii Table of Legislation Art 26��41 Art 28(2)��38 Art 29��38 Art 31(2)��42 Art 38��40 Art 40��53, 161 Art 50��36 Title V��38–39, 43, 86 Treaty on the Functioning of the European Union��35, 152, 176, 192 Art 2(4)��37 Art 16(1)��38 Art 16(6)��38 Art 18(2)��37 Art 18(3)�� 37–38 Art 27(3)��38 Art 215��39–41, 53, 150, 161 Art 215(1)��39, 46 Art 220(1)��37 Art 240��40 Art 256(1)��154 Art 263�� 37, 143–44, 152, 155–56, 164, 181 Art 263(6)��155 Art 264��143 Art 266��144 Art 267��35, 54, 70, 144, 152, 154, 176, 180, 195 Art 275��52–53, 144, 152 Art 275(2)��161 Art 278�� 144, 164 Art 279�� 144, 164 Art 288��39, 144 Art 291�� 41–42 Art 291(2)�� 41–42 Art 296�� 144, 158 Art 297(2)��144 Art 340�� 144, 165 Art 346��38, 48 Title IV��39 International Sundry Arms Trade Treaty��92 Articles on the Responsibility of States for Internationally Wrongful Acts (ARSIWA)��2, 15 Art 49��15

Table of Legislation xxxiii Convention on the Elimination of All Forms of Racial Discrimination��16 Energy Charter Treaty (ECT)��16 European Convention on Human Rights�� 103, 159, 171, 184, 187, 194, 199, 202, 204–14, 216, 218–19, 222, 224–25, 251–52 Art 1�� 204, 207, 211 Arts 1–18��211 Art 2��208 Art 2(1)��204 Art 3�� 204, 208 Art 5��216, 224–25 Art 5(1)�� 204, 216, 224 Art 6�� 157, 182 Art 6(1)��204, 208, 218–19, 221–22 Art 7(1)��205 Art 8�� 188, 190, 208, 223–24 Art 8(1)�� 223–24 Art 8(2)�� 223–24 Arts 8–11��220 Art 9(1)��205 Art 13��157, 205, 222–23 Art 32�� 205, 211 Art 33��205 Art 34�� 205, 209 Art 35(1)��205, 207, 210–11 Art 35(2)(b)��210 Art 35(3)(a)��211 Art 41�� 200, 205, 226 Art 46�� 205, 207 Art 47��205 Protocol 1, Art 1��159–60, 177, 188, 190, 201, 205, 208, 214, 216, 219–21, 251–52 Protocol 4, Art 2��225 General Agreement on Tariffs and Trade (GATT)��16 Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict��100 Refugee Convention��103 Art 1F��105 UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property 1970��100 Vienna Convention on the Law of Treaties��14 Art 31��207 Arts 31–33��27 Art 53��14

xxxiv Table of Legislation United Nations Charter�� 4, 11–14, 27, 29, 43–44, 112, 132, 153, 171, 187, 193, 207, 216, 218 Preamble��12 Art 1(1)��11 Art 1(3)��14, 222 Art 2(2)��20 Art 7(1)��12 Art 24(1)��12 Art 24(2)�� 12, 14, 222 Art 25��13, 27, 193–94, 216 Art 27��19 Art 27(3)��19 Art 29��23 Art 39��13, 27 Art 41�� 11–14, 18–19, 28, 30, 58, 112, 132 Art 48(1)��20 Art 103�� 12–13, 15, 153–54, 168, 194, 202, 216–18 Ch VI��12 Ch VII�� 11–13, 20, 27–29, 132, 153, 212, 224 Ch VIII��12 Ch XII��12 Provisional Rules of Procedure of the Security Council��19 R 40��19 Security Council resolution 54��13 Security Council resolution 253��29, 32 Security Council resolution 276��13 Security Council resolution 418��29 Security Council resolution 421��32 Security Council resolution 661�� 29, 32, 141, 267 Security Council resolution 713��33 Security Council resolution 733��33 Security Council resolution 748��33 Security Council resolution 751��127 Security Council resolution 820��214 Security Council resolution 841��29, 33 Security Council resolution 864��33 Security Council resolution 985��33 Security Council resolution 986��18 Security Council resolution 1011��33 Security Council resolution 1132��33

Table of Legislation xxxv Security Council resolution 1160��33 Security Council resolution 1267��3, 6, 24, 28, 30–31, 33, 64, 79–80, 127, 133–34, 137–38, 141–42, 146, 153, 193–94 para 4(b)��17 Security Council resolution 1298��33 Security Council resolution 1333�� 3, 30, 193 Security Council resolution 1343��33 Security Council resolution 1373�� 79, 174, 193 Security Council resolution 1390��217 Security Council resolution 1452��79 paras 1 and 2��24 para 1(a)��79 para 1(b)��80 Security Council resolution 1483�� 33, 218, 222 Security Council resolution 1493��33 Security Council resolution 1518��128 Security Council resolution 1521��33 Security Council resolution 1526��20 Security Council resolution 1533��128 Security Council resolution 1546��216 Security Council resolution 1556��33 Security Council resolution 1572��33 Security Council resolution 1591��128 Security Council resolution 1617, para 7��22 Security Council resolution 1636��33, 129 Security Council resolution 1643��18 Security Council resolution 1718��7, 25–26, 33, 65, 102–4, 129 para 8(a)(i)��25 para 8(a)(ii)��25 para 8(a)(iii)��25 para 8(d)��25 para 8(e)��25, 103 para 11��20 para 12��26 Security Council resolution 1730�� 127, 133, 135 Ann��135 Security Council resolution 1735��135 Ann I��135 Security Council resolution 1737��31, 33 para 3��31 para 4��31 para 6��31 para 12��31 Ann��31

xxxvi Table of Legislation Security Council resolution 1757��129 Security Council resolution 1807��128 Security Council resolution 1822��135 para 12��136 para 13��136 Security Council resolution 1844��127 Security Council resolution 1874��26, 129 Security Council resolution 1904�� 133, 137 para 20��137 Ann II��137 Security Council resolution 1907��127 Security Council resolution 1970��18, 28, 33, 129, 225 para 9��28 para 25��20 Ann I��18 Security Council resolution 1973��129 para 4��28 Security Council resolution 1988��130 Security Council resolution 1989��80, 127, 137–38 para 21��137 para 23��137 Security Council resolution 2048�� 28, 34, 44, 130 Security Council resolution 2087��26, 129 Security Council resolution 2094��26, 129 Security Council resolution 2127�� 34, 86, 130 Security Council resolution 2140��34, 130 Security Council resolution 2146��129 Security Council resolution 2160��130 Security Council resolution 2161��133 Security Council resolution 2196��130 Security Council resolution 2206��34, 131 Security Council resolution 2213��129 Security Council resolution 2216��130 Security Council resolution 2231��31, 168 para 7(a)��31 para 11��31 para 12��31 para 13��31 Security Council resolution 2252, para 45��24 Security Council resolution 2253�� 3, 20, 28, 30, 127, 133, 137–38 para 2��23 para 3��23 para 11��20 para 36��20

Table of Legislation xxxvii para 54��137 Ann II�� 137–38 Security Council resolution 2270�� 26, 129, 260 para 29(b)��26 Security Council resolution 2321��26, 260 para 26��26 Security Council resolution 2368��28 Security Council resolution 2371��26, 129 Security Council resolution 2374��131 Security Council resolution 2375�� 26, 129, 260 Security Council resolution 2394��26, 129 Security Council resolution 2397��26 paras 4 and 5��26 Security Council resolution 1988��33 National United Kingdom Afghanistan (Asset-Freezing) Regulations 2011��63 Al-Qaida (Asset-Freezing) Regulations 2011�� 64, 77, 81, 266 r 9��79 r 13��82 r 14��81 Sch 1��74 Al-Qaida and Taliban Order 2006�� 174, 193 Andrey Lugovoy and Dmitri Kovtun Freezing Order 2016��69 Anti-Terrorism, Crime and Security Act 2001�� 69, 76–77 s 4��69 Arbitration Act 1996, s 68��247 British Nationality Act 1981��70 Central African Republic (European Union Financial Sanctions) Regulations 2014��63 Civil Procedure Rules�� 182, 199 31.6��199 79.3��182 79.17��182 79.18��182 79.22��182 79.25��182 Pt 18��183 Pt 31��199 Pt 54��182 Pt 79��182 Pt 82��183

xxxviii Table of Legislation Counter-Terrorism Act 2008�� 68–69, 77, 182–83, 186–87, 189, 191–92, 245–46 s 44(1)��270 s 62��172 s 63�� 175–76, 183, 186–87 s 63(2)��172, 179, 182, 187 s 63(3)�� 172, 186 s 63(8)��187 s 64��186 Sch 7��68, 172, 175, 187, 245 para 8��187 para 9(3)��68 para 28(6)��187 Pt 2��68 Pt 3��68 Crime and Courts Act 2013, Sch 17��82 Cultural Property (Armed Conflicts) Act 2017��100 Customs and Excise Management Act 1979��89, 94 Pt V��89 s 68��94 s 68(1)��94 s 68(2)��94, 271 s 68(3)��271 s 68(4)��94 s 68(4A)��94 s 68(4AA)��94 s 139��95 s 139(1)��95, 99 s 152��95, 99 s 170(1)��99 s 170(2)��99 Dealing in Cultural Objects (Offences) Act 2003��100 s 1(1)��100 s 3(1)��100 Democratic People’s Republic of Korea (European Union Financial Sanctions) Regulations 2013, r 1(2)��70 EU (Withdrawal) Act 2018�� 58, 179, 202 s 3��58 s 3(1)��202 s 5(4)��187 s 6(2)��58 s 6(3)��58 European Communities Act 1972�� 64, 90, 181 s 2��192 s 2(2)��90, 171

Table of Legislation xxxix European Union Financial Sanctions (Amendment of Information Provisions) Regulations 2017�� 74, 264–65 r 19(5)��265 Export Control (Syria Sanctions) Order 2013��90 art 6��90 Sch 2��90 Export Control Act 2002��86–87, 96, 260, 269 s 1(1)��87 s 9��92 s 9(2)��86 s 9(3)��86 s 10��87 Export Control Order 2008��87–89, 91, 94, 260, 269–71 art 2��88 art 3��88, 270 art 4��88 art 5��88 art 9��89, 91 art 13��88 art 18��88 art 19��89 art 20�� 89, 94–95 art 20(1)��270 art 20(2)��269 art 26��88 art 26(1)��91 art 26(6)(a)��91 art 26(6)(c)��91 art 28(1)��271 art 29��271 art 29(2)��271 art 29(3)��271 art 32��91 art 33(1)��93 art 33(5)��93, 270 art 34(1)��94 art 34(5)�� 94–95, 272 art 34(7)��94 art 35��91 art 36��91 art 37��93 art 37(1)��93 art 38��93 Pt IV��89 Sch 2��88

xl Table of Legislation Sch 3��88 Sch 4��269 Export of Radioactive Sources Control Order 2006��87, 89 art 2��89 art 3��89 Sch��89 Financial Restrictions (Iran) Order 2009�� 68–69, 175, 177, 187, 245 art 2��69 art 3��68 Firearms Act 1968��97 Human Rights Act 1998��177, 204, 207, 252 s 3(1)��171 s 4(2)��171 s 6(1)��177 s 7��171, 178–79, 201 s 7(1)��187 s 8�� 171, 178–79, 199–200 s 8(2)��171 Immigration (Designation of Travel Bans) Order 2000��103 Sch��103 Immigration (European Economic Area) Regulations 2006�� 104–5 r 19(1)��105 r 19(1B)��105 Immigration Act 1971�� 102, 105 s 3(1)��105 s 8B�� 102–4 s 8B(1)�� 102–3 s 8B(2)��103 s 8B(3)��103 s 8B(4)��102 s 8B(5)�� 102–3 s 8B(5A)��103 Immigration Act 2016�� 103–4 s 76(7)��103 s 76(8)��103 Immigration Rules��105 para 320(19)��105 para 320(6)��105 Import, Export and Customs Powers (Defence) Act 1939�� 87, 96–97 s 1(1)��96 s 3(1)��97, 99 s 3(3)��99 Import of Goods (Control) Order 1954�� 96–97, 99 art 1��96 art 2��96

Table of Legislation xli art 5��97 art 6��97 art 7��97 Iran (European Community Financial Sanctions) Regulations 2007��250 Iraq (United Nations Sanctions) Order 2000��267 art 3��267 Justice and Security Act 2013 s 6�� 178, 183 s 6(1)��172 Landmines Act 1998��97 s 4��97 Misuse of Drugs Act 1971, s 3��94 Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017��63 Money Laundering Regulations 2007�� 266, 268 r 20(1)��268 Money Laundering Regulations 2017��266 r 8��266 r 19��266 r 19(1)��268 Policing and Crime Act 2017�� 64–65, 81–82, 258, 267 Pt 8��81 s 144��81 s 144(3)(a)��267 s 146(1)��83 s 146(3)��83, 267 s 146(4)��267 s 147��83 s 147(3)��84 s 147(4)��84 s 147(6)��84 s 148(1)��83 s 150��82 s 151��82 Policing and Crime Act 2017 (Commencement No 2) Regulations 2017, r 2��81 Proceeds of Crime Act 2002��266 Sanctions and Anti-Money Laundering Act 2018��6, 56–57, 59–61, 64, 66–67, 70, 74, 82, 106, 110, 167, 181–82, 186, 191, 194, 201–3, 208, 244, 246, 260–61, 267–68 Pt 1��172 Ch 2��172 Ch 4��173 s 1��57, 172 s 1(1)��60, 260

xlii Table of Legislation s 1(1)(a)�� 6, 58–59 s 1(2)��60 s 1(9)��60 ss 3–8��74 s 11(2)(a)��67 s 11(3)(b)��73 s 15(2)��260 s 16(1)(a)��74 s 16(1)(b)��74 s 17(5)(a)��82, 267 s 21(1)��70 s 22(1)��191 s 23(1)��173 s 23(2)��191 s 23(3)��191 s 25��203 s 25(2)��59, 173, 191, 203 s 38(2)�� 173, 191 s 38(3)��191 s 38(4)��191 s 47(1)��74 s 59(1)��66, 186 s 64(2)��56 Serious Crime Act 2007, s 5��82 Serious Organised Crime and Policing Act 2005��94 Supreme Court Act 1981, s 31(3)��192 Syria (European Union Financial Sanctions) Regulations 2012 Pt 2��264 Pt 3��74, 264 r 1(2)��70, 262 r 2(1)��265 r 3(1)��71 r 4(1)��71 r 5(1)��71 r 6(1)��71 r 7(1)��71 r 9��76 r 16(2)��72 r 17��82 r 18��81 r 21��265 Sch, para 4(1)��265 Terrorism Act 2000��66, 266 s 1(1)��66 s 21A��266

Table of Legislation xliii Terrorism Asset-Freezing etc Act 2010��58, 63, 66–68, 74, 76, 79, 81, 182–83, 186, 189, 191–92, 261, 263, 266 Ch 1��66 Pt 1�� 172, 186 s 2��67, 190 s 2(1)��172 s 12��74 s 16��67, 76 s 17��79 s 26�� 66–67, 179, 186, 189 s 26(2)�� 172, 189 s 26(3)�� 172, 186 s 27(2)��182 s 32��81 s 33(2)��70 s 40��74 Terrorism Order 2006�� 174, 193 Terrorism Prevention and Investigation Measures Act 2011��190 Trading with the Enemy Act 1939��101 s 1(1)��101 s 2��101 s 7(1)��101 Treasury (Financial Restrictions (Iran) Order 2009��175 Ukraine (European Union Financial Sanctions Regulations 2014��261 Ukraine (European Union Financial Sanctions) (No 2) Regulations 2014��261 r 11(1)��267 Sch��265 Ukraine (European Union Financial Sanctions) (No 3) Regulations 2014��75, 261 r 3��75 r 3B��75 United Nations Act 1946�� 58–59, 192–94, 267 s 1�� 171, 192 s 1(1)��58, 171, 174, 193 United States 5 USC § 701–706��229 5 USC § 702�� 232, 236 5 USC § 704��232 5 USC § 706(2)(A)�� 120, 229, 236 5 USC 706(2)��238 8 USC § 1189(a)(3)(B)��237 8 USC § 1189(c)��229, 236–37 8 USC § 1189(c)(1)��233 8 USC § 1189(c)(3)��238

xliv Table of Legislation 28 USC § 1331��232 28 USC § 2401(a)��233 50 USC § 1701�� 111, 115 50 USC § 1702��111 50 USC § 1702(2)��237 50 USC § 1705(a)�� 114, 274 50 USC § 1705(c)��122 Administrative Procedure Act��229, 232–33, 236 Antiterrorism and Effective Death Penalty Act��229, 233, 236–37 Code of Federal Regulations�� 111, 113, 116, 118, 228, 231, 233 § 17.17(a)(1)��237 § 501��120 § 501.603��116 § 501.806�� 228, 231, 233 § 501.806(a)��232 § 501.807�� 228, 231, 233 § 501.807(a)�� 228, 231, 233 § 501.807(b)�� 228, 233 § 501.807(c)�� 228, 234 § 501.807(d)�� 228, 234 § 510.301��116 § 515.319��116 § 538.205��117 § 538.206��118 § 538.315��113 § 538.407(a)��118 § 538.407(b)��118 § 538.411��117 § 542.319, § 510.326��113 § 553.301��116 § 560.205��114 § 560.215��114 § 561.201(b)��115 § 595.308��119 § 595.308(b)(2)��119 § 595.308(b)(3)��119 § 736.2��117 Ch V��116 Title 31��111 Pt 501��274 Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010��115 Constitution�� 112, 232 Fifth Amendment��229, 234–35, 238 First Amendment��229 Fourth Amendment��229

Table of Legislation xlv Countering America’s Adversaries Through Sanctions Act of 2017�� 109–10 Executive Order 13224��112 Executive Order 13413��112 Executive Order 13466��111 Executive Order 13662��21 Executive Order 13667�� 111–12 Global Magnitsky Act��110 Immigration and Nationality Act��111 International Economic Emergency Powers Act of 1977��111–12, 114, 120, 122, 236, 275 International Emergency Economic Powers Enhancement Act�� 114, 274 Iran and Libya Sanctions Act of 1996��115 National Emergencies Act��111 Sergei Magnitsky Rule of Law and Accountability Act of 2012��110 Trading with the Enemy Act of 1917�� 111, 120, 122 United Nations Participation Act of 1945�� 111–12 s 5(a)��112

xlvi

Introduction 0.1. This book examines the ever-expanding law of sanctions. The subject matter of sanctions law is, by necessity, cross-jurisdictional in the sense that it looks both at the different national and international sources of sanctions law – from multilateral measures passed by the UN Security Council to unilateral measures passed domestically – and at the manner in which the case law regarding sanctions has developed in different legal systems. Given the fast-moving nature of sanctions law, it is not intended to serve as a comprehensive guide to the measures in force at any one time. Rather, it constitutes an overview of the mechanisms whereby sanctions become law, and of the mechanisms whereby those sanctions can then be challenged. Part I examines the implementation and content of sanctions measures at the UN, EU, UK and US levels, whilst Part II deals with challenges to those sanctions measures in the corresponding regional and national courts, as well as via the UN Ombudsperson and at the European Court of Human Rights. Part III sets out the main practical implications of sanctions law for businesses, primarily in relation to the measures in force in the UK. 0.2. There follows, by way of introduction, a brief overview of some of the key u nderlying issues in the area, and a description of the general framework for understanding sanctions law.

What Do We Mean by ‘Sanctions’? 0.3. The term ‘sanctions’ itself is notoriously slippery, particularly in a legal context. It is conventionally used in legal theory, and indeed more generally, to mean a penalty or punishment imposed as a means of enforcing obedience to a law.1 This is what John Austin meant when he defined the law as ‘command backed by sanction’.2 In the field of international relations, the term ‘sanction’ has been used by analogy to mean action taken against a state to compel it to obey international law or to punish it for a breach of international law.3 In this regard, international law distinguishes between ‘retorsions’, which are unfriendly but internationally lawful measures taken by one state in response to a prior injurious act by another state, and ‘reprisals’, which are always unlawful in international law. Somewhere in between, the term ‘countermeasures’ is used to describe measures which, although prima facie unlawful, may be justified in international law where they are taken in response to

1 The term ‘sanction’ is defined as follows in the Oxford English Dictionary (online), available at: www.oed.com/: ‘1. A law or decree; esp. an ecclesiastical decree … 2(a). Law. The specific penalty enacted in order to enforce obedience to a law … 2(d). Politics. Esp in plural, economic or military action taken by a state or alliance of states against another as a coercive measure, usually to enforce a violated law or treaty’. 2 J Austin, The Province of Jurisprudence Determined (ed W Rumble, Cambridge University Press, 1995 [1832]). 3 J Law (ed), A Dictionary of Law, 9th edn (Oxford University Press, 2018), ‘sanction’; see also the final definition in the Oxford English Dictionary, above (n 1).

2 Introduction a prior unlawful act by another state, and where they fulfil the conditions set out in the Articles on the Responsibility of States for Internationally Wrongful Acts (ARSIWA).4 0.4. However, the term ‘sanctions’ as used in this book has a more modern focus. This reflects the fact that sanctions no longer refer solely to measures taken by a state in response to the prior unlawful conduct of another state.5 To begin with, one of the main creators of modern sanctions law is an international organisation, the UN (not a state). Moreover, the UN has now been joined by the EU as a major source of sanctions law. Secondly, the idea that sanctions must be imposed in relation to some prior illegality seems increasingly quaint. In fact, the term is frequently used to denote action taken by states and international organisations where the ultimate goal is unclear. The previous decade has seen a proliferation of measures targeting non-state entities and individuals, particularly in the field of counter-terrorism. For the purpose of this book, therefore, the term ‘sanctions’ will be used in the sense of non-forcible (ie, non-military) foreign policy measures adopted by states or international organisations and designed, possibly among other things, to influence other states or non-state entities or individuals to change their behaviour or take a particular course of action.6 0.5 This is a broader approach than the traditional view of sanctions. It embraces a vast number of measures taken by states and international organisations in the name of foreign policy. In fact, the huge variety of measures available to international actors is often neglected when it comes to discussing sanctions, and it is important to bear in mind that there is really no such thing as a ‘typical’ sanctions measure. However, this book will deal only with sanctions that require some form of legal implementation. In this regard, it is possible to discern the following broad categories of sanctions measures: • Financial sanctions: These are measures targeting the assets and economic resources of designated individuals and entities. The relevant legislation will establish a list of designated persons, and will require individuals and entities, including financial institutions, to cease dealing with those designated persons and freeze their assets.7 Financial sanctions are currently the most commonly used sanctions measures. • Trade sanctions: These are measures imposing import and export restrictions, almost always in relation to a state. The most extreme form of trade sanction is a comprehensive trade embargo, whereby the sanctioning state or organisation imposes a total blockade

4 Articles on Responsibility of States for Internationally Wrongful Acts (ARSIWA), adopted by the International Law Commission at its 53rd session, on 3 August 2001. 5 For an excellent analysis of the semantic difficulties in this area see T Ruys, ‘Sanctions, Retorsions and Countermeasures: Concepts and International Legal Framework’ in L van den Herik (ed), Research Handbook on UN Sanctions and International Law (Edward Elgar Publishing, 2017). 6 This is not dissimilar to the definition adopted by Andreas Lowenfeld in AF Lowenfeld, International Economic Law (Oxford University Press, 2002) 698: ‘measures of an economic – as contrasted with diplomatic or military – character taken to express disapproval of the acts of the target or to induce that [target] to change some policy or practices or even its governmental structure’. 7 See, eg, the financial sanctions imposed by the EU on the Assad regime in Syria in relation to the ongoing civil war in that country. Annex II of Regulation (EU) No 36/2012 (as amended) sets out the list of designated persons (including Bashar al-Assad), and Article 14 imposes an asset freeze and other financial restrictions in relation to those persons.

What Do We Mean by ‘Sanctions’? 3 on trade with the target state. However, trade sanctions will usually only prohibit the export or import of particular items to or from the state in question.8 • Travel bans: These are measures prohibiting travel to or through the territory of the sanctioning state. As with financial sanctions, travel bans will apply to certain designated or listed persons. 0.6 In relation to the categories set out above, it is important to note the shift towards the use of individualised or ‘smart sanctions’ that occurred in the mid- to late-1990s.9 Prior to this policy shift, sanctions were mostly aimed at cutting off trade with targeted states (ie, comprehensive trade embargoes). However, following intense criticism of the humanitarian impact of sanctions on Iraq, Haiti and the former Yugoslavia, policymakers began to develop and deploy sanctions measures aimed at individuals (eg, asset freezes, travel bans etc). Perhaps the most prominent of these targeted sanctions regimes is the ‘1267 regime’, which was established by the UN in 1999 in response to the bombings of the US embassies in Dar es Salaam, Tanzania and Nairobi, Kenya.10 The key feature of these sanctions regimes is the use of ‘designations’ or ‘listings’ which target individuals associated with particular state or non-state groups. Once a person is designated pursuant to a particular sanctions regime, he or she will be added to the list of individuals and entities targeted by that regime, and in most cases be subjected to financial restraints and a travel ban. Usually, banks operating in jurisdictions where the sanctions apply will be forced to freeze assets belonging to designated persons, and designated persons will no longer be permitted to travel to or through those jurisdictions. The shift from comprehensive to targeted sanctions is key to understanding the development and proliferation of modern sanctions law and will be discussed at various stages in this volume. 0.7 Whilst the categories discussed above (financial sanctions, trade sanctions and travel bans) represent the most frequently used sanctions at both the international and national levels, sanctions measures come in all shapes and sizes, and are becoming increasingly sophisticated. Moreover, sanctions measures will often be tailored to the specific situation with which they are intended to deal. For example, the EU measures imposed on Russia following the invasion of eastern Ukraine include restrictions on dealing with transferable securities issued by major credit institutions established in Russia with over 50 per cent public ownership or control.11 In this regard, as sanctions measures become more complex, so the interpretation of those measures becomes more problematic. Part I will address some of the interpretative issues that have arisen in this regard.

8 The EU sanctions regime in relation to Syria imposes certain trade sanctions in relation to that state. Articles 2–11 of Regulation (EU) No 36/2012 set out the relevant import and export restrictions. 9 This policy shift is discussed in greater detail in ch 1; for an overview see L van den Herik, ‘The Individualization and Formalization of UN Sanctions’ in L van den Herik (ed), Research Handbook on UN Sanctions and International Law (Edward Elgar Publishing, 2017). 10 The 1267 regime was established by UN Security Council resolution 1267 (1999), and originally targeted funds and economic resources owned by the Taliban. The regime was extended, by resolution 1333 (2000), to funds owned by Osama bin Laden and individuals or entities ‘associated with him’, as designated by the Committee established to manage the regime. The regime was extended again by resolution 2253 (2015) and is now also known as the ‘ISIL & Al-Qaida regime’. 11 Regulation (EU) No 833/2014, Article 5.

4 Introduction

The Sources of Sanctions Law 0.8 In accordance with this more modern deployment of ‘sanctions’, sanctions law can, therefore, originate in decisions made either by states or international organisations. Part I of this book will deal with sanctions law emanating from four major actors in the area: the UN, the EU, the UK, and the US. Each of these decision-makers inhabits a separate legal sphere, and sanctions measures are adopted and implemented in different ways depending on the ultimate source of authority. The UN, for example, imposes sanctions by way of resolutions adopted by the UN Security Council in accordance with the terms of the UN Charter.12 The US, on the other hand, usually imposes sanctions by way of Executive Order signed by the President in accordance with statutory powers granted by Congress.13 0.9 However, the legal systems dealt with in this book are by no means hermetically sealed from one another, and one of the key aspects of sanctions law is the r elationship between the various sources of law and overlapping jurisdictions. In this regard, it is important to understand how sanctions law is implemented once it is decided on by the organisation or state in question. At the highest level, for example, sanctions adopted by the UN Security Council impose an international obligation on UN Member States to implement the measures domestically. This often leads to issues of normative hierarchy, particularly where UN sanctions obligations come into conflict with domestic or regional human rights obligations. However, UN Security Council resolutions do not in and of themselves create obligations for private individuals and companies. To this extent, the enforcement of sanctions law as against private individuals occurs on the domestic level via national authorities. 0.10 One of the most basic distinctions in sanctions law is between unilateral and multilateral sanctions, the former referring to sanctions adopted unilaterally by individual states, and the latter referring to measures adopted by a number of states or via an international organisation on a multilateral basis. To this extent, sanctions adopted by the UN are considered to be multilateral sanctions, whilst sanctions adopted independently by the US are considered to be unilateral sanctions. The EU is another multilateral source of sanctions law, albeit that its sanctions are not necessarily imposed with a wider international consensus. In other words, the EU can and does adopt sanctions measures even where there is no consensus at the UN level.14 Where this occurs, the EU refers to the adoption of ‘autonomous’ sanctions measures. 0.11 As a result of the multiplicity and confluence of sanctions law, it is crucial to establish the originating source of the measures in question at the outset. The figures below set

12 See ch 1 for a detailed explanation of how UN sanctions are adopted and implemented. 13 See ch 4 for a detailed explanation of how US sanctions are adopted and implemented. 14 See, eg, the EU sanctions measures adopted in relation to Ukraine and Syria, where the proposed measures were blocked at the UN level. See, eg, ‘Russia and China veto UN resolution to impose sanctions on Syria’ The Guardian (1 March 2017), available at: www.theguardian.com/world/2017/mar/01/russia-and-china-veto-unresolution-to-impose-sanctions-on-syria.

The Sources of Sanctions Law 5 out some of the basic relationships in terms of the implementation of sanctions originating at the UN, EU and UK levels:15 UN Sanctions UN Security Council resolution adopting sanctions measures

The sanctions measures will be decided on by the UN Security Council and introduced by way of Security Council resolution. This creates an international obligation for UN Member States.

EU Council Decision and EU Regulation implementing UN Security Council resolution

The EU Council now takes it upon itself to deal with the implementation of UN sanctions resolutions on behalf of EU Member States. This involves introducing EU legislation, which is either directly applicable in EU Member States, or creates an obligation for those states to implement the measures.

Domestic legislation implementing EU law (where necessary)

Some EU law instruments are directly applicable and effective in EU Member States. However, sanctions measures usually involve the introduction of criminal offences at the domestic level. Each EU Member State must therefore enact legislation criminalising the breach of EU/UN sanctions law (in this case UN sanctions law as implemented by the EU). In the UK, this is currently done by way of delegated or secondary legislation (although this will change post-Brexit).

EU (Autonomous) Sanctions EU Council Decision and EU Regulation implementing autonomous EU measures

The EU Council may decide to impose sanctions autonomously (ie, in the absence of any overriding UN resolution). The decision to impose sanctions is made within the context of the EU’s Common Foreign and Security Policy (CFSP). The Council Decision is implemented via EU Regulation(s) and by EU Member States.

Domestic legislation implementing EU law (where necessary)

Again, each EU Member State must enact legislation criminalising the breach of EU sanctions law. In the UK, this is currently done by way of delegated or secondary legislation (although this will change post-Brexit).

UK (Unilateral) Sanctions Primary UK legislation conferring limited power on HM Treasury to impose sanctions

The UK may choose to impose sanctions on a unilateral basis, although at present the statutory basis for unilateral sanctions is limited in scope. Post-Brexit, new primary legislation will allow UK authorities to introduce sanctions outside the EU system.

15 This is a very brief overview of how UN sanctions measures are implemented in EU Member States. For more detail on this see chs 1, 2, 3 and 4, on UN, EU, UK and US sanctions respectively.

6 Introduction 0.12 The origin of sanctions measures is particularly important when it comes to challenging those measures, whether judicially or administratively. In relation to the example of UN sanctions set out above (ie, UN sanctions as implemented by an EU Member State), a UN decision can be challenged in a number of different fora. First, there is now a UN Ombudsperson that exists for the sole purpose of reviewing certain UN designation decisions.16 This will usually be the first port of call for persons designated pursuant to a UN Security Council resolution. Secondly, the designated person can bring a challenge before the EU courts. In particular, the EU General Court will hear actions for annulment in respect of EU law designations, whether or not those designations have been introduced pursuant to UN Security Council decisions.17 Thirdly, the designated person may in some cases have recourse to domestic judicial review of the designation.18 Finally, the designated person may be able to invoke his or her rights before a specialised court such as the European Court of Human Rights.19 It is therefore common for designated individuals or entities to bring challenges in multiple jurisdictions. 0.13 Post-Brexit, UN sanctions measures will no longer be implemented in the UK by way of EU law.20 To this extent, the Sanctions and Anti-Money Laundering Act 2018, which has now received royal assent and which will come into force once the withdrawal process is complete, will give UK authorities the power to implement UN sanctions measures in the UK directly.21

Sanctions Regimes 0.14 Another potentially confusing term when used in this area is ‘sanctions regime’. The term is not usually used in this context to refer to an overarching system or framework. So, for example, the UN sanctions system as a whole is not commonly referred to as the ‘UN sanctions regime’.22 Instead, a ‘sanctions regime’ is a particular package of sanctions measures adopted in relation to a particular state or situation. To this extent, the UN’s North Korean sanctions regime was established in relation to concerns regarding the proliferation

16 Note that the UN Ombudsperson’s mandate for review applies only to designations under UN Security Council resolution 1267 (1999). For other UN sanctions regimes, applications for review can be submitted to the relevant Focal Point. See ch 1 for more detail on the structure of UN sanctions law, and ch 5 for more detail on challenging UN sanctions designations. 17 This raises questions of normative hierarchies in international law, which will be discussed in detail in chs 1, 2, 6, 7 and 8. For the purpose of this introduction, it suffices to note that the EU courts decided in the landmark decision of Kadi that they had the power to review EU Council designations, even where the latter had been introduced pursuant to an international obligation imposed by Security Council resolution; see Case C-402/05 Kadi and Al Barakaat International Foundation v Council and Commission [2008] ECR I-6351. 18 Judicial review of designations in the UK is covered in ch 7. 19 Sanctions challenges at the European Court of Human Rights are dealt with in ch 8. 20 See ch 3 for a detailed discussion of the impact of Brexit on UK sanctions law. 21 See s 1(1)(a) of the Sanctions and Anti-Money Laundering Act 2018. 22 Most organisations, including the UN, refer to individual sanctions regimes as opposed to an overarching sanctions regime.

Using this Book 7 of nuclear, biological and chemical weapons by the DPRK.23 At the UN level, a sanctions regime will be established by means of an originating Security Council resolution, which usually lends its name to the overall regime. In this way, the UN’s North Korean regime is commonly referred to as the ‘1718 regime’, after Security Council resolution 1718 (2006). Similarly, at the regional and domestic levels sanctions regimes will be distinguished on the basis of the situation they are intended to deal with, so it is normal to refer to the EU’s Syrian sanctions regime. In the US, however, sanctions regimes are commonly referred to as ‘sanctions programs’. 0.15 It is also important to be aware that sanctions law is an extremely fast-moving area of the law, and each sanctions regime is subject to frequent modification. Most notably, people are added to and removed from the various targeted sanctions lists. These changes are implemented via subsequent amending legislation, which means that each sanctions regime is a compendium of various legislative instruments. When considering the scope of sanctions obligations, it is therefore crucial to take into account each sanctions regime in its totality.

Using this Book 0.16 The primary aim of the book is to provide a practical guide to sanctions law. It is not an exhaustive account of all the sanctions law currently in force around the world, nor is it a study of why sanctions are imposed or whether they are effective as instruments of foreign policy. Instead, it is intended as an overview of how sanctions law comes into being and the obligations it imposes both in relation to states and to private individuals and entities. The book breaks down as follows: Part I: Sanctions Regimes and How they Work The first four chapters of the book deal with the creation of sanctions law by the UN, EU, UK and US. Each of the chapters will address both the decision-making within each of the relevant organisations or governments, and the implementation of those decisions, including how they are ultimately enforced and the penalties imposed. The first chapter also contains a brief section on the history of UN sanctions. Part II: Challenging Sanctions Chapters five to nine deal with challenges to sanctions law at the UN, EU, UK and US levels, as well as at the European Court of Human Rights. For the most part, these chapters address the question of how to challenge sanctions designations (ie, where a person has been designated pursuant to a particular sanctions regime). To this extent, they set out in detail the administrative and judicial framework for designation challenges, as well as the emerging case law in each jurisdiction.

23 See

UN Security Council resolution 1718 (2006) and subsequent resolutions.

8 Introduction Part III: Sanctions and Business Chapters ten and eleven deal with some of the key business issues raised by sanctions law. In particular, chapter ten considers the commercial law implications of sanctions prohibitions, whilst chapter eleven addresses more general questions regarding compliance and the role of the private sector in the implementation of sanctions. Both these chapters are written primarily with UK-based businesses in mind, and the focus is therefore on implementation and compliance insofar as it concerns sanctions law in force in the UK. The chapters also examine issues arising from the extra-territorial application of US sanctions.

part i Sanctions Regimes and How They Work

10

1 UN Sanctions Introduction 1.1 The United Nations (UN) was created immediately after the Second World War, in October 1945, with the aim of ushering in a new era of peaceful cooperation between sovereign states. The UN’s constituent treaty is the Charter of the United Nations (the Charter), and all Member States are bound by its provisions (see paragraph 1.10 below on the international law obligations imposed by the Charter). 1.2 The UN’s primary mandate is peacekeeping,1 and it is with a view to achieving this goal that the UN Security Council is granted its significant powers under Chapter VII of the Charter. Among these powers is the ability to impose measures not involving the use of force under Article 41 of the Charter. Sanctions measures, which range from comprehensive trade embargoes to individualised asset freezes, are generally understood to fall within the concept of measures not involving the use of armed force. Article 41 states as follows: The Security Council may decide what measures not involving the use of armed force are to be employed to give effect to its decisions, and it may call upon the Members of the United Nations to apply such measures. These may include complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations.

1.3 The aim of UN sanctions measures is not always made explicit, and indeed commentators have stressed that the objectives can be many and varied, depending in particular on the sanctions regime in question and the Member States driving forward the necessary decision-making.2 However, it would appear that one of the principal objectives is almost always to bring some form of pressure to bear on political regimes or non-state actors without resorting to the use of force. According to Security Council Report,3 the more specific objectives pursued by UN sanctions regimes implemented to date can be divided into the following broad categories: (i) conflict resolution; (ii) non-proliferation; (iii) counter-terrorism; (iv) democratisation; and (v) the protection of civilians.4

1 UN Charter, Article 1(1). 2 See, eg, F Giumelli, Coercing, Constraining and Signalling (ECPR, 2011) 19–23; T Ruys, ‘Sanctions, Retorsions and Countermeasures: Concepts and International Legal Framework’ in L van den Herik (ed), Research Handbook on UN Sanctions and International Law (Edward Elgar Publishing, 2017) 22. 3 Security Council Report is an independent, non-UN organisation that seeks to advance the transparency and effectiveness of the UN Security Council. 4 Security Council Report, ‘Special Research Report on UN Sanctions’ (November 2013) 3, available at: www. securitycouncilreport.org/research-reports/un-sanctions.php.

12 UN Sanctions 1.4 Sanctions have always been a part of the Security Council’s armoury under Chapter VII of the Charter. However, between 1945 and the end of the Cold War in 1989, the use of sanctions at the UN level was extremely limited, mainly owing to the Security Council’s inability to agree on the necessary resolutions. The situation changed dramatically in 1990, and since then the UN has been a prolific creator of sanctions regimes (see 1.64–1.75 below for a brief history of UN sanctions from 1945 to 2018). 1.5 Perhaps the key change in UN sanctions policy in recent years has been the move towards targeted or ‘smart’ measures. This process, also referred to as the ‘individualization of sanctions’,5 occurred around the turn of the twenty-first century in response to serious concerns that more generalised sanctions, including comprehensive trade embargoes, were having a disproportionate impact on the civilian populations of sanctioned countries. Broadly speaking, targeted measures work by reference to a list of designated individuals. These individuals are selected on the basis of their association with the state or group targeted by the sanctions regime. Once an individual has been ‘designated’ or ‘listed’, he or she will usually be subject to measures including asset freezes and travel bans.

The Legal Basis of UN Sanctions UN Sanctions in International Law 1.6 As a multilateral treaty ratified by 193 states, the Charter is one of the key sources of international law. The Preamble to the Charter states that a central goal of the UN is to ‘establish conditions under which justice and respect for the obligations arising from treaties and other sources of international law can be maintained’.6 The Charter also provides, pursuant to Article 103, that a UN Member State’s obligations under the Charter take precedence over any obligations under separate international treaties. As will be seen, the prima facie supremacy of UN obligations vis-a-vis other international obligations is of crucial importance when it comes to the implementation of UN sanctions regimes by Member States. 1.7 Sanctions regimes at the UN level are created by resolution of the Security Council, the latter being one of the UN’s principal organs.7 The Security Council is charged with the maintenance of international peace and security,8 and in pursuit of its mandate may make use of the powers set out in Chapters VI, VII, VIII and XII of the Charter.9 1.8 Sanctions regimes are created under Chapter VII of the Charter, which deals with ‘threats to the peace, breaches of the peace, and acts of aggression’. In particular, Article 41 5 L van den Herik, ‘The Individualization and Formalization of UN Sanctions’ in L van den Herik (ed), Research Handbook on UN Sanctions and International Law (Edward Elgar Publishing, 2017) 5. 6 UN Charter, Preamble, para 3. 7 UN Charter, Article 7(1). 8 ibid, Article 24(1). 9 ibid, Article 24(2).

The Legal Basis of UN Sanctions 13 of the Charter empowers the Security Council to implement mandatory measures not involving the use of armed force, which may include ‘the complete or partial interruption of economic relations’. However, most sanctions resolutions do not refer to Article 41 specifically, and merely indicate that they have been passed under Chapter VII of the Charter.10 1.9 Action taken under Chapter VII requires the prior determination by the Security Council of a ‘threat to the peace, breach of the peace, or act of aggression’ under Article 39 of the Charter. The ambiguity inherent in the phrase ‘threat to the peace’ has led to some debate regarding the particular situations in relation to which the Security Council may take coercive measures. However, in practice it is generally accepted that Security Council resolutions under Chapter VII contain an implied Article 39 determination, even though most resolutions passed under Article 41 do not refer explicitly to Article 39.11 1.10 Importantly for the purpose of sanctions regimes, Article 41 also provides that the Security Council may call upon Member States to apply any measures adopted. In this regard, Article 25 of the Charter states that Member States must agree to accept and carry out all decisions of the Security Council. The binding nature of Security Council resolutions has been confirmed by the International Court of Justice (ICJ).12 The Security Council may therefore impose binding obligations on Member States. Moreover, to the extent that these obligations conflict with obligations under other international treaties, Article 103 of the Charter provides that the obligations imposed by the Charter (including by Security Council resolution) will take precedence. 1.11 Although a small minority of commentators have argued that the Security Council is ‘unbound by law’,13 there is now general agreement for the proposition that there are in fact limits to the Security Council’s decision-making power,14 albeit that these limits remain ill-defined as a result of the absence of any judicial review mechanism at the UN level.15 The impossibility of directly challenging UN decisions in a specially-designated judicial forum has for many years been at the centre of the debate regarding UN sanctions measures. This was one of the key issues identified in the Kadi I16 case before the European Court of Justice (ECJ).17

10 Only four resolutions authorising active sanctions regimes refer explicitly to Article 41 (as at 1 June 2018). 11 There is only one explicit reference to a determination under Article 39 of the Charter: Security Council resolution 54 (1948). 12 See Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) Notwithstanding Security Council Resolution 276 (Advisory Opinion) [1971] ICJ Rep 16, 50, para 115: ‘The decisions [of the Security Council] are consequently binding on all States Members of the United Nations, which are thus under obligation to accept and carry them out’. See also Reparation for Injuries Suffered in the Service of the United Nations (Advisory Opinion) [1949] ICJ Rep 174, 178. 13 See, eg, G Oosthuizen, ‘Playing the Devil’s Advocate: The United Nations Security Council is Unbound by Law’ (1999) 12 Leiden Journal of International Law 549. 14 See, eg, Tadíc IT-94–1-AR72 (ICTY Appeals Chamber) 35 ILM (1996) paras 20–28. 15 See, eg, JM Farrall, United Nations Sanctions and the Rule of Law (Cambridge University Press, 2007) 69. 16 Case C-402/05 Kadi and Al Barakaat International Foundation v Council and Commission [2008] ECR I-6351 (Kadi I). 17 See ch 6 for a detailed discussion of the Kadi I case.

14 UN Sanctions 1.12 In any event, it is worth briefly touching upon the most widely discussed limits to the Security Council’s power to impose sanctions under Article 41 of the Charter. These can be divided into three broad arguments: (i) the legality of the sanctions measures by reference to the Charter (the ultra vires argument); (ii) the legality of the sanctions measures by reference to jus cogens norms of customary international law (the jus cogens argument); and (iii) the legality of the sanctions measures by reference to the state responsibility regime on countermeasures (the countermeasures argument). 1.13 First, the Security Council must act in compliance with the provisions of the Charter itself, including in particular the Purposes and Principles of the UN.18 The Purposes of the UN include, for example, the promotion and encouragement of respect for human rights and fundamental freedoms.19 Some commentators have argued that a Security Council resolution would therefore be ultra vires the Charter if by that resolution the Security Council was acting in breach of internationally-recognised human rights obligations, including certain procedural rights.20 However, others take the view that, generally speaking, Security Council resolutions supersede human rights obligations in international law, at least to the extent that the relevant human rights obligations do not constitute jus cogens norms (see paragraph 1.14 below).21 In any event, the absence of an obvious judicial forum for the review of Security Council resolutions, as well as the wide discretion enjoyed by the Security Council in making decisions generally, means that this particular line of argument is at present confined to the realm of the purely theoretical.22 1.14 Secondly, the Security Council must respect customary rules of international law having jus cogens status. These rules enjoy the highest status in customary international law; they are non-derogable and peremptory.23 Article 53 of the Vienna Convention on the Law of Treaties (VCLT) addresses jus cogens, and provides that a peremptory norm of general international law is a norm accepted and recognized by the international community of States as a whole as a norm from which no derogation is permitted and which can be modified only by a subsequent norm of general international law having the same character.

To this extent, any treaty is void if, at the time of its conclusion, it conflicts with a peremptory norm of general international law. 18 UN Charter, Article 24(2). The fact that the Security Council is bound by the provisions of the Charter has been confirmed by the International Court of Justice (ICJ), which stated that the political character of UN organs ‘cannot release them from observance of the treaty provisions by which they are governed, when these provisions constitute limitations on their power’ (Conditions of Admission of a State to Membership of the United Nations (Advisory Opinion) [1948] ICJ Rep 57, 64). 19 UN Charter, Article 1(3). 20 See, eg, D Schweigman, The Authority of the Security Council Under Chapter VII of the UN Charter (Martinus Nijhoff Publishers, 2001) 172, 202; A Orakhelashvili, ‘The Impact of Peremptory Norms on the Interpretation and Application of United Nations Security Council Resolutions’ (2005) 16 European Journal of International Law 64. 21 This was the approach taken, for example, by the European Court of First Instance in its decision in Case T-315/01 Kadi v Council and Commission, 21 September 2005 (2006) 45 ILM 81. 22 See G Verdirame, ‘Implementation of UN Sanctions’ in G Verdirame, The UN and Human Rights (Cambridge University Press, 2011) 304. 23 The ICJ has recognised the existence of jus cogens norms in a number of cases: see, eg, Legality of the Threat or Use of Nuclear Weapons (Advisory Opinion) [1996] ICJ Rep 226, 258, para 83; Gabčikovo-Nagymaros Project, Hungary v Slovakia (Judgment, Merits) [1997] ICJ Rep 7.

The Legal Basis of UN Sanctions 15 1.15 Although it is not absolutely clear which rules of customary international law constitute jus cogens norms, it is generally accepted that they include, among others, the prohibitions on genocide, the unlawful use of force, and piracy. Moreover, the ICJ has stated that the prohibition on torture has also become a peremptory norm.24 Overall, it has been suggested that the appropriate test is the universal acceptance of the proposition as a legal rule by states, and the recognition of it as a rule of jus cogens by an overwhelming majority of states, crossing ideological and political divides.25 1.16 On the basis of their position at the very top of the hierarchy of international law, there is a strong argument that jus cogens norms override Article 103 of the Charter and therefore cannot be superseded by Security Council resolutions. This proposition was espoused in the sanctions context by the EU Court of First Instance in the Kadi I case.26 The Court reasoned that UN sanctions imposed by Security Council resolutions could not take precedence over peremptory norms of international law, and that the Court was therefore empowered to check, albeit indirectly, the lawfulness of the resolutions with regard to jus cogens.27 However, in the circumstances the Court held that the sanctions measures in question did not breach any such peremptory norms.28 1.17 Thirdly, the legality of UN sanctions regimes has been discussed in the context of the law governing state recourse to ‘countermeasures’. Countermeasures are defined in international law as the non-performance of international obligations by one state in response to internationally wrongful acts committed by another state.29 The use of countermeasures by individual states is specifically dealt with in the International Law Commission’s Draft Articles on the Responsibility of States for Internationally Wrongful Acts (ARSIWA), which establish an overarching legal framework.30 For example, under Article 51 ARSIWA, countermeasures must be proportionate to the injury suffered, taking into account the gravity of the internationally wrongful act and the rights in question. 1.18 Although the law on countermeasures does not apply prima facie to sanctions adopted by the Security Council, mainly because the UN cannot be an ‘injured state’ for the purpose of taking action against other states or individuals,31 it has been argued that if UN sanctions are functionally analogous to countermeasures, then the limitations set out in the ARSIWA should also apply to them.32 If this is indeed the case, then UN sanctions

24 Questions relating to the Obligation to Prosecute or Extradite, Belgium v Senegal (Judgment) [2012] ICJ Rep 422, para 99. 25 M Shaw, International Law, 7th edn (Cambridge University Press, 2014) 90. 26 Kadi I, above (n 16). 27 ibid, paras 226–42. 28 ibid, para 238. In particular, the Court held that the asset freezes in question did not infringe the universal protection of the fundamental rights of the individual covered by jus cogens. 29 See Article 49 of the Articles on State Responsibility for Internationally Wrongful Acts (ARSIWA). 30 The ARSIWA were adopted by the ILC at its fifty-third session on 10 August 2001 and aim to codify customary international law on state responsibility. 31 Ruys, above (n 2) 36. 32 A Tzanakopoulos, Disobeying the Security Council: Countermeasures against Wrongful Sanctions (Oxford University Press, 2011) 76.

16 UN Sanctions regimes would be subject to the principle of proportionality, as well as having to respect fundamental human rights and humanitarian obligations. 1.19 It is important to bear in mind that none of the three arguments set out above in relation to the overall legality of UN sanctions regimes has been successfully invoked before a court, whether international, domestic or regional. Again, this is largely because there is no recognised judicial forum for the review of Security Council decision-making. Notwithstanding the latter, certain courts have been willing to entertain challenges to specific measures (as opposed to overall regimes) imposed at the UN level and then implemented either regionally or domestically. These legal challenges will be explored at length in Part II of this book. 1.20 Finally, the discussion above regarding the legality of UN sanctions in international law should not be confused with the separate but related discussion regarding the legality of unilateral or autonomous sanctions (ie, imposed by a state or states at their own initiative, not by the UN) in international law. Although it is outside the scope of this chapter, it is worth noting that much has been written about the latter,33 particularly in the context of the far-reaching measures frequently imposed by the US.34 The general principles of international law most frequently invoked in this regard are (i) the principle of non-intervention in the affairs of sovereign states,35 and (ii) the principle of territoriality.36 Separately, it has been argued that unilateral measures may breach specific terms of international treaties, such as the International Convention on the Elimination of All Forms of Racial Discrimination (CERD), the General Agreement on Tariffs and Trade (GATT), or the Energy Charter Treaty (ECT).37 In 2018, for example, following the imposition of draconian sanctions measures by a number of states on Qatar and Qatari nationals, purportedly in response to the latter’s funding of terrorism, Qatar filed a case against the United Arab Emirates (UAE) before the ICJ. In particular, Qatar argued that the measures imposed by the UAE, which included cutting transport and diplomatic links, violated certain provisions of the

33 See, eg, A Hofer, ‘The Developed/Developing Divide on Unilateral Coercive Measures: Legitimate Enforcement or Illegitimate Intervention?’ (2017) 16 Chinese Journal of International Law; N Ronzitti, ‘Sanctions as Instruments of Coercive Diplomacy: An International Law Perspective’ in N Ronzitti, Coercive Diplomacy, Sanctions and International Law (Brill Nijhoff, 2016); R Mohamad, ‘Unilateral Sanctions in International Law: A Quest for Legality’ in AZ Marossi and MR Bassett (eds), Economic Sanctions Under International Law (Springer, 2015); D Joyner, ‘International Legal Limits on the Ability of States to Lawfully Impose International Economic/Financial Sanctions’ in N Ronzitti, Coercive Diplomacy, Sanctions and International Law (Brill Nijhoff, 2016). 34 See, eg, J Meyer, ‘Second Thoughts on Secondary Sanctions’ (2009) 30 University of Pennsylvania Journal of Comparative Law 3; S Emmenegger, ‘Extraterritorial Economic Sanctions and their Foundation in International Law’ (2016) 33 Arizona Journal of International & Comparative Law 3. 35 See, eg, M Jamnejad and M Wood, ‘The Principle of Non-Intervention’ (2009) 22 Leiden Journal of International Law 345. 36 See, eg, C Beaucillon, ‘Practice Makes Perfect, Eventually? Unilateral State Sanctions and the Extraterritorial Effects of National Legislation’ in N Ronzitti, Coercive Diplomacy, Sanctions and International Law (Brill Nijhoff, 2016). 37 See, eg, M Bothe, ‘Compatibility and Legitimacy of Sanctions Regimes’ in N Ronzitti, Coercive Diplomacy, Sanctions and International Law (Brill Nijhoff, 2016); A Atteritano and MB Deli, ‘An Overview of International Sanctions’ Impact on Treaties and Contracts’ in N Ronzitti, Coercive Diplomacy, Sanctions and International Law (Brill Nijhoff, 2016).

The Legal Basis of UN Sanctions 17 CERD concerning equal treatment and other fundamental rights.38 The case is likely to be decided by the court at some stage over the next few years.

Types of Sanctions Measures 1.21 The most commonly used types of sanctions measures imposed at the UN level are as follows: (i) asset freezes; (ii) arms embargoes; (iii) commodity interdictions; (iv) travel bans; and (v) diplomatic sanctions. The Security Council can choose to impose any combination of these measures within the framework of an individual sanctions regime.

Asset Freezes 1.22 Most of the UN sanctions regimes that are currently in operation incorporate targeted asset freezes of some kind. Resolution 1267 (1999), which ushered in the era of targeted sanctions, provides that all Member States shall ‘[f]reeze funds and other financial resources, including funds derived or generated from property owned or controlled directly or indirectly by the Taliban, or by any undertaking owned or controlled by the Taliban, as designated by the Committee’.39 1.23 Asset freezes usually operate by reference to a list of designated individuals and entities. These are the individuals targeted by the sanctions regime and whose assets and property must be frozen. 1.24 As with all UN sanctions measures, the imposition of asset freezes requires implementation and enforcement by individual Member States. However, in contrast to other more general trade restrictions, asset freezes offer very little room for manoeuvre in terms of how Member States choose to implement them domestically. In particular, the end result must always be that the assets belonging to or controlled by the persons listed in the relevant UN sanctions committee list are frozen by Member States.

Arms Embargoes 1.25 Again, most UN sanctions regimes in operation contain arms embargoes, usually preventing the sale, supply or transfer of weapons to the territory or state that has been made the target of the measures. 1.26 Arms embargoes may target both conventional and unconventional weapons. In the case of the North Korean and Iranian sanctions regimes, the arms embargo provisions include specific non-proliferation measures (see paragraphs 1.54–1.58 below for an o verview

38 See ICJ Press Release No 2018/26, ‘The State of Qatar institutes proceedings against the United Arab Emirates and requests the Court to indicate provisions a measures’, 11 June 2018, available at: www.icj-cij.org/files/caserelated/172/172-20180611-PRE-01-00-EN.pdf. 39 SCR 1267 (1999) para 4(b).

18 UN Sanctions of the UN’s North Korea sanctions regime). Moreover, arms embargoes can function as two-way prohibitions, targeting both the supply of weapons to a particular country and the sale of weapons from or by the same country. The latter is aimed at depriving targeted governments of a key source of income.

Commodity Interdictions 1.27 Commodity interdictions target commodities linked to conflict areas, or which are recognised as a key source of funds for governments targeted by sanctions measures. For example, resolution 1643 (2005) in relation to the Ivory Coast prohibited the export of diamonds from that country. 1.28 However, commodity interdictions feature far less prominently among the UN’s sanctions regimes, partly because of the difficulties associated with preventing avoidance, abuse and sanctions-busting.40 This was particularly the case in relation to the Oil-for-Food Programme in Iraq,41 which operated between 1995 and 2003 and provided for exceptions to the comprehensive prohibition on the export of oil from Iraq. The programme is widely considered to have been systematically manipulated by and for the benefit of the Iraqi Government.42

Travel Bans 1.29 Travel bans are another common form of targeted sanction.43 As with asset freezes, they operate by reference to designated lists of individuals. For example, resolution 1970 (2011), dealing with the situation in Libya, calls upon Member States to ‘take the necessary measures to prevent the entry into or transit through their territories of individuals listed in Annex I of this resolution or designated by the Committee established pursuant to paragraph 24 below’.44

Diplomatic Sanctions 1.30 Article 41 of the UN Charter specifically refers to the ‘severance of diplomatic relations’ as a possible sanctions measure. However, whilst diplomatic sanctions were

40 See, eg, ‘Letter from the Security Council Committee for the Somalia and Eritrea sanctions regimes to the President of the Security Council’, 12 July 2013, UN Doc S/2013/412. 41 The Oil-for-Food Programme was established by SCR 986 (1995). 42 See, in particular, the fifth Volcker Committee report into the manipulation of the Oil-for-Food Programme by the Iraqi regime, 27 October 2005. 43 There is a broad analogy here between travel bans imposed by way of Security Council resolution (and enforced by UN Member States) and the de facto travel restraints on individuals subject to arrest warrants issued by the International Criminal Court (ICC). See, eg, the ICC arrest warrant issued in respect of Sudanese President Al Bashir; ICC signatory states are under an international law obligation to execute ICC arrest warrants. This was the subject of the ICC Pre-Trial Chamber judgment in July 2017 under article 87(7) of the Rome Statute on the non-compliance by South Africa with the request by the Court for the arrest and surrender of Omar Al-Bashir. 44 SCR 1970 (2011) para 15.

The Legal Basis of UN Sanctions 19 commonly used in the past, none have been imposed in relation to sanctions regimes currently in operation. This would appear to indicate that the Security Council is less willing to forego the potential benefits of multilateral negotiations involving the targeted state as a means of resolving international conflicts.

Establishment of UN Sanctions Regimes 1.31 As discussed above, UN sanctions regimes are created by resolution of the UN Security Council. The Security Council is made up of 15 UN Member States, comprising five permanent members and 10 non-permanent members.45 Decisions of the Security Council are made by an affirmative vote of nine members, with each member casting one vote.46 The Security Council voting procedure is governed by Article 27 of the Charter and Rule 40 of the Provisional Rules of Procedure of the Security Council.47 1.32 It should be borne in mind, however, that Security Council resolutions may only be passed with the assent of all five permanent members.48 As a result, resolutions concerning sanctions, as with all other Security Council resolutions, are at the mercy of the ‘veto power’ wielded by each of the five permanent members.49 Where proposed sanctions measures are blocked at the UN level, the Member States proposing the sanctions may decide to turn to autonomous measures as an alternative means of achieving their foreign policy goals.50 Autonomous sanctions regimes will be discussed further in chapters two, three and four of Part I. 1.33 In procedural terms, the drafting of resolutions and chairing of subsequent negotiations is generally undertaken by whichever Security Council member, whether permanent or non-permanent, takes the initiative to produce the text in relation to the particular issue. However, an alternative ‘pen-holder’ system has also developed within the Security Council whereby the draft text of the resolution is prepared by the P3 (the US, UK and France) and negotiated in the first instance with the other two permanent members (Russia and China).51 Only when the text has been agreed by the permanent members is it then shared with the rest of the Security Council.

45 The 10 non-permanent members are elected for two-year terms by the General Assembly. 46 UN Charter, Article 27(3). 47 Provisional Rules of Procedure of the Security Council, UN Doc S/96/Rev.7. 48 UN Charter, Article 27(3). 49 eg, on 19 July 2012, several members submitted a draft resolution to the Security Council proposing that sanctions be implemented in relation to the situation in Syria (see UN Doc S/2012/538). The resolution would have imposed the following ultimatum on the Syrian regime: ‘if the Syrian authorities have not fully complied with paragraph 4 above within ten days, then it [the Security Council] shall impose immediately measures under Article 41 of the UN Charter’. The resolution was vetoed by both Russia and China. 50 Following the use of the veto by the Russian Federation and China at the UN level, both the United States and the European Union adopted autonomous sanctions measures in relation to the situation in Syria. 51 The ‘pen-holder’ system of drafting has been endorsed by the Security Council in its ‘Note 507’; see ‘Note by the President of the Security Council, 30 August 2017’, UN Doc S/2017/507, 13.

20 UN Sanctions

Implementation of Sanctions Measures 1.34 As noted above, Security Council resolutions are binding on all UN Member States. Furthermore, there is a presumption of legality attaching to Security Council resolutions,52 as well as a requirement that Member States execute their obligations under the Charter in good faith.53 Finally, Article 48(1) of the Charter provides that: The action required to carry out the decisions of the Security Council for the maintenance of international peace and security shall be taken by all the Members of the United Nations or by some of them, as the Security Council may determine.

As a result, once sanctions regimes have been created at the UN level, Member States are under an international law obligation to implement them domestically. 1.35 Notwithstanding the mandatory nature of Security Council resolutions, Member States often have a certain margin of discretion as to how they choose to implement them. The main obligations are set out in the operative provisions of the Security Council resolutions governing the regime in question. These operative provisions will in most cases be preceded by the following standard wording: ‘The Security Council … Acting under Chapter VII of the Charter of the United Nations, … [d]ecides that’ (see also below). For example, paragraph 2 of resolution 2253 (2015), relating to the ISIL and Al-Qaida sanctions regime, reads as follows: ‘[The Security Council] Decides that all States shall take the following measures’. Those measures include the imposition of asset freezes, travel bans and arms embargoes on the individuals designated under the relevant Sanctions List. 1.36 The resolutions will also usually contain a specific section setting out in further detail the Security Council’s expectations in relation to domestic implementation. In resolution 2253 (2015), this section is headed ‘Measures implementation’, and clarifies the key steps that Member States must take in order to comply with their obligations. For example, paragraph 11 establishes ‘the importance of all States identifying, and if necessary introducing, adequate procedures to implement fully all aspects of the measures’. 1.37 It is important to note that Member States will almost always be placed under an obligation to report on the implementation of sanctions measures.54 In 2004, the 1267 Monitoring Team noted in its first report that ‘reports submitted by Member States are currently the only indicator of their compliance with the resolutions’.55 More recently, paragraph 15 of resolution 2253 (2015) expressed the Security Council’s ‘increasing concern about the lack of implementation of resolutions 1267 (1999), 1989 (2011), and 2199 (2015), including the insufficient level of reporting by Member States to the Committee on the measures they have taken to comply with its provisions’. To this extent, it is clear that the

52 See Certain Expenses of the United Nations (Advisory Opinion) [1962] ICJ Rep 151, 168. 53 UN Charter, Article 2(2). 54 See, eg, SCR 1718 (2006) para 11; SCR 1970 (2011) para 25; SCR 2253 (2015) para 36. 55 ‘First report of the Analytical Support and Sanctions Monitoring Team appointed pursuant to SCR 1526 (2004) concerning Al-Qaida and the Taliban and associated individuals and entities’, UN Doc S/2004/679, 9.

The Legal Basis of UN Sanctions 21 implementation of sanctions regimes by Member States remains inconsistent, with some states choosing to adopt a more robust approach than others. However, it is much less clear at what point a failure to implement or enforce sanctions regimes constitutes a breach of a Member State’s international law obligations. As noted by the 1267 Monitoring Team, Member States may find it ‘easier in the circumstances to incorporate the sanctions regime into their national legislation than to ensure its effective implementation on the ground’.56 1.38 Nevertheless, some Member States take the implementation of sanctions regimes extremely seriously. The rest of Part I will look at the sanctions regimes in place in (i) the European Union (EU), (ii) the United Kingdom (UK), and (iii) the United States (US). These jurisdictions have all tended towards the scrupulous implementation of sanctions regimes developed at the UN level, and the manner in which those regimes are implemented will be explored in detail. In fact, the EU and US occasionally go further than is required by the Security Council resolutions in question.57 In particular, these jurisdictions have been willing to adopt ‘autonomous’ sanctions regimes, that is, sanctions regimes that do not arise under Security Council resolutions and are therefore adopted unilaterally. An obvious recent example of an autonomous sanctions regime is that imposed by the EU and the US in relation to the annexation of parts of Ukraine by the Russian Federation.58

Interaction with Other Institutions 1.39 It has been observed that the number of actors and institutions associated with UN sanctions has multiplied over the course of recent years. These actors include separate bodies within the UN as well as independent organisations such as the Financial Action Task Force (FATF) and the International Atomic Energy Agency (IAEA). These organisations have undoubtedly assisted with the effective implementation of UN sanctions, although concern has been expressed regarding the level of influence they appear to be having on UN sanctions-making. 1.40 In 2014, a general review of UN sanctions was conducted by a number of UN Member States,59 in partnership with the Watson Institute of Brown University and Compliance and Capacity International. A particular focus of the review was the impact of different institutional actors on UN sanctions, and the background paper provides an overview of the range of institutional actors and entities mentioned in recent Security Council resolutions applying sanctions.60 Of these, it is worth paying special attention to the FATF, which has become increasingly influential in the area of UN sanctions, both in terms of their design and their implementation by Member States.

56 ibid. 57 See, eg, the measures adopted by the US and EU in relation to Iran. 58 See, eg, Regulation (EU) No 269/2014 and subsequent amending Regulations (for the EU), and Executive Order 13662 (for the US). 59 Australia, Finland, Germany, Greece and Sweden. 60 E Carisch, S Eckert and L Rickard-Martin, ‘High Level Review of UN Sanctions: Background Paper’ (2014), available at: www.hlr-unsanctions.org/main/background.

22 UN Sanctions 1.41 The FATF is an intergovernmental policymaking body that proposes and monitors legislative reform across the global financial system. Of particular importance is its framework of measures – ‘Recommendations’ – designed to combat criminality of particular concern to the financial system. These measures are non-binding but have become important international standards to be adhered to across participating jurisdictions. Recommendation 6 deals with targeted financial sanctions relating to terrorism and terrorist financing. It requires FATF members to, among other things, comply with UN Security Council resolutions relating to the prevention and suppression of terrorism and terrorist financing. There are currently 35 state members of the FATF, as well as two regional representatives including the European Commission.61 1.42 The Security Council has increasingly drawn on the work of the FATF in designing sanctions regimes. For example, resolution 1617 (2005), which relates to the 1267 anti-terrorism regime, strongly urges Member States to implement the FATF recommendations.62 In fact, such is the FATF’s influence on sanctions-making at the UN level that some commentators have noted that the organisation has almost become an ‘informal arm’ of the Security Council.63 Whilst it has been recognised that such informal cooperation is a highly efficient tool of global government, it has also been pointed out that it exists outside the structural framework of UN decision-making, giving rise to a lack of transparency and a risk of eroding fundamental principles and structures of international law such as sovereign equality and state consent.64

Content and Interpretation Mechanics of Sanctions Regimes 1.43 Each UN sanctions regime is created by a separate Security Council resolution. The initial authorising resolution will set out the situation targeted by the regime, and the circumstances leading to the imposition of the sanctions measures. The resolution will also set out the nature and extent of the specific sanctions measures adopted. However, the initial authorising resolution is also likely to be supported or amended by a number of subsequent resolutions, particularly where the original circumstances have changed and it is necessary to widen or narrow the scope of the overall regime. To this extent, it is important when assessing the obligations imposed under each sanctions regime to take into account all the relevant resolutions. 1.44 Since the 1990s and the move to ‘smart’ sanctions, measures now frequently include the use of financial restrictions targeting specific individuals (asset freezes), and other narrow mechanisms such as travel bans, in preference to comprehensive trade embargoes. 61 As at 1 June 2018. 62 SCR 1617 (2005) para 7. 63 See, eg, A Rodiles, ‘The Design of UN Sanctions through the Interplay with Informal Arrangements’ in L van den Herik (ed), Research Handbook on UN Sanctions and International Law (Edward Elgar Publishing, 2017) 191. 64 ibid.

Content and Interpretation 23

Sanctions Committees 1.45 Each sanctions regime is managed by a regime-specific sanctions committee. These sanctions committees are treated as subsidiary bodies of the Security Council under Article 29 of the Charter. The composition of each committee mirrors that of the Security Council.65 Sanctions committees are usually created by the overarching Security Council resolution pertaining to the regime in question. To this extent, each committee will derive its mandate and powers from the original Security Council resolution, as well as subsequent resolutions amending the scope of the regime. 1.46 The mandates of sanctions committees will usually cover the following:66 (i) assisting Member States with the implementation of the sanctions measures; (ii) generally overseeing the implementation of the sanctions measures; (iii) designating individuals and entities who meet the listing criteria set out in the relevant resolutions; (iv) considering and deciding upon notifications and requests for exemptions from the sanctions measures; (v) considering and deciding upon requests to remove a name from the relevant Sanctions List; (vi) conducting periodic and specialised reviews of the entries on the relevant Sanctions List; (vii) examining the reports presented by the Monitoring Team; (viii) reporting annually to the Security Council on the implementation of the sanctions measures; and (ix) conducting outreach activities.

Listing 1.47 In order to implement targeted measures, most sanctions committees manage regime-specific Sanctions Lists.67 These Lists set out all the individuals and entities designated under the relevant regime. Individuals and entities listed pursuant to UN sanctions regimes will be subject to the restrictive measures established in the overarching Security Council resolutions. For example, those listed on the ISIL (Da’esh) & Al-Qaida Sanctions List are subject to an asset freeze, travel ban and arms embargo.68 The UN also maintains a Consolidated Sanctions List, containing the names of all individuals and entities subject to restrictive measures under all of the UN regimes.69 1.48 Sanctions Lists are updated in accordance with the listing criteria set out in the key Security Council resolutions. For example, the ISIL (Da’esh) & Al-Qaida regime targets individuals, groups, undertakings or entities associated with ISIL or Al-Qaida.70 This is now known as the ‘associated with’ standard for listing.71 Activities indicating association will include in particular (i) participating in financing, planning, facilitating, preparing, or

65 Each committee comprises the 15 members of the Security Council. 66 For a more detailed overview of the work of sanctions committees, see the internal working guidelines published by each committee. 67 Electronic copies of each Sanctions List are available on the UN website: www.un.org/sc/suborg/en. 68 See SCR 2253 (2015) para 2. 69 The Consolidated Sanctions List is available at: www.un.org/sc/suborg/en/sanctions/un-sc-consolidated-list. 70 See SCR 2252 (2015) para 3. 71 See para 6(e) of the 1267 Guidelines.

24 UN Sanctions perpetrating of acts or activities by, in conjunction with, under the name of, on behalf of, or in support of either group, (ii) supplying, selling or transferring arms and related material to either group, or (iii) recruiting for or otherwise supporting acts or activities of Al-Qaida, ISIL, or any cell, affiliate, splinter group or derivative thereof.72 1.49 Decision-making by sanctions committees is by consensus.73 As a result, a decision to add or remove an individual to or from a Sanctions List cannot be made without the unanimous consent of all the members of the relevant sanctions committee. The procedure for listing is governed by the main overarching Security Council resolutions, and is set out in the internal guidelines of each committee. Listing requests may be submitted to the relevant sanctions committee by any UN Member State. Such requests must include a statement of case, containing as detailed and specific reasons as possible describing the proposed basis for the listing, and as much relevant information as possible on the proposed name.74 When a name has been added to the Sanctions List, a narrative summary of reasons for listing is usually made publicly available on the relevant committee’s website. 1.50 Individuals or entities designated under a UN sanctions regime may apply to the relevant committee for de-listing via their state of residence or citizenship. Alternatively, an individual may apply to the relevant Focal Point for De-listing. In the case of the 1267/2253 regime, individuals should apply to the Office of the Ombudsperson. The procedure for de-listing is considered in greater detail in chapter five.

Exemptions 1.51 Each sanctions regime contains a number of in-built exemptions, which are set out in one or more of the key Security Council resolutions governing that regime. The exemptions are tied to the specific restrictive measures in place under the regime in question, so there will be separate exemptions in relation to, for example, asset freezes and travel bans. In relation to asset freezes, the regime will usually contain a number of general exemptions (eg, for ‘necessary basic expenses’ such as food and medicine, as determined by each Member State), as well as a procedure for Member States to request ‘extraordinary exemptions’.75 Moreover, there is usually some leeway for Member States to allow for the addition or subtraction of certain sums to and from designated accounts.76 1.52 As with the restrictions themselves, therefore, the implementation of exemptions is left to each Member State (see paragraphs 1.34–1.38 above regarding the implementation of UN measures). To this extent, a person seeking to find out about exemptions from

72 ibid. 73 See, eg, para 4(a) of the 1267 Guidelines; para 4(a) of the 751/1907 Guidelines; and para 4(a) of the 1970 Guidelines. 74 See, eg, SCR 2252 (2015) para 45. 75 See, eg, SCR 1452 (2002) paras 1 and 2. 76 eg, the 1267 regime allows for sums relating to (i) interest and other earnings on accounts, and (ii) payments due under contracts, agreements or obligations that arose prior to the date on which those accounts became subject to relevant provisions, to be added to designated accounts (see para 2 of SCR 1452 (2002)).

Content and Interpretation 25 restrictive measures should first consult the provisions set out in the applicable national legislation. The procedure for a Member State to notify the relevant sanctions committee of the exemptions it intends to authorise domestically is set out in the internal Guidelines for each regime.77

Monitoring Team/Group of Experts 1.53 Each sanctions committee is supported either by a Monitoring Team or Group of Experts. These groups are made up of experts tasked with assisting the Committee in overseeing and implementing the relevant sanctions regime. In particular, they assist with information-gathering regarding reported instances of non-compliance, as well as with changing circumstances regarding those designated on the relevant Sanctions List and new threats requiring the imposition of further restrictive measures. These groups also liaise directly with Member States regarding the implementation of sanctions, particularly in order to recommend changes and improvements to national measures. Each group of experts publishes an annual report, which is available electronically on the UN sanctions website.78

Case Study: The 1718 Regime (North Korea/DPRK) 1.54 On 9 October 2006, the North Korean regime of Kim Jong-Il conducted its first nuclear test. In response, the UN Security Council passed resolution 1718 (2006), condemning the test and imposing the first in what would become a long series of increasingly tough sanctions measures. Resolution 1718 (2006) established the ‘1718 regime’, which remains in place today79 but has been reinforced and extended by a number of subsequent Security Council resolutions. The operative provisions of resolution 1718 impose a package of sanctions measures, including targeted financial sanctions,80 travel bans,81 and a prohibition on the sale or supply of specified military equipment,82 luxury goods,83 and material relating to North Korea’s nuclear and ballistic missile programmes.84 Designated individuals subject to financial sanctions are listed in various Security Council resolutions, now brought together in the consolidated ‘1718 Sanctions List’.85 The List currently contains the names of 80 individuals and 75 entities.86

77 See, eg, para 11 of the 1267 Guidelines. 78 See, eg, the 1267/2253 Monitoring Team report dated 16 June 2015, or the 1874 Panel of Experts report dated 23 February 2015 (both available at: www.un.org/sc/suborg/en). 79 As at 1 June 2018. 80 SCR 1718 (2006) para 8(d). 81 ibid, para 8(e). 82 ibid, para 8(a)(i). 83 ibid, para 8(a)(iii). 84 ibid, para 8(a)(ii). 85 The 1718 Sanctions List is available at: www.un.org/sc/suborg/en/sanctions/1718/materials. 86 As at 1 June 2018.

26 UN Sanctions 1.55 The relevant sanctions measures were strengthened in 2009 following North Korea’s second nuclear test,87 and again in 2013,88 201689 and 2017.90 After the passing of resolution 2321 in 2016, UN Secretary-General Ban Ki-moon described the measures as the toughest and most comprehensive sanctions ever imposed.91 In particular, the measures now include a cap on North Korean coal exports, specifically aimed at limiting the revenue generated by the sale of coal to China.92 Moreover, resolution 2397 (2017) introduced a cap on the sale and supply of crude oil and refined petroleum products to North Korea.93 1.56 Resolution 1718 (2006) also established a regime-specific sanctions committee, consisting of all 15 members of the Security Council.94 The Committee’s mandate is set out in resolution 1718, but has subsequently been extended by resolutions 1874, 2087 and 2094. In particular, the Committee is responsible, among other things, for considering the listing (and de-listing) of individuals and entities, assisting with the implementation of the measures and reporting to the Security Council on a periodic basis. The Committee Guidelines were adopted in 2007 and revised in 2014. The Committee is assisted by a Panel of Experts, which was established pursuant to resolution 1874. The Panel of Experts comprises eight experts appointed by the UN Secretary-General and based in New York. Each expert has a background in areas such as nuclear weapons, weapons of mass destruction, arms control and non-proliferation policy, procurement and trade, finance and economics, air and maritime transport, and missile issues. 1.57 The Panel’s annual report to the Security Council dated 5 March 2018 noted as follows: In 2017, the Democratic People’s Republic of Korea intensified its advanced nuclear and ballistic missile-related activities through the largest nuclear test to date, flight tests of new intercontinental ballistic missiles and an intermediate-range ballistic missile and a threat to conduct an atmospheric nuclear test over the Pacific Ocean. The Security Council adopted four resolutions, by which it strengthened existing sanctions and introduced new measures, including petroleum sanctions and a crude oil cap. In addition to ongoing violations and increasingly sophisticated evasion practices, the Panel’s latest investigations show that the Democratic People’s Republic of Korea is already flouting the most recent resolutions by exploiting global oil supply chains, complicit foreign nationals, offshore company registries and the international banking system.95

1.58 The Panel also identified critical deficiencies in the implementation of the financial sanctions under the 1718 regime, noting that several Member States were exercising

87 SCR 1874 (2009). 88 SCR 2087 (2013); SCR 2094 (2013). 89 SCR 2270 (2016); SCR 2321 (2016). 90 SCR 2371 (2017); SCR 2375 (2017); SCR 2394 (2017). 91 See Security Council 7821st Meeting (AM), ‘Security Council Strengthens Sanctions on Democratic Republic of Korea, Unanimously Adopting Resolution 2321 (2016)’, SC 12602, 30 November 2016. 92 The cap was introduced by SCR 2270 (para 29(b)) and strengthened by SCR 2321 (para 26). 93 SCR 2397 (2017) paras 4 and 5. 94 SCR 1718 (2006) para 12. 95 ‘Report of the Panel of Experts established pursuant to resolution 1874 (2009)’, 5 March 2018, UN Doc S/2018/171. All the reports are available at: www.un.org/sc/suborg/en/sanctions/1718/panel_experts/reports.

Content and Interpretation 27 insufficient scrutiny of the activities of bank representatives of the DPRK residing in, or moving through, their territory.96 This chimes with a similar complaint raised in the 2017 report, which observed that the new sanctions effort against North Korea had not been matched by the necessary political will in implementing the measures.97 Overall, it seems that there are still weaknesses when it comes to effective sanctions implementation, and that the North Korean regime has become adept at exploiting those weaknesses. It remains to be seen whether that continues following reports of the partial collapse of the main DPRK nuclear test site.98

Interpretation of Security Council Resolutions 1.59 The issue of interpreting Security Council resolutions is not at all straightforward as there are no clear rules on the matter.99 This is in large part because Security Council resolutions are not international treaties, but edicts issued by a collective body. Notwithstanding the latter, the ICJ has indicated that interpretive ‘guidance’ may be found in the rules governing treaty interpretation contained in Articles 31–33 of the VCLT.100 In the same Advisory Opinion, however, the ICJ also indicated that those rules do not apply directly to Security Council resolutions, and that other factors have to be taken into account.101 In particular, regard must be had to the role of the Security Council under the UN Charter, as well as the drafting process itself and the background to the resolution in question.102 1.60 One of the key interpretive issues is whether or not the resolution in question creates legally binding obligations for Member States, and if so, what exactly those obligations are. According to Michael Wood, the three elements to look for in this regard are as follows: (i) a determination under Article 39 of the Charter that there has been a threat or breach of the peace, or act of aggression (see paragraph 1.9 above); (ii) evidence that the Security Council is acting under Chapter VII of the Charter (see paragraph 1.8 above); and (iii) evidence that the Security Council has taken a decision within the meaning of Article 25 of the Charter (see paragraph 1.10 above).103 1.61 In relation to resolutions imposing sanctions, the bindingness of the relevant provisions should be relatively clear, and the resolution will often explicitly state that the Security Council is acting pursuant to Chapter VII (with reference sometimes also made to 96 ibid, para 157. 97 ‘Report of the Panel of Experts established pursuant to resolution 1874 (2009)’, 27 February 2017, UN Doc S/2017/150, 5. 98 J McCurry, ‘North Korea nuclear test site has collapsed and may be out of action – China study’ The Guardian (26 April 2018), available at: www.theguardian.com/world/2018/apr/26/north-korea-nuclear-test-site-collapsemay-be-out-of-action-china. 99 For a far more comprehensive analysis of the subject see M Wood, ‘The Interpretation of Security Council Resolutions, Revisited’ (2017) 20 Max Planck Yearbook of United Nations Law 1. 100 Accordance with International Law of the Unilateral Declaration of Independence in Respect of Kosovo (Advisory Opinion) [2010] ICJ Rep 403, 442, para 94. 101 ibid. 102 ibid. 103 Wood, above (n 99) 14.

28 UN Sanctions Article 41).104 The operative parts of the resolution will usually be expressed as a ‘decision’ of the Security Council in the following terms: The Security Council, … Acting under Chapter VII of the Charter of the United Nations, … Decides that all States shall take the following measures.105

The resolution will then go on to refer to the measures specifically, be they asset freezes, travel bans, arms embargoes or otherwise. Worded like this, the relevant provisions will create binding obligations on Member States to implement the measures in question. 1.62 One notable disagreement over the interpretation of Security Council resolutions imposing sanctions measures occurred in 2011 during the conflict in Libya. The context of the dispute was the French air-dropping of weapons in rebel-held parts of Libya, which Russia argued had been carried out in contravention of the UN arms embargo in force at the time. In particular, Russia argued that the arms embargo set out in paragraph 9 of resolution 1970 (2011) continued to apply notwithstanding paragraph 4 of resolution 1973 (2011), which authorised Member States to take ‘all necessary measures, notwithstanding paragraph 9 of resolution 1970 (2011)’ to protect civilians and civilian populated areas under threat of attack in the Libyan Arab Jamahiriya, whilst excluding a foreign occupation force of any form. On the other hand, France, supported by the US, argued that resolutions 1970 and 1973 when read together neither specified nor precluded providing defence material to the Libyan opposition. The French ambassador to the UN at the time, Gerard Araud, stated that in ‘exceptional circumstances, we cannot implement paragraph 9 when it’s for protecting civilians’.106 1.63 One of the central issues that emerged during the interpretive dispute was therefore whether the weapons in question were used defensively or offensively. In particular, it was argued by some that if the weapons supplied by France were used in an offensive capacity, even if used defensively to begin with, France would have acted in breach of resolution 1970.107 Ultimately, there was no definitive ruling on the issue by any judicial body so the episode merely serves as a reminder of how the interpretation of Security Council resolutions is often controversial, particularly in volatile political situations. It should be borne in mind, as a general point, that very few institutions have jurisdiction to interpret Security Council resolutions,108 and will only do so where they have been properly seised of a matter or dispute.

104 See, eg, SCR 1718 (2006); SCR 2397 (2017). 105 See, eg, SCR 1267 (1999); SCR 1970 (2011); SCR 2048 (2012); SCR 2253 (2015); SCR 2368 (2017). 106 As quoted in L Charbonneau, ‘Arming rebels doesn’t violate UN sanctions: France’ Reuters (30 June 2011), available at: www.reuters.com/article/us-libya-un-france/arming-rebels-doesnt-violate-u-n-sanctions-franceidUSTRE75S7XR20110630. 107 See, eg, ‘Russia criticises France over Libya arms drop’ Al-Jazeera (1 July 2011), available at: www.aljazeera. com/news/africa/2011/06/2011630201328581644.html. 108 The ICJ has indicated that it does have jurisdiction to interpret Security Council resolutions; see Kosovo (Advisory Opinion), above (n 100) para 94.

A Brief History of UN Sanctions 29

A Brief History of UN Sanctions 1.64 Prior to the thawing of the Cold War in 1990, only two UN sanctions regimes had been created.109 The first mandatory sanctions regime was introduced in relation to Rhodesia in 1968 following the Unilateral Declaration of Independence by that country in 1965, as instigated by Ian Smith’s white minority regime.110 Security Council resolution 253 (1968) imposed a comprehensive trade embargo on Rhodesia, prohibiting Member States from importing and exporting products into and out of Rhodesian territory. This was followed by the mandatory sanctions regime established in relation to the apartheid regime in South Africa in 1977.111 In particular, resolution 418 (1977) imposed an arms embargo prohibiting the sale of military material to the South African regime. 1.65 With the improvement of relations between the US and the Soviet Union (which soon became the Russian Federation) in the late 1980s and early 1990s, the UN was thereafter better placed to take decisive action under Chapter VII of the Charter. This new global state of affairs coincided with the Iraqi invasion of Kuwait on 2 August 1990, which the Security Council responded to four days later with resolution 661 (1990).112 That resolution introduced a comprehensive ban on the import of all products and commodities into Iraq, and on the export of all products and commodities originating in Iraq or Kuwait. The sanctions regime remained in place until Saddam Hussein was overthrown in 2003, during which time it drew widespread criticism for the indiscriminate and disproportionate humanitarian impact it had on civilians in Iraq.113 In particular, it was claimed that sanctions had contributed to the greatly accelerating rates of disease and malnutrition in the country.114 1.66 The Iraqi sanctions regime was followed in 1993 by the use of sanctions measures under Chapter VII to counter the military coup in Haiti. Resolution 841 (1993) prohibited the sale or supply of petroleum products and military material to Haiti. Notwithstanding the more limited scope vis-a-vis the Iraqi regime, it was claimed that the sanctions nevertheless contributed significantly to a rise in infant mortality.115

109 For a far more comprehensive historical breakdown of UN sanctions regimes, see V Gowlland-Debbas, ‘Sanctions Regimes under Article 41 of the UN Charter’ in V Gowlland-Debbas (ed), National Implementation of United Nations Sanctions (Martinus Nijhoff Publishers, 2004) 7–18. 110 See SCR 253 (1968). 111 See SCR 418 (1977). 112 The Soviet Union, as it still was, voted in favour of the resolution. 113 See, in particular, TG Weiss, D Cortright, GA Lopez and L Minear, Political Gain and Civilian Pain: Humanitarian Impacts of Economic Sanctions (Rowman & Littlefield Publishers, 1997); and L Minear, D Cortright, J Wagler, GA Lopez and TG Weiss, ‘Toward More Humane and Effective Sanctions Management: Enhancing the Capacity of the United Nations System’ (1998) Thomas J Watson Jr Institute for International Studies, Occasional Paper No 31. 114 See, eg, C von Braunmühland and M Kulessa, ‘The Impact of UN Sanctions on Humanitarian Assistance Activities: Report on a Study Commissioned by the United Nations Department of Humanitarian Affairs’ (Berlin, Gesellschaft für Communication Management Interkultur Training mbH – COMIT, 1995). 115 See Harvard Center for Population and Development Studies, ‘Sanctions in Haiti: Crisis in Humanitarian Action’ (1993).

30 UN Sanctions 1.67 In 1995, the UN Secretary-General Boutros Boutros-Ghali called sanctions a ‘blunt instrument’ in a report presented to the Security Council.116 Going further, he questioned whether inflicting such a high level of suffering on innocent civilians was a legitimate means of bringing pressure to bear on political leaders. He observed that the ‘Security Council’s greatly increased use of this instrument [Article 41] has brought to light a number of difficulties, relating especially to the objectives of sanctions, the monitoring of their application and impact, and their unintended effects’.117 1.68 Two years later, in 1997, an ‘occasional paper’ was published by the Thomas S Watson Jr Institute for International Studies calling for a discussion of ‘smart sanctions’ as a means of deploying restrictive measures more effectively. In particular, the paper argued that ‘a more strategic, targeted, and accountable use of sanctions can increase the prospects of political success while avoiding disproportionate humanitarian consequences’.118 1.69 In 1999, following the bombings of the US embassies in Dar es Salaam, Tanzania, and Nairobi, Kenya, the UN moved to implement an anti-terrorist sanctions regime under Security Council resolution 1267 (1999) (the ‘1267 regime’). The original 1267 regime targeted the funds and economic resources of the Taliban, which was harbouring the man the US viewed as responsible for the bombings: Osama bin Laden.119 The asset freeze was then extended, by resolution 1333 (2000), to funds owned by Osama bin Laden and individuals or entities ‘associated with him’, as designated by the Committee established to manage the regime. The key feature of the 1267 regime is therefore a designation system whereby specific individuals are targeted with narrow measures such as asset freezes and travel bans. To this extent, the introduction of the 1267 regime, which remains in force,120 marked the move away from comprehensive sanctions regimes, and the advent of ‘smart sanctions’ as a major part of UN policy. 1.70 After the expansion of the 1267 regime in the wake of the terrorist attacks of 9 September 2001, however, and the creation of a Consolidated List of targeted individuals by resolution 1390 (2002), concerns began to be raised regarding the designation procedure. In 2004, for example, the UN High-level Panel on Threats, Challenges and Change stated that ‘[t]he way entities or individuals are added to the terrorist list maintained by the Council and the absence of review or appeal for those listed raise serious accountability issues and possibly violate fundamental human rights norms and conventions’.121 The High-level Panel therefore recommended that the 1267 regime incorporate a review 116 ‘Report of the Secretary-General on the Work of the Organization, Supplement to an Agenda for Peace: Position Paper of the Secretary-General on the Occasion of the Fiftieth Anniversary of the United Nations’, 25 January 1995, UN Docs A/50/60 and S/1995/1. 117 ibid. 118 Minear, Cortright, Wagler, Lopez and Weiss, above (n 113) Preface, xi. 119 SCR 1267 (1999) refers to the US indictment of Osama bin Laden for his role in the US embassy bombings. The resolution demands that the Taliban turn over bin Laden, and orders that all funds and economic resources owned by the Taliban be frozen (see para 4(b)). 120 The 1267 regime remains in force as at 1 June 2018. The most recent amendments to the regime were made in December 2015 under SCR 2253 (2015). 121 See the ‘Report of the High-level Panel on Threats, Challenges and Change addressed to the UN SecretaryGeneral’, 1 December 2004, UN Doc A/59/565, para 152.

A Brief History of UN Sanctions 31 mechanism to consider instances where individuals and entities claimed to have been wrongly added to the Sanctions List. 1.71 In response, the UN introduced a ‘Focal Point’ in 2006 to handle de-listing requests. Unfortunately for the UN, this did not prevent a stream of sanctions-related litigation in regional and domestic courts, largely aimed at challenging the legality of the listing and de-listing process at the UN level. In 2008, the ECJ handed down its judgment in the Kadi I case, ruling that the de-listing procedure was ‘still in essence diplomatic and intergovernmental, the persons or entities concerned having no real opportunity of asserting their rights’.122 The UN subsequently created the Office of the Ombudsperson to deal with de-listing requests, albeit only in relation to listings under the 1267 regime. Although its existence goes some way to ensuring the independence and impartiality of the review procedure, the Office of the Ombudsperson remains a non-judicial body with no authority to overrule decisions of the Security Council.123 1.72 The other major UN sanctions regime of the early twenty-first century was created to address the issue of Iran’s uranium enrichment programme, amid fears that this was part of an attempt to develop nuclear weapons. By Security Council resolution 1696 (2006), the UN demanded that Iran bring its uranium enrichment programme to an end, and this was followed five months later by resolution 1737 (2006), which imposed the sanctions regime. By the latter resolution, the UN introduced severe restrictions on the supply of goods and services to Iran and directed Member States to freeze the assets of individuals and entities listed in the Annex to the resolution.124 1.73 The UN sanctions regime in relation to Iran was lifted on 16 January 2016, in line with the provisions for termination set out in resolution 2231 (2015).125 Resolution 2231 (2015) endorsed the Joint Comprehensive Plan of Action (the JCPOA), which was entered into by the P5+1126 on 14 July 2015 following a lengthy negotiation process.127 Under the terms of this landmark agreement, Iran agreed substantially to reduce its stockpiles of enriched uranium, among other commitments, in return for the lifting of UN sanctions and the easing of autonomous EU and US measures. The JCPOA does, however, set out a ‘snapback’ procedure to be implemented should any party to the agreement lodge a complaint with the Security Council regarding non-compliance by Iran.128 Were this procedure to be triggered, all the UN sanctions resolutions relating to Iran would come back into force.

122 Kadi I, above (n 16) para 323. 123 See Joined Cases C-584/10 P, C-593/10 P & C-595/10 P Kadi v Council and Commission [2013] All ER (D) 411 (Kadi II), and Tenth Report of the Ombudsperson. 124 See SCR 1737 (2006) paras 3, 4, 6 and 12. 125 See, in particular, SCR 2231 (2015) para 7(a). 126 The five permanent members of the Security Council (China, France, Russia, the United Kingdom and the United States), plus Germany. 127 The JCPOA itself suggests that it is not a legally binding treaty by referring to the ‘voluntary measures’ to be taken by the parties to the deal. For more detail on the JCPOA’s status in international law see, eg, D Joyner, Iran’s Nuclear Program and International Law (Oxford University Press, 2016). 128 The ‘snapback’ procedure is built into SCR 2231 (2015) paras 11, 12 and 13.

32 UN Sanctions 1.74 Although the US withdrew from the JCPOA on 8 May 2018, the agreement remains in place as between the other parties to the deal. Moreover, there is currently nothing to suggest that the UN will reactivate any part of the former Iran sanctions regime.129 1.75 For ease of reference, both former and current UN sanctions regimes are set out at the end of this chapter.

Key Resources Title of document

Date

Link

UN Sanctions – General information

Updated www.un.org/sc/suborg/en/sanctions/ periodically information

UN Consolidated Sanctions List

Updated www.un.org/sc/suborg/en/sanctions/ periodically un-sc-consolidated-list

United Nations Security Council Sanctions List Search

Updated www.scsanctions.un.org/search/ periodically

Focal Point for De-listing

Updated www.un.org/sc/suborg/en/sanctions/delisting periodically

Narrative Summaries of Reasons for Listing

Updated www.un.org/sc/suborg/en/sanctions/ periodically narrative-summaries

Security Council Special Research Report on UN Sanctions

25.11.13

www.securitycouncilreport.org/atf/ cf/%7B65BFCF9B-6D27-4E9C8CD3-CF6E4FF96FF9%7D/ special_research_report_sanctions_2013.pdf

High-level Review of UN Sanctions: Background Paper

28.05.14

www.hlr-unsanctions.org/main/background

High-level Review of UN Nations Sanctions: Compendium

11.15

www.hlr-unsanctions.org/HLR_ Compendium_2015.pdf

UN Sanctions Regimes* Former Regimes Authorising resolution

Regime

Start date

End date

Situation

Rhodesia/253

SCR 253 (1968) 05.1968 12.1979 Declaration of independence by white minority regime in Rhodesia

South Africa/421

SCR 421 (1977) 12.1977 05.1994 Apartheid regime in South Africa

Iraq/661

SCR 661 (1990) 08.1990 05.2003 Iraqi invasion of Kuwait

129 As

at 1 June 2018.

UN Sanctions Regimes 33 Authorising resolution

Regime

Start date

End date

Situation

Yugoslavia/713 SCR 713 (1991) 09.1991 10.1996 Outbreak of fighting in Republic of Yugoslavia Libyan Arab SCR 748 (1992) 03.1992 09.2003 Bombing of Pan Am Flight 103 over Jamahiriya/748 Lockerbie Liberia/788

SCR 985 (1995) 11.1992 03.2001 Liberian civil war

Haiti/841

SCR 841 (1993) 06.1993 09.1994 Military coup against Aristide government

Angola/864

SCR 864 (1993) 09.1993 12.2002 Deterioration of internal political situation

Rwanda/1011

SCR 1011 (1995)

08.1995 07.2008 Instability in Rwanda after the civil war and genocide

Sierra Leone/1132

SCR 1132 (1997)

10.1997 09.2010 Sierra Leone civil war

Kosovo/1160

SCR 1160(1998)

03.1998 09.2001 Violence by Serbian forces in Kosovo; terrorist acts of Kosovo Liberation Army

Eritrea/ Ethiopia/1298

SCR 1298(2000)

05.2000 05.2001 Hostilities between Eritrea and Ethiopia

Liberia/1343

SCR 1343 (2001)

03.2001 12.2001 Liberian support for rebels in Sierra Leone

Iran/1737

SCR 1737 (2006)

12.2006 01.2016 Iran’s failure to halt its uranium enrichment programme

Côte d’Ivoire/1572

SCR 1572 (2004)

11.2004 06.2016 Internal hostilities

* As at 1 June 2018.

Current Regimes Regime

Implementing resolution

Start date

Situation

Somalia/733

SCR 733 (1992)

01.1992

Escalating violence in Somalia

Al-Qaida, ISIL/1267

SCR 1267 (1999)

10.1999

International terrorism

Iraq/1518

SCR 1483 (2003)

05.2003

Deposed Iraqi regime

Liberia/1521

SCR 1521 (2003)

12.2003

Continuing internal violence

Democratic Republic of Congo/1493

SCR 1493 (2003)

07.2003

Internal hostilities and the exploitation of natural resources

Sudan/1556

SCR 1556 (2004)

07.2004

Atrocities committed by Janjaweed militia

Lebanon/1636

SCR 1636 (2005)

10.2005

Investigations of ICCC into assassination of Rafiq Hariri

DPRK/1718

SCR 1718 (2006)

10.2006

DPRK nuclear programme

Libyan Arab Jamahiriya/1970

SCR 1970 (2011)

02.2011

Conflict in Libya and use of force against civilians

Afghanistan/1988

SCR 1988 (2011)

06.2011

Taliban activities in Afghanistan

34 UN Sanctions Implementing resolution

Start date

Guinea-Bissau/2048

SCR 2048 (2012)

05.2012

Military coup against democratically elected government

Central African Republic/ 127

SCR 2127 (2013)

12.2013

Breakdown of law and order, and intersectarian tensions in CAR

Yemen/ 140

SCR 2140 (2014)

02.2014

Terrorist attacks in Yemen

South Sudan/ 206

SCR 2206 (2015)

03.2015

Conflict between Government of Republic of South Sudan and opposition forces

Regime

Situation

2 EU Sanctions Introduction 2.1 EU sanctions policy falls within the framework of the EU’s overall foreign policy and is therefore part of what is known as the Common Foreign and Security Policy (CFSP). The CFSP serves as the EU’s mechanism for the adoption of common foreign policy positions. It was established as a pillar of EU cooperation in 1993 under the terms of the Maastricht Treaty, and was intended to reflect the changing situation in Europe after the end of the Cold War. It has since been developed and reinforced by subsequent treaties, most notably the Lisbon Treaty, which also established the European External Action Service (EEAS) and the post of High Representative of the Union for Foreign Affairs and Security Policy. According to the EEAS, sanctions are one of the EU’s tools for the promotion of CFSP objectives, namely, peace, democracy and the respect for the rule of law, human rights and international law.1 2.2 The division of competences as between the EU and individual Member States is set out in two key constitutional treaties: (i) the Treaty on European Union (the TEU); and (ii) the Treaty on the Functioning of the European Union (the TFEU). According to the principle of conferral, the EU can only act within the limits of the competences conferred upon it in the TEU and TFEU.2 As noted above, the EU’s competence in relation to foreign policy expanded considerably with the entry into force of the Lisbon Treaty in 2009, and now covers the imposition of most EU-wide sanctions.3 However, it should be noted that not all sanctions measures fall within the EU’s competence, and some, notably travel bans, must be left to EU Member States to implement themselves. 2.3 The EU has its own independent legal order and EU law is interpreted and applied by the two EU courts: (i) the General Court; and (ii) the Court of Justice of the European Union (CJEU). The EU courts are responsible for the interpretation of all EU law, including sanctions law. In this regard, the courts of EU Member States may apply to the CJEU for a preliminary ruling on the interpretation of EU legislative instruments.4

1 EEAS, ‘Sanctions policy’, 3 August 2016, available at eeas.europa.eu/headquarters/headquarters-homepage_ en/423/Sanctions%20policy. 2 TEU, Article 5(2). 3 Article 24(1) TEU states that the EU’s competence in matters of common foreign and security policy covers all areas of foreign policy and all questions relating to the EU’s security, including the progressive framing of a common defence policy that might lead to a common defence. 4 TFEU, Article 267.

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2.4 EU sanctions policy, as with all matters falling within the CFSP, must be decided unanimously by the EU Council before it is implemented.5 EU Council Decisions are binding on EU Member States, although the implementation of sanctions will also usually involve the introduction of EU Regulations. The political and legal processes surrounding the implementation of EU sanctions are discussed in greater detail below. 2.5 Importantly, the EU distinguishes between so-called ‘autonomous’ sanctions measures (ie, those adopted and implemented unilaterally by the EU), and measures that were originally imposed on a wider multilateral basis at the UN level. In relation to the latter, the EU now acts on behalf of Member States to ensure that UN sanctions measures are adopted consistently and harmoniously. However, although the EU now takes responsibility for the harmonisation of sanctions policy across EU Member States, enforcement for breach of sanctions is left to national authorities. In this regard, Member States are required to enact domestic legal frameworks to ensure the effective implementation of restrictive measures. 2.6 Following the result of the Brexit referendum in June 2016, the UK triggered Article 50 of the TEU and plans to withdraw its membership of the EU by the end of March 2019. This will inevitably have an impact on UK sanctions law, and this is dealt with in more detail in the ‘Brexit’ section of chapter three. Notwithstanding the latter, the EU will continue to pursue its own sanctions policy, and this will continue to be implemented domestically by the remaining 27 EU Member States. Moreover, cooperation between the UK and the EU will remain crucial for the effective imposition of sanctions measures. 2.7 This chapter will consider the law governing EU sanctions, the mechanics of the political and legislative processes that lead to sanctions implementation, and, finally, the content and interpretation of the sanctions measures themselves. For ease of reference, there is a table of key resources relating to EU sanctions at the end of the chapter. Particularly useful is the EU Sanctions Map, which went online in September 2017 and sets out each EU sanctions regime in force, including details on specific measures and relevant legislative instruments.6 2.8 Chapter three will examine the UK’s domestic sanctions legislation, and how enforcement is managed by the relevant competent authorities.

The Legal Basis of EU Sanctions Sanctions Under EU Law 2.9 The objectives of the EU’s foreign policy are set out in Article 21(2) TEU and include the preservation of international security and the consolidation of democracy, the rule of

5 TEU, 6 The

Article 24(1). EU Sanctions Map is updated periodically and is available at: www.sanctionsmap.eu/#/main.

The Legal Basis of EU Sanctions 37 law, human rights and the principles of international law. Moreover, Article 3(5) of the TEU states as follows: In its relations with the wider world, the Union shall uphold and promote its values and interests and contribute to the protection of its citizens. It shall contribute to peace, security, the sustainable development of the Earth, solidarity and mutual respect among peoples, free and fair trade, eradication of poverty and the protection of human rights, in particular the rights of the child, as well as to the strict observance and the development of international law, including respect for the principles of the United Nations Charter.

2.10 To this extent, it is clear that the EU’s foreign policy is intended to fit within the broader framework of international cooperation at the UN level. This is reinforced by Article 220(1) TFEU, which states that ‘[t]he Union shall establish all appropriate forms of cooperation with the organs of the United Nations and its specialised agencies’. However, although the EU is committed to upholding the international legal order, it retains a large degree of independence in the way in which it conducts its own foreign policy. In relation to sanctions, although most EU measures are derived from and implemented pursuant to UN Security Council resolutions, the EU is able to impose what it refers to as ‘autonomous measures’, which originate from decisions taken at the EU level and which are not therefore the product of wider international diplomacy.7 In any event, there is no difference in the legal basis of sanctions adopted autonomously and sanctions adopted pursuant to wider international obligations.8 2.11 The other key distinction in the typology of EU sanctions is that between anti-terrorism regimes, which are self-evidently aimed at non-state actors, and so-called ‘bilateral’ regimes, which are aimed at the conduct of states. In particular, this distinction can be relevant in relation to actions for annulment brought against sanctions measures under Article 263 TFEU.9 2.12 EU foreign policy, including sanctions policy, is conducted via the CFSP. The EU has competence over the CFSP on the basis of Article 24(1) TEU and Article 2(4) TFEU. The CFSP is controlled and managed by the High Representative for Foreign Affairs and Security Policy,10 who presides over the Foreign Affairs Council (FAC).11 The FAC is composed of the foreign ministers of all 28 EU Member States and is generally responsible for the EU’s

7 See European Council, ‘Guidelines on implementation and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy’, 15 June 2012, EU Doc 11205/12, (2012 Guidelines) para 3. 8 The lack of any legal distinction between sanctions imposed autonomously by the EU and sanctions imposed by the EU pursuant to UN obligations underpins the decision in Case C-402/05 Kadi and Al Barakaat International Foundation v Council and Commission [2008] ECR I-6351. In summary, the European Court of Justice held that the EU was an independent legal order and that all EU sanctions measures, regardless of origin, were subject to the principle of judicial protection and therefore inherently reviewable by the EU courts. The decision is discussed in greater detail in ch 6. 9 Broadly speaking, the standard of review applied by the EU courts when considering challenges brought in respect of anti-terrorism sanctions and bilateral sanctions can vary. This is dealt with in greater detail in ch 6. 10 TFEU, Article 18(2). 11 ibid, Article 18(3).

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EU Sanctions

external action,12 albeit acting within guidelines set by the European Council.13 The High Representative for Foreign Affairs and Security Policy is assisted by the EEAS.14 2.13 The European Commission maintains a list of the various EU sanctions regimes in force at any given time.15 The regimes are divided according to the state or issue in relation to which the sanctions measures have been imposed.16 The list sets out the legal basis for each regime, including Council Decisions and further legislative instruments. In July 2016, for example, there were 38 different EU sanctions regimes in place. 2.14 The CFSP is governed by Chapter 2 of Title V of the TEU. CFSP Decisions are adopted by the European Council under Article 29 TEU. CFSP Decisions must be made unanimously, unless provided otherwise by one of the treaties,17 and, once made, are binding on EU Member States.18 The implementation of sanctions measures at the EU level will always begin with a CFSP Decision. 2.15 Sanctions measures at the EU level are generally imposed in order to bring about a change in policy or conduct by the country, government, entity or individual targeted by the relevant CFSP Decision.19 However, some commentators consider this a simplistic overview of the policies underpinning restrictive measures, and Francesco Giumelli in particular argues that it is more appropriate to look at sanctions by reference to three distinct categories of foreign policy objective: (i) coercive; (ii) constraining; and (iii) signalling.20 In any event, EU sanctions must always be proportionate to the objective pursued, and must also comply with the EU’s obligation to respect fundamental rights under Article 6(3) TEU.21 2.16 Once the relevant CFSP Decision has been passed, the sanctions measures in question will either be implemented at the EU level by further secondary legislation (usually by EU Regulation), or implemented directly by Member States at the domestic level. The route that sanctions implementation takes at this stage depends on the type of measure that has been adopted by the CFSP and in particular whether that measure falls within the EU’s exclusive legislative competence. For example, measures such as travel bans fall outside the EU’s legislative competence and are therefore implemented directly by Member States. Arms embargoes, on the other hand, do technically fall within the EU’s competence but are treated as if they did not.22 12 ibid, Article 16(1). 13 ibid, Article 16(6). 14 ibid, Article 27(3). 15 See the EU Sanctions Map. 16 eg, EU sanctions regimes include the following (among others): ‘Al Qaeda and ISIL (Da’esh)’, ‘Democratic Republic of Congo’, ‘Haiti’, and ‘Terrorist Groups (Foreign Terrorist Organizations)’. 17 TEU, Article 24(1). 18 ibid, Article 28(2). See also para 7 of the 2012 Guidelines: ‘[Member States] are legally bound to act in conformity with CFSP Council Decisions’. 19 See para 4 of the 2012 Guidelines. 20 F Giumelli, ‘How EU Sanctions Work: A New Narrative’ (2013) Chaillot Paper No 129 (Paris, EU Institute for Security Studies) 18–20. 21 See para 10 of the 2012 Guidelines. 22 In relation to arms embargoes specifically, see Article 346 TFEU, which states that ‘any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are

The Legal Basis of EU Sanctions 39 2.17 On the other hand, measures which affect EU commercial policy (including measures restricting trade relations with third states) and measures which affect the movement of capital and the functioning of the internal market (including asset freezes and other financial sanctions) fall within the EU’s legislative competence. These measures are in almost all cases given effect by way of EU Regulation under Article 215 TFEU (see paragraphs 2.21–2.24 below for more detail on the legislative process). 2.18 Title IV of the TFEU is entitled ‘Restrictive Measures’ and sets out the action to be taken by the EU in relation to the implementation of Council Decisions adopted at the CFSP level. Article 215(1) TFEU states as follows: Where a decision, adopted in accordance with Chapter 2 of Title V of the Treaty on European Union, provides for the interruption or reduction, in part or completely, of economic and financial relations with one or more third countries, the Council, acting by a qualified majority on a joint proposal from the High Representative of the Union for Foreign Affairs and Security Policy and the Commission, shall adopt the necessary measures. It shall inform the European Parliament thereof.

2.19 Regulations implementing sanctions measures are binding and directly applicable throughout the EU, pursuant to the general EU law principle of direct effect.23 Moreover, these EU Regulations take precedence over any conflicting domestic legislation.24 To this extent, individuals and entities with a link to the EU must comply with restrictive measures implemented by EU Regulation. In terms of jurisdiction, restrictive measures imposed by EU Regulation cover the territory of the EU, aircraft or vessels of Member States, nationals of Member States, companies and other entities incorporated or constituted under the law of any Member State or with any business done in whole or in part within the EU.25 However, unlike some US sanctions, EU sanctions measures are not intended to apply extra-territorially.26 2.20 Importantly, both Regulations and CFSP Decisions providing for restrictive measures are judicially reviewable.27 Legal challenges to EU sanctions in the EU courts are dealt with in detail in chapter six.

Mechanics of Sanctions Implementation/Legislative Process 2.21 In relation to autonomous sanctions, proposals for the imposition of measures will be put forward by individual Member States or by the High Representative of the Union for connected with the production of or trade in arms, munitions and war material; such measures shall not adversely affect the conditions of competition in the internal market regarding products which are not intended for specifically military purposes’. 23 TFEU, Article 288. Direct effect is the principle of EU law whereby individuals and entities in EU Member States can rely on certain EU legislative instruments before domestic courts, subject to certain conditions (see Case 26-62 Van Gend en Loos [1963] ECR 1). 24 See Case 6-64 Costa v ENEL [1964] ECR 585. 25 See para 51 of the 2012 Guidelines. 26 ibid, para 52. 27 ibid, para 7.

40

EU Sanctions

Foreign Affairs, usually with the support of the European Commission.28 Once the basic proposal has been formulated, it will be announced in general terms at the FAC. At this stage, the Political and Security Committee (PSC) will become involved in the discussions.29 In addition, the proposal will be scrutinised by the Council working party responsible for the geographical region to which the targeted country belongs. Once delegates have decided by consensus on the package of measures to be imposed, the proposal will be escalated to the Foreign Relations Counsellors Working Group (RELEX).30 2.22 RELEX is an EU working party responsible for examining the overall preparation and implementation of Council Decisions, in particular regarding the institutional, legal, logistical and financial dimension of the CFSP. Moreover, RELEX established a ‘Sanctions formation’ in 2004 to deal specifically with sanctions-related issues, including monitoring restrictive measures and gathering information in order to develop best practices in the area.31 At this stage, representatives from Member States will negotiate the specific and concrete terms of each restrictive measure. Once the terms of the restrictive measures have been agreed, they will be submitted for approval by the Committee of Permanent Representatives II (COREPER II). 2.23 COREPER II is responsible for preparing the work of the Council.32 In particular, it carries out preliminary scrutiny of the dossiers on the Council’s agenda. This is the final stage before approval by the Council, and representatives will attempt to reach agreement at this level before passing proposals to the Council for approval. CFSP Decisions must be adopted unanimously by the Council.33 To be clear, this means that if any Council member (ie, any EU Member State) disagrees with the measures proposed, the Decision will not pass. 2.24 The Council Decision enters into force on the day of its publication in the O fficial Journal of the European Union. The Council will inform the European Parliament of the adoption of the Decision. If the implementation of restrictive measures requires additional legislation in the form of an EU Regulation, as is the case with financial measures such as asset freezes, this will usually be adopted at the same time as the Council Decision. As discussed above, Regulations are adopted pursuant to Article 215 TFEU.

28 TEU, Article 22(2). 29 The PSC is responsible for monitoring the international situation in the areas covered by the CFSP (Article 38 TEU). 30 Note that in relation to financial sanctions, the listing criteria is occasionally agreed at this stage without anyone actually being listed. In this situation, named individuals and/or entities would be added to the list at a later stage in the process. 31 See the Note from the Foreign Relations Counsellors Working Party, ‘Establishment of a “Sanctions” formation of the Foreign Relations Counsellors Working party (RELEX/Sanctions)’, 22 January 2004, EU Doc 5603/04. 32 TFEU, Article 240. COREPER II consists of the ambassadors to the EU sent by each Member State, and deals with items pertaining to the General Affairs, Foreign Affairs, Economic and Financial Affairs and Justice and Home Affairs formations of the Council. 33 TEU, Article 24(1).

The Legal Basis of EU Sanctions 41 Flow chart: Procedure for the approval and implementation of sanctions-related CFSP Decisions 1

PROPOSAL

Proposal put forward by Member State or by High Representative of the Union for Foreign Affairs and Security Policy or EEAS

2

FAC / PSC

Proposal announced at FAC and discussed in detail by PSC. Proposal scrutinised by Council working parties

3

RELEX Terms of Decision (and Regulation*) negotiated by representatives from Member States

4

COREPER II

5

COUNCIL

6

EU REGULATION

Preliminary scrutiny of Decision (and Regulation*) Final approval of Decision (and Regulation*)

Where necessary, EU Regulation implemented by the Council pursuant to Article 215 TFEU

* Note that a Regulation may not be required in addition to the Decision, but where it is, it will be proposed and negotiated in parallel with the Decision.

Amending and Updating EU Sanctions Measures 2.25 EU sanctions law is frequently updated and amended to reflect changing circumstances. The most common amendment is the addition (and/or removal) of names of individuals and entities to (and/or from) the relevant lists of designated persons subject to financial restrictions. For example, Regulation (EU) No 881/2002 directed against Al-Qaida and ISIL had, as of April 2016, been amended in this way a total of 244 times. 2.26 Amendments to existing EU sanctions measures are in most cases made by the Council by way of implementing act under the power granted by Article 291 TFEU.34 Article 291(2) TFEU states as follows: Where uniform conditions for implementing legally binding Union acts are needed, those acts shall confer implementing powers on the Commission, or, in duly justified specific cases and in the cases provided for in Article 24 and 26 TEU, on the Council. 34 Note that pre-Lisbon Treaty, amendments to sanctions regimes fell exclusively within the Commission’s competence.

42

EU Sanctions

2.27 Article 291(2) therefore refers back to the Council’s competence in the CFSP arena as set out in Section 1, Chapter 2 of the TEU. The procedure for the adoption of implementing acts is governed by Regulation (EU) No 182/2011.

Amending Lists of Designated Persons 2.28 There are two ways to amend lists of designated persons. The first is by way of an ‘amending’ Decision and, where necessary, Regulation. There is no substantive difference between these and other EU Decisions/Regulations, and the procedure for passing them into law is the same (see paragraphs 2.21–2.24 above). The second is by way of Council Implementing Decision (pursuant to Article 31(2) TEU), and Council Implementing Regulation (pursuant to Article 291 TFEU). Article 31(2) TEU allows for Implementing Decisions to be passed by a qualified majority of Member States,35 thus obviating the need for unanimous agreement. However, the procedure is otherwise the same as for standard CFSP Decisions (see paragraphs 2.21–2.24 above). Once Implementing Decisions and Regulations have been agreed, the Council will usually pass them simultaneously. 2.29 In the unique case of Regulation 881/2002 (concerning Al-Qaida and ISIL), Commission Implementing Regulations are proposed and passed by the European Commission following a ‘comitology’ procedure.36 Again, the exercise of implementing powers by the Commission is governed by Article 291 TFEU, alongside Regulation 182/2011. In practice, the draft amendment will be submitted by the Commission to a committee composed of representatives of Member States. In the sanctions arena, the relevant committee is chaired by the Service for Foreign Policy Instruments (FPI). The FPI represents the Commission in sanctions-related discussions with Member States at RELEX, and prepares proposals for Regulations on sanctions for adoption by the Council. Once sanctions are adopted, the FPI works to facilitate their implementation and addresses questions of interpretation raised by economic operators. 2.30 Under Article 5(4)(c) of Regulation 182/2011, implementing acts proposed by the Commission must receive the support of a simple majority of committee members.

Substantive Amendments to Restrictive Measures 2.31 More substantial amendments to restrictive measures, including the clarification of listing criteria, are implemented via the full procedure set out at paragraphs 2.21–2.24 above. 35 On 1 November 2014 a new procedure for qualified majority voting in the Council came into force. Under this procedure, when the Council votes on a proposal by the Commission or the High Representative of the Union for Foreign Affairs and Security Policy, a qualified majority is reached if two conditions are met: (i) 55% of Member States vote in favour – in practice this means 16 out of 28; and (ii) the proposal is supported by Member States representing at least 65% of the total EU population. This new procedure is also known as the ‘double majority’ rule. 36 This is jargon for a process whereby the Commission submits the draft instrument to a committee made up of representatives from Member States. In other words, the Commission (as opposed to the Council) is empowered by the overarching legal framework to pass the necessary implementing acts.

The Legal Basis of EU Sanctions 43 Flow chart: Comitology procedure 1

Commission drafts proposed implementing act

2

Commission submits proposed implementing act to FPI for consideration

3

FPI discusses proposed implementing act with RELEX

4

Implementing act is adopted by the Council

Implementation of UN Security Council Resolutions 2.32 The relationship between the EU and the UN has evolved considerably over the last decade, largely due to the development of a more coordinated and far-reaching EU foreign policy. The development of an elaborate EU framework for foreign affairs, as formalised by the Treaty of Lisbon, has unsurprisingly led to greater dialogue with the UN, and a much larger degree of cooperation in relation to international issues.37 The EU’s approach to sanctions in particular has evolved in the last 20 years so that what was once seen as a matter for individual Member States is now a fundamental part of the EU’s foreign policy under Title V of the TEU. 2.33 The EU confirmed its commitment to closer international cooperation with the UN in the terms of the revised treaties agreed in the framework of the Treaty of Lisbon, which came into force on 1 December 2009. Article 3(5) of the TEU states that the EU will contribute to the strict observance and development of international law, including respect for the principles of the UN Charter. In addition, Article 21(1) TEU asserts that the EU’s action on the international scene will be guided, among other things, by ‘respect for the principles of the United Nations Charter and international law’. More specifically, Article 21(1) TEU confirms that the EU will promote multilateral solutions to common problems, in particular in the framework of the UN. 2.34 However, despite these important indicators of the growing willingness of the two organisations to work together in relation to foreign affairs, the EU is not a member of the 37 See, eg, Baroness Ashton’s speech as High Representative to the 6306th meeting of the UN Security Council, 4 May 2010, UN Doc S/PV.6306: ‘The European Union attaches great importance to its partnership with the United Nations. A core objective of EU foreign policy is the development of an effective multilateral system with a strong United Nations at the centre. The United Nations Charter and this Security Council are the primary framework for the rules-based international system that we seek’.

44

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UN. To this extent, the EU is not bound by UN Security Council resolutions, although its Member States are (as UN members). The EU’s obligation to implement Security Council resolutions therefore remains only a derivative obligation based on the direct obligation of Member States under the UN Charter.38 Notwithstanding the latter, it appears that in practice the EU treats itself as bound by UN Security Council resolutions.39 2.35 Although there is no formal mechanism for the implementation of UN Security Council resolutions at the EU level, the EU has committed to ensure full, effective and timely implementation of measures agreed by the UN Security Council.40 As with the EU’s approach to foreign policy generally, this has developed organically so that although Security Council resolutions are often referred to in Council Decisions, there is no formal connection between the two. In fact, it is notable that in some cases Council Decisions imposing sanctions predate Security Council resolutions on the same issue. When this occurs, the original CFSP Decisions are usually amended by subsequent Decisions referring explicitly to the intervening Security Council resolution in question.41 This shows that despite the commitment to cooperation and harmonisation, the EU and the UN have independent approaches to foreign policy, including in relation to the adoption of restrictive measures, and the two organisations are not always perfectly in sync with one another. 2.36 In terms of the practicalities for the implementation of UN sanctions, the procedure for the adoption of CFSP Decisions and Regulations will be the same as for the implementation of autonomous measures (see paragraphs 2.21–2.24 above). In particular, the legislative process will be triggered by a joint proposal from the High Representative and the Commission.42 The EU is committed to the swift adoption of implementing measures, and aims to have the necessary legislation in place within 30 days, at the latest, of the adoption of the relevant UN Security Council resolution.43 According to an EU Commission paper published in February 2016, the implementation of UN anti-terrorism listings currently takes around five working days, although the EU is committed to improving the efficiency of the process.44

38 See D Bethlehem, ‘The European Union’ in V Gowlland-Debbas (ed), National implementation of United Nations Sanctions (Martinus Nijhoff Publishers, 2004) 127. 39 See, eg, Declaration (No 14) of the Declarations annexed to the final Act of the Intergovernmental Conference which adopted the Treaty of Lisbon, signed on 13 December 2007, Declaration concerning the Common Foreign and Security Policy: ‘It [the Conference] stresses that the European Union and its Member States will remain bound by the provisions of the Charter of the United Nations and, in particular, by the primary responsibility of the Security Council and of its Members for the maintenance of international peace and security’. See also the 2012 Guidelines, para 44: ‘In view of the binding nature of UN Security Council Resolutions, the effective implementation of UN measures requires immediate legislative action’. 40 Basic Principles, para 2. 41 See, eg, Council Decision 2012/237/CFSP in relation to Guinea-Bissau, which was adopted on 2 May 2012. That Decision was subsequently repealed by Council Decision 2012/285/CFSP on 31 May 2012, in order to take into account UN Security Council resolution 2048 (2012), which was introduced on 18 May 2012. 42 2012 Guidelines, para 40. 43 ibid, para 38. 44 EU Commission, ‘Communication from the Commission to the European Parliament and the Council on an Action Plan for strengthening the fight against terrorist financing’ COM/2016/050 final, 7–8.

Content and Interpretation 45

Content and Interpretation 2.37 As discussed above, restrictive measures are implemented at the EU level by way of CFSP Decision and, where necessary, EU Regulation. The following section of this chapter will consider the different types of EU sanctions measures and the approach of the CJEU where questions of interpretation arise. For a full breakdown of EU sanctions legislation in force, see the list provided and updated by the European Commission (FPI) in conjunction with the EEAS.45 2.38 Although restrictive measures must be proportionate to the intended aim,46 the EU is not limited in relation to the type and scope of the measures it may impose. To this extent, restrictive measures have included, among other things, the freezing of funds, travel bans, arms embargoes, import and export restrictions, as well as bans on the provision of technical or financial assistance in relation to military technology and other items. Moreover, the EU has also targeted the provision of financial services and the dealing in certain transferable securities.47 2.39 The measures themselves will be set out in full in the relevant CFSP Decision. These Decisions now tend to be divided according to (i) the type of measure imposed, and (ii) the sector targeted by the measures. For example, Decision 2013/255/CFSP (concerning restrictive measures against Syria) is divided into nine ‘Chapters’, including Chapters relating to ‘Export and Import Restrictions’, ‘Restrictions on Financial Support for Trade’, ‘Financial Sector’, ‘Transport Sector’, ‘Restrictions on Admissions’ and ‘Freezing of Funds and Economic Resources’. 2.40 As discussed, EU Regulations are directly applicable throughout the EU and are therefore binding on individuals and companies with a link to the EU (see paragraph 2.19 above). However, the enforcement of sanctions is left to the competent authorities of each Member State. In this regard, Member States are required to adopt further domestic legislation providing for penalties for breach of restrictive measures.48 The standard provision regarding the criminal enforcement of EU sanctions measures reads as follows: Member States shall lay down the rules on penalties applicable to infringements of the provisions of this Regulation and shall take all measures necessary to ensure that they are implemented. The penalties provided for must be effective, proportionate and dissuasive.49

2.41 The rest of this section will consider (i) several of the most common provisions included in EU instruments setting out restrictive measures, and (ii) the general approach taken by EU and domestic courts to the interpretation of those EU instruments. 45 The list is available at: eeas.europa.eu/cfsp/sanctions/docs/measures_en.pdf. 46 See 2012 Guidelines, para 9. 47 See, eg, Article 5 of Regulation 833/2014 (Russia). 48 See European Council (RELEX), ‘Restrictive measures (Sanctions) – Update of the EU Best Practices for the effective implementation of restrictive measures, 24 June 2015’, EU Doc 10254/15 (2015 Best Practices) para 25. 49 See, eg, Article 22(1) of Regulation (EU) No 2016/44 (Libya); Article 8(1) of Regulation (EU) No 833/2014 (Russia); Article 8(1) of Regulation (EU) No 401/2013 (Burma); or Article 17(1) of Regulation (EU) No 747/2014 (Sudan).

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EU Sanctions

Common Provisions in EU Instruments Setting Out Restrictive Measures 2.42 The following section considers a number of the most common provisions included in EU Council Decisions and EU Regulations setting out restrictive measures.

Financial Sanctions 2.43 These measures, known generically as ‘financial sanctions’ or ‘financial restrictive measures’, target the financial means of certain pre-identified individuals and/or corporate entities. They are the restrictive measure of choice for the EU, in line with the broader UN policy shift towards narrow, individualised sanctions measures in preference to comprehensive economic embargoes.50 Financial sanctions are economic measures falling within the scope of Article 215(1) TFEU, which means that the EU Council has competence to adopt implementing legislation in the form of EU Regulations. For this reason, financial restrictive measures adopted by Council Decision will be followed by EU Regulations making them directly applicable and effective in all EU Member States (see paragraph 2.19 above).51 2.44 EU financial sanctions, as with all financial sanctions, operate by reference to a list of designated individuals or entities. This list is usually incorporated into the relevant CFSP Decision or EU Regulation by way of an Annex. For example, Article 34(3) of Regulation (EU) No 2017/1509 (North Korea) refers to ‘the natural or legal persons, entities or bodies listed in Annexes XIII, XV, XVI and XVII’. These Annexes are frequently updated in order to add and remove names (see paragraphs 2.25–2.27 above). 2.45 The EU financial restrictions that apply in relation to designated individuals are twofold: (i) All funds or economic resources belonging to, owned, held or controlled by those persons are to be frozen. (ii) No funds or economic resources are to be made available, directly or indirectly, to or for the benefit of those persons. 2.46 The dual approach set out above is adopted using standardised wording, so these financial restrictions appear in almost identical form across the relevant EU instruments.52 The terms ‘funds’, ‘freezing of funds’ and ‘economic resources’ are defined in the interpretation section of each legislative act.53 Broadly speaking, the measures are intended to prevent access to financial means of any kind by designated persons. However, this form of administrative freezing is to be distinguished from judicial freezing, seizure and confiscation, which can only be imposed via national enforcement measures.54 50 See the discussion of this general policy shift in ch 1, paras 1.64–1.68. 51 See European Council, ‘Factsheet on restrictive measures’, published on 29 October 2014 (2014 Factsheet). 52 See 2012 Guidelines, which set out the standard wording for financial restrictions at para 82. See also, eg, Article 28 of CFSP Decision 2013/255/CFSP (Syria); Article 27 of CFSP Decision 2016/849/CFSP (North Korea); and Article 5 of CFSP Decision 2011/101/CFSP (Zimbabwe). 53 In almost all cases these definitions are set out at Article 1 of the relevant legislative instrument. 54 See 2015 Best Practices, para 28.

Content and Interpretation 47 2.47 In line with the broad approach taken by the EU courts to the interpretation of sanctions measures, the CJEU held in the case of E & F that the notion of ‘funds, other financial assets and economic resources’ was wide enough to cover assets of every kind, however acquired.55 In that case, which involved a preliminary reference from the Oberlandesgericht Düsseldorf in relation to ongoing criminal proceedings in Germany, the CJEU was asked to rule on the relevance of the fact that the providers of the assets in question were also members of the proscribed organisation. The CJEU held that the meaning of the expression ‘make available’ was independent of the existence of any prior relationship between the provider of the assets and the ultimate beneficiary.56 2.48 The meaning of the term ‘make available’ was also considered by the CJEU in the case of Afrasiabi.57 In that case, the CJEU noted that the prohibition was framed in particularly broad terms.58 To this extent, it was held to cover all acts necessary under the applicable national law for a designated person effectively to obtain full power of disposal in relation to the asset concerned.59 Moreover, the CJEU stated that the provision covers situations where assets are transferred to third parties acting on behalf or under the control of a designated person.60 This was treated as indirectly making available an economic resource for the benefit of a designated person. 2.49 However, the Council has since made it clear that the making available of funds or economic resources to non-listed persons owned or controlled61 by listed persons will not be considered indirectly making those funds available to listed persons where it can be reasonably determined, on a case-by-case basis, that the funds will not be used by or be for the benefit of those listed persons.62 In particular, funds will not be considered to have been made available for the benefit of a listed person merely because they have been used by a non-listed person or entity to generate profits which might be in part distributed to a listed shareholder.63 2.50 Importantly, once in force, EU Regulations imposing financial restrictive measures override all incompatible contractual arrangements.64 To this extent, the CJEU has confirmed that Regulations shall apply notwithstanding any rights conferred or obligations incurred under any contract entered into before they came into force.65 Moreover, the Regulations shall preclude the completion of acts which implement prohibited contracts concluded before the Regulations entered into force. For example, even where the completion of a 55 Case C-550/09 E & F [2010] ECR I-6213, [69]. 56 ibid, [68]. 57 Case C-72/11 Afrasiabi [2011] ECR I-14285. 58 ibid, [39]. 59 ibid, [40]. 60 ibid, [57]. 61 For guidance on the EU’s definition of ‘ownership’ and ‘control’ in this context see European Council, ‘Guidelines on implementation and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy’, 30 April 2013, EU Doc 9068/13 (2013 Guidelines) paras 2 and 3. 62 ibid, para 4. 63 ibid. 64 See 2015 Best Practices, para 33. 65 See Case C-117/06 Mӧllendorf and Mӧllendorf-Niehuus [2007] ECR I-8361, [62].

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property acquisition is conditional only on registration, the transaction will still be prohibited by the entry into force of restrictive measures.66

Arms Embargoes 2.51 Arms embargoes prohibit the supply of weapons and other related military materiel to certain countries. Although trade in manufactured goods falls within the competence of the EU, Article 346 TFEU states that, notwithstanding the provisions of the EU treaties, any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production or trade in arms, munitions or war materials. On that basis, the implementation of arms embargoes is left entirely to Member States.67 As a result, EU provisions setting out arms embargoes are only contained in the relevant CFSP Decisions (ie, EU arms embargoes are not implemented via EU Regulations). 2.52 Provisions dealing with arms embargoes are usually worded as follows: The sale, supply, transfer or export of arms and related materiel of all types, including weapons and ammunition, military vehicles and equipment, paramilitary equipment and spare parts for the aforementioned to [eg Syria] by nationals of Member States or from the territories of Member States, or using their flag vessels or aircraft, shall be prohibited whether originating or not in their territories.68

2.53 The specific provisions set out in each CFSP Decision fit within an overarching standardised approach to the implementation of arms embargoes across EU Member States.69 The criteria for Member States to apply generally in relation to their export control policy for arms is set out in Common Position 2008/944/CFSP. For example, Article 2(1) of that Common Position states that the first criterion to be applied by Member States in relation to domestic export control policy is respect for international obligations and commitments, in particular sanctions adopted by the UN Security Council or the EU. 2.54 Arms embargoes should, in the absence of any indication to the contrary, be interpreted as covering at least all goods and technology on the EU Common List of Military Equipment.70 This list was originally agreed and adopted by the Council in 2000 and is updated periodically. Article 12 of Common Position 2008/944/CFSP provides that Member States shall ensure that their national legislation enables them to control the export of the technology and equipment on the EU Common Military List. 2.55 It should be noted that the EU Common Military List does not cover so-called ‘dual-use items’, which can be used for both civilian and military purposes. Dual-use items are controlled in accordance with Regulation (EU) No 428/2009. This Regulation sets out 66 ibid. 67 EU Commission, ‘Sanctions or restrictive measures’ (2008) 8, available at: eeas.europa.eu/archives/docs/cfsp/ sanctions/docs/index_en.pdf. 68 See 2012 Guidelines, para 65. 69 ibid, para 63. 70 ibid.

Content and Interpretation 49 the factors to be taken into account by competent authorities in Member States when deciding whether or not to grant an export authorisation in relation to dual-use items. 2.56 Prohibitions on the supply of military equipment are usually accompanied by prohibitions on the provision of technical and financial assistance related to such e quipment.

Travel Bans 2.57 Third-country nationals listed in CFSP Decisions as subject to a travel ban will not be granted a visa to enter the EU and will be denied entry if they present themselves at an external border. Travel bans do not fall within the competence of the EU and cannot be implemented via directly applicable EU Regulations; they are therefore only set out in the relevant CFSP Decisions. 2.58 Provisions dealing with travel bans are usually worded as follows: ‘Member States shall take the necessary measures to prevent the entry into, or transit through, their territories of the persons listed in the Annex, [indication of criteria/categories, if not already specified in the text’].71

Derogations and Exemptions 2.59 EU legal acts setting out restrictive measures will in most cases also contain provisions regarding derogations and exemptions which may be applicable in certain situations. However, it is generally for the competent authorities of Member States to consider the grant of authorisations on a case-by-case basis.72 In this regard, the CJEU has made it clear that general authorisations regarding, for example, certain types of transaction, are unlikely to be sufficient to avoid liability for breach of sanctions generally.73 Persons wishing to rely on derogations and exemptions must therefore apply to the relevant competent authority for a licence authorising any activity that would otherwise be in breach of EU sanctions measures. Chapter three deals with licence applications in the UK. 2.60 Common derogations from export restrictions include provisions allowing for: (i) goods and equipment intended solely for humanitarian or protective use; (ii) technical assistance in relation to non-lethal equipment intended solely for security or disarmament; (iii) material intended for EU and UN crisis management operations; and (iv) de-mining equipment and material for use in de-mining operations. 2.61 Derogations from financial restrictions usually include allowances for: (i) the basic needs of designated persons, including payments for foodstuffs, rent or mortgage, medicines and medical treatment; (ii) the payment of reasonable professional fees (including legal fees) or reimbursement of incurred expenses associated with the provision of legal 71 ibid, para 80. 72 The Office for Financial Sanctions Implementation (OFSI) is the competent authority responsible for considering licence applications in the UK (see ch 3). 73 See Case C-585/13P Europäisch-Iranische Handelsbank AG [2015] 1 WLR 3995, [96].

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services; and (iii) funds intended exclusively for payment of fees or service charges for routine holding or maintenance of frozen funds or economic resources.

Non-liability Clauses 2.62 ‘Non-liability’ clauses are incorporated into most EU Regulations governing restrictive measures and apply in relation to the freezing of funds and other actions undertaken by individuals or entities in accordance with EU sanctions law. In particular, any such action will not give rise to liability on the part of persons complying with the sanctions, provided that those persons act in good faith and without negligence.74 Separately, the 2015 Best Practices confirm that actions of persons and entities may not give rise to liability if the persons or entities did not know or did not have reasonable cause to suspect that such actions would infringe restrictive measures.75 2.63 Non-liability clauses are usually worded as follows: The freezing of funds and economic resources or the refusal to make funds or economic resources available, carried out in good faith on the basis that such action is in accordance with this Regulation, shall not give rise to liability of any kind on the part of the natural or legal person or entity or body implementing it, or its directors or employees, unless it is proved that the funds and economic resources were frozen or withheld as a result of negligence.76

No Claims Clauses 2.64 ‘No claims’ clauses provide that any person or entity complying with the obligations under the Regulations shall not be held liable vis-a-vis a designated person or entity for any damage that may be suffered by the latter as a result of such compliance.77 The onus of proving that satisfying such a claim for damages is not prohibited is on the person seeking the enforcement of that claim. 2.65 No claims clauses are usually worded as follows: No claims in connection with any contract or transaction the performance of which has been affected, directly or indirectly, in whole or in part, by the measures imposed under this Regulation, including claims for indemnity or any other claim of that type, such as a claim for compensation or a claim under a guarantee, in particular a claim for extension or payment of a bond, guarantee or indemnity, particularly a financial guarantee or financial indemnity, of whatever form, shall be satisfied, if they are made by: [designated persons, entities or bodies listed in Annex X etc]. In any proceedings for the enforcement of a claim, the onus of proving that satisfying the claim is not prohibited by paragraph 1 shall be on the person seeking the enforcement of that claim. This Article is without prejudice to the right of the persons, entities and bodies referred to in [paragraph 1] to judicial review of the legality of the non-performance of contractual obligations in accordance with this Regulation.78

74 See

2015 Best Practices, para 37. Non-liability clauses are considered further in ch 10, paras 10.15–10.17.

75 ibid. 76 See

2012 Guidelines, para 87. No claims clauses are considered further in ch 10, paras 10.18–10.20. 2015 Best Practices, para 38. 78 See 2012 Guidelines, para 87. 77 See

Content and Interpretation 51

Circumvention 2.66 In addition, instruments imposing financial sanctions usually include an anticircumvention provision along the following lines: ‘The participation, knowingly and intentionally, in activities the object or effect of which is, directly or indirectly, to circumvent the measures set out above are prohibited’. 2.67 The limited jurisprudence on the question of circumvention indicates that the term is intended to capture a broad range of activity designed to avoid sanctions. This will include, for example, where a company structures a transaction via a subsidiary incorporated outside the EU and, therefore, not technically subject to EU sanctions.79 In this regard, the issue of ownership and control of subsidiaries is of crucial relevance, and the Council has issued specific guidance in order to address this.80 2.68 In Afrasiabi, the CJEU noted that the concept of circumvention refers to activities which have the aim or result of enabling their author to avoid the application of the substantive prohibitions.81 Furthermore, the Court stated that circumvention should be understood as covering activities in respect of which it appears, objectively, that despite a formal appearance enabling them to avoid substantive prohibitions, they nevertheless have the result of frustrating those prohibitions.82 2.69 The issue of circumvention was subsequently considered by the UK Court of Appeal in R v R.83 That case concerned the issue of whether or not a court order granted in related family proceedings amounted to a breach of anti-circumvention provisions, given that the party being ordered to pay was a designated person. Although the Court refrained from expressing a final view on the meaning of the word ‘circumvent’, Lady Justice Arden did hold that it was unrealistic to construe the anti-circumvention provision contained in Article 9 of Regulation (EU) No 269/2014 without regard to the scope of the Regulation as a whole.84 Moreover, she noted that the Regulation clearly distinguished between making a court order and enforcing a court order. As a result, and having regard to the EU fundamental right to effective judicial protection, the Court held that there had been no circumvention in the circumstances.

Interpretation of EU Instruments Setting Out Restrictive Measures 2.70 There are numerous documents that assist with the interpretation of EU sanctions instruments, including the 2015 Best Practices, the 2013 Guidelines, and the Commission Guidance note on the implementation of certain provisions of Regulation (EU) No 833/2014.85 Moreover, issues of interpretation may be raised by individuals or

79 ibid,

para 54. 2013 Guidelines. 81 Case C-72/11 Afrasiabi, above (n 57) [60]. 82 ibid, [62]. 83 R v R [2015] EWCA Civ 796, [2016] 2 WLR 127. 84 ibid, [22]. 85 See table of key resources at the end of the chapter. 80 See

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c ompanies on an ad hoc basis with the FPI.86 However, binding interpretations of sanctions instruments can only be made by the EU courts. 2.71 The EU courts have to date adopted a broad approach to the interpretation of sanctions legislation.87 It should be noted that this approach has given rise to considerable uncertainty. Moreover, the lack of much comprehensive and binding guidance in relation to the interpretation of restrictive measures has led to concern that uncertainty in this area may occasion costly litigation.88 The problem has undoubtedly been exacerbated by the introduction of complex restrictive measures prohibiting individuals from, among other things, dealing in transferable securities issued by designated companies.89 In this regard, the UK Administrative Court noted as follows in the case of R (OJSC Rosneft Oil Company) v HM Treasury and Others,90 in which it ultimately referred a question of sanctions interpretation to the CJEU: In the view of this Court, this illustration underscores the importance of a common interpretation being applied to key terms found in the relevant sanctions legislation. It is in our view a characteristic of these measures that terms are broadly defined and there may therefore be scope for multiple interpretations. Whilst the specific example given above focused upon the expression ‘financing or financial assistance’, in our view the ambiguities do not rest there but extend to a number of other important expressions found elsewhere within the legislation.91

Jurisdiction of the EU Courts to Review and Interpret Restrictive Measures 2.72 Whilst the interpretation of EU restrictive measures remains fraught with uncertainty, the EU courts have recently attempted to address this lack of clarity. In particular, in responding to the UK Administrative Court’s abovementioned request for a preliminary ruling in the Rosneft case, the CJEU focused first on the scope of the EU courts’ jurisdiction to review and interpret EU acts in the sphere of the CFSP.92 That jurisdiction had been shrouded in doubt as a result of the wording of Articles 24(1) TEU and 275 TFEU, which read as follows: [Article 24(1) TEU] The Court of Justice of the European Union shall not have jurisdiction with respect to these provisions [under Section 2 of the TEU ie relating to the CFSP], with the exception of its jurisdiction to monitor compliance with Article 40 of this Treaty and to review the legality of certain decisions as provided for by the second paragraph of Article 275 [TFEU].

86 See form on the FPI website, available at: ec.europa.eu/dgs/fpi/about/contact_us_en.htm. 87 See, eg, Case C-117/06 Mӧllendorf and Mӧllendorf-Niehuus, above (n 65) [50]. 88 See, eg, Financial Markets Law Committee, ‘Issues of Legal Uncertainty Arising in the Context of EU Contract Sanctions’ (August 2015) 2. 89 See Article 5 of Regulation (EU) No 833/2014 (Russia). 90 R (OJSC Rosneft Oil Company) v HM Treasury and Others [2015] EWHC 248 (Admin). 91 ibid, [33]. 92 Case C-72/15 Rosneft Oil Company OJSC v HM Treasury and Others [2018] QB 1, [2017] 3 WLR 1031, [58]–[81]. Advocate General Wathelet’s Opinion of 31 May 2016 was subsequently upheld by the CJEU in its judgment of 28 March 2017.

Content and Interpretation 53 [Article 275 TFEU] The Court of Justice of the European Union shall not have jurisdiction with respect to the provisions relating to the [CFSP] nor with respect to acts adopted on the basis of those provisions. However, the Court shall have jurisdiction to monitor compliance with Article 40 of the [EU] Treaty and to rule on proceedings, brought in accordance with the conditions laid down in the fourth paragraph of Article 263 of this Treaty, reviewing the legality of decisions providing for restrictive measures against natural or legal persons adopted by the Council on the basis of 2 of Title V of the [EU] Treaty.

2.73 The CJEU recognised that these carve-out provisions ran counter to the general principle that EU acts must be subject to review by EU courts, as enshrined in Article 19(1) TEU.93 To this extent, it held that the carve-out provisions should be narrowly construed so as to allow it to rule on the validity of an act adopted on the basis of provisions relating to the CFSP, provided that the request for a preliminary ruling relates either to the monitoring of that decision’s compliance with Article 40 TEU, or to reviewing the legality of restrictive measures against natural or legal persons.94 EU Regulations passed under Article 215 TFEU (ie, relating to restrictive measures) are therefore excluded from the scope of the carve-out provisions set out above. 2.74 The decision upheld the Opinion of Advocate General Wathelet, who had noted that the carve-out provisions were not applicable in respect of challenges ‘reviewing the legality of decisions providing for restrictive measures against natural or legal persons adopted by the Council on the basis of Chapter 2 of Title V of the [EU] Treaty’.95 In this regard, he endorsed the view that where restrictive measures are concerned, ‘it is the individual nature of those measures which … permits access to the Courts of the European Union’.96 In fact, it was for this reason that the action for annulment was dismissed by the General Court in the case of Manufacturing Support & Procurement Kala Naft v Council.97 In that case, the General Court held that it did not have jurisdiction to review the relevant provisions under Council Decision 2010/413/CFSP because those provisions did not specifically refer to the applicant, but were rather of general application. 2.75 To summarise, the jurisdictional carve-out provisions contained in Articles 24(1) TEU and 275 TFEU apply to measures of general application passed under Articles 23–46 TEU. They do not apply to EU Regulations passed under Article 215 TFEU. In the sanctions context, this jurisdictional immunity is therefore most likely to apply to CFSP Decisions containing provisions that are not addressed to specific individuals and are intended to apply generally.98 This is the case, for example, in relation to general prohibitions covering the sale or supply of certain products to certain regimes.99 93 ibid, [74]–[75]. 94 ibid, [81]. 95 See TFEU, Article 275. 96 See Case C-72/15 Rosneft Oil Company OJSC v HM Treasury and Others, Opinion of AG Wathelet, above (n 92) [83], citing Cases C-478/11 P to C-482 P Gbagbo and Others v Council [2013] All ER (D) 90, [57]. 97 Case T-509/10 Manufacturing Support & Procurement Kala Naft v Council (General Court, 25 April 2012). 98 See ch 6 for further discussion of how the distinction between individual and general measures has been drawn in practice. 99 See, eg, Article 4 of Council Decision 2010/413/CFSP; Articles 4 and 4a of Council Decision 2014/512/CFSP.

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General Principles of Interpretation 2.76 The approach taken by the CJEU to the interpretation of EU acts generally is equally applicable in the area of sanctions law. To this extent, the CJEU adopts its usual ‘teleological’ approach to the interpretation of sanctions instruments.100 In particular, the CJEU will seek to ensure the achievement of the purpose of the act in question, including by reference to the context of the provision101 as well as the overall spirit and scheme of the treaties. The interpretation which allows the overarching objective of the instrument to be fulfilled most effectively is to be preferred.102 2.77 In relation to sanctions law more specifically, the purposive approach to interpretation has meant that the CJEU has been mindful, among other things, of the preventive nature of most sanctions measures. In the case of Afrasiabi,103 involving a request for a preliminary ruling under Article 267 TFEU, the CJEU was asked to rule on whether the prohibition on making certain assets available to the Iranian regime under Article 7(3) of Regulation (EU) No 423/2007 required that the assets in question be ready for immediate use after transfer. The CJEU held, by reference in particular to the preventive object of the sanctions measures, that the concept of ‘economic resources’ did not require that the assets be available for immediate use.104 Moreover, the CJEU found that where an EU act refers to a UN Security Council resolution, the wording and object of that resolution must be taken into account in interpreting the EU act.105 Similarly, the CJEU has held that in interpreting sanctions Regulations it is important to take into account the wording and purpose of the underlying Common Position or Council Decision which the Regulation in question is intended to implement.106 2.78 Separately, domestic courts have developed a number of interpretative principles in line with the approach taken by the EU courts set out above. In the case of R v R,107 for example, which dealt with the interpretation of provisions in EU Regulations relating to the circumvention of restrictive measures, the UK Court of Appeal stated that it had reached its decision by reference to two guiding principles: (i) EU Regulations must be construed as a consistent whole, and in a way that enables all the Articles or Regulations in question to have effect. (ii) EU Regulations should be construed consistently with the EU fundamental right to effective judicial protection.

100 See the Opinion of Advocate General Mancini in Case 294/83 Parti Ecologiste ‘Les Verts’ v European Parliament [1986] 1339, 1350: ‘[T]he obligation to observe the law takes precedence over the strict terms of the written law’. 101 Case C-134/08 Hauptzollamt Bremen v JE Tyson Parketthandel GmbH hanse j [2009] ECR I-2875, [20]. 102 Case C-117/06, Mӧllendorf and Mӧllendorf-Niehuus, above (n 65) [63]. 103 Case C-72/11 Afrasiabi, above (n 57). 104 ibid, [45]. 105 ibid, [43]. 106 Case C-550/09 E & F, above (n 55) [70]. 107 R v R, above (n 83).

Key Resources 55

Key Resources Title of document

Reference title

Date

Link

List of EU restrictive measures (sanctions) in force

N/A

N/A

eeas.europa.eu/cfsp/sanctions/ docs/measures_en.pdf

Basic Principles on the Use of Restrictive Measures (Sanctions), EU Doc 10198/1/04

Basic Principles

07.06.04

register.consilium.europa.eu/ doc/srv?l=EN&f=ST%2010198 %202004%20REV%201

Recommendations for working 2011 21.12.11 methods for EU autonomous Recommendations sanctions, EU Doc 18920/11

europeansanctions.files. wordpress.com/2013/03/ eu-recommendations-forworking-methods-2011.pdf

Guidelines on implementation 2012 Guidelines and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy, EU Doc 11205/12

15.06.12

europeansanctions.files. wordpress.com/2013/03/ eu-guidelines-onsanctions-2012.pdf

Guidelines on implementation 2013 Guidelines and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy, EU Doc 9068/13

30.04.13

register.consilium.europa.eu/ doc/srv?l=EN&f=ST%209068 %202013%20INIT

Factsheet on EU restrictive measures

2014 Factsheet

29.04.14

www.consilium.europa. eu/uedocs/cms_data/docs/ pressdata/EN/foraff/135804. pdf

Update of the EU Best Practices for the effective implementation of restrictive measures, EU Doc 10254/15

2015 Best Practices

24.06.15

data.consilium.europa. eu/doc/document/ ST-10254-2015-INIT/en/pdf

Commission Guidance note on 2014 Guidance the implementation of certain Note provisions of Regulation (EU) No 833/2014

25.09.15

europa.eu/newsroom/ sites//newsroom/files/docs/ body/1_act_part1_v2_en.pdf

EU Sanctions Map

20.09.17 (created)

www.sanctionsmap.eu/#/main

EU Sanctions Map

3 UK Sanctions Introduction 3.1 The UK’s overall sanctions policy is managed by the Foreign and Commonwealth Office (FCO), which is the ministerial department that promotes the UK’s interests overseas. According to a UK government paper, ‘sanctions and embargoes are political trade restrictions put in place against target countries with the aim of maintaining or restoring international peace and security’.1 Although this might give the impression that UK sanctions policy focuses exclusively on state behaviour, the paper goes on to clarify that the main purpose of sanctions is ‘usually to change the behaviour of the target country’s regimes, individuals or groups in a direction which will improve the situation in that country’.2 In other words, although sanctions regimes tend to be organised geographically by state or region, the measures themselves will often target non-state actors, as well as state actors. This is particularly the case in the field of anti-terrorism. 3.2 In practice, most sanctions currently in force in the UK are decided at the UN or EU level.3 At the time of writing,4 UN sanctions policy is generally implemented in the UK via EU legislation (see chapter two), with the result that almost all the sanctions measures in force in the UK are governed by EU law. This is set to change dramatically in March 2019, when the UK exits the EU. In this regard, the UK has already enacted a new piece of primary legislation, the Sanctions and Anti-Money Laundering Act 2018 (SAMLA 2018), which received royal assent on 23 May 2018 and will most likely come into force once the UK leaves the EU.5 3.3 Although the UK’s sanctions framework will necessarily be overhauled following Brexit, there is no indication that the UK will change its overall sanctions policy. In fact, the UK Government has been at pains to stress that the changes to the UK sanctions framework will be formalistic, not substantive.6 It may in fact be the case that the UK chooses to mirror

1 See UK Government, ‘Sanctions, embargoes and restrictions’, first published on 3 August 2012 (updated periodically), available at: www.gov.uk/guidance/sanctions-embargoes-and-restrictions. 2 ibid. 3 See the Impact Assessment for the Sanctions and Anti-Money Laundering Bill (as it was before it became the Sanctions and Anti-Money Laundering Act 2018) 1 (18 October 2017). 4 1 June 2018. 5 s 64(2) of SAMLA 2018 provides that the main provisions of the Act will ‘come into force on such day as the Secretary of State may by regulations appoint’. 6 See the Impact Assessment for the Sanctions and Anti-Money Laundering Bill, above (n 3). See, in particular, the section headed ‘What are the policy objectives and the intended effects?’: ‘This legislation is not about creating

Brexit 57 EU law in this area, resulting in little (if any) change to the imposition and enforcement of sanctions in the UK. It seems more likely, however, given the UK’s position as the EU’s foremost sanctions advocate, that the UK will become more active unilaterally. Indeed, the UK has significantly reinforced and diversified its unilateral sanctions-making powers via the enactment of SAMLA 2018. The Act also contains a new mechanism for implementing UN measures, given that these are currently implemented via the EU.7 These issues are discussed at greater length in the ‘Brexit’ section below. 3.4 The enforcement of sanctions will in any case remain a matter for national authorities. In terms of domestic responsibility for sanctions, a number of different bodies deal with implementation and enforcement in the UK, each responsible for a particular type of sanctions measure. Broadly speaking, responsibility is divided as follows: (i) Financial sanctions – HM Treasury (Office of Financial Sanctions Implementation (OFSI)). (ii) Trade sanctions (import and export controls) – Department for International Trade (DIT) (Export Control Organisation (ECO), Export Control Joint Unit (ECJU) and Import Licensing Branch (ILB)). (iii) Travel bans – Home Office (UK Border Force and UK Visas and Immigration). 3.5 Separately, it is important to be aware of the role played by the Financial Action Task Force (FATF) in the development of new policies aimed at preventing the use of the financial system for terrorist financing, money laundering and the proliferation of weapons of mass destruction. The FATF is an intergovernmental policymaking body that proposes and monitors legislative reform across the global financial system. Of particular importance is its framework of measures – ‘Recommendations’ – designed to combat criminality of particular concern to the financial system. Recommendation 6 deals with targeted financial sanctions relating to terrorism and terrorist financing. It requires FATF members to, among other things, comply with UN Security Council resolutions relating to the prevention and suppression of terrorism and terrorist financing. There are currently 35 state members of the FATF, as well as two regional representatives including the European Commission. 3.6 After a brief outline of the implications of Brexit, the rest of this chapter will explore the implementation and enforcement mechanisms in place in the UK in relation to each of the three types of sanction set out above.

Brexit 3.7 Post-Brexit, the UK will, on the international level, remain bound by international law.8 However, it will no longer be bound by European law, and therefore EU instruments, new policy, but ensuring that the UK has the necessary domestic legal powers after leaving the EU to meet our international obligations and use sanctions as a national security and foreign policy tool’. 7 SAMLA 2018, s 1. 8 International law governs relations between independent nation states and consists of international treaty law and international customary law. Post-Brexit, the UK will remain bound by the international treaties and

58 UK Sanctions including EU Council Decisions and Regulations, will lose their legal force in the UK, subject to the terms of the EU (Withdrawal) Act 2018 and any future UK–EU agreement.9 To this extent, and given that the UK will remain under an obligation to implement UN resolutions, it will have to do this via separate domestic legislation. The United Nations Act 1946 (UNA 1946) has in the past been the gateway for the implementation of UN sanctions obligations in the UK, but it has effectively become defunct as a legislative mechanism in this area since the Supreme Court decision in Ahmed v HM Treasury10 (see paragraph 3.8 below). In any event, the EU has in recent years taken the lead on EU-wide sanctions policy, including the implementation of UN sanctions measures on behalf of the UK and other EU Member States. In the absence of the EU as a halfway house between the UK and the UN, post-Brexit UN sanctions will have to be implemented directly in the UK.11 3.8 Subsection 1(1) of the UNA 1946 empowers the government to introduce Orders in Council in order to implement UN measures passed under Article 41 of the UN Charter. However, the use of Orders in Council to transpose UN sanctions into domestic law was successfully challenged in Ahmed on the basis that Parliament could not have intended to authorise the making of an Order that so severely affected the legal rights of individuals, and which did so in a way which deprived them of any real possibility of challenging their listing in the courts.12 The reasoning in that decision was subsequently echoed by the Grand Chamber of the European Court of Human Rights in its judgment in Al-Dulimi v Switzerland.13 3.9 It is clear from the decision in Ahmed that the courts of England and Wales, applying the principle of legality, will not allow the government to bypass parliamentary scrutiny of restrictive sanctions measures.14 Indeed, the Terrorism Asset-Freezing etc Act 2010 (TAFA 2010) was introduced following Ahmed in order to provide a statutory footing for certain unilateral UK sanctions designations. The other workaround has been the EU’s greater involvement in sanctions-making generally, with the EU now implementing UN sanctions measures on behalf of EU Member States. In particular, because EU law is directly effective and applicable in the UK, there has been no need for the direct implementation of

c onventions it has ratified in the past, whether bilaterally or multilaterally, with the obvious exception of the EU treaties. Of particular importance is the fact that the UK will retain its status as a member of the UN and as a member of the UN Security Council. The UK will therefore also remain bound by UN Security Council resolutions. See ch 1 for further detail regarding sanctions law imposed at the UN level. 9 Under s 3 of the EU (Withdrawal) Act 2018, all direct EU legislation, including EU Regulations and EU Decisions, will become part of the UK’s domestic law after ‘exit day’ (29 March 2019). Once direct EU legislation has been incorporated into domestic law, becoming ‘retained EU law’, the interpretation of that legislation will be a matter for domestic courts and tribunals. The latter will no longer be bound by decisions of the EU courts, but must interpret retained EU law in accordance with any retained case law and any retained general principles of EU law (s 6(3)). They may also ‘have regard’ to anything done on or after exit day by an EU court (see s 6(2)). To the extent that EU sanctions remains part of UK law as retained EU law, decisions of the EU courts in this area, both in the past and in the future, will remain relevant. 10 Ahmed v HM Treasury [2010] UKSC 2, [2010] 2 AC 534, [2010] 2 WLR 378. 11 This is what is intended by s 1(1)(a) of SAMLA 2018. 12 Above (n 10), [185] (Lord Rodger). 13 Al-Dulimi and Montana Management Inc v Switzerland (2016) 42 BHRC 163. 14 See ch 7 for a fuller discussion of Ahmed and the principle of legality.

Brexit 59 UN measures via secondary legislation.15 Moreover, the EU’s robust system of judicial review has assuaged concerns regarding the lack of judicial protection at the UN level.16 3.10 Given that UN sanctions are currently implemented via the EU, Brexit will require the UK to return to direct implementation of these measures, and SAMLA 2018 will give the government new powers to introduce secondary legislation in order to ensure compliance with UN sanctions obligations.17 Presumably the idea, at least in part, is to obviate concerns regarding the principle of legality by granting a specific sanctions-making power enshrined in primary legislation, even if the specific UN measures are ultimately implemented via secondary legislation.18 In other words, it may be that a specific sanctions-making s tatute (SAMLA 2018) is intended to satisfy the principle of legality where a general statute (UNA 1946) failed to do so. 3.11 This may work insofar as the question of clear statutory authority is concerned, but the Act also radically changes the current situation vis-a-vis judicial review of UN sanctions designations and the right of access to a court. As it stands, persons designated pursuant to UN sanctions are able to challenge their designations via the EU General Court, which has the power to declare designations unlawful even where those designations originate from decisions of the UN Security Council.19 The position is less clear in the UK. This was raised by Lord Pannick during the second reading of the Sanctions Bill in the House of Lords: Can the Minister confirm that I have correctly understood that the intention of the Bill is to deprive the individual on the UN list of the rights that he or she currently has under EU law to obtain from the court, in appropriate cases, a quashing of a listing that derives from the UN? If that is so, the individual designated in this country as a result of being placed on a UN sanctions list will have much less legal protection than a person who is listed in France or Germany as a result of being placed on the same UN sanctions list.20

3.12 On the basis of the final wording of the Act, it appears that Lord Pannick’s warning went largely unheeded and that the system of judicial review of sanctions measures currently overseen by the EU courts will not be replaced by an equivalent system in the UK. The Act does, however, provide for a mechanism whereby a person designated pursuant to a UN sanctions list implemented in the UK may request the Secretary of State to use his or her best endeavours to secure that the person’s name is removed from the relevant UN list.21 It is therefore clear that a purposeful distinction has been drawn between domestic

15 Secondary legislation has only been necessary to implement criminal penalties in respect of EU measures (see below para 3.34). 16 See the discussion of these issues in the Supreme Court decision of Youssef v Secretary of State for Foreign and Commonwealth Affairs [2016] UKSC 3, [2016] AC 1457, [2016] 2 WLR 509. 17 SAMLA 2018, s 1(1)(a). 18 See ch 7 for an in-depth discussion of the principle of legality as it has arisen in relation to sanctions law in the UK. 19 This follows the landmark European Court of Justice decision in Kadi. For a fuller discussion of Kadi and judicial review of sanctions designations in the EU courts, see ch 6. See also ch 1 and ch 5 for the creation of the UN Sanctions Ombudsperson in response to Kadi and subsequent EU decisions overturning sanctions designations. 20 HL Deb 1 November 2017, col 1396 (Sanctions and Anti-Money Laundering Bill, 2nd reading). 21 SAMLA 2018, s 25(2).

60 UK Sanctions esignations and UN designations, with the former subject to judicial review in the normal d way and the latter exempt from any such legal challenge. It will be interesting to see what the courts make of this distinction once the Act has come into force.22 3.13 In general terms, SAMLA 2018 sets out an autonomous framework for the imposition and implementation of UK sanctions post-Brexit. The Act confers a power to create six different types of sanctions for 11 different purposes. In particular, section 1(1) grants a sanctions-making power to an ‘appropriate Minister’23 where that minister considers it appropriate in order to (i) comply with a UN obligation, (ii) comply with any other international obligation, or (iii) achieve one of the purposes contained in section 1(2). The purposes in section 1(2) are the following: (i) the prevention of terrorism; (ii) the interests of national security; (iii) the interests of international peace and security; (iv) furthering a foreign policy objective of the UK Government; (v) promoting the resolution of armed conflicts or the protection of civilians in conflict zones; (vi) providing accountability for or being a deterrent to gross violations of human rights (or otherwise promoting compliance with international human rights law, or respect for human rights);24 (vii) promoting compliance with international humanitarian law; (viii) contributing to multilateral efforts to prevent the spread and use of weapons and materials of mass destruction; or (ix) promoting respect for democracy, the rule of law and good governance. 3.14 The power to create sanctions is therefore an extremely broad one and indeed concerns have been expressed that ‘those who are given such powers may overreach themselves’.25 In particular, the Act gives the executive the power to create new criminal offences under secondary legislation carrying a maximum sentence of 10 years’ imprisonment. Moreover, the statutory parameters for the creation of the offences, by reference to the objectives discussed above, are extremely vague. 3.15 The breadth of the sanctions-making power contained in SAMLA 2018 means that the substance of sanctions law in the UK will also be left to the provisions of future secondary legislation; the Act provides little clarity regarding the precise detail of sanctions provisions that may come into force after the UK has left the EU. In short, we still do not know what shape sanctions law in the UK will take post-Brexit. In written evidence to the House of Lords External Affairs Sub-Committee’s inquiry into sanctions policy post-Brexit, Dr Erica Moret noted that the creation of the UK’s new autonomous sanctions framework under what was then the Sanctions Bill would add another complex layer of bureaucracy to an already highly confusing environment for businesses, when facing multiple autonomous sanctions regimes, sometimes overlapping with

22 See J Rozenberg, ‘A bad omen for Brexit’ The Law Society Gazette (4 December 2017). 23 s 1(9) defines an ‘appropriate Minister’ as either the Secretary of State or HM Treasury. 24 The insertion of this purpose at a late stage of the legislative process was labelled a ‘Magnitsky amendment’, which refers to the imprisonment and subsequent murder of the lawyer Sergei Magnitsky by Russian authorities in 2009. See, eg, ‘MPs back “Magnitsky amendment” on sanctions for human rights abuses’ Reuters (1 May 2018), available at: uk.reuters.com/article/uk-britain-russia-magnitsky/mps-back-magnitsky-amendment-on-sanctionsfor-human-rights-abuses-idUKKBN1I24B9. 25 HL Deb, above (n 20) col 1381 (Lord Hope).

Brexit 61 UN measures. It could lead to over-compliance in some cases, with associated unintended consequences.26

3.16 The framework set out in the Act is certainly wide enough to allow the UK to mirror EU sanctions law whilst imposing its own unilateral sanctions where that is believed to be ‘appropriate’. In fact, the sponsor of the original Bill, Lord Ahmad, stressed that ‘it is about powers not policy’.27 This could mean that UK sanctions law will remain in step with EU law post-Brexit, but of course without the UK having a say regarding EU sanctions decisions at the EU level. In particular, the UK would no longer form part of the Foreign Relations Counsellors Working Group (RELEX) within the EU Council of Ministers that deals with the Common Foreign and Security Policy (CFSP).28 3.17 This overall approach would be similar to that adopted by Switzerland, which chooses to follow EU sanctions law despite being under no obligation to do so. Nevertheless, it should be noted that Switzerland has been criticised by the European Court of Human Rights in view of the fact that individuals and companies in Switzerland do not have recourse to the EU courts for judicial review of UN sanctions designations.29 As discussed (see paragraphs 3.11– 3.12 above), SAMLA 2018 does not provide for judicial review of designations decided at the UN level. 3.18 Exactly what course the UK takes in relation to sanctions policy will also be influenced by the wider negotiations regarding the UK’s relationship with the EU. The UK’s continued participation in the single market could, for example, be made subject to its continued implementation of EU sanctions measures. In this regard, it should be noted that the UK has to date played an important part in the development of the EU’s sanctions policy. The House of Commons Foreign Affairs Committee stated as follows in its assessment of the impact of Brexit prior to the referendum: As a major military power with global reach, the UK is one of the most influential players in driving EU foreign policy. For example, UK leadership pushed for and obtained robust EU sanctions on Russia following the Ukraine crisis.30

3.19 To this extent, it seems highly unlikely that the UK’s sanctions policy will change substantively, particularly given that the UK has often been, and at least for now continues to be, at the forefront of sanctions proposals at the EU level.31 Indeed, evidence presented to the House of Lords EU External Affairs Sub-Committee’s inquiry into sanctions policy

26 Dr Erica Moret, written evidence to the House of Lords External Affairs Sub-Committee, 31 July 2017, available at: data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/eu-external-affairssubcommittee/brexit-sanctions-policy/written/70456.pdf. 27 ibid, col 1374. 28 See ch 2 for discussion of EU procedure in this area. 29 See Al-Dulimi, above (n 13). 30 House of Commons Foreign Affairs Committee, ‘Implications of the referendum on EU membership for the UK’s role in the world, Fifth Report of Session 2015–16’ (2015–16, HC 545) 4. 31 See, eg, the FCO’s annual report for 2016–17, which emphasises the leadership role taken by the UK in respect of EU sanctions imposed against Russia.

62 UK Sanctions post-Brexit confirms that there are no plans to move away from EU sanctions policy.32 The Sub-Committee itself concluded as follows in its final report: 144. While the Sanctions and Anti-Money Laundering Bill would allow the UK to implement unilateral sanctions regimes, sanctions are most effective when imposed in concert with international partners. We therefore welcome the Government’s intention to continue to work in close partnership with the EU and other international partners after Brexit. 145. Although the UK will leave the common EU framework for designing and imposing sanctions, the common interests and threats facing the UK and the EU-27 will not change fundamentally. 146. The US and the EU already co-ordinate closely on the design of sanctions. It would be desirable for the UK, the US and the EU to maintain a broadly similar approach to sanctions policy after Brexit.33

3.20 In other words, although the manner in which sanctions measures are legally implemented in the UK will change, Brexit is unlikely to have much of a practical impact on the way sanctions are monitored or enforced in the UK. To this extent, the measures described in this chapter, which are currently in force in the UK, will in all probability look very similar once the withdrawal from the EU is complete.

Financial Sanctions Overview 3.21 Financial sanctions were developed in the late 1990s in response to the widespread collateral damage caused by general trade embargoes. Financial sanctions usually target specific individuals or entities – ‘designated persons’– and are aimed at restricting the resources available to those individuals. As a result, financial sanctions can be extremely draconian, although it is usually possible to obtain a licence for basic living expenses and other everyday costs (see paragraph 3.77 below). 3.22 The financial sanctions measures in force in the UK are organised into regimes.34 Each of these regimes deals with a specific territory, situation or issue, and each of the regimes is governed by separate legislation. For example, the ‘Terrorism and Terrorist Financing’ regime takes effect via UN Security Council resolution 1373 (2001), which is

32 See, eg, the evidence given to the House of Lords External Affairs Sub-Committee by the Rt Hon Sir Alan Duncan MP, Minister for Europe and the Americas (FCO) on 26 October 2017, available at: data.parliament.uk/ writtenevidence/committeeevidence.svc/evidencedocument/eu-external-affairs-subcommittee/brexit-sanctionspolicy/oral/72304.html. 33 House of Lords EU External Affairs Sub-Committee, ‘Brexit: sanctions policy inquiry’, report dated 17 December 2017, paras 144–46, available at: www.parliament.uk/brexit-sanctions-policy. 34 See the OFSI Regime Page, available at: www.gov.uk/government/collections/financial-sanctions-regimespecific-consolidated-lists-and-releases. This and other useful UK sanctions resources are set out in a table at the end of this chapter.

Financial Sanctions 63 implemented in the EU by EU Regulation No 2580/2001, which is in turn implemented in the UK by TAFA 2010. At the time of writing there are 26 financial sanctions regimes in force in the UK.35 3.23 OFSI is responsible for the implementation and enforcement of financial sanctions in the UK and maintains a consolidated list of all designated persons (ie, a list of all the individuals and entities designated under each of the 26 financial sanctions regimes).36 The Consolidated List is updated periodically to include new listings, and to remove individuals from the List. Most listing decisions are currently made at the EU level (see chapter two), although UK authorities are increasingly making use of their own separate designation powers (see paragraphs 3.35–3.49 below). 3.24 The measure most commonly associated with financial sanctions is asset-freezing. However, it is not the only financial sanctions measure, and institutions facing sanctions issues should take care to identify which regime a person is designated under, as that will affect the types of measures that apply (see paragraphs 3.63–3.68 below). 3.25 The basic restrictions imposed by financial sanctions apply generally, thus prohibiting anyone, including banks and other financial institutions, from dealing with the funds of a designated person, among other things. In this regard, responsibility for the freezing of funds rests with the person in possession or control of the funds. 3.26 If a person commits an act prohibited under financial sanctions legislation, either knowingly or with reasonable cause to suspect that a breach was being committed, then that person will be liable for the breach.37 A person in breach of financial sanctions, knowing or with reasonable cause to suspect that the sanctions are engaged, commits a criminal offence. According to OFSI, ‘reasonable cause to suspect’ refers to an objective test that asks whether there were factual circumstances from which an honest and reasonable person should have inferred knowledge or formed the suspicion.38 Furthermore, OFSI takes the view that financial sanctions are generally widely publicised and that businesses, particularly those operating in an international context, will have reasonable cause to suspect that sanctions might be engaged, and so will be unable to avoid liability by failing to consider their sanctions risks.39 Similarly, the existence of a regulated sector in the UK reinforces the presumption of knowledge through the requirement of compliance.40

35 As at 1 June 2018. See, eg, the Afghanistan financial sanctions regime (The Afghanistan (Asset-Freezing) Regulations 2011 (SI 2011/1893), which apply in conjunction with Regulation (EU) No 753/2011); or the Central African Republic financial sanctions regime (The Central African Republic (European Union Financial Sanctions) Regulations 2014, which apply in conjunction with Regulation (EU) No 224/2014). 36 The OFSI Consolidated List is available at: www.gov.uk/government/publications/financial-sanctions-consolidated-list-of-targets. 37 See European Council (RELEX), ‘Restrictive measures (Sanctions) – Update of the EU Best Practices for the effective implementation of restrictive measures, 24 June 2015’, EU Doc 10254/15, para 37. See also ch 2. 38 See HM Treasury (OFSI), ‘Financial Sanctions: Guidance’, March 2018 (OFSI Guidance) para 3.1.2. 39 ibid, FAQs, para 3.1. 40 See, eg, the compliance obligations that apply to the UK regulated sector as set out in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

64 UK Sanctions

Implementation 3.27 The UK financial sanctions framework is largely implemented via a combination of EU Regulations and domestic statutory instruments. For example, the anti-terrorist regime under UN Security Council resolution 1267 (1999) (as amended) is implemented in the UK via EU Regulation No 881/2002 (as amended), which is directly effective and directly applicable in the UK. However, as discussed in chapter two, EU Regulations require secondary legislation in order to secure criminal penalties for breach of the measures contained therein.41 So, to follow the example above, the conduct proscribed by Regulation 881/2002 is criminalised in the UK by the Al-Qaida (Asset-Freezing) Regulations 2011. Under the terms of these regulations, which are implemented pursuant to the European Communities Act 1972, conduct prohibited by Regulation 881/2002 is therefore a criminal offence in the UK. 3.28 The interplay between EU and UK law in this area was succinctly explained as follows by Mr Justice Pickin in the case of Elaine Hmicho v Barclays Bank Plc: EU regulations imposing freezing measures are directly applicable in EU Member States. As such, they are not required to be transposed into national law. However, sanctions regulations require Member States to adopt legislation providing for penalties for breaching restrictive practices.42

3.29 Post-Brexit, the UK financial sanctions framework will operate through enhanced primary legislation (SAMLA 2018) providing powers for the imposition of unilateral measures and the implementation of UN measures (see paragraph 3.13 above). As a result, it will continue to be important, when analysing the UK’s financial sanctions framework, to distinguish between measures imposed pursuant to international law obligations, and measures imposed independently by UK authorities. This distinction is particularly significant when it comes to challenging sanctions measures.43 This chapter will therefore deal separately with (i) multilateral sanctions measures (ie, those implemented pursuant to UN or EU obligations), and (ii) unilateral or autonomous sanctions measures (ie, those imposed independently by UK authorities under primary legislation). 3.30 The management of financial sanctions in the UK, both multilateral and unilateral, is carried out by OFSI, which was established in March 2016. It appears that OFSI was set up in order to strengthen the enforcement mechanisms for financial sanctions, and to bring the UK approach to financial sanctions closer into line with that of the US Treasury Office of Foreign Assets Control (OFAC).44 Moreover, OFSI’s enforcement powers in relation to sanctions violations were expanded considerably by the Policing and Crime Act 2017 (PCA 2017), which came into force on 1 April 2017. The new provisions allow prosecuting authorities to enter into deferred prosecution agreements and impose serious crime prevention orders in relation to sanctions breaches.

41 See ch 2, para 2.41. 42 Elaine Hmicho v Barclays Bank Plc [2015] EWHC 1757 (QB), [16]. 43 See ch 7 on challenging sanctions in the UK. 44 See HM Treasury, Budget 2015 (18 March 2015) para 1.102: ‘The government will review the structures within HM Treasury for the implementation of financial sanctions and its work with the law enforcement community to

Financial Sanctions 65

International Financial Sanctions 3.31 As discussed above, the manner in which multilateral sanctions are implemented in the UK will undergo significant upheaval following the decision to leave the EU. Despite the reconfiguration required by Brexit, however, multilateral sanctions imposed at the UN level will still have to be implemented and enforced in the UK. In any event, the EU Regulations setting out financial sanctions measures will remain in force in the UK until the Brexit withdrawal process is complete.

UN Financial Sanctions 3.32 Most UN sanctions regimes in force in the UK are implemented via EU legislation. For example, the UN regime imposed in relation to North Korea under UN Security Council resolution 1718 (2006) is implemented in the UK by Regulation (EU) No 329/2007, among other instruments. 3.33 Although there is no formal mechanism for the implementation of UN Security Council resolutions at the EU level, the EU has committed to ensure full, effective and timely implementation of measures agreed by the UN Security Council.45 However, the UK Government has become increasingly concerned with the delay between the passing of sanctions resolutions at the UN level and their implementation at the EU level.46 As a result, the PCA 2017 contains provisions governing the temporary implementation of UN sanctions measures. In particular, section 152 gives HM Treasury the power to introduce secondary legislation to implement UN resolutions pending the adoption of the necessary EU legislation.

EU Financial Sanctions 3.34 As discussed, EU Regulations establishing financial sanctions are directly applicable in the UK. To this extent, the only implementation required is the adoption of domestic secondary legislation setting out criminal penalties for breaches of EU sanctions law.47 However, it should be noted that the UK implementing measures can (and often do) go further than the corresponding EU measures in the obligations they impose. This is particularly the case in relation to reporting requirements (see paragraphs 3.60–3.62 below). To this extent, it is important to consider both the overriding EU Regulations and the relevant UK implementing measures.

ensure these sanctions are fully enforced, with significant penalties for those who circumvent them. This review will take into account lessons from structures in other countries, including the US Treasury Office of Foreign Assets Control’. 45 See EU Council, ‘Basic Principles on the Use of Restrictive Measures (Sanctions)’, 7 June 2004, EU Doc 10198/1/04, Annex I, para 2; see also ch 2. 46 See the UK Government note on the background to the Policing and Crime Bill, July 2016, which raises concern over the average four-week delay for the EU implementation of UN sanctions measures, paras 6–7. 47 See ch 2 in Part I for a detailed discussion of EU sanctions policy and how sanctions decisions are made at the EU level.

66 UK Sanctions

Domestic Financial Sanctions 3.35 The UK Government has the power to impose financial sanctions measures unilaterally under primary legislation in certain given situations. These are unilateral or autonomous powers in the sense that the UK authorities may use them of their own initiative without necessarily having regard to UN or EU-level decision-making. 3.36 It was suggested at one point that the new post-Brexit sanctions legislation should provide a consolidated framework for UK sanctions, thus replacing existing domestic sanctions law. That suggestion has been taken up in part, with the provisions of SAMLA 2018 due to replace the corresponding provisions in TAFA 2010 once the former comes into force.48

Terrorism Asset-Freezing etc Act 2010 3.37 At present, the key statute for the imposition of unilateral financial sanctions in the UK is TAFA 2010, which was originally introduced in the UK in order to fulfil international obligations arising under UN Security Council resolution 1373 (2001).49 Chapter 1 of TAFA 2010 deals with the designation of individuals. Under section 2, HM Treasury has the power to designate individuals suspected of terrorist activity. To this extent, designation decisions are taken unilaterally by UK authorities, and are challengeable in the UK courts under section 26 TAFA 2010.50 3.38 In order to make a designation under section 2, HM Treasury must reasonably believe (i) that the person is or has been involved in terrorist activity, or (ii) that the person is owned or controlled directly or indirectly by a person involved in terrorist activity, or (iii) that the person is acting on behalf of or at the direction of a person involved in terrorist activity. In addition, HM Treasury must consider that it is necessary for purposes connected with protecting members of the public from terrorism that financial restrictions should be applied in relation to the person. 3.39 ‘Terrorist activity’ is defined in subsection 2(2) as follows: (i) the commission, preparation or instigation of acts of terrorism; (ii) conduct that facilitates the commission, preparation or instigation of such acts, or that is intended to do so; or (iii) conduct that gives support or assistance to persons who are known or believed by the person concerned to be involved in conduct falling within (i) or (ii) above. Moreover, subsection 2(4) clarifies that the term ‘terrorism’ has the same meaning as under subsection 1(1) of the Terrorism Act 2000.51

48 SAMLA 2018, s 59(1). 49 UN Security Council resolution 1373 (2001) imposes an obligation on UN Member States to introduce domestic legislation to deal with terrorism and terrorist financing. The resolution is unique in the sense that it does not prescribe the form that domestic measures should take, but rather leaves it to Member States to design and implement their own anti-terrorism sanctions frameworks. 50 See ch 7 for a detailed discussion of s 26 TAFA 2010 and other review mechanisms. 51 ‘Terrorism’ is defined in sub-s 1(1) of the Terrorism Act 2000 as consisting of three components: (i) the use or threat of action, inside or outside the United Kingdom, where that action consists of, inter alia, serious violence,

Financial Sanctions 67 3.40 Once an individual has been designated in accordance with Chapter 1, the prohibitions in Chapter 2 apply in relation to that individual. In particular, section 11 makes it an offence for a person to deal with funds or economic resources owned, held or controlled by a designated individual. Sections 12–15 then make it an offence to make funds or economic resources available to, or for the benefit of, a designated person. It should be noted that these provisions mirror the drafting of the asset-freezing provisions contained in the relevant EU legislation (eg, Regulation 2580/2001). However, TAFA 2010 operates entirely independently from any separate EU legislation. Although the sanctions provisions of TAFA 2010 will be repealed once SAMLA 2018 comes into force, it would appear that future financial sanctions regimes under SAMLA 2018 will contain similar provisions. To this extent, the drafting of financial sanctions provisions may well remain as it is (and continue to mirror the drafting of corresponding asset-freezing legislation in the EU). 3.41 In practice, designation under section 2 TAFA 2010 often follows criminal charges for separate terrorism-related offences. For example, in February 2014, Moazzam Begg, who had previously been detained by the US Government in Guantanamo Bay for nearly three years, was arrested and charged in the UK with multiple offences under the Terrorism Acts, and was subsequently designated by HM Treasury under TAFA 2010.52 However, although arrests and designations may arise on the basis of the same information, the standard of proof required to be met by the Crown Prosecution Service (CPS) in bringing criminal proceedings is obviously much higher than that required to be met by HM Treasury in relation to TAFA 2010 designations. The Court of Appeal recognised this in the Begg case, which involved a challenge under section 26: It is true that the evidence necessary to mount a successful prosecution is not the same as the evidence required to justify the making of a designation order: the test in section 2 of TAFA is lower than the criminal standard of proof.53

3.42 To date, there have not been many instances of proceedings brought by individuals challenging designations under section 26 TAFA 2010.54 However, that may be largely due to the fact that TAFA 2010 designations have become very rare, with no new designations in the last two years. This has been blamed on the threshold for designation under section 2 – reasonable belief – and it is notable that SAMLA 2018 adopts the lower ‘reasonable grounds to suspect’ standard.55 3.43 Section 16 TAFA 2010 sets out a number of exceptions to the general prohibitions regarding designated individuals. These include the ability of financial institutions to credit

serious damage to property, or creating a serious risk to public safety or health; (ii) the use or threat must be designed to influence the government (of the United Kingdom or any other country) or an international governmental organisation, or to intimidate the public; and (iii) the use or threat is made for the purpose of advancing a political, religious, racial or ideological cause. This definition was confirmed by the Supreme Court in the case of R v Gul [2013] UKSC 64. 52 See Begg v HM Treasury [2016] EWCA Civ 568. 53 ibid, [25]. 54 In fact, the case of C v HM Treasury [2016] EWHC 2039 (Admin) was the first s 26 challenge to reach trial; for discussion of this case see ch 7. 55 SAMLA 2018, s 11(2)(a).

68 UK Sanctions frozen accounts with (i) interest or other earnings due on the account, and (ii) payments owing in relation to contracts entered into prior to the account being frozen. Section 17 establishes that none of the conduct covered by sections 11–15 will be a criminal offence where the relevant person acts under the authority of a licence obtained from HM Treasury. However, licences may be subject to conditions, and, under subsection 17(6), a person commits an offence if, when applying for a licence, they knowingly or recklessly (i) provide information which they know is false in a material respect, or (ii) provide or produce a document that is not what it purports to be (see paragraphs 3.80–3.82 below for more detail on the TAFA 2010 licensing system).

Counter-Terrorism Act 2008 3.44 HM Treasury also has the power under Schedule 7 of the Counter-Terrorism Act 2008 (CTA 2008) to give ‘directions’, and to impose requirements on individuals and companies via those directions. The directions under Schedule 7 are imposed in relation to a ‘country’, as opposed to an individual or entity. However, the relevant order will also specify the ‘designated persons’ in relation to whom the directions apply.56 3.45 Directions under Schedule 7 may be imposed where one or more of the following conditions is met: (i) the FATF57 has advised that measures should be taken in relation to the country because of a risk of terrorist financing or money laundering activities; or (ii) HM Treasury reasonably believes there is a risk that terrorist financing or money laundering activities are being carried on; or (iii) HM Treasury reasonably believes that the development or production of nuclear, radiological, biological or chemical weapons in the country (or the doing in the country of anything that facilitates the development or production of any such weapons) poses a significant risk to the national interests of the UK. 3.46 A Schedule 7 direction may only be given to a person operating in the financial sector, but a direction may also be given to all persons operating in the financial sector.58 The requirements that may be attached to directions are as follows:59 (i) enhanced customer due diligence measures; (ii) enhanced ongoing monitoring of any business relationship with a designated person;60 (iii) the provision of information and documents (as may be specified in the direction) relating to transactions and business relationships with designated persons (‘systematic reporting’); and (iv) limiting or ceasing business with a designated person. 3.47 In 2009, HM Treasury brought in the Financial Restrictions (Iran) Order 2009/2725 in relation to nuclear proliferation in Iran. In particular, the instrument specifies that the ‘Treasury believe that activity in Iran that facilitates the development or production of

56 See, eg, Financial Restrictions (Iran) Order 2009/2725, article 3. 57 See para 3.5 above for a brief description of the FATF and the role it plays in relation to financial sanctions. 58 See Part 2 of Schedule 7 CTA 2008. 59 See Part 3 of Schedule 7 CTA 2008. 60 ‘Designated person’ for the purpose of Schedule 7 simply means any person in relation to whom the direction is given (see para 9(3) of Schedule 7). For example, a direction may be given to a company in the financial sector, in relation to a designated person (who would be named in the direction).

Financial Sanctions 69 nuclear weapons poses a significant risk to the national interests of the United Kingdom’. The direction was given to all persons operating in the financial sector, and prohibited those persons from doing business with the entities listed in the order.61 However, the order was successfully challenged by one of the listed entities, Bank Mellat, in proceedings that ultimately went all the way to the Supreme Court.62

Anti-Terrorism, Crime and Security Act 2001 3.48 Under section 4 of the Anti-Terrorism, Crime and Security Act 2001, HM Treasury also has the power to impose freezing orders where it reasonably believes that (i) either action to the detriment of the UK economy or action constituting a threat to the life or property of one or more UK nationals has been taken or is likely to be taken, and (ii) the action in question is taken by the government of a country or territory outside the UK, or by a resident of a country or territory outside the UK. 3.49 Perhaps the most notable freezing order imposed under the section 4 power was introduced in early 2016 in relation to the findings of the Litvinenko Inquiry.63 In particular, the Inquiry concluded that Mr Litvinenko was killed by two ex-KGB agents, Andrey Lugovoy and Dmitri Kovtun.64 As a result, HM Treasury brought into force the Andrey Lugovoy and Dmitri Kovtun Freezing Order 2016, under which the funds of the two suspects were frozen.

Interpretation 3.50 Given the interplay between international and domestic law in this area, interpreting financial sanctions measures can be a complicated process. Although OFSI has published guidance on financial sanctions,65 this guidance has no status in law and should be treated only as a general indication of the approach that OFSI is likely to take when dealing with sanctions enforcement. Moreover, it should be borne in mind that extensive guidance on financial sanctions has also been published at the EU level.66 Again, although these documents are not authoritative in law, they are a useful starting point in order to gain an understanding of how issues may be dealt with in practice. 3.51 For an authoritative interpretation of the prohibitions, practitioners must refer to the legislative instruments themselves, as well as to relevant jurisprudence shedding light on any ambiguities therein. Again, it is important to distinguish between measures imposed 61 See articles 2 and 4 of the Financial Restrictions (Iran) Order 2009/2725. 62 Bank Mellat v Her Majesty’s Treasury (No 2) [2013] UKSC 39; see ch 7 for a full discussion of this case and related cases. 63 Litvinenko Inquiry Report, January 2016, available at: www.litvinenkoinquiry.org/report. 64 ibid, para 9.189. 65 OFSI Guidance. 66 See, eg, European Council, ‘Guidelines on implementation and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy’, 15 June 2012, EU Doc 11205/12 (2012 EU Guidelines). A list of all the relevant EU guidance documents is provided at the end of ch 2.

70 UK Sanctions unilaterally at the domestic level, and measures set out in EU law. Whilst the interpretation of the former is exclusively a matter for the UK courts, the interpretation of the latter is primarily a matter for the EU courts. In this regard, UK courts called upon to interpret EU sanctions measures in force in the UK have tended to make use of the preliminary reference mechanism available under Article 267 TFEU. In other words, interpretational issues have for the most part been referred to the EU courts. 3.52 In the case of R (OJSC Rosneft Oil Company) v HM Treasury and Others,67 the Divisional Court noted as follows in making a preliminary reference to the CJEU in relation to issues of interpretation: It is in our view a characteristic of these measures that terms are broadly defined and there may therefore be scope for multiple interpretations. … We have accordingly formed the view that a ruling of the CJEU is of considerable importance in providing the domestic authorities with a definitive interpretation of the Regulation. This is important not only to ensure consistency between the competent authorities of the Member States but to ensure, as Mr Chew points out, a level playing field for all businesses operating within the EU.68

3.53 Of course, once the UK’s withdrawal from the EU is complete, EU legislation and jurisprudence will no longer have direct effect in the UK and sanctions law, as with all other areas of law, will need to be comprehensively set out in domestic legislation. Notwithstanding the latter, it is likely that, to the extent that the provisions remain substantively the same post-Brexit, UK courts will follow the guidance established to date by EU jurisprudence. In other words, the cases before the EU courts dealing with the interpretation of sanctions measures will continue to be relevant, albeit that they may no longer be determinative. These cases are discussed in detail in chapter two, but will be referred to in this chapter where necessary.

Jurisdiction 3.54 Any breach of financial sanctions law by an individual or entity in the UK, where that person knows or suspects that financial sanctions are engaged, is a criminal offence. Similarly, any breach of financial sanctions law committed extra-territorially by either (i) a UK national,69 or (ii) a body incorporated or constituted under the law of any part of the UK, will constitute a criminal offence.70 This position is maintained under SAMLA 2018.71 67 R (OJSC Rosneft Oil Company) v HM Treasury and Others [2015] EWHC 248 (Admin). 68 ibid, [33]–[34]. 69 A ‘UK national’ is usually defined as (i) a British citizen, a British Overseas Territories citizen, a British National (Overseas) or a British Overseas citizen, (ii) a person who under the British Nationality Act 1981 is a British subject, or (iii) a British protected person within the meaning of that Act. See, eg, s 33(2) of TAFA 2010. 70 See, eg, the Syria (European Union Financial Sanctions) Regulations 2012, regulation 1(2); The Democratic People’s Republic of Korea (European Union Financial Sanctions) Regulations 2013, regulation 1(2). 71 SAMLA 2018, s 21(1).

Financial Sanctions 71 3.55 OFSI has confirmed that its enforcement jurisdiction is not limited to breaches that occur within the UK. In particular, OFSI may investigate where there is some connection to the UK – a ‘UK nexus’. Examples given of where OFSI’s extra-territorial jurisdiction might arise include the following: a UK company working overseas; transactions using clearing services in the UK; actions by a local subsidiary of a UK company (depending on the governance); action taking place overseas but directed from within the UK; or financial products or insurance bought on UK markets but held or used overseas.72 3.56 In relation to the extra-territorial application of financial sanctions, individuals should be aware that whilst participating in a transaction might be illegal under UK financial sanctions law, the conduct in question might not be illegal under local law. To this extent, for example, local contract law will not necessarily be ousted by the fact that the conduct in question is prohibited under UK law.

Basic Prohibitions 3.57 The most common financial sanctions measures prohibit the following conduct:73 (i) Dealing with funds or economic resources owned, held or controlled by a designated person.74 This prohibition covers the transfer, alteration, exchange or any other use of funds or economic resources belonging to a designated person. It also covers allowing access to the funds. The prohibition on dealing, as with the other prohibitions, extends to situations where a person has reasonable cause to suspect that sanctions measures are engaged in relation to a designated person. In Elaine Hmicho v Barclays Bank Plc,75 the defendant bank claimed that it had frozen the claimant’s accounts because it had reasonable cause to suspect that the funds in her accounts were in fact owned or controlled by her husband, Mr Hmicho, who was designated under the Syrian regime. In refusing Mrs Hmicho’s application for an interim injunction allowing her access to the accounts, the Court held that the balance of convenience rested firmly on the bank’s side. In particular, Mr Justice Picken noted that there was a strong possibility that the bank would be able to demonstrate at trial that it had every reason to be suspicious of what had happened in relation to Mrs Hmicho’s bank accounts. (ii) Making funds or economic resources available, directly or indirectly to a designated person.76

72 OFSI, ‘Monetary penalties for breach of financial sanctions: guidance’, April 2017 (OFSI Guidance on Monetary Penalties) paras 3.6 and 3.7. 73 OFSI Guidance, para 3.1.1. 74 See, eg, Regulation (EU) No 36/2012, Article 14(1), as criminalised in the UK by the Syria (European Union Financial Sanctions) Regulations 2012, regulation 3(1). 75 Elaine Hmicho v Barclays Bank Plc, above (n 42). 76 See, eg, Regulation (EU) No 36/2012, Article 14(2), as criminalised in the UK by the Syria (European Union Financial Sanctions) Regulations 2012, regulations 4(1), 5(1), 6(1) and 7(1).

72 UK Sanctions This prohibition covers both direct and indirect transfers of funds to designated persons. To this extent, any transaction that gives a designated person control of funds is prohibited, unless a licence has been obtained from OFSI. Furthermore, it would be a breach of the measure to give funds to a third party, such as a designated person’s friend, knowing or suspecting that the funds will be given to a designated person. Similarly, it would be a breach to make funds available to a designated person by, for example, making a payment to a third party on their behalf, but only in situations where the designated person would obtain a ‘significant financial benefit’.77 The meaning of the term ‘make available’ was considered by the CJEU in the case of Afrasiabi.78 In that case, the CJEU noted that the prohibition was framed in particularly broad terms.79 (iii) Engaging in actions that, directly or indirectly, circumvent the financial sanctions provisions.80 What is meant by the term ‘circumvent’ is not made clear in any of the relevant legislation, although HM Treasury has stated that it should have its ordinary meaning, which according to HM Treasury is ‘to go around or bypass, to avoid’.81 Indeed, the limited jurisprudence on the question of circumvention indicates that the term is intended to capture a broad range of activity designed to avoid sanctions. This will include, for example, where a company structures a transaction via a subsidiary incorporated outside the EU and, therefore, not technically subject to EU sanctions.82 In Afrasiabi, the CJEU noted that the concept of circumvention refers to activities which have the aim or result of enabling their author to avoid the application of the substantive prohibitions.83 Furthermore, the Court stated that circumvention should be understood as covering activities in respect of which it appears, objectively, that despite a formal appearance enabling them to avoid substantive prohibitions, they nevertheless have the result of frustrating those prohibitions.84 The issue of circumvention was subsequently considered by the UK Court of Appeal in R v R.85 That case concerned the issue of whether or not a court order granted in related family proceedings amounted to a breach of anti-circumvention provisions, given that the party being ordered to pay was a designated person. Although the Court refrained from expressing a final view on the meaning of the word ‘circumvent’, Lady Justice Arden did hold that it was unrealistic to construe the anti-circumvention provision 77 See OFSI Guidance, para 3.1.3. See also HM Treasury, ‘Financial Sanctions: Frequently Asked Questions’, August 2013, para 5.8. 78 Case C-72/11 Afrasiabi [2011] ECR I-14285. 79 ibid, [39]. 80 See, eg, Regulation (EU) No 36/2012, Article 14(3), as criminalised in the UK by the Syria (European Union Financial Sanctions) Regulations 2012, regulation 16(2). 81 See HM Treasury, ‘The process for imposing monetary penalties for breaches of financial sanctions: consultation response’, April 2017, para 3.24. 82 See 2012 EU Guidelines, para 54. 83 Afrasiabi, above (n 78) [60]. 84 ibid, [62]. 85 R v R [2015] EWCA Civ 796.

Financial Sanctions 73 contained in Article 9 of Regulation (EU) No 269/2014 without regard to the scope of the Regulation as a whole.86 Moreover, she noted that the Regulation clearly distinguished between making a court order and enforcing a court order. As a result, and having regard to the EU fundamental right to effective judicial protection, the Court held that there had been no circumvention in the circumstances.

Ownership and Control 3.58 It is important to be aware that financial sanctions restrictions apply not only to designated persons but also to entities owned or controlled by designated persons.87 Ownership and control is assessed by reference to the EU guidance in this area.88 In relation to ownership, a designated person holding 50 per cent or more of the proprietary interests in a corporate entity will be deemed to own that entity. To this extent, the prohibitions set out above will also apply in relation to that entity. It should be noted that this applies to direct and indirect ownership, so all the entities in an ownership chain with a designated person at the top of the chain will be subject to the same financial sanctions. 3.59 Control is assessed by reference to a number of criteria, including the right to appoint or remove a majority of the members of the administrative, management or supervisory body of such legal person or entity.89 If an entity is deemed to be controlled by a designated person, sanctions restrictions will apply to it in the same way as to the designated person who controls it.

Notification Requirements 3.60 Financial sanctions measures generally include information-sharing obligations, requiring individuals and entities to inform the relevant authorities if they become aware of the existence of a designated person (eg, because they have noticed an account owned by an individual whose details match those of an individual on the Consolidated List). 3.61 EU Regulations dealing with financial sanctions usually include provisions requiring individuals and entities to provide the relevant competent authority with any information which would ‘facilitate compliance’ with the sanctions measures.90 However, these general requirements are significantly bolstered when transposed into UK law. In particular, under the UK regulations dealing with financial sanctions, it is a criminal offence for a ‘relevant institution or relevant business or profession’ not to inform OFSI as soon as practicable where they know or have reasonable cause to suspect that an individual or entity is a

86 ibid, [22]. 87 See OFSI Guidance, para 4. This position is maintained by s 11(3)(b) of SAMLA 2018. 88 OFSI Guidance, para 4.1; see EU Council, ‘Guidelines on implementation and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy’, 30 April 2013, EU Doc 9068/13. 89 OFSI Guidance, para 4.2. 90 See, eg, Article 5 of Regulation (EU) No 881/2002, and Article 29 of Regulation (EU) No 36/2012.

74 UK Sanctions designated person.91 Institutions must provide any information on which their knowledge or suspicion is based, as well as any information they hold regarding the designated person by which that person can be identified. In addition, institutions must provide information regarding the funds or economic resources they hold on behalf of the designated person. These obligations also apply in relation to individuals listed under TAFA 2010. 3.62 SAMLA 2018 states that secondary legislation passed under it may make provision requiring ‘persons of a prescribed description’ to inform an appropriate authority of prescribed matters and to create and retain registers or records.92 The Act also provides that secondary legislation may authorise an ‘appropriate authority’ to require persons of a prescribed description to provide information or produce documents of a prescribed description.93

Other Restrictions 3.63 It should be noted that in addition to the basic asset-freezing restrictions set out at paragraph 3.57 above, financial sanctions measures often extend to other types of restriction.94 Under TAFA 2010, for example, it is an offence to make ‘financial services’ available to designated persons.95 To this extent, and as referred to above, different measures apply in relation to persons designated under different regimes.96 It is therefore extremely important for businesses to identify the regime under which a designated person is listed, as this will impact upon the specific types of measures applicable in relation to that person. The following are examples of EU Regulations containing different types of financial sanctions.

Syria 3.64 The financial sanctions regime applicable in relation to Syria includes measures restricting the sale or purchase of certain Syrian bonds.97 The measures also cover the

91 See, eg, Schedule 1 of the Al-Qaida (Asset Freezing) Regulations 2011, as amended by the European Union Financial Sanctions (Amendment of Information Provisions) Regulations 2017. ‘Relevant institution’ is defined expansively and includes any undertaking which by way of business operates a currency exchange office, transmits money (or any representations of monetary value) by any means or cashes cheques which are made payable to customers. ‘Relevant business or profession’ means an auditor, a casino, a dealer in precious metals or stones, an estate agent, an external accountant, an independent legal professional, a tax adviser, and a trust or company service provider. 92 SAMLA 2018, s 16(1)(a). 93 ibid, s 16(1)(b). 94 See OFSI Guidance, para 1.3 (types of financial sanctions). 95 See, eg, s 12 TAFA 2010. ‘Financial services’ are defined extensively in s 40 TAFA 2010, and include the following: provision of insurance; banking; provision of credit; financial trading; participating in issues of securities; money brokering; asset management; settlement and clearing services for financial assets; providing or transferring financial information; and providing advisory or other auxiliary financial services including advice on acquisitions and corporate restructuring. 96 Note that s 47(1) SAMLA 2018 allows the executive to implement additional sanctions measures beyond those described in ss 3–8 where that is required by a UN or other international obligation. 97 See Article 24 of Regulation (EU) No 36/2012, as implemented in the UK by Part 3 of the Syria (European Union Financial Sanctions) Regulations 2012.

Financial Sanctions 75 establishment of new banking relationships and the provision of certain insurance and reinsurance products to specified individuals and entities.98

Russia/Ukraine 3.65 There are a number of financial sanctions regimes in place in relation to Russia’s annexation of part of Ukraine in 2014. As well as conventional financial measures (asset freezes), the EU has developed a specific set of sanctions designed to restrict the access to capital markets of certain Russian entities.99 This regime has its own separate list of designated individuals and entities, which does not form part of OFSI’s Consolidated List.100 3.66 The prohibitions applicable to the entities included on the capital markets list prescribe the following conduct: (i) Directly or indirectly purchasing, selling, providing brokering or assistance in the issuance of, or otherwise dealing with transferable securities and money market instruments (a) issued during the period between 1 August 2014 and 12 September 2014 with a maturity exceeding 90 days, or (b) issued after 12 September 2014 with a maturity exceeding 30 days.101 (ii) Directly or indirectly making or being a part of any arrangement to make new loans or credit with a maturity exceeding 30 days to listed entities.102 3.67 As mentioned above, the capital markets regime operates separately from the other Russian financial sanctions regimes, and as a result, individuals or entities on the capital markets list are not necessarily subject to other financial sanctions.103 3.68 The capital market restrictions established by Regulation (EU) No 833/2014 have given rise to considerable uncertainty among practitioners in the sanctions area.104 The EU has attempted to address these concerns in a series of guidance notes dealing specifically with the capital markets regime, the most recent of which was published in September 2015.105 Whilst a full consideration of the ambiguities inherent in the regime is beyond the scope of this chapter, practitioners should take into account both the guidance published by the EU Commission and OFSI, as well as the emerging case law in this area (see 3.53 above). 98 ibid, Articles 25 and 26. 99 See Regulation (EU) No 833/2014 (concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine) (as amended), as implemented in the UK by the Ukraine (European Union Financial Sanctions) (No 3) Regulations 2014. Note that this EU Regulation has been amended on numerous occasions; a consolidated version is available at: eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02014R0833-20151009. 100 See OFSI, ‘Ukraine: list of persons subject to restrictive measures in view of Russia’s actions destabilising the situation in Ukraine’, available at: hmt-sanctions.s3.amazonaws.com/ukrainesecuritieslist.pdf. 101 See regulation 3 of the the Ukraine (European Union Financial Sanctions) (No 3) Regulations 2014 (as amended). 102 ibid, regulation 3B. 103 ibid. 104 See Financial Markets Law Committee, ‘Issues of Legal Uncertainty Arising in the Context of EU Contract Sanctions’, August 2015. 105 See European Commission, ‘Commission Guidance note on the implementation of certain provisions of Regulation (EU) No 833/2014’, 25 September 2015.

76 UK Sanctions

Exemptions and Licensing 3.69 The financial sanctions regimes in force in the UK generally contain a number of automatic exemptions. These are exemptions that do not require a licence to be obtained in advance and should therefore be treated as separate from authorisations granted by licence. The exemptions apply to certain payments into frozen accounts, provided that the relevant funds are then frozen once they have entered the account.106 The following payments are usually permitted under financial sanctions regimes:107 (i) Interest or earnings on the frozen account. (ii) Any payments due under contracts, agreements or obligations that were concluded or arose before the date of designation. 3.70 It is important to note, however, that these automatic exemptions do not apply in relation to funds frozen under the Anti-Terrorism, Crime and Security Act 2001.

Licences 3.71 In contrast to the exemptions set out above, sanctions licences must be applied for in advance from OFSI, unless general licences can be relied on in relation to the antiterrorism regime under TAFA 2010 (see paragraph 3.80 below). The grant of a licence means that the conduct specified therein will not be a breach of sanctions law. Licences are usually granted in relation to specific transactions that would otherwise infringe sanctions law. 3.72 The licence application process depends on the nature of the financial sanctions in question. Broadly speaking, the different processes can be split between (i) EU-derived financial sanctions, and (ii) financial sanctions in the field of counter-terrorism. 3.73 It should be noted at the outset that a person whose licence application is refused by OFSI may do one of the following things: (i) ask OFSI to review its refusal; (ii) reapply for a licence with new or supplementary evidence or new arguments; or (iii) seek to judicially review the licence refusal.108

Licensing for EU Financial Sanctions 3.74 Most financial sanctions licences in the UK are granted in relation to EU-derived sanctions measures. As a result, OFSI must consider licence applications in line with the jurisprudence of the EU courts. On that basis, OFSI construes licensing grounds narrowly and treats applications on a case-by-case basis,109 following the decision in EuropäischIranische Handelsbank AG.110 In that case, the CJEU held that a general authorisation 106 See OFSI Guidance, para 6.1. 107 See, eg, Article 19 of Regulation (EU) No 36/2012, as implemented in the UK by regulation 9 of the Syria (European Union Financial Sanctions) Regulations 2012. See also s 16 of TAFA 2010. 108 See OFSI Guidance, para 6.9. 109 ibid, para 6.2. 110 Case C-585/13P Europäisch-Iranische Handelsbank AG [2015] 1 WLR 3995.

Financial Sanctions 77 received from the competent authority in Germany regarding certain types of transaction did not suffice to exclude liability in relation to specific transactions that infringed sanctions provisions. 3.75 At the time of writing,111 applications for these financial sanctions licences should be made by way of a completed licence application form,112 and sent to OFSI via email.113 On account of the complexity of the licensing process in relation to EU financial sanctions, OFSI recommends that applicants leave at least four weeks between the date the application is made and the date the licence is required.114 Licences may only be granted on certain specified grounds, and applications should therefore make it clear which ground the applicant is seeking to rely on. 3.76 The EU Regulations establishing financial sanctions set out the various licensing grounds, and these are in turn reflected in the relevant domestic instruments. OFSI has stated that it will construe each of the licensing grounds narrowly, in line with the approach taken by other EU Member States.115 This was approved by the Administrative Court in the case of R (on the application of Ezz) v HM Treasury,116 in which Mr Justice Cranston stated that licensing grounds should be interpreted restrictively in view of the fact that they are derogations from the main aims being pursued by the sanctions measures.117 This was held to accord with the general principles for interpreting EU law.118 3.77 The key licensing grounds are as follows: (i) Basic needs of designated person and dependent family members. The OFSI Guidance states that ‘basic needs’ are ‘those expenses which are necessary to ensure that the very existence of the designated person is not imperilled’.119 (ii) Payment of reasonable legal fees and disbursements. It is important to bear in mind that although lawyers may currently provide legal services to designated persons under UK law, payment for those services requires a specific licence issued by OFSI.120 To this extent, OFSI ‘strongly encourage’ lawyers providing legal advice to obtain a licence in advance of providing such advice.121 The derogation regarding legal services exists in recognition of the fair trial rights of 111 1 June 2018. 112 See OFSI Guidance, para 6.6.1. The OFSI licence application form states as follows: ‘This form should be used for all licence applications relating to EU sanctions regimes (except the Al-Qaida (Asset Freezing) Regulations 2011), the Anti-terrorism, Crime and Security Act 2001, and the Counter-Terrorism Act 2008’. Licence application forms are available at: www.gov.uk/guidance/licences-that-allow-activity-prohibited-by-financial-sanctions. 113 Completed applications should be submitted to: [email protected]. 114 See the OFSI’s standard ‘Asset freeze licence application form’, p 1. 115 See OFSI Guidance, para 6.2. 116 R (on the application of Ezz) v HM Treasury [2016] EWHC 1470 (Admin). 117 ibid, [31]. 118 ibid. Mr Justice Cranston referred to the following EU cases in relation to this point: Case C-481/99 Heininger [2001] ECR I-9945; Case C-412/82 Group Josi Reinsurance Co [2000] ECR I-5925, [49], [70]; Case C-387/96 Sjoberg [1998] ECR I-1225, [14]; Case C-241/99 CIG [2001] ECR I-5139, [29]. 119 See OFSI Guidance, para 6.3. 120 ibid, FAQs, para 3.4.1. 121 ibid.

78 UK Sanctions those who are designated under EU sanctions regimes. The OFSI Guidance states that payments of fees and disbursements made in this regard must ‘relate specifically to the provision of legal advice or involvement in litigation’.122 In R (on the application of Ezz) v HM Treasury,123 in which the claimant had applied for a release of frozen funds under this derogation, the Court considered the requirements of ‘reasonable legal fees’. Mr Justice Cranston held that the issue was what was reasonable for the purposes of the relevant provision, not whether the amount released would satisfy a particular quote from a particular set of lawyers.124 In this regard, he added that ‘reasonable legal fees’ are not necessarily the highest legal fees payable.125 (iii) Fees or service charges for routine holding or maintenance of frozen funds or economic resources. The OFSI Guidance states that these fees must be for ‘routine activities’, not for ‘refurbishment or redevelopment’.126 (iv) Satisfaction of prior court or arbitration judgments against the designated person. The OFSI Guidance states that the judgement or decision must have been given prior to the date of designation and cannot be for the benefit of a designated person.127 (v) Satisfaction of prior contractual obligations of the designated person. The OFSI Guidance states that the contract or obligation must have arisen prior to the date of designation and cannot result in funds or economic resources being made available to the designated person.128 (vi) Extraordinary expenses. The OFSI Guidance states that the ‘extraordinary expenses’ in question must be incurred by the designated person.129 Furthermore, they must not be recurring or easily anticipated. Finally, this derogation cannot be used to grant licences which are more suitable for consideration under other licensing grounds but cannot be issued due to clear limitations in those grounds. 3.78 In addition to the licensing grounds set out above, certain EU financial sanctions regimes contain further grounds relating to, among other things, the provision of humanitarian aid and the disposal of chemical weapons.130 For this reason, individuals and entities applying for licences should ensure they are aware of the relevant listing regime and the precise licensing grounds available to them. 3.79 Most of the EU financial sanctions regimes also contain provisions requiring the competent authorities of Member States to notify the EU Commission and other EU

122 OFSI

Guidance, para 6.3. above (n 116). 124 ibid, [30]. 125 ibid. 126 OFSI Guidance, para 6.3. 127 ibid. 128 ibid. 129 ibid. 130 See, eg, Regulation (EU) No 881/2002, Article 16(e)–(f). 123 Ezz,

Financial Sanctions 79 Member States following the grant of a licence.131 In some cases, the regimes will require that EU Member States notify the relevant UN sanctions committee.132

Licensing in Terrorism Cases 3.80 Confusingly, there are currently two broad terrorism-related financial sanctions regimes in force in the UK: (i) the domestic regime under TAFA 2010 (implemented pursuant to UN resolution 1373 (2001)); and (ii) the EU (ISIL/Al-Qaida) regime under Regulation 881/2002 (implemented pursuant to UN resolution 1267 (1999)). However, licence applications in relation to both regimes are dealt with in broadly the same way by OFSI and there is a certain amount of overlap between them.133 3.81 TAFA 2010 contains a broad licensing power which may be used by HM Treasury (OFSI) to grant both general and specific licences.134 Importantly, the general licences may be used by individuals and entities without the need to file an application with OFSI. General licences cover, among other things, the provision of insurance and payment of legal aid to designated persons.135 It should be noted that these general licences are in most cases also issued under the relevant provisions of the Regulation 881/2002 regime. In this regard, general licences usually contain wording along the following lines: This licence is granted under section 17 of the Terrorist Asset Freezing etc Act 2010 (‘the Act’), Article 5(2) of Council Regulation (EC) No 2580/2001 (‘Regulation 2580’), and is also granted under regulation 9 of the Al-Qaida (Asset-Freezing) Regulations 2011 (‘the Regulations’) and Article 2a of Council Regulation (EC) No 881/2002 (‘Regulation 881’), in accordance with UN Security Council Resolution 1452/2002 (our emphasis).

3.82 Under the TAFA 2010 power, OFSI may also attach conditions to licences. OFSI has confirmed that the licensing power will be exercised in accordance with the law and the stated objectives of the sanctions regime.136 3.83 The licensing grounds for the ISIL/Al-Qaida regime, on the other hand, are split between (i) ‘basic needs’ licences, and (ii) ‘extraordinary expenses’ licences. The relevance of this division relates to the notification requirements under the overriding UN Security Council resolution. Under resolution 1452 (2002), which amends resolution 1267 (1999), authorisations granted by UN Member States for ‘basic expenses’ must be notified to the UN’s 1267 Committee.137 In other words, OFSI must notify the 1267 Committee where a licence is granted in relation to financial sanctions imposed under the 1267 regime (as implemented by Regulation 881/2002).138 131 See, eg, Regulation (EU) No 329/2007, Article 7(3); Regulation (EU) No 270/2011, Article 4(2). 132 See, eg, Regulation (EU) No 747/2014, Article 6(1)(b). 133 See OFSI note on ‘Licensing in terrorism cases’, available at: www.gov.uk/government/uploads/system/ uploads/attachment_data/file/511692/Terrorism_licensing_policy_revised.pdf. 134 TAFA 2010, s 17. 135 See the OFSI page for general licences, available at: www.gov.uk/government/publications/counter-financingof-terrorism-general-licenses. 136 See OFSI Guidance, para 6.4. 137 UN Security Council resolution 1452 (2002), para 1(a). 138 See ch 1 for a detailed explanation of how the UN regimes work, including the role of the regime-specific sanctions committees.

80 UK Sanctions 3.84 Licences granted in relation to anything other than ‘basic expenses’ fall into the ‘extraordinary expenses’ category. Under resolution 1452 (2002), these require authorisation from the 1267 Committee before they are granted to designated individuals or entities.139 The information requirements are set out in the guidelines provided by the 1267 Committee.140 3.85 It should be noted that the difference between the two separate anti-terrorism regimes does not affect the manner in which licences are requested from OFSI. In this regard, the obligation to notify the 1267 Committee rests with OFSI as the competent state authority responsible for financial sanctions implementation in the UK, not with designated persons seeking the licences. However, an individual or entity applying for a financial sanctions licence should be aware of the separate UN obligations, and ensure that the information that OFSI needs to pass on to the 1267 Committee is included in the original application.

Penalties and Enforcement 3.86 OFSI is responsible for monitoring compliance with financial sanctions, publishing guidance, maintaining the lists of designated persons, and receiving notifications of suspected breaches or circumvention. Moreover, OFSI works closely with law enforcement to ensure that sanctions are properly understood, implemented and enforced.141 However, OFSI is not responsible for sanctions prosecutions, and in the past this has been dealt with by prosecutorial bodies such as the Serious Fraud Office (SFO) or Her Majesty’s Revenue and Customs (HMRC). In addition, sanctions investigations will usually fall within the remit of the National Crime Agency. 3.87 Sanctions enforcement in the UK has been noticeably less stringent than in the US over the past decade.142 The largest monetary penalty imposed in the UK in relation to sanctions breaches was the £5.6 million fine on RBS in 2010 for failing to have adequate systems and controls in place in relation to sanctions lists.143 By contrast, OFAC reached a settlement with BNP Paribas in 2014 worth US$963 million in relation to the bank’s potential liability for apparent violations of US sanctions regulations.144 3.88 This disparity in the level of sanctions enforcement has led to increased calls for the UK to clamp down on sanctions violations.145 In response, the UK Government has 139 UN Security Council resolution 1452 (2002), para 1(b). 140 Security Council Committee pursuant to resolutions 1267 (1999) and 1989 (2011) concerning Al-Qaida and associated entities and individuals, ‘Guidelines of the Committee for the Conduct of its Work’, 15 April 2013, section 11. 141 See: www.gov.uk/government/news/new-body-to-support-financial-sanctions-implementation-launched. 142 See ch 11 for a more detailed discussion of past enforcement and compliance implications for the private sector. 143 Financial Conduct Authority, ‘FSA fines Royal Bank of Scotland Group £5.6m for UK sanctions controls failings’, 3 August 2010, available at: www.fca.org.uk/news/press-releases/fsa-fines-royal-bank-of-scotland-group. 144 US Department of Treasury, ‘Treasury Reaches Largest Ever Sanctions-Related Settlement with BNP Paribas SA for $963 Million’, 30 June 2014, available at: www.treasury.gov/press-center/press-releases/Pages/jl2447.aspx. 145 See, eg, C Binham and J Pickard, ‘Value of UK financial sanctions breaches rises to £1.4bn from £117m’ Financial Times (26 February 2018), available at: www.ft.com/content/97056714-18b8-11e8-9e9c-25c814761640.

Financial Sanctions 81 committed to strengthening enforcement in this area, with the creation of OFSI as a first step in that direction. In particular, the government noted as follows in 2015: The government will review the structures within HM Treasury for the Implementation of financial sanctions and its work with the law enforcement community to ensure sanctions are fully enforced, with significant penalties for those who circumvent them. … This review will take into account lessons from structures in other countries, including the US Treasury Office of Foreign Assets Control.146

3.89 The first steps in the plan to bring UK enforcement more into line with the US approach were the establishment of OFSI and the enactment of the PCA 2017, the relevant parts of which came into force on 1 April 2017.147 Part 8 of the PCA 2017 introduces new provisions relating to financial sanctions specifically, including new enforcement powers for OFSI and tougher penalties for breaches of sanctions. 3.90 OFSI has now published guidance regarding the manner in which it will approach potential breaches of financial sanctions.148 In particular, once OFSI has established the possibility of breach, it has four options open to it: a.

Issue correspondence requiring details of how the relevant person proposes to improve its compliance practices. b. Refer the relevant person to its professional body or regulator to improve compliance. c. Impose a monetary penalty. d. Refer the case to law enforcement agencies for criminal investigation and potential prosecution.149

Criminal Penalties 3.91 Criminal penalties for the commission of sanctions-related offences are set out in detail in the relevant domestic instruments. For example, penalties for the breach of EU-derived financial sanctions are set out in the corresponding secondary legislation.150 The TAFA 2010 regime, on the other hand, contains its own separate penalties. 3.92 In the case of EU-derived financial sanctions, a conviction on indictment for the main offences is punishable by a maximum term of imprisonment of seven years or a fine or both.151 Section 32 of TAFA 2010 also provides for a maximum term of seven years in 146 As reported in the Financial Times, ‘A British OFAC?’ (18 March 2015), available at: ftalphaville. ft.com/2015/03/18/2122085/a-british-ofac/. 147 See the Policing and Crime Act 2017 (Commencement No 2) Regulations 2017, regulation 2. 148 OFSI Guidance on Monetary Penalties. 149 ibid, para 3.2. 150 By way of illustration, the criminal penalties for breach of the financial sanctions provisions set out in Regulation (EU) No 881/2002 are contained in the Al-Qaida (Asset-Freezing) Regulations 2011. 151 See, eg, Al-Qaida (Asset-Freezing) Regulations 2011, s 14; Syria (EU Financial Sanctions) Regulations 2012, s 18. These provisions have been amended by s 144 of the PCA 2017, raising the maximum term of imprisonment from two to seven years.

82 UK Sanctions relation to the main sanctions offences set out in that statute. In this regard, the PCA 2017 has harmonised the maximum term of imprisonment for breach of sanctions as between EU and domestic sanctions regimes. 3.93 SAMLA 2018 provides that secondary legislation creating new sanctions offences may not impose terms of imprisonment exceeding 10 years.152 3.94 It should be noted that where sanctions offences are committed by corporate bodies, prosecutions may be brought against company officers such as directors where (i) the offence is committed with the consent or connivance of that person, or (ii) the offence is attributable to the neglect of that person.153 3.95 Under the PCA 2017, prosecutors are now able to enter into deferred prosecution agreements (DPAs) in relation to sanctions breaches.154 DPAs are agreements reached between prosecuting authorities and organisations which could be prosecuted. Under the supervision of a judge, the potential prosecution is suspended for a defined period provided the organisation in question meets certain specified conditions. This is a relatively recent tool for UK prosecuting authorities, and the first DPA was entered into in November 2015 in relation to bribery offences.155 3.96 DPAs are available to designated prosecutors in England and Wales in relation to certain offences, now including breaches of financial sanctions.156 Prosecutors must take into account the Deferred Prosecution Agreements Code of Practice when deciding whether or not a DPA is appropriate in the circumstances of a particular case. 3.97 The PCA 2017 also provides for the use of serious crime prevention orders (SCPOs) in the event of a breach of financial sanctions. An SCPO can be used in relation to certain serious offences in order to impose broad prohibitions and restrictions on individuals and entities.157 Under section 151, financial sanctions offences are added to the list of offences for which SCPOs are available. 3.98 SCPOs are available to certain prosecuting authorities on application to the court. In particular, prosecuting authorities must persuade a judge that the offence was committed, but only to the civil standard of proof (balance of probabilities). To this extent, an SCPO is a civil order obtained by prosecuting authorities by way of civil proceedings. However, breaching an SCPO is a criminal offence.

152 SAMLA 2018, s 17(5)(a). 153 See, eg, Al-Qaida (Asset-Freezing) Regulations 2011, regulation 13; Syria (EU Financial Sanctions) Regulations 2012, regulation 17. 154 PCA 2017, s 150. 155 Serious Fraud Office, ‘SFO agrees first UK DPA with Standard Bank’, 30 November 2015, available at: www.sfo. gov.uk/2015/11/30/sfo-agrees-first-uk-dpa-with-standard-bank/. 156 See Schedule 17 of the Crime and Courts Act 2013. 157 See the examples given in s 5 of the Serious Crime Act 2007.

Financial Sanctions 83

Civil Penalties 3.99 Under section 146(1) of the PCA 2017, OFSI now has the power to impose monetary penalties for breaches of financial sanctions.158 In particular, OFSI has the power to impose a monetary penalty on a person if, on the balance of probabilities, it is satisfied that (i) the person has breached a prohibition, or failed to comply with an obligation, imposed by or under financial sanctions legislation, or (b) the person knew, or had reasonable cause to suspect, that the person was in breach of the prohibition or (as the case may be) had failed to comply with the obligation. 3.100 Section 146(3) establishes that where it is possible to estimate the value of the funds or economic resources involved in the transgressive transaction, the maximum penalty available is the greater of (i) £1 million, or (ii) 50 per cent of the total value of the funds or economic resources involved. In any other case, the permitted maximum is £1 million. 3.101 Importantly, OFSI also has the power pursuant to section 148(1) to impose monetary penalties on officers of companies found to be in breach. Section 148(1) reads as follows: If a monetary penalty is payable under section 146 by a body, the Treasury may also impose a monetary penalty on an officer of the body if it is satisfied, on the balance of probabilities, that the breach or failure in respect of which the monetary penalty is payable by the body— (a) took place with the consent or connivance of the officer, or (b) was attributable to any neglect on the part of the officer.

3.102 In other words, OFSI may impose separate monetary penalties on company officers in addition to penalties imposed on the company itself. 3.103 OFSI has now provided details regarding the manner in which it will approach the imposition of monetary penalties, including aggravating and mitigating factors that may be taken into account in relation to the final assessment. These ‘case factors’ include the value of the breach, the harm or risk of harm to the particular sanctions regime’s objectives, the person’s knowledge of sanctions and compliance systems in place, and the person’s cooperation with OFSI. In particular, OFSI will have regard to any voluntary disclosure of breach, whether that disclosure is materially complete, and the good faith of the relevant person generally.159 3.104 Once OFSI has decided to impose a penalty, it must follow the procedure set out in section 147 of the PCA 2017. At this stage, the imposition of the monetary penalty is treated as a ‘recommendation’, rather than as a final decision.160 Before issuing the final decision, OFSI must explain the reasons for the penalty, specify the penalty amount and how it has been calculated, and inform the relevant person that they are entitled to make representations.161 158 See OFSI Guidance on Monetary Penalties for a detailed overview of how OFSI approaches the imposition of monetary penalties. 159 OFSI Guidance on Monetary Penalties, paras 3.15–3.42. 160 ibid, para 4.14. 161 ibid, para 5.2.

84 UK Sanctions 3.105 Having made its final decision, OFSI must then inform the relevant person that it is entitled to seek a ministerial review of that decision.162 The minister responsible for financial sanctions is currently the Economic Secretary to the Treasury. He or she must carry out the review personally and decide whether to (i) uphold the penalty and the penalty amount, (ii) uphold the penalty but change the amount, or (iii) quash the penalty decision altogether.163 3.106 Finally, if the minister decides to uphold the OFSI penalty, the relevant person may appeal to the upper tribunal for review of the minister’s decision.164

Trade Sanctions Overview 3.107 Trade sanctions comprise import and export restrictions. Prior to the development of targeted financial measures in the 1990s, trade sanctions were the most common type of economic sanction. From a high-level perspective, import restrictions are often used to deprive states of a key source of funding, whilst export restrictions are usually adopted to deprive states of goods and raw materials needed in the furtherance of activities that are deemed to threaten international peace or violate human rights. However, as with all sanctions, the rationale for trade sanctions will vary from case to case: The ultimate objective of a sanction varies according to the situation. For instance, an arms embargo and a ban on the export of certain items or raw materials could be aimed at supporting a peace process and restricting the financing of weapons by the combatants. Sanctions may also be aimed at preventing weapons from falling into the wrong hands, disrupting terrorist operations, or trying to change the policies and actions of the ‘target’.165

3.108 At present,166 the DIT is responsible for overseeing the implementation and enforcement of sanctions in this area. The ECJU, which was established in July 2016 and forms part of the DIT, works alongside the ECO and is now the body responsible for issuing export licences.167 On the import side, the ILB, also part of the DIT, is responsible for processing licence applications and keeping importers updated in relation to applicable restrictions. 3.109 As with financial sanctions, trade sanctions in the UK derive from a number of different sources, including UN resolutions, EU law and domestic provisions. To this 162 PCA 2017, s 147(3). 163 ibid, s 147(4). 164 ibid, s 147(6). 165 See UK Government, ‘Sanctions, embargoes and restrictions’, first published 3 August 2012 (updated periodically), available at: www.gov.uk/guidance/sanctions-embargoes-and-restrictions. 166 1 June 2018. 167 DIT, ‘Notice to exporters 2016/20: export control joint unit goes live’, 28 July 2016, available at: www.gov.uk/ government/publications/notice-to-exporters-201620-export-control-joint-unit-goes-live/notice-to-exporters201620-export-control-joint-unit-goes-live.

Trade Sanctions 85 extent, measures in force under domestic legislation may have been implemented pursuant to international obligations. Again, this is a very fast-moving area of the law due to the fact that sanctions provisions must constantly be updated to reflect changes in foreign policy that can occur from one day to the next. 3.110 This section of chapter three will consider import and export controls separately.

Trade Sanctions: Export Controls 3.111 Export controls in the UK restrict the sale and supply of certain goods to destinations outside the UK. For example, the most common type of export restriction is the arms embargo, which prohibits the sale or supply of military equipment to certain proscribed destinations. The nature and severity of export restrictions will usually depend on (i) the goods in question, and (ii) the intended export destination. In other words, regulation in this area varies according to what is being exported and where it is being exported to. Export controls also deal with situations in which an individual or company brokers a transaction involving the sale and purchase of restricted items between third countries, where the recipient country is an embargoed destination. 3.112 The UK export control regime is monitored by the ECJU, which also deals with licence applications (see paragraphs 3.139–3.147 below). According to the ECO, export controls impact around 5 per cent of total UK exports.168 This means that around 5 per cent of all goods exported from the UK require some form of licence to be exported. The ECJU maintains a set of consolidated lists – the UK Strategic Export Control Lists – which list all licensable items. In particular, the UK Strategic Export Control Lists bring together both the UK’s own lists of licensable items, and those that derive from the EU. These lists should therefore be the starting point for businesses wanting to find out whether they require a licence to export goods overseas. 3.113 Breach of export controls is a criminal offence, and businesses should be aware that restrictions may apply to so-called ‘dual-use’ items,169 as well as to goods with, for example, a specific military purpose.

Implementation 3.114 Export control legislation may be implemented in the UK pursuant to international obligations or national policy. At the highest level, the UN may decide that a particular state should be subject to export restrictions.170 This decision, made by way of UN Security Council resolution, will create an international obligation for UN Member States. It is then 168 Export Control Organisation, ‘Compliance Code of Practice’, March 2010, para 2, available at: www.gov.uk/ government/publications/compliance-code-of-practice. 169 Dual-use items are goods, software, technology, documents and diagrams which can be used for both civil and military purposes. 170 See ch 1 for a detailed explanation of the UN decision-making process in this area.

86 UK Sanctions a matter for individual UN Member States as to how they choose to legislate domestically to implement that obligation. 3.115 As with financial sanctions, it is important to bear in mind that the EU will often take the lead in terms of legislating for trade sanctions across EU Member States.171 The key piece of EU legislation in this area is currently Common Position 2008/944/CFSP, which sets out EU Member State obligations regarding the control of exports of military technology and equipment. These rules establish the criteria for the assessment of export licence applications in relation to items on the EU’s Common Military List. These criteria are in turn incorporated into the UK’s ‘Consolidated EU and National Arms Export Licensing Criteria’ or ‘Consolidated Criteria’, which are applied by the ECJU in relation to all export licence applications.172 3.116 The UK’s domestic export control system is intended to be flexible enough to keep in line with international obligations. In this regard, section 9(2) of the Export Control Act 2002 (ECA 2002), which sets out the legislative framework for the UK’s export control regime, states that controls of any kind may be imposed for giving effect to any EU provision or other international obligation. Section 9(3) further states that an ‘international obligation’ includes an obligation relating to a joint action, common position or decision taken by the EU Council under Title V of the Treaty on European Union. 3.117 It should be noted that arms embargoes fall outside the EU’s competence to legislate directly on behalf of EU Member States. To this extent, the EU does not impose Regulations in relation to arms embargoes, although it will usually direct EU Member States to implement legislation themselves via CFSP Decision.173 To take an example of how this works in practice, let us consider the UN-mandated arms embargo on the Central African Republic (CAR). In 2013, the UN decided to impose an arms embargo on the CAR in the context of the ongoing conflict in that country. UN Security Council resolution 2127 (2013) provided as follows under the heading ‘Sanctions regime – Arms embargo’: [A]ll Member States shall immediately take the necessary measures to prevent the direct or indirect supply, sale or transfer to the CAR, from or through their territories or by their nationals, or using their flag vessels or aircraft, of arms and related materiel of all types, including weapons and ammunition, military vehicles and equipment, paramilitary equipment, and spare parts for the aforementioned, and technical assistance, training, financial or other assistance, related to military activities or the provision, maintenance or use of any arms and related materiel, including the provision of armed mercenary personnel whether or not originating in their territories.

3.118 This created an obligation for UN Member States to impose an arms embargo on the CAR. In turn, the EU Council passed Council Decision 2013/798/CFSP, which refers back to resolution 2127 (2013) and provides as follows at Article 1: The sale, supply, transfer or export of arms and related materiel of all types, including weapons and ammunition, military vehicles and equipment, paramilitary equipment, and spare parts for the 171 See ch 2 for a detailed explanation of the EU decision-making process in this area. 172 HC Deb 25 March 2014 cols 9–14WS; see also the Appendix to Commons Briefing Paper No 02729, ‘UK arms export control policy’, 8 May 2015. 173 See 2012 Guidelines, para 7. For further detail on CFSP decision-making, see ch 2.

Trade Sanctions 87 aforementioned to the Central African Republic (‘CAR’) by nationals of Member States or from the territories of Member States or using their flag vessels or aircraft shall be prohibited whether originating or not in their territories.

3.119 However, Regulation (EU) No 224/2014, dealing with restrictions on the provision of technical assistance and financing to the CAR, does not refer to the arms embargo set out above. In other words, the arms embargo was not transposed into an EU legal instrument that would be directly applicable (and have direct effect) in individual EU Member States.174 Instead, the relevant international obligations are simply taken into account by national authorities when deciding on whether or not to grant a licence to export military goods (see paragraphs 3.139–3.147 below). This is not the case in relation to restrictions on the export and transfer of dual-use items, which can be and in fact are imposed directly by EU Regulation (see paragraphs 3.133–3.138 below).

Domestic Export Controls Export Control Act 2002 3.120 The UK’s domestic export control system operates within the framework of the ECA 2002. The ECA 2002 replaced the provisions of the Import, Export and Customs Powers (Defence) Act 1939 (IECP(D)A 1939) that dealt with export controls. This wholesale change followed the recommendations set out in the Scott Inquiry Report.175 In particular, the Scott Inquiry Report recommended a comprehensive review of the UK’s export controls and licensing procedures in order to increase transparency and accountability.176 It should be noted that pursuant to section 10 of the ECA 2002, the FCO publishes an annual report setting out the latest developments in international and domestic export control policy.177 3.121 Section 1(1) of the ECA 2002 gives the Secretary of State for International Trade the power to make provision for the imposition of export controls in relation to goods of any description. The section 1(1) power, along with the other powers granted under the ECA 2002, is exercised by way of Orders made by the Secretary of State. The two most significant Orders to date are the following: (i) The Export Control Order 2008 (as amended). (ii) The Export of Radioactive Sources Control Order 2006.

Export Control Order 2008 3.122 The Export Control Order 2008 (2008 Order) is now the single most important piece of domestic export control legislation. The 2008 Order governs, among other things, 174 This is because, although arms embargoes technically fall within the EU’s legislative competence, they are treated as if they did not. See ch 2 for further detail on the EU’s competence in the area of export controls. 175 Scott Inquiry, Report of the Inquiry into the Export of Defence Equipment and Dual-Use Goods to Iraq and Related Prosecutions (HMSO, 1996). In 1998, the UK Government then published a White Paper on Strategic Export Controls (Cm 3989, 1998) which set out proposals for new primary export control legislation. 176 ibid. 177 See, eg, FCO, UK Strategic Export Controls Annual Report 2014 (2015–16, HC 189).

88 UK Sanctions the export and transfer of military and dual-use goods.178 It also imposes certain end-use controls, which apply in particular where a person has grounds for suspecting that the items due to be exported will be used to produce weapons of mass destruction.179 3.123 The most basic restriction under the 2008 Order applies in relation to the export of military equipment and technology. Under article 3, no person shall (i) export military goods, or (ii) transfer military software or technology by electronic means. This prohibition operates irrespective of the intended destination of the goods or software in question, but subject to the limited exceptions in articles 13, 18 and 26. 3.124 Under article 2, the term ‘military’, when used in the 2008 Order in relation to goods, software or technology, refers to the items listed in Schedule 2. Schedule 2 of the 2008 Order is more commonly known as the UK Military List and is one of the lists that forms part of the UK Strategic Export Control Lists (see paragraph 112 above). Items that appear on the UK Military List will therefore always require export authorisation, regardless of the intended destination. Importantly, the UK Government usually interprets arms embargoes imposed internationally as restricting the export of items that appear on the UK Military List.180 Moreover, the UK Military List is intended to reflect the EU’s Common Military List, which is updated annually and sets out the items dealt with by Common Position 2008/944/CFSP. 3.125 Similarly, article 4 of the 2008 Order sets out the more nuanced restrictions that apply in relation to dual-use goods. Although there are some blanket restrictions on the export or transfer of certain dual-use goods, article 4 also applies to the export of dual-use goods to specific destinations, as listed in Schedule 3 of the 2008 Order. For example, article 4 in conjunction with Schedule 3 prohibits the unlicensed export of most marine vessels to Iran. It should be noted that the dual-use provisions of the 2008 Order are supplemented by directly applicable EU law in this area (see paragraphs 3.133–3.138 below). Schedule 3 sets out the items covered by the dual-use restriction and is also known as the UK Dual-Use List. The latter is another of the lists that forms part of the consolidated UK Strategic Export Control Lists. 3.126 Article 5 of the 2008 Order, on the other hand, prohibits the transfer of dual-use goods within the ‘customs territory’181 where the relevant person knows (i) that the final destination of UK controlled dual-use goods, software or technology is outside the customs territory, and (ii) that no processing or working is to be performed on the goods, software or technology in question within the customs territory. Article 5 only applies in relation to the dual-use goods listed in Schedule 3 that are universally restricted (ie, the dual-use goods that are not restricted in relation to specified destinations only).

178 See articles 3, 4 and 5. 179 ibid, article 6. 180 See, eg, the UK Government’s guidance on embargoes and sanctions on Sudan, available at: www.gov. uk/guidance/arms-embargo-on-sudan. 181 The ‘customs territory’ means the sum of all the territories set out in article 3 of Regulation (EU) No 450/2008.

Trade Sanctions 89 3.127 Article 9 exists to supplement the restrictions contained in Regulation (EU) No 1236/2005 covering goods which could be used for capital punishment, torture or other cruel, inhuman or degrading treatment or punishment (see paragraphs 3.137–3.138 below). The additional items restricted under article 9 appear on the UK National Security and Paramilitary List, which also forms part of the consolidated UK Strategic Export Control Lists. 3.128 Exporters from the UK should also be aware of the restrictions attaching to the supply of ‘technical assistance’ in certain situations. For example, article 19 prohibits the provision of technical assistance relating to the supply, delivery, manufacture, maintenance or use of anything which is intended for WMD purposes. In other words, the 2008 Order also contains certain ancillary restrictions relating to the provision of technical assistance that might be required in order to make other items (eg, dual-use items) work as intended. 3.129 Finally, it is important to note that the 2008 Order also prohibits the brokering of transactions between third countries involving restricted goods. Part IV of the 2008 Order deals with ‘trade controls’, with article 20 setting out the brokering offence. In particular, article 20 prohibits any person carrying out activities in the UK, or any UK national anywhere in the world, from supplying or delivering, agreeing to supply or deliver, or doing anything to promote the supply or delivery of any goods subject to trade controls from one third country to another third country that is an embargoed destination, subject to the exceptions in articles 25 and 26.

Export of Radioactive Sources Control Order 2006 3.130 The Export of Radioactive Sources Control Order 2006 (2006 Order) restricts the export of ‘controlled radioactive sources’.182 The latter is defined as a radionuclide conforming to the description in the Schedule to the 2006 Order, which is also known as the UK Radioactive Sources List.183 The UK Radioactive Sources List is another list that makes up the UK Strategic Export Control Lists.

Customs and Excise Management Act 1979 3.131 The provisions in the two Orders discussed above are supplemented by the Customs and Excise Management Act 1979 (CEMA 1979). Part V of CEMA 1979 deals with the ‘control of exportation’, and section 68(1) criminalises exports where the ‘exportation or shipment is or would be contrary to any prohibition or restriction for the time being in force with respect to those goods under or by virtue of any enactment’ (see 3.155 below for further discussion).

Other Secondary Legislation 3.132 In addition to the legislative instruments referred to above, EU measures dealing with specific export restrictions (ie, where export restrictions are imposed specifically

182 See

article 3 of the 2006 Order. article 2.

183 ibid,

90 UK Sanctions in relation to certain situations) will often be implemented by way of separate secondary legislation under section 2(2) of the ECA 1972. For example, the Export Control (Syria Sanctions) Order 2013/2012 (2013 Order) was introduced in this way in order to implement Regulation (EU) No 36/2012, which imposed restrictive measures in relation to the conflict in Syria. In particular, article 6 of the 2013 Order creates an offence where a person exports, supplies or transfers any equipment that might be used for internal repression or for the manufacture and maintenance of products which could be used for internal repression (as listed in Schedule 2) to any person, entity or body in Syria or for use in Syria.

International Export Controls 3.133 There is an extremely wide array of international law dealing with export controls, and most of this is incorporated directly into the domestic provisions set out above.184 Nevertheless, although the domestic provisions form the core of UK export control law, they are supplemented by a number of EU law instruments. Some of these instruments relate to specific categories of goods (eg, torture-related items), whilst others deal with specific situations or conflicts. This section of the chapter will focus on several key pieces of EU legislation that directly affect UK export control law. However, it is not intended as a comprehensive run-down of all the EU legislation that has an impact on UK export controls. 3.134 The first major step for the harmonisation of EU Member State arms export control policies occurred in 1998 with the adoption by the Council of the ‘EU Code of Conduct on Arms Exports’. In particular, the Code established the key principles and criteria to be considered by Member State authorities in relation to the grant of export licences. In 2008, the Code was reviewed and updated by Common Position 2008/944/CFSP, which now governs the approach to be taken by Member States in the area of export control legislation. Article 2 of Common Position 2008/944/CFSP sets out the eight criteria to be considered by national authorities in relation to export licences.

Regulation (EU) No 428/2009 (the ‘Dual-use Regulation’) 3.135 Regulation (EU) No 428/2009 (as amended) sets out EU export controls in relation to dual-use items, and therefore supplements the domestic provisions in this area. Broadly speaking, the restrictions in Regulation 428/2009 apply in relation to (i) the dual-use items listed in Annex I of the Regulation,185 (ii) the dual-use items listed in Annex IV of the Regulation,186 and (iii) dual-use items not listed in Annex I but where the exporter has been informed by the competent authorities of the relevant Member State that the items in question are or may be intended for use in the development of chemical, biological or nuclear weapons.187 Regulation 428/2009 also establishes a system of Community General Export

184 This is mainly because the ECJU will take into account the UK’s international obligations when considering whether or not to grant export licences (see discussion of the UK’s Consolidated Criteria at paras 3.142–3.143 below). 185 See article 3 of Regulation (EU) No 428/2009. 186 ibid, article 22. 187 ibid, article 4.

Trade Sanctions 91 Authorisations, whereby national authorities may issue authorisations valid throughout the EU in relation to the dual-use items listed in Annex II of Regulation 428/2009.188 3.136 The restrictions set out in Regulation 428/2009 are directly applicable in the UK. However, article 35 of the 2008 Order establishes the relevant criminal offences in the UK for breach of the provisions in Regulation 428/2009 (referred to as the ‘dual-use Regulation’ in the 2008 Order). Annexes I and IV of Regulation 428/2009 form part of the UK Strategic Export Control Lists and are collectively known as the EU Dual-Use List.

Regulation (EU) No 1236/2005 (the ‘Torture Regulation’) 3.137 Regulation (EU) No 1236/2005 (as amended) deals with the trade in goods that could be used for capital punishment, torture or other cruel, inhuman or degrading treatment. In particular, the Regulation prohibits the unlicensed export of both (i) goods which have no practical use other than for the purposes of capital punishment, torture or other cruel, inhuman or degrading treatment or degrading punishment,189 and (ii) goods that could be used for the purpose of torture or other cruel, inhuman or degrading punishment (ie, goods that may have another purpose).190 In relation to the first category of goods, article 3(2) establishes that licences may only be granted by the competent authorities of Member States where it can be demonstrated that the goods will be used for the exclusive purpose of public display in a museum in view of their ‘historic significance’. 3.138 Article 36 of the 2008 Order establishes the criminal offences in the UK for breach of the provisions contained in Regulation 1236/2005 (which is referred to as the ‘torture Regulation’ in the 2008 Order). Annexes II and III of Regulation 1236/2005 form part of the UK Strategic Export Control Lists, and are collectively known as the EU Human Rights List.

Licensing 3.139 Article 26(1) of the 2008 Order states that nothing in Parts 2, 3 or 4 of that Order prohibits an act carried out under the authority of a UK licence. However, under article 32 of the 2008 Order, the Secretary of State retains the power to amend, suspend or revoke any licence. 3.140 The UK licensing regime for exporting controlled goods is currently managed electronically by the ECJU through a system called SPIRE.191 All licence applications must be made via SPIRE. 3.141 Under article 26(6)(a) of the 2008 Order, the Secretary of State may grant both general licences and licences limited to specific persons. Moreover, under article 26(6)(c),

188 ibid,

article 9. article 3 of Regulation (EU) No 1236/2005; these goods are listed in Annex II of the Regulation. 190 See article 5 of Regulation (EU) No 1236/2005; these goods are listed in Annex III of the Regulation. 191 SPIRE is due to be replaced by a new system, which was trialled by the ECO in 2016. 189 See

92 UK Sanctions licences may be made subject to conditions. To this extent, there are a number of different licences available to exporters, depending primarily on the items in question and their intended destination.192 Exporters should use the SPIRE system in order to identify which specific licence or licences are needed in relation to their exports. The key licences are as follows: (i) Open General Export Licences (OGELs) OGELs are available for items that are (i) not strictly restricted, and (ii) intended for non-sensitive destinations. OGELs are pre-published licences with set terms and conditions. There are currently 23 different OGELs, including Dual-Use Open General Export Licences and Military Goods Open General Export Licences. Exporters must pre-register for each OGEL they intend to use, and must meet the relevant terms and conditions contained therein. By registering for an OGEL, exporters agree to be legally bound by the relevant conditions. However, if no OGEL exists for the export in question, or the exporter is unable to meet the relevant conditions, a Standard Individual Export Licence will be needed. (ii) Standard Individual Export Licences (SIELs) SIELs are issued in relation to specific goods and specific destinations. They are therefore less flexible than OGELs, and applications for SIELs will take longer to process. (iii) Open Individual Export Licences (OIELs) OIELs are designed to cover long-term contracts, projects and repeat business. Exporters will usually need to establish a track record of exporting before they can apply for an OIEL. 3.142 Licence applications in the UK are currently assessed by reference to eight criteria, known as the ‘Consolidated Criteria’, as most recently set out in the statement made by the Secretary of State for Business, Innovation and Skills (as it was) in March 2014 pursuant to section 9 of the ECA 2002.193 The updated criteria largely reflect the criteria set out in Common Position 2008/944/CFSP, and take into account developments such as the signature of the Arms Trade Treaty by the UK in 2013 (ratified on 2 April 2014). 3.143 The criteria are applied by the ECJU on a case-by-case basis, and, according to the government, licences will not be refused on the basis of a purely theoretical risk of breach.194 The eight criteria are as follows:195 (i) Respect for the UK’s international obligations and commitments, in particular sanctions adopted by the UN Security Council or the European Union, agreements on non-proliferation and other subjects, as well as other international obligations. (ii) The respect for human rights and fundamental freedoms in the country of final destination as well as respect by that country for international humanitarian law. 192 The UK Government (DIT) periodically publishes licensing statistics for each type of licence in issue. 193 See HC Deb 25 March 2014, cols 9–14WS; see also the Appendix to Commons Briefing Paper No 02729, ‘UK arms export control policy’, 8 May 2015. 194 ibid. 195 See the full statement, above (n 193) for a more detailed discussion of each of the eight criteria.

Trade Sanctions 93 (iii) The internal situation in the country of final destination, as a function of the existence of tensions or armed conflicts. (iv) Preservation of regional peace, security and stability. (v) The national security of the UK and territories whose external relations are the UK’s responsibility, as well as that of friendly and allied countries. (vi) The behaviour of the buyer country with regard to the international community, as regards in particular its attitude towards terrorism, the nature of its alliances and respect for international law. (vii) The existence of a risk that the items will be diverted within the buyer country or re-exported under undesirable conditions. (viii) The compatibility of the transfer with the technical and economic capacity of the recipient country, taking into account the desirability that states should achieve their legitimate needs of security and defence with the least diversion for armaments of human and economic resources. 3.144 In 2017, the Administrative Court heard a high-profile judicial review claim regarding licences granted in respect of arms exports from the UK to the Kingdom of Saudi Arabia.196 In particular, the claimant asserted that the Secretary of State for International Trade was obliged by law to suspend extant export licences to Saudi Arabia because of the ‘clear risk’ that the material exported was being used to cause serious breaches of international humanitarian law (by reference to the Consolidated Criteria). The claimant relied on voluminous evidence suggesting that a coalition of countries led by Saudi Arabia had targeted civilians in Yemen in breach of international humanitarian law. However, the Court held that although the reports of civilian casualties were ‘worrying’, the Secretary of State was ‘rationally entitled’ to decide that the coalition was not deliberately targeting civilians.197 On that basis, the Court dismissed the claim. 3.145 Under article 33(1) of the 2008 Order, the Secretary of State must provide written notification of any refusal of a licence application, including the reasons for the decision. That decision may be appealed by the aggrieved party within 28 days of the date of the written notification.198 3.146 Article 37 of the 2008 Order sets out the offences relating to misleading licence applications. In particular, an applicant will commit an offence if, for the purpose of obtaining a licence, he or she (i) knowingly makes a statement which is false in a material particular, or (ii) recklessly makes a statement which is false in a material particular.199 If these circumstances are proved, in addition to the commission of an offence, the relevant licence will be treated as void from the time it was granted. 3.147 Under article 38 of the 2008 Order, a person will also commit an offence if he or she fails to comply with any of the conditions attached to an export licence.

196 R

(Campaign Against Arms Trade) v Secretary of State for International Trade [2017] EWHC 1726 (QB). [210]. 198 See article 33(5) of the 2008 Order. 199 ibid, article 37(1). 197 ibid,

94 UK Sanctions

Penalties and Enforcement 3.148 Although the export control system and licensing process is overseen and monitored by the ECJU, specific instances of non-compliance with export control restrictions are usually investigated by the DIT or HMRC (either individually or collectively). HMRC now enjoys a wide range of investigatory powers, including under the Serious Organised Crime and Policing Act 2005. Once the relevant body has completed its investigation, it may decide to refer any evidence to the UK’s independent prosecuting authority (the CPS), which will consider (i) whether the evidence supports a realistic prospect of conviction, and (ii) whether a prosecution would be in the public interest. Alternatively, the body in question may decide to impose a civil penalty.

Criminal Penalties 3.149 To date, most export control offences have been prosecuted under section 68 of CEMA 1979, by reference to the relevant export restriction in domestic or European legislation.200 Section 68(1) of CEMA 1979 sets out the strict liability offence of exporting goods where such exportation or shipment is or would be contrary to any prohibition or restriction in force with respect to those goods under any enactment. Anyone found guilty of the section 68(1) offence is liable to a fine amounting to three times the value of the goods, or level 3 on the standard scale. 3.150 Section 68(2), on the other hand, creates a separate offence where any person is knowingly concerned in the exportation, or in the attempted exportation, of any goods with intent to evade any such prohibition or restriction. Anyone found guilty on indictment of an offence under section 68(2) is liable to an unlimited fine, or to imprisonment for a term not exceeding seven years.201 In the case of Pouladian-Kari,202 for example, the defendant was originally sentenced to 12 months’ imprisonment under section 68(2) for being knowingly concerned in the export of electrical switchgear, which is a dual-use item pursuant to Regulation 428/2009. 3.151 The 2008 Order also sets out a number of additional offences for the breach of export controls. In particular, article 34(1) deals with contraventions of the prohibitions in Parts 2, 3 or 4 of the Order. Article 34(5), furthermore, sets out the more serious offence of being knowingly concerned in activity prohibited by Parts 2, 3 or 4. However, under article 34(7), these provisions do not create offences relating to prohibitions on the export of goods, which are specifically dealt with by CEMA 1979. Conduct proscribed by article 34(5) of the 2008 Order would include, for example, being knowingly concerned in the brokering of the supply of weapons from a third country to an embargoed destination.203 Conviction 200 See, eg, R v Faulkner [2011] EWCA Crim 962, [2011] 2 Cr App R (S) 117; R v Pouladian-Kari [2013] EWCA Crim 158, [2013] Crim LR 510. 201 Note that sub-ss 68(4), 68(4A) and 68(4AA) of CEMA 1979 increase the maximum term of imprisonment in certain circumstances (eg, where the offence under s 68(2) is committed in connection with an offence under s 3 of the Misuse of Drugs Act 1971). 202 Pouladian-Kari, above (n 200). 203 See article 20 of the 2008 Order.

Trade Sanctions 95 on indictment for an offence under article 34(5) carries a maximum sentence of 10 years’ imprisonment. 3.152 Sentencing for export-related convictions was considered in the case of Knight,204 which involved a prosecution for the brokering of a sale of machine guns to Iran. In particular, Mr Justice Davies set out the following non-exhaustive list of factors to be taken into account: (i) the nature of the goods involved, including their destructive potential; (ii) the quantity and value of the goods; (iii) the intended customer; (iv) the level of involvement of the particular defendant; (v) the degree of planning and the length of involvement of the defendant; and (vi) the sophistication of the transaction and any attempts to evade responsibility or to create a false impression.205

Civil Penalties 3.153 The most prominent civil penalty available to HMRC in relation to export-related investigations is the ‘compound penalty’. Compound penalties are governed by section 152 of CEMA 1979, which effectively allows HMRC to offer exporters the opportunity to settle cases which would otherwise be referred to the CPS for prosecution. There is no maximum limit for compound penalties, and the largest fine for an export-related offence (£575,000) was paid by a UK company in 2009.206 3.154 The advantages of compound penalties to individuals or companies are the chance to avoid prosecution and any criminal penalty that might be imposed upon conviction, and the ability to preserve confidentiality, thereby mitigating any reputational damage that might be incurred. Both public authorities and investigated persons will also benefit from avoiding the time and legal costs involved in preparing or defending a criminal prosecution. 3.155 The other civil remedy available for use by HMRC in this context is the power to seize goods under section 139 of CEMA 1979. Pursuant to section 139(1), HMRC may seize anything liable to forfeiture, which includes ‘restricted goods’ that have not been cleared for export.

Trade Sanctions: Import Controls 3.156 As with export controls, import controls derive from a number of domestic and international instruments. Import controls deal with the import of goods into the UK. Unlike export controls, however, there is currently not much in the way of domestic framework legislation. As a result, UK import controls take shape in a far more piecemeal manner. In view of the proliferation of legislative instruments, this section of chapter three will not attempt to provide a comprehensive analysis of import controls in the UK, but rather an

204 Knight

[2008] EWCA Crim 478, [2008] 2 Cr App R (S) 76. [19]. 206 See ECO, ‘Compliance Newsletter – Issue 1’, May 2009. 205 ibid,

96 UK Sanctions overview of the key controls that relate to strategic sanctions (as opposed to more general import restrictions), and how they are enforced by the relevant authorities. 3.157 Importantly, the EU Commission currently has competence over commercial trade matters that affect the EU single market. To this extent, the UK is largely unable to introduce national import controls. For example, there is very limited scope for the UK to impose unilateral bans on products from specific countries. As a result, the EU will also usually take charge of the implementation of UN-mandated import controls. Obviously, this will change post-Brexit, when the UK will regain full control over the imposition of import restrictions. 3.158 Import controls are monitored and enforced in the UK by a number of public bodies, including the Trade Policy Group (which sits within the DIT) and HMRC. The ILB, also part of the DIT, is responsible for processing import licence applications, and for keeping importers updated on new import restrictions.207 There are currently three types of import restriction: (i) bans (where the import of the items in question is strictly prohibited); (ii) quotas (where the volume of items to be imported is restricted); and (iii) surveillance (where the import is monitored by licences). The licensing regime discussed below does not apply in relation to outright bans (see paragraphs 3.169–3.171 below).

Domestic Import Controls Import, Export and Customs Powers (Defence) Act 1939 3.159 Although the export control provisions of the IECP(D)A 1939 were repealed by the ECA 2002, the import control provisions remain in force. The IECP(D)A 1939 therefore retains its place as the centrepiece of UK import control legislation. In particular, the Import of Goods (Control) Order 1954 (1954 Order), made under section 1(1) of the IECP(D)A 1939, prohibits the importation of all goods into the UK, subject to the provisions of the Order itself.208 Article 2 clarifies that the blanket prohibition under article 1 does not apply in relation to the importation of goods under the authority of a licence issued by the ‘Board of Trade’. 3.160 The functions of the Board of Trade are largely performed by the DIT, which is responsible for granting import licences. In particular, the Open General Import Licence (OGIL), which covers most categories of goods, is made under article 2 of the 1954 Order. The OGIL reflects the import controls that have been adopted at the national level, and does not replicate EU import restrictions, which apply separately. 3.161 The OGIL is updated periodically by the Secretary of State for International Trade,209 and applies automatically in respect of all goods, subject to the exceptions set out

207 The

ILB provides updates to registered UK importers by publishing ‘Notices to Importers’. article 1 of the1954 Order. 209 See, eg, OGIL, 1 March 2014, which replaced the previous OGIL of 1 August 2012. 208 See

Trade Sanctions 97 in articles 5, 6 and 7. Article 5 states that the goods listed in Schedule 1 may not be imported into the UK under the authority of the OGIL if they originate in a country, territory or area listed in column 4 of the relevant entry in Schedule 1. 3.162 Article 7 clarifies that the OGIL does not affect import prohibitions imposed by legislation other than section 1 of IECP(D)A 1939 itself, any Order made under IECP(D) A 1939 or any EU Regulation. In this regard, the importation of certain goods requires a separate national import licence issued by the DIT (see paragraphs 3.169–3.171 below). Moreover, EU Regulations are directly applicable in all EU Member States and supersede or replace national import controls or open import authorisations.210 In other words, importers will have to assess their obligations under EU Regulations separately. 3.163 Section 3(1) of the IECP(D)A 1939 states that where goods are imported in contravention of an Order made under the Act, such as the 1954 Order, those goods will be deemed to be ‘prohibited goods’ and will be liable to forfeiture.

UK Import Controls in Relation to Specific Goods 3.164 In addition to the general prohibition on the unlicensed importation of goods into the UK under the 1954 Order, a number of more draconian import controls apply in relation to certain specific items. In particular, firearms and ammunition that fall within the restrictions imposed by the Firearms Act 1968 require individual import licences. Similarly, anti-personnel landmines that fall within the Landmines Act 1998 cannot be imported into the UK unless a specific licence has been obtained. In the case of landmines, a licence will only be granted if prior authorisation has been obtained from the Secretary of State for Defence under the terms of section 4 of the Landmines Act 1998.

EU Import Controls 3.165 EU import controls will generally relate either to specific categories of goods, or to specific situations or conflicts. In fact, import and export restrictions are often contained in the same piece of EU legislation.211 Again, EU law in this area takes a variety of different forms. This section will focus on several of the key pieces of EU legislation that impact upon UK import controls without, however, providing a comprehensive overview of all relevant EU instruments.

Regulation (EU) No 1236/2005 3.166 Under Article 4(1) of Regulation (EU) No 1236/2005, the import of torture-related items (as listed in Annex II of the Regulation) is prohibited, subject to the derogation in Article 4(2). The derogation is strictly limited to situations in which importers can show that

210 As clarified in the Explanatory Note to the OGIL, 1 March 2014. 211 See, eg, Regulation (EU) No 1236/2005, Article 3 of which is headed ‘export prohibition’, and Article 4 of which is headed ‘import prohibition’.

98 UK Sanctions the items will only be used for the ‘exclusive purpose of public display in a museum in view of [their] historic significance’.

Council Decision 2014/512/CFSP 3.167 Council Decision 2014/512/CFSP relates to Russia’s actions in Ukraine. A rticle 2(3) prohibits the import, purchase or transport of arms and related material of all types from Russia by nationals of EU Member States. This ban was subsequently implemented in the UK, with the ILB confirming in 2014 that the import of arms and military equipment into the EU of any product on the EU Common Military list into the UK is banned if they are of Russian origin or are shipped from the Russian Federation (regardless of the origin of the goods).212

Regulation (EU) No 36/2012 3.168 Regulation (EU) 36/2012 deals with the conflict in Syria. In particular, Article 6 prohibits the import of crude oil and petroleum products originating or exported from Syria. This import ban was confirmed by the ILB in 2012.213

Licensing 3.169 The import licensing process is managed by the ILB through the Import Case Management System (ICMS). As discussed above, although the OGIL applies automatically in relation to most goods, individual or specific licences will be needed in relation to certain items that are restricted under separate domestic and EU legislation. The ILB is the competent authority in the UK for issuing EU-related licences. Importers in need of specific licences will need to register via the ICMS. 3.170 The following are several of the specific licences available to importers: (i) Firearms Specific Import Licence (ii) Textiles and Clothing Import Licence (iii) Iron and Steel Import Licence (iv) Sanctions Derogation Import Licence 3.171 The Sanctions Derogation Import Licence can be applied for in relation to EU import restrictions that contain pre-established derogations. For example, Regulation 329/2007 (as amended) prohibits the import of gold, titanium ore and several other substances from North Korea (whether or not originating in North Korea).214 However, Article 2(5)(a) of that Regulation also sets out a derogation in relation to the import of coal where the relevant competent authority has determined that the shipment originated

212 See

ILB, Notice to Importers 2858, 25 September 2014. ILB, Notice to Importers 2803, 28 March 2012. 214 See Article 2(4)(a) of Regulation (EU) No 329/2007. 213 See

Trade Sanctions 99 outside North Korea. A person wishing to import coal into the UK under that derogation would therefore have to apply to the ILB for a Sanctions Derogation Import Licence.

Penalties and Enforcement 3.172 The ILB manages the import licensing regime. However, compliance is monitored by HMRC, which is also responsible for investigating breaches of import controls. 3.173 As noted above, section 3(1) of the IECP(D)A 1939 states that where goods are imported in contravention of an Order made under the Act, such as the 1954 Order, those goods shall be deemed ‘prohibited goods’ and will be liable to forfeiture. In addition, under section 3(3), where any goods are imported, an officer of HMRC may require any person possessing or having control of those goods to provide proof that the importation is not unlawful. Where a person in that situation is unable to provide such proof, the goods will be deemed prohibited goods and will be liable to forfeiture. Under section 139(1) of CEMA 1979, HMRC may seize any goods liable to forfeiture.

Criminal Penalties 3.174 There are a number of offences that relate to the importation of goods in contravention of import restrictions. 3.175 Section 170(1) of CEMA 1979 creates an offence where a person knowingly acquires goods, the importation or exportation of which any prohibition or restriction is for the time being in force under or by virtue of any enactment. The relevant person must do so with intent to evade any such prohibition or restriction with respect to the goods. 3.176 Separately, section 170(2) of CEMA 1979 sets out a smuggling offence, which applies where a person is in any way knowingly concerned in the fraudulent evasion or attempt at evasion of any prohibition or restriction for the time being in force with respect to the goods under or by virtue of any enactment. Conviction on indictment under section 170(2) carries a maximum sentence of seven years’ imprisonment.

Civil Penalties 3.177 The same civil penalties are available to HMRC in relation to breaches of import controls as they are in relation to breaches of export controls. In particular, HMRC may impose compound penalties under section 152 of CEMA 1979 (see paragraphs 3.153–3.155 above). As discussed, HMRC also has the power under section 139(1) of CEMA 1979 to seize any goods liable to forfeiture.

Trade Sanctions: Miscellaneous Provisions 3.178 In addition to import and export controls, there are a number of pieces of UK legislation that impose trade sanctions of some kind and that also exist broadly in pursuit

100 UK Sanctions of strategic foreign policy goals. The most noteworthy of these instruments are dealt with briefly in this section.

Dealing in Cultural Objects 3.179 The Dealing in Cultural Objects (Offences) Act 2003 (DCO(O)A 2003) was introduced in order to reinforce the domestic implementation of the UK’s international obligations under the UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property 1970.215 That Convention was acceded to by the UK in the context of the growing problem of international trade in stolen antiquities. 3.180 Under section 1(1) of DCO(O)A 2003, it is an offence for a person to dishonestly deal in a cultural object that is tainted, knowing or believing that the object is tainted. The term ‘deal in’ is defined expansively in section 3(1), and includes where a person acquires, disposes, imports or exports a tainted object, or agrees with another to do any of the aforementioned. A person guilty of the offence on conviction on indictment is liable to a maximum sentence of seven years’ imprisonment. 3.181 The DCO(O)A 2003 is now supplemented by the Cultural Property (Armed Conflicts) Act 2017, which came into force on 12 December 2017. The Act is intended to implement the Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict, which the UK ratified in 2017. Section 17 of the new Act creates the offence of dealing in ‘unlawfully exported cultural property’. However, an impact assessment of the Act anticipates only one prosecution every 30 years.216

Trading with the Enemy 3.182 The law on trading with the enemy derives from the recognition of the concept of enemy aliens, which dates back to Calvin’s Case in 1608.217 The basic rule that enemy aliens are prevented from using the courts of England and Wales was articulated as follows in that case by Sir Edward Coke: ‘If this alien becomes an enemy (as all alien friends may) then he is utterly disabled to maintain any action, or get anything within this realm’.218 It has since been recognised that the rule is based on public policy, in particular the protection of the state in times of war.219 3.183 More recently, in Amin v Brown,220 a case involving a claim brought after the US–UK invasion of Iraq in 2003, the defendant argued that the claimant, an Iraqi national and resident in Iraq, was an enemy subject and thus not entitled to bring her claim. 215 See Department for Culture, Media & Sport, Dealing in Tainted Cultural Objects – Guidance on the Dealing in Cultural Objects (Offences) Act 2003, January 2004. 216 HC Deb 15 November 2016, col 61 (second sitting). 217 Calvin’s Case (1608) Co Rep 1a. 218 ibid, 17a. 219 See Sovracht (V/O) v Van Udens Scheepvaart en Agentuur Maatshappij [1943] AC 203, 213 (Lord Atkin). 220 Amin v Brown [2005] EWHC 1670 (Ch), [2006] IL Pr 5.

Travel Bans 101 In particular, the defendant argued that a state of war existed between the UK and Iraq such that the claimant could not have recourse to the English courts. However, Mr Justice Collins concluded that the UK Government’s position was that there was in fact no state of war between the two countries at the relevant time, and decided the hearing on the preliminary issue in favour of the claimant.221 3.184 The long-standing rule against enemy aliens was supplemented at the outset of the Second World War by the Trading with the Enemy Act 1939 (TEA 1939), which remains almost entirely in force. Under section 1(1) of TEA 1939, a person who trades with the enemy within the meaning of the Act is guilty of an offence. ‘Enemy’ is defined in section 2, and includes any ‘State, or Sovereign of a State, at war with His Majesty’, as well as any individual resident in enemy territory and ‘any body of persons (whether corporate or unincorporate) carrying on business in any place, if and so long as the body is controlled by a person who, under this section, is an enemy’. The section 1 offence carries a maximum sentence of seven years’ imprisonment. 3.185 Under section 7(1) of TEA 1939, the UK Government is empowered to confiscate enemy property. After the Second World War, a number of schemes were put in place in order to return property confiscated by the government during that conflict, which in turn gave rise to a number of disputes.222 In the case of Bank Voor Handel en Scheepvaart NV v Administrator of Hungarian Property,223 the House of Lords held that a person whose property has been confiscated under TEA 1939 can neither sue the custodian for the property nor assert any right to it.

Travel Bans Overview 3.186 Travel bans are restrictions on the movement of named individuals associated with regimes or groups, including terrorist groups, whose behaviour is considered unacceptable either by national authorities or by the international community. Travel bans are similar to financial sanctions in the sense that they target specific individuals as opposed to being implemented on a general basis. In the UK, travel bans are imposed as part of the wider legislative framework dealing with immigration. 3.187 As with all sanctions, travel bans are generally imposed as a means of discouraging a state from pursuing a particular course of action. However, like financial sanctions, travel bans are not directly aimed at the state as such, but at certain influential individuals linked

221 ibid, [46]. 222 See, eg, Bank Voor Handel en Scheepvaart NV v Administrator of Hungarian Property [1954] AC 584; R (Kaplan) v Enemy Property Claims Appeal Adjudicator [2004] EWHC 485 (Admin). 223 Bank Voor Handel en Scheepvaart NV v Administrator of Hungarian Property, above (n 222).

102 UK Sanctions to that state.224 To this extent, travel bans are often imposed alongside financial sanctions in relation to the same list of designated individuals.225 Government minister Karen Bradley MP, speaking on behalf of the UK Home Office in 2014, noted as follows in relation to the use of travel bans by the government: The power to deny a person the ability to enter the UK is an important tool that has the potential to support key Government objectives across a range of matters including national security, terrorism, criminality, war crimes and human rights abuses.226

3.188 The Home Secretary and immigration officials have a broad discretion to refuse permission to enter the UK, or to revoke a permission that has already been granted, in particular for reasons relating to an individual’s character, conduct or associations. This is supplemented by specific provisions in the Immigration Act 1971 (IA 1971) that deal with travel bans imposed pursuant to international instruments (see paragraphs 3.193–3.198 below). 3.189 The authority responsible for administering and enforcing travel bans in the UK is the UK Border Force, which forms part of the Home Office. The Border Force is generally responsible for monitoring entry into the UK alongside UK Visas and Immigration. The latter also manages the wider immigration system, including applications for people who want to work and live in the UK.

Implementation 3.190 The implementation of travel bans imposed by the UN and EU is built directly into the IA 1971. In particular, section 8B (as amended) of the IA 1971 is headed ‘persons excluded from the United Kingdom under international obligations’. Under subsection 8B(1), an ‘excluded person’ must be refused leave to enter the UK, as well as leave to remain in the UK. Subsection 8B(4) defines an ‘excluded person’ as a person either (i) named by or under, or (ii) of a description set out in, an international instrument of a kind falling within subsection 8B(5). Subsection 8B(5) states that an international instrument for the purpose of subsection 8B(4) must be either (i) a resolution of the Security Council of the United Nations or (ii) an instrument made by the Council of the European Union. Moreover, the instrument in question must either (i) require that a person is not to be admitted to the United Kingdom (however that requirement is expressed) or (ii) recommend that a person should not be admitted to the United Kingdom (however that recommendation is expressed). 224 eg, the list of individuals subject to the UN-mandated travel ban under UNSCR 1718 (2006) (in relation to nuclear proliferation in DPRK) includes Yun Ho-Jin, who is described as the Director of Namchongang Trading Corporation, and as overseeing the import of items needed for the uranium enrichment programme in North Korea. 225 eg, the designated individuals listed at Annex I of EU Council Decision 2016/849/CFSP (implementing UNSCR 1718 (2006) in relation to DPRK) are subject to both a travel ban (under Article 23(1) of the Decision) and an asset freeze (under Article 27(1) of the Decision). 226 HC Deb 2 April 2014, col 299WH.

Travel Bans 103 3.191 Subsection 8B(5A), which was introduced under amendments contained in the Immigration Act 2016,227 states that the restrictions in subsections 8B(1), (2) and (3) do not apply to a person if that would be contrary to the UK’s obligations under (i) the European Convention on Human Rights, or (ii) the Refugee Convention. In other words, the enforcement of a travel ban pursuant to an international obligation is susceptible to challenge on these grounds. 3.192 Until recently, the international instruments in question had to be designated as such by the Home Secretary. The Immigration (Designation of Travel Bans) Order 2000/2724 (2000 Order) was introduced for that purpose, and the Schedule to the 2000 Order set out all the relevant international instruments (both UN and EU) imposing travel bans to be implemented in the UK. However, subsection 8B(5) was amended228 in order to speed up the implementation process by removing the need to constantly update the 2000 Order.229 As a result, travel bans imposed internationally now take effect immediately in the UK under section 8B.

International Travel Bans 3.193 There are a very large number of international instruments imposing travel bans on individuals.230 As with instruments relating to financial sanctions (often the same instruments), these are updated periodically by the relevant international institutions in order to add and remove individuals to the lists in question. The following are a number of examples to show how travel bans take shape in international law.

Travel Bans in Relation to North Korea 3.194 UN Security Council resolution 1718 (2006) is the main international instrument dealing with nuclear proliferation in North Korea. Paragraph 8(e) of that resolution requires UN Member States to take the necessary steps to ‘prevent the entry into or transit through their territories of the persons designated by the Committee’. The travel ban is therefore mandated at the highest level and creates an international obligation for UN Member States to implement it. 3.195 As discussed at various points in this chapter, the EU now takes the lead for EU Member States in relation to the implementation of UN obligations that fall within the competence of the CFSP. To this extent, Council Decision 2016/849/CFSP introduces the ‘restrictions on admission and residence’ pursuant to resolution 1718 (2006). Article 23(1)(a), reflecting the wording in resolution 1718, states that EU Member States shall take the 227 Immigration Act 2016, s 76(8). 228 ibid, s 76(7). 229 Home Office, ‘Overarching Impact Assessment – Immigration Bill’ (25 November 2015) 10: ‘The Bill removes the need for secondary legislation. Instead international travel bans imposed against non-EU nationals will have immediate immigration effect in the UK’. 230 For a snapshot of the legislative landscape as it stood in December 2015, see the Schedule to the 2000 Order (still in force), which conveniently sets out both the UN and EU instruments that imposed travel bans at that time.

104 UK Sanctions necessary measures to ‘prevent the entry into, or transit through, their territories’ of the persons designated by the UN Sanctions Committee set up by resolution 1718 (see chapter one for a discussion of UN sanctions committees generally). Moreover, Article 23(1)(b) goes further and extends the travel ban to the individuals set out in a separate list (Annex II). In this regard, it should be noted that the EU is able to extend or reinforce sanctions imposed by the UN where it sees fit to do so. 3.196 However, as with arms embargoes, travel bans do not fall within the legislative competence of the EU. As a result, the EU does not legislate directly in this area and there are therefore no EU Regulations imposing directly applicable travel bans in EU Member States. Instead, EU Member States are required to implement legislation themselves.

Travel Bans in Relation to Syria 3.197 The ongoing conflict in Syria is different from many international situations in that there is no agreement within the UN Security Council regarding how it should be dealt with. In particular, Russia has vetoed proposals for the imposition of sanctions on numerous occasions since 2011.231 This lack of consensus at the UN level has left it to the EU and US to implement restrictive measures themselves. To this extent, the EU has passed a number of CFSP Decisions imposing measures, including travel bans. At present, Council Decision 2012/739/CFSP states at Article 24 that EU Member States shall take the necessary measures to ‘prevent the entry into, or transit through, their territories’ of the persons listed in Annex I. This is supplemented by Article 27 of Council Decision 2013/255/CFSP. 3.198 These travel bans are implemented in the UK via the mechanism in section 8B of the IA 1971. Following the coming into force of the Immigration Act 2016, international measures, including EU measures, take effect immediately in the UK without the need for additional secondary legislation.

Domestic Travel Bans 3.199 The UK’s current immigration framework allows the Home Secretary and immigration staff to refuse entry to individuals on a number of grounds, including for reasons relating to the individual’s character, conduct or associations. Domestic legislation distinguishes between the exclusion of EEA nationals and the exclusion of non-EEA nationals.

Exclusion of EEA Nationals 3.200 The free movement of persons within the EU is established by Directive 2004/38/ EC. That Directive is transposed into UK law by the Immigration (European Economic Area) Regulations 2006 (2006 Regulations), which establish a right of admission into the 231 See ‘Russian vetoes are putting UN security council’s legitimacy at risk, says US’ The Guardian (23 September 2015).

Travel Bans 105 UK for all persons carrying a valid national identity card or passport issued by an EEA State.232 However, Directive 2004/38/EC also provides for the exclusion of EEA nationals on grounds of public policy, public security and public health.233 3.201 This exception to the free movement of EU citizens is transposed into UK law by regulation 19(1) of the 2006 Regulations, which states that a person is not entitled to be admitted to the UK if his exclusion is justified on the grounds of public policy, public security or public health. Moreover, under regulation 19(1B), the Home Secretary may make an order prohibiting an EEA national from entering the UK on the same grounds. 3.202 Home Office guidance on the exclusion of EEA nationals, published in 2014, outlines how immigration staff should approach the question of ‘behaviour that might warrant exclusion’. In relation to the latter, the guidance states as follows: Exclusion is not confined to those charged with or convicted of an offence. If the person’s behaviour or actions (whether conducted in the UK or abroad) could fall within the scope of UK criminal legislation, whether or not the individual has been charged with or convicted of an offence, it may warrant exclusion.234

Exclusion of Non-EEA Nationals 3.203 The general position regarding immigration into the UK is set out by subsection 3(1) of the IA 1971, which provides that a person may not enter the UK unless he has been granted leave to do so. Regulation of entry is governed more specifically by the Immigration Rules, introduced under subsection 3(2) IA 1971. Under the Immigration Rules, both the Home Secretary and all immigration officials have a discretion to exclude entry where that exclusion is considered ‘conducive to the public good’.235 In particular, paragraph 320(19) of the Immigration Rules states as follows: The immigration officer deems the exclusion of the person from the United Kingdom to be conducive to the public good. For example, because the person’s conduct (including convictions which do not fall within paragraph 320(2)), character, associations, or other reasons, make it undesirable to grant them leave to enter.

3.204 The latter is supplemented by Home Office guidance regarding refusal of entry based on character, conduct or associations.236 The guidance sets out the following nonexhaustive list of factors that may indicate that a person should be excluded on grounds of character, conduct or associations: Low-level criminal activity. Association with known criminals. Involvement with gangs. Pending prosecutions. Extradition requests. Public order risks. Prescribed organisations. Unacceptable behaviours. Subject to a travel ban. War crimes. Article 1F of the refugee convention.

232 2006 Regulations, regulation 11. 233 Directive 2004/38/EC, Article 27. 234 Home Office, ‘Guidance – Exclusion of EEA nationals and their family members from the UK’ (27 January 2014) 6. 235 Immigration Rules, paras 320(6) and 320(19). 236 Home Office, ‘Guidance – When can I refuse on character, conduct or associations?’ (14 November 2013).

106 UK Sanctions Deliberate debiting. Proceeds of crime and finances of questionable origins. Corruption. Relations between the UK and elsewhere. Assisting in the invasion of the immigration control. Hiring illegal workers. Engaging in deceitful or dishonest dealings with Her Majesty’s Government.

Key Resources Title of document

Reference title

Date

Link

General Department for DIT Guidance International Trade – Sanctions, embargoes and restrictions (Guidance)

31.03.16

www.gov.uk/guidance/sanctionsembargoes-and-restrictions

FCO/DIT – Public consultation on the UK’s future legal framework for imposing and implementing sanctions

Sanctions White Paper

April 2017

www.gov.uk/government/ uploads/system/uploads/ attachment_data/file/609986/ Public_consultation_on_the_ UK_s_future_legal_framework_ for_imposing_and_implementing_ sanctions__Print_pdf_version_. pdf

FCO/DIT – Government response to public consultation on the UK’s future legal framework for imposing and implementing sanctions

Government Response to Sanctions Consultation

August 2017

www.gov.uk/government/uploads/ system/uploads/attachment_data/ file/635101/consultation-ukfuture-legal-framework-sanctionsgovernment-response.pdf

Sanctions and MoneyLaundering Act 2018

SAMLA 2018

23.05.18

www.legislation.gov.uk/ ukpga/2018/13/contents

OFSI Financial Sanctions: OFSI Guidance Guidance

August 2017

https://www.gov.uk/government/uploads/system/uploads/ attachment_data/file/645280/ financial_sanctions_guidance_ august_2017.pdf

OFSI Monetary Penalties for Breach of Financial Sanctions: Guidance

OFSI Guidance on Monetary Penalties

April 2017

www.gov.uk/government/ uploads/system/uploads/ attachment_data/file/637470/ Monetary_penalties_for_breaches_ of_financial_sanctions.pdf

OFSI Factsheet for charities and other non-governmental organisations (NGOs)

OFSI NGO Factsheet

October 2017

www.gov.uk/government/uploads/ system/uploads/attachment_data/ file/653168/OFSI_Charity_FAQ_ web.pdf

Financial sanctions

Key Resources 107 OFSI Financial sanctions: Regime-specific lists and releases

OFSI Regime Page

15.11.17

www.gov.uk/government/ collections/financial-sanctionsregime-specific-consolidated-listsand-releases

OFSI Financial sanctions: Consolidated list of targets

OFSI Consolidated List

21.11.17

www.gov.uk/government/ publications/financial-sanctionsconsolidated-list-of-targets

OFSI Terrorism Licensing OFSI Terrorism N/A Policy Licensing Policy

www.gov.uk/government/uploads/ system/uploads/attachment_data/ file/511692/Terrorism_licensing_ policy_revised.pdf

Trade sanctions ECO Compliance Code of Practice

ECO Code of Practice

23.11.12

www.gov.uk/government/publications/ compliance-code-of-practice

UK Strategic Export UK Strategic Control Lists – The Export Control consolidated list of strate- Lists gic military and dual-use items that require export authorisation

December 2015

www.gov.uk/government/uploads/ system/uploads/attachment_data/ file/488993/controllist20151225. pdf

DIT/ECJU – Spire online export licensing: guidance

Spire Guidance

09.01.17

www.gov.uk/government/ publications/spire-online-exportlicensing-guidance

Home Office, Guidance – Exclusion of EEA nationals and their family members from the UK

HO Guidance on Exclusion 1

22.07.13

www.gov.uk/government/ publications/excluding-eeanationals-and-their-families-fromthe-uk

Home Office, Guidance – When can I refuse on character, conduct or associations?

HO Guidance on Exclusion 2

14.11.13

www.gov.uk/government/ publications/when-can-i-refuseon-character-conduct-or- associations-rfl09-paragraph-32019

Travel bans

4 US Sanctions Introduction 4.1 Although the United States (US) was by no means the first state to introduce economic sanctions in pursuit of foreign policy goals via non-military means, it has undoubtedly been the main user of sanctions instruments since the beginning of the twentieth century.1 In fact, in the aftermath of the First World War, President Wilson endorsed economic sanctions as an alternative to conventional force in the following terms: ‘[a]pply this economic, peaceful, silent, deadly remedy and there will be no need for force’.2 It is t herefore unsurprising that the US legal framework for the imposition of economic sanctions is sophisticated and well developed, if also complex and unwieldy. 4.2 Historically, the US has been quick to adopt sanctions unilaterally, and in fact the Office of Foreign Assets Control (OFAC), which now oversees the implementation and civil enforcement of sanctions in the US, was established in 1950 at a time when multilateral sanctions at the UN level had yet to be imposed. To this extent, the domestic system in the US is largely geared towards the establishment of unilateral as opposed to multilateral sanctions. However, recent decades have seen an increase in multilateral sanctions imposed at the UN level, often instigated by the US, and these measures have, in most cases, been duly incorporated into the US system. 4.3 As with sanctions at the UN level, US sanctions since the 1990s have moved away from comprehensive trade embargoes towards the targeted imposition of financial measures such as asset freezes.3 At the same time, the proliferation of US sanctions legislation has gained pace, resulting in a legal landscape that is now exceedingly dense. Of particular significance for non-US businesses has been the increased use of extra-territorial measures by the US authorities, which has drawn criticism from a large number of states and in some cases led them to adopt so-called ‘blocking statutes’.4 Moreover, the trend towards

1 It should be noted, however, that the use of sanctions by the US dates back at least to the War of 1812 and possibly even to the American War of Independence. For a detailed history of US economic sanctions, see M Rathbone, P Jeydel and A Lentz, ‘Sanctions, Sanctions Everywhere: Forging a Path Through Complex Transnational Sanctions Laws’ (2013) 44 Georgetown Journal of International Law 1055. 2 W Wilson, quoted in G Hufbauer, J Schott and K Elliott, Economic Sanctions Reconsidered (Washington DC, Peterson Institute for International Economics, 2009) 9. 3 See ch 1 for a more detailed history of UN sanctions, including the background to this policy shift. 4 The EU adopted Regulation (EC) 2271/96 – known as the ‘blocking statute’ – in 1996 in response to the extraterritorial application of legislation adopted by the US. The blocking statute prohibits EU persons from complying with US extra-territorial sanctions, allows companies to recover damages arising from such sanctions from the

The Legal Basis of US Sanctions 109 extra-territoriality has been coupled with a more aggressive approach to the enforcement of sanctions law, with fines for violations now running into billions of dollars. 4.4 This chapter will outline the basic legal structures that are relevant to the imposition of US sanctions.

The Legal Basis of US Sanctions US Sanctions Programs5 4.5 OFAC, which forms part of the US Department of the Treasury, states as follows in relation to its role as the main US civil sanctions-enforcer:6 [OFAC] administers and enforces economic sanctions programs primarily against countries and groups of individuals, such as terrorists and narcotics traffickers. The sanctions can be either comprehensive or selective, using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals.7

4.6 By contrast, the US Department of Justice has criminal jurisdiction over sanctions violations, and the two main national enforcers are assisted at the state level by a number of other agencies. These agencies include, for example, the New York State Department of Financial Services, which is responsible for supervising the banking sector in New York State and monitors compliance with sanctions regulations. 4.7 US sanctions measures are usually imposed by Executive Order of the President8 and usually pursuant to emergency powers granted by Congress, albeit that most Executive Orders creating sanctions refer to a number of different statutory sources. In any event, the immediate decision to impose sanctions is almost always a function of the executive branch, although the legislature may choose to supplement or limit existing powers, for example, by passing a separate statute that deals specifically with a particular situation or country. In 2017, Congress passed the Countering America’s Adversaries Through Sanctions Act (CAATSA), which both expands and limits the President’s sanction-making powers in relation to Iran, Russia and North Korea. The statute includes, among other things, a person causing them, and nullifies the effect in the EU of any foreign court judgments based on them. On 18 May 2018, following President Trump’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA), the EU announced it would reactivate the blocking statute by updating the list of US sanctions on Iran falling within its scope. 5 This chapter will adopt the US spelling: ‘programs’. 6 There are, however, a number of other federal agencies that have civil jurisdiction to investigate and penalise sanctions violations. These include, for example, the US Department of Commerce’s Bureau of Industry and Security (BIS) and the US Department of State’s Directorate of Defence Trade Controls (DDTC). 7 See OFAC’s Basic Information on OFAC and Sanctions page, available at: www.treasury.gov/resource-center/ faqs/Sanctions/Pages/faq_general.aspx#basic. 8 An Executive Order is a signed, written and published directive by the US President that manages operations of the federal government. Once issued, Executive Orders are binding in law, albeit that they do not require congressional approval and do not therefore constitute legislation. See American Bar Association, ‘What is an Executive Order?’ (2016) 17 Insights on Law and Society 1.

110 US Sanctions requirement for congressional review of any decision by the President to (i) terminate sanctions provisions aimed at Russia, (ii) waive the applicability of Russia sanctions with respect to a particular person, or (iii) take any licensing action that significantly alters US foreign policy on Russia.9 However, Congress may also take the initiative and create new sanctions regimes itself. In 2012, for example, Congress passed the Magnitsky Act,10 which originally targeted 18 Russian government officials and businessmen linked to the imprisonment and subsequent death in custody of Russian lawyer Sergei Magnitsky.11 There are currently 49 individuals listed on the Magnitsky Sanctions List.12 4.8 US sanctions are organised into specific regimes or ‘programs’.13 There are currently 28 different sanctions programs in operation in the US,14 and these can be divided broadly into (i) programs targeting a country or region-specific situation,15 and (ii) programs targeting a particular issue, group or activity.16 The sanctions programs are implemented and enforced by OFAC, which is a federal government agency that forms part of the US Department of the Treasury. Helpfully, OFAC also publishes guides, known as ‘Sanctions Brochures’, for certain sanctions programs in force, setting out the legislative background and main prohibitions in relation to each of them.17 However, it should be noted that Sanctions Brochures are not available for all sanctions regimes and, where they are available, are frequently out of date. 4.9 OFAC also maintains a consolidated list of individuals and entities subject to financial sanctions measures, known as the Specially Designated Nationals (SDN) List or ‘Blocked Persons List’.18 The property of those on the SDN List is frozen, or ‘blocked’, and US persons are generally prohibited from dealing with them. Every person on the SDN List is given a tag that refers to the relevant sanctions program that applies to them. OFAC is responsible for designating individuals, and for keeping the SDN List updated. 4.10 As noted above, most US sanctions programs are created by Executive Order signed by the President under powers granted by Congress. In this regard, all US sanctions 9 CAATSA limits the President’s ability to terminate or modify Russia sanctions, and in fact the President felt compelled to issue a statement criticising the legislation even as he signed it into law. See the ‘Statement by President Donald J Trump on Signing the ‘Countering America’s Adversaries Through Sanctions Act’, 2 August 2017, available at: www.whitehouse.gov/briefings-statements/statement-president-donald-j-trump-signing-counteringamericas-adversaries-sanctions-act/. 10 The full title of the statute is the Sergei Magnitsky Rule of Law and Accountability Act of 2012. 11 The Magnitsky Act was followed in 2016 by the Global Magnitsky Act, which targets individuals responsible for human rights violations or acts of significant corruption around the world. Other countries have also followed suit, with the UK’s Sanctions and Anti-Money Laundering Act 2018 containing a ‘Magnitsky amendment’ relating to human rights abuses (see ch 3 for further discussion). Similarly, Canada passed the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) in October 2017. 12 As at 1 June 2018; see OFAC’s Sanctions Search List, available at: sanctionssearch.ofac.treas.gov/. 13 See OFAC’s Sanctions Programs and Country Information page, available at: www.treasury.gov/resourcecenter/sanctions/Programs/Pages/Programs.aspx. 14 As of 5 June 2018. 15 See, eg, the Burma Sanctions or the Cuba Sanctions. 16 See, eg, the Counter Terrorism Sanctions or the Cyber-related Sanctions. 17 See, eg the Sanctions Brochure for the Syria Sanctions program, available at: www.treasury.gov/resourcecenter/sanctions/Programs/Pages/syria.aspx. 18 OFAC’s SDN List is available at: www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx.

The Legal Basis of US Sanctions 111 easures can be traced back, where necessary via the relevant Executive Order, to an underm lying piece of congressional legislation. To date, the two main underlying (congressional) sources of authority for the imposition of US sanctions have been the following: (i) Trading with the Enemy Act (TWEA) – passed by Congress in 1917, the TWEA originally gave the President, in times of war or national emergency, broad powers to impose economic sanctions. However, the TWEA was amended in 1977 in order to reduce the scope of the President’s powers, in particular by limiting them to times of war.19 However, new emergency powers have now been granted to the President under separate legislation. (ii) International Economic Emergency Powers Act (IEEPA) – passed by Congress in 1977, the IEEPA authorises the President to regulate commerce after declaring a national emergency in response to any unusual and extraordinary threat to the United States which comes from overseas. The IEEPA is now the key source of congressional authority for the imposition of US sanctions. 4.11 Most of the current sanctions programs derive their authority from the IEEPA. In order to impose sanctions under the IEEPA, the first step is for the incumbent P resident to issue an Executive Order declaring a national emergency in relation to a particular situation.20 Following that declaration, the President is granted powers to regulate trade and impose sanctions measures in relation to that situation.21 For example, Executive Order 13466 was issued by President George W Bush in June 2008 in relation to the ‘unusual and extraordinary threat’ posed by the ‘risk of the proliferation of weapons-usable fissile material on the Korean Peninsula’. Executive Order 13466 goes on to impose asset freezes in relation to property owned by North Korea, or by certain designated North Korean nationals. 4.12 However, sanctions programs usually have multiple sources of congressional authority, and these will be set out at the start of each Executive Order. For example, Executive Order 13466 was issued under both the IEEPA and the National Emergencies Act. Similarly, Executive Order 13667, setting out the Central African Republic Sanctions program, was issued under the IEEPA, the National Emergencies Act, the United Nations Participation Act, and the Immigration and Nationality Act. 4.13 All Executive Orders imposing sanctions measures also authorise the Secretary of the Treasury to pass any regulations that may be necessary to implement the sanctions regime in question. Following the example above, the North Korea Sanctions Regulations were passed in order to implement the regime under Executive Order 13466. All the implementing regulations for all sanctions programs can be found in Chapter V, Title 31 of the US Code of Federal Regulations (CFR).

19 See the amendments to the Trading with the Enemy Act, Pub L No 95-223, 91 Stat 1625 (1977). Notwithstanding the latter amendments, the Cuban Sanctions program is still based on Executive Orders passed under the authority of the TWEA. 20 50 USC § 1701. 21 ibid, § 1702.

112 US Sanctions

Implementation of International Measures 4.14 The US was a founding member of the UN, with the US Senate ratifying the UN Charter on 28 July 1945. Like the UK, the US adopts a ‘dualist’ approach to international law, so that international measures must be implemented domestically in order to have effect in US law. To this extent, in December 1945, Congress passed the United Nations Participation Act (UNPA), which deals with the practicalities of US membership of the UN by, among other things, giving the President authority to implement measures passed by the Security Council under Article 41 of the Charter. In particular, section 5(a) of the UNPA states as follows: Notwithstanding the provisions of any other law, whenever the United States is called upon by the Security Council to apply measures which said Council has decided, pursuant to article 41 of said Charter, are to be employed to give effect to its decisions under said Charter, the President may, to the extent necessary to apply such measures, through any agency which he may designate, and under such orders, rules, and regulations as may be prescribed by him, investigate, regulate, or prohibit, in whole or in part, economic relations or rail, sea, air, postal, telegraphic, radio, and other means of communication between any foreign country or any national thereof or any person therein and the United States or any person subject to the jurisdiction thereof, or involving any property subject to the jurisdiction of the United States.

4.15 The above provision remains in force, and is relied on and invoked by the President when issuing Executive Orders implementing sanctions decided at the UN level.22 It should be noted that authority under the UNPA is usually combined with authority under the IEEPA, even in relation to the same Executive Order.23 This is perhaps indicative of the fact that the authority of the UNPA is treated as supplementary to the broad executive powers that exist in relation to national emergencies, and which the US can use to impose farreaching unilateral sanctions in the absence of consensus at the UN level. In other words, the US sanctions framework appears to be geared on a general level towards the imposition of unilateral measures. Of course, the US retains the power to veto sanctions measures at the UN level, although more recently the US has been frustrated by a perceived intransigence on the part of other Security Council members.24 It should be noted, however, that the US has not placed every individual/entity sanctioned by the UN on the SDN List. 4.16 It is important to note that in the US there is no higher law than the Constitution of the United States. To this extent, international obligations, even when imposed under Chapter VII of the UN Charter, must yield to the primacy of constitutionally guaranteed rights. This approach is similar to that taken by the EU courts in relation to international obligations.25 However, unlike the EU, where sanctions measures under the UN Charter 22 See, eg, Executive Order 13667 (Central African Republic Sanctions); Executive Order 13224 (Counter Terrorism Sanctions); Executive Order 13413 (Democratic Republic of the Congo Sanctions). 23 See, eg, Executive Order 13413 (Democratic Republic of the Congo Sanctions). 24 Most notably, Russia has vetoed numerous sanctions proposals tabled by the US at the UN level in relation to Syria. See ‘Russian vetoes are putting UN security council’s legitimacy at risk, says US’ The Guardian (23 September 2015). 25 See ch 6 for a detailed discussion of the key cases in which the EU courts have had to deal with the conflict between international obligations and fundamental EU law rights.

The Legal Basis of US Sanctions 113 have been successfully challenged in the courts, there has yet to be a successful constitutional challenge to OFAC sanctions in the US.26

Jurisdiction 4.17 The prohibitions imposed under US sanctions programs apply in the main to ‘US persons’, with US persons generally defined as follows in the relevant legislation: ‘any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States’.27 4.18 The above definition therefore covers the following categories of individuals and entities: (i) US citizens and permanent resident aliens – including those located outside the US, and those acting on behalf of non-US companies. (ii) Companies that are incorporated in the US – including overseas branches (but not overseas subsidiaries unless they are explicitly included). (iii) Non-US persons or entities acting inside US territory – including where foreign banks move money through the US financial system in violation of sanctions provisions. 4.19 In recent years, considerable media attention has been paid to the large settlements reached between US authorities and major European banks in relation to sanctions violations.28 For the most part, the US nexus in relation to these violations has been the actual commission of a proscribed act on US territory (eg, due to the fact that the banks moved money through the US financial system on behalf of persons sanctioned by OFAC). In other words, the banks were subject to US jurisdiction on the basis of a territorial connection with the US (see subparagraph 4.18(iii) above). 4.20 In relation to the above, non-US banks and companies should be aware that US enforcement agencies will use any credible connection to US persons, corporations, territory or the US financial system in order to assert jurisdiction over them when it comes to sanctions violations.29

26 There have, however, been a number of close calls; see, eg, KindHearts for Charitable Humanitarian Dev, Inc v Geithner 647 F Supp 2d 857 (2009). For further discussion of this and other cases, see ch 9. 27 See, eg, 31 CFR § 538.315 (Sudanese Sanctions Regulations); 31 CFR § 542.319 (Syrian Sanctions Regulations); 31 CFR § 510.326 (North Korea Sanctions Regulations). 28 See, eg, the OFAC settlements reached with HSBC (2012), Standard Chartered (2012), ING Bank (2012) and BNP Paribas (2014). See ch 11 for a more detailed discussion of these settlements and compliance with US sanctions by non-US entities more generally. 29 In July 2017, for example, CSE Global Limited and its subsidiary CSE TransTel Pte Ltd, both companies based in Singapore, reached a US$ 12 million settlement with OFAC for ‘causing’ financial institutions in the US to engage in the unauthorised exportation or re-exportation of financial services from the US to Iran. In other words, the sanctions violations relating to wire transfers from Singapore to Iran that went through the US financial system. See also C Swift, ‘European Banks and Extraterritorial Sanctions: Lessons from the BNP Paribas Settlement’ (2015) 21 International Trade Law & Regulation 61.

114 US Sanctions

Extra-territoriality 4.21 Whilst in most cases involving sanctions breaches there must be some connection with the US, this is not always the case, and the US has courted controversy for expanding its sanctions regime beyond conventional jurisdictional boundaries in certain situations. This has occurred most notably under the US’s unilateral sanctions regimes in relation to Iran and Syria. The following is a list of instances where conduct may give rise to extra-territorial liability under particular US sanctions programs: (i) Re-exportation of US-origin goods This covers situations where goods that have originally been exported from the US are then ‘re-exported’ from third countries by non-US persons. For example, the Iranian Transactions and Sanctions Regulations state that, subject to limited exceptions, the ‘reexportation from a third country, directly or indirectly, by a person other than a United States person, of any goods, technology, or services that have been exported from the United States is prohibited if … [u]ndertaken with knowledge or reason to know that the reexportation is intended specifically for Iran or the Government of Iran’.30 (ii) Majority-owned subsidiaries Similarly, some sanctions programs contain prohibitions that apply to foreign subsidiaries that are owned or controlled by US persons. Under the Iranian Transactions and Sanctions Regulations, for example, the prohibition on dealing with the Iranian government applies also to ‘foreign entities owned or controlled by US persons’.31 This particular extra-territorial provision was softened in the context of the Joint Comprehensive Plan of Action (JCPOA), which was agreed in relation to Iran in July 2015 but from which the US has now withdrawn.32 In any event, foreign US-owned entities should take care to ensure that any relevant sanctions program does not contain provisions extending liability in this way. (iii) Causing a violation in the US Under a 2007 amendment to the IEEPA, an ‘unlawful act’ now includes an act whereby a person conspires to violate or causes a violation of a sanctions measure imposed under that statute.33 The amendment also extends criminal liability to a person who ‘willfully conspires to commit, or aids or abets in the commission of, an unlawful act’.34 As a result, the amendment has serious implications for non-US entities with subsidiaries operating in the US. In particular, it seems that many of the recent enforcement actions brought against non-US banks have been brought in reliance on the

30 See 31 CFR § 560.205 (2013). 31 See Iranian Transactions and Sanctions Regulations, 31 CFR § 560.215. 32 See, in particular, the Iran General Licence H, which authorised US-owned or US-controlled foreign entities to enter into transactions with individuals or entities controlled by the Government of Iran and found on the Executive Order 13599 List. 33 See International Emergency Economic Powers Enhancement Act, Pub L No 110-96, § 2(a), 121 Stat 1011 (2007) (amending 50 USC § 1705(a)). 34 ibid.

Content and Interpretation 115 provisions set out above, even if in the circumstances the agencies in question have also tended to point to a separate jurisdictional nexus.35 (iv) Secondary sanctions Secondary sanctions are the most controversial of the extra-territorial measures, as they involve the complete absence of any US nexus. In particular, secondary sanctions are aimed at preventing non-US persons from accessing US financial and commercial markets in certain circumstances. Most secondary sanctions to date have been imposed in relation to the Iranian sanctions program. For example, under the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), the US Treasury Secretary may prohibit or impose conditions on the ability of foreign financial institutions that engage in sanctionable activities to open or maintain US correspondent or payable-through accounts.36 Similarly, the Iran and Libya Sanctions Act of 1996 (ISA) makes it sanctionable for non-US persons with no jurisdictional nexus to the US to engage in a number of activities related to the Iranian petroleum and petrochemical industries.37

Content and Interpretation 4.22 As with UN, EU and UK sanctions, US sanctions take a wide variety of forms, and these are constantly being developed and modified in response to changing international circumstances. Most US sanctions measures can be broadly divided into two categories: (i) financial sanctions, or sanctions relaing to blocked assets; and (ii) transaction controls, including trade restrictions and investment bans. 4.23 The interpretation of US sanctions provisions is aided by a range of guidance issued by OFAC. In addition to the Sanctions Brochures for each program, OFAC also publishes interpretative rulings on specific aspects of US sanctions law,38 as well as Frequently Asked Questions (FAQs) addressing concerns raised by the general public.39 However, it should be noted that this guidance is informal and non-binding.40 In particular, OFAC may change

35 See, eg, District Attorney Vance’s announcement of settlement with ING Bank, 12 June 2012: ‘ING’s conduct caused unaffiliated US financial institutions to process transactions that otherwise should have been rejected, blocked, or stopped for investigation pursuant to OFAC regulations. This conduct occurred within ING Bank locations around the world, with the knowledge, approval, and encouragement of senior corporate managers and legal and compliance departments’. See also the OFAC settlement with CSE Global Ltd, above (n 29). 36 See Iranian Financial Sanctions Regulations, 31 CFR § 561.201(b) (2013): ‘CISADA-based sanctions on certain foreign financial institutions’. 37 See ISA, §§ 4, 5, Pub L No 104-172, 50 USC § 1701(1996 & Supp III 1997), 50 USC § 1701 note, § 5(a). 38 See OFAC’s page on interpretive rulings, available at: www.treasury.gov/resource-center/sanctions/OFACEnforcement/Pages/rulings-index.aspx. 39 The OFAC FAQs are available at: www.treasury.gov/resource-center/faqs/Sanctions/Pages/ques_index.aspx. 40 The position is the same with respect to the sanctions guidance issued by EU and UK authorities; see ch 2 and ch 3.

116 US Sanctions its previously stated, non-published interpretation or opinion without first giving public notice.41 Moreover, although OFAC frequently borrows concepts and interpretations from one sanctions program and applies them to others, interpretations that relate to one sanctions program should not generally be applied to others. This is particularly confusing given the limited US case law dealing with issues of interpretation. Although the guidance is a useful starting point for the interpretation of US sanctions measures, it is not a dispositive indication of how OFAC will deal with a particular program or prohibition.

Financial Sanctions 4.24 Financial sanctions are imposed in relation to individuals and entities placed on the SDN List (see paragraph 4.9 above). Property belonging to or controlled by persons on the SDN List must be blocked, which means that it may not be transferred, paid, exported, withdrawn or otherwise dealt with by US persons except pursuant to an authorisation or licence granted by OFAC.42 This prohibition applies most obviously to US financial institutions in possession of liquid assets belonging to designated persons. 4.25 The broad nature of the prohibition on dealing with blocked property is confirmed by OFAC in its list of FAQs. In particular, the FAQs state that ‘blocking’ triggers an immediate across-the-board prohibition against transfers or dealings of any kind with regard to the property. 4.26 In addition, the prohibitions relating to blocked persons extend to entities owned 50 per cent or more by blocked persons. This is known as the ‘50 Percent Rule’, and states more specifically that an entity owned in the aggregate, directly or indirectly, as to 50 per cent or more by one or more blocked persons, is itself considered to be a blocked person.43 To this extent, if, for example, an entity is 30 per cent owned by two blocked persons, then the subsidiary itself will also be a blocked person, regardless of whether or not it appears on the SDN List in its own right. 4.27 US persons in possession or control of blocked property are also subject to reporting obligations under 31 CFR §501. In particular, US holders of blocked property must file reports within 10 business days of rejecting instructions to execute payments or transfers involving underlying transactions prohibited by the provisions of Chapter V of the CFR.44 In addition, holders of blocked assets are subject to an annual reporting obligation.45

41 See OFAC FAQ No 15. 42 See, eg, 31 CFR §553.301 (Central African Republic); 31 CFR §510.301 (North Korea); 31 CFR §515.319 (Cuba). 43 See US Department of the Treasury, ‘Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property Are Blocked’, 13 August 2014, available at: www.treasury.gov/resource-center/sanctions/ Documents/licensing_guidance.pdf. 44 31 CFR §501.603. 45 ibid.

Content and Interpretation 117

Transaction Controls 4.28 Transaction controls vary widely in relation to each separate sanctions program. For the purpose of this section, they include the following general restrictions: (i) Prohibitions on transactions or dealings with certain foreign persons, as designated by the Secretary of the Treasury. (ii) Prohibitions on investment in certain states. (iii) Prohibitions on direct and indirect exportation or re-exportation of US-origin goods and services to certain states. (iv) Prohibitions on the importation into the US of certain specified products from certain states. (v) Prohibitions on the approval, financing, facilitation or guarantee by a US person of a transaction by a foreign person where the transaction by that foreign person would be prohibited if performed by a US person or within the US. 4.29 It should be noted that the monitoring and enforcement of these transaction controls does not fall exclusively within OFAC’s competence. In particular, the US Bureau of Industry and Security, which forms part of the Department of Commerce, is responsible for managing export controls under the Export Authorisation Regulations (EAR).46 For example, all US-origin goods are subject to the EAR, and exporters must assess their obligations by reference to five criteria: (i) classification of the item; (ii) destination; (iii) end-user; (iv) end-use; and (v) conduct.47

Transshipment of US-origin Goods 4.30 In addition to the standard export prohibitions, US persons will also be in violation of certain sanctions programs if they export goods to a third country where they have ‘reason to know’ that the items are intended for a sanctioned destination. The routing of exports via third countries in this way is known as ‘transshipment’. The Sudanese Sanctions Regulations, for example, set out both a standard prohibition on exportation and re-exportation of goods and technology to Sudan,48 and a prohibition on exporting goods and technology to third countries ‘if the exporter knows, or has reason to know, that the goods or technology are intended for transshipment to Sudan (including passage through, or storage in, intermediate destinations)’.49 4.31 The OFAC ‘Guidance on transshipments to Iran’ provides further clarity on the meaning of ‘reason to know’.50 In particular, where US-origin goods are shipped through

46 The EAR can be found in 15 CFR Chapter VII. 47 15 CFR §736.2. 48 31 CFR §538.205. 49 31 CFR §538.411. 50 OFAC, ‘Guidance on transshipments to Iran’, available at: www.treasury.gov/resource-center/sanctions/ Programs/Documents/iranship.pdf.

118 US Sanctions third countries via third-party distributors, the Guidance states that ‘reason to know’ can be established through a variety of circumstantial evidence, including the course of dealing, general knowledge of the industry or customer preferences, working relationships between the parties, or other criteria far too numerous to enumerate. Minority ownership by the seller in the third party distributor may also be relevant to the seller’s knowledge of the goods intended destination, but is not controlling.

4.32 Based on the above, it is clear that OFAC takes an expansive approach to the question of whether a person had ‘reason to know’ that US-origin goods were intended for transshipment to an embargoed destination. In addition, it should be noted that OFAC has read the transshipment prohibition into other sanctions programs, despite the fact that it is sometimes not explicitly referred to in the text of the relevant regulations.51

Facilitation 4.33 Most sanctions programs currently in force contain prohibitions relating to the approval, financing or facilitation by US persons of transactions by foreign persons where the transaction would be prohibited if it were performed by a US person. This is of particular concern for US companies with foreign subsidiaries. 4.34 The most expansive facilitation prohibition is contained in the Sudan Sanctions Regulations,52 and extends to any unlicensed action by a US person that assists or supports trading activity with Sudan by any person.53 Although the Regulations clarify that this does not cover activity of a purely clerical nature, such as reporting on the results of the subsidiary’s trade, it does cover financing or insuring the subsidiary’s trade, or providing warranties regarding the quality of the goods sold by the subsidiary.54 4.35 The Regulations also state that, in order to avoid potential liability for facilitation, US parent companies should ensure that their foreign subsidiaries act independently of any US person in respect of transactions relating to exports from Sudan.55 At the same time, however, the Regulations provide that US persons should not alter their policies or procedures, or those of their foreign subsidiaries, in order to enable those subsidiaries to undertake trading activity that would be illegal if undertaken by US persons.56 Lastly, the Regulations prohibit US persons from referring business opportunities to foreign persons.57 4.36 The detailed provisions set out above relate explicitly to the Sudanese sanctions program. However, as discussed, OFAC may treat this extension and elaboration of the facilitation prohibition as applying to other sanctions programs. To this extent, the safest 51 See OFAC, ‘Cuba: what you need to know about US sanctions against Cuba’, 24 January 2012, available at: cuba-embargo.procon.org/sourcefiles/OFAC_cuba-sanctions.pdf. 52 31 CFR §538.206. 53 31 CFR §538.407(a). 54 ibid. 55 31 CFR §538.407(b). 56 31 CFR §538.407(c). 57 31 CFR §538.407(d).

Content and Interpretation 119 approach for US companies is to assume that the provisions, including those relating to internal policies and procedures, are universally applicable.

Licensing and Exemptions 4.37 OFAC issues licences authorising persons to enter into transactions that would otherwise be prohibited under US sanctions provisions.58 There are two types of OFAC licence: (i) general licences, which are available to a particular class of person and for which there is no need to apply,59 and (ii) specific licences, which are written documents issued by OFAC to specific individuals or entities authorising a particular transaction. Furthermore, OFAC may attach conditions to the licences it grants. 4.38 Both general and specific licences are granted in relation to each individual sanctions program. To this extent, applicants should consult OFAC guidance and FAQs setting out the licences available under the relevant program. In particular, applicants should be aware that OFAC frequently publishes statements of their licensing policy in relation to specific programs. For example, on 7 August 2015, OFAC published its ‘Third Amended Statement of Licensing Policy on Activities Related to the Safety of Iran’s Civil Aviation Industry’.60 However, notwithstanding these statements, OFAC will decide whether or not to grant a licence on a case-by-case basis, and its final decision will be ‘guided by US foreign policy and national security concerns’.61 4.39 The basic principles governing the issuance of both general and specific licences are set out under the relevant Regulations.62 In relation to specific licences, the Regulations state that applications must include ‘all information specified by relevant instructions and/ or forms, and must fully disclose the names of all parties who are concerned with or interested in the proposed transaction’.63 4.40 The Regulations state that licence applications should be made by mail or courier,64 and OFAC’s FAQs give the relevant address as: Office of Foreign Assets Control, US Department of the Treasury, Treasury Annex, 1500 Pennsylvania Avenue, NW Washington, DC 20220, Attn: Licensing Division. However, there is now also an electronic OFAC licence application page.65 4.41 In addition to the above, OFAC occasionally publishes specific guidance relating to licensing. For example, in 2014 OFAC published guidelines aimed at clarifying the 58 See OFAC FAQs, available at: www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_general.aspx#licenses. 59 See, eg, ‘General License J’, 29 July 2016, in relation to the Iranian Transactions and Sanctions Regulations. The licence authorises the re-exportation of ‘eligible aircraft’ by non-US persons to Iran. 60 OFAC, ‘Third Amended Statement of Licensing Policy on Activities Related to the Safety of Iran’s Civil Aviation Industry’, 7 August 2015, available at: www.treasury.gov/resource-center/sanctions/Programs/Documents/3rd_ amended_jpoa_lic.pdf. 61 OFAC FAQS No 78. 62 See, eg 31 CFR §595.308 (Terrorism Sanctions Regulations). 63 See, eg, 31 CFR §595.308(b)(3). 64 See, eg, 31 CFR §595.308(b)(2). 65 See OFAC License Application Page, available at: www.treasury.gov/resource-center/sanctions/Pages/ licensing.aspx.

120 US Sanctions exemptions available to non-governmental organisations seeking to provide humanitarian assistance.66 In particular, OFAC notes that: It is the longstanding policy of the Office of Foreign Assets Control (OFAC) to use its licensing authority to support humanitarian relief efforts. Where such transactions are not otherwise exempt or authorized pursuant to OFAC general licenses, OFAC has long had a favorable specific licensing policy supporting the provision of humanitarian assistance notwithstanding economic sanctions, especially in countries subject to comprehensive economic sanctions.67

4.42 OFAC licence determinations are treated as ‘final agency actions’.68 To this extent, there is no formal appeals process against licence determinations, although OFAC states that it will reconsider licence decisions ‘for good cause’.69 This might include, for example, where an applicant can demonstrate changed circumstances, or where an applicant can submit additional relevant information not previously available.70 4.43 An applicant may challenge an OFAC licence refusal in the US courts, but in order to succeed must show that the decision was ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law’.71 The so-called ‘arbitrary and capricious’ standard is a difficult bar for claimants to overcome, particularly in view of the deference afforded to the US Government by the US courts when it comes to decisions regarding national security.72

Penalties and Enforcement Civil Penalties 4.44 OFAC is primarily responsible for the civil investigation and enforcement of US sanctions. OFAC’s approach to sanctions enforcement is set out in its ‘Enforcement Guidelines’, which are attached as Appendix A to the Reporting, Procedures and Penalties Regulations.73 In the Enforcement Guidelines, OFAC lists seven different types of response to an ‘apparent violation’74 of sanctions provisions: (i) No Action – where OFAC determines that there is insufficient evidence to conclude that a violation has occurred, or concludes that the conduct does not give rise to a level warranting an administrative response.75 66 OFAC, ‘Guidance Related to the Provision of Humanitarian Assistance by Not-For-Profit Non-Governmental Organisations’, 17 October 2014, available at: www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/ Documents/ngo_humanitarian.pdf. 67 ibid. 68 See OFAC FAQs, available at: www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_general.aspx. 69 ibid. 70 ibid. 71 See Zevallos v Obama, CV 13-0390 (RC), 2014 WL 197864 (DDC 17 January 2014) (quoting 5 USC § 706(2)(A)). 72 See ch 9 for an overview of judicial challenges of this kind. 73 31 CFR Part 501. 74 See the Definitions section of the Enforcement Guidelines; ‘apparent violation’ is defined as conduct that constitutes an actual or possible violation of US economic sanctions law, including the IEEPA, the TWEA, the Foreign Narcotics Kingpin Designation Act, and other statutes administered or enforced by OFAC, as well as Executive orders, regulations, orders, directives, or licences issued pursuant thereto. 75 Such conclusion will be based on an analysis of the ‘General Factors’ set out in Section II of the Enforcement Guidelines.

Content and Interpretation 121 (ii) Request Additional Information – where OFAC determines that additional information regarding the violation is needed. Upon receipt of information determined to be sufficient, OFAC will decide whether to pursue further enforcement action. (iii) Cautionary Letter – where OFAC determines that there is insufficient evidence to conclude that a violation has occurred, or that a ‘Finding of Violation’ is not warranted in the circumstances, but believes that the underlying conduct could lead to a violation in other circumstances and/or that a ‘Subject Person’76 does not appear to be exercising due diligence in assuring compliance with the relevant law. (iv) Finding of Violation – where OFAC determines that a violation has occurred, and concludes that the conduct warrants an administrative response but that a civil monetary penalty would not be appropriate. A Finding of Violation will afford the Subject Person an opportunity to respond to OFAC’s determination before it becomes final. (v) Civil Monetary Penalty – where OFAC determines that a violation has occurred and that the conduct warrants the imposition of a monetary penalty. Civil monetary penalty amounts are determined by reference to Section V of the Enforcement Guidelines. (vi) Criminal Referral – where OFAC decides to refer the matter under investigation to appropriate law enforcement agencies for criminal investigation and/or prosecution. Apparent sanctions violations that OFAC has referred for criminal investigation may also be subject to OFAC civil penalty or other administrative action. (vii) Other Administrative Actions – OFAC may make use of the following administrative actions in addition to or in lieu of the administrative action discussed above: a. Licence denial, suspension, modification or revocation. b. Cease and desist order. 4.45 Section III of the Enforcement Guidelines sets out the general factors affecting administrative action. These factors include the following: (i) the Subject Person’s wilfulness or recklessness in breaking the law; (ii) the Subject Person’s awareness of the conduct at issue; (iii) the harm to the sanctions program’s objectives; (iv) the Subject Person’s circumstances and individual characteristics; (v) the existence and adequacy of a Subject Person’s OFAC compliance program at the time of the violation in question; (vi) any corrective action taken by the Subject Person in response to the apparent violation; (vii) the Subject Person’ cooperation with OFAC; (viii) the timing of the apparent violation in relation to the imposition of the sanctions; (ix) any other enforcement action taken by federal, state or local agencies against the Subject Person for the same or similar conduct; (x) the impact administrative action may have on promoting future compliance with US sanctions; and (xi) other factors that may be relevant as determined by OFAC on a case-by-case basis. 4.46 Section V of the Enforcement Guidelines sets out the approach OFAC takes to the imposition of civil penalties. In particular, OFAC will send a Subject Person a Pre-Penalty Notice, in relation to which the Subject Person may submit a written response within a set time frame. If OFAC ultimately concludes that a civil penalty is warranted, it will send the Subject Person a Penalty Notice setting out the penalty amount. A Penalty Notice constitutes a final agency determination that a violation has occurred. 76 See the Definitions section of the Enforcement Guidelines; ‘Subject Person’ is defined as an individual or entity subject to any of the sanctions programs administered or enforced by OFAC.

122 US Sanctions 4.47 The imposition of a civil monetary penalty under a Penalty Notice creates a debt due to the US Government. To this extent, OFAC will refer the matter to the Treasury’s Financial Management Division, which may take action to collect the penalty if it is not paid within the time limit established in the Penalty Notice.

Calculation of Penalty Amount 4.48 In relation to the calculation of the penalty amount, OFAC will make a determination as to whether or not it considers the case to be ‘egregious’ for the purposes of the base penalty calculation. This decision is made by reference to the general factors in Section III of the Guidelines. The Guidelines then go on to establish how OFAC calculates each civil penalty. For example, in non-egregious cases where the apparent violation is disclosed voluntarily by the Subject Person, the base amount of the proposed civil penalty will be half of the transaction value, capped at a base amount per violation (except in the case of transactions subject to the TWEA). An adjustment will then be made by reference to the relevant general factors in Section III. 4.49 It should be noted that OFAC may adjust the penalty amount set out in the PrePenalty Notice on the basis of evidence presented by the Subject Person in its response. The initial penalty amount may also be adjusted on the basis of further review and reconsideration by OFAC. However, the final amount in the Penalty Notice will not exceed the proposed penalty set out in the Pre-Penalty Notice by more than 10 per cent.

Settlement 4.50 Settlement discussions may be initiated by OFAC, the Subject Person or the Subject Person’s representatives. During settlement discussions, penalty amounts will generally be negotiated in accordance with the principles set out in the Enforcement Guidelines. Where settlement discussions occur prior to the issuance of a Pre-Penalty Notice, OFAC will generally agree to withhold the issuance of a Pre-Penalty Notice pending the conclusion of settlement discussions. A settlement does not constitute a final agency determination that a violation has occurred.

Criminal Penalties 4.51 In addition to OFAC’s civil enforcement jurisdiction, the US Department of Justice has jurisdiction to investigate and prosecute criminal infringements, which include the wilful violation of US sanctions law. For example, under the IEEPA it is a crime to wilfully violate, or attempt to violate, any regulation issued under the act.77 4.52 The Department of Justice’s jurisdiction to pursue criminal charges extends to corporate entities. In 2015, for example, the Department of Justice charged Schlumberger

77 50

USC § 1705(c).

Key Resources 123 Oilfields Holdings Ltd with conspiracy to violate sanctions imposed against Iran and Sudan, to which the company ultimately pleaded guilty.78

Key Resources Title of document

Reference title

Date

Link

Basic Information on OFAC and Sanctions

Basic Information

www.treasury.gov/resource-center/ faqs/Sanctions/Pages/faq_general. aspx#basic

OFAC Sanctions Programs and Country Information

Sanctions Programs

www.treasury.gov/resourcecenter/sanctions/Programs/Pages/ Programs.aspx

OFAC Specially Designated Nationals List

SDN List

www.treasury.gov/resource-center/ sanctions/SDN-List/Pages/default. aspx

OFAC Interpretive Rulings

Interpretive Rulings

www.treasury.gov/resource-center/ sanctions/OFAC-Enforcement/ Pages/rulings-index.aspx

OFAC Frequently Asked Questions

FAQs

www.treasury.gov/resource-center/ faqs/Sanctions/Pages/ques_index. aspx

OFAC Licence Application Page

Licence Page

www.treasury.gov/resource-center/ sanctions/Pages/licensing.aspx

OFAC Enforcement Guidelines, 31 CFR Part 501

Enforcement Guidelines

www.treasury.gov/resource-center/ sanctions/Documents/fr74_57593. pdf

OFAC Guidance on Transshipments to Iran

Iran Transshipment Guidance

www.treasury.gov/resource-center/ sanctions/Programs/Documents/ iranship.pdf

OFAC Guidance Related to the Provision of Humanitarian Assistance by Not-For-Profit Non-Governmental Organisations

Humanitarian Assistance Guidance

www.treasury.gov/resource-center/ sanctions/OFAC-Enforcement/ Documents/ngo_humanitarian.pdf

78 See US Department of Justice, ‘Schlumberger Oilfield Holdings Ltd Agrees to Plead Guilty and Pay Over $232.7 Million for Violating US Sanctions by Facilitating Trade with Iran and Sudan’, 25 March 2015, available at: www.justice.gov/opa/pr/schlumberger-oilfield-holdings-ltd-agrees-plead-guilty-and-pay-over-2327-millionviolating-us.

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part ii Challenging Sanctions

126

5 Challenging Sanctions at the UN Level UN Sanctions Regimes This chapter deals with challenges to sanctions measures at the UN level. Given the absence of any formal judicial mechanism for reviewing Security Council resolutions, challenges to UN listings must be brought either (i) indirectly via an individual or entity’s state of residence or citizenship, (ii) directly via a petition addressed to the Focal Point or Office of the Ombudsperson, or (iii) indirectly via domestic or regional courts. Chapter six deals with sanctions challenges in the EU courts, whilst chapter seven deals with sanctions challenges in the UK courts, and chapter eight deals with sanctions challenges at the European Court of Human Rights. The table below sets out the current UN sanctions regimes in force.1 Regime Somalia/Eritrea 751/1907

Key Security Council resolutions Outline of regime/review mechanism SCR 751 (1992) SCR 1730 (2006) SCR 1844 (2008) SCR 1907 (2009)

Establishing a regime of general and targeted sanctions in relation to the civil war in Somalia. The regime was originally intended to support the Mogadishu ceasefire of March 1992, and pave the way for further UN intervention in Somalia. Sanctions measures include arms embargoes on Somalia and Eritrea, as well as targeted measures such as travel bans and asset freezes. The regime is overseen by the Committee, which comprises all 15 members of the Security Council. Decision-making is by consensus. The Committee is supported by the Somalia and Eritrea Monitoring Group. De-listing requests should be made to the Committee via Member State of residence, or be sent directly to the Focal Point for De-listing (established in 2006). The summary of listing criteria should be consulted.

Al-Qaida/ISIL SCR 1267 (1999) 1267/1989/2253 SCR 1904 (2009) SCR 1989 (2011) SCR 2253 (2015)

Establishing a regime of targeted sanctions aimed at individuals associated with Al-Qaida and ISIL. The regime was originally implemented following the bombings of the US embassies in Tanzania and Kenya in 1998. The list of targeted individuals expanded rapidly after the terrorist attacks of 11 September 2001. (continued)

1 UN

sanctions regimes in force as at 1 June 2018. See www.un.org/sc/suborg/en/sanctions/information for a breakdown of each of the UN sanctions regimes currently in force. See also ch 1 for an overview of the UN’s approach to sanctions.

128 Challenging Sanctions at the UN Level

Regime

Key Security Council resolutions Outline of regime/review mechanism Sanctions measures include asset freezes, travel bans and targeted arms embargoes. The regime is overseen by the Committee, which comprises all 15 members of the Security Council. Decision-making is by consensus. The Committee is supported by the Analytical Support and Sanctions Monitoring Team. De-listing requests should be made to the Committee via Member State of residence, or be sent to the Office of the Ombudsperson to the ISIL (Da’esh) and Al-Qaida Sanctions Committee (established in 2009). The summary of listing criteria should be consulted.

Iraq 1518

SCR 1518 (2003)

Establishing a regime of sanctions targeting the government of Saddam Hussein in Iraq, in particular, to continue to identify senior officials of the former Iraqi regime and their immediate family members, including entities owned or controlled by them or by persons acting on their behalf. Sanctions include a general arms embargo and targeted asset freezes. The regime is overseen by the Committee, which comprises all 15 members of the Security Council. Decision-making is by consensus. De-listing requests should be made to the Committee via Member State of residence, or be sent directly to the Focal Point for De-listing (established in 2006). The summary of listing criteria should be consulted.

DRC 1533

SCR 1533 (2004) SCR 1807 (2008)

Establishing a regime of sanctions in relation to the conflict in the Democratic Republic of Congo. Sanctions include a targeted arms embargo, travel bans and asset freezes. The regime is overseen by the Committee, which comprises all 15 members of the Security Council. Decision-making is by consensus. The Committee is supported by the Group of Experts on the Democratic Republic of the Congo. De-listing requests should be made to the Committee via Member State of residence, or be sent directly to the Focal Point for De-listing (established in 2006). The summary of listing criteria should be consulted.

Sudan 1591

SCR 1591 (2005)

Establishing a regime of sanctions in relation to the conflict in Darfur. Sanctions include a targeted arms embargo, travel bans and asset freezes. (continued)

UN Sanctions Regimes 129

Regime

Key Security Council resolutions Outline of regime/review mechanism The regime is overseen by the Committee, which comprises all 15 members of the Security Council. Decision-making is by consensus. The Committee is supported by the Group of Experts on the Sudan. De-listing requests should be made to the Committee via Member State of residence, or be sent directly to the Focal Point for De-listing (established in 2006). The summary of listing criteria should be consulted.

Lebanon 1636

SCR 1636 (2005) SCR 1757 (2007)

Establishing a sanctions regime in relation to the terrorist bombing in 2005 that killed former Lebanese Prime Minister Rafiq Hariri. Sanctions include targeted travel bans and asset freezes. The Committee originally registered individuals designated by the International Independent Investigation Commission (IIIC) or the Government of Lebanon. As of 2009, the IIIC’s jurisdiction lapsed and was taken over by the Special Tribunal for Lebanon. There are currently no individuals or entities listed pursuant to this regime.

DPRK 1718

SCR 1718 (2006) SCR 1874 (2009) SCR 2087 (2013) SCR 2094 (2013) SCR 2270 (2016) SCR 2371 (2017) SCR 2375 (2017) SCR 2394 (2017)

Establishing a regime of sanctions in response to nuclear testing by the DPRK in 2006 and on numerous occasions thereafter. Sanctions include a general arms embargo, travel bans, asset freezes, a ban on the supply of items relating to nuclear weapons programmes, a ban on the supply of luxury goods, and a ban on the provision of financial services. The regime is overseen by the Committee, which comprises all 15 members of the Security Council. Decision-making is by consensus. The Committee is supported by the Panel of Experts. De-listing requests should be made to the Committee via Member State of residence, or be sent directly to the Focal Point for De-listing (established in 2006). The summary of listing criteria should be consulted.

Libya 1970

SCR 1970 (2011) SCR 1973 (2011) SCR 2146 (2014) SCR 2213 (2015)

Establishing a sanctions regime to respond to human rights violations committed by the Gaddafi regime in Libya. Sanctions include a general arms embargo, travel bans, assets freezes, and a prohibition on the illicit export of crude oil from Libya. The regime is overseen by the Committee, which comprises all 15 members of the Security Council. Decision-making is by consensus. The Committee is supported by the Panel of Experts. (continued)

130 Challenging Sanctions at the UN Level

Regime

Key Security Council resolutions Outline of regime/review mechanism De-listing requests should be made to the Committee via Member State of residence, or be sent directly to the Focal Point for De-listing (established in 2006). The summary of listing criteria should be consulted.

Taliban 1988

SCR 1988 (2011) SCR 2160 (2014)

Establishing a sanctions regime in relation to the situation in Afghanistan, and in particular in response to terrorist attacks perpetrated by members of the Taliban. Sanctions include a targeted arms embargo, asset freezes and travel bans. The regime is overseen by the Committee, which comprises all 15 members of the Security Council. Decision-making is by consensus. The Committee is supported by the Panel of Experts. De-listing requests should be made to the Committee via Member State of residence, or be sent directly to the Focal Point for De-listing (established in 2006). The summary of listing criteria should be consulted.

Guinea-Bissau 2048

SCR 2048 (2012)

Establishing a sanctions regime in response to the military coup in Guinea-Bissau in April 2012. Sanctions measures only include travel bans (and there are only 11 individuals on the relevant sanctions list). The regime is overseen by the Committee, which comprises all 15 members of the Security Council. Decision-making is by consensus. The Committee is supported by the Panel of Experts. De-listing requests should be made to the Committee via Member State of residence, or be sent directly to the Focal Point for De-listing (established in 2006). The summary of listing criteria should be consulted.

Central African Republic 2127

SCR 2127 (2013) SCR 2196 (2015)

Establishing a sanctions regime to deal with the breakdown of order in the Central African Republic. Sanctions include a general arms embargo, travel bans and asset freezes. The regime is overseen by the Committee, which comprises all 15 members of the Security Council. Decision-making is by consensus. The Committee is supported by the Panel of Experts. De-listing requests should be made to the Committee via Member State of residence, or be sent directly to the Focal Point for De-listing (established in 2006). The summary of listing criteria should be consulted.

Yemen 2140

SCR 2140 (2014) SCR 2216 (2015)

Establishing a sanctions regime in response to terrorist activity in Yemen, in particular to terrorist attacks on government facilities in 2013. (continued)

Introduction 131

Regime

Key Security Council resolutions Outline of regime/review mechanism Sanctions include a targeted arms embargo, asset freezes and travel bans. The regime is overseen by the Committee, which comprises all 15 members of the Security Council. Decision-making is by consensus. The Committee is supported by the Panel of Experts. De-listing requests should be made to the Committee via Member State of residence, or be sent directly to the Focal Point for De-listing (established in 2006). The summary of listing criteria should be consulted.

South Sudan 2206

SCR 2206 (2015)

Establishing a sanctions regime in response to the ongoing violence in the region, in particular the failure of parties to honour commitments under the Cessation of Hostilities Agreements. Sanctions include travel bans and asset freezes. The regime is overseen by the Committee, which comprises all 15 members of the Security Council. Decision-making is by consensus. The Committee is supported by the Panel of Experts. De-listing requests should be made to the Committee via Member State of residence, or be sent directly to the Focal Point for De-listing (established in 2006). The summary of listing criteria should be consulted.

Mali 2374

SCR 2374 (2017)

Establishing a sanctions regime to deter individuals deemed to be actively stymying progress in implementing the Agreement of Peace and Reconciliation in Mali, signed in 2015, by the Malian government and both the Plateforme and Coordination des Mouvements de l’Azawad coalitions of armed groups. Sanctions include travel bans and asset freezes. The regime is overseen by the Committee, which comprises all 15 members of the Security Council. Decision-making is by consensus. The Committee is supported by the Panel of Experts. De-listing requests should be made to the Committee via Member State of residence, or be sent directly to the Focal Point for De-listing (established in 2006). The summary of listing criteria should be consulted.

Introduction 5.1 As discussed in chapter one, the highest level of sanctions measures in international law emerge from decisions of the UN Security Council. In particular, UN sanctions regimes

132 Challenging Sanctions at the UN Level are introduced by way of Security Council resolution passed under Chapter VII of the UN Charter. Technically, it is Article 41 of the UN Charter that grants the Security Council the power to adopt ‘measures not involving the use of force’, including ‘complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations’. In practice, however, resolutions establishing UN sanctions regimes usually avoid reference to Article 41 and merely state that they have been adopted under Chapter VII of the UN Charter. 5.2 One of the key changes in the design and implementation of UN sanctions regimes occurred in the mid- to late-1990s with the movement away from comprehensive sanctions (ie, measures aimed at disrupting the economic relations of a state as a whole) towards measures targeted far more narrowly at individuals or corporate entities (so-called ‘targeted’ or ‘smart’ sanctions).2 This fundamental shift in international sanctions policy has meant that individuals have increasingly been confronted by the full weight of UN sanctions measures, usually asset freezes and travel bans implemented via regional or domestic legislation. 5.3 Moreover, on account of the absence of any independent judicial mechanism for reviewing measures imposed by the UN Security Council, individuals listed under UN sanctions regimes are unable to mount a direct legal challenge to their listing at the UN level. This anomaly has been the focus of a great deal of criticism,3 as well as regional and domestic litigation.4 In particular, the EU courts have become a popular jurisdiction for challenging UN-mandated listings since the European Court of Justice (ECJ) in Kadi I held that EU instruments implementing UN measures must comply with fundamental tenets of EU law, including judicial protection generally.5 As a result, the EU no longer implements UN measures where these are found to violate certain principles of EU law. 5.4 In response to the mounting criticism, attempts were made to remedy the issue at the UN level by introducing a number of non-judicial avenues for challenging UN sanctions listings.6 To this extent, although it remains impossible to mount a formal legal challenge to UN measures via any independent judicial forum, there are at least a number of quasi- judicial options available to individuals and entities listed pursuant to UN sanctions regimes. 2 See ch 1 for a more detailed history of UN sanctions, including the background to this policy shift. See also K Prost, ‘Security Council Sanctions and Fair Process’ in L van den Herik (ed), Research Handbook on UN Sanctions and International Law (Edward Elgar Publishing, 2017); L van den Herik, ‘The Individualization and Formalization of UN Sanctions’ in L van den Herik (ed), Research Handbook on UN Sanctions and International Law (Edward Elgar Publishing, 2017). 3 See, eg, E Miller, ‘The Use of Targeted Sanctions in the Fight Against International Terrorism – What About Human Rights?’ (2003) 97 American Society of International Law Proceedings 46; Report of the High-level Panel on Threats, Challenges and Change addressed to the UN Secretary-General, 1 December 2004, UN Doc A/59/565; B Fassbender, Targeted Sanctions and Due Process, Study Commissioned by UN Office of Legal Affairs – Office of Legal Counsel’ (Humboldt University Berlin, 2006); TJ Biersteker and S Eckert, ‘Strengthening Targeted Sanctions through Fair and Clear Procedures’, White Paper prepared by the Watson Institute Targeted Sanctions Project (Brown University) 30 March 2006; L van den Herik, ‘The Security Council’s Targeted Sanctions Regimes: In Need of Better Protection of the Individual’ (2007) 20 Leiden Journal of International Law 797. 4 See, eg, Case C-402/05 Kadi and Al Barakaat International Foundation v Council and Commission [2008] ECR I-6351 (Kadi I); Ahmed v HM Treasury [2010] UKSC 2, [2010] 2 AC 534 (Ahmed); Abdelrazik v Minister of Foreign Affairs and Attorney General of Canada [2009] FC 580; Al-Dulimi v Switzerland (2016) 42 BHRC 163. 5 See ch 6 for a more detailed discussion of the decision in Kadi I and related EU jurisprudence. 6 For a detailed account of the evolution of the UN’s de-listing mechanisms see P Eden, ‘United Nations Targeted Sanctions, Human Rights and the Office of the Ombudsperson’ in M Happold and P Eden (eds), Economic Sanctions and International Law (Hart Publishing, 2016).

Introduction 133 5.5 In particular, the so-called ‘1267 regime’, established under Security Council resolution 1267 (1999), has undergone a series of reforms aimed at making it more transparent and less arbitrary.7 In 2006, for example, the UN responded to criticism of the 1267 regime by introducing a ‘Focal Point’ tasked with ensuring that requests for de-listing were considered and submitted by the 1267 Committee in a timely manner, among other things.8 Then in 2009, partly in response to the ECJ’s strong criticism in Kadi I,9 the UN created the Office of the Ombudsperson to act as an independent and impartial reviewer of de-listing petitions in relation to the 1267 regime only.10 The Office of the Ombudsperson’s mandate and powers have been expanded since its inception, but concerns remain as to the extent of its independence as a review body.11 5.6 Despite these attempts to improve the situation, it remains impossible to mount a formal legal challenge to UN measures via any independent judicial forum. In 2010, Lord Rodger summarised the problem as follows in the UK Supreme Court case of Ahmed v HM Treasury: [E]ven after the reforms introduced in the last two years, there is little that individuals can do to launch an effective challenge to their listing after it has occurred … There is an obvious danger that states will use listing as a convenient means of crippling political opponents whose links with, say, Al-Qaida may be tenuous at best.12

5.7 In this regard, it is fair to say that the UN reforms have not had a huge impact on the way in which domestic or regional sanctions cases are decided.13 Generally speaking, domestic courts have tended to view the reforms with a degree of scepticism, often pointing out that there is no substitute for review by an independent judicial body. 5.8 However, the procedural reforms at the UN level have undoubtedly made a difference for individuals and entities listed pursuant to UN sanctions regimes. It should be noted, for example, that although the Office of the Ombudsperson is not a wholly independent body, none of its de-listing recommendations have to date been overturned by the relevant Sanctions Committee. In other words, it would appear that a recommendation by 7 It is now technically the 1267/1989/2253 regime, following SCR 2253 (2015), which extended the scope of the sanctions measures to cover Islamic State in Iraq and the Levant (ISIL). 8 See SCR 1730 (2006). 9 Kadi I, above (n 4). Referring to the review procedures introduced at the UN level, the ECJ stated that ‘although it is now open to any person or entity to approach the Sanctions Committee directly, submitting a request to be removed from the summary list at what is called the “focal” point, the fact remains that the procedure before that Committee is still in essence diplomatic and intergovernmental, the persons or entities concerned having no real opportunity of asserting their rights and that committee taking its decisions by consensus, each of its members having a right of veto’ (para 323). 10 See SCR 1904 (2009). 11 See, eg, the Tenth Report of the Office of the Ombudsperson pursuant to SCR 2161 (2014) 14 July 2015. In particular, the outgoing Ombudsperson (Kimberly Prost) noted that ‘the most serious threat to the mechanism at this stage is an internal one. The absence of an established office within the United Nations structure and the lack of institutional protections for its independence are of significant concern. As recently demonstrated, these structural weaknesses have the potential to impair the important rights which are to be safeguarded by the mechanism – both collective rights to security and individual rights’ (para 99). 12 Ahmed, above (n 4) para 181. 13 This is particularly true at the EU level and can be seen in the final decision in the second Kadi case – Joined Cases C–584/10 P, C–593/10 P & C–595/10 P Kadi v Council and Commission [2014] 1 CMLR 659 (Kadi II). In that decision, the Court of Justice of the European Union made it clear that nothing short of full judicial review would be enough to persuade it that a sufficient level of protection had been provided at the UN level.

134 Challenging Sanctions at the UN Level the Ombudsperson carries considerable weight with the Sanctions Committee, and that the Ombudsperson’s final decision will generally be followed. 5.9 Moreover, when targeted sanctions measures were first introduced at the UN level there was a complete lack of transparency regarding how listings were proposed and decided upon. To this extent, the reforms introduced at the UN level have done much to clarify the processes followed by UN Sanctions Committees and the way in which decisions are made. 5.10 It is important to note that review mechanisms vary from one sanctions regime to another. In this regard, of the 14 UN sanctions regimes currently in place,14 the 1267 regime is the only one pursuant to which listings can be challenged via the Office of the Ombudsperson. It remains as yet unclear whether the Security Council will extend the scope of the Office of the Ombudsperson’s mandate to cover other sanctions regimes. The rest of the chapter will look at the review mechanisms available in relation to each of the sanctions regimes in operation at the UN level.

Reviewing UN Sanctions 5.11 As discussed above, de-listing and review procedures at the UN level depend to a large extent on which regime the sanctions are implemented under. The first point to establish is therefore which regime the measures pertain to and what the relevant Security Council resolutions are (see the table at the beginning of the chapter for a breakdown of each of the UN regimes in force as at 1 June 2018). Having said that, there are a number of features that are common to all UN sanctions regimes, including a Sanctions Committee, which is generally responsible for implementing listing requests from UN Members States, and for overseeing the implementation of the sanctions measures.15 5.12 There are three potential routes for an individual seeking de-listing from a UN sanctions regime. The first is to apply to the relevant Sanctions Committee via the individual’s state of residence or citizenship. This route obviously requires the acquiescence and assistance of the relevant state, and is indirect insofar as the petition to the Committee is not actually made by the individual but by the state.16 Moreover, if an individual is added to a list at the request of his or her state of residence or citizenship, then that state is unlikely to be willing to provide assistance vis-a-vis a petition for de-listing. The second route is for the individual to apply directly to either the Focal Point for De-listing or, in the case of the 1267 regime, to the Office of the Ombudsperson. Lastly, the individual may challenge the listing via regional or domestic courts.17

14 As at 1 June 2018. 15 See ch 1 for further detail on the role of each Sanctions Committee. 16 In other words, the listed individual would write to his or her state of residence, requesting that the state itself apply to the relevant Sanctions Committee in order to attempt to secure a de-listing. 17 These regional and domestic avenues of challenge are explored at length in chs 6, 7, 8 and 9.

Reviewing UN Sanctions 135

Focal Point for De-listing 5.13 Prior to 2006, the Sanctions Committee for each regime was responsible for processing de-listing requests received from UN Member States, but there was no mechanism available for listed individuals to petition the Committee directly. Following criticism both from independent experts and from within the UN,18 the situation began to change with the establishment of the Focal Point for De-listing under Security Council resolution 1730 (2006). Under the terms of that resolution, the Security Council committed to ensuring ‘fair and clear procedures exist for placing individuals and entities on sanctions lists and for removing them, as well as for granting humanitarian exemption’. 5.14 The Focal Point is a dedicated part of the UN Secretariat (Security Council Subsidiary Organs Branch). Its primary function is to receive de-listing requests from individual petitioners, and to facilitate communication during the de-listing process. Resolution 1730 (2006) sets out the procedure followed by the Focal Point once a de-listing request has been submitted to it.19 In particular, the Focal Point must acknowledge receipt of the de-listing request and forward it on with comments (if any) to the designating government and the government of the petitioner’s residence or citizenship. This triggers a three-month review period during which time the relevant governments must consider the de-listing request and indicate their opposition or support. 5.15 Crucially, however, the Focal Point has no power of its own to push through de-listing requests. Moreover, the relevant governments retain the ability to block de-listing requests at multiple stages, including at the final ‘no-objection procedure’ stage. The process therefore remains purely political, albeit that the Focal Point procedure does provide a more transparent system for the review of de-listing requests. During the debate for resolution 1730 (2006), the President of the Security Council at the time stated that the improvements to the de-listing procedure were ‘very modest and weak’, and noted in particular a grave concern that the resolution ‘failed to respect many legal norms and standards that should be respected and applied by both the Security Council and its sanctions Committees in the de-listing of individuals’.20 5.16 The Focal Point de-listing procedure has been strengthened by resolutions 1735 (2006) and 1822 (2008). Resolution 1735 (2006) imposes an obligation on Member States to provide a statement of case when proposing listings. Moreover, Annex I to the resolution sets out a cover sheet to be used by Member States when proposing listings. Resolution 1822 (2008) goes further and provides that in each proposal ‘Member States shall identify those 18 In 2006, the Watson Institute for International Studies at Brown University published a 58-page report entitled ‘Strengthening Targeted Sanctions through Fair and Clear Procedures’ (commissioned by the governments of Germany, Sweden and Switzerland); see above (n 3). The recommendations included the establishment of an administrative focal point to handle de-listing and exemption requests. Later in 2006, UN Secretary-General Kofi Annan, in a non-paper presented to the Security Council on the occasion of a meeting on ‘strengthening international law: rule of law and maintenance of international peace and security’, presented his views concerning the listing/de-listing of individuals and entities on sanctions lists. The Secretary-General set out the minimum standards required to ensure that the procedures were fair and transparent. 19 See the Annex to Security Council resolution 1730 (2006). A flow chart setting out the procedure is also available at: www.un.org/sc/suborg/en/sanctions/delisting/delisting-requests. 20 See UNSC Verbatim Record (19 December 2006), UN Doc S/PV.5599, 3–4.

136 Challenging Sanctions at the UN Level parts of the statement of case that may be publicly released’.21 The resolution also imposes an obligation on the relevant Committee to publish a narrative summary of the reasons for listing on the Committee’s website.22 5.17 From its establishment in 2006 to 22 May 2018, the Focal Point received 84 de-listing requests relating to 73 individuals and 39 entities, in connection with 10 separate UN sanctions regimes.23 In total, 17 individuals and 17 entities were ultimately de-listed as a result. Flow chart: Procedure for applications to the Focal Point Transmission of de-listing request by petitioner to Focal Point

Review of de-listing request by ‘reviewing states’ (designating government(s), government(s) of citizenship, government(s) of residence (initially three months)

Reviewing states recommend de-listing

One or more reviewing states opposes delisting

No comment by reviewing states

Chairman of the Committee circulates recommendation under no-objection procedure

Chairman informs Committee and members are encouraged to share information regarding request

Focal Point notifies Committee – any member of the Committee can then recommend de-listing

Where no objection from Committee members, the de-listing is granted

Recommendation to delist

Chairman of the Committee circulates recommendation under no-objection procedure Where no objection from Committee members, the de-listing is granted

Chairman of the Committee circulates recommendation under no-objection procedure

Where no objection from Committee members, the de-listing is granted

21 See SCR 1822 (2008), UN Doc S/RES/1822 (2008) para 12. 22 ibid, para 13. 23 See the statistics provided on the UN sanctions website, available at: www.un.org/sc/suborg/en/sanctions/ delisting/de-listing-request-stats.

Reviewing UN Sanctions 137

The Office of the Ombudsperson 5.18 The Office of the Ombudsperson was created in December 2009 by Security Council resolution 1904 (2009). Under the terms of that resolution, the Security Council removed de-listing requests relating to the Al-Qaida 1267 regime from the ambit of the Focal Point and established a separate mechanism to deal specifically with such requests. As discussed above, this appears to have been done in response to mounting criticism, both judicial and extra-judicial, regarding the lack of independent oversight of the 1267 regime in particular.24 To this extent, the 1267 regime is unique in that de-listing requests are processed by the Office of the Ombudsperson as opposed to the Focal Point. 5.19 The initial response to the establishment of the Office of the Ombudsperson was mixed, with some UN Member States praising a ‘significant step forward in improving the fairness and transparency of the sanctions regime’,25 while others were more circumspect.26 5.20 The Office of the Ombudsperson was originally established for a period of 18 months.27 Security Council resolution 2253 (2015) extended the Ombudsperson’s mandate for a period of 24 months from the expiry of the previous mandate in December 2017.28 The Ombudsperson’s mandate is therefore set to expire in December 2019, subject to any further resolutions to extend it. 5.21 The tasks to be performed by the Ombudsperson were originally set out in Annex II of resolution 1904 (2009), which also established the tripartite procedure for the consideration of de-listing requests. This has since been updated and replaced by Annex II of resolution 2253 (2015) (see paragraph 5.24 below), although the procedure remains broadly the same. 5.22 The Ombudsperson’s role was subsequently expanded by Security Council resolution 1989 (2011), which granted the Ombudsperson the power to make a recommendation that the Committee retain a listing or consider de-listing.29 Moreover, the resolution implemented a new mechanism whereby in the event that the Ombudsperson recommends de-listing, it requires a consensus decision by the Committee to retain that listing.30 5.23 The first Ombudsperson was Kimberly Prost, a former ad litem judge at the International Criminal Tribunal for the former Yugoslavia (ICTY), who held the position between 2010 and 2015. She was succeeded in July 2015 by Catherine Marchi-Uhel, who was also previously a judge at the ICTY and Extraordinary Chambers in the Courts of Cambodia. 24 In 2007, Dick Marty presented an ‘Introductory Memorandum’ entitled ‘UN Security black lists’ to the C ouncil of Europe Parliamentary Assembly’s Committee on Legal Affairs and Human Rights. The report expressed serious concerns about the UN listing/de-listing procedure and rights of due process. The Kadi I judgment was handed down by the ECJ in September 2008. See above (nn 3 and 4). 25 UNSC Verbatim Record (17 December 2009), UN Doc S/PV.6247, 2. 26 ibid, 3. 27 SCR 1904 (2009), UN Doc S/RES/1904 (2009) para 20. 28 SCR 2253 (2015), UN Doc S/RES/2253 (2015) para 54. 29 SCR 1989 (2011), UN Doc S/RES/1989 (2011) para 21. 30 ibid, para 23.

138 Challenging Sanctions at the UN Level 5.24 Security Council Resolution 2253 (2015), adopted on 17 December 2015, updated and expanded the Ombudsperson’s role. In particular, the resolution reaffirmed the 1267 Committee’s commitment to ‘remove expeditiously and on a case-by-case basis individuals, groups, undertakings, and entities that no longer meet the criteria for listing outlined in this resolution’. Annex II to Security Council resolution 2253 (2015) sets out the procedure followed by the Ombudsperson once a de-listing request has been received.31 The de-listing procedure is divided as follows: (i) information-gathering stage (approximately four months); (ii) dialogue and report stage (approximately two months); and (iii) Committee discussion and decision stage (approximately 90 days). The process as a whole can take between eight and 14 months. 5.25 The information-gathering stage allows the Office of the Ombudsperson to collect as much detailed information as possible regarding the individual or entity in question and the de-listing request submitted. That information will be disclosed to the petitioner subject to any requirements of confidentiality. The dialogue stage then involves the Ombudsperson facilitating communication between the petitioner, the 1267 Committee and the relevant states (the designating state and the state of citizenship or residence). In particular, this gives the Ombudsperson and relevant states the opportunity to ask any specific questions they may have. Moreover, the process allows the petitioner to explain his position as fully as possible, either orally or on paper, thus addressing some of the concerns raised regarding the listed individual’s due process rights. During the dialogue phase, the Ombudsperson is mandated to independently attempt to advise the listed person directly. 5.26 At the end of the dialogue phase, the Ombudsperson prepares a Comprehensive Report on the case for submission to the Sanctions Committee. At this stage, the Ombudsperson will recommend either that the individual remain listed, or that the Committee consider de-listing. The Comprehensive Report remains confidential to the Ombudsperson, Sanctions Committee and relevant states which apply for access individually. 5.27 Once the Comprehensive Report is submitted, the Committee has a 15-day period during which to review it. Following that period of review, the Report will be placed on the Committee’s agenda for consideration. Where de-listing has been recommended by the Ombudsperson, the individual or entity will be removed from the list unless the Committee decides by consensus within 60 days that they should remain subject to the sanctions in question. Where consensus does not exist, the Committee chair, on request of a Committee member can refer the question of de-listing to the Security Council. The Security Council then has a further 60 days to make its decision. It is important to note that while the Committee and the Security Council are considering the de-listing question, the sanctions measures remain in force. 5.28 As of July 2015, the Ombudsperson had submitted a total of 59 Comprehensive Reports to the Security Council Committee pursuant to resolutions 1267 (1999) and 1989

31 A flow chart setting out the Ombudsperson’s procedure is also available at: www.un.org/sc/suborg/en/ombudsperson/procedure.

Reviewing UN Sanctions 139 (2011) concerning Al-Qaida and associated individuals and entities.32 During the same period, 56 cases involving de-listing requests made to the Ombudsperson were resolved through the Ombudsperson process or through a separate decision of the Committee. In the 52 cases fully completed through the Ombudsperson process, 39 individuals and 28 entities were de-listed, one entity was removed as an alias of a listed entity, and seven de-listing requests were refused. In addition, three individuals were de-listed by the Committee before the Ombudsperson process was completed, and one petition was withdrawn following the submission of the Comprehensive Report. As noted above, it remains the case, as of

Flow chart: Procedure for applications to the Office of the Ombudsperson Phase 1 – Information-gathering (4 months, with a possible 2-month extension) –

The Ombudsperson sends the petition to the Security Council Al-Qaida Sanctions Committee, relevant States and UN bodies and requests information from them. The Ombudsperson informs the Petitioner of the steps of the procedure. The Ombudsperson gathers information from these States and bodies and through research.

– –

Phase 2 – Dialogue (2 months, with a possible 2-month extension) – –

The Ombudsperson informs the Petitioner of the gathered information. The Petitioner has an opportunity to be heard, address the gathered information and answer questions. The Ombudsperson prepares and submits a report to the Committee with a summary and a recommendation on the delisting request.

–

Phase 3 – Committee Discussion and Decision (Translation + ≤ 30 days) – – –

The report is translated into all official UN languages. The Committee reviews the report. The Ombudsperson presents the report to the Committee in person.

(≤ 60 days) – –

32 See

If the Ombudsperson recommends retaining the listing, the Petitioner remains on the list. If the Ombudsperson recommends delisting, the Petitioner is removed from the list unless: The Committee decides by consensus to retain the listing, or The matter is referred to the Security Council for a vote.

the Tenth Report of the Office of the Ombudsperson, above (n 11).

140 Challenging Sanctions at the UN Level June 2018, that the Sanctions Committee has yet to overturn a de-listing recommendation submitted by the Ombudsperson. 5.29 Notwithstanding this, the Ombudsperson is not fully independent in the sense that its decisions are not binding on the Sanctions Committee. Nevertheless, there is an argument that it provides an analogous mechanism which can provide something akin to equivalent protection.33 In terms of independence, however, it should be noted that the Office of the Ombudsperson is not a permanent fixture within the UN, and its mandate must be periodically renewed by the Security Council. Moreover, the Ombudsperson is retained by way of a consultancy contract arrangement, the terms of which are left to the Secretariat to decide. At present, the contractual arrangements in place require, for example, that unnamed officials within the UN Department of Political Affairs certify satisfactory performance on the part of the Ombudsperson on a monthly basis for payment to be made. The first Ombudsperson, Kimberly Prost, has noted that this creates a conflict of responsibilities leading to a ‘glaring gap in the structural independence of the Ombudsperson’.34

The Future 5.30 It is fair to say that whilst the creation of the Focal Point and Office of the Ombudsperson has gone some way to improving the effectiveness of the procedure for challenging sanctions at the UN level, it has by no means done away with criticism. In 2015, on her last day in office as Ombudsperson, Kimberly Prost sent a letter to the UN Secretary-General noting as follows: I have today submitted my final report to the Security Council (S/2015/533). In it, as in preceding reports, I have noted with concern the lack of full implementation of the Security Council mandate for an independent Office of the Ombudsperson. In particular, I have highlighted the shortcomings of the contractual, administrative and organizational arrangements in place, which threaten the independence and sustainability of the mechanism.35

5.31 These concerns echoed to some extent those expressed by the Court of Justice of the European Union in Kadi II.36 In particular, whilst the Court noted that the creation of the Office of the Ombudsperson represented ‘a decisive new departure in this area by enabling the person concerned to argue his case before an independent and impartial authority’,37 it asserted that the Office of the Ombudsperson was not equivalent to proper judicial protection. The Court explained the shortcomings of the system in the following terms: [T]he person seeking the delisting of his name from the Sanctions Committee Consolidated List does not have available to him a detailed statement of the reasons for his being placed on that

33 See Prost, ‘Security Council Sanctions and Fair Process’, above (n 2) 231. 34 ibid, 232. 35 See K Prost, letter to the Secretary-General, 13 July 2015, available at: www.un.org/sc/suborg/sites/www. un.org.sc.suborg/files/sgletter.pdf. 36 Kadi II, above (n 13). 37 ibid, para 83.

The Future 141 list, nor the evidence relied on against him, and he does not have the right to be heard by the Sanctions Committee, the body that will exclusively make the decision on delisting. Moreover, the Ombudsperson has no power to compel any action by the Members of the UN or by the Sanctions Committee, which enjoys a discretion.38

5.32 Some of these concerns have now been addressed by subsequent Security Council resolutions (see paragraph 5.24 above). However, despite efforts to strengthen the impartiality of the Office of the Ombudsperson, it remains the case that it has no power to compel the Sanctions Committee to adopt its recommendations. To this extent, the listing and de-listing process is still inherently political, with the result that the danger highlighted by Lord Rodger in Ahmed has not been entirely obviated. This was the view of the UN Special Rapporteur on the promotion and protection of human rights and fundamental freedoms while countering terrorism, as expressed in the annual report for 2012, in which he stated as follows: However, as regards an (objective) appearance of independence, the structural flaws remain the same … The ‘very existence’ of an executive power to overturn the decision of a quasi-judicial body is sufficient to deprive that body of the necessary ‘appearance’ of independence however infrequently such a power is exercised, and irrespective of whether its exercise was, or even could have been, at issue in any particular case … It follows that, despite the significant improvements brought about by resolution 1989 (2011), the mandate of the Ombudsperson still does not meet the structural due process requirement of objective independence from the Committee.

5.33 The issue was again revisited in the recent case of Al-Dulimi and Montana Management Inc v Switzerland,39 albeit that the Office of the Ombudsperson was not technically relevant to the facts in dispute.40 In particular, the concurring opinion of Judge Pinto de Albuquerque examined the evolution of the review mechanisms at the UN level, concluding that despite improvements to the Ombudsperson procedure, ‘the al-Qaeda Committee continued to act as judge in its own cause and the exercise of the Ombudsperson’s powers of investigation and disclosure of evidence was still subject to the unfettered discretion of the States’. The concurring opinion made similar criticisms of the Focal Point mechanism, noting the unexplained disparity between the different procedures in relation to each sanctions regime: With no evident rationale for such difference in the treatment of individuals facing targeted sanctions, the arbitrariness of the overall panoply of sanctions is further aggravated when individuals are delisted from the ‘first class’ al-Qaeda sanctions list (renamed ‘ISIL (Da’esh) and Al-Qaida sanctions list’) and subsequently relisted in another ‘second-class’ sanctions list, as if the latter regime were being instrumentalised as a catch-all subterfuge to punish those who had managed to get through the torment of the former. 38 ibid, para 95. 39 Al-Dulimi, above (n 4). 40 The case specifically concerned the 661 sanctions regime in relation to Iraq rather than the 1267 regime in relation to Al-Qaida.

142 Challenging Sanctions at the UN Level 5.34 In relation to the Office of the Ombudsperson, current criticism focuses on two central flaws in the de-listing procedure: (i) the lack of an obligation on states to disclose relevant information to the Ombudsperson; and (ii) the non-binding nature of the Ombudsperson’s final recommendation, which can still be overturned politically, albeit that this now requires a consensus of states on the relevant Sanctions Committee. However, there is no indication that these flaws will be addressed at any stage in the near future, and the prevailing opinion among commentators seems to be that an impasse has been reached, with the UN unwilling to go any further to strengthen the Ombudsperson’s role.41 5.35 The result of this impasse is that there remains a potential conflict between the UN and EU/domestic levels regarding the implementation of sanctions measures. To the extent that the UN procedure does not fully safeguard due process rights (ie, by providing a genuinely independent process for the review of measures) then it appears that the EU courts, among others, will continue to hold that the implementation of UN sanctions measures (without the possibility of independent review) is incompatible with fundamental rights, including the right to judicial protection. Judicial oversight will ultimately be provided via the EU and domestic courts, but these courts may impose due process requirements that go beyond what UN Member States are willing to comply with.42 If that makes it difficult, if not impossible, for EU states to implement UN sanctions, those sanctions will lose much of their potency and may have to be reconsidered in their entirety. Somewhat ironically, the UN may decide to move away from targeted sanctions altogether and revert to more generalised sanctions measures.43 5.36 Separately, the unexplained disparity between the Ombudsperson procedure, applicable to the 1267 regime, and the Focal Point procedure, applicable to all other sanctions regimes, remains problematic. In particular, it would seem that besides politics and the logistical question of capacity to review a greater number of cases, there is no good reason why the Ombudsperson’s mandate should not be extended to cover other sanctions regimes. This would at the very least ensure procedural symmetry as between all UN sanctions regimes.

41 See, eg, Prost, ‘Security Council Sanctions and Fair Process’, above (n 2) 230: ‘[s]imply put, there is no realistic prospect that the Security Council will move beyond the careful compromise achieved in providing for the Ombudsperson’s decision to govern, subject to a Committee reverse consensus or Security Council vote, any time soon’. 42 In particular, the issue raised by Kadi II was the need to provide evidence to substantiate reasons for listing. Certain UN Member States have expressed a reluctance to provide such underlying material, citing confidentiality, thereby leading to an impasse in terms of the implementation of those sanctions measures in the EU. 43 See ch 6 for further discussion on the move towards more generalised sanctions measures.

6 Challenging Sanctions at the EU Level This chapter deals with challenges to sanctions measures in the EU courts (the General Court and the Court of Justice of the European Union (CJEU)). The focus of the chapter is on direct actions for judicial review of sanctions designations before the EU courts. However, references for preliminary rulings from the CJEU, as made by the courts of EU Member States, will also be considered. Given the international nature of most sanctions measures imposed in the EU, challenges in the EU will rarely be brought in isolation and will usually be complemented by parallel proceedings in other regional or domestic jurisdictions. Chapter seven deals with sanctions challenges in the UK courts, whilst chapter eight deals with sanctions challenges at the European Court of Human Rights. The tables below set out (i) the most relevant provisions of EU law that apply in relation to sanctions challenges, and (ii) the cases establishing the key principles in relation to sanctions challenges in the EU courts.

Relevant European Legislation Legislation Treaty on the Functioning of the European Union, Article 263 (review of the legality of acts of the European Council, European Commission or European Parliament)

Provision Natural or legal persons may bring an ‘action for annulment’ challenging the validity of any ‘act’ of the European Council, European Commission or European Central Bank (including legislative acts but excluding recommendations or opinions). The legality of acts of bodies, offices or agencies of the European Union is also reviewable. An ‘act’ may be challenged by the person it is addressed to, or by any person to whom it is of direct and individual concern. A challenge under Article 263 must be brought within two months (plus 10 days on account of distance) of the institution of the measure complained of (or of its notification to the complainant, or, in the absence thereof, of the day on which the complainant became aware of the measure).

Treaty on the Functioning of the European Union, Article 264 (where action upheld)

Provides that if an act is found to be unlawful, the Court may declare it void. The Court may, however, also declare an act to be partially valid. (continued)

144 Challenging Sanctions at the EU Level Legislation

Provision

Treaty on the Functioning of the The institution, body, office or agency whose act has European Union, Article 266 (obligation been declared void or whose failure to act has been to comply with judgments) declared contrary to the treaties shall be required to take the necessary measures to comply with the judgment of the Court of Justice of the European Union (CJEU). Treaty on the Functioning of the The CJEU has jurisdiction to give preliminary rulings European Union, Article 267 (references concerning: (i) the interpretation of the EU treaties; or to the EU courts) (ii) the validity and interpretation of EU acts. Where such a question is raised before any court or tribunal of a Member State, that court or tribunal may, if it considers that a decision on the question is necessary to enable it to give judgment, request the Court to give a ruling thereon. Treaty on the Functioning of the European Union, Article 275

Excluding the jurisdiction of the CJEU with respect to provisions relating to the CFSP. The exclusion does not apply to proceedings properly brought under Article 263 TFEU.

Treaty on the Functioning of the European Union, Article 278

Provides that actions brought before the Court of Justice of the EU shall not have suspensory effect. The Court may, however, if it considers that circumstances so require, order that application of the contested act be suspended.

Treaty on the Functioning of the European Union, Article 279

The CJEU may in any cases before it prescribe any necessary interim measures.

Treaty on the Functioning of the European Union, Article 288

Provides that Regulations adopted by EU institutions shall have general application, and shall be directly applicable in all Member States.

Treaty on the Functioning of the European Union, Article 296

Provides that EU institutions must apply the principle of proportionality when deciding on acts to adopt (when deciding on a case-by-case basis in the absence of any treaty-prescribed act). Moreover, legal acts adopted must state the reasons for which they have been adopted.

Treaty on the Functioning of the European Union, Article 297(2)

Provides that (i) Regulations and Directives which are addressed to all Member States, as well as decisions which do not specify to whom they are addressed, shall be published in the Official Journal of the European Union, and (ii) other Directives, and decisions which specify to whom they are addressed, shall be notified to those to whom they are addressed and shall take effect upon such notification.

Treaty on the Functioning of the European Union, Article 340.

Provides that in the case of non-contractual liability, the EU shall make good any damage caused by its institutions or by its servants in the performance of their duties. (continued)

The Cases 145 Legislation Statute of the Court of Justice of the European Union, Article 56

Provision An appeal against a decision of the General Court may be brought before the CJEU by unsuccessful parties. Interveners, other than the Member States and the institutions of the Union, may bring such an appeal only where the decision of the General Court directly affects them. An appeal must be brought within two months of notification of the decision appealed against.

Statute of the Court of Justice of the European Union, Article 60

Provides that an appeal against any judgment of the General Court shall not have suspensory effect. Decisions of the General Court declaring a Regulation to be void take effect only as from the date of expiry of the period referred to in the first paragraph of Article 56 of the Statute of the CJEU or, if an appeal is brought within that period, as from the date of dismissal of the appeal. The CJEU’s practice is to suspend the annulment of CFSP Decisions so as to take effect only from expiry of the same period. This is to avoid a mismatch between the position of the Decision and the implementing Regulation.

Rules of Procedure of the General Court, Article 105

Introducing a new procedure for the confidential treatment of information or material pertaining to the security of the Union or that of one or more of its Member States or to the conduct of international relations. Article 105 introduces a new closed material procedure where one of the main parties to a case before the General Court wishes to adduce sensitive material.

The Cases People’s Mojahedin Organization of Iran v Council (Case T-228/02) [2006] ECR II-04665 (PMOI I) 12.12.06

Acknowledging the right to a fair trial as a fundamental principle of Community law, which requires that a party must be informed of the evidence against it and afforded the opportunity to make its views known. Although it was held that this right could be limited in respect of initial listing decisions in order to ensure the effectiveness of sanctions measures, these limitations could not be applied to subsequent decisions to keep the sanctions measures in place. This was the first case in which the EU courts upheld individual rights in the context of restrictive measures, albeit that those measures did not originate in a decision made at the UN level. (continued)

146 Challenging Sanctions at the EU Level Kadi and Al Barakaat International Foundation v Council and Commission (Case C-402/05) [2008] ECR I-6351 (Kadi I) 03.09.08

Confirming the right to effective judicial review of Community measures. The European Court of Justice (as it was) (ECJ) overruled the Court of First Instance (CFI) and annulled a sanctions-implementing EU Regulation insofar as it affected the appellants. The Regulation in question implemented the UN sanctions regime under UN Security Council resolution 1267 (1999) (as amended). The ECJ held that the review of the lawfulness of Community acts was a fundamental constitutional guarantee of the EU legal order, and should be treated as separate from the lawfulness of the original UN resolution. Having established the competence of the EU courts in this regard, the ECJ found that both the rights of defence, namely the right to be heard, as well as the right to effective judicial review, had been overlooked. In particular, the ECJ held that the appellants had not been provided with the evidence used to justify the restrictive measures taken against them, with the result that the appellants were not in a ‘position to make their view known to advantage’. This was the first case in which the EU courts upheld individual rights in the context of EU implementation of UN sanctions measures.

People’s Mojahedin Organization of Iran v Council (Case T-256/07) [2008] ECR II-3019 (PMOI II) 23.10.08

Reaffirming an applicant’s rights of defence, and in particular the need for the Council to provide a sufficient statement of reasons when implementing restrictive measures. Here, the CFI afforded considerable weight to the decision of the Proscribed Organisations Appeals Committee in the UK, holding that the Council had not done enough to explain why it had taken a contrary view.

Bank Melli Iran v Council (Case C-548/09) [2011] ECR I-11381 (Bank Melli) 16.11.11

Confirming that certain rights, including the right to property and the freedom to pursue a trade, are not absolute. In this regard, restrictions may be imposed on these rights provided that the restrictions in fact correspond to objectives of general interest and do not constitute, in relation to the aim pursued, a disproportionate and intolerable interference, impairing the very substance of the rights guaranteed. The CJEU upheld the General Court’s decision dismissing the applicant’s challenge.

People’s Mojahedin Organization of Iran v Council (Case C-27/09) [2011] ECR I-13427 (PMOI III) 21.12.11

Developing the principle of a person’s rights of defence. The CJEU upheld the General Court’s judgment that the Council had breached this principle by adopting a decision to keep the claimant on the list of designated terrorist organisations without first notifying the claimant of the new evidence adduced against it. (continued)

The Cases 147 Pye Phyo Tay Za v Council (Case C-376/10 P) [2012] 2 CMLR 769 (Tay Za) 13.03.12

Holding that the choice of legal basis for the imposition of restrictive measures by the Council must rest on an objectively ascertainable basis. In particular, the CJEU noted that the ‘persons associated with’ standard required the existence of a sufficient link between the designated person and the members of the regime in question. That link could not be established merely by showing family connections (the applicant was the son of a leading member of the Myanmar regime).

Council v Bamba (Case C-417/11 P) [2013] CMLR 1434 (Bamba) 15.11.12

Confirming that the statement of reasons provided in relation to a person’s listing must identify the actual and specific reasons why the Council considers that the measures must be adopted. However, the requirements to be satisfied depend on the circumstances of each case. In any event, the statement of reasons must be considered separately from the evidence of the alleged conduct.

Iran Transfo v Council (Case T-392/11) (Iran Transfo) 16.05.13

Confirming that there is a single standard of judicial review in relation to all restrictive measures imposed by the Council. To this extent, the General Court rejected the Council’s argument that there should be different standards as between sanctions in the terrorism context, and other sanctions. In relation to the substantive grounds raised by the applicant, the Court concluded that the Council had adduced no proof of the applicant’s alleged participation in the construction of the facility in question.

Abdulrahim v Council and Commission (Case C-239/12 P) (Abdulrahim) 28.05.13

Holding that a person who has been de-listed from an EU sanctions regime in the course of proceedings may still have an interest in the proceedings continuing. The CJEU overturned the decision of the General Court that an action for annulment was devoid of purpose after de-listing by the EU.

Commission etal v Kadi (Joined Cases Confirming that the review of listing decisions must be C-584/10 P, C-593/10 P & C-595/10 P) a ‘full and rigorous’ review involving an examination of [2013] All ER (D) 411 (Kadi II) 18.07.13 the factual allegations underlying the listing. The CJEU annulled the EU Regulation re-listing Mr Kadi based on the fact that, although the duty to give reasons for the listing had been satisfied, the allegations made against the appellant had not been substantiated by evidence. Council v Manufacturing Support & Procurement Kala Naft Co, Tehran (Case C-348/12 P) [2013] All ER (D) 93 (Kala Naft) 28.11.13

The CJEU reversed the General Court’s annulment of the applicant’s listing. In particular, the CJEU held that the General Court had misinterpreted the relevant legislation by requiring a direct link between Kala Naft and nuclear proliferation as the overriding objective of the restrictive measures. In this regard, the CJEU stated that the link between particular goods and technology (oil and gas production) and nuclear proliferation had been established in the general rules of the relevant provisions. (continued)

148 Challenging Sanctions at the EU Level Council v Fulmen and Fereydoun Mahmoudian (Case C-280/12 P) [2013] All ER (D) 38 (Fulmen and Mahmoudian) 28.11.13

The CJEU upheld the General Court’s ruling that the Council had failed to substantiate any of the reasons for the applicant’s listing. In particular, the CJEU rejected the Council’s argument that it was unable to disclose confidential information. The General Court ruling (Joined Cases T-439/10 and T-440/10) was the first to require the Council to provide evidence substantiating the reasons for a designation. The CJEU further upheld and enforced the requirement that the Council substantiate its allegation by evidence. However, it also held that it would have been sufficient for the Council to substantiate just one of the reasons given for listing, provided this reason itself satisfied a criterion for designation.

Safa Nicu Sepahan v Council (Case T-384/11) (Safa Nicu Sepahan) 25.11.14

The General Court upheld the applicant’s challenge on the basis that the Council had failed to substantiate its reasons for listing. Moreover, the Court awarded the applicant damages under Article 340 TFEU for non-contractual liability in respect of non-material (ie, reputational) damage. The Court was clear that allegations of involvement in Iranian nuclear proliferation entailed being ‘publicly associated with conduct which is considered a serious threat to international peace and security, as a result of which [the accused party] becomes an object of opprobrium and suspicion (which thus affects its reputation)’. The General Court, however, rejected all the applicant’s claims to have suffered material damage, applying a stringent causation test that was not met in the circumstances. The General Court’s decision was upheld on appeal by the CJEU (see Case C-45/15 P Safa Nicu Sepahan v Council).

Bank Tejarat v Council (Case T-176/12) [2015] All ER (D) 175 (Jan) (Bank Tejarat) 22.01.15

Confirming that the relevant EU authority must establish that the reasons it relies on for the imposition of restrictive measures are well founded. In this regard, the EU body must not commit a ‘manifest error of assessment’ in deciding whether the evidence is sufficient to justify listing an individual or company.

Europaisch-Iranisch Handelsbank AG v Council (Case C-585/13 P) [2015] 1 WLR 3995 (EIH) 05.03.15

The case involved an application made by an entity that had been listed by the Council despite repeated assurances from the competent national authority (the Bundesbank) that the transactions in question were sanctions-compliant. The CJEU confirmed the General Court’s finding that general assurances of the kind given by the Bundesbank were not sufficient to cover specific transactions of the type in question. Moreover, the CJEU held that competent national authorities were not in fact authorised to give such general assurances. (continued)

The Cases 149 Anbouba v Council Case (C-630/13 P) [2015] All ER (D) 178 (Apr) (Anbouba) 21.04.15

Confirming that, where a person is listed on the basis of ‘support’ for a particular regime, the Council must establish a sufficient link between the person subject to the freezing measures and the regime being combated. The link must be made by reference to specific, precise and consistent indicators, not a broad presumption. To this extent, it would not be enough for the Council to state that a leading business necessarily supported the incumbent regime in the country where it was based.

Ministry of Energy of Iran v Council (Case T-564/12) 08.09.15

The General Court concluded that the Council had made no error of assessment in finding that the applicant provided financial support to the Iranian Government, despite the fact it was itself a loss-making public body.

Iranian Aluminium Co. (Iralco) v Council (Case T-158/13) (Iralco) 15.09.15

Confirming that the Council must adduce evidence substantiating its reasons for listing a person or entity. In the circumstances, the applicant’s listing was vitiated by the Council’s failure to verify the allegation made in its statement of reasons that the applicant had contracted to supply aluminium to a designated entity.

Bank Mellat v Council (Case C-176/13P) [2016] 4 WLR 84 (Bank Mellat I) 18.02.16

The CJEU reiterated that the purpose of the obligation to state reasons is (i) to provide the person concerned with sufficient information to make it possible to ascertain whether the act is well founded and (ii) to enable the EU courts to review the legality of the act in question. The CJEU confirmed the General Court’s finding that the reasons relied upon by the Council for the applicant’s listing were excessively vague. In particular, the reasons provided did not enable the applicant to establish specifically which banking services it was alleged to have provided to which listed entities. As regards the more specific reasons given, the CJEU upheld the General Court’s finding that Bank Mellat’s provision of banking services to a UN designated entity prior to its designation did not (without more) constitute support for Iranian nuclear proliferation.

Council v Bank Saderat (Case C-200/13) The CJEU held that the obligation to state reasons for [2016] All ER (D) 176 (Apr) (Bank a measure adversely affecting a person will be satisSaderat) 21.04.16 fied if that measure was adopted in a context which was known to that person and which enabled him to understand the scope of the measure concerning him. In this regard, the CJEU upheld the General Court’s finding that the reasons provided by the Council were excessively vague. In particular, the applicant was unable to establish from the reasons provided by the Council specifically which banking services it provided to which entities procuring on behalf of Iran’s nuclear and ballistic missile programmes. (continued)

150 Challenging Sanctions at the EU Level As regards the more specific reasons given, the CJEU upheld the General Court’s robust application of the burden of proof and required the Council to demonstrate that export letters of credit handled by Bank Saderat and in favour of UN designated entities were sufficiently connected to Iranian nuclear proliferation. National Iranian Tanker Company v Council (Case T-207/15) (NITC) 14.09.16

Establishing that, in relation to decisions to re-list entities following an annulment judgment, the Council may correct the irregularities identified by adopting a new listing decision on the basis of reasons that are supported to the requisite legal standard. In this regard, it will suffice if the new decision is based on new grounds for listing, even where those grounds are very similar to the original grounds put forward in the first listing decision.

Rosneft Oil Company OJSC v HM Treasury (Case C-72/15) [2017] All ER (D) 183 (Mar) (Rosneft) 28.03.17

Clarifying the extent of the CJEU’s jurisdiction to review and interpret restrictive measures imposed by the Council. In particular, the CJEU confirmed that it had no jurisdiction to review Council Decisions imposing measures of general application (ie, non-targeted measures that apply objectively to determined situations and produce legal effects with respect to categories of persons in a general and abstract manner). However, the CJEU held that the EU courts did have jurisdiction to review regulations adopted on the basis of Article 215 TFEU, even where those regulations are based on prior Council Decisions that fall outside the courts’ jurisdiction.

Bank Mellat v Council (Case T-160/13) (Bank Mellat II) 02.06.16 (Case currently on appeal: see Case C-430/16)

Confirming the scope of the EU courts’ jurisdiction in relation to sanctions measures of general application. In particular, the General Court held that the courts have a more limited jurisdiction to review measures of general application (ie, nontargeted measures that apply objectively to determined situations and produce legal effects with respect to categories of persons in a general and abstract manner). Where general measures are concerned, the EU courts must determine the proportionality of the overall sanctions regime by reference to its objectives. (continued)

Overview 151 Uganda Commercial Impex Ltd v Council (Joined Cases T-107/15 and T-347/15) (UCI) 18.09.17

Confirming that, when implementing UN sanctions designations, the Council must examine, carefully and impartially, the evidence on which the UN Sanctions Committee relied for the designation (in accordance with the principle of good administration). However, the Council is not required to conduct its own investigations when it already has information from the UN. Moreover, the General Court found that where sufficiently precise information has been disclosed, the Council is not obliged ‘spontaneously’ to grant access to the documents in its file; it is only on the request of the party concerned that the Council is required to provide access to all non-confidential official documents concerning the measure.

Overview 6.1 As discussed in chapter two, the EU has evolved into a major player in the sanctions world. This is largely because the EU is now responsible for overseeing and implementing the sanctions policy of its individual Member States. As a result, most of the key sanctions decision-making for EU Member States occurs at the EU level, making the EU itself the primary forum for challenging sanctions measures adopted across the EU. There are three main avenues for challenging EU sanctions: (i) direct petition to the EU institution responsible for imposing the sanctions measure; (ii) judicial review of the measure in the domestic courts of the relevant EU Member State (potentially seeking a reference to the EU courts for a preliminary ruling); and (iii) judicial review of the measure in the EU courts. 6.2 The first port of call is the petition procedure described at (i) above. In this regard, and before taking judicial action in the EU courts, individuals and entities should consider petitioning the relevant EU institution directly for de-listing, including on the basis of mistaken identity. This involves an administrative application to the General Secretariat of the Council.1 It should be noted that the relevant EU institution is under an obligation to communicate to the person concerned the evidence used against him upon request, or to grant him the right to be informed of that evidence within a reasonable period after that measure was enacted (see Kadi I at paragraphs 348 and 349).2 However, despite the

1 The procedure for requests for de-listing is set out at paras 18–20 of Annex I of the 2012 Council Guidelines. In particular, the General Secretariat of the Council will act as a mailbox for de-listing requests. Requests will thereafter be forwarded to the competent regional working party for consideration on the basis of a preliminary analysis prepared by the European External Action Service and the Council Legal Service. 2 In relation to the anti-terrorism sanctions regime under Regulation (EU) No 881/2002, this procedure has been codified by Regulation (EU) No 1286/2009, which inserted Article 7c into Regulation (EU) No 881/2002.

152 Challenging Sanctions at the EU Level principle stating that the relevant EU institution must comply with such requests within a ‘reasonable time’, the system has been criticised for being slow and unresponsive.3 To this extent, persons requesting de-listing directly should be mindful of the deadline for the filing of actions for annulment (see paragraphs 6.15 and 6.16 below), which may expire whilst a response from the Council or Commission is still outstanding. 6.3 Another avenue of challenge to consider (alongside judicial review in the EU courts) is judicial review in the courts of the EU Member State where the relevant sanctions have been implemented. In fact, challenges of this type in the domestic courts are often brought in tandem with direct challenges in the EU courts. In particular, references for preliminary rulings under Article 267 of the Treaty for the Functioning of the European Union (TFEU) can only be made by the domestic courts of EU Member States. Since the EU courts are the only courts able to rule on the interpretation and validity of EU acts, the Article 267 reference procedure allows the domestic courts of Member States to send a request to the CJEU for a preliminary ruling on the interpretation and validity of EU acts. To this extent, if an entity wishes to challenge the interpretation or validity of an EU act via the procedure in Article 267, it must initiate its claim in the domestic courts. In the recent case of Rosneft, for example, the Article 267 procedure was used by the UK Administrative Court to refer certain questions of EU law to the CJEU. Domestic challenges to EU sanctions implemented in the UK are dealt with in chapter seven. 6.4 Most importantly for the purpose of this chapter, EU sanctions measures can be judicially reviewed in the EU courts. As explained in chapter two, restrictive measures implemented at the EU level originate in decisions adopted by the EU Council within the sphere of the Common Foreign and Security Policy (CFSP). Certain measures, including asset freezes, also require separate implementing legislation in the form of EU Council Regulations. Both CFSP Council Decisions and subsequent regulations implementing sanctions measures constitute EU acts for the purpose of Article 263 TFEU. They may therefore be challenged by way of an ‘action for annulment’ insofar as they constitute (i) measures aimed at natural or legal persons (ie, targeted measures),4 or (ii) measures of general application that are not excluded from review by the EU courts.5 Crucially, EU acts imposing

3 See the written evidence of Maya Lester QC to the House of Lords EU Committee inquiry into the legality of the EU sanctions listing process, 10 October 2016. The final report, entitled The Legality of EU Sanctions (HL 2016–17, HL 102), called on the EU Council to consider the establishment of a sanctions ombudsman, analogous to the UN Ombudsperson for the Al-Qaida Sanctions Committee, in order to improve the fairness of the listing and de-listing procedures. 4 It should be noted that, subject to important exceptions, Article 24 of the Treaty on European Union (TEU) and Article 275 TFEU preclude challenges against EU acts that apply more generally (see Kala Naft, para 99 and Rosneft, para 60). In practice, this means that sanctions challenges under Article 263 TFEU have to date mainly been brought in relation to targeted measures which specifically refer to individuals and/or entities (ie, asset freezes and travel bans). 5 In this regard, although Council Decisions imposing general measures are not susceptible to challenge in the EU courts (on account of Article 24 TEU and Article 275 TFEU), EU Regulations implementing those Decisions are (see Rosneft, para 106). This was the approach taken by the General Court in Bank Mellat II, albeit that the challenge to the general measures in question was ultimately unsuccessful.

Overview 153 sanctions are open to challenge even where they are implemented pursuant to an obligation imposed on the EU by UN Security Council resolution (Kadi I at paragraph 299).6 6.5 The Kadi I judgment is particularly significant for international law because it challenges, albeit obliquely, the principle of the primacy of UN obligations pursuant to Article 103 of the UN Charter. It is therefore worth discussing the case in some detail. Mr Kadi was a Saudi Arabian businessman with assets in a number of EU Member States. Those assets were frozen after he was listed under EU Regulations implementing UN Security Council resolutions aimed at countering the threat of terrorism around the world.7 Mr Kadi challenged his listing in the EU courts. At first instance, the CFI (now known as the General Court) held that it had no jurisdiction to entertain the challenge and dismissed the case.8 In particular, the CFI held that EU Member States were bound by their UN obligations, and that those obligations superseded their EU law obligations pursuant to Article 103 of the UN Charter: [I]t must be held, first, that the Community may not infringe the obligations imposed on its Member States by the Charter of the United Nations or impede their performance and, second, that in the exercise of its powers it is bound, by the very Treaty by which it was established, to adopt all the measures necessary to enable its Member States to fulfil those obligations.9

6.6 Mr Kadi then appealed the CFI decision to the ECJ (now known as the CJEU). The ECJ overturned the lower court’s judgment, ruling that it did have jurisdiction to entertain the challenge, notwithstanding the primacy of UN Security Council resolutions in international law. In this regard, the Court held as follows: [T]he Community judicature must, in accordance with the powers conferred on it by the EC Treaty, ensure the review, in principle the full review, of the lawfulness of all Community acts in the light of the fundamental rights forming an integral part of the general principles of Community law, including review of Community measures which, like the contested regulation, are designed to give effect to the resolutions adopted by the Security Council under Chapter VII of the Charter of the United Nations.10

6.7 By holding that EU courts retain jurisdiction to review EU sanctions measures implemented pursuant to UN obligations, the ECJ therefore established an indirect route to the judicial review of UN Security Council resolutions, at least as far as their implementation in the EU is concerned. As a result, since Kadi I the EU courts have been the main forum for challenging sanctions measures, whether imposed pursuant to UN obligations or autonomously by the EU.11 This chapter will not go into further detail about the implications of 6 Prior to Kadi I, the EU courts had distinguished between instances where the Council or Commission acted pursuant to sanctions listings imposed at the UN level and instances where EU institutions acted autonomously (see PMOI I, paras 99–104). 7 Mr Kadi was listed under EU Regulation 881/2002 (as amended). That Regulation was adopted in order to implement UN Security Council resolution 1267 (1999), directed against certain persons and entities associated with Osama bin Laden, the Al-Qaida network and the Taliban. 8 See Case T-315/01 Kadi v Council and Commission (21 September 2005). 9 ibid, para 204. 10 Kadi I, para 326. 11 The decision in Kadi I led to a huge amount of discussion among academics and practitioners, with some viewing it as an affront to the international legal order; see, eg, G De Búrca, ‘The European Court of Justice and

154 Challenging Sanctions at the EU Level Kadi I from an international law perspective, but it is important to be aware, as always, of the interplay between the various creators and enforcers of sanctions law.12 6.8 The CJEU has therefore confirmed that all EU acts are, at least in principle, susceptible to judicial review by the EU courts (Kadi I at paragraph 281).13 In other words, the EU courts have jurisdiction to entertain challenges to sanctions measures on the basis of non-conformity with fundamental and procedural rights, even where the measures in question originate from decisions of the UN Security Council. Moreover, the EU courts have jurisdiction to ensure that the Council complies with its duty to examine the substantive basis on which UN designations are based, prior to implementing them in the EU (UCI at paragraph 53). 6.9 Notwithstanding the above, the recent judgments in Rosneft and Bank Mellat II make it clear that the EU courts do not have jurisdiction to review Council Decisions imposing measures of general application (ie, measures that apply objectively to determined situations and produce legal effects with respect to categories of persons in a general and abstract manner). In order for an individual to be directly concerned by a sanctions measure, that measure must directly affect the legal situation of the individual in question, and there must be no discretion left to the authorities responsible for implementing the measure (ie, implementation must be purely automatic and result from EU rules alone without the application of other intermediate aims) (Bank Mellat II at paragraph 56).

Preliminary Issues 6.10 Judicial challenges against sanctions measures in the EU must go before the General Court in the first instance.14 The General Court’s decision may then be appealed to the CJEU by the unsuccessful party within two months and 10 days of notification, albeit only on a point of law.15 Separately, issues of sanctions law may end up before the CJEU via the reference procedure contained in Article 267 TFEU. Under this provision, domestic courts of EU Member States may make a reference for a preliminary ruling from the CJEU where cases before those domestic courts gives rise to questions of interpretation and/or validity under EU law. In Rosneft, for example, the UK Administrative Court referred a number of questions to the CJEU for a preliminary ruling under Article 267.16

Standing 6.11 Any natural or legal person may bring an action for annulment against an act addressed to that person, or which is of direct and individual concern to them (see the fourth the International Legal Order After Kadi’ (2010) 51 Harvard International Law Journal 1. The decision also paved the way for the introduction of mechanisms providing for some form of quasi-judicial review at the UN level. For a detailed discussion of the evolution of these mechanisms and how they work in practice, see ch 1 and ch 5. 12 See ch 1 for a more detailed discussion of how Article 103 of the UN Charter operates in international law. 13 The notable exception is in relation to measures of general application (see above (nn 1 and 2)). 14 TFEU, Article 256(1). 15 Article 56 of the Statute of the Court of Justice of the European Union. 16 References for preliminary rulings under Article 267 are also discussed in ch 7.

Preliminary Issues 155 paragraph of Article 263 TFEU). A person or entity subject to EU restrictive measures will therefore be able to bring an action for annulment against the Decisions and Regulations implementing those measures, particularly where they are individually named in those acts. Moreover, where the measures in question expressly target ‘entities and bodies’, this has been held to include entities that do not have their own legal personality, such as government departments outside the EU (Ministry of Energy of Iran at paragraph 24). Where that is the case, it is necessary to show that the lawyers purporting to represent the applicant are in fact authorised to do so. 6.12 Entities that have standing to bring proceedings in the EU courts include emanations of non-EU states where they are the subject of the restrictive measures in question. In this regard, the General Court has held that if an applicant has an existence sufficient for it to be subject to restrictive measures, it must be accepted that it has an existence sufficient to contest those measures (Ministry of Energy of Iran at paragraph 23). Moreover, the CJEU has stated that there is no rule of EU law preventing legal entities that are emanations of non-Member States, including state-owned companies, from relying on the protection of fundamental rights (Bank Saderat at paragraphs 47–49). 6.13 Where an applicant has been de-listed after the commencement of proceedings, the applicant may nevertheless retain standing to proceed with the application in certain circumstances. In particular, the applicant must show that it retains an interest in the proceedings, and the Court must then determine whether or not it is satisfied that such an interest has been retained in light of the specific circumstances of the case (Abdulrahim at paragraphs 65 and 66). Moreover, that interest must subsist for the entirety of the action (ie, until the final decision) (Abdulrahim at paragraph 61). 6.14 In relation to the question of whether or not the applicant retains an ‘interest’ in the proceedings, the key issue is whether the annulment of the relevant measure would ‘procure an advantage’ to the applicant (Abdulrahim at paragraph 61). In the context of an action for annulment where restrictive measures are concerned, ‘procuring an advantage’ can include, for example, (i) restoring the applicant to its original position (ie, prior to the listing) or (ii) inducing the author of the contested act to make suitable amendments in the future, thereby avoiding the risk that the unlawfulness alleged in respect of that act will be repeated (Abdulrahim at paragraph 63).

Timing of Applications to the General Court 6.15 Actions for annulment must be brought before the General Court within two months of (i) the publication of the measure in question, (ii) its notification to the applicant, or (iii) in the absence of such notification, of the day on which it came to the applicant’s knowledge (Article 263(6) TFEU).17 This two-month period will be extended for a single fixed period of 10 days on account of distance (Article 60 of the Rules of Procedure of the General Court).

17 Article

59 of the Rules of Procedure of the General Court deals with the calculation of time limits.

156 Challenging Sanctions at the EU Level 6.16 Notification of the relevant decision can normally occur by publication of a notice in the Official Journal of the EU. However, where the Council is under a specific obligation (ie, under the terms of the relevant instrument) to communicate its decision, including the grounds for listing, to the person or entity which is the subject of that decision, the time limit for bringing an action for annulment of an act imposing restrictive measures will only start to run from the date on which the relevant act is notified to the affected party (ie, from the date on which the person concerned receives the Council’s written communication) (Iralco at paragraph 29). To this extent, the publication of a notice in the Official Journal will only start the clock on the relevant time limit where it is impossible to communicate the decision individually to the person concerned (ie, where the person’s address is not known to the Council) (Iralco at paragraph 30).

Essential Principles 6.17 Actions for annulment under Article 263 TFEU are aimed at the validity of the ‘act’ in question. It is therefore important to distinguish, at the outset, between challenges brought in respect of targeted sanctions measures (ie, measures aimed at named individuals or entities), and challenges brought in respect of general sanctions measures (ie, measures that apply objectively to determined situations and produce legal effects with respect to categories of persons in a general and abstract manner). To date, most challenges to sanctions in the EU courts have dealt with targeted measures. However, more recently the courts have had to consider the scope of their jurisdiction to review general measures, with a number of cases setting out the principles that apply in respect of such challenges.

Challenges to Targeted Measures 6.18 The most common ground for successful challenges to EU acts imposing targeted sanctions is the contention that there has been a ‘manifest error of assessment’ (ie, where the applicant alleges that the relevant EU institution has got it wrong). To this extent, a mistaken factual premise underpinning a reason for a sanctions decision will render that listing unlawful, at least in the absence of other substantiated reasons for the decision (Bank Mellat I at paragraph 113). 6.19 Separately, the validity of an act performed by an EU body is conditional upon its respect for fundamental rights (Kadi I at paragraphs 284–85). In the context of sanctions, the EU courts have developed this basic premise into a series of overlapping but distinct principles for the review of restrictive measures. Moreover, the EU courts have confirmed that there is a single standard of review in relation to all EU acts implementing targeted restrictive measures (Kadi II at paragraph 97 and Iran Transfo at paragraph 35).18

18 The issue of the standard of review to be applied by EU courts in relation to acts imposing restrictive measures has caused considerable controversy. In his Opinion in the Kadi II case, Advocate General Bot expressed the view that the EU courts should ‘modify’ their usual standard of review and apply a lesser standard in relation to

Essential Principles 157 6.20 The essential principles that have emerged from the jurisprudence in this area are as follows: (i) effective judicial protection; (ii) rights of defence; (iii) obligation to state reasons; (iv) unjustified or disproportionate restriction of fundamental rights; (v) unsubstantiated reasons and manifest error of assessment; (vi) infringement of the applicant’s legitimate expectations; and (vii) abuse of powers.

Effective Judicial Protection The principle of effective judicial protection has consistently been upheld by the EU courts as a general principle of European law, as reflected in Articles 6 and 13 of the European Convention on Human Rights (the Convention), and Article 47 of the Charter of Fundamental Rights of the European Union (the EU Charter). In accordance with this principle, the EU authority in question must disclose the grounds for a restrictive measure to the target concerned either when the measure is adopted, or as swiftly as possible after its adoption, in order to allow the target to exercise its right to bring an action for annulment (see further ‘Rights of defence’ below). The courts have stated that the right to effective judicial protection should be maintained in order to (i) enable a target to defend its rights in the best possible conditions, (ii) enable a target to decide whether there is any point in applying to the courts, and (iii) put the target fully in a position to carry out a review of the lawfulness of the EU measure in question (Kadi I at paragraphs 335–37).

Rights of Defence The EU courts have repeatedly stated that a sanctions target’s rights of defence must be respected in order for the Council to secure the lawful implementation of restrictive measures in its regard. In particular, the Council must respect a target’s right to be heard, which in practice means that a target must be informed of the evidence against it and afforded the opportunity to make its views known to the Council (PMOI I at paragraph 93). Quality of Evidence Relied on and Disclosure to Relevant Persons The CJEU has held that in order for the rights of defence to have practical effect, a target must know the case against it. To this extent, a target must (i) be provided with the evidence used against it to justify the restrictive measures imposed, and (ii) be informed of that evidence within a reasonable period after the measures have been enacted (Kadi I at paragraph 348). In relation to (i) above, the General Court had previously held that the Council must check the ‘relevance and validity’ of evidence submitted to it (ie, by Member States) where acts implemented pursuant to obligations imposed by the UN Security Council. The CJEU ultimately disagreed with Advocate General Bot on this point and held that acts imposing restrictive measures were susceptible to ‘full review’ (see Kadi II, para 97). Similarly, questions have been raised regarding the standard to be applied to measures imposed under bilateral sanctions regimes. In particular, the General Court has in the past distinguished bilateral sanctions from anti-terrorism sanctions, holding that the rights of defence applicable in the context of the latter were not applicable in the context of the former (see Case T-181/08 Tay Za v Council [2008] ECR II-01965, paras 121–25). However, this position was reversed by the General Court in a subsequent case, in which it confirmed that the same standards applied to bilateral sanctions, including the rights of defence and the obligation to state actual and specific reasons for each listing (see Case T-86/11 Bamba v Council [2011] ECR II-02749).

158 Challenging Sanctions at the EU Level it seeks to rely on such evidence for the imposition of restrictive measures (Bank Mellat I in the General Court – T-496/10 – at paragraph 100). However, the CJEU has since confirmed that there is no such requirement in EU law (Bank Saderat at paragraphs 82–84).19 In relation to (ii) above, the EU courts have accepted that, in order to secure the surprise effect of an initial decision to impose sanctions, the Council is not under an obligation to inform the person concerned beforehand of the grounds on which it intends to rely (Kadi I at paragraphs 338–42, PMOI III at paragraph 61). However, this is not the case where the Council seeks to rely upon new evidence for the enactment of subsequent or supplementary measures concerning the same target, and therefore any decision to implement such measures must be preceded by the disclosure of that new evidence to the relevant target (PMOI III at paragraph 75). Despite this obligation, where the Council has disclosed sufficient evidence to allow the person in question to express a view on that evidence, the Council is not under an obligation to disclose all the documents in its file. In this regard, it is only at the request of the party concerned that the Council is required to provide access to all non-confidential official documents concerning the measure at issue (UCI at paragraph 102). On a related note, the CJEU has held that the legal basis for restrictive measures must rest on objective factors that are amenable to judicial review (Tay Za at paragraph 46). In practice, this means that in the context of bilateral sanctions regimes (ie, sanctions regimes imposed against states) measures directed against natural persons must be directed only against the leaders of the target state and the persons associated with those leaders (Tay Za at paragraph 63). In the absence of that ‘sufficient link’, the measures will be deemed unlawful.

Obligation to State Reasons The obligation arising out of Article 296 TFEU to state reasons for legal acts is of particular importance in the arena of EU restrictive measures. The courts have held that the obligation to state reasons serves the purpose of (i) providing the person concerned with sufficient information to make it possible to determine whether the act is well founded or vitiated by error which may permit its validity to be contested, and (ii) enabling the EU courts to review the lawfulness of the act (PMOI I at paragraph 138, Bank Mellat I at paragraph 74). To this extent, the Council must provide a statement of reasons to the persons or entities concerned by the imposition of restrictive measures. Requirements of Statement of Reasons The statement of reasons must be appropriate to the restrictive measure in question, and to the context in which it was adopted (Bank Mellat I at paragraph 75). As such, the exact requirements will depend on the circumstances of the particular case, including the content of the measure, the nature of the reasons given and the interest which the addressees of 19 See ‘Unsubstantiated Reasons and Manifest Error of Assessment’ below in relation to (i) the different standards of review applied by the Council and the EU courts in relation to evidence in the sanctions context, and (ii) the requirements for ‘substantiating’ reasons for listing.

Essential Principles 159 the measure may have in obtaining explanations. To this extent, the statement will most likely be sufficient if the measure in question was adopted in circumstances known to the party concerned which enable him to understand the scope of the measure and to ascertain whether it is well founded (PMOI I at paragraph 141 and Bamba at paragraph 49). The statement of reasons may not consist merely of a general formulation, and must state the matters of fact and law which constitute the legal basis of the Council’s decision and the considerations which led it to adopt that decision (PMOI I at paragraph 143). In particular, the statement of reasons must identify the actual and specific reasons why the Council considers that the measure must be adopted (Bamba at paragraph 52). In this regard, however, the degree of precision of the statement of reasons must be weighed against the practical realities of the situation, including the time and technical facilities available for making the relevant decision (PMOI I at paragraph 141). Separately, the statement must make actual and specific reference to the precise information or material contained in the relevant file which indicates that a decision has been taken in respect of the target, as well as to any new evidence adduced in subsequent decisions (PMOI I at paragraph 151). Finally, the reasons stated should be individual, specific and concrete, and not excessively vague (Bank Mellat I at paragraphs 76–78). For example, where the Council refers to an alleged pattern of conduct in its statement of reasons, details of such conduct must also be provided. Similarly, where a connection is alleged between the target and certain individuals or entities, details of the individuals and entities in question must be given. In the cases of Bank Mellat I and Bank Saderat, the CJEU upheld the General Court’s assessment that the reasons provided were excessively vague because they did not allow the applicants to establish which banking services they were alleged to have provided to which listed entities. Notwithstanding all of the above, the EU courts have consistently held that there need only be one adequate reason in the statement of reasons in order to justify a sanctions listing (Kadi II at paragraph 130). In this regard, the fact that all the other reasons provided are excessively vague or unsubstantiated will not justify the annulment of the listing decision.

Unjustified or Disproportionate Restriction of Fundamental Rights Restrictive measures must not disproportionately interfere with the rights of individuals or entities as set out both in the Convention and the EU Charter. It must be recognised at the outset that restrictive measures have been accepted by the EU courts as a legitimate means of securing important foreign policy objectives, and therefore not inappropriate or disproportionate in and of themselves (Kadi I at paragraphs 361–63). However, the courts must also consider whether, on the facts of the particular case before them, the sanctions in question constitute an unjustified interference with the target’s fundamental rights. In particular, the EU courts will look at whether the restrictions correspond to objectives of general interest and do not constitute, in relation to the aim pursued, ‘a disproportionate and intolerable interference, impairing the very substance of the rights guaranteed’ (Bank Melli at paragraph 114). In the context of asset-freezing and economic sanctions, the rights most likely to be impacted include the right to property under Article 1, Protocol 1 of the Convention, and the freedom to pursue a trade or profession. In Kadi I, for example, the CJEU held that there had been a disproportionate interference with the appellant’s right to

160 Challenging Sanctions at the EU Level property on the basis of a breach of the procedural rights inherent in Article 1, Protocol 1, including the right of the appellant to be able to put his case to the competent authorities (Kadi I at paragraphs 368–70). It should be noted that Kadi I remains the only case in which the CJEU has found that sanctions measures constituted a disproportionate infringement of rights.

Unsubstantiated Reasons and Manifest Error of Assessment The CJEU has confirmed that acts imposing restrictive measures should be subject to ‘full review’ (Kadi II at paragraph 97). In practice, this means that the EU courts must be satisfied that the reasons given for the measures in question are supported by evidence and have a sufficiently solid factual basis (Kadi II at paragraph 130).20 To this extent, the EU courts have held that the review of the lawfulness of restrictive measures cannot be restricted to the ‘cogency in the abstract’ of the statement of reasons, and therefore extends to an assessment of the circumstances relied on by the Council as justifying it (Bank Mellat I at paragraph 111, Bank Tejarat at paragraph 37). In particular, the EU authority in question must adduce evidence to substantiate at least one of the reasons in its statement of reasons (Fulmen and Mahmoudian at paragraph 64). Moreover, the onus is on the EU authority in question to establish that the reasons relied on are well founded, and it is not for the target to adduce evidence in this regard (Fulmen and Mahmoudian at paragraph 66, Bank Tejarat at paragraph 39). This has been the most common ground for the annulment of listings in recent years, particularly since the CJEU confirmed the application of the general standard of judicial review in Kadi II. In Iralco, for example, the General Court annulled the restrictive measures against the applicant on the basis that the Council had failed to verify the allegation made in its statement of reasons that the applicant had contracted to supply aluminium to a designated entity (Iralco at paragraph 46). In Safa Nicu Sepahan, the applicant’s listing was annulled because the Council had not substantiated its allegation that the applicant was a communications firm which supplied equipment to a nuclear facility in Iran (Safa Nicu Sepahan at paragraph 38).21 In the same vein, a mistaken factual premise or ‘manifest error of assessment’ underpinning a reason for a sanctions decision will also render that listing unlawful, at least in the absence of other substantiated reasons for the decision (Bank Mellat I at paragraph 113).

20 In relation to the applicable standard of review, it is notable that although the General Court has previously stated that the Commission is entitled to base listing decisions purely on a statement of reasons provided by the relevant UN sanctions committee (see Case T-248/13 Al-Ghabra v Commission, paras 76–79), the General Court has more recently confirmed that the Council must examine, carefully and impartially, the evidence on which the UN Sanctions Committee relied for the designation (UCI, para 53). 21 Other examples of annulments on the basis of unsubstantiated reasons include the following: Case T-489/10 Islamic Republic of Iran Shipping Lines (Council could not substantiate the allegation that the applicant was involved in the shipment of proscribed cargo); Case T-121/13 Oil Pension Fund Investment Co (Council could not substantiate the allegation that the applicant provided financial support to the Government of Iran); Case T-340/14 Klyuyev (Council could not support the allegation that the applicant was responsible for the misappropriation of state funds); Case T-267/12 Chyzh (Council could not support the allegation that the applicant provided financial support to the Belarus regime); Case T-719/14 Tri Ocean Energy (Council could not substantiate the allegation that the applicant was providing support to the Syrian regime and benefiting from the regime by organising covert shipments of oil to the Syrian regime).

Essential Principles 161

Infringement of the Applicant’s Legitimate Expectations The principle of legal certainty requires that legislation be clear and precise and that its application be foreseeable for all interested parties (EIH at paragraph 93). The test applied by the EU courts in the sanctions context is whether a prudent and alert economic operator could have foreseen the adoption of an EU measure likely to affect his interests (EIH at paragraph 95). In the context of re-listing decisions, the General Court has held that the Council may correct any irregularities identified in relation to the original listing by adopting a new listing on the basis of reasons that are supported to the requisite legal standard (NITC at paragraph 52). In other words, a re-listing on the same grounds as the original listing will not necessarily infringe the applicant’s legitimate expectations.

Abuse of Powers The General Court has stated that an EU act will only be vitiated by misuse of powers if that act appears, on the basis of objective, relevant and consistent evidence, to have been taken with the exclusive or main purpose of achieving an end other than that stated, or of evading a procedure specifically prescribed by EU law for dealing with the circumstances of the case (Safa Nicu Sepahan at paragraph 30).

Challenges to General Measures 6.21 As of early 2018, there have been very few challenges in respect of general sanctions measures in the EU courts. However, in Rosneft, which involved a preliminary reference from the UK Administrative Court, the CJEU clarified the scope of the EU courts’ jurisdiction in respect of CFSP Decisions generally. First, the CJEU confirmed that, as a general rule and in accordance with Article 24(1) TEU, the EU courts do not have jurisdiction to review Council Decisions made within the sphere of the CFSP (Rosneft at paragraph 60). However, the CJEU went on to hold that there are two exceptions to this general rule: (i) where review is necessary under Article 40 TEU (regarding institutional competence generally); and (ii) where sanctions measures are adopted in relation to named individuals or entities. In relation to the latter exception, the CJEU stated that it was the individualised nature of certain sanctions measures that permitted access to the EU courts, in accordance with Article 275(2) TFEU (Rosneft at paragraph 103). 6.22 Separately, the CJEU also held that the jurisdiction of the EU courts is not restricted with respect to EU Regulations adopted on the basis of Article 215 TFEU (Rosneft at paragraph 106). As a result, EU Regulations implementing prior Council Decisions imposing general sanctions measures are susceptible to review in the EU courts (even where the prior Council Decisions are not). This was subsequently the approach taken by the General Court in Bank Mellat II in relation to a challenge brought in respect of general measures aimed at Iranian financial institutions. 6.23 In Bank Mellat II, the applicant bank argued, among other things, that the general measures contained in the EU’s Iranian sanctions regime, in particular under Council

162 Challenging Sanctions at the EU Level Decision 2010/413 (as amended) and Regulation (EU) No 267/2012 (as amended), were disproportionate by reference to their purported objectives. The General Court held that it had no jurisdiction to review the general measures imposed by the Council in its original CFSP Decision (Bank Mellat II at paragraphs 33 and 37). However, the General Court found that it did have jurisdiction in relation to the general measures adopted under the relevant EU Regulation (Bank Mellat II at paragraphs 39 and 40). 6.24 In this regard, the General Court held that it had to determine the proportionality of the general regime (Bank Mellat II at paragraph 110). In particular, it asked the following questions: (i) was the adoption of the regime appropriate and necessary in order to achieve the objective of preventing nuclear proliferation and its funding? and (ii) did it cause disproportionate disadvantages to the persons and entities affected by it? In the circumstances, the Court answered the first question in the positive and the second in the negative, and dismissed the application. In particular, the Court emphasised the Council’s wide discretion in deciding what measures were ‘appropriate and necessary’ in the context of the CFSP, international relations and the security of the EU generally (Bank Mellat II at paragraph 102). However, the case shows that the EU courts do have jurisdiction to review measures of general application, and are willing to exercise that jurisdiction.

Procedural Issues Closed Material Procedure 6.25 Following confirmation by the CJEU in Kadi II of the need for EU authorities to adduce evidence to substantiate reasons for listing, focus turned to the sensitivity of the information on which listing decisions are based.22 In particular, it became clear that both EU Member States and UN sanctions committees would be unwilling to share confidential material with EU courts for the purpose of justifying the imposition of sanctions without some sort of closed material procedure to protect that information from wider disclosure. 6.26 As a result of the perception that the effectiveness of restrictive measures as a viable tool of EU foreign policy was under threat,23 the Council voted to introduce a new closed material procedure as part of the new Rules of the Procedure of the General Court. This procedure is now enshrined in Article 105 of the Rules of Procedure of the General Court, and came into force on 1 July 2015.

22 See the evidence of David Lidington MP (at the time the UK’s Minister to Europe) to the House of Lords EU Select Committee on 2 March 2015, 5: ‘the measure on closed material procedures is a response by the Council and the court to the Kadi judgments and the risk that we might find ourselves in a situation where we had conflicting obligations under international law through UN Security Council sanctions and European law as judged in a specific case by the European Court of Justice’. 23 ibid, 12: ‘I would argue that the outcome in Kadi was a blow to our ability to pursue an effective sanctions policy as a tool of wider foreign and security policy. CMP is part of adapting to that jurisprudential reality’.

Procedural Issues 163 6.27 Article 105 states that a party to a case before the General Court may make an application for the confidential treatment of material or information which pertains to the security of the EU as a whole or that of one or more EU Member States, or to the conduct of international relations. The party seeking to rely on confidential material must set out the reasons justifying its confidentiality in its application to the Court. The Court will then examine the material in order to determine whether or not the information is (i) relevant to the case, and (ii) confidential.24 Where the Court decides that the material is both relevant and confidential, it will proceed to weigh the requirements linked to the right to effective judicial protection against the relevant security considerations.25 6.28 Thereafter, the Court will make a reasoned order specifying the procedures to be adopted to accommodate the relevant security considerations, for example, by ordering the party concerned to produce a non-confidential version or a non-confidential summary of the sensitive material, which might enable the other party to make its views known.26 6.29 Of course, the success of the new closed material procedure will depend on the extent to which EU Member States are willing to rely on it as a means of sharing sensitive information confidentially with the General Court. To this extent, it is worth noting that the UK chose to abstain during the Council vote that approved the introduction of Article 105. In particular, the UK Minister to Europe expressed concerns regarding the inability of Member States to withdraw the sensitive material at any point in the proceedings, as well as the perceived insufficiency of security checking procedures.27 This suggests that the new procedure may not be enough to assuage fears of potential leaks of confidential information.

Re-listing 6.30 It should be noted that, pursuant to Article 60 of the Statute of the CJEU, restrictive measures are not automatically suspended following a judgment by the General Court in favour of the applicant. To this extent, the measures will remain in force until either (i) the deadline for appeal has expired (two months and 10 days after the initial decision), or (ii) an appeal lodged against the decision of the General Court is dismissed by the CJEU.28 This gives the relevant EU authority time to consider whether to (i) appeal against the decision, (ii) accept the decision and allow the measures to be lifted, or (iii) re-list the individual or entity on a new basis.

24 Articles 105(3) and 105(4) of the Rules of Procedure of the General Court. 25 ibid Article 105(5). 26 ibid, Article 105(6). 27 See the evidence of David Lidington MP, above (n 22) 9. 28 In practice, this means that where the Council loses a case at first instance it can postpone the annulment of the sanctions measures in question simply by appealing the first judgment, no matter how unmeritorious its case. Given that appeals usually take around two-and-a-half years to reach a final decision, the Council can therefore ensure that a listing decision remains in force for around five years (from original listing to definitive annulment) even where that listing is groundless at the outset.

164 Challenging Sanctions at the EU Level 6.31 The Council can rely on the re-listing mechanism in order to ensure that a targeted person remains subject to restrictive measures even where the original basis for listing is found to be unlawful or unsubstantiated. In fact, the General Court has held that the Council may correct any irregularities identified in relation to the original listing simply by adopting a new listing, provided that the new basis for listing is adequately substantiated (NITC at paragraph 52). In this regard, however, it is notable that the Council’s practice of re-listing individuals and entities following successful challenges under Article 263 TFEU has come under increased scrutiny. In particular, concern has been expressed regarding the Council’s ability to re-list individuals on a slightly reformulated but essentially identical basis in order to prolong the effect of restrictive measures.29 In NITC, for example, the applicant’s re-listing was upheld by the General Court despite the fact that it was based on what amounted to the same grounds as the original listing. 6.32 However, notwithstanding the suggestion that, following successful actions for annulment, the Council should be prevented from reusing the reasons and evidence on which it based the original listing decision, the current situation remains unchanged.30 To this extent, applicants should be aware that even following a successful action for annulment they remain at risk of re-listing by the Council, potentially on the basis of the same reasons and evidence as the original listing.

Interim Relief 6.33 Although actions for annulment brought before EU courts do not suspend the measures being challenged (Article 278 TFEU), an applicant seeking the annulment of EU acts may apply for interim relief (Article 279 TFEU). To this extent, interim measures may be granted by the court hearing the application if it is established that (i) they are justified prima facie, in fact and in law, and (ii) they are urgent insofar as, in order to avoid serious and irreparable harm to the interests of the party applying for them, they must be prescribed and take effect before the decision is taken in the main action.31 6.34 However, it is notable that the EU courts have yet to grant interim relief in a sanctions case. In this regard, the General Court has made it clear that it will not suffice, in order to demonstrate serious and irreparable harm, to point to the length of proceedings before the EU courts.32 Moreover, the Court has stated in a number of cases that the applicants failed to provide accurate and comprehensive evidence of their situation.33

29 See the report of the House of Commons EU Scrutiny Committee meeting, 11 May 2016, para 9.12. 30 In Case T-207/15 National Iranian Tanker Company, which involved a re-listing under the Iranian sanctions regime, the President of the General Court proposed that the Council be required to include in its first file all the reasons and evidence which it possessed at that stage. The Council would then be prevented from reusing those reasons and evidence for the purpose of re-listing. However, this proposal was not taken up and the General Court upheld the applicant’s re-listing. 31 See Case C-404/04 P-R Technische Glaswerke Ilmenau v Commission, paras 10 and 11. 32 See Case T-153/15 R Hamcho v Council, para 14. 33 See, eg, Case T-153/15 R Hamcho v Council; Case T-154/15 Jaber v Council; and Case T-155/15 Kaddour v Council.

Damages Claims 165

Appeals 6.35 Final decisions and certain preliminary decisions of the General Court may be appealed to the CJEU by an unsuccessful party (in whole or in part) within a period of two months and 10 days of the decision in question (Article 56 of the Statute of the CJEU). Appeals to the CJEU are limited to points of law (Article 58 of the Statute of the CJEU).

Damages Claims 6.36 Damages are available under Article 340 TFEU for losses caused by EU institutions in the performance of their duties. In this regard, a three-part test for the award of damages for non-contractual liability has been developed (see Safa Nicu Sepahan at paragraph 47). The conditions are as follows: a.

The relevant institution’s conduct must be unlawful and the breach in question must be sufficiently serious. b. Actual damage must have been suffered by the person concerned. c. There must be a causal link between the conduct complained of and the damage suffered. 6.37 To this extent, where a restrictive measure implemented by the Council is held to be unlawful, the person concerned will be entitled to damages provided the relevant court is satisfied that the conditions have been met in the circumstances. However, in practice the EU courts have to date been reluctant to award damages in relation to restrictive measures, even where the latter have been found to be unlawful. 6.38 The first and only award for damages in the sanctions context was made by the General Court in the case of Safa Nicu Sepahan. The Court considered the three-stage test for damages in relation to both ‘material’ and ‘non-material’ damages as follows (6.45 below).

Sufficiently Serious Breach 6.39 In relation to the first limb of the test, the decisive question is whether the institution concerned has manifestly and gravely disregarded the limits of its discretion (Safa Nicu Sepahan at paragraph 52). In this regard, the determining factor was held to be the discretion available to the institution, with the Court specifying that where the institution has reduced or no discretion available to it, a breach is more likely to be sufficiently serious. However, other factors, such as the complexity of the situation, have to be considered. Relevant considerations will also include any difficulties in applying or interpreting the legislation in question, the clarity and precision of the rule infringed, and whether the error made was inexcusable or intentional (Safa Nicu Sepahan at paragraph 55). The Court clarified that an infringement of EU law will be sufficiently serious where it has persisted despite a judgment finding the infringement in question to be established.

166 Challenging Sanctions at the EU Level 6.40 In Safa Nicu Sepahan, the General Court concluded that an administrative authority exercising ordinary care and diligence would, in the circumstances of that case, have realised that the onus was upon it to gather the information or evidence substantiating the restrictive measures concerning the applicant in order to be able to establish, in the event of challenge, that the measures were well founded (Safa Nicu Sepahan at paragraph 68). The breach was therefore considered sufficiently serious.

Actual Damage 6.41 An EU institution can only incur liability for damages where the applicant has actually suffered ‘real and certain loss’ (Safa Nicu Sepahan at paragraph 70). It is for the applicant to produce the evidence to establish the fact and the extent of such loss. 6.42 In relation to non-material damage, the courts have been willing to accept that being listed does create reputational issues for commercial entities. In Safa Nicu Sepahan, the General Court considered that the applicant had indeed suffered damage to its ‘personality rights’, in particular to its reputation (Safa Nicu Sepahan at paragraph 78). The Court held that the opprobrium and suspicion provoked by restrictive measures such as those at issue in the present case do not relate to the economic and commercial capacity of the entity concerned but to its willingness to be involved in activities regarded as reprehensible by the international community (Safa Nicu Sepahan at paragraph 82).

Moreover, the Court stated that the injury to the reputation of the entity concerned was all the more serious since it was caused by an official statement of the position of an EU institution.34 6.43 In relation to material damage, the courts have taken a much stricter approach, requiring that the applicant adduce evidence of the exact amounts lost as a result of the restrictive measures. In Safa Nicu Sepahan, for example, the Court repeatedly held that the applicant had not produced sufficient information regarding the amount of damage it had sustained.

Causal Link 6.44 The alleged damage must be a sufficiently direct consequence of the conduct complained of, and that conduct must be the determining cause of the harm (Safa Nicu Sepahan at paragraph 71). However, there is no obligation on the institution to make good every harmful consequence of an unlawful situation. 6.45 The courts have also taken a strict approach to this limb of the test. Although in Safa Nicu Sepahan there was no question of the link between the restrictive measures and 34 In Safa Nicu Sepahan, the General Court made an award of €50,000 to the applicant for non-material damage. However, the Court did not explain the basis on which it reached the amount of the award.

The Future 167 the non-material damage to the applicant’s reputation, the General Court dismissed the link alleged in relation to many of the separate instances of material damage alleged by the applicant. In particular, when considering the overall downturn in the applicant’s financial outlook, the Court stated as follows: it is impossible to determine whether – and if so, to what extent – that decrease is accounted for by the adoption and maintenance of the restrictive measures concerning the applicant rather than by other factors such as general developments in the economic climate (Safa Nicu Sepahan at paragraph 145).

The Future 6.46 Broadly speaking, the current approach taken by the EU courts to restrictive measures looks set to remain in place for the foreseeable future. In other words, the EU courts will continue to admit actions for annulment brought in respect of targeted and, in some cases, general restrictive measures, provided the individual or entity concerned has standing. On the other hand, a number of important political changes will undoubtedly have an impact on the way in which EU sanctions law evolves more generally, as well as on the number of sanctions cases brought before the EU courts.

Brexit 6.47 Although the UK’s departure from the EU will almost certainly not affect the overall framework for EU restrictive measures in terms of how they are adopted by EU authorities or challenged by listed persons, the following should be noted:35 a. The UK will no longer be an EU Member State, with the result that the UK will fall outside the jurisdictional reach of EU sanctions. However, individuals and entities doing business in the UK will have to remain mindful of EU sanctions, particularly given that the latter will continue to apply to EU nationals and companies incorporated in the EU. In this regard, Brexit will undoubtedly add another layer of complexity to sanctions compliance in the UK, with the UK now having created a domestic framework for the imposition of unilateral UK sanctions. It remains to be seen how this unilateral framework will operate in practice, but the sanctions regimes imposed under it may well mirror, at least to some extent, the current EU sanctions regimes.36 b. Any new domestic sanctions framework in the UK will operate independently from the EU, meaning that listings will be made pursuant to a separate domestic legal regime. As a result, individuals or entities subject to UK listings will have to challenge those listings via the UK courts. Although EU jurisprudence in this area is likely to inform the approach taken by the UK courts, there are a number of issues that may give rise

35 See ch 3 for a more detailed consideration of the impact of Brexit on sanctions. 36 The UK’s post-Brexit sanctions framework is contained in the Sanctions and Anti-Money Laundering Act 2018, which will come into force once the withdrawal process is complete.

168 Challenging Sanctions at the EU Level to divergent perspectives.37 Moreover, given that the UK’s sanctions policy is likely to remain aligned with the EU’s sanctions policy, individuals and entities will probably find themselves subject to both regimes, thus requiring separate challenges at the UK level and at the EU level.

Joint Common Plan of Action (JCPOA) 6.48 The JCPOA was the culmination of years of negotiation between the EC+3 (the UK, Germany and France), the US, China, Russia and the Islamic Republic of Iran.38 The agreement is broadly aimed at relaxing sanctions imposed on Iran in return for a commitment by the latter to discontinue its programme of nuclear proliferation. 6.49 The JCPOA was agreed on 18 October 2015, known as ‘Adoption Day’, after which Iran started to implement its nuclear-related commitments under the deal. Three months later, on 16 January 2016 (‘Implementation Day’), and following a report from the International Atomic Energy Agency (IAEA) verifying that Iran had taken the agreed steps to comply with its side of the deal, the EU and the US began to lift certain sanctions measures.39 Whilst some Iran sanctions remain in place, a large number of prohibitions have been removed or replaced with less stringent requirements. In particular, the numbers of individuals and entities listed under the EU’s Iran regime have reduced considerably.40 6.50 Given that the majority of actions for annulment brought before the EU courts in relation to restrictive measures have to date concerned the Iranian sanctions regime, it is likely that the relaxation of sanctions under the JCPOA will greatly reduce the number of sanctions cases generally. However, it should be noted that the agreement itself remains susceptible to political circumstance, and the US has already withdrawn from the agreement and reimposed US sanctions against Iran.41 Indeed, disagreements regarding the JCPOA are understood to be one of the main reasons why President Trump fired his first Secretary of State, Rex Tillerson, in March 2018.42 Moreover, the EU recently announced its decision to extend the scope of the so-called ‘Blocking Statute’, which was originally imposed

37 It is notable, for example, that there has been no watershed Kadi I moment in the UK, where the courts have upheld the validity of Article 103 of the UN Charter when it comes to conflicting provisions of international law (see, eg, R (Al-Jedda) v Secretary of State for Defence [2007] UKHL 58). As it stands, that position directly contradicts the position taken by the EU courts post-Kadi I, and, post-Brexit, would potentially be fatal to any claims brought against UN listings implemented in the UK; see ch 3 for further discussion. 38 The JCPOA is not legally binding on signatory states, but has been endorsed by the UN via Security Council resolution 2231 (2015). 39 EU restrictive measures in relation to Iran were amended via Council Decision (CFSP) 2015/1863 (amending Council Decision 2010/413/CFSP), which was brought into force by Council Decision (CFSP) 2016/17. See the Information Note on EU sanctions to be lifted under the JCPOA, last updated on 23 October 2016. 40 The number of listed individuals fell from 93 to 29, and the number of listed entities from 467 to 94. 41 President Trump announced the US withdrawal from the JCPOA on 8 May 2018; see ‘Donald Trump announces “withdrawal” from Iran nuclear deal’ The Telegraph (9 May 2018), available at: www.telegraph.co.uk/ news/2018/05/08/donald-trump-announces-decision-iran-nuclear-deal-live-updates/. 42 See P Wintour, ‘Fears grow for future of Iran nuclear deal in wake of Tillerson’s removal’ The Guardian (13 March 2018), available at www.theguardian.com/us-news/2018/mar/13/rex-tillerson-iran-nuclear-deal-us-eu.

The Future 169 in 1996 in relation to US extra-territorial sanctions against Cuba, Iran and Libya.43 The Blocking Statute will, among other things, allow EU operators to recover damages arising from US extra-territorial sanctions, and nullify the effect in the EU of any foreign court or arbitral rulings based on those sanctions.44 It remains to be seen what effect this will have in practice, particularly given the importance of access to the US financial system by large multinational banks and companies.

Other Changes in EU Sanctions Policy 6.51 In addition to the external factors mentioned above, there are indicators that the EU’s own internal sanctions policy has begun to shift. This seems to be in large part due to the high success rate of challenges to EU targeted measures. Whilst applicants might attribute this to a failure by EU authorities to abide by the standards set by the EU courts, Member States have pointed instead to issues of sensitivity surrounding the material needed to substantiate measures.45 Some practitioners have suggested that these issues may have led EU authorities to rethink their current espousal of targeted measures and begin to turn instead towards general measures which are more difficult to challenge in the courts.46 It should be recalled that the UN and EU originally moved towards targeted sanctions as a way to offset the humanitarian damage caused by comprehensive embargoes and other general measures. To this extent, a retreat from targeted measures would represent a step backwards for the EU in terms of its adherence to high standards of fundamental rights and humanitarian protection. 6.52 Another change in EU sanctions policy has been the adoption of a broader approach to listings, thus making them more difficult for applicants to challenge. In particular, listing decisions have increasingly been based on the status of the individual or entity concerned rather than their actions or conduct. This approach has been endorsed by the EU courts. In Kala Naft, for example, the applicant was listed on the basis of its status as a company operating in the oil and gas sector in Iran. The CJEU held that it was unnecessary in this regard for the Council to show any link between the applicant and nuclear proliferation as such; it was sufficient that the applicant operated in the oil and gas sector and was therefore deemed to support the Iranian regime. Moreover, the CJEU stated that the General Court erred in finding that the adoption of restrictive measures against an entity presupposes that that entity has previously acted reprehensibly (Kala Naft at paragraph 84). The decision has

43 See European Commission Press Release, ‘European Commission acts to protect the interests of EU companies investing in Iran as part of the EU’s continued commitment to the Joint Comprehensive Plan of Action’, 18 May 2018, available at: europa.eu/rapid/press-release_IP-18-3861_en.htm. 44 See Regulation (EC) No 2271/96 (the ‘Blocking Statute’), as amended by Commission Delegated Regulation (EU) 2018/1100. 45 See paras 6.11–6.15 above in relation to the new close material procedure, which is intended to assuage these concerns. 46 See the written evidence of Maya Lester QC to the House of Lords EU Committee inquiry, above (n 3) para 22. In particular, it is noted that many of the restrictive measures imposed on Russia in relation to the situation in Ukraine are non-targeted in nature.

170 Challenging Sanctions at the EU Level been criticised in some quarters for diluting the general standard of review applied by the EU courts in the context of restrictive measures.47 6.53 Whatever the specific reasons, there has been a noticeable decline in the proportion of successful applications in recent years.48 Although there is nothing to suggest that targeted sanctions will cease to be an important part of the EU’s foreign policy, it may be the case that, on account of the relaxation of Iranian sanctions and the internal policy changes set out above, sanctions litigation in the EU courts begins to develop in new directions.

47 See L Pantaleo, ‘Sanctions Cases in the European Courts’ in M Happold and P Eden (eds), Economic Sanctions and International Law (Hart Publishing, 2016) 193–94. 48 See the oral evidence of Paul Williams (the director of multilateral policy at the Foreign and Commonwealth Office) to the House of Lords EU Committee inquiry into the legality of the EU sanctions listing process, 11 October 2016: ‘[t]he trend in the [EU] Council improving its record before the courts has got much better. This is rather recent. The figures that I have show that in 2012, 2013 and 2014 the Council was still losing twice as many cases as it won, which is not good at all. In 2015 that trend was reversed; the Council won more than twice as many cases as it lost. The same applies for 2016’.

7 Challenging Sanctions at the UK Level This chapter deals with challenges to sanctions measures in the courts of England and Wales. Given the international nature of most sanctions measures imposed in the UK, challenges in the UK will rarely be brought in isolation and will usually be complemented by parallel proceedings in the EU or other courts. The focus of the chapter is on judicial review of sanctions measures before the courts of England and Wales. The tables below set out the domestic legislation and jurisprudence that is most relevant in the context of challenging sanctions in the UK. The table of cases includes details of related proceedings brought in alternative jurisdictions (usually the EU).

Relevant UK Legislation Legislation

Provision

United Nations Act 1946, s 1

s 1(1) provides that the Executive may by Order in Council make such provision as appears necessary or expedient for enabling UN Security Council Resolutions passed under Article 41 of the UN Charter to be effectively applied in the UK.

European Communities Act 1972, s 2

s 2(2) provides that the Executive may by Order in Council, or by regulations, make provision for the implementation of the United Kingdom’s European Community obligations.

Human Rights Act 1998, s 3

s 3(1) states that where it is possible to do so, legislation should be read compatibly with the rights enshrined in the European Convention on Human Rights (ECHR).

Human Rights Act 1998, s 4

Under s 4(2), a court may determine that a piece of legislation is incompatible with rights enshrined in the ECHR, and make a declaration of that incompatibility.

Human Rights Act 1998, s 7

s 7 provides that a victim of an unlawful act of a public authority may bring proceedings against that authority, or rely on the ECHR rights concerned in any legal proceedings.

Human Rights Act 1998, s 8

s 8 provides that relief (including damages) may be awarded by the court in relation to any act of a public authority which the court finds to be unlawful. s 8(2) provides that damages may only be awarded by a court which has the power to award damages. (continued)

172 Challenging Sanctions at the UK Level Legislation

Provision

Counter-Terrorism Schedule 7 (in conjunction with s 62) grants the Treasury the power to Act 2008, Schedule 7 make directions against individuals or entities, imposing requirements in relation to their transactions or business relationships. The Treasury must show that one of the conditions set out in Schedule 7 applies in relation to a country. The conditions include, among other things, where the Treasury believes that (i) there is a risk of terrorist-financing or money-laundering occurring in the country, or (ii) the development or production of nuclear, radiological, biological or chemical weapons in the country poses a significant risk to the national interests of the UK. Counter-Terrorism Act 2008, s 63

s 63(2) provides that any person affected by a decision of the Treasury (including under Schedule 7) may apply to the High Court (or the Court of Session in Scotland) to set aside the decision. s 63(3) provides that any court determining whether to set aside a decision must apply the normal principles applicable on an application for judicial review.

Terrorist AssetFreezing etc Act 2010, Part 1

Part 1 grants the Treasury the power to make final and interim designations against individuals or entities. Chapter 2 of the Act sets out the prohibitions that relate to designated persons, including the prohibition on dealing with funds owned, held or controlled by designated persons.

Terrorist AssetFreezing etc Act 2010, s 2

s 2(1) gives the Treasury power to designate a person if they reasonably believe, (i) that the person is or has been involved in terrorist activity, (ii) that the person is owned or controlled directly or indirectly by a person within subparagraph (i), or (iii) that the person is acting on behalf of or at the direction of a person within subparagraph (i). The Treasury must also consider that it is necessary for purposes connected with protecting members of the public from terrorism that financial restrictions should be applied in relation to the person.

Terrorist AssetFreezing etc Act 2010, s 26

s 26(2) provides that a designated person may appeal to the High Court (or the Court of Session in Scotland) against any designation decision made by the Treasury. s 26(3) provides that on any such appeal, the court may make any order it considers appropriate.

Justice and Security Act 2013, s 6

s 6(1) gives courts the power to make a declaration permitting the imposition of closed material procedures in a relevant civil proceeding.

Sanctions and AntiMoney Laundering Act 2018, Part 1

Part 1 grants the Treasury or appropriate Minister the power to make sanctions regulations. Chapter 1 deals with the specifics of that power, including the different types of sanction measure available and the procedure in relation to designation. Chapter 2 deals with review by an appropriate Minister and Chapter 4 deals with review by the courts.

Sanctions and AntiMoney Laundering Act 2018, s 1

s 1 sets out the power of the Treasury or appropriate Minister to make sanctions regulations for the purpose of compliance with a UN obligation, or for one of the purposes set out at sub-s 1(2). The meaning of ‘sanctions regulations’ is given at sub-s 1(5).

Sanctions and AntiMoney Laundering Act 2018, Chapter 2 (Part 1)

Chapter 2 of Part 1 sets out the provisions governing the right to request that an appropriate Minister review a sanctions decision made under the Act. (continued)

The Cases 173 Legislation

Provision

Sanctions and AntiMoney Laundering Act 2018, s 23

Under sub-s 23(1), a designated person may request that his or her designation be revoked or varied.

Sanctions and AntiMoney Laundering Act 2018, s 25

Under sub-s 25(2), a person designated pursuant to a UN Security Council Resolution may request the Secretary of State to use his or her best endeavours to secure that the person’s name is removed from the relevant UN list.

Sanctions and AntiMoney Laundering Act 2018, Chapter 4 (Part 1)

Chapter 4 of Part 1 sets out the provisions governing the right to request the courts to review any decision made under the Act, subject to limited exceptions. The framework is designed so that a designated person must first request an administrative review under Chapter 2, before requesting a judicial review under Chapter 4.

Sanctions and AntiMoney Laundering Act 2018, s 38

Under sub-s 38(2), a person may seek the review of any sanctions decision in the courts, provided that the relevant person has already unsuccessfully attempted an administrative review under Chapter 2.

The Cases Case R (Melli Bank plc) v HM Treasury and Others [2008] EWHC 1661 (Admin) (Melli Bank)

Related cases Melli Bank Plc v Council of the European Union (T-246/08 R)

Summary Preliminary determination in relation to an application for interim relief and permission for judicial review of UK sanctions measures imposed pursuant to EU Regulation 423/2007 (as amended).

Melli Bank Plc v Council of the European Union (T-332/08) [2008]

Considering the conditions for interim relief identified in the case of Zuckerfabrik, the Court held that there were no serious grounds for doubting the validity of the relevant decision. Moreover, the Court emphasised that the importance of the uniformity of Bank Melli Iran v Council of the European European sanctions weighed against the unilateral grant of interim relief in the UK. Interim relief and Union (T-390/08 R) permission refused. [2008] Melli Bank Plc v Council of the European Union (T-246/08) Melli Bank plc v Council of the European Union (C-380/09 P) Melli Bank plc v Council of the European Union (T-492/10) (continued)

174 Challenging Sanctions at the UK Level Case

Related cases

Ahmed and Others v HM Treasury [2010] UKSC 2, [2010] 2 AC 534, [2010] 2 WLR 378 (Ahmed)

Summary Judicial review proceedings brought by individuals affected by one of two Orders in Council passed under the United Nations Act 1946: (i) the Terrorism Order 2006 (TO) and (ii) the Al-Qaida and Taliban Order 2006 (AQO). The main challenge to the TO was on the basis that it was ultra vires the scope of s 1(1) of the 1946 Act by reference to the originating UNSCR. The main challenge to the AQO was that it violated the right to effective judicial review. The majority agreed that the TO was ultra vires s 1(1) of the 1946 Act on account of the fact that, applying a strict construction of that section, it went beyond what was ‘necessary or expedient’ to comply with the relevant requirements of SCR 1373. In relation to the AQO, the majority agreed that it was ultra vires the 1946 Act on the basis that Parliament could not have intended to authorise the making of an Order that so severely affected the legal rights of individuals, and which did so in a way which deprived them of any real possibility of challenging their listing in the courts. In other words, and in accordance with the principle of legality, severe restrictions of rights required primary legislation passed by Parliament.

R (John Arnold Bredenkamp) v Secretary of State for Foreign and Commonwealth Affairs [2012] EWHC 3297 (Admin), [2013] 2 CMLR 10 (Bredenkamp I)

Bredenkamp and Others v Commission (T-145/09) Case Bredenkamp and Others v Council and Commission (T-66/14)

Preliminary determination in relation to a judicial review claim in which the claimant sought a declaration that the Foreign Secretary’s decision to propose the claimant’s name for EU listing, and the subsequent refusal to assist in procuring the removal of his name from the list, were unlawful. The defendant challenged the claim on the basis of the Foto-Frost principle, whereby EU acts cannot be found invalid in domestic courts. The defendant argued that although the claim did not directly challenge the validity of any EC act, in substance it inevitably did. Mr Justice Ouseley disagreed and held that the decisions made by the Foreign Secretary should be treated as separate from the EC listing decision, and therefore as a matter for domestic courts. (continued)

The Cases 175 Case

Related cases

Summary

R (John Arnold Bredenkamp) v Secretary of State for Foreign and Commonwealth Affairs [2013] EWHC 2480 (Admin), [2013] Lloyd’s Rep FC 690 (Bredenkamp II)

Preliminary determination in relation to applications for disclosure and further information made by the claimant. The Court considered the general position regarding disclosure in judicial review cases, noting that orders for disclosure would only be made where ‘disclosure appears to be necessary in order to resolve the matter fairly and justly’.

Bank Mellat v HM Treasury [2013] UKSC 38, [2014] AC 700 (Bank Mellat I – 1)

Appeal concerning the applicability of closed material procedures to hearings in the Supreme Court. The underlying proceedings concerned the lawfulness of sanctions directions (see Bank Mellat I – 2 below). Lord Neuberger held that the Supreme Court had jurisdiction to apply closed material procedures to hearings before it.

Bank Mellat v HM Treasury [2013] UKSC 39, [2014] AC 700, [2013] 3 WLR 179 (Bank Mellat I – 2)

Bank Mellat v Council (T-496/10) Bank Mellat v Council (C-176/13)

Substantive challenge to restrictive measures imposed on Bank Mellat by direction of the Treasury (Financial Restrictions (Iran) Order 2009) pursuant to Schedule 7 of the Counter-Terrorism Act 2008 (CTA 2008). The action to set aside the direction was brought under s 63 of the 2008 Act. The challenge was brought on procedural and substantive grounds. The majority decided both the procedural and the substantive issues in favour of the claimant. In relation to procedure, Lord Sumption for the majority affirmed that the duty to give advance notice (and an opportunity to be heard) to a person against whom a draconian statutory power is to be exercised is one of the oldest principles of public law. The extent of that duty was held to depend on the circumstances of each case. The 2008 Act did not expressly or impliedly exclude any relevant duty of consultation. Moreover, Lord Sumption emphasised that the direction in question was not legislative in nature, as it involved the application of a discretionary legislative power and nothing else. To this extent, the Court had the power to review the direction and find it unlawful. In relation to the substantive review, the Court considered the four requirements of rationality/ proportionality and held that the distinction between Bank Mellat and other Iranian banks, which was at the heart of the case put to Parliament by ministers, was an arbitrary and irrational distinction, and that the measure as a whole was disproportionate. (continued)

176 Challenging Sanctions at the UK Level Case

Related cases

Bank Mellat v HM Treasury [2014] EWHC 3631 (Admin), [2015] HRLR 6 (Bank Mellat II)

Summary Preliminary determination in an application under s 63 of the CTA 2008 to set aside further restrictions. The Treasury sought to rely on material which it was not prepared to disclose. A closed hearing was held in order to determine what could be disclosed to the claimant bank. The bank argued that the approach to disclosure in AF3 applied. In particular, the bank sought sufficient information about the allegations against it to enable it to give effective instructions to the special advocates. Collins J agreed that this was the correct approach given the extensive damage caused by the restrictive measures.

R (OJSC Rosneft Oil Company) v HM Treasury and Others [2014] EWHC 4002 (Admin), [2015] Lloyd’s Rep FC 32 (Rosneft I)

NK Rosneft v Council (T-715/14)

R (OJSC Rosneft Oil Company) v HM Treasury and Others [2015] EWHC 248 (Admin) (Rosneft II)

Rosneft (C-72/15)

Application for interim relief in relation to UK measures introduced in order to implement EU sanctions restrictions. The underlying claim was for judicial review of the legality of the relevant UK secondary legislation, as well as guidance given by the Secretary of State for Business, Innovation and Skills, and the FCA. An application for annulment had been filed separately with the EU General Court. The Court held that the Zuckerfabrik test for interim relief was not satisfied in the circumstances. In particular: (i) the provisions did not come close to reaching the required threshold for invalidity on account of uncertainty; (ii) there was no risk of serious or irreparable damage to Rosneft; and (iii) interim relief was inappropriate in the circumstances given the risk of lessening the effectiveness of EU sanctions. Claim for judicial review brought against UK measures taken to implement EU sanctions restrictions. The claim for judicial review included a challenge to the legality of the relevant EU Regulations. The Court confirmed that although it did not have the power to declare Regulations invalid (see Foto-Frost), it did have the power to conclude that there were no grounds for concluding that the measures were invalid. In addition, the claimants argued that certain of the provisions in question were so unclear and uncertain that they violated the principle of legal certainty. The Court ultimately decided to refer the relevant questions to the CJEU pursuant to Article 267 of the Treaty on the Functioning of the European Union (TFEU). (continued)

The Cases 177 Case National Iranian Tanker Company and Gholam Hossein Golparvar v Secretary of State for Foreign and Commonwealth Affairs [2015] EWHC 282 (Admin) (NITC)

Related cases Nabipour and Others v Council (T-58/12) National Iranian Tanker Company v Council (T-565/12) National Iranian Tanker Company v Council (T-207/15 R)

Summary Application for interim relief regarding a forthcoming decision of the EU Council to re-list the applicants under Regulation 267/2012. The General Court had previously annulled the listings of both applicants. However, the Council indicated its intention to re-list them by letter dated 17 November 2014. In relation to jurisdiction, the Court held, applying the guidance of Ouseley J in Bredenkamp, that relief was not precluded on the basis that the applicants were in substance asking the Court to render an EU act invalid. Moreover, the Court held that the applicants met these threshold tests. Mr Justice Green agreed with the applicants’ argument that there would be serious practical difficulties in quantifying any loss. However, the Court did not accept that the application met the balance of convenience test on account of two factors: (i) the existence of the application for annulment to the General Court route; and (ii) the political nature of the decision sought to be challenged. The judge stated that he would in effect be compelling a minister to veto important EU sanctions restrictions, and that he would be extremely reluctant to grant interim relief given these consequences absent extraordinary circumstances to justify such a decision.

Bank Mellat v HM Treasury [2015] EWHC 1258 (Comm), [2016] 1 All ER (Comm) 766 (Bank Mellat III – 1)

(See also Bank Mellat III – 2). Preliminary determination in a claim for damages under s 8 of the Human Rights Act 1998, following on from the Supreme Court’s decision regarding the unlawfulness of the Financial Restrictions (Iran) Order 2009 (see Bank Mellat I – 2 above). The preliminary issues before Mr Justice Flaux were as follows: (i) whether it was open to the defendant to contend that it did not act in a way that was incompatible with a Convention right and/ or unlawful contrary to s 6(1) of the Human Rights Act 1988 (HRA 1988); (ii) whether, as a matter of law, it was open to the defendant to contend that loss caused to the bank by a diminution of earnings generated by its subsidiaries were irrecoverable; and (iii) whether the ‘possessions’ of the claimant under Article 1, Protocol 1 of the Convention extended to cover future loss of income. (continued)

178 Challenging Sanctions at the UK Level Case

Related cases

Summary In relation to the first issue, Mr Justice Flaux held that the Supreme Court’s decision was clearly based on the premise that the measures in question interfered with the bank’s rights under A1P1. To this extent, the first issue was resolved straightforwardly in the bank’s favour. The second issue concerned the applicability of the rule against reflective loss under Strasbourg jurisprudence. Here, it was held that the rule was in fact incorporated into the relevant Strasbourg case law, and therefore it would apply in the absence of exceptional circumstances. However, Flaux J also held that this was one of those exceptional circumstances, given that the subsidiary in question was not the direct victim of the unlawful act for the purposes of ss 7 and 8 HRA 1988. In relation to the third issue, the judge held that consequential losses, including future profits, would be recoverable provided that those losses were caused by the relevant unlawful interference with the applicant’s possession.

R (Sarkandi and Others) v Secretary of State for Foreign and Commonwealth Affairs [2015] EWCA Civ 687, [2016] 3 All ER 837 (Sarkandi)

Bank Mellat v HM Treasury [2016] EWCA Civ 452, [2017] QB 67 (Bank Mellat III – 2)

IRISL v Council (T-489/10) Nabipour and Others v Council (T-58/12) Fard and Sarkandi v Council (T-439/13)

Appeal against a declaration under s 6 of the Justice and Security Act 2013 (JSA 2013) regarding the use of closed material procedures. The underlying proceedings concerned a claim for judicial review against a decision of the Secretary of State to make a proposal to the EU Council that it add the claimants to a list of persons against whom restrictive measures were to be taken. The judicial review proceedings sought declaratory relief and damages pursuant to s 8 HRA 1988 (given that the claimants had already been de-listed pursuant to previous decisions of the General Court). The grounds for judicial review were as follows: (i) there was no lawful or rational basis on which the listing of the claimants could have been proposed; and (ii) the proposal was based on material errors of fact (involving a failure to take reasonable steps to make enquiries). (See Bank Mellat III – 1 above). Appeal concerning preliminary issues in Bank Mellat’s claim for damages arising out of the Supreme Court judgment holding that its A1P1 rights had been unlawfully interfered with (see Bank Mellat I – 2 above). (continued)

Overview 179 Case

Related cases

Summary The Court of Appeal held that PIB (the subsidiary) was a person affected by the Order and therefore had a right under s 63(2) of the CTA 2008 to apply to set it aside. PIB also had victim status under s 7 and therefore a right to seek just satisfaction under s 8 HRA 1998 (reversing Flaux J’s decision on this point). In relation to the issue of loss of future income, the Court noted that the trial judge should approach the factual determinations and application of the law wholly unfettered by any of the views expressed by Flaux J.

C v HM Treasury [2016] EWHC 2039 (Admin), [2016] All ER (D) 08 (Sep) (C v HM Treasury) Youssef v Secretary of State for Foreign and Commonwealth Affairs [2016] UKSC 3, [2016] AC 1457 (Youssef)

Bank Mellat v HM Treasury [2017] EWHC 2409 (Comm) (Bank Mellat III – 3)

This was the first case to be decided in relation to the appeal procedure under s 26 of the Terrorist AssetFreezing etc Act (TAFA 2010). Holding that in this context, the burden is on the Treasury to justify the order it has made.

Yusuf and Al Barakaat International Foundation v Council and Commission (T-306/10)

Concerning the legality of decisions taken by the Foreign Secretary in his capacity as part of a UN sanctions committee. Holding that there is no duty for the Foreign Secretary to prevent other members of UN sanctions committees from using torture-tainted information. Moreover, the Foreign Secretary had not adopted the wrong standard of proof in reaching the designation decision. Nor had the wrong standard of review been adopted in the circumstances. Preliminary determination in relation to the level of disclosure required by the claimant bank in its claim for damages flowing from unlawful government action. It was decided that selective disclosure in relation to 10% of the impacted transactions should be attempted.

Overview 7.1 Challenging sanctions measures in the UK is a complicated and fast-evolving area of the law. Moreover, it is an area that will undergo radical change as part of the Brexit process. In particular, the UK will no longer be subject to EU law, and as a result EU sanctions will no longer apply in the UK.1 However, the UK Government has recognised that sanctions 1 This is subject to the terms of the EU (Withdrawal) Act 2018 and any further agreement between the EU and UK; see ch 3 for more detail on the consequences of Brexit for sanctions law in the UK.

180 Challenging Sanctions at the UK Level measures are more effective when imposed on a coordinated basis, and it therefore expects to continue to work closely on sanctions with the EU and other international partners in the future.2 To this extent, although the legal framework for the implementation of sanctions in the UK will be overhauled, the substance of the measures themselves appears unlikely to change in a significant way. 7.2 This chapter will outline how challenges to UK financial sanctions designations work at present, that is, in the pre-Brexit era. However, it will include an analysis of how challenges are likely to operate once the UK has left the EU, drawing on lessons from the procedure for challenging the UK’s current domestic sanctions, as well as the government’s published plans for the future. In this regard, it is important, for now at least, to distinguish between sanctions imposed pursuant to independent UK statutory regimes, and sanctions implemented pursuant to international obligations (both EU and UN). This chapter will therefore be divided as follows: Section 1: Preliminary issues relevant to sanctions challenges. These issues include considerations surrounding disclosure, interim applications and closed material p rocedures. Section 2: Challenges to independent or unilateral UK sanctions. These are sanctions imposed pursuant to primary UK legislation, where designation decisions are made unilaterally by UK authorities. Section 3: Challenges to multilateral sanctions implemented pursuant to international obligations. These are sanctions imposed on the basis of secondary legislation, where designation decisions are made multilaterally at the UN or EU level. Challenges in the UK courts will focus either on the manner in which international measures are implemented in the UK, or on the UK’s contribution to the international decision-making in question. Section 4: Damages claims arising out of successful challenges to the lawfulness of sanctions measures. 7.3 As discussed in chapter three, most sanctions measures currently in force in the UK derive from EU law. This includes sanctions decided at the UN level, which in most cases will be implemented by EU Regulations, which in turn have direct effect in the UK. As a result, questions regarding the interpretation and validity of EU measures are frequently raised in sanctions cases, and the UK courts have on occasion availed themselves of their ability to refer particular issues to the Court of Justice of the European Union (CJEU) under Article 267 TFEU. Section 3 will consider the Article 267 process and how it has been applied in the sanctions context. 7.4 Domestic challenges to international sanctions in force in the UK face the general problem that the decision-making in question will for the most part have taken place outside the UK and on a multilateral basis. In this regard, the most that can be said is that the UK may have contributed to the decision-making, for example, by proposing a designation to the EU Council or relevant UN Sanctions Committee. For this reason, the UK courts have often taken the view that the correct avenue for challenging international 2 See UK Government response to the public consultation on the UK’s future legal framework for imposing and implementing sanctions, August 2017, para 7.9, available at: www.gov.uk/government/consultations/publicconsultation-on-the-united-kingdoms-future-legal-framework-for-imposing-and-implementing-sanctions.

Preliminary Issues 181 s anctions is elsewhere. To this extent, the early position of the UK courts was that EU sanctions should really be challenged before the EU courts. Nevertheless, the UK courts have not been entirely averse to entertaining indirect challenges where claimants target the UK Government’s contribution to a multilateral decision, and such claims will also be dealt with in section 3 of this chapter. Indeed, there has been a gradual shift away from the intransigence of the early case law, and there are signs that the UK courts may in future refrain from according the relevant authorities such a wide margin of discretion.3 7.5 As a result of the important dichotomy between unilateral and multilateral sanctions challenges, the first thing to establish when deciding if and where to bring proceedings is the source of the sanctions designation itself. Once it is clear where the original designation decision was made, the person or company in question may have a number of options when it comes to challenging that designation. For example, if a measure in force in the UK is derived from EU legislation (ie, adopted under the terms of the European Communities Act 1972 (ECA 1972)), then the EU courts are likely to be the most appropriate forum for bringing a challenge.4 However, bringing proceedings before EU courts does not necessarily preclude a person’s ability to bring parallel proceedings in the UK in relation to the same measures. In fact, given that sanctions measures in the UK are usually implemented pursuant to EU law obligations, domestic challenges are often undertaken in parallel with EU proceedings. These parallel challenges can target both the contribution of UK authorities to the multilateral EU decision-making process, and the domestic measures themselves to the extent that they go beyond the terms of the original EU legislation. 7.6 As a result of the above, challenges in the UK courts often occur alongside parallel proceedings in the EU or other jurisdictions. The various separate proceedings may raise the same or different issues of law and fact, although the UK courts have been reluctant to entertain challenges where these amount to a carbon copy or regurgitation of the arguments raised, for example, before the EU courts in an action for annulment under Article 263 TFEU. In any event, there is an important cross-jurisdictional element to bear in mind when considering sanctions challenges. 7.7 As set out above, section 1 of this chapter will examine several preliminary issues, section 2 will examine challenges to unilateral sanctions, section 3 will examine challenges to multilateral measures in force in the UK, and section 4 will examine damages claims arising from prior findings of unlawfulness.

Preliminary Issues 7.8 Before dealing with the substantive issues that arise in relation to sanctions challenges in the UK, it is important to consider a number of preliminary issues that arise 3 It should be noted, however, that under recently enacted legislation – the Sanctions and Anti-Money Laundering Act 2018 – persons designated pursuant to UN sanctions implemented in the UK by that statute will not be able to seek judicial review of their designation in the courts of England and Wales; see ch 3 for further discussion of this change. 4 See ch 6 for challenges to EU sanctions designations.

182 Challenging Sanctions at the UK Level more often than not in practice. The question of standing will be dealt with separately in sections 2 and 3. 7.9 Substantive challenges to sanctions measures in the UK will take place primarily in the Administrative Court,5 either by way of standard judicial review or as part of the prescribed review procedure set out in the relevant statute. At present,6 the two statutes that contain unilateral powers for the imposition of financial sanctions in the UK – the Counter-Terrorism Act 2008 (CTA 2008) and the Terrorist Asset-Freezing etc Act 2010 (TAFA 2010) – also contain provisions governing challenges to those sanctions. This is equally true of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA 2018), which is due to come into force once the process of withdrawal from the EU is complete.

Closed Material Procedures 7.10 Proceedings in the Administrative Court are subject to the procedural requirements set out in the Civil Procedure Rules (CPR).7 In particular, CPR Part 54 deals with judicial review. In addition, the CPR now contain specific provisions applicable to proceedings initiated under the CTA 2008 or TAFA 2010. These provisions are contained in CPR Part 79 and relate to ‘applications to set aside financial restrictions decisions under the 2008 Act and the 2010 Act’.8 In particular, Part 79 contains provisions allowing for the imposition of what are commonly referred to as ‘closed material procedures’ (CMP). The provisions include allowance for, among other things: (i) the modification of the general rules of evidence and disclosure (CPR 79.22); (ii) the appointment of special advocates (CPR 79.18); (iii) applications by the Treasury to withhold certain evidence (CPR 79.25); and (iv) the use of closed hearings (CPR 79.17). 7.11 The applicability of CMP in the context of sanctions challenges under the CTA 2008 was considered by the Supreme Court in Bank Mellat I – 1. Lord Neuberger confirmed that the common law will in no circumstances permit CMP and that the procedures must therefore be set out in statute.9 Nevertheless, Lord Neuberger also noted that CMP are not in principle incompatible with Article 6 ECHR,10 and that the Supreme Court has jurisdiction to conduct CMP.11 7.12 Even outside the scope of the CTA 2008 and TAFA 2010, however, there is now a broad power for courts to make a declaration permitting CMP in civil proceedings under

5 However, this is not the case for damages claims arising out of successful sanctions challenges, which will usually be brought in the Commercial Court (see section 4 below). 6 As at 1 June 2018 and prior to the entry into force of the Sanctions and Anti-Money Laundering Act 2018. 7 The CPR are periodically updated, with the most recent version coming into force on 1 October 2017. 8 Under CPR rule 79.3, the provisions apply specifically applies to an application to set aside a financial restrictions decision under s 63(2) of the 2008 Act or s 27(2) of the 2010 Act. 9 Bank Mellat I – 1, [4], citing Lord Dyson’s judgment in Al Rawi v Security Service [2012] 1 AC 531, [35]. 10 ibid, [54]. 11 ibid, [62].

Preliminary Issues 183 section 6 of the Justice and Security Act 2013 (JSA 2013). Any judicial review claim brought in respect of sanctions decisions will therefore be susceptible to a section 6 declaration and the subsequent imposition of CMP. The general rules governing CMP are set out at CPR Part 82. The application of CMP to the judicial review of sanctions decisions was tested in Sarkandi. The underlying proceedings in that case involved a challenge to a proposal made by the Secretary of State to the EU Council that the claimants be listed pursuant to the EU sanctions regime targeting nuclear proliferation in Iran. Lord Justice Richards upheld the section 6 declaration, noting that the relevant conditions had been fulfilled in the circumstances. 7.13 In summary, sensitive material is frequently used to make sanctions decisions by the relevant authorities. This has been acknowledged by Parliament by way of the statutory allowance for the use of CMP when dealing with challenges under CTA 2008 and TAFA 2010. Those provisions are now supplemented by the JSA 2013. Potential claimants must therefore accept that they are unlikely to obtain full access to the information taken into account by the relevant decision-maker in reaching the decision in question. The implications of this in relation to disclosure specifically are discussed below.

Disclosure 7.14 Disclosure is a crucial preliminary issue in challenges to sanctions measures. As discussed, substantive challenges in this area will almost exclusively take the form of judicial review proceedings brought in the Administrative Court. To this extent, the approach taken to disclosure will be more restrictive than in an ordinary claim in the Queen’s Bench or Chancery Division.12 However, it is also established that the Court can exceptionally order disclosure to be provided by the defendant public body in appropriate cases.13 The test in this regard is that orders will only be made where ‘disclosure appears to be necessary in order to resolve the matter fairly and justly’.14 The same approach will be taken with Requests for Further Information under CPR Part 18.15 In Bredenkamp II, which involved a challenge brought against a decision of the Foreign Secretary to put forward the claimant’s name for a sanctions designation, Mr Justice Dingemans adopted this test in considering a long list of disclosure applications and Requests for Further Information made by the claimant bank. 7.15 As discussed above, disclosure may also be affected in situations where the relevant authorities seek to withhold material on the grounds of national security. In Bank Mellat II, which involved an application under section 63 of the CTA 2008 to set aside restrictive measures, the Treasury sought to rely on material that it was not prepared to disclose to the claimant bank. In challenging that position, counsel for the bank argued that the correct

12 See

R (Actis SA) v Secretary of State for Communities and Local Government [2007] EWHC 344 (Admin) [13]. Bredenkamp II, [18]. 14 See Tweed v Parades Commission [2006] UKHL 53, [3]. 15 See Bredenkamp II, [20]. 13 See

184 Challenging Sanctions at the UK Level approach to disclosure was that set out in Secretary of State for the Home Department v AF (No 3).16 In AF3, the House of Lords held that a person subject to a control order must be given sufficient information about the allegations against him to enable him to give effective instructions. The latter was expanded upon by Lord Neuberger MR at the Court of Appeal stage of Bank Mellat I (the original proceedings relating to the 2009 Order).17 In particular, he stated that in all cases to which Article 6(1) ECHR applied, there were irreducible minimum rights which required disclosure of sufficient information about the evidential case against the person in question in order to enable that person to give effective instructions in relation to the case. To this extent, it was accepted that the AF3 test could apply to disclosure in financial sanctions cases. 7.16 In Bank Mellat II, Mr Justice Collins confirmed that the AF3 approach was the correct approach given the draconian nature of the sanctions against the bank. In so doing, the judge considered the case of Tariq v Home Office,18 in which the Supreme Court stated that the test for disclosure depended on the nature and weight of the circumstances on each side, and that cases involving deprivation of liberty were in a different category from cases involving civil claims for discrimination. In this regard, Mr Justice Collins emphasised that, ‘while the Bank’s liberty is not affected in the same way as that of an individual, the utterly damaging effect on its ability to function is material’.19 7.17 The judgment in Bank Mellat II makes it clear that, where restrictive measures severely limit a person’s ability to function normally (regardless of which ECHR rights are engaged), the correct approach to disclosure will be that set out in AF3.

Interim Relief 7.18 Interim relief is in principle available to parties in sanctions cases, and the UK courts have entertained numerous applications in this regard. Relief sought by applicants has included a stay of provisions contained in statutory instruments,20 and an injunction to prevent the Secretary of State for Foreign and Commonwealth Affairs from supporting a re-listing decision at the EU Council.21 7.19 The first issue to consider is the correct test for interim relief in sanctions cases. The normal starting point would be to look at the American Cyanamid principles,22 as moderated in Factortame (No 2).23 However, where applications relate to challenges to the content

16 Secretary

of State for the Home Department v AF (No 3) [2010] 2 AC 269 (AF3). Mellat v HM Treasury [2012] QB 91, [18] (Lord Neuberger MR). 18 Tariq v Home Office [2012] 1 AC 452. 19 Bank Mellat II, [27]. 20 See Rosneft I. 21 See NITC. 22 American Cyanamid Co v Ethicon Ltd (No 1) [1975] AC 396, [1975] 2 WLR 316. 23 R v Secretary of State for Transport Ex parte Factortame Ltd (No 2) [1991] 1 AC 603, [1990] 3 WLR 818. 17 Bank

Preliminary Issues 185 of EU measures, it has been argued before the Administrative Court that the appropriate test is that set out in Zuckerfabrik.24 In this regard, the courts have yet to indicate definitively which test is to be preferred. In Rosneft I, for example, Lord Justice Beatson held that the applicant did not satisfy either test.25 On account of this uncertainty, it is worth considering both.

American Cyanamid Test 7.20 The domestic three-part test for interim relief is as follows: i. There must be a serious issue to be tried, and the claimant’s case must be seriously arguable.26 ii. Damages must be an inadequate remedy in the circumstances. iii. The balance of convenience must favour the grant of relief.

Zuckerfabrik Test 7.21 The three-part test in Zuckerfabrik is as follows: i. Serious doubts must be shown regarding the validity of the community regulation on which the contested measure is based. ii. An injunction must be necessary to avoid serious and irreparable harm to the parties seeking it. iii. The court must take into account the interests of the EU and not set aside a regulation without proper guarantees and without assessing whether the measure would be deprived of all effectiveness if not implemented immediately. 7.22 In sanctions cases, the third limb of both the tests set out above will be particularly hard for applicants to overcome. In NITC, Mr Justice Green stated that the ‘acutely political nature of the decision sought to be challenged and the international consequences of the grant of relief in and of themselves are powerful reasons to refuse relief ’.27 This is particularly the case where the application for interim relief arises in relation to multilateral sanctions measures. In these circumstances, the courts will be reluctant to grant relief where they consider that the effect of such relief will have serious repercussions internationally. In Rosneft I, Mr Justice Green noted that a grant of relief in that case would ‘inevitably risk lessening the effectiveness of the EU sanctions, particularly if … the cumulative effect which could arise if other Member States adopt interim measures for similar reasons is taken into account’.28

24 Joined Cases C143-88 and C92-89 Zuckerfabrik [1991] ECR I-415. See Rosneft I, [30]. 25 Rosneft I, [49]. 26 There is uncertainty as to whether in judicial review cases it is also necessary to ask whether a prima facie case of invalidity has been adduced – see C Lewis, Lewis: Judicial Remedies in Public Law, 5th edn (Sweet & Maxwell, 2014) 285, para 8-027. 27 NITC, [70]. 28 Rosneft I, [48].

186 Challenging Sanctions at the UK Level

Unilateral Sanctions 7.23 Notwithstanding the fact that most sanctions in force in the UK have been introduced pursuant to international legal obligations (EU or UN), the UK authorities do have the power to implement certain domestic sanctions measures unilaterally. Moreover, following the UK’s exit from the EU, that power will increase exponentially under SAMLA 2018.29 Although the UK Government originally indicated that it did not intend to replace the current unilateral sanctions legislation in force,30 section 59(1) SAMLA provides that the sanctions-making powers in Part 1 of TAFA 2010 will in fact be repealed once the new statute comes into force. 7.24 The primary statutory basis for unilateral financial sanctions-making in the UK is as follows:31 I. CTA 2008 – giving HM Treasury the power to impose requirements on individuals and companies via ‘directions’. The relevant order will also specify the ‘designated persons’ in relation to whom the directions apply. II. TAFA 2010 – giving HM Treasury the power to designate individuals suspected of terrorist activity. III. SAMLA 2018 – giving HM Treasury and the Secretary of State the power to make sanctions regulations for the purpose of compliance with a UN or other international obligation, or for one of the purposes in subsection 1(2). 7.25 In terms of the legislation currently in force, both CTA 2008 and TAFA 2010 contain an in-built procedural mechanism for reviewing sanctions imposed thereunder (section 63 of CTA 2008 and section 26 of TAFA 2010). However, whilst CTA 2008 provides that any court called to review sanctions directions must apply the principles of judicial review (section 63(3) of the CTA 2008), this is not the case with TAFA 2010, which states merely that on an appeal against any decision of the Treasury relating to designations, the court may make such orders as it considers appropriate (section 26(3) of TAFA 2010). 7.26 The primary basis for challenging unilateral UK measures is by application of the standard grounds of judicial review (ie, illegality, irrationality and procedural impropriety). In fact, it has been pointed out that the only difference between the right conferred under section 63 CTA 2008 and the ordinary common law right of judicial review is that

29 The Act received royal assent on 23 May 2018 and will come fully into force on a date to be decided by the Secretary of State (see s 64). The 2018 Act is considered further in ch 3 (UK Sanctions). See also the proposals for the new sanctions powers in the UK Government’s White Paper, entitled Public Consultation on the United Kingdom’s Future Legal Framework for Imposing and Implementing Sanctions, available at: www.gov.uk/ government/consultations/public-consultation-on-the-united-kingdoms-future-legal-framework-for-imposingand-implementing-sanctions. 30 See UK Government response to public consultation, above (n 2) paras 2.6–2.7: ‘The consolidation of all counter-terrorism powers is beyond the purpose of the Sanctions Bill, the primary objective of which is to allow the government to implement UN sanctions and impose UK autonomous sanctions after the UK leaves the EU. 2.7 The Sanctions Bill would sit alongside the other extant counter-terrorism legislation, providing specific counterterrorism powers in relation to sanctions’. 31 See ch 3 for more detail on the UK’s unilateral sanctions regimes.

Unilateral Sanctions 187 ermission is not required under the CTA 2008 regime.32 Where, as is often the case, the p measures in question engage rights set out in the ECHR, a claimant will be able to mount a challenge where he or she is a victim for the purpose of section 7(1) of the Human Rights Act 1998 (HRA 1998) (see paragraph 7.30(b) below in relation to the rights commonly engaged by restrictive measures). Similarly, insofar as a case relates to the implementation of EU sanctions law in the UK, claimants may rely on the rights protected by the EU Charter of Fundamental Rights.33

Challenges to Designations Under CTA 2008 7.27 Under section 63(2) CTA 2008, any person affected by any decision34 of the Treasury made pursuant to Schedule 7 CTA 2008 may apply to the High Court or, in Scotland, the Court of Session to set aside that decision. This includes persons designated by orders made under Schedule 7 CTA 2008. 7.28 The leading case on challenging unilateral sanctions measures imposed under CTA 2008 is Bank Mellat I – 2. In that case, the Supreme Court was ultimately called upon to decide the legality of the Financial Sanctions (Iran) Order 2009, which was implemented under Schedule 7 of CTA 2008, and which directed all persons operating in the UK financial sector not to enter into or continue to participate in any transactions or business relationships with the claimant. The Order was imposed in response to the significant risk to the UK’s national interests posed by activity in Iran facilitating the development or production of nuclear weapons.35 7.29 The claimant therefore applied under section 63 of CTA 2008 to have the order set aside, raising both substantive and procedural grounds of challenge. The case reached the Supreme Court, and Lord Sumption on behalf of the majority stated at the outset that the appeal arose in relation to an area of extremely sensitive government decision-making: [A]ny assessment of the rationality and proportionality of a Schedule 7 direction must recognise that the nature of the issue requires the Treasury to be allowed a large margin of judgment. It is difficult to think of a public interest as important as nuclear non-proliferation. The potential consequences of nuclear proliferation are quite serious enough to justify a precautionary approach. In addition, the question whether some measure is apt to limit the risk posed for the national interest by nuclear proliferation in a foreign country, depends on an experienced judgment of the international implications of a wide range of information, some of which may be secret. This is pre-eminently a matter for the executive.36

32 Bank Mellat I – 1, [37] (Lord Sumption). 33 Note that under s 5(4) of the EU (Withdrawal) Act 2018, the EU Charter will not be retained as part of UK law after ‘exit day’ (29 March 2019). As a result, claimants in the UK will not be able to rely on EU Charter rights after the Brexit withdrawal process is complete, subject to any transitional arrangements entered into between the UK and EU. 34 With the exception of any decision of the Treasury to make an order under paras 8 or 28(6) of Schedule 7 CTA 2008 (see s 63(8) CTA 2008). 35 See Explanatory Note to the Financial Sanctions (Iran) Order 2009. 36 Bank Mellat I – 2, [21].

188 Challenging Sanctions at the UK Level 7.30 However, it was held that this did not preclude a review of the relevant measures in the circumstances. As a result, it is clear that the courts will be willing to entertain judicial review claims in this area. The main grounds for reviewing sanctions are set out below.

Substantive Grounds The UK case law to date on substantive reviews of domestic decision-making in the sanctions arena is limited. However, the main grounds for review are likely to mirror, at least to some degree, the principles applied by the EU courts.37 To this extent, the key points of challenge will revolve around the following issues: The basis for the sanctions measures and/or listing decision. What were the reasons given (if any) for the measures? Was this a rational basis by reference to the purported objective of those measures? Did the relevant authorities base the measures or listing on any material errors of fact? Did the relevant authorities fail to take reasonable steps to make enquiries regarding the basis for the sanctions measures? b. The proportionality of the sanctions measures and/or listing decision. Where sanctions measures interfere with fundamental rights, such as the right to family life (Article 8 ECHR) or the right to property (Article 1, Protocol 1 ECHR), that interference must be proportionate to the objective pursued.38 The Supreme Court in Bank Mellat I – 2 reiterated that the question of proportionality depends on an exacting analysis of the factual case advanced in defence of the measure, in order to determine: (i) whether its objective is sufficiently important to justify the limitation of a fundamental right; (ii) whether it is rationally connected to the objective; (iii) whether a less intrusive measure could have been used; and (iv) whether, having regard to these matters and to the severity of the consequences, a fair balance has been struck between the rights of the individual and the interests of the community.39 The majority of the Supreme Court also drew upon an analysis of the case of A v Secretary of State for the Home Department40 in order to hold that the issue of discrimination was relevant to the overall question of proportionality. The Supreme Court reached the view that since the measures were not intended to obstruct Bank Mellat specifically (as opposed to other Iranian banks), they were less likely to be proportionate to the general objective of disrupting financing arrangements surrounding Iran’s nuclear programme.41 In this regard, the Supreme Court attached particular importance to the fact that the Treasury had not put forward a reason for singling out Bank Mellat for special treatment. Lord Sumption stated that although the measures taken against the bank may have made it more difficult for Iran to finance transactions relating to its weapons programme, the arbitrary distinction between Bank Mellat and other Iranian banks meant that the measure as a whole a.

37 See

ch 6, paras 6.17–6.24. ch 8 for other ECHR rights that may be engaged by sanctions designations. 39 Bank Mellat I – 2, [20]. 40 A v Secretary of State for the Home Department [2005] 2 AC 68. 41 Bank Mellat I – 2, [27]. 38 See

Unilateral Sanctions 189 was disproportionate. He further noted that the discriminatory nature of the measure would in any case ‘drastically reduce its effectiveness as a means of impeding the Iranian weapons programme’.42

Procedural Grounds Again, the procedural grounds for a judicial review of sanctions measures are likely closely to mirror those applicable in the EU courts. To this extent, the right to effective judicial protection has played an important part in the early UK case law, albeit in relation to the implementation of multilateral sanctions (see the discussion of Ahmed below). The other key procedural ground is the right to make representations regarding a listing decision. In Bank Mellat I – 2, the claimant argued that the Treasury had unlawfully failed to give it an opportunity to make representations in advance of the implementation of the restrictive measures. The majority of the Supreme Court agreed, adding that the duty to give advance notice and an opportunity to be heard to a person against whom a draconian statutory power is to be exercised is one of the oldest principles of public law.43 In the circumstances, the CTA 2008 did not expressly exclude the duty of prior consultation, and therefore the principles of fairness and good administration required that the bank be given an opportunity to make representations before the direction was made. 7.31 The key points arising from Bank Mellat I are as follows. First, in relation to the rationality and proportionality of targeted measures by reference to their purported aim, it will be necessary for the Treasury to show that the individual or entity targeted has been targeted for good reason. In other words, discriminatory measures will require specific (as opposed to generic) justification. Secondly, in the absence of express statutory wording to the contrary, the principles of fairness and good administration will require that a person be given prior notification and the chance to make representations in relation to particularly draconian measures. Equally, however, it should be noted that these principles do not give rise to an automatic duty of prior consultation in every instance, and much will turn on the circumstances of each case, including the nature of the measures and the damage they cause to the individuals and entities concerned.

Challenges to Designations Under TAFA 2010 7.32 Under subsection 26(2) TAFA 2010, a person designated under TAFA 2010 may appeal against a decision of the Treasury (i) to make or vary an interim or final designation, (ii) to renew a final designation, or (iii) not to vary or revoke an interim or final designation. Any such appeal would be to the High Court or, in Scotland, the Court of Session.44 7.33 The first case to be decided in relation to an appeal against designation under section 26 TAFA 2010 was C v HM Treasury. In that case, the appellant was designated

42 ibid. 43 ibid,

[29]. 2010, s 26(2).

44 TAFA

190 Challenging Sanctions at the UK Level under section 2 TAFA 2010 on the basis that he was supporting a terrorist organisation by employing several of its members, among other things. The appellant appealed, arguing that (i) the disclosed material was insufficient to support a reasonable belief that he had been involved in or had supported the organisation in question, and (ii) the designation was unnecessary, disproportionate and in violation of his rights under Article 8 ECHR and Article 1, Protocol 1 ECHR. 7.34 Mr Justice Cranston stated in this regard that there were three components to be fulfilled in relation to a section 2 designation:45 (i) the Treasury must have a reasonable belief that the person is or has been involved in terrorist activity; (ii) the Treasury must consider it necessary for purposes connected with protecting members of the public from terrorism that financial restrictions should be applied to that person; and (iii) if both threshold criteria are met, the Treasury has a discretion to designate (ie, it is a power not a duty). Mr Justice Cranston specified that the requisite conditions need to be met both at the time of the designation, and at the time of the appeal hearing.46 7.35 In relation to the concept of ‘reasonable belief ’, the Court drew from the case law dealing with the Terrorism Prevention and Investigation Measures Act 2011, noting the dictum of Lloyd-Jones LJ in Secretary of State for the Home Department v CC and CF47 that the standard of reasonable belief does not require proof of underlying facts to the standard of the balance of probabilities.48 Nor does it import any requirement of proof of involvement in any specific terrorist-related activity to any higher standard than that which can properly give rise to a reasonable belief.49 Moreover, regard was had to the following statement of Laws LJ in A v Secretary of State for the Home Department: ‘Belief is a state of mind by which the person in question thinks that X is the case. Suspicion is a state of mind by which the person in question thinks that X may be the case’.50 7.36 In relation to the necessity of financial restrictions, the Court again turned to the case law dealing with other terrorism legislation. Mr Justice Cranston cited Lord Phillips CJ in Secretary of State for the Home Department v MB51 and observed that the ‘plain need for measure’ must be considered in context and in light of proportionality. To this extent, the Court weighed the proportionality of the designation as part of the assessment in relation to the second threshold, finding that there was ‘just enough evidence’ to conclude that it was met in the circumstances.52 7.37 In relation to the issue of disclosure, the judge held that although there had been both open and closed material, there was sufficient open material to decide the case without

45 C

v HM Treasury, [6]. [14]. 47 Secretary of State for the Home Department v CC and CF [2012] EWHC 2837 (Admin), [2013] 1 WLR 2171. 48 C v HM Treasury, [7]. 49 ibid. 50 A v Secretary of State for the Home Department [2004] EWCA Civ 1123, [2005] 1 WLR 414, [229]. 51 Secretary of State for the Home Department v MB [2006] EWCA Civ 1140, [2007] QB 415. 52 C v HM Treasury, [87]. 46 ibid,

Multilateral Sanctions 191 reference to the closed material.53 To this extent, there was no need for a separate, closed judgment.

Challenges to Designations Under SAMLA 2018 7.38 The new sanctions framework under SAMLA 2018 has not come fully into force and is therefore yet to be tested in the courts.54 However, the statute does make provision for challenging designations, both administratively and judicially. Chapter 2 of the Act is headed ‘Review by appropriate Minister, and other reviews’, whilst Chapter 4 is headed ‘Court reviews’. 7.39 In Chapter 2, section 23(3) provides that a designated person may request the Minister to vary or revoke the designation in question.55 The request may only be made once, unless the grounds on which the further request is made are or include that there is a significant matter which has not previously been considered by the Minister (section 23(2)). Importantly, section 25(2) provides that where a person in designated under the Act but pursuant to a UN Security Council resolution, that person may request the Secretary of State to use his or her best endeavours to secure that the person’s name is removed from the relevant UN list.56 7.40 In Chapter 4, section 38(2) provides that an ‘appropriate person’ may apply to the High Court (or Court of Session) for the review of any decision of a Minister under Part 1 of the Act, other than a decision where the relevant person has the right to request administrative review (ie, where the relevant person has not yet exercised their right of review under section 23(3) or similar).57 7.41 Although there is no case law relating to the review of the government’s sanctionsmaking powers under SAMLA 2018, there is nothing to suggest that the courts will not take a similar approach to reviews of sanctions-making powers contained in other domestic legislation such as the CTA 2008 or TAFA 2010. In particular, section 38(4) explicitly states that in determining whether the relevant decision should be set aside, the court must apply the principles applicable on an application for judicial review.

Multilateral Sanctions 7.42 Multilateral sanctions measures are agreed at the international level and are not therefore directly attributable to the UK authorities as such. In fact, most sanctions currently 53 ibid, [4]. 54 As at 1 June 2018. The legislation is due to come fully into force once the UK leaves the EU. 55 The ‘Minister’ means the appropriate minister who made the designation (see s 22(1)). 56 This provision appears to be aimed at dealing with the conflict between the UK’s international obligation to implement UN sanctions (see ch 1) and its obligation to ensure that an individual’s rights are protected in law. This conflict has been considered at length by the Supreme Court in the cases of Ahmed and Youssef; see paras 45–51. 57 An ‘appropriate person’ is defined in s 38(3) and includes a designated person.

192 Challenging Sanctions at the UK Level in force in the UK are the result of multilateral decision-making, and usually take the form of UN Security Council resolutions (at the UN level) and EU Regulations (at the EU level).58 These international instruments are then implemented domestically via secondary legislation in the UK (in the case of EU Regulations in order to introduce the relevant criminal offences). To date, two approaches have been taken to challenging the UK Government’s involvement in this process: (i) challenges to the manner in which the sanctions measures are implemented in the UK; and (ii) challenges to the UK Government’s involvement in the decision-making process leading up to (or following) the adoption of the international measures. 7.43 Challenges in this area take the form of judicial review proceedings brought against the decision of the relevant UK public body. Judicial review can only be sought where there is no alternative means of challenging the decision (eg, via a statutory right of appeal such as those discussed above in relation to the CTA 2008 and TAFA 2010). A challenge may not be brought as of right and a person must demonstrate ‘sufficient interest’ in the matter.59 The overall test looks to the powers or duties in law from which relief is sought, the position of the claimant vis-a-vis those powers or duties, and the breach said to have been committed.60 Generally speaking, the test is not difficult to satisfy and anyone directly affected by a decision to impose sanctions (eg, a designated person or a bank holding frozen assets) is likely to have standing in the matter. In deciding the issue of standing, the court is also likely to take into account a range of other factors, including the merits of the challenge, the importance of vindicating the rule of law, and whether or not there is another responsible challenger.61

Challenging the Manner in which International Measures are Implemented in the UK 7.44 All sanctions measures adopted at the international level (ie, by the UN or EU) must be implemented domestically. This includes EU Regulations notwithstanding the fact that they have direct applicability in the UK under the terms of the TFEU. EU measures (including Regulations and Council Decisions) are implemented domestically under section 2 of the ECA 1972. UN Security Council resolutions creating or amending sanctions regimes are now also dealt with by the EU Council and implemented by way of EU Regulation. However, this was not always the case, and particularly in view of Brexit it is also important to bear in mind the mechanism for direct implementation of UN measures in the UK under section 1 of the United Nations Act 1946 (UNA 1946). 7.45 In summary, and regardless of how they are implemented, there is occasionally scope for challenging the manner in which international sanctions measures take form in the UK. 58 See the Introduction and ch 3 for a detailed breakdown of how international measures are implemented in the UK. 59 Supreme Court Act 1981, s 31(3). 60 See R v IRC, Ex parte National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617 (Lord Wilberforce). 61 See, eg, R v Secretary of State for Foreign and Commonwealth Affairs, Ex parte World Development Movement Ltd [1995] 1 WLR 386.

Multilateral Sanctions 193 7.46 The leading case in this regard is Ahmed, in which the claimants challenged the Terrorism Order 2006 (TO) and the Al-Qaida and Taliban Order 2006 (AQO). Both Orders were adopted under the UNA 1946 in order to implement UN sanctions measures,62 and were not therefore subjected to any form of parliamentary scrutiny (the UNA 1946 being designed to implement UN measures with the least possible delay). Under the terms of the Orders, the claimants had become ‘designated persons’ and were therefore subject to draconian restrictions, including asset-freezes. It was accepted at the outset and by both parties that the UK was under an international law obligation to implement the resolutions domestically.63 However, the claimants sought to judicially review the TO and the AQO on the basis that both Orders were ultra vires the UNA 1946. Interestingly, this was the first case to be heard by the newly formed UK Supreme Court.64 I. The Challenge to the TO The claimants argued that the TO was ultra vires section 1(1) of the UNA 1946 on account of the fact that it was not ‘necessary or expedient for enabling those measures [ie, the measures contained in the relevant Security Council Resolutions] to be effectively applied’. In particular, the claimants argued that by introducing a new test of ‘reasonable suspicion’ for adopting sanctions measures, the UK authorities had gone beyond the terms of Security Council resolution 1373 (2001). The Supreme Court agreed, with Lord Hope noting that the expansion of the original international measure was a ‘clear example of an attempt to adversely affect the basic rights of the citizen without the clear authority of Parliament’.65 II. The Challenge to the AQO It was accepted that the AQO, on the other hand, faithfully implemented the relevant Security Council resolutions. However, the challenge was brought primarily on the grounds that it did not provide any right to challenge the listing judicially. Again, the Supreme Court agreed, with the majority holding that it could not have been Parliament’s intention to create such a draconian regime whilst simultaneously depriving affected individuals of an effective remedy in the courts. Importantly, in reaching its decision the Court relied heavily on the principle of legality, which was articulated as follows by Lord Hope: ‘Fundamental rights may not be overridden by general words. This can only be done by express language or by necessary implication’.66 Moreover, Lord Phillips stated that given the context in which the UN Charter was agreed, the principle of legality was a realistic guide to the presumed intention of Parliament in passing the UNA 1946.67 As a result, it was accepted that the wording of section 1(1) UNA 1946 did not suffice to give authority for the executive to bypass Parliament in imposing serious restrictions on fundamental rights, namely the rights to peaceful enjoyment of property and unimpeded access to a court. 62 The Orders were adopted to implement resolutions creating and amending the UN’s anti-terrorism sanctions regime, including resolutions 1267 (1999), 1333 (2000) and 1373 (2001). 63 See Article 25 of the UN Charter. 64 See Ahmed, [85] (Lord Phillips): ‘It is particularly appropriate that these should be the first appeals to be heard in the Supreme Court of the United Kingdom, for they concern the separation of powers’. 65 ibid, [61]. 66 ibid, [75]. 67 ibid, [154].

194 Challenging Sanctions at the UK Level Lord Rodger noted that this was the case regardless of the fact that the UK’s obligations under Articles 25 and 103 of the UN Charter would trump any relevant obligations under the ECHR.68 In other words, the principle of legality as applied to the UNA 1946 as the relevant ‘gateway’ to the implementation of Security Council resolutions precluded any analysis of competing obligations in international law. By focusing on a key principle of domestic law, the Court managed to circumvent any discussion of international legal norms.69 7.47 One of the main grievances the Supreme Court seems to have had in Ahmed concerned the lack of any effective judicial remedy available to individuals designated pursuant to UN Security Council resolutions. In fact, even prior to Ahmed, the UN had responded to sustained judicial criticism (from both domestic and international courts) by introducing a non-judicial system for challenging sanctions at the UN level.70 Although this has made it harder for claimants to argue that they have been deprived of any procedural remedy, the Supreme Court in Ahmed noted that the Ombudsperson system was still an inherently political process, not a judicial one.71 The UN review system has been strengthened since the decision in Ahmed, but it remains the case that, out of a total of 14 UN sanctions regimes currently in force, the Ombudsperson system applies only to one regime (the 1267 regime). In any event, SAMLA 2018 markedly fails to provide for judicial review of sanctions measures adopted at the UN level.72 The position appears to be slightly different where UN sanctions are adopted via the EU, as was subsequently made clear in another Supreme Court judgment dealing with UN sanctions. 7.48 In Youssef, the Supreme Court returned to the reasoning in Ahmed, albeit in different circumstances. In particular, Youssef did not involve the direct implementation of UN sanctions resolutions in the UK, but rather the indirect implementation of UN sanctions via the EU. In any event, the claimant raised an argument regarding the standard of proof – ‘reasonable grounds for suspicion’ – adopted by the Foreign Secretary when deciding whether or not to support designations under the sanctions regime in question (the UN 1267 regime). In other words, it concerned the Foreign Secretary’s decision-making at the UN sanctions committee level. The claimant argued that the standard of proof was too low, and was not prescribed by clear statutory authority. 7.49 Lord Carnwath noted that he found the issue ‘more troubling’ than the Court of Appeal appeared to have done.73 Nevertheless, he stated that the same concerns did not apply to the standard of proof as they did in Ahmed in view of the fact that the 1267 regime was implemented via EU Regulation (EC) No 881/2002, itself reviewable in the EU courts.74 68 ibid, [175]. 69 See ch 8 for a detailed discussion of competing obligations as seen in the jurisprudence of the European Court of Human Rights. 70 See ch 1 and ch 5 on the procedures introduced at the UN level. 71 Ahmed, [181]. 72 This was the subject of fierce debate as the Bill made its way through Parliament; see ch 3 for a more detailed discussion of this issue and what it might mean for UK sanctions post-Brexit. 73 Youssef, [48]. 74 ibid, [49].

Multilateral Sanctions 195 In other words, the principle of legality did not apply in quite the same way because of the manner in which the interposing EU Regulation had set out the terms of the sanctions regime in EU Member States. Moreover, the Court observed that the position of decision-makers considering risk in advance is very different from that of decision-makers considering whether someone has done something in the past.75 In this regard, the risk could not simply be assessed on the balance of probabilities as the claimant suggested. 7.50 The Supreme Court in Youssef therefore distinguished Ahmed on the basis of where and pursuant to what authority the relevant decision was made. In Ahmed, the review concerned a listing decision (‘direction’) made by HM Treasury pursuant to a domestic piece of legislation implementing UN resolutions, whereas in Youssef the review concerned the Foreign Secretary’s contribution to the Security Council designation at the highest level (ie, an international decision that was subsequently implemented domestically via EU law). In Ahmed, therefore, the manner in which the relevant domestic legislation was introduced in the UK was open to review and susceptible to the principle of legality. In Youssef, on the other hand, there was no issue regarding the manner in which the relevant domestic legislation was introduced as the decision in question occurred on the international plane under the prerogative powers of the Foreign Secretary. To this extent, the standard of proof applied by the Security Council to the relevant listing decision was found not to be reviewable in the same way. 7.51 Separately, the implementation of EU sanctions measures in the UK was also challenged in Rosneft II. That case concerned the manner in which UK secondary legislation and related guidance gave effect to measures introduced in the EU targeting Russian entities for the situation in Crimea. The claimant argued, among other things, that certain expressions used in the sanctions legislation were so unclear and uncertain that they violated the principle of legal certainty. The Court agreed that this point was at least arguable and decided that several key questions should be referred to the CJEU under Article 267 TFEU. In this regard, Mr Justice Green concluded that there was a need to ensure consistency and uniformity in relation to the application of the relevant provisions across EU Member States.76 7.52 Article 267 TFEU allows national courts of EU Member States to refer certain questions to the CJEU for a preliminary ruling.77 In particular, questions regarding the interpretation and validity of the EU treaties and acts taken by EU bodies may be referred to the CJEU where that is necessary to enable the relevant national court to give judgment in a domestic case. In its preliminary ruling in the Rosneft case, the CJEU held that it had jurisdiction to answer most of the questions on the validity of the restrictive measures in question, despite the fact they emanated from CFSP Decisions.78 Moreover, it stated that the vagueness of the relevant provisions did not make them invalid or prevent Member States 75 ibid, [50]. 76 Rosneft II, [31]. 77 See Information Note on references from national courts for a preliminary ruling, OJC 297, 5 December 2009; House of Commons, ‘Taking a complaint to the Court of Justice of the European Union’, 11 March 2010. 78 See Case C-72/15 Rosneft.

196 Challenging Sanctions at the UK Level from imposing criminal penalties for breach.79 The CJEU then clarified a number of the interpretative questions raised by the UK Administrative Court. 7.53 Rosneft II confirms that whilst UK courts do not have the power to declare EU Regulations invalid, they do have the power to decide that there are no grounds to conclude that EU Regulations are invalid.80 Nevertheless, it seems that in the sanctions context the UK courts will be reluctant to reach a decision without allowing for interpretive ambiguities to be aired at the EU level. In other words, the UK courts are unlikely to decide these types of cases on a wholly autonomous basis without first seeking the views of the relevant EU institutions and other EU Member States.

Challenging the UK’s Contribution to International Decision-making Concerning Sanctions Measures 7.54 As has already been discussed,81 the UK Government plays a key role in the negotiation and implementation of sanctions measures at both the UN and EU levels. However, early attempts to bring parallel proceedings in UK courts seeking to challenge international sanctions decisions were given short shrift. In particular, the UK courts were reluctant to entertain parallel claims where it was clear that the EU Council was the true defendant. Lord Justice Moses in the case of Melli Bank stated that the ‘challenge and proposed order […] are entirely focused upon the illegality of the Council Decision’.82 Moreover, the claimant accepted that the principle set out in Firma Foto-Frost v Hauptzollamt Lubeck-Ost83 applied to preclude domestic courts from determining the invalidity of decisions taken by the EU Council. To this extent, the judge went on to hold that the claimant had ‘taken the wrong point in the wrong court with the wrong defendant’.84 7.55 A similar approach was taken by Mr Justice Green in NITC, a case in which the claimant effectively sought to compel the Foreign Secretary to veto a re-listing decision by the EU Council. In refusing the relief sought, the judge held that the arguments advanced before the Administrative Court were ‘quintessentially the self-same arguments that they would advance before the General Court in a challenge to the re-listing once it has taken place’.85 In other words, the Court refused to rule on issues that involved challenging the validity of future EU acts, and that would therefore in reality be a matter for the EU courts in line with the Foto-Frost principle. This goes again to the fundamental relationship between the UK and EU courts in matters concerning EU law and the actions of EU bodies. Where a challenge is brought in the UK courts in relation to EU-imposed measures, the key issue is

79 ibid, [165]. 80 Rosneft II, [25]. 81 See, in particular, ch 1 and ch 2 on the creation of sanctions at the UN and EU levels. 82 Melli Bank, [40]. 83 Case 314/85 Firma Foto-Frost v Hauptzollamt Lubeck-Ost [1987] ECR 4199 (Foto-Frost). Foto-Frost established the general principle of EU law whereby a national court does not have the power to declare an EU act to be invalid. 84 Melli Bank, [82]. 85 NITC, [53].

Multilateral Sanctions 197 the extent to which the claim targets the measures themselves, as opposed to the contribution of the UK authorities to the adoption and implementation of the measures. Claimants should therefore seek to draw a clear distinction between EU acts and the acts of the relevant UK authorities in contributing to, or implementing, those acts. 7.56 This was the approach taken in a number of cases following the initial scepticism displayed by the UK courts. The approach has had some success, and it is notable that the courts have shown a greater willingness to examine the UK authorities’ involvement in the international sanctions process. The breakthrough case was Bredenkamp I, in which the claimant sought a declaration that certain decisions made by the Foreign Secretary in relation to the EU listing process were unlawful. In particular, the claimant challenged the legality of (i) the initial decision of the Foreign Secretary to propose his inclusion in the relevant EU sanctions list, and (ii) the subsequent decision of the Foreign Secretary not to assist in procuring the removal of his name from that list. 7.57 The defendant argued that this approach was in substance still a challenge to the legality of the underlying Council Decision, and that the Foto-Frost principle should therefore apply to prevent the claimant bringing its claim in the English courts. The judge disagreed, noting that the Foto-Frost principle did not prevent a conclusion by a national court that an EU act is valid. To this extent, the Foto-Frost principle was held not to prevent a national court ruling on domestic unlawfulness where that may also involve implied or express criticism of EU processes or acts. In particular, Mr Justice Ouseley held that the decisions of the relevant national authorities were not irretrievably contaminated by the fact that they may have been reached after discussions with other EU Member States, and that they should therefore be treated as separate domestic decisions in their own right: There is an inevitable intermingling of Community discussion and national consideration where the Member States take account of the viewpoints of others in coming to their own position on a topic. The mere fact that there is a degree of intermingling or iteration is not determinative of that point.86

7.58 On that basis, the Court rejected the defendant’s contention that a UK court ruling on the issue would inevitably breach the principle in Foto-Frost.87 As a result, the claim was allowed to proceed, and it is now clear that UK public authorities will not simply be able to rely on the Foto-Frost principle in order to defeat challenges to the legality of their decisionmaking vis-a-vis multilateral sanctions measures. This position has since been confirmed in a number of more recent cases, including NITC, in which Mr Justice Green referred back to Bredenkamp I.88 However, the judge also noted that the limits of the Foto-Frost principle were ‘very far from clear and will require future consideration by the Courts’. In particular, Mr Justice Green suggested that if the arguments before the English courts were identical to the arguments that would be advanced before the General Court, then there would be an infringement of the Foto-Frost principle. To this extent, claimants looking to bring

86 Bredenkamp 87 ibid,

[54]. 88 NITC, [55].

I, [58].

198 Challenging Sanctions at the UK Level proceedings in the future will have to think carefully about whether their case falls on the right side of the Foto-Frost line. 7.59 Further clarity now comes from the Supreme Court judgment in Youssef, which involved a challenge to the contribution of the Foreign Secretary to a listing decision made by the UN’s 1267 Sanctions Committee. In particular, the claimant challenged the Foreign Secretary’s decision to lift a hold which the UK had previously placed on the claimant’s designation. The claimant argued that although the Foreign Secretary had made his own decision (to lift the hold) based on untainted evidence, he was aware that the information used by other members of the Sanctions Committee was or might have been obtained by torture. To this extent, he argued that the Foreign Secretary was under an obligation not to contribute to a decision which might be tainted in this way. 7.60 Lord Carnwath began his reasoning on this point by noting that ‘judicial review does not operate in the abstract’.89 In this regard, he stated that if the contribution of the Foreign Secretary to UN decision-making is to be subject to review, there must be some legal principle by which under domestic law his vote can be distinguished from those of the other members of the Sanctions Committee. It was therefore necessary to identify the source of the Foreign Secretary’s decision-making powers, which in this case lay in the exercise of prerogative powers for the conduct of foreign relations.90 Lord Carnwath confirmed that that decision-making power is not reviewable insofar as it concerns relations between sovereign states. However, where the conduct of foreign policy through the UN is directed at the rights of specific individuals living in the UK, there may be scope to subject that foreign policy to judicial review.91 Notwithstanding the possibility of review, it was held that any decision must be judged by reference to the reasons given by the Foreign Secretary, and, in the absence of a specific duty to enquire into the reliance of other states on torture-tainted material, not by reference to how other members of the Sanctions Committee reached their decisions. The Court concluded that there was no such duty.92

Brexit 7.61 It should be noted that Brexit will undoubtedly have an impact on this area of the law. This is mainly because, after the UK leaves the EU, it will be solely responsible for the implementation of UN sanctions. This is considered in further detail at the end of the chapter.

Damages 7.62 If a person is the victim of an unlawful government act for the purpose of section 8 of the HRA 1998, that person is entitled to bring a claim for damages in the English courts. In the sanctions arena, therefore, if restrictive measures are found to amount to an unlawful

89 ibid,

[22]. [24]. 91 ibid, [26]. 92 ibid, [27]. 90 ibid,

Damages 199 breach of a person’s ECHR rights, that person will be entitled to sue for damages. It is important to note, however, that damages claims in this area require the unlawfulness in question to have arisen from a breach of human rights. In other words, there is no free-standing right in English law to claim damages for loss caused by unlawful administrative action.93 7.63 The key case in relation to sanctions-related damages claims is the US$4 billion claim brought by Bank Mellat following the Supreme Court decision in Bank Mellat I – 2. The claimant bank, having successfully challenged the legality of the restrictive measures in question before the Supreme Court,94 brought a claim for damages under the HRA 1998. Although the substantive claim has yet to reach trial, a number of preliminary decisions have served to clarify several difficult issues regarding damages claims for breaches of A1P1 generally.

Disclosure 7.64 In contrast to judicial review proceedings,95 claims for damages following a finding of unlawfulness will adopt the usual civil procedure. To this extent, standard disclosure under CPR Part 31 applies, requiring parties to the case to disclose all documents on which they rely, as well as all documents that (i) adversely affect their own case, (ii) adversely affect another party’s case, or (iii) support another party’s case.96 7.65 Ordinarily, CPR Part 31 would therefore require the claimant in a follow-on damages case to provide full disclosure regarding the losses for which it is claiming damages. However, in the context of Bank Mellat III, the claimant bank argued that full disclosure in relation to the 2,500 transactions that had been impacted by the unlawful sanctions would be unduly onerous. Mr Justice Males agreed and observed that it was worth attempting selective disclosure in relation to 10 per cent of the transactions in question, selected at random.97 However, the judge also noted that there was a distinct possibility that this would prove to be insufficient, and that disclosure in relation to the full set of impacted transactions might ultimately be necessary.98

Preconditions and General Principles 7.66 There are four preconditions to an award of damages by a domestic court under section 8 of the HRA 1998:99 i. That a finding of unlawfulness or prospective unlawfulness should be made based on breach or prospective breach by a public authority of an ECHR right.

93 See

R (Quark Fishing Ltd) v Foreign Secretary [2005] UKHL 57, [96] (Baroness Hale). the discussion of Bank Mellat I – 2 at paras 7.29–7.32 above. 95 See section 1 above. 96 CPR, rule 31.6. 97 Bank Mellat III – 3, [4]. 98 ibid. 99 See R (Greenfield) v Secretary of State for the Home Department [2005] UKHL 14, [6] (Lord Bingham). 94 See

200 Challenging Sanctions at the UK Level ii. That the court should have power to award damages, or order the payment of compensation, in civil proceedings. iii. That the court should be satisfied, taking account of all the circumstances of the particular case, that an award of damages is necessary to afford just satisfaction to the person in whose favour it is made. iv. That the court should consider an award of damages to be just and appropriate. 7.67 In considering damages claims, the English courts are not strictly bound by the principles applied by the Strasbourg court in awarding compensation under article 41 of the ECHR, but must take those principles into account. It has been noted in this regard that the approach to awarding damages in the English courts should be no less liberal than that adopted by the Strasbourg court.100 7.68 The fundamental principle underlying the award of compensation under section 8 of the HRA 1998 is that the court should achieve what is described as resitutio in integrum.101 In other words, the applicant should, insofar as possible, be placed in the same position as if his ECHR rights had not been infringed. As will be seen, this is relevant to what exactly can be claimed as damages. In addition to the restitutio in integrum principle, the courts have established the following guideline principles in the area of damages claims under the HRA 1998: i. The courts should be guided primarily by any clear and consistent practice of the Strasbourg court. ii. The courts should bear in mind that awards by the Strasbourg court reflect the real value of money in the country in question. To this extent, the best guide as to quantum of awards under section 8 will be awards made by the Strasbourg court in comparable cases brought by applicants from the UK or other countries with a similar cost of living. iii. The courts should resolve disputed issues of fact in the usual way even if the Strasbourg court, in similar circumstances, would not do so.102 7.69 The principles set out above were applied by the Commercial Court in Bank Mellat III – 1,103 which dealt with a number of preliminary points in relation to Bank Mellat’s US$4 billion damages claim. As part of the overall claim, Bank Mellat claimed damages for 60 per cent of the earnings before tax of Persia International Bank plc (PIB), a company in which Bank Mellat held 60 per cent of the shares. The Court therefore considered whether the rule against reflective loss104 was compatible with the relevant Strasbourg jurisprudence. In this regard, Mr Justice Flaux concluded that the rule had in fact been recognised and applied by the European Court of Human Rights.105 In particular, in Agrotexim v Greece106 it was held that piercing the corporate veil (ie, a shareholder being able to bring an action 100 See Anufrijeva v Southwark London Borough Council [2003] EWCA Civ 1406, [57]. 101 ibid, [59]. 102 See R (Faulkner) v Secretary of State for Justice [2013] UKSC 23, [39] (Lord Reed). 103 [2015] EWHC 1258 (Comm), [2016] 1 All ER (Comm) 766. 104 This is the rule in English law that only a company may sue for losses incurred by that company. In other words, shareholders of the company cannot pierce the corporate veil and bring claims themselves for the company’s losses (see Johnson v Gore Wood [2002] 2 AC 1). 105 Bank Mellat III – 1, [52]. 106 Agrotexim v Greece (1996) EHRR 250.

The Future 201 on behalf of a company) was only justifiable in exceptional circumstances. The judge at first instance found that these were exceptional circumstances and allowed the claim. Nevertheless, that decision was subsequently overturned by the Court of Appeal, where Lord Thomas noted, among other things, that Bank Mellat was not the sole shareholder in PIB.107 On that basis, and given that PIB could also have brought a claim under the HRA, it was held that Bank Mellat could not claim for the loss it had suffered as a shareholder of PIB.108 7.70 In this regard, the Court of Appeal judgment clarified that PIB had victim status under section 7 HRA as a person affected by the direction in question, and therefore had a corresponding right to seek just satisfaction in accordance with section 8 HRA.109 As a result, the Court confirmed that damages claims are not in principle limited to entities which are themselves the subject of the sanctions measure in question, as Bank Mellat was in that case. To this extent, it would appear that any entity affected by an unlawful sanctions measure may in future be able to bring damages claims in respect of loss suffered. 7.71 The Commercial Court also considered the separate issue of whether consequential losses would be recoverable in a claim for damages for breach of A1P1 of the ECHR. The specific issue raised at the preliminary hearing was whether future loss of income could amount to a ‘possession’ for the purpose of A1P1. Flaux J stated that the calculation of such losses was an issue for trial, but that, applying the principle of restitutio ad integrum (see paragraph 7.69 above), consequential losses would in principle be recoverable provided that they were demonstrably and directly caused by the relevant unlawful interference with the applicant’s possessions.110 In this regard, the real issue to be determined at trial was the issue of causation. 7.72 The Court of Appeal, however, stated that it was not helpful to try to characterise any of these matters as a threshold question, an artificial restriction or a question of causation.111 To this extent, it was for the trial judge to approach the factual determinations and application of the law wholly unfettered by any of the views expressed by Flaux J in the Commercial Court.112

The Future 7.73 Challenges to sanctions measures will no doubt continue to be brought in the UK courts but there are two developments that will unavoidably impact the way in which the law in this area evolves: (i) Brexit; and (ii) the coming into force of SAMLA 2018. The two are linked insofar as SAMLA 2018 was a necessary piece of legislation after the UK opted to leave the EU, and they can be considered together.

107 Bank

Mellat III – 2. [31]. 109 ibid, [14]. 110 Bank Mellat III – 1, [78]. 111 Bank Mellat III – 2, [41]. 112 ibid, [42]. 108 ibid,

202 Challenging Sanctions at the UK Level 7.74 After the UK leaves the EU, and subject to the terms of the EU (Withdrawal) Act 2018 and any interim agreements, EU law, including EU sanctions law, will no longer be part of UK law. In other words, EU sanctions measures in force in the UK through EU Regulations will cease to apply. The measures will in all probability be transposed into UK law for a period of time,113 at least until the UK’s domestic sanctions framework under SAMLA 2018 is fully functioning, but the UK’s sanctions decisions after the withdrawal will no longer be made at the EU level (ie, by the EU Council). To this extent, any UK sanctions in the post-Brexit era that are not implemented pursuant to UN obligations will be unilateral UK measures. 7.75 This is significant because it means that there will be no EU route for challenging sanctions measures in force in the UK; the UK courts and the European Court of Human Rights will become the sole venues for judicially challenging UK sanctions. As a result, there will be no question of the EU courts being a more appropriate forum for bringing challenges, and that will inevitably lead to an increase in sanctions challenges brought before the UK courts. 7.76 More important perhaps is the fact that individuals subject to EU sanctions in the UK will not be able to rely on the EU judicial system as a mechanism for indirectly challenging UN sanctions. This problem was identified by Lord Pannick during the debates in the House of Lords over the Bill that has now become SAMLA 2018.114 In short, the Kadi I jurisprudence will no longer be good authority in the UK, meaning that the UK courts will have to reconsider the conflict between individual rights and UN obligations insofar as it applies to sanctions measures implemented in the UK. 7.77 Kadi I effectively held that UN obligations do not override individual rights protected by EU law, notwithstanding Article 103 of the UN Charter. However, the same is not necessarily true of individual rights protected by UK law, whether in the common law or via the ECHR. In fact, the Supreme Court in the case of Al-Jedda115 (decided before Kadi I) held that UN obligations supersede rights protected by the ECHR. On the other hand, and as discussed above, Ahmed is clear authority for the proposition that the common law principle of legality cannot be overridden by an international obligation imposed by Security Council resolution absent clear parliamentary authority. The question, therefore, is whether that clear parliamentary authority will exist where a UN sanctions measure is implemented

113 This is what is provided for by s 3(1) of the EU (Withdrawal) Act 2018. 114 HL Deb 1 November 2017, col 1396 (Sanctions and Anti-Money Laundering Bill, 2nd reading). In particular, Lord Pannick observed as follows: ‘Can the Minister confirm that I have correctly understood that the intention of the Bill is to deprive the individual on the UN list of the rights that he or she currently has under EU law to obtain from the court, in appropriate cases, a quashing of a listing that derives from the UN?’ This is discussed further in ch 3. 115 R (on the application of Al-Jedda) v Secretary of State for Defence [2007] UKHL 58, [2008] 1 AC 332. It is notable that the European Court of Human Rights avoided discussion of the normative hierarchy in international law and took a different approach in its decision in Al-Jedda v United Kingdom (2011) 53 EHRR 23. More recently, the European Court of Human Rights in Al-Dulimi v Switzerland (2016) 42 BHRC 163 emphasised the need for some form of judicial protection at the domestic level, albeit that it found that this was not in conflict with the relevant UN obligation. These decisions are discussed at length in ch 8.

The Future 203 via SAMLA 2018. Assuming it is, a designated person in the UK will no longer be able to judicially challenge their designation where that designation is decided at the UN level. 7.78 The government has tried to water down this bleak prospect by the insertion of section 25 into SAMLA 2018. By section 25(2), a person designated in the UK pursuant to an obligation imposed by UN Security Council Resolution may request the Secretary of State to use best endeavours to secure that their name is removed from the relevant UN list. A decision by the Secretary of State not to comply with that request may then be challenged in the courts. In other words, the legislative framework provides for a legal challenge to a decision of the Secretary of State not to exert some diplomatic pressure to secure a person’s removal from the UN list, but it does not provide for a legal challenge to the measure itself. The upshot is that in the post-Brexit era UN sanctions decisions may well be immune from legal challenge in the UK. 7.79 That is by no means certain, however, and it remains to be seen how the legal framework develops under SAMLA 2018. Legal challenges brought before the European Court of Human Rights in Strasbourg are considered in chapter eight.

8 Challenging Sanctions at the ECHR Level This chapter deals with challenges to sanctions measures in the European Court of Human Rights (the Court). The focus of the chapter is therefore on direct applications to the Court in Strasbourg, which is the ultimate arbiter of the rights enshrined in the European Convention on Human Rights (ECHR). However, it should be noted that the ECHR is also incorporated into UK law by way of the Human Rights Act 1998, and the protection of ECHR rights in the courts of England and Wales is dealt with in chapter seven. Indeed, pursuant to the principle of subsidiarity (discussed below), applicants must first exhaust any domestic remedies available to them before bringing cases before the European Court of Human Rights. To this extent, an application to the Court will in practice only be made once the case has already been dealt with by the relevant domestic courts. The tables below set out (i) the most relevant provisions of the ECHR that apply in relation to sanctions challenges,1 and (ii) the cases establishing the key principles in relation to sanctions challenges before the Court.

Relevant ECHR Provisions Legislation European Convention on Human Rights, Article 1

Provision Obligation to respect human rights: the Contracting Parties shall secure to everyone within their jurisdiction the rights and freedoms defined in section 1 ECHR.

European Convention on Right to life: everyone’s right to life shall be protected by law. No one Human Rights, Article 2(1) shall be deprived of his life intentionally save in the execution of a sentence of a court following his conviction of a crime for which this penalty is provided by law. European Convention on Human Rights, Article 3

Prohibition on torture: no one shall be subjected to torture or to inhuman or degrading treatment or punishment.

European Convention on Right to liberty and security: everyone has the right to liberty and security Human Rights, Article 5(1) of person. No one shall be deprived of his liberty save in the cases listed in Article 5(1) and in accordance with a procedure prescribed by law. European Convention on Right to a fair trial: in the determination of his civil rights and obliHuman Rights, Article 6(1) gations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. (continued) 1 This is not an exhaustive list of all the provisions that might be relevant to an ECHR application in the sanctions context. The relevant provisions of UK law, including under the Human Rights Act 1998, are discussed in ch 7.

Relevant ECHR Provisions 205 Legislation

Provision

European Convention on No punishment without law: no one shall be held guilty of any Human Rights, Article 7(1) criminal offence on account of any act or omission which did not constitute a criminal offence under national or international law at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the criminal offence was committed. European Convention on Right to respect for private and family life: everyone has the Human Rights, Article 8(1) right to respect for his private and family life, his home and his correspondence. European Convention on Human Rights, Article 13

Right to an effective remedy: everyone whose rights and freedoms as set forth in the ECHR are violated shall have an effective remedy before a national authority notwithstanding that the violation has been committed by persons acting in an official capacity.

European Convention on Human Rights, Article 32

Jurisdiction of the Court: the jurisdiction of the Court shall extend to all matters concerning the interpretation and application of the ECHR and the Protocols thereto which are referred to it as provided in Articles 33, 34, 46 and 47. In the event of dispute as to whether the Court has jurisdiction, the Court shall decide.

European Convention on Human Rights, Article 34

Individual applications: the Court may receive applications from any person, non-governmental organisation or group of individuals claiming to be the victim of a violation by one of the Contracting Parties of the rights set forth in the ECHR or the Protocols thereto. The Contracting Parties undertake not to hinder in any way the effective exercise of this right.

European Convention on Admissibility criteria: the Court may only deal with the matter after Human Rights, Article 35(1) all domestic remedies have been exhausted, according to the generally recognised rules of international law, and within a period of six months from the date on which the final decision was taken. European Convention on Human Rights, Article 41

Just satisfaction: if the Court finds that there has been a violation of the ECHR or the Protocols thereto, and if the internal law of the Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.

European Convention on Human Rights, Article 46

Binding force and execution of judgments: the Contracting Parties undertake to abide by the final judgment of the Court in any case to which they are parties.

European Convention on Human Rights, Article 1 of Protocol 1

Protection of property: every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.

206 Challenging Sanctions at the ECHR Level

The Cases Bosphorus Hava Yollari Turizm ve Ticaret Anonim Şirketi and Another (intervening) v Ireland and Others (intervening), App No 45036/98, ECHR 2005-VI, [2005] ECHR 440, (2006) 42 EHRR 1, IHRL 3264 (ECHR 2005), 30 June 2005, European Court of Human Rights; Grand Chamber (Bosphorus)

Finding that a presumption of equivalent protection exists where measures are imposed via a system that offers a similar level of fundamental rights protection as the ECHR system (this is now also known as the ‘Bosphorus presumption’). The presumption will only be rebutted where the protection provided by the alternative system is manifestly deficient. The presumption was found to apply on the facts of the case, which involved sanctions measures imposed on the applicant by the UN and implemented by the EU. The EU was found to provide an equivalent level of fundamental rights protection.

Al-Jedda and Others (intervening) v United Kingdom, App No 27021/08, (2011) 53 EHRR 23, [2011] ECHR 1092, 30 BHRC 637, IHRL 206 (ECHR 2011), 7 July 2011, European Court of Human Rights; Grand Chamber (Al-Jedda)

Establishing the presumption that in the absence of clear and explicit wording to the contrary, the UN Security Council does not intend to impose any obligation on UN Member States in breach of fundamental human rights principles. In the event of any ambiguity in the wording of a resolution, the interpretation which is most in harmony with the requirements of the ECHR and which avoids any conflict of obligations should be preferred.

Nada v Switzerland, App. No 10593/08, [2012] ECHR 1691, IHRL 2059 (ECHR 2012), 12 September 2012, European Court of Human Rights; Grand Chamber (Nada)

Confirming that, in the event of an apparent conflict between obligations in international law, Contracting Parties should attempt to harmonise the competing obligations. On the facts of the case, the Court concluded that there was no actual conflict of norms and that the Swiss authorities had failed to do everything in their power to mitigate the impact of the relevant sanctions measures on the applicant. To this extent, the Court found that there had been a violation of Articles 8 and 13 ECHR.

Al-Dulimi and Montana Management Inc v Switzerland, App No 5809/08, 21 June 2016, European Court of Human Rights; Grand Chamber (Al-Dulimi)

Reiterating that any divergent commitments in international law should be harmonised as far as possible. On the facts of the case, the Court found that the UN Security Council resolution imposing the sanctions measures did not explicitly exclude the possibility of some form of judicial review at the domestic level. On that basis, the Court held that the respondent state was required to provide the applicant with the opportunity to review the ‘arbitrariness’of the measures in question. Given that no such judicial protection had been available to the applicant, the Court found that there had been a breach of Article 6(1) ECHR.

Overview 207

Overview 8.1 The ECHR establishes a European-wide system for the protection of certain fundamental rights. The system is overseen and administered by the Council of Europe, which is an organisation entirely separate from the EU and consists of 47 state parties (known as ‘Contracting Parties’). The ECHR itself is a treaty entered into by sovereign states and is thus governed by the same rules of interpretation that apply to all international treaties.2 Moreover, the ECHR is subject to international law generally, including Article 103 of the UN Charter which confers primacy on international obligations arising under the UN Charter or imposed by Security Council resolution. This means, at least in theory, that in the event of a normative conflict, ECHR obligations are subordinated to UN obligations (see paragraphs 8.35–8.44 below). 8.2 Under Article 1 of the ECHR, each Contracting Party agrees to secure the rights described in section I of the ECHR to all persons within its jurisdiction.3 Jurisdiction is understood as being primarily territorial in scope, but in certain exceptional cases may extend beyond national boundaries (see paragraph 8.25 below). The protection of ECHR rights is adjudicated by the European Court of Human Rights, based in Strasbourg. Article 46 ECHR binds the Contracting Parties to implement the decisions of the Court. 8.3 The ECHR system operates in accordance with the principle of subsidiarity, which in practice means, among other things, that an applicant must have exhausted the domestic remedies available to him before initiating an application before the Court.4 This approach often gives the impression that the Court functions as a court of fourth instance review, although the Court itself is keen to emphasise that it will limit its review to the conformity of the measures under consideration with the requirements of the ECHR.5 8.4 Individuals and entities seeking to apply to the Court must have been directly or indirectly affected by the measures in question (see paragraphs 8.9–8.16 below in relation to standing). As a result, the sanctions measures most likely to be challenged before the Court are targeted sanctions measures where individuals and companies are listed under specific sanctions regimes. Targeted sanctions measures usually impose a number of restrictions on listed persons, most commonly including asset freezes and travel bans.6

2 In particular, the ECHR should be interpreted in accordance with Article 31 of the Vienna Convention on the Law of Treaties. 3 The UK has incorporated the ECHR into domestic law by way of the Human Rights Act 1998. To this extent, individuals and entities may invoke and rely on ECHR rights before the UK courts (as discussed in ch 7). Separately, notwithstanding the entry into force of the EU Charter of Fundamental Rights in 2009 (discussed in ch 6), the EU courts have treated ECHR rights as unwritten general principles of EU law. Moreover, the Treaty of Lisbon provided for a duty for the EU to accede to the ECHR, although formally this has yet to happen (as of June 2018). In any event, ECHR rights can in practice be relied on before the EU courts. 4 See Article 35(1) ECHR, discussed in detail at paras 8.12–8.27 below. 5 See, eg, Case ‘relating to certain aspects of the laws on the use of languages in education in Belgium’, App No 1474/62, 23 July 1968, para 10. 6 For more detail on the content of targeted sanctions measures, see Part I (chs 1–4).

208 Challenging Sanctions at the ECHR Level 8.5 Targeted sanctions measures may, and in most cases probably will, engage a number of rights protected by the ECHR. For example, an asset freeze will almost certainly constitute an interference with an individual’s right to the peaceful enjoyment of his or her property under Article 1, Protocol 1 ECHR (A1P1) (see Bosphorus). Similarly, a travel ban may amount to an interference with an individual’s right to respect for private and family life under Article 8 ECHR (see Nada). The lack of judicial protection against the imposition of sanctions at the UN level has also been held to constitute a violation of an individual’s right to a fair hearing under Article 6(1) ECHR (see Al-Dulimi). Given their varied nature, however, and the fact that states and international organisations are designing increasingly complex and imaginative measures, it would, at least in theory, be possible for targeted sanctions to breach most if not all the rights protected under the ECHR.7 8.6 What is perhaps most noticeable about ECHR-focused challenges to sanctions measures is the low number of cases being brought before the Strasbourg court, particularly when compared with the high volume of challenges in the EU courts in Luxembourg. One explanation for this is the operation of the so-called ‘Bosphorus presumption’, whereby the European Court of Human Rights applies a rebuttable presumption of equivalent protection in situations where the sanctions measures in question are imposed by an organisation guaranteeing a similar level of human rights protection (see paragraphs 8.29–8.34 below for more detail). For example, the EU is considered to provide an equivalent level of rights protection, with the result that EU-imposed sanctions benefit from the Bosphorus presumption, thus obviating an in-depth review of the measures unless the protection of ECHR rights is considered to be ‘manifestly deficient’. As a result, it is very difficult to challenge EU-imposed sanctions via the European Court of Human Rights.8 Separately, the Strasbourg court has to date taken a less strict position vis-a-vis the review of UN-imposed sanctions than the Court of Justice of the European Union (CJEU).9 8.7 It is worth bearing in mind that once the Brexit process is complete and the UK has withdrawn from the EU, the Bosphorus presumption will not apply in relation to UK sanctions measures, whether imposed unilaterally or implemented pursuant to resolutions of the UN Security Council. In other words, the UK will be in the same position as Switzerland, meaning that it will be under an ECHR obligation (pursuant to the decision in Al-Dulimi) to provide some level of independent judicial protection in respect of sanctions measures imposed by the UN Security Council.10 In practice this means that UK-implemented 7 It is possible, for example, that sanctions measures could in extreme situations infringe a person’s right to life under Article 2 ECHR, as well as the prohibition on torture and inhuman or degrading treatment under Article 3 ECHR. 8 It is perhaps unsurprising therefore that both of the main sanctions decisions handed down after the Bosphorus presumption was established have involved a non-EU Member State (Switzerland). 9 The European Court of Human Rights has yet to confirm unambiguously that it retains the ability to review UN-imposed sanctions implemented by Contracting Parties in all circumstances (ie, there has been no ‘Kadi moment’), although it has come close to doing so in Nada and Al-Dulimi. See M Lester QC, ‘Strasbourg’s Kadi? Al-Dulimi v Switzerland’ (2014), European Sanctions Blog, available at: europeansanctions.com/2014/07/06/ strasbourgs-kadi-al-dulimi-v-switzerland/. 10 This is particularly relevant given that the post-Brexit sanctions framework for the UK under the Sanctions and Anti-Money Laundering Act 2018 does not provide for any formal judicial review of sanctions designations implemented in the UK pursuant to UN obligations. This situation is discussed at length in ch 3 and ch 7.

Jurisdictional Issues 209 sanctions measures will be more susceptible to review by the European Court of Human Rights than they have been since the Bosphorus decision was handed down in 2005.

Jurisdictional Issues 8.8 Before examining the merits of an application, the Court will first review its admissibility.11 This involves ensuring, among other things, that the applicant has standing and that the Court has jurisdiction to hear the case.

Standing 8.9 Article 34 ECHR guarantees the right of individual application to the European Court of Human Rights. An applicant may be an individual, a group of individuals or a legal entity, regardless of nationality, residence, civil status, situation or legal capacity.12 However, the Court may not hear applications brought by governmental organisations, which includes companies participating in the exercise of government powers or running a public service under government control.13 8.10 In addition, the applicant must be a ‘victim’ of the alleged violation of the rights enshrined in the ECHR. In particular, the applicant must have been directly or indirectly affected by the alleged infringement. To this extent, the Court will not consider applications in the abstract.14 A person indirectly affected by an alleged violation will include, for example, close family members of a person directly affected where that person has died.15 Importantly, the Court may declare a case inadmissible at any stage, and an applicant must retain their victim status throughout the proceedings.16 8.11 In the context of sanctions, where an individual has been listed under domestic legislation, whether pursuant to a national or supranational sanctions regime, that person will have been directly affected by the measures in question and will almost certainly qualify as a victim for the purpose of Article 34. In Nada, however, the applicant had been de-listed by the time the case went before the Grand Chamber. As a result, the respondent state argued that the application should be struck out for lack of victim status (Nada at paragraph 126). The Court disagreed, holding that although the applicant had been de-listed, that was not sufficient to deprive him of victim status because the respondent state had not acknowledged any breach or afforded him redress (Nada at paragraph 128). To this extent, it is clear that being de-listed will not in itself deprive an applicant of victim status. 11 For a detailed breakdown of the admissibility criteria see the Council of Europe’s ‘Practical Guide on Admissibility Criteria’ (2014) (Admissibility Guide), available at: www.echr.coe.int/Documents/Admissibility_guide_ ENG.pdf. 12 See, eg, Van der Tang v Spain (1995) 22 EHRR 363, para 53. See also Admissibility Guide, para 9. 13 See, eg, Radio France and Others v France (2005) 40 EHRR 706. 14 See, eg, Tănase v Moldova (2010) 53 EHRR 22, para 104. 15 See, eg, Varnava and Others v Turkey (2009) 50 EHRR 21, para 112. 16 See, eg, Scordino v Italy (2007) 45 EHRR 7, para 179.

210 Challenging Sanctions at the ECHR Level

Exhaustion of Domestic Remedies 8.12 Article 35(1) ECHR requires an applicant to have exhausted all domestic remedies prior to bringing a complaint before the Court.17 This rule reflects the overarching principle of subsidiarity, according to which the Court will only intervene once domestic judicial authorities have had an opportunity to deal with the matter themselves. The ECHR right in question need not have been explicitly in issue before the domestic courts, but it must have been raised ‘at least in substance’.18 In particular, where the applicant has not relied on specific ECHR provisions, the arguments adopted must have been the same or similar in order to give the domestic courts the opportunity to address the alleged breach in the first instance.19 8.13 However, the rule is not cast in stone, and in special circumstances an applicant may be relieved of the requirement to exhaust domestic remedies.20 Moreover, the only remedies that need to be exhausted are those that are available and sufficient, and relate to the breaches alleged.21 The applicant is not required to pursue multiple domestic remedies where the others available are no more likely to be successful than that pursued.22 8.14 In Nada, the respondent state argued that the applicant had not made use of exemptions that were available to mitigate the impact of the sanctions in question. In addition, the applicant had failed to appeal against certain decisions concerning the applicability of those exemptions (Nada at paragraphs 131–33). The Court dismissed these arguments, explaining that the exemptions were part of a broader situation whose origin lay in the listing of the applicant by the Swiss authorities. In other words, the real issue was the listing itself, and the applicant had exhausted all domestic remedies regarding the sanctions regime as a whole (Nada at paragraph 144).

Parallel International Proceedings 8.15 Article 35(2)(b) contains a bar to admissibility in cases where the application is ‘substantially the same as a matter that has already been examined by the Court or has already been submitted to another procedure of international investigation or settlement and contains no new relevant information’. This would cover, for example, situations where proceedings have been initiated before separate international tribunals such as the International Tribunal for the Law of the Sea or an international arbitral tribunal, assuming those proceedings raise substantially the same issues. Article 35(2)(b) was examined in the case of Yukos v Russia,23 with the Court holding that it did have jurisdiction over the matter despite

17 In practice, it is because of this doctrine that most ECHR violations will be determined in the domestic courts, insofar as those violations exist independently of EU law. See ch 7 for legal challenges to sanctions measures in the UK courts. 18 See, eg, Castells v Spain (1992) 14 EHRR 445, para 32. 19 See, eg, Gäfgen v Germany (2011) 52 EHRR 1, paras 142, 144 and 146. 20 See, eg, Sejdovic v Italy (2006), App No 56581/00, Unreported, para 55. 21 See, eg, Tsomtsos and Others v Greece (1996), App No 20680/92, Unreported, para 32. 22 See, eg, TW v Malta (2000) 29 EHRR 185, para 34. 23 Yukos v Russia (2012) 54 EHRR 19.

Jurisdictional Issues 211 arbitration proceedings initiated elsewhere. In particular, the Court found that despite the fact that the arbitration proceedings related to substantially the same issues as the case before it, the claimants were different entities.24

Timing 8.16 Under Article 35(1) ECHR, any application to the Court must be filed within six months of the final domestic decision relating to the alleged violation. Time starts to run on the day following the date on which the final decision is pronounced orally in public, or on which the applicant or his representative is informed of it, and expires six calendar months later.25

Jurisdiction 8.17 Article 1 ECHR states that Contracting Parties shall secure to everyone within their jurisdiction the rights and freedoms contained in section 1 ECHR (Articles 1–18). Under Article 32 ECHR, the Court has jurisdiction over the interpretation and application of the ECHR and the Protocols thereto. In the event of a dispute over the Court’s jurisdiction, the Court will determine the issue itself. 8.18 Prior to declaring a case admissible, the Court will therefore consider the follow ing: (i) jurisdiction ratione personae (ie, does the Court have jurisdiction over the applicant and the respondent state?); (ii) jurisdiction ratione materiae (ie, does the Court have jurisdiction over the subject matter of the case?); (iii) jurisdiction ratione loci (ie, did the alleged breach occur within the respondent state’s territorial jurisdiction?); and (iv) jurisdiction ratione temporis (ie, did the alleged breach occur after the adoption of the ECHR and relevant Protocols by the respondent states?). 8.19 If the Court considers that it does not have jurisdiction over a particular case, it will declare it inadmissible under Article 35(3)(a) ECHR.

Ratione personae 8.20 In order for the Court to have jurisdiction ratione personae over a case, the alleged violation must have been committed by a Contracting Party or be attributable to it in some way. In addition, the applicant must have standing before the Court (see paragraphs 8.9–8.16 above). To this extent, standing can also be construed as an issue that goes to the Court’s jurisdiction over a matter. 8.21 In relation to the attributability of conduct to a respondent state, the rule that has emerged is that the Court does not have jurisdiction over acts or omissions of Contracting Parties which are covered by UN Security Council resolutions and occur prior to or in the

24 ibid, 25 See,

paras 524 and 525. eg, Otto v Germany (2009), App No 21425/06, Unreported.

212 Challenging Sanctions at the ECHR Level course of UN missions to secure international peace and security. This was established in the decision on admissibility in the cases of Behrami and Behrami v France and Saramati v France, Germany and Norway.26 In particular, the Court found that the conduct in question in both cases was taken by international bodies pursuant to UN Security Council resolutions. As a result, the impugned action was held to be attributable to the UN, not to the respondent states who had contributed personnel to the two organisations.27 On that basis, the Court decided that it did not have jurisdiction ratione personae to hear the cases. 8.22 Importantly, the decision in Behrami and Saramati appeared to contradict the previous Grand Chamber judgment in Bosphorus, in which the Court held that action taken by a respondent state pursuant to UN Security Council resolutions (the implementation of sanctions measures) was nevertheless still attributable to the respondent state. In Behrami and Saramati, the Court addressed this apparent incongruity by emphasising the differen ces between the two cases. In particular, the Court noted that in Bosphorus the impugned action was carried out by the respondent state authorities, on that state’s territory and following a decision by domestic authorities.28 In contrast, the conduct in Behrami and Saramati was taken by international bodies (KFOR and UNMIK), outside the respondent states’ territory and in the course of a mission to secure international peace and security under Chapter VII of the UN Charter.29 8.23 The decision on attribution in Behrami and Saramati has been criticised as highly artificial.30 Indeed, the distinction made between that case and Bosphorus is questionable: in both cases the respondent state or states were acting pursuant to binding international obligations imposed by the UN Security Council. The fact that in Bosphorus the action taken by the state happened to occur on its own territory and in accordance with domestic decisionmaking seems beside the point. In particular, the respondent state in Bosphorus had no more discretion to disobey the UN Security Council than in Behrami and Saramati. In any event, the Court has since confirmed that the domestic implementation of UN sanctions will constitute conduct by the implementing state.31 To this extent, it would appear that the implementation of international sanctions measures will always be attributable to the state in question and therefore subject to scrutiny by the Court.

Ratione materiae 8.24 Jurisdiction ratione materiae concerns the subject matter of the case in question. In particular, the alleged violation must relate to a right that is protected under the ECHR or Protocols thereto (assuming the respondent state has ratified the Protocols in question). For example, the Court will not have jurisdiction ratione materiae over a case where the 26 Behrami and Behrami v France, Saramati v France, Germany and Norway (2007) 45 EHRR SE10, App Nos 71412/01 & 78166/01, Grand Chamber, Decision, 2 May 2007 (Behrami and Saramati). 27 ibid, para 144. 28 ibid, para 151. 29 ibid, para 149. 30 See M Milanovic, ‘As Bad As It Gets: The European Court of Human Rights’ Behrami and Saramati Decision and General International Law’ (2009) 58 International & Comparative Law Quarterly 2. 31 See Nada, para 120, and Al-Dulimi, paras 95–96.

Essential Principles 213 respondent state has made a reservation in relation to the right invoked by the applicant, provided that the reservation has been validly made.32 Jurisdiction ratione materiae has not arisen as an issue before the Court in the context of sanctions.

Ratione loci 8.25 Jurisdiction ratione loci concerns the territorial scope of the case. The Court will assess whether the impugned conduct falls within the respondent state’s jurisdiction. In other words, jurisdiction ratione loci concerns the Court’s jurisdiction over a case by way of the respondent state’s jurisdiction over the conduct in question. Under the ECHR, a state’s jurisdiction ratione loci is generally limited to its own national territory.33 However, the Court has found that in certain exceptional cases a state’s jurisdiction may extend beyond national boundaries.34

Ratione temporis 8.26 Finally, jurisdiction ratione temporis concerns the general principle of international law that a state will not be bound by a Convention or Treaty in respect of any act or fact which occurred before the entry into force of that Convention or Treaty in respect of the state in question.35 The case will therefore only be admissible if the impugned conduct took place after ratification by the respondent state of the ECHR or relevant Protocol thereto.

Interim Measures 8.27 Rule 39 of the Rules of Court governs the award of interim measures by the Court.36 However, the jurisprudence of the Court indicates that interim measures will only be granted on an exceptional basis where there is an imminent risk of irreparable harm. In practice, the grant of interim measures has been limited almost exclusively to cases involving the expulsion, extradition or detention of individuals where there is a threat to life or a risk of torture or ill-treatment.37

Essential Principles 8.28 It is quite clear that sanctions have the potential to engage a number of fundamental rights enshrined in the ECHR. However, before considering the extent of any substantive interference, including the proportionality of such interference, there are a number of issues 32 See, eg, Kozlova and Smirnova v Latvia, App No 57381/00, Decision, 23 October 2001. 33 See, eg, Bankovic and Others v Belgium and Others (2007) 44 EHRR SE5, para 67. 34 See, eg, Loizidou v Turkey (1997) 23 EHRR 513, para 62; Al-Skeini v United Kingdom (2011) 53 EHRR 18, para 134. 35 See, eg, Blecic v Croatia (2006) 43 EHRR 48, para 70. 36 See European Court of Human Rights (Press Unit), Factsheet on ‘Interim measures’, February 2018, available at: www.echr.coe.int/Documents/FS_Interim_measures_ENG.pdf. 37 See, eg, ME v Sweden, App No 71398/12, Unreported; Jabari v Turkey (2000) 29 EHRR CD178; Ocalan v Turkey (2005) 41 EHRR 45.

214 Challenging Sanctions at the ECHR Level that the Court must deal with. These issues arise from various overlapping international relationships, including the Court’s own relationship with other supranational jurisdictions such as the EU courts. In addition, the Court must examine any potential normative conflicts in international law, most importantly where the respondent state claims to be caught between competing obligations emanating from separate international treaties.

The Bosphorus Presumption 8.29 The Bosphorus presumption is crucially important to the way in which the Court examines sanctions imposed by international organisations. According to the Bosphorus presumption, where action is taken by a Contracting Party in compliance with legal obligations stemming from the membership of an international organisation (such as the EU or the UN), that action is justified in the eyes of the Court provided that the relevant organisation is considered to protect fundamental rights in a manner which can be considered ‘at least equivalent’ to that for which the ECHR provides (Bosphorus at paragraph 155). Importantly, the presumption is rebuttable, which means that the Court will review a case where it finds that the protection of rights was ‘manifestly deficient’, even where the presumption applies in principle (Bosphorus at paragraph 156). Unfortunately, the Court has refrained from elaborating on the meaning of ‘manifestly deficient’, and there has yet to be a case where the Bosphorus presumption was found to apply but nevertheless rebutted on the facts. 8.30 In the Bosphorus case, the Court was dealing with an application brought in respect of sanctions originally imposed at the UN level (Security Council resolution 820 (1993)), but subsequently implemented in the EU via EU Regulation (Regulation (EEC) No 990/93). The applicant, an airline charter company, leased two planes from Yugoslav Airlines and later sent them to Ireland to undergo maintenance work. Whilst the planes were in Ireland, the abovementioned UN resolution was passed in relation to the escalating conflict in the former Yugoslavia. Pursuant to that resolution, all UN Member States were required to impound aircraft owned by persons from the former Yugoslavia. To this extent, the applicant’s leased planes were caught by the sanctions measures, and the Irish authorities directed that they be impounded. 8.31 The applicant argued before the Court that the sanctions measures amounted to an interference by the Irish state with its right to the peaceful enjoyment of its possessions under A1P1 ECHR. The Court agreed that Ireland was responsible for the domestic implementing legislation (Bosphorus at paragraph 153), but stated that there was an important public interest to be served in state compliance with EU obligations, particularly in the context of international cooperation generally (Bosphorus at paragraph 150). The Court recognised that this approach is problematic in terms of rights protection given that it effectively avoids a substantive review of the rights in question by deferring to the judgment of a separate judicial body. Nevertheless, the Bosphorus presumption can be seen as an attempt to resolve the tension between the protection of fundamental rights and the need for the co-existence and cooperation of multiple international bodies. 8.32 The Bosphorus presumption does not apply exclusively to EU-mandated measures, at least in theory. However, where the presumption has potentially been in issue in

Essential Principles 215 relation to UN measures implemented by states outside the EU, the Court has thus far neglected to consider whether there is any system of equivalent protection at the UN level. In Nada, which involved the implementation of UN sanctions measures by a non-EU state (Switzerland), the Court declined to address the issue altogether. Instead, it was raised by Judge Malinverni in his concurring opinion, in which he noted as follows: The system in place in the United Nations at the material time was thus far from offering an equivalent protection to that guaranteed by the Convention, with the result that it does not seem possible to rely here on a presumption of Convention compliance on the part of the Security Council. The Bosphorus case-law is not yet applicable to the law of the United Nations.38

8.33 Several years after the decision in Nada, the Court once again declined to consider the Bosphorus presumption in relation to UN measures in the case of Al-Dulimi. In Al-Dulimi, also involving the implementation of UN sanctions by Switzerland, the Court found that because there was no actual conflict of international obligations, the question of whether the equivalent protection test should be applied was rendered nugatory (Al-Dulimi at paragraph 149). However, the Court went on to state that the evolved system of sanctions review at the UN level did not afford ‘satisfactory protection’,39 thus strongly implying that had the Bosphorus presumption been in issue, the UN system would not have provided an equivalent level of protection (Al-Dulimi at paragraph 153). This was picked up on by Judge Pinto de Alburquerque, who in his concurring opinion called the Court’s reasoning on this point a ‘disguised Bosphorus solution’.40 In particular, he stated that despite its best efforts to avoid using the phrase ‘equivalent protection’, the Court had obviously applied that test implicitly by comparing ECHR rights protection to the Ombudsperson review system at the UN level. 8.34 The reasoning of the Court in Al-Dulimi in relation to the Bosphorus presumption is closely linked to its findings regarding the hierarchy of norms in international law (see paragraphs 8.35–8.45 below). However, as Judge Pinto de Alburquerque noted, the Court’s decision was highly critical of the UN review system. Al-Dulimi is thus comparable to the decision of the CJEU in Kadi II,41 in which the EU court implicitly held that the Ombudsperson system established at the UN level was insufficient to satisfy the EU requirement for judicial protection vis-a-vis EU sanctions designations.42

Competing Obligations in International Law 8.35 The other major issue that the Court has had to deal with in the context of sanctions implementation concerns competing obligations in international law. This is particularly problematic where a Contracting Party is acting pursuant to an obligation imposed by

38 Nada, Concurring Opinion of Judge Malinverni, para 23. 39 See ch 1 and ch 5 for a detailed overview of the evolution of UN listing review procedures. 40 Al-Dulimi, Concurring Opinion of Judge Pinto de Alburquerque, paras 54–56. 41 Joined Cases C–584/10 P, C–593/10 P & C–595/10 P Kadi v Council and Commission [2013] ECR I-0000 (Kadi II). 42 ibid, para 134.

216 Challenging Sanctions at the ECHR Level UN Security Council resolution, thus potentially leading to a conflict between its UN obligations and its ECHR obligations.43 For example, UN-mandated sanctions requiring that a designated person’s assets be frozen will likely interfere with that designated person’s right to property under A1P1 ECHR, thereby creating a conflict between the UN Charter obligation to implement the Security Council asset freeze and the ECHR obligation to respect the individual’s right to property. The conflict is nominally resolved by Article 103 of the UN Charter, which states that in the event of competing obligations in international law, obligations imposed under the UN Charter will prevail. 8.36 The issue of competing norms in international law was first considered by the Court outside the sanctions context in the case of Al-Jedda. In Al-Jedda, the applicant argued that he had been detained by UK forces in Iraq in violation of Article 5(1) ECHR. In response, the UK Government submitted that it was acting pursuant to an obligation imposed under UN Security Council resolution 1546 (2004), which established the mandate for the Multinational Force operating in Iraq (Al-Jedda at paragraph 87). In particular, the UK argued that the applicability of Article 5 ECHR was displaced by the legal regime under resolution 1546 (2004) by reason of the operation of Articles 25 and 103 of the UN Charter (Al-Jedda at paragraph 91). 8.37 The Court disagreed with the UK’s approach to the hierarchy of norms in international law, stating at the outset that the key question was whether there was in fact a conflict between competing international obligations (Al-Jedda at paragraph 101). In this regard, the Court considered that when interpreting Security Council resolutions, there must be a presumption that the Security Council does not intend to impose any obligation on UN Member States to breach fundamental principles of human rights (Al-Jedda at paragraph 102). To this extent, in the event of any ambiguity in the wording of a resolution, the interpretation which is most in harmony with the requirements of the ECHR and which avoids any conflict of obligations should be preferred. On its own interpretation of resolution 1546 (2004), the Court concluded that it did not impose an obligation on UN Member States to use internment in breach of Article 5(1) ECHR. As a result, the Court found that there was no conflict of international norms and that there had therefore been a violation of Article 5(1) ECHR (Al-Jedda at paragraphs 109 and 110). 8.38 In Al-Jedda, the Court therefore established an approach to competing obligations in international law whereby it attempts, at least in the first instance, to avoid an outright normative conflict. This approach seeks to circumvent the applicability of Article 103 by focusing instead on the nature and wording of the provisions in issue in an attempt to harmonise the relevant international obligations. In adopting this approach, the Court relied, among other things, on a report by the International Law Commission finding that ‘[i]n international law, there is a strong presumption against normative conflict’.44 One year 43 Under Article 25 of the UN Charter, UN Member States are required to abide by decisions of the UN Security Council. See ch 1 for a detailed overview of the UN sanctions system. 44 Nada, para 81, citing the report of the International Law Commission entitled ‘Fragmentation of international law: difficulties arising from the diversification and expansion of international law’, 18 July 2006, UN Doc A/ CN.4/L.702, para 37.

Essential Principles 217 after the Grand Chamber decision in Al-Jedda the issue arose again in the case of Nada, this time in the context of the implementation of UN sanctions by Switzerland. 8.39 In Nada, the applicant argued that several of his ECHR rights were infringed following the implementation by Swiss authorities of a UN-mandated transit-and-entry ban pursuant to Security Council resolution 1390 (2002). The Court confirmed the principles established in Al-Jedda, but accepted Switzerland’s argument that the wording of resolution 1390 (2002) expressly required states to prevent individuals on the UN list from entering or transiting through their territory (Nada at paragraph 172). In other words, in the absence of any ambiguity in the language of the resolution, the presumption established in Al-Jedda that the Security Council does not intend to create obligations breaching human rights was rebutted (see paragraph 8.35 above). This accorded with the position taken domestically by the Swiss Federal Court, which dismissed the case on the grounds that, because of the effect of Article 103 of the UN Charter, Switzerland was bound to implement resolution 1390 (2002) even to the detriment of the applicant’s human rights (Nada at paragraphs 45–52). 8.40 However, rather than leave the issue there, the Court then proceeded to examine the question of whether or not the resolution had afforded the respondent state any latitude in the implementation of the travel ban. In this regard, it noted that the UN left a free choice to Member States regarding the manner in which they implemented the resolution in question (Nada at paragraph 176). On the basis that resolution 1390 (2002) did give Switzerland some latitude regarding implementation, the Court found that the respondent state had not shown that it had taken, or had attempted to take, all possible measures to adapt the sanctions regime to the applicant’s individual circumstances (Nada at paragraph 196). Moreover, the Court concluded that this finding dispensed it from having to make a determination regarding the normative hierarchy in international law (Nada at paragraph 197). To this extent, the Court once again sidestepped the issue of the conflict of international obligations, this time by pointing to the latitude afforded to the respondent state vis-a-vis the implementation of the measures in question. 8.41 Judge Malinverni in his concurring opinion in Nada was strongly critical of the Court’s failure to address the hierarchy of international norms. In particular, he noted that in his view the respondent state did not in fact have any latitude regarding the implementation of the applicant’s travel ban.45 As a result, the situation was one of mandatory power and not discretionary power’.46 This is a difficult proposition to argue with, given that, as the Court accepted, the listing itself was mandated by Security Council resolution (ie, it was an obligation of result). In any event, and even assuming that states do have some latitude in the implementation of UN sanctions measures, the Grand Chamber decision in Nada begs the question of how far an implementing state must go in order to adapt the measures to the individual circumstances of each listed person. In other words, the decision merely deferred the issue of the normative hierarchy in international law to a future case, presumably one in which the respondent state is acting pursuant to a binding Security Council resolution and has done everything in its power to adapt the sanctions to the applicant’s situation.

45 Nada, 46 ibid.

Concurring Opinion of Judge Malinverni, para 10.

218 Challenging Sanctions at the ECHR Level 8.42 Such a case appeared to arrive before the Grand Chamber in Al-Dulimi, which concerned an asset freeze imposed on the applicant by the Swiss authorities pursuant to Security Council resolution 1483 (2003). The Court accepted that the resolution required that UN Member States freeze without delay the financial assets of the former Iraqi government (Al-Dulimi at paragraph 142). In other words, it acknowledged the binding nature of the obligation imposed by resolution 1483 (2003). However, as in Nada, the Court once again declined to address the issue of normative hierarchy, holding that there was nothing in the language of the resolution that prevented the Swiss courts from reviewing the measures taken at national level pursuant to the Security Council resolution (Al-Dulimi at paragraph 143). As a result, the Court concluded that it was unnecessary to determine the issue of the hierarchy of norms in international law (Al-Dulimi at paragraph 149). 8.43 In Al-Dulimi, the Court emphasised the fact that the fundamental right in issue was that of due process or judicial protection under Article 6(1) ECHR (Al-Dulimi at paragraph 143). In the majority’s view, therefore, the procedural protection enshrined in Article 6(1) was entirely compatible with the binding nature of the Security Council resolution. Whilst this sounds vaguely plausible in theory, it does not take much to think of a situation in which the procedural protection offered by Article 6(1) might turn into a substantive bar to the implementation of sanctions measures. In Al-Dulimi, for example, if judicial review by the Swiss courts had led to a judgment holding that the asset freeze was arbitrary or otherwise in breach of the applicant’s human rights, then there would have been a clear conflict between the decision of the national judicial authorities and the requirements of the Security Council resolution (ie, a clear conflict of competing international norms). In other words, the Grand Chamber decision seems to assume that judicial review by national authorities for the purpose of Article 6(1) is a superficial hurdle that will never lead to a substantive conflict with obligations imposed under the UN Charter. 8.44 Once again, the majority’s failure to deal with the issue of hierarchy was picked up in a concurring opinion, this time of Judge Pinto de Albuquerque, who noted as follows: [T]he normative conflict between the respondent State’s obligation to implement Resolution 1483 and its Convention obligation to observe the applicants’ right of access to a court seems to me to be unavoidable.47

8.45 The judge then dealt with the normative conflict by arguing that the ECHR had become a constitutional document of European public order such that it could not be displaced by competing UN obligations in the absence of a proper system of review at the UN level.48 In other words, the judge placed ECHR obligations above UN obligations in the international legal hierarchy, notwithstanding the effect of Article 103 of the UN Charter. This proposed solution to the problem of competing international obligations is much closer to the CJEU’s approach in Kadi I,49 in which the EU court also emphasised the

47 Al-Dulimi, Concurring Opinion of Judge Pinto de Albuquerque (joined by Judge Hajyev, Judge Pejchal and Judge Dedov) para 1. 48 ibid, paras 59–60. 49 Case C-402/05 Kadi and Al Barakaat International Foundation v Council and Commission [2008] ECR I-6351 (Kadi I).

Essential Principles 219 constitutional nature of the EU and constituent treaties. However, the European Court of Human Rights has yet to espouse this approach, albeit that the majority in Al-Dulimi came very close to finding that the fundamental right to judicial review against arbitrariness as contained in Article 6(1) supersedes competing provisions contained in UN resolutions regarding the implementation of sanctions measures. As it stands, therefore, the issue of the normative hierarchy is as yet unresolved at the ECHR level. Moreover, it is clear that the Court will go to great lengths to avoid addressing the issue directly, preferring to harmonise seemingly contradictory norms wherever possible. It remains to be seen whether this approach will be viable in the future.

Interference with ECHR Rights 8.46 Having established its jurisdiction to hear a case, the Court will then consider whether and to what extent the rights protected under the ECHR have been infringed. Due to the inherent flexibility and wide-ranging impact of sanctions measures, it is possible to imagine situations in which all of an applicant’s ECHR rights are violated. However, some rights are more likely to be infringed than others, and this section will focus on those rights that have either been considered by the Court in the context of sanctions, or seem likely to be considered at some stage in the future. 8.47 It is important to note that most rights protected by the ECHR are qualified rights, and therefore a prima facie interference with those rights will not necessarily amount to a violation of the ECHR. In particular, the Court will assess (i) whether the measures adopted by the respondent state are prescribed by law and pursue a legitimate aim, and (ii) whether the measures adopted are proportionate to the achievement of that legitimate aim. To this extent, the Court will in most cases adopt a three-stage approach to the alleged infringement. First, it will consider whether there has been a prima facie breach of the applicant’s rights (ie, whether the state has actually interfered with the applicant’s rights in the manner alleged). Secondly, once the interference has been established, the Court will usually proceed to analyse whether the interference was prescribed by law and adopted in pursuit of a legitimate aim. Finally, the Court will assess whether the measure in question was proportionate to the aim sought to be achieved.

The Right to Property 8.48 Modern sanctions measures often impose restrictions on the assets and financial resources of named individuals or entities. This will in almost all circumstances amount to an interference with that person’s property, which will in turn constitute a prima facie breach of A1P1 ECHR.50 50 Of the 47 Council of Europe states, only Monaco and Switzerland have yet to ratify the first Protocol to the ECHR (as of June 2018). To this extent, applicants cannot rely on A1P1 when submitting applications against these two states (see Nada and Al-Dulimi, which involved applications against Switzerland). A full list of ratifying states is available at: www.coe.int/en/web/conventions/search-on-treaties/-/conventions/treaty/009/signatures?p_ auth=RnLmU34u.

220 Challenging Sanctions at the ECHR Level 8.49 A1P1 reads as follows: Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.

8.50 A1P1 therefore protects individuals and entities against interferences with their property by the state. It is a qualified right, which means that an interference with property will be justified if the respondent state is able to show that it is in the public interest. In particular, a fair balance must be struck between the demands of the public interest in question, and the requirements of the protection of the individual’s fundamental rights.51 However, unlike Articles 8–11 of the main body of the ECHR, A1P1 does not contain a list of legitimate public interest aims. The Court has found that A1P1 contains three interrelated rules (Bosphorus at paragraph 141): (i) the general principle regarding the peaceful enjoyment of property (first sentence of the first paragraph); (ii) the prohibition on the deprivation of property by the state subject to strict conditions (second sentence of the first paragraph); and (iii) the principle that Contracting Parties are allowed to control the use of property in accordance with the general interest (second paragraph). 8.51 Sanctions imposing asset freezes and similar restrictions on property will per se impair a designated individual’s ability to enjoy his or her possessions. In Bosphorus, for example, the respondent state did not dispute that the impoundment of the applicant’s leased aircraft amounted to a prima facie infringement of its right to the peaceful enjoyment of its property under A1P1. In particular, the Court acknowledged that the detention of the aircraft amounted to an ‘interference’ with the applicant’s right to the benefit of the lease agreement (its ‘possessions’) (Bosphorus at paragraph 140). Moreover, the Court found that the sanctions regime amounted to a control on the applicant’s use of its property (Bosphorus at paragraph 142). 8.52 The Court then considered whether the interference was adopted in pursuit of a legitimate public interest, and whether the measures imposed were proportionate to that aim. The Court accepted that there was a public interest in adopting the sanctions, namely compliance with the legal obligations flowing from Ireland’s membership of the EU (Bosphorus at paragraph 150). In this regard, the Court noted the growing importance of international cooperation and the corresponding need to secure the proper functioning of international bodies. In considering the proportionality of the measures, the Court noted the tension between the respondent state’s right to be a member of international organisations, and the fact that it retained responsibility for the protection of fundamental rights within its jurisdiction (Bosphorus at paragraphs 152–54). In this context, the Court proceeded to establish the Bosphorus presumption (see paragraphs 8.29–8.34 above). As a result, the Court did not properly consider the proportionality of the measures, choosing 51 See, eg, Sharxhi v Albania (2018) 67 EHRR 7, para 166; Schneider Austria GmbH v Austria, App No 21354/93, 30 November 1994.

Essential Principles 221 instead to rely on the ‘equivalent protection’ provided by the EU courts. In other words, the Court deferred to the EU courts on the question of the sanctions’ proportionality. 8.53 Had the Bosphorus presumption not applied in the circumstances (ie, had the respondent state not been a member of the EU or similar body providing a minimum level of rights protection), the Court would have had to consider proportionality in the context of the overriding UN obligation to implement the sanctions. To this extent, the Court would have been left with the issue of competing obligations in international law (see paragraphs 8.35–8.45 above). In this regard, the Court would have had to confront the dilemmas faced in Nada and Al-Dulimi, which involved Switzerland implementing UN sanctions as a non-EU state. Separately, had the sanctions not been implemented pursuant to a UN-mandated obligation (ie, had the sanctions been imposed unilaterally by Ireland), then the Court would have had to perform a much fuller assessment of the proportionality of the measures. 8.54 Were an A1P1 challenge to be brought in relation to unilateral sanctions measures, it is impossible to know what arguments would be adopted by the parties as no such case has ever gone before the Court. For a start, however, the respondent state would have to argue that the sanctions pursued a different legitimate aim from that in Bosphorus, as the measures would clearly not have been adopted in compliance with EU obligations. The legitimate aim invoked would depend entirely on the context of the sanctions measures, but might include protection against threats posed by foreign states, protection against terrorism, upholding the international rule of law or discouraging human rights violations in foreign states. The Court would then proceed to examine whether or not the measures themselves, and their impact on the applicant, were proportionate to that aim.

The Right to an Effective Judicial Remedy 8.55 The implementation of sanctions measures, whether imposed unilaterally or pursuant to international obligations, occurs via domestic legislative and administrative procedures. To the extent that measures impact upon individuals or entities within a particular state’s jurisdiction, that person should be able to rely in the first instance on some sort of domestic judicial review process in order to challenge the measures in question. Article 6(1) protects an individual’s right to a fair hearing in relation to his or her civil rights and obligations, which includes the right to an effective judicial remedy52 and access to a court,53 and therefore covers an individual’s right to challenge sanctions before domestic judicial authorities. 8.56 The right of access to a court is not absolute and may be subject to limitations (Al-Dulimi at paragraph 129). However, a limitation on the right of access to a court will not be compatible with Article 6(1) unless it pursues a legitimate aim and there is a reasonable

52 In particular, the right to a fair hearing must be construed in the light of the rule of law, which requires that all litigants should have an effective judicial remedy enabling them to assert their civil rights (Al-Dulimi, para 126). 53 The Court has emphasised that the right of access to a court is particularly important in view of the prominent place held in a democratic society by the right to a fair trial (Al-Dulimi, para 127).

222 Challenging Sanctions at the ECHR Level relationship of proportionality between the means employed and the aim sought to be achieved (Al-Dulimi at paragraph 129). 8.57 In Al-Dulimi, the Swiss authorities refused to carry out a substantive review of the sanctions measures imposed on the applicant pursuant to UN Security Council resolution 1483 (2003) on the grounds that Switzerland was bound to implement the resolution under international law. The Court recognised that the UN sanctions under consideration had been designed in order to promote the stabilisation and development of Iraq (Al-Dulimi at paragraph 132). To this extent, the domestic implementation of the sanctions by Switzerland pursued the legitimate aim of maintaining international peace and security. 8.58 In relation to the requirement of proportionality, the Court noted that Article 24(2) of the UN Charter required the Security Council to act in accordance with the ‘Purposes and Principles of the United Nations’ (Al-Dulimi at paragraph 139). In this regard, it found that under Article 1(3) of the UN Charter, one of the purposes of the UN was the promotion and encouragement of human rights and fundamental freedoms. The Court used this to establish a presumption that the Security Council does not intend to impose any obligation on UN Member States in breach of fundamental human rights principles (Al-Dulimi at paragraph 140). As a result, it held that in the event of any ambiguity, the Court must interpret UN resolutions in the manner most in harmony with the requirements of the ECHR, and which avoids any conflict of obligations (Al-Dulimi at paragraph 140) (see paragraphs 8.35–8.45 above in relation to the issue of normative hierarchy). 8.59 In this way, the Court essentially found that the legitimate aim of maintaining international peace and security, via the implementation of resolution 1483 (2003), did not require the Swiss authorities to deny all forms of domestic judicial review in relation to the measures in question. In particular, the Court found that the UN resolution was compatible with a basic ‘arbitrariness’ review (Al-Dulimi at paragraph 145). In the circumstances, the review undertaken by the Swiss courts was ultimately deemed to have been insufficient to meet the threshold of preventing arbitrariness (Al-Dulimi at paragraph 154). As a result, Switzerland was found to be in breach of Article 6(1) ECHR. 8.60 It is unclear what exactly Contracting Parties will have to do in order to satisfy the arbitrariness standard in the context of targeted sanctions, but the Court indicated that it would involve affording listed individuals an opportunity to present evidence showing that their listing was arbitrary (Al-Dulimi at paragraph 151). Moreover, the Court asserted that it would require granting domestic judicial authorities access to sufficiently precise information to enable them to ascertain whether or not the listing was in fact arbitrary (Al-Dulimi at paragraph 147). Notwithstanding the Court’s assurances to the contrary, this is problematic for Contracting Parties for a number of reasons, not least because a finding of arbitrariness by a domestic court will lead to a direct conflict between the specific requirements of the UN obligation in question, and the substantive content of Article 6(1) ECHR. The Court’s decision in Al-Dulimi is therefore unlikely to be the last word on the issue of sanctions and judicial protection in the ECHR context. 8.61 Closely related to the right to effective judicial protection under Article 6(1) is the right to an effective remedy under Article 13. In particular, Article 13 guarantees the

Essential Principles 223 a vailability at national level of a remedy by which to complain about a breach of ECHR rights (Nada at paragraph 207). In Nada, the Court found that the Swiss authorities had not examined on the merits the applicant’s complaints regarding the alleged violation of his ECHR rights (Nada at paragraph 210). Furthermore, the Court noted that there was nothing in the relevant UN Security Council resolutions to prevent the Swiss authorities from introducing mechanisms to ‘verify the measures taken at national level’ (Nada at paragraph 212). In other words, the Court found that, on its interpretation of the resolutions in question, the international obligation to implement the sanctions listing did not necessarily entail a corresponding inability to review that listing domestically. As a result, the Court concluded that the applicant had not been afforded an effective means of obtaining the removal of his name from the relevant sanctions list (Nada at paragraph 213). There had therefore been a breach of Article 13, taken in conjunction with Article 8 ECHR.54

The Right to Private and Family Life 8.62 Article 8(1) ECHR protects the right to private and family life. ‘Private life’ is a broad term which covers, among other things, a person’s health, as well as their right to personal development and to establish and nurture relationships with other human beings and the outside world in general (Nada at paragraph 151). The protection of ‘family life’, on the other hand, involves the state acting in such a way as to allow those concerned to lead a normal family life (Nada at paragraph 153). When examining whether there has been an interference with a person’s right to family life, the Court will look in particular, and on a case-by-case basis, at the ties between the individuals concerned (Nada at paragraph 153). 8.63 Once the Court has established an interference under Article 8(1), it will proceed to assess whether that interference was justified by reference to the list of legitimate public interests set out in Article 8(2). In this regard, the Court will also examine whether the measure in question was proportionate to the public interest sought to be achieved. In assessing proportionality, the Court will leave a margin of appreciation to the competent national authorities (Nada at paragraph 184). This means it will allow states a certain amount of leeway in terms of the measures chosen to pursue a particular public interest. Of the sanctions measures habitually imposed on designated individuals, travel bans are probably the most likely to interfere with a person’s private and family life. In particular, travel bans may 54 The importance of the Nada judgment in relation to Article 13 was subsequently noted by Ben Emmerson QC in his role as the UN Special Rapporteur on the promotion and protection of human rights and fundamental freedoms while countering terrorism. In his annual report to the UN General Assembly of 26 September 2012 he stated as follows (para 21): ‘Of much greater practical significance, however, was the Court’s finding of a violation under article 13 of the Convention (the right to an effective domestic remedy). The Court concluded that in the absence of effective judicial review at the United Nations level, there was a duty on State parties to the Convention to provide an effective remedy under national law. This implied a full review on fact and law by an entity with jurisdiction to determine whether the measures were justified and proportionate in the individual case and power to order their removal. The Nada Judgement thus echoes the approach of the European Court of Justice and the General Court in the Kadi litigation, holding that regional implementing measures taken by the European Commission were to be judged against human rights standards binding on the Community institutions. However, the principle in the Nada case has wider geographical ramifications than the Kadi litigation since it applies to all 47 member States of the Council of Europe, including three permanent members of the Security Council’.

224 Challenging Sanctions at the ECHR Level limit an individual’s ability to visit family, or access medical treatment. The circumstances of the travel ban imposed in the case of Nada are noteworthy in this regard. 8.64 Mr Nada was an Italian and Egyptian national residing in the Italian enclave of Campione d’Italia, an enclave separated from the Italian mainland and totally surrounded by the Swiss Canton of Ticino. As a result of his particular geographic circumstances, therefore, the travel ban imposed by Security Council resolution 1390 (2002) restricted Mr Nada’s movements to the enclave of Campione d’Italia (ie, the Swiss authorities implementing the travel ban would not allow Mr Nada to travel through Swiss territory). This meant that Mr Nada’s ability to visit relatives in mainland Italy, and to access medical treatment in other parts of his state of residence, was severely constrained. Unsurprisingly, the Court held that this amounted to an interference with Mr Nada’s right to private and family life under Article 8(1) (Nada at paragraph 165). 8.65 The Court also found that the travel ban pursued the legitimate aims of preventing crime and contributing to Switzerland’s national security and public safety under Article 8(2), in particular through combating international terrorism under Chapter VII of the UN Charter (Nada at paragraph 174). In relation to the proportionality assessment, however, the Court noted that UN Member States are given a free choice regarding the transposition of Security Council resolutions into the domestic legal order (Nada at paragraph 176). To this extent, the Court found that Switzerland had ‘some latitude’ as to the domestic implementation of the travel ban and other measures (Nada at paragraph 180). As a result, the Court observed that there were measures that the respondent state could have taken to adapt the sanctions regime to the particular circumstances of Mr Nada’s individual situation (eg, by offering him assistance with the de-listing process at the UN level) (Nada at paragraph 196). In other words, the Court found that there were steps that Switzerland could have taken to alleviate the interference without breaching the UN resolutions in question. As discussed at paragraphs 8.40–8.41 above, and as noted by the Court itself, this finding allowed the Court to sidestep the issue of the normative hierarchy in international law. The Court concluded that as these steps had not been taken by the respondent state (ie, because Switzerland had not maximised the full extent of its latitude under the relevant UN resolutions), there had been a breach of Article 8 (Nada at paragraph 199). 8.66 The Court’s finding in relation to Article 8 ECHR in Nada creates considerable uncertainty for states in terms of the lawful implementation of UN sanctions regimes. This is mainly because it is unclear at what point exactly a state will have exhausted its latitude to transpose a UN sanctions regime into the domestic legal order whilst protecting an individual’s ECHR rights. However, the decision in Nada does serve to remind states that they must at least attempt to mitigate the impact of UN sanctions on individuals to the extent that they can without breaching corresponding UN obligations.

The Right to Liberty 8.67 Article 5 ECHR protects an individual’s right to liberty. In particular, Article 5(1) states that ‘no one shall be deprived of their liberty’ save in the specific cases listed in Article 5(1)(a)–(f) and provided the procedure is prescribed by law. Individuals are

Essential Principles 225 therefore protected against arbitrary interferences by the state with their right to liberty. However, Article 5(1) does not deal with restrictions on liberty of movement, which is governed instead by Article 2, Protocol 4 (A2P4) (see paragraphs 8.70–8.71 below for further discussion of A2P4). 8.68 In order to establish a breach of Article 5, an individual must show that he has been the victim of a deprivation of his liberty, as opposed to a mere restriction of his liberty. The Court has held that the difference between the two is one of degree or intensity, not one of nature and substance (Nada at paragraph 225). Moreover, the Court must take into account the ‘type’ and ‘manner of implementation’ of the measure in question, which in practice means that the Court must have regard to the context and circumstances surrounding types of restriction that do not fit the paradigm case of confinement in a cell (Nada at paragraph 226). 8.69 Modern sanctions measures do not typically include detention of designated individuals, and as such sanctions will rarely result in an engagement of a person’s Article 5 rights. In the particular circumstances of Nada, however, the applicant argued that the effect of the travel ban and the nature of his confinement within the enclave of Campione d’Italia meant that he had effectively suffered a deprivation of his liberty. The Court disagreed, holding that the restrictions did not prevent him from freely living and moving within the territory of his permanent residence (Campione d’Italia) (Nada at paragraph 229). To this extent, the applicant was not in a situation of detention and there was therefore no breach of Article 5 ECHR (Nada at paragraph 234).

The Right to Liberty of Movement 8.70 A2P4 enshrines the right to liberty of movement.55 In particular, the first paragraph of A2P4 states that everyone lawfully within the territory of a state shall, within that territory, have the right of liberty of movement and freedom to choose his residence. The second paragraph of A2P4 states that everyone shall be free to leave any country, including his own. 8.71 No applicant has yet relied on A2P4 as the basis of ECHR proceedings, although in Nada this was only because the respondent state (Switzerland) had not ratified the fourth Protocol to the ECHR. In any event, it is only the second protection (freedom to leave any country, including an individual’s own country) that risks being breached by a travel ban imposed pursuant to targeted sanctions legislation. In other words, a travel ban will not usually prevent a person from travelling within or leaving his or her country of residence.56 55 Of the 47 Council of Europe states, only Greece, Switzerland, Turkey and the UK have yet to ratify the fourth Protocol to the ECHR (as of June 2018). To this extent, applicants will not be able to rely on A2P4 in applications submitted against these four states. A full list of ratifying states is available at: www.coe.int/en/web/conventions/ full-list/-/conventions/treaty/046/signatures?p_auth=5GUlNRFC. 56 UN Security Council resolutions imposing travel bans almost always contain an exemption in relation to a designated individual’s state of residence. For example, para 15 of Security Council resolution 1970 (2011) states that ‘nothing in this paragraph shall oblige a State to refuse its own nationals entry into its territory’. Furthermore, travel bans are in most cases worded so as to prevent the entry and transit into states, and do not usually prevent an individual from leaving a state.

226 Challenging Sanctions at the ECHR Level In cases such as Nada, involving an entry-and-transit ban implemented by a neighbouring state (ie, Switzerland), it is not the individual’s state of residence that is responsible for enforcing the travel ban. Moreover, it will only be in very particular circumstances (such as those in Nada) that a neighbouring state is responsible for preventing a person from leaving their own country altogether (ie, a person will usually be able to leave their own country by air or sea without necessarily transiting through a territory that has enforced the travel ban).

Damages 8.72 Under Article 41 ECHR, the Court may afford an applicant ‘just satisfaction’ where there has been a violation of a protected right. However, the award of just satisfaction is not available as of right as a consequence of a finding of violation,57 and the Court will only make an award where it considers it appropriate to do so.58 In particular, the award must be considered ‘just’, and the Court will make its assessment on a case-by-case basis.59 Rule 60 of the Rules of Court sets out the time limits and other formal requirements for making a claim for just satisfaction. 8.73 Damages awarded as just satisfaction are divided into three categories: (i) pecuniary damage; (ii) non-pecuniary damage; and (iii) costs and expenses. In this regard, the Court will usually only look at damage actually claimed by successful applicants, and will not of its own accord consider whether the applicant has been otherwise prejudiced.60 Furthermore, it is rare for the Court to make monetary awards in respect of non-pecuniary damage, and this will only occur in exceptional circumstances.61 More often, a finding of violation will be held to constitute sufficient just satisfaction for non-pecuniary damage.62 8.74 In relation to pecuniary damage, the Court will have regard to the link between the amount lost by the applicant and the violation in question.63 Where the link is clear, the applicants will usually be entitled to recover the full amount lost (eg, where the respondent state imposed a fine on the applicants in breach of a fundamental right such as freedom of expression).64 Although pecuniary damage under Article 41 has never been successfully claimed in respect of targeted sanctions imposed in breach of ECHR rights, it is easy to imagine situations in which it might be available (eg, where an asset freeze constitutes a violation of A1P1 and the applicant incurred financial losses as a direct consequence).

57 Council of Europe, Practice Direction: Just Satisfaction Claims, 19 September 2016, para 1, available at: www. echr.coe.int/Documents/PD_satisfaction_claims_ENG.pdf. 58 See, eg, Nagmetov v Russia (2017), App No 35589/08, Unreported, para 57. 59 Practice Direction: Just Satisfaction Claims, above (n 57) para 2. 60 See, eg, Nagmetov, above (n 58) para 68. 61 ibid. 62 ibid, para 70. 63 See, eg, Karacsony v Hungary (2017) 64 EHRR 10, para 180. 64 ibid.

The Future 227

The Future 8.75 ECHR challenges against targeted sanctions have so far been few and far between. There are a number of reasons for this, including the operation of the Bosphorus presumption and the fact that sanctions imposed by EU legislation are more obviously challenged through the EU courts. This seems unlikely to change in the near future, particularly given that the European Court of Human Rights has yet to confirm unambiguously that it can impose itself in direct contradiction to domestic sanctions implemented pursuant to overriding international obligations. In other words, the Court’s preference for the harmonisation of competing international obligations means that it is still not clear up to what point an applicant can succeed in enforcing his ECHR rights in this area. 8.76 However, the impending departure of the UK from the EU may trigger a surge in sanctions-related challenges before the Court. This is mainly because the UK’s post-Brexit sanctions measures will all be imposed domestically and not by way of EU legislation. As a result, not only will the Bosphorus presumption not apply to UK sanctions, but the EU courts will not be available as the main forum for sanctions challenges. The latter will inevitably lead to a rise in domestic judicial review proceedings in the UK,65 particularly if the UK chooses to mirror EU sanctions, which is likely to lead to a corresponding increase in the number of cases that make their way to Strasbourg. If this is indeed the case, then the Court will have plenty of cases in which to clarify the unresolved issues discussed above.

65 See

ch 7 for further discussion of sanctions challenges in the UK, including post-Brexit.

9 Challenging Sanctions in the US This chapter deals with challenges to sanctions measures in the US courts. Given the international nature of many sanctions measures, challenges in the US may often be brought in conjunction with parallel proceedings in the EU or other courts. The focus of the chapter is on judicial review of sanctions designations before the US courts. The tables below set out the domestic legislation and jurisprudence that is most relevant in the context of challenging sanctions in the US.

Relevant US Legislation Legislation

Provision

Provisions relating to requests for administrative reconsideration in the US Code of Federal Regulations 31 CFR § 501.806

Procedures for unblocking funds believed to have been blocked due to mistaken identity.

31 CFR § 501.807

Procedures governing de-listing from the Specially Designated Nationals and Blocked Persons List. These provisions relate to the procedure for requesting the administrative reconsideration of designations.

31 CFR § 501.807(a)

A designated person may submit arguments or evidence that the person believes establishes that an insufficient basis exists for the designation. A designated person may propose remedial steps on the person’s part which the person believes would negate the basis for designation.

31 CFR § 501.807(b)

The information submitted by the blocked person seeking unblocking will be reviewed by the Office of Foreign Assets Control (OFAC), which may request clarifying, corroborating, or other additional information.

31 CFR § 501.807(c)

A designated person may request a meeting with OFAC. However, OFAC may decline to conduct such meetings prior to completing its review.

31 CFR § 501.807(d)

After review of the request for reconsideration, OFAC will provide a written decision to the designated person. (continued)

The Cases 229 Legislation

Provision

Statutory provisions relating to judicial review of designation decisions 5 USC § 701–706

Provisions relating to judicial review of agency action under the Administrative Procedure Act (APA).

5 USC § 706(2)(A)

The Court shall hold unlawful and set aside agency action, findings, and conclusions that are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.

8 USC § 1189(c)

Provisions relating to judicial review of designations of foreign terrorist organisations under the Antiterrorism and Effective Death Penalty Act (AEDPA).

Provisions of the US Constitution relevant to judicial review of designation decisions First Amendment

Protecting freedom of speech and the right to peaceful assembly.

Fourth Amendment

Protecting the right to be secure against unreasonable searches and seizures without a valid warrant.

Fifth Amendment – Due Process Clause

Protecting against the deprivation of life, liberty or property without due process of law.

Fifth Amendment – Takings

Protecting against the taking of private property for public use without just compensation.

The Cases People’s Mohajedin Organization of Iran v Department of State 182 F 3d 17 (1999) (PMOI I)

Confirming that the procedure for administrative reconsideration of sanctions designations is unique in terms of not providing for an adversarial hearing, presentation of evidence or advance notice. In relation to the judicial review of the petitioner’s designation, the Court limited itself to considering the sufficiency of the information on which the Secretary of State based her decision.

National Council of Resistance of Iran v Department of State 251 F 3d 192 (2001) (NCRI)

Taking into account the claimant’s constitutional due process rights as an entity that had entered the US and established substantial connections with the country. The Court considered the claimant’s due process rights in relation to deprivations of property under the Fifth Amendment, confirming that a designated person must be afforded notice and the opportunity to be heard in relation to a designation decision. The Court found that the claimant’s due process rights had been violated and remanded the case to the Secretary with instructions that the petitioners be afforded the opportunity to file responses to the non-classified evidence against them.

People’s Mohajedin Organization of Iran v Department of State 327 F 3d 1238 (2003) (PMOI II)

Holding that the unclassified portion of the administrative record was sufficient to support the designation made. To this extent, the claimant had been afforded all the due process required and the petition for review was denied. (continued)

230 Challenging Sanctions in the US Holy Land Foundation v Ashcroft Confirming the highly deferential ‘arbitrary and capricious’ 333 F 3d 156 (2003) (HLF) standard in judicial review claims involving sanctions designations. The Court noted that in reaching its designation decision the government can rely on a broad range of evidence, including intelligence data and hearsay declarations. Islamic American Relief Agency (IARA–USA) v Gonzales 477 F 3d 728 (2007) (IARA)

Upholding the claimant’s designation on the basis of its affiliation with its parent organisation.

KindHearts for Charitable Humanitarian Dev, Inc v Geithner 647 F Supp 2d 857 (2009) (KindHearts)

Upholding a number of constitutional claims brought in respect of the designation. In relation to the Fourth Amendment, the Court held that the government had not shown that the need to act without a warrant was so compelling that it could do so lawfully under the exigent circumstances. The Court also found a violation of the due process requirements under the Fifth Amendment. In particular, the Court stated that OFAC should at least have given the petitioner the unclassified administrative record on which it relied for the designation.

People’s Mohajedin Organization of Iran v Department of State 613 F 3d 220 (2010) (PMOI III)

Holding that the Secretary of State had committed n umerous due process violations in relation to the petitioner’s re-designation. In particular, the Secretary had not (i) notified PMOI of unclassified material upon which she intended to rely, or (ii) allowed PMOI the opportunity for a meaningful hearing. In particular, this only happened after the decision was filed.

Al Haramain v Treasury Department 686 F 3d 965 (9th Cir 2012) (Al Haramain)

Holding that a case-by-case approach is appropriate in r elation to the application of due process requirements, including notice and the disclosure of information. In particular, OFAC has an obligation to consider possible avenues to allow the designated person to respond more effectively to the charges. In relation to notice and the meaningful opportunity to respond, the Court stated that OFAC did not even attempt to argue that its failure to provide reasons promoted national security. To this extent, notice was found to be constitutionally inadequate.

Kadi v Geithner 42 F Supp 3d 1 (2012) (Kadi)

Confirming the narrow scope of judicial review in relation to designation decisions, and the high margin of deference afforded by the courts when matters of foreign policy and national security are concerned. Confirming also that the designation process requires only the disclosure of the unclassified portions of the administrative record.

Zevallos v Obama 10 F Supp 3d 111 (2014) (Zevallos)

Holding that OFAC’s designation-challenging procedures for all SDNs are identical. Confirming that OFAC generally does not need to provide notice and a hearing given the government’s compelling interest in the immediate blocking of assets upon designation.

Preliminary Issues 231

Introduction 9.1 US sanctions are notoriously difficult to challenge, and, relative to the number of listings in the EU, very few successful judicial review claims have been brought against designations in the US. This is mainly because the US courts adopt a highly deferential approach to decision-making by US government agencies such as the Office of Foreign Assets Control (OFAC). Moreover, the deferential approach is applied to an even greater extent in cases involving matters of foreign policy and national security, which sanctions cases invariably do. However, some due process victories have been won by claimants attempting to challenge designations in the US, and this chapter will focus on the lessons learnt in those cases and how litigation may develop in the future. 9.2 OFAC administers and enforces US sanctions, and forms part of the US Department of the Treasury.1 In particular, OFAC is responsible for maintaining the Specially Designated Nationals (SDN) and Blocked Persons List, which is the main consolidated list of persons designated pursuant to the US sanctions regimes (known as ‘programs’ in the US).2 To this extent, it will for the most part be OFAC’s decision-making that is in issue in cases challenging US sanctions. 9.3 It is important to note that designated persons may petition OFAC (as a federal agency) for administrative reconsideration of its designation decision, a procedure set out in the Code of Federal Regulations (CFR).3 This chapter will consider both administrative reconsideration of sanctions decisions and subsequent judicial review claims brought in the US courts. Administrative reconsideration should generally be pursued first, failing which a judicial review claim may be brought in respect of the decision-maker’s denial of reconsideration.

Preliminary Issues Standing 9.4 A person may request administrative reconsideration if they have themselves been ‘blocked’ (ie, been designated and had their assets frozen) under any of the sanctions programs set out in 31 CFR Chapter V,4 or if they own a majority interest in a vessel that has been blocked.5 Separately, where a transaction results in the blocking of funds at a financial institution pursuant to a sanctions program set out in 31 CFR Chapter V, and a party to the

1 See ch 4 (US Sanctions) for a more detailed overview of how US sanctions work. 2 Note that there is a secondary consolidated list containing persons listed pursuant to non-SDN regimes. 3 See 31 CFR § 501.806 and 31 CFR § 501.807. 4 This includes, among many others, Specially Designated Global Terrorists (SDGTs), Specially Designated Narcotics Trafficking Kingpins (SDNTKs), and Foreign Terrorist Organizations (FTOs). 5 31 CFR § 501.807(a).

232 Challenging Sanctions in the US transaction believes the funds have been blocked due to mistaken identity, that party may also seek to have such funds unblocked.6 9.5 Under the Administrative Procedure Act (APA), a person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review of that action.7 For the purpose of sanctions challenges, this obviously includes designated individuals and entities. It should be noted that judicial review under the APA is limited to ‘final agency action’,8 which means that the action must not be tentative or interlocutory, and must be an action by which rights or obligations have been determined.9 Most judicial challenges to federal agency action will initially be brought before the federal district courts, which have jurisdiction to hear claims arising under the APA.10

Constitutional Protection 9.6 The key consideration in US sanctions challenges is whether the petitioner can invoke the protection of the US Constitution. In particular, a designated person will be able to rely on constitutional protection where he or she is a US person or has entered US territory and established ‘substantial connections’ with the country.11 How exactly a person or entity can fulfil the latter condition was discussed in the cases of PMOI I and NCRI. 9.7 In PMOI I, the Court rejected the claimant’s constitutional claims on the basis that foreign entities without property or a presence in the US have no constitutional rights (PMOI I at page 22). However, in the subsequent case of NCRI, which involved a claim brought by an organisation that had been designated as an alias of PMOI, the Court found that the claimant was entitled to constitutional protection based on an overt presence in the US, as well as an interest in property in the US (NCRI at page 201). In particular, the Court held that because the US Secretary of State was treating NCRI and PMOI as the same entity, and NCRI had a presence in the US, both were entitled to rely on the US Constitution (NCRI at page 202). 9.8 The issue was raised again in the Kadi case, with the claimant arguing that he was entitled to constitutional protection as a non-US citizen on the basis of property interests held in the US. The Court, whilst not ruling on the point, agreed that the case law at least implied that a foreign national with property in the US had a sufficient connection to the US to raise at least some constitutional claims (Kadi at page 26). This shows that a non-US person or entity with property interests in the US will have an arguable claim to constitutional protection in the US courts, and that the greater the property interests the stronger the claim is likely to be.

6 31

CFR § 501.806(a). USC § 702. 8 5 USC § 704. 9 Bennett v Spear 520 US 154, 178 (1997). 10 28 USC § 1331. 11 See, eg, Verdugo-Urquidez 494 US 259, 271 (1990). 7 5

Essential Principles 233

Timing 9.9 There is no restriction on when a petitioner can bring an application for administrative reconsideration of an OFAC decision. However, judicial review under the APA is subject to the standard six-year statute of limitations.12 Separately, claims for judicial review of OFAC designations under the AEDPA must be brought within 30 days of the publication in the Federal Register of the designation, amendment to the designation, or determination in response to a petition for reconsideration.13

Essential Principles 9.10 As discussed above, challenges to US sanctions designations can be made via one of two avenues: (i) administrative reconsideration; and (ii) judicial review. Generally speaking, the procedure for administrative reconsideration must be exhausted before a claim for judicial review may be brought before the courts.14

Administrative Reconsideration 9.11 The procedure for administrative reconsideration is set out in the Code of Federal Regulations (CFR).15 In this regard, designated persons seeking administrative reconsideration may raise one of the following grounds: (i) where they consider that there is an insufficient basis for the designation;16 or (ii) where they have taken remedial measures which they believe would negate the basis for designation.17 Separately, a party to a blocked transaction may request the release of funds which the party believes have been blocked due to mistaken identity.18 9.12 OFAC will review the information submitted by the blocked person as part of their request for administrative reconsideration, and may require further information or clarification.19 The removal review process is triggered by sending OFAC a request for reconsideration by letter or email,20 and OFAC has stated that it endeavours to send its first questionnaire to the petitioner within 90 days of receiving the request.21 A person

12 28 USC § 2401(a). 13 8 USC § 1189(c)(1). 14 The doctrine of exhaustion of administrative remedies requires that a litigant should exhaust any prescribed administrative remedies available before seeking judicial review; see, eg, Reiter v Cooper 507 US 258 (1993). 15 See 31 CFR § 501.806 and 31 CFR § 501.807. 16 31 CFR § 501.807(a). 17 ibid. 18 ibid. 19 31 CFR § 501.807(b). 20 For faster delivery, requests for reconsideration should be sent to [email protected]. 21 See OFAC FAQs, ‘Filing a Petition for Removal from an OFAC List’ (OFAC Petition FAQs), Q4, available at: www.treasury.gov/resource-center/sanctions/SDN-List/Pages/petitions.aspx.

234 Challenging Sanctions in the US seeking de-listing may also ask for a meeting with OFAC, although such meeting is at OFAC’s discretion.22 Once OFAC has reviewed all the information relevant to the request for reconsideration, it will provide the petitioner with a written decision.23 9.13 There is a conspicuous lack of guidance regarding the manner in which OFAC conducts its review of administrative reconsiderations, although the agency has indicated that the same standards to petition reviews apply across all sanctions programs.24 To this extent, it is unclear what factors OFAC will take into account when considering de-listing. Some commentators have noted that this lack of transparency serves to ensure that OFAC’s discretion remains unconstrained to the greatest extent possible.25 Moreover, the Federal Regulations contain no obligation for OFAC to provide a statement of reasons to petitioners, or to provide the unclassified information relied on in reaching the designation determination. In this regard, the process for administrative reconsideration has been described as ‘unlike the run-of-the-mill administrative proceeding, here there is no adversary hearing, no presentation of what courts and agencies think of as evidence, no advance notice to the entity affected by the Secretary’s internal deliberations’ (PMOI I at page 19). 9.14 Nevertheless, despite the almost total absence of procedural safeguards at the statutory level, petitioners benefiting from constitutional protection may rely on their Fifth Amendment due process rights during the administrative reconsideration phase. In this regard, the US Court of Appeals in the case of NCRI found that the block on the claimant’s assets constituted a deprivation of property engaging the due process clause under the Fifth Amendment (NCRI at page 204). The Court noted that due process requirements were flexible, and proceeded to apply the factors set out in the Supreme Court case of Mathews v Eldridge26 in order to gauge the extent of the procedural obligations owed by the US Government in the context of sanctions designations (NCRI at page 205).27 In this regard, the Court held that even where sanctions designations are concerned, the fundamental rights of notice and the opportunity to be heard must be satisfied.

Notice 9.15 In relation to the requirement of notice, the Court of Appeals in NCRI stated that it should be provided prior to the designation itself, unless such notification would impinge upon the security and other foreign policy goals of the US (NCRI at page 208). In this regard, it was held elsewhere that the potential for ‘asset flight’ would almost certainly justify a decision by OFAC not to provide notice before freezing the petitioner’s assets

22 31 CFR § 501.807(c). 23 31 CFR § 501.807(d). 24 See OFAC Petition FAQs, Q4. 25 See, eg, R Barnes, ‘United States Sanctions: Delisting Applications, Judicial Review and Secret Evidence’ in M Happold and P Eden (eds), Economic Sanctions and International Law (Hart Publishing, 2016) 204. 26 Mathews v Eldridge 424 US 319, 334–35 (1976). 27 The three Mathews factors to be balanced are as follows: (i) the claimant’s private interest; (ii) the risk of erroneous deprivation; and (iii) the government’s interest.

Essential Principles 235 (Al Haramain at page 985). Understandably, OFAC need not disclose classified information to the petitioner, but notice of the publicly filed administrative record should be provided, as well as the unclassified items which OFAC intends to rely on (NCRI at page 208). Beyond this, however, the US courts have been somewhat equivocal regarding the issue of what exactly OFAC must provide notice of. 9.16 In Al Haramain, the Court of Appeals considered the issue of what constitutes sufficient notice in the context of an asset freeze pending investigation. The Court was particularly concerned by the fact that OFAC had failed to provide a statement of reasons in the first seven months after blocking the petitioner’s assets (Al Haramain at page 986). To this extent, the Court took the view that the petitioner had been forced to guess at the reasons why OFAC had blocked its assets. After seven months, OFAC issued a press release in which it provided some notice regarding the reasons for the investigation and blocking. Ultimately, however, the Court concluded that the explanation provided was untimely and incomplete, and that OFAC had not therefore met the requirements of due process under the Fifth Amendment (Al Hamarain at page 986). 9.17 In Kadi, on the other hand, the District Court concluded that even though OFAC had not provided the petitioner with the full unclassified record prior to its final decision to deny reconsideration, the petitioner had received adequate notice and an opportunity to rebut the evidence in question (Kadi at page 29). The Court emphasised in particular that the petitioner had benefited from four face-to-face meetings with OFAC, as well as a fivepage letter containing detailed questions regarding 12 continued areas of concern (Kadi at page 29). To this extent, the Court appears to have reached its conclusion on the basis that, given the amount of correspondence with OFAC, the petitioner must have had sufficient notice of the reasons for its designation. 9.18 On the whole, US courts have taken a case-by-case approach to the notice requirement in the context of sanctions designations, with the result that some of the decisions appear slightly haphazard. In contrast to the EU courts, the US courts have not, for example, established an obligation for OFAC to provide a detailed statement of reasons. As a result, it is difficult for petitioners to know when the notice requirement has been satisfied following an asset freeze, thus creating uncertainty and leaving petitioners to do their best to piece together the reasons for their designation on the basis of such unclassified information as OFAC chooses to provide. However, where the petitioner has been completely left in the dark regarding the reasons for the blocking of its assets, there has almost certainly been a due process violation under the Fifth Amendment.

Opportunity to be Heard 9.19 The petitioner must be afforded the opportunity to present in written form such evidence as it may be able to produce to rebut the administrative record or otherwise negate the basis of their designation (NCRI at page 209). In the case of HLF, the Court confirmed that the requirements of notice and a meaningful opportunity to be heard were satisfied by the provision of a post-deprivation administrative remedy and the opportunity to submit written submissions to OFAC (HLF at pages 163–64). Similarly, the Court concluded in

236 Challenging Sanctions in the US Kadi that in the circumstances, and despite the delays in the administrative review process, the petitioner had in substance received an opportunity to rebut the evidence found in the unclassified administrative record (Kadi at page 29). 9.20 Finally, it should be noted that there are no statutory limits regarding the amount of time OFAC can take to review requests for reconsideration. Indeed, even where OFAC takes a considerable amount of time to issue its final decision, constitutional due process rights are unlikely to be engaged unless the petitioner has been deprived of the opportunity to be heard. In Zevallos, for example, OFAC took just under four years to review the request in question before concluding that the designation was justified in the circumstances.28 Of the total amount of time taken for review, OFAC failed to respond at all to the petitioner for three years. Although the District Court noted that ‘three years of radio silence is troubling’, it nevertheless concluded that the petitioner had been given a meaningful opportunity to be heard (Zevallos at page 131).

Judicial Review 9.21 Where administrative reconsideration is denied by the agency, a claim for judicial review can be filed challenging that decision. OFAC sanctions decisions made pursuant to the International Economic Emergency Powers Act are subject to judicial review under the APA.29 Designation decisions made pursuant to the Antiterrorism and Effective Death Penalty Act (AEDPA),30 on the other hand, are subject to judicial review under 8 USC § 1189(c).

Standard of Review 9.22 Under the APA, agency decisions will be upheld by the courts unless they are ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law’ (5 USC § 706(2)(A)).31 Where OFAC’s actions are not arbitrary and capricious and are based on substantial evidence, the court must uphold OFAC’s decision (HLF at page 732). There is therefore no scope for reviewing the merits of OFAC decision-making. To this extent, the standard is narrow, and the courts are not empowered to substitute their judgment for that of the agency.32 An even more deferential review applies where matters of foreign policy and national security are concerned (IARA at page 734). 9.23 The same overall approach to judicial review is taken under 8 USC § 1189(c), with the latter adopting ‘APA-like language’ (PMOI I at page 22). In this regard, the ‘arbitrary and

28 This length of time for review is not unusual; in Al Haramain, OFAC took four years to issue its decision, whilst in Kadi it took around two-and-a-half years. 29 5 USC § 702 (right of review). 30 This is the statute governing the designation of Foreign Terrorist Organizations (FTOs). 31 See, eg, Zevallos, 118. 32 Citizens to Preserve Overton Park, Inc v Volpe 401 US 402, 416 (1971).

Essential Principles 237 capricious’ standard also applies under 8 USC § 1189(c)(3), albeit alongside a number of other criteria. In particular, the courts will set aside a designation where it is: • • • •

Arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. Contrary to constitutional right, power, privilege or immunity. In excess of statutory jurisdiction, authority or limitation. Lacking substantial support in the administrative record taken as a whole or in classified information submitted to the court. • Not in accord with the procedures required by law. 9.24 Given the extremely limited scope of judicial review with respect to sanctions designations, it is perhaps unsurprising that there have been no successful claims in the US courts under the ‘arbitrary and capricious’ standard. Moreover, in some cases the court has refused to examine certain aspects of OFAC’s decision altogether. In relation to designations under the AEDPA, for example, the Court of Appeals has held that the issue of whether the terrorist activity of the organisation in question threatens national security is non-justiciable (PMOI I at page 23).

Administrative Record and Use of Classified Material 9.25 In reviewing OFAC’s decision the court must look only at the administrative record compiled by the agency (PMOI I at page 22; HLF at page 162; Kadi at page 9). The administrative record is the paper trail that documents the agency’s decision-making process and the basis for the agency’s decision.33 The court must therefore review the administrative record assembled by OFAC to determine whether or not as a matter of law it permitted the agency to make the decision it did (Kadi at pages 8–9). Furthermore, nothing in the relevant legislation restricts OFAC from acting on the basis of ‘third hand accounts, press stories, material on the Internet or other hearsay regarding the organization’s activities’, and as a result the administrative record often consists of little else (PMOI I at page 19). 9.26 As discussed above, OFAC is under a procedural obligation to disclose the unclassified portion of the administrative record in situations where the petitioner benefits from constitutional protection (see paragraphs 9.15–9.18 above) (NCRI at page 208). The classified information within the administrative record, on the other hand, is presented to the court in camera and ex parte (PMOI I at 18; NCRI at 197).34 Importantly, any government department seeking to rely on classified information before the courts is under an obligation to conduct a declassification review, whereby it asks the department from which the information originated whether the information can be declassified.35 In PMOI III, for example, the government supplemented the administrative record with newly declassified information on two occasions (PMOI III at page 226).

33 US Department of Justice, ‘Guidance to Federal Agencies on Compiling the Administrative Record’, January 1999. 34 50 USC § 1702(2) and 8 USC § 1189(a)(3)(B). 35 28 CFR § 17.17(a)(1).

238 Challenging Sanctions in the US 9.27 In Al Haramain, the claimant argued that its due process rights had been violated by OFAC’s use of classified information without any disclosure of its content. The Court of Appeals disagreed, confirming that OFAC is entitled to use classified information in making its designation decision (Al Haramain at page 982). However, the Court did favour the claimant’s ‘more nuanced’ argument that OFAC has an obligation to undertake reasonable measures to mitigate the potential unfairness of relying on classified information, for example, by providing the petitioner with an unclassified summary of the information (Al Haramain at page 982). In particular, the Court noted as follows: To the extent that an unclassified summary could provide helpful information, such as the subject matter of the agency’s concerns, and to the extent that it is feasible to permit a lawyer with security clearance to view the classified information, the value of those methods seems undeniable.36

9.28 Moreover, the Court noted that OFAC hadn’t argued that the proposed measures threatened national security, but rather that they were unduly burdensome (Al Haramain at page 983). The Court therefore concluded that OFAC’s failure to take any mitigating measures amounted to a violation of the claimant’s constitutional due process rights (Al Haramain at page 984). 9.29 Overall, it appears that the US courts will adopt a case-by-case approach when considering OFAC’s obligation to go beyond the disclosure of the unclassified administrative record. To this extent, where there is little or no substantive evidence for a designation decision outside the classified part of the administrative record, the courts have demonstrated a willingness to require OFAC to provide some form of mitigation. It has been noted that these mitigating measures, including the use of special advocates, are not hugely dissimilar to those used for the treatment of confidential information in the UK.37 Nevertheless, it remains the case that there is no formal procedure for the disclosure of c lassified information in US sanctions cases.

Remedies 9.30 Where the court rules that the impugned action is unlawful, for example, because it is found to be arbitrary or capricious, the court is required to set it aside.38 However, the US courts have thus far taken a slightly different approach in cases where they have found a violation of the petitioner’s due process rights. 9.31 If the court concludes that there has been a due process violation under the Fifth Amendment, it must then decide whether that violation is harmless. In sanctions cases, this involves assessing whether the violation in question prejudiced the administrative reconsideration proceedings. In reviewing the issue, the court must first decide which party bears the burden of showing that the error was harmless or harmful. In Al Haramain, the Court of Appeals held that it was for the claimant to show that, ‘had it been provided the

36 Al

Haramain, 983. above (n 25) 218–19. 38 5 USC 706(2) and 8 USC 1189(c)(3). 37 Barnes,

Essential Principles 239 process it was due, it could have, and plausibly would have, taken steps to undermine the redesignation’ in such a way that OFAC would not have made it (Al Haramain at page 989). In PMOI III, however, the Court refused to assume that there was nothing the petitioner could have done to change the agency’s mind (PMOI III at page 228). In this regard, the Court appears to have placed the burden on the government to convince it that the due process breach was harmless. 9.32 Even in cases where the courts have found a harmful due process violation, however, there has been no outright quashing of an agency decision. In NCRI, for example, the Court recognised that a strict application of the principles of law would require revocation of the designation, but instead remanded the decision back to the government in recognition of ‘the realities of foreign policy and national security concerns asserted by the Secretary in support of the designation’ (NCRI at page 209).39 In particular, the Court remanded the decision to the Secretary of State with instructions that the petitioners be afforded the opportunity to file responses to the non-classified evidence against them, to file evidence in support of their allegations that they were not terrorist organisations, and that they be afforded an opportunity to be meaningfully heard regarding the relevant findings (NCRI at page 209).

39 This

approach was also applied in PMOI III, 230.

240

part iii Sanctions and Business

242

10 Sanctions and Contracts Introduction 10.1 Sanctions have the potential to disrupt commercial relationships by interfering with the performance of contractual obligations. As a result, it is increasingly important for businesses to understand the different ways in which the regulatory framework imposed by sanctions law interacts with and affects private law arrangements. This chapter will explore some of the issues raised by the proliferation of sanctions regimes for contracts governed by English law, and the current approach taken by the courts of England and Wales to resolving those issues.1 The chapter will also consider some of the methods adopted by businesses to mitigate the impact of sanctions on commercial relationships. 10.2 As noted in other contexts, it is important to distinguish between different legal regimes. In the context of commercial relationships, it is particularly important to distinguish between measures imposed domestically and measures adopted by third states. For example, when dealing with contracts governed by English law, English courts will treat US sanctions prohibitions differently from prohibitions imposed domestically or via the EU. In this regard, there is a key distinction between sanctions that apply directly as part of the law of England and Wales (including, for now, sanctions imposed by the EU), and sanctions that apply indirectly in the sense that they are not binding in England and Wales but may nevertheless affect the performance of contracts governed by English law. This will be even more important to bear in mind after Brexit, when EU sanctions will no longer be directly effective in the UK and will fall to be treated as ‘foreign’ sanctions. 10.3 How the performance of contracts is affected by sanctions will depend on what exactly is prohibited by the sanctions measures themselves. In this regard, it is crucial to appreciate the difference, for example, between financial sanctions imposing asset freezes on designated individuals, and wider measures prohibiting the provision of insurance or other services altogether. Whilst financial sanctions may prevent certain payments being made under a contract, this will not necessarily render the contract itself frustrated and/or void for illegality. In other words, there may be ways to mitigate the impact of sanctions on a commercial agreement without terminating the agreement altogether. Businesses should therefore be aware of how their commercial arrangements may be affected by different

1 For a discussion of the approach taken by courts and arbitral tribunals to contracts affected by sanctions more generally see M Azeredo da Silveira, ‘Economic Sanctions and Contractual Disputes between Private Operators’ in L van den Herik (ed), Research Handbook on UN Sanctions and International Law (Edward Elgar Publishing, 2017).

244 Sanctions and Contracts s anctions measures, and consider the use of force majeure clauses in order to obviate potential difficulties (see paragraphs 10.37–10.48 below). 10.4 In general terms, the English courts will deal with the effect of sanctions on commercial contracts in the same way as they have historically dealt with the impact of war and related hostilities between sovereign states.2 In other words, the rules of frustration and illegality will apply in the normal way.

Prohibitions 10.5 The effect of sanctions on commercial contracts depends entirely on the content of the applicable sanctions measures. This is crucially important given the increasing variety of sanctions measures being developed and rolled out by states and international organisations. To this extent, different sanctions measures need to be considered separately, even if they are imposed pursuant to the same overarching sanctions regime.3 Modern sanctions measures can range from asset freezes (‘financial sanctions’) to trade embargoes and other outright prohibitions on the provision of goods and services (‘trade sanctions’). 10.6 As discussed in previous chapters, financial sanctions are the most widely used weapon in the modern international sanctions armoury.4 Moreover, because they attach directly to designated entities and individuals, they are the measures most likely to affect private commercial relationships. Financial sanctions imposed by the EU contain the following key prohibitions: i. All funds and economic resources belonging to, owned, held or controlled by the natural or legal persons, entities and bodies listed in Annex [•] shall be frozen. ii. No funds or economic resources shall be made available, directly or indirectly, to or for the benefit of the natural or legal persons, entities or bodies listed in Annex [•]. iii. The participation, knowingly and intentionally, in activities the object or effect of which is, directly or indirectly, to circumvent the measures referred to in paragraphs (i) and (ii) shall be prohibited.5 10.7 Most of the sanctions cases that have gone before the commercial courts in England and Wales have concerned the financial prohibitions set out above. In particular, the cases have often involved financial agreements that became difficult or impossible to perform once the prohibitions entered into force. In Melli Bank plc v Holbud Ltd,6 for example, the 2 For more on this history see P Nevill, ‘Sanctions and Commercial Law’ in M Happold and P Eden (eds), Economic Sanctions and International Law (Hart Publishing, 2016). 3 Note that each individual sanctions regime (eg, the EU’s Russia regime under Regulation (EU) No 833/2014) is likely to contain a number of different prohibitions. 4 See chs 1, 2, 3 and 4 for more detail on UN, EU, UK and US sanctions measures, respectively. This chapter will for the most part consider the impact of sanctions implemented and enforced in the UK. 5 See, eg, Article 14 of Regulation (EU) No 36/2012; Article 6 of Regulation (EU) No 329/2007; Article 5 of Regulation (EU) No 747/2014; Article 5 of Regulation (EU) No 2016/44. See ch 2 for further discussion of EU sanctions prohibitions. See ch 3 for discussion of the application of sanctions prohibitions in the UK, including the legal framework under the Sanctions and Anti-Money Laundering Act 2018. 6 Melli Bank plc v Holbud Ltd [2013] EWHC 1506 (Comm).

Introduction 245 debtor company argued (unsuccessfully) that it was discharged from the obligation to repay a loan because doing so would infringe the prohibition on making funds available to a designated entity (the creditor bank). 10.8 Similarly, in Maud v LIA,7 the guarantor of a loan argued (also unsuccessfully) that repayment would contravene sanctions provisions as it would amount to dealing in a frozen asset (the guarantee). In this regard, the Court of Appeal held that the payment of the debt could not be considered as dealing with the instrument itself in any real sense (although assigning the guarantee would have been); it was simply performing the obligation to which it gave rise.8 In particular, the Court distinguished between the prohibition on asset-freezing (sub-paragraph 10.6(i) above)9 and the prohibition on making funds available to designated entities (sub-paragraph 10.6(ii) above).10 Whilst the latter was found to be subject to a derogation regarding payments pursuant to contracts agreed prior to the entry into force of the sanctions measures, the former was not.11 10.9 Broader trading restrictions may also have an impact on contracts. Under the Counter-Terrorism Act 2008 (CTA 2008), for example, HM Treasury has the power to prevent persons operating in the UK financial sector from entering into business relationships with designated individuals and entities.12 In 2009, an Iranian shipping company, Islamic Republic of Iran Shipping Lines (IRISL), was designated pursuant to the Financial Relations (Iran) Order 2009 (made under the CTA 2008). As a result, in the case of Islamic Republic of Iran Shipping Lines v Steamship Mutual Underwriting Association (Bermuda) Ltd,13 the defendant argued, albeit unsuccessfully, that it was prevented from providing maritime insurance to IRISL. 10.10 Whilst sanctions have for the most part impacted upon private contracts in the areas of finance and trade, they have also made sporadic appearances beyond those fields. In R v R,14 a husband subject to an EU asset freeze was ordered by the High Court to pay interim maintenance to his wife in the context of family proceedings. The husband argued that the order circumvented the sanctions measures under which he was designated, although the Court of Appeal ultimately disagreed with his reading of the relevant provisions. 10.11 The examples set out above illustrate the importance of understanding how a commercial contract may be affected by different sanctions measures. In short, the imposition of sanctions will not necessarily render obligations under a contract impossible to 7 Maud v LIA [2016] EWCA Civ 788. 8 ibid, [18]. 9 Regulation (EU) No 204/2011, Article 5(1). 10 ibid, Article 5(2). 11 Maud v LIA is a good example of a case showing the approach taken by the UK courts to the interpretation of EU sanctions instruments. The Court stated that where EU Regulations are imposed pursuant to overarching UN Security Council resolutions, the former should be read compatibly with the latter. For more on the interpretation of EU and UK sanctions instruments see ch 2 (EU Sanctions) and ch 3 (UK Sanctions). 12 CTA 2008, Schedule 7 (Terrorism Financing and Money Laundering). 13 Islamic Republic of Iran Shipping Lines v Steamship Mutual Underwriting Association (Bermuda) Ltd [2010] EWHC 2661 (Comm), [2011] 2 All ER (Comm) 609. 14 R v R [2015] EWCA Civ 796, [2016] 2 WLR 127.

246 Sanctions and Contracts perform, even where the counterparty has become a designated person. To this extent, parties to the contract should consider carefully how the measures are likely to affect performance, and whether the impact is likely to be temporary or permanent.

Contractual Disputes 10.12 Sanctions measures can render certain contractual obligations difficult if not impossible to perform for one or both parties. This is particularly the case where one of the parties is designated under a sanctions regime, resulting in their assets being frozen and the imposition of the prohibitions discussed above. However, the imposition of sanctions measures does not automatically terminate contractual arrangements that may be affected, and parties should be cautious before claiming that their obligations under a contract have been discharged. 10.13 Moreover, as discussed above, companies should be mindful of the different ways in which sanctions measures can affect contractual arrangements. In particular, companies should consider whether the contract is affected by (i) sanctions implemented and enforced under domestic law, or (ii) sanctions implemented and enforced by third states or other multilateral organisations.15 The latter may lead to contractual difficulties, for example, where sanctions measures are in force in a foreign jurisdiction where performance of the contract is due to occur, or, where sanctions implemented and enforced by third states apply extra-territorially (eg, certain US sanctions).

Sanctions with Direct Effect in England and Wales 10.14 Sanctions with direct effect in England and Wales include measures imposed unilaterally by the UK Government pursuant to domestic legislation,16 as well as (at least for now) those imposed by or via the EU and implemented domestically.17 In certain situations, parties to private commercial agreements will be unable to perform their contractual obligations without simultaneously breaching sanctions law in force in England and Wales. This section explores the extent to which parties may be able to avoid liability for breach of contract where compliance with applicable sanctions law appears to render the contract impossible or difficult to perform.

Non-liability Clauses 10.15 Most EU Regulations imposing sanctions contain a provision, known as a ‘nonliability clause’, stating that persons acting in compliance with the relevant sanctions shall 15 See ch 4 for more on extraterritorial US sanctions. See also C Tevendale and M de Brugiere, ‘Contractual Disputes and Practical Implications Arising from Sanctions in the Aftermath of the Arab Spring’ (2013) 22 World ECR. 16 See, eg, the CTA 2008 or (post-Brexit) the Sanctions and Anti-Money Laundering Act 2018. See ch 3 for further discussion of sanctions measures in force in the UK. 17 See, eg, Regulation (EU) 881/2002. See ch 2 for further discussion of sanctions measures imposed by the EU.

Contractual Disputes 247 not incur any liability arising out of such compliance, provided that the persons in question act in good faith and without negligence. Non-liability clauses are typically worded as follows: The freezing of funds and economic resources or the refusal to make funds or economic resources available, carried out in good faith on the basis that such action is in accordance with this Regulation, shall not give rise to liability of any kind on the part of the natural or legal person or entity or body implementing it, or its directors or employees, unless it is proved that the funds and economic resources were frozen or withheld as a result of negligence.18

10.16 In the case of Soeximex SAS v Agrocorp International PTE Ltd,19 which involved a challenge to an arbitral award under section 68 of the Arbitration Act 1996, the claimant relied on a non-liability clause.20 The underlying arbitration related to a disputed contract for the purchase of Burmese rice by the claimant. In the Commercial Court, the claimant, who was challenging the arbitral award in favour of the defendant, argued that although the sanctions in question did not directly affect the performance of the disputed contract (ie, there was no directly applicable prohibition preventing performance), it had acted in good faith in taking steps to comply with the relevant EU Regulations. This was referred to as a ‘mistaken, but acting in good faith defence’.21 10.17 The Court did not need to resolve the issue of whether the claimant could successfully rely on the non-liability clause in order to escape liability, but it held that the point was at least arguable.22 As a result, it is unclear what exactly the position is in the English courts vis-a-vis non-liability clauses. However, the case does show that the point may be worth raising, even in situations where the sanctions in question do not apply directly to the contractual arrangement in issue.

No Claims Clauses 10.18 Most EU Regulations establishing sanctions also contain ‘no claims clauses’. No claims clauses provide that any person or entity complying with the obligations under the Regulations shall not be held liable vis-a-vis a designated person or entity for any damage that may be suffered by the latter as a result of such compliance.23 To this extent, no claims clauses only apply in relation to contracts entered into with designated individuals or entities. No claims clauses are usually worded as follows: No claims in connection with any contract or transaction the performance of which has been affected, directly or indirectly, in whole or in part, by the measures imposed under this Regulation, including claims for indemnity or any other claim of that type, such as a claim for compensation

18 See European Council, ‘Guidelines on implementation and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy’, 15 June 2012, EU Doc 11205/12, para 87 (2012 Guidelines). 19 Soeximex SAS v Agrocorp International PTE Ltd [2011] EWHC 2743 (Comm), [2012] 1 Lloyd’s Rep 52. 20 The non-liability clause in question was contained in Article 14 of Regulation (EU) No 194/2008. 21 Soeximex, above (n 19) [9]. 22 ibid, [23]. 23 See European Council (RELEX), ‘Restrictive measures (Sanctions) – Update of the EU Best Practices for the effective implementation of restrictive measures, 24 June 2015’, EU Doc 10254/15, para 38.

248 Sanctions and Contracts or a claim under a guarantee, in particular a claim for extension or payment of a bond, guarantee or indemnity, particularly a financial guarantee or financial indemnity, of whatever form, shall be satisfied, if they are made by: [designated persons, entities or bodies listed in Annex X etc]. In any proceedings for the enforcement of a claim, the onus of proving that satisfying the claim is not prohibited by paragraph 1 shall be on the person seeking the enforcement of that claim. This Article is without prejudice to the right of the persons, entities and bodies referred to in [paragraph 1] to judicial review of the legality of the non-performance of contractual obligations in accordance with this Regulation.24

10.19 The interpretation of no claims clauses was raised in the case of Maud v LIA,25 in which the defendant bank had served a statutory demand on the claimant seeking payment of a guarantee. The issues in the case revolved around the application of the EU’s Libya sanctions regime to the contractual relationship between the claimant and the defendant. In particular, the claimant argued, among other things, that the service of the statutory demand was a ‘claim’ and was therefore prohibited by the relevant no claims clause.26 At first instance, the High Court agreed that the statutory demand was covered by the reference to a ‘claim under a guarantee’.27 Moreover, the Court held that the prohibition in the clause was not limited to judgments following court proceedings.28 On that basis, the Court found that the clause did indeed apply to prevent the defendant serving the statutory demand. 10.20 However, the Court of Appeal overturned the first instance decision, holding that a common feature of any procedure that can properly be called a ‘claim’ is that it may lead directly to the grant of the relief that the claimant seeks.29 In this regard, the purpose of the no claims clause was to prevent the LIA from obtaining funds owed to it by means of judicial process.30 The clause did not therefore cover a statutory demand, which was considered to be a precursor to the filing of a bankruptcy petition.31 On that basis, it could not be a ‘claim’ for the purpose of the no claims clause.

Frustration and Illegality 10.21 Frustration is the doctrine most commonly invoked by parties where sanctions measures are seen to interfere with the performance of pre-existing contractual obligations.32 In this regard, the English courts now accept that supervening illegality (eg, where performance of the contract is rendered unlawful by sanctions measures imposed after the event) should generally be treated as a frustrating event.33 The effect of 24 See para 87 of the 2012 Guidelines. 25 See above (n 7). 26 The no claims clause in question was contained in Article 12 of Regulation (EU) No 204/2011. 27 Maud v LIA [2015] EWHC 1625, [47]. 28 ibid. 29 Maud v LIA, above (n 7) [23]. 30 ibid. 31 ibid. 32 If a contract is made after the imposition of sanctions, and is therefore impossible to perform without illegality, it will be treated as illegal and void ab initio. See, eg, David Taylor & Son v Barnett Trading Co [1953] 1 WLR 562, [1953] 1 All ER 843. 33 See IRISL v Steamship Mutual Underwriting Association (Bermuda) Ltd, above (n 13) [100], citing Chitty on Contracts, 30th edn (Sweet & Maxwell, 2008) 23-024.

Contractual Disputes 249 frustration

is to bring the contract to an end and discharge the parties from further liability thereunder.34 However, the contract is not treated as void from the outset (ab initio), and only future obligations are discharged.35 Once a contract is frustrated, that remains the case regardless of the fact that performance unexpectedly becomes possible again, even during the original period for performance.36 Lord Radcliffe in the case of Davis Contractors Ltd v Fareham UDC gave the classic test of frustration as follows: [F]rustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would make it a thing radically different from that which was undertaken by the contract.37

10.22 This was followed by Lord Simon’s comments in National Carriers Ltd v Panalpina (Northern) Ltd: [F]rustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances.38

10.23 Bingham LJ (as he was) in the case of The ‘Super Servant Two’39 emphasised that the doctrine of frustration was not to be invoked lightly and should be kept within strict limits. As a result, the courts will carefully scrutinise the circumstances of the alleged frustration in order to discern whether the obligations under the contract have in fact been radically altered. In the sanctions context, particular attention will be paid to the extent to which the sanctions actually render the obligations incapable of performance. 10.24 In determining whether frustration has occurred, the courts will apply the ‘multifactorial approach’ espoused by Rix LJ in the case of The ‘Sea Angel’.40 In particular, when assessing the extent to which the nature of the rights under the contract has changed, the courts will take into account factors existing at the time of the contract (eg, the terms of the contract, its context, the parties’ knowledge, expectations, assumptions and contemplations) as well as post-contractual factors (eg, the nature of the supervening event and the parties’ reasonable and objectively ascertainable calculations as to the possibility of future performance in the new circumstances). 10.25 The multi-factorial approach was applied, for example, in the case of IRISL v Steamship Mutual Underwriting Association (Bermuda) Ltd,41 involving a contract for the provision of indemnity insurance to cover oil tankers owned by the claimant. The defendant argued that the contract had been frustrated by the imposition of far-reaching sanctions

34 See,

eg, Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724, 752. eg, Krell v Henry [1903] 2 KB 740. 36 See, eg, National Carriers Limited v Panalpina (Northern) Limited [1981] AC 675, 706. 37 Davis Contractors Ltd v Fareham UDC [1956] AC 696, 729. 38 National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675, 700. 39 Lauritzen AS v Wijsmuller BV [1990] 1 Lloyd’s Rep 1. 40 Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage and Towage) Ltd [2007] 2 Lloyd’s Rep 517. 41 See above (n 13). 35 See,

250 Sanctions and Contracts prohibiting commercial relations with IRISL. The Court disagreed, holding that on the correct interpretation of the licence granted by HM Treasury, the defendant was permitted to continue to provide insurance to the claimant from the relevant date. 10.26 In reaching its decision, the Court noted, inter alia (i) that there was no contemplation of sanctions when the contract was entered into, and (ii) that frustration had to be considered in relation to the contract as a whole. In relation to the latter point, it did not matter that that part of the contract had become impossible to perform.42 The Court ultimately found that although the sanctions in question had narrowed the scope of the services that the defendant was able to provide, they had not fundamentally changed the nature of the contract which, thanks to the licence from HM Treasury, remained a lawful agreement for the provision of indemnity insurance.43 10.27 The case shows that the English courts will be slow to accept the claim that the implementation of sanctions necessarily constitutes a frustrating event, and in this regard companies should be aware that the existence of applicable licensing regimes will usually be seen to mitigate or offset the impact of sanctions, even where the entity in question has not yet been issued with a licence. What matters in this regard is whether the company in question could obtain such a licence. To this extent, the outcome would likely be different where the entity seeking to rely on frustration has previously applied for but been denied a licence by the relevant authority. 10.28 In Melli Bank plc v Holbud Ltd,44 the defendant company had entered into a facility agreement with the claimant bank, with sums subsequently becoming due to the bank under the terms of that agreement. The debtor company argued that the contract was frustrated by supervening illegality caused by the designation of the creditor bank under EU Council Decision 2008/475/EC (implemented in the UK by the Iran (European Community Financial Sanctions) Regulations 2007). In particular, the designation meant that it was thereafter unlawful for a person to make funds or economic resources available to the bank (see sub-paragraph 10.6(ii) above). Nevertheless, the Court held that the contract was not frustrated as it was open to the defendant to obtain a licence permitting the repayment of the sums owed.45 A very similar conclusion was later reached by the Court in the case of DVB Banks SE v Shere Shipping Co Ltd.46 10.29 Separately, businesses should consider whether the contract in question will be discharged or merely suspended as a result of sanctions. This issue was considered in several cases arising in the context of trade restrictions imposed by the government following the outbreak of the First and Second World Wars. In Millar & Co Ltd v Taylor & Co Ltd,47 the claimant argued that its obligations under a contract for the supply of confectionery for

42 ibid,

[126]. [115]. 44 See above (n 6). 45 ibid, [20]–[22]. 46 DVB Banks SE v Shere Shipping Co Ltd [2013] EWHC 2321 (Comm). 47 Millar & Co Ltd v Taylor & Co Ltd [1916] 1 KB 402. 43 ibid,

Contractual Disputes 251 export had been discharged as a result of British Government Proclamations outlawing the export of foodstuffs from the UK after the outbreak of the First World War. The judge at first instance agreed with the claimant but the Court of Appeal adopted a different position. In particular, the Court noted that, at the time it was imposed, it was impossible to know how long the prohibition enforced by the Proclamations would last. Moreover, the Court reiterated the general principle that if an interruption is such that it does not prevent the agreement being carried out within a reasonable time (because it is only temporary), having regard to the contract itself, it will not annul the contract. As it turned out, the embargo in question was a temporary measure that lasted only a few days and did not prevent the contract later being carried out in the manner the parties had contemplated. In the circumstances, the Court held that it was the duty of the claimant to have waited a reasonable time for the purpose of ascertaining whether it was possible to fulfil the contract. 10.30 The key points to note from the limited case law on sanctions and frustration of contracts are therefore as follows: i. Sanctions may reduce the scope of the obligations under a contract without frustrating the contract in its entirety (see paragraphs 10.25–10.27 above). ii. The courts will be very unlikely to accept that the contract has been frustrated unless the party attempting to rely on frustration can show that it would be impossible to obtain a licence (see paragraph 10.28 above). iii. Even if the obligations under a contract are impossible to perform on account of sanctions measures, the courts may find that the contract has been suspended rather than frustrated (see paragraph 10.29 above). 10.31 In relation to point (iii) above, although it will always be unclear at what point exactly a contract which is impossible to perform due to sanctions will be frustrated, the issue will depend on the content and temporal scope of the contract itself. In any event, the case law indicates that a party to a contract should refrain from invoking frustration immediately after the imposition of sanctions with a view to confirming whether or not the measures in question will necessarily result in the obligations under the contract being incapable of performance.

Human Rights 10.32 Although human rights will rarely be an issue in the context of disputes stemming from private law arrangements, they have previously been raised where sanctions are concerned. In Al-Kishtaini v Shanshal,48 the claimant claimed repayment of a certain amount from the defendant counterparty. The defendant resisted the claim for repayment on the grounds that it was illegal under the terms of the Control of Gold, Securities, Payments and Credits (Republic of Iraq) Directions 1990. On appeal, the claimant argued that a bar to recovery on the grounds of illegality would amount to a deprivation of property incompatible with Article 1 Protocol 1 of the European Convention on Human Rights (ECHR). In particular, the claimant contended that it would be unlawful for the Court

48 Al-Kishtaini

v Shanshal [2001] EWCA Civ 264, [2001] 2 All ER (Comm) 601.

252 Sanctions and Contracts (as a public authority for the purpose of the Human Rights Act 1998) to act in a way incompatible with the ECHR. In other words, the claimant attempted to invoke the right to property under the ECHR in a horizontal context between private parties. 10.33 The Court dismissed this argument, holding that even if it were possible for the claimant to rely on the right to property in the circumstances (a position which it did not endorse), the case clearly fell within the public interest exception to Article 1 Protocol 1.49 In this regard, the Court emphasised the high public interest stemming from the UN Security Council resolutions, and noted that in any event the prohibition was not absolute (ie, licences were available from HM Treasury).

Sanctions Implemented and Enforced by Third States 10.34 The cases thus far considered in this chapter have all concerned sanctions in force in England and Wales. However, contracts governed by English law may also be affected by sanctions imposed outside the UK by third states or other multilateral organisations. For example, performance of a contract might become problematic where it involves the commission of an act which violates some aspect of foreign sanctions law. After Brexit, EU sanctions will become ‘foreign’ sanctions for the purpose of English law and will no doubt be dealt with accordingly by the English courts. 10.35 In Regazzoni v KC Sethia,50 the contract under scrutiny was for the sale and delivery of jute bags, which were to be shipped from India to South Africa. The defendant repudiated the contract and the claimant brought a claim for damages for breach of contract in the English courts. In relation to the repudiation, the defendant argued that performance would breach an Indian prohibition on the export of goods from India where such goods were destined for South Africa. The House of Lords found that both parties were aware of the restrictions in question, and that the shipment was inevitably caught by them. The Court further held that, as a matter of public policy and deference to international comity, the English courts would not enforce a contract the performance of which would involve the doing of an act in a foreign and friendly state which violated the law of that state.51 In the circumstances, the Court found that from the outset the contract was so tainted by the inevitable breach of Indian sanctions that the English courts would not assist to enforce it.52 10.36 In Libyan Arab Foreign Bank v Bankers Trust,53 however, the sanctions in question were imposed after the contract had been entered into by the parties. In particular, the High Court was asked to assess the impact of sanctions imposed in the US that prohibited transactions with certain Libyan entities, including the claimant. The defendant argued that its obligations under the contract had become impossible to perform on account of the

49 ibid,

[54].

50 Regazzoni

v KC Sethia [1958] AC 301. 319. 52 ibid, 323. 53 Libyan Arab Foreign Bank v Bankers Trust [1989] QC 728. 51 ibid,

Sanctions Clauses 253 US sanctions. In this regard, the defendant argued that it could not repay funds out of the claimant’s London account without breaching US sanctions. The Court dismissed this argument, holding that the relevant question was whether payment of funds out of the London account necessarily involved an act that would be illegal in the US.54 The Court found that it did not.55 Notwithstanding the latter, the Court did find that a separate transfer of funds into the London account from a US bank would necessarily breach US sanctions. However, in relation to this second transfer the Court held that the obligations under the contract were suspended, not discharged.56 This suggests, once again, that the UK courts will be very slow to find that contractual obligations have been frustrated by the implementation of sanctions measures after a contract has been entered into.

Sanctions Clauses Force majeure 10.37 Due to the limited application of the doctrine of frustration (see paragraphs 10.21–10.31 above) and the fact that it is difficult to prove, parties to a commercial contract will often attempt to avoid the risk posed by unforeseen circumstances arising after an agreement has been entered into by including a force majeure clause in the contract. A force majeure clause generally allows either party to suspend or terminate a contract upon the occurrence of some previously unforeseen event beyond the parties’ control that interferes with performance in some way, which may include, for example, wars, strikes and acts of God.57 10.38 It should be noted that force majeure in English law is a purely contractual concept. In other words, and in contrast to most civil law systems, there is no underlying doctrine of force majeure that a party can rely on where no force majeure clause has been explicitly included in the relevant contract. To this extent, the precise scope and content of a force majeure clause is a matter for negotiation between the parties to the contract and will be subject to the usual rules of contractual construction. In particular, when interpreting a force majeure clause, the courts will seek to determine the intention of the parties, primarily by reference to the language used, which involves ascertaining what a reasonable person would have understood the language in the contract to mean.58 The relevant reasonable person is one who has all the background knowledge which would have been available to the parties in the situation in which they were at the time the contract was entered into. 10.39 A standard force majeure clause will usually contain a list of events that are specifically covered, as well as a catch-all provision along the lines of ‘other events beyond the 54 ibid, 744. 55 ibid, 766. 56 ibid, 772. 57 See, eg, Matsoukis v Priestman & Co [1915] 1 KB 681. 58 Rainy Sky v Kookmin [2011] 1 WLR 2900, [14]. See also Arnold v Britton [2015] AC 1619, [14]–[23], and Wood v Capita Insurance Services [2017] AC 1173.

254 Sanctions and Contracts parties’ control’. In cases before the courts, therefore, the key issue tends be whether the event in question falls within the meaning of the clause, either because it has been specifically listed or is covered by the catch-all provision, thus constituting a force majeure event. In addition, the party seeking to rely on the clause must show that it has been prevented, hindered or delayed from performing the contract by reason of the event in question.59 That party must also prove that: (i) his non-performance was due to circumstances beyond his control; and (ii) there were no reasonable steps that he could have taken to avoid or mitigate the event or its consequences.60 10.40 Generally speaking, a force majeure event must be a legal or physical restraint and not merely an economic one.61 However, more recently the courts have held that a country defaulting on its debt obligations may constitute a force majeure event.62 To this extent, it appears that the key consideration is still whether the event could reasonably have been foreseen by the parties at the time the contract was entered into.

Drafting Sanctions Clauses 10.41 On the basis of the above, it is possible that a widely drafted force majeure clause would allow an innocent party to terminate (or suspend) a contract where sanctions measures interfere with performance in some way (usually because the sanctions make it impossible or illegal to perform the contract). In the sanctions context, the best way to avoid the uncertainty surrounding the application of general force majeure wording is to include sanctions in the list of events that will automatically trigger termination or suspension of the contract. However, where there is a higher risk of sanctions affecting the performance of a contract, perhaps because of the nature of the contract and the particular sector involved, parties will usually opt to draft a stand-alone ‘sanctions clause’. For example, the first part of the BIMCO Sanctions Clause for Time Charter Parties63 reads as follows: The Owners shall not be obliged to comply with any orders for the employment of the Vessel in any carriage, trade or on a voyage which, in the reasonable judgement of the Owners, will expose the Vessel, Owners, managers, crew, the Vessel’s insurers, or their re-insurers, to any sanction or prohibition imposed by any State, Supranational or International Governmental Organisation.

10.42 Similarly, the Lloyd’s of London insurance market notes that the following clause (known as ‘LMA 3100’) is the most widely used sanctions clause across the Lloyd’s insurance market: No (re)insurer shall be deemed to provide cover and no (re)insurer shall be liable to pay any claim or provide any benefit hereunder to the extent that the provision of such cover, payment of such 59 See, eg, Agrokor AG v Tradigrain SA [2000] 1 Lloyd’s Rep 497, 500. 60 Mamidoil Jetoil Greek Petroleum v Okta Crude Oil Refinery (No 2) [2003] EWCA Civ 1031, [2003] 2 Lloyd’s Rep 635. 61 See, eg, Yrazu v Astral Shipping Co (1904) 20 TLR 153. 62 Springwell Navigation Corporation v JP Morgan Chase Bank and others [2010] EWCA Civ 1221. 63 BIMCO, formerly known as the Baltic and International Maritime Council, was founded in 1905 as an organisation designed to secure better deals and standard agreements in shipping. It is now the world’s largest international shipping association, with more than 2,100 members globally, and its standard maritime contracts are widely used in international shipping agreements.

Sanctions Clauses 255 claim or provision of such benefit would expose that (re)insurer to any sanctions, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America.64

10.43 The interpretation and application of a sanctions clause was the issue in the case of Arash Shipping Enterprises Co Ltd v Groupama Transport.65 In particular, the question was whether the leading underwriter on a policy of marine insurance was entitled to serve notice of cancellation under an ‘Iran Sanctions Clause’ which read as follows: Insurers hereon may, on such notice in writing as the Insurer may decide, cancel the Insurer’s participation under this Policy in circumstances where the Assured has exposed or may, in the opinion of the Insurer, expose the Insurer to the risk of being or becoming subject to or in breach of any sanction, prohibition, regulation or adverse action in any form whatsoever against or in respect of Iran promulgated by the executive, legislative, other competent governmental agency, regulatory authorities or competent court or other judicial body of the State of the Ship(s) flag, or by the United Kingdom and/or the United States of America and/or the European Union and/or the United Nations.

10.44 The claimant was a Cypriot company controlled by an Iranian entity, thus constituting an ‘Iranian person’ for the purpose of the relevant sanctions legislation.66 To this extent, it was accepted that, had it been entered into after the entry into force of the sanctions measures, the contract in question would have been subject to the prohibition on providing insurance and reinsurance to Iranian persons. The question was whether the automatic renewal of the agreement, which was due to be triggered after the entry into force of the measures, would be caught by the prohibition. 10.45 The claimant argued that the underwriter could only trigger cancellation under the sanctions clause if it could show that the claimant (as the insured party) had committed some act or omission, and that in any event the notice of cancellation had not been served in good faith by the underwriter. In relation to the latter, the claimant argued that it was so obvious that the sanctions would not apply to the automatic renewal of the contract that the defendant must be acting in bad faith in terminating the agreement. 10.46 The Court confirmed that the policy conferred a right of cancellation on the insurer where the insurer was of the opinion that the insured had exposed it to the risk of being in breach of sanctions. In relation to the claimant’s first point, Stanley Burnton LJ held that the clause did not require an act or omission on the part of the insured party. In this regard, he noted that sanctions do not necessarily operate in respect of acts committed by targeted persons, and often attach to individuals and entities on the basis of nationality and place of residence.67 In relation to the second point, he stated that once the insurer was genuinely and reasonably of the requisite opinion, it had a contractual right to serve notice of cancellation.68 Moreover, the Court disagreed that it was obvious that the prohibition

64 See

Lloyd’s, ‘Lloyd’s Sanctions Guidance – Sanctions Clauses’ (17 October 2014) 1. Shipping Enterprises Co Ltd v Groupama Transport [2011] EWCA Civ 620. 66 The sanctions measures in question were imposed under Regulation (EU) No 961/2010. 67 Arash Shipping, above (n 65) [31]. 68 ibid, [39]. 65 Arash

256 Sanctions and Contracts would not apply to automatic renewal of the contract. On the facts of the case the Court therefore found that there was nothing to suggest bad faith on the part of the insurer. 10.47 Separately, Tomlinson LJ observed that although the sanctions clause was ‘not happily drafted’, it was nevertheless clear that the intention of the parties was to invest the insurers with a right of cancellation which would be triggered where the insured became an entity further relevant dealing with which would, in the opinion of insurers, expose them to the risk of being placed in breach of the relevant sanctions.69 10.48 The Arash Shipping case shows that the operation of sanctions clauses will depend to a large extent on the interpretation of the wording of the clause in question, which will obviously vary from case to case. Where the clause confers a discretion on one party regarding the evaluation of the sanctions risk, the case suggests that the opinion that is ultimately formed must be genuinely and reasonably held. In other words, the terminating party should have reasonable grounds for serving notice of cancellation on the other party.

69 ibid,

[59].

11 Private Sector Implementation of Sanctions Introduction 11.1 States and international organisations rely heavily on the private sector to ensure the implementation and ultimate effectiveness of sanctions measures. This is particularly the case with targeted financial sanctions, which require banks and other firms to freeze assets belonging to designated individuals and report breaches to the authorities. Prohibitions and other obligations contained in financial sanctions legislation are as a matter of course backed up by the threat of civil and criminal penalties imposed by national authorities, but private entities are the front-line actors when it comes to the day-to-day enforcement of sanctions. 11.2 The importance of private sector implementation has increased in line with the general expansion in the use of financial sanctions since the beginning of the twenty-first century.1 In the EU, this has coincided with the growing centralisation and coordination of EU foreign policy through the Common Foreign and Security Policy and the establishment of the European External Action Service in 2010.2 As an illustration, between 2010 and 2011, the number of sanctions decisions taken by the EU Council rose from 22 to 69.3 Moreover, the EU has increasingly coordinated its sanctions policy with the US, leading to a corresponding increase in the use of harmonised EU–US unilateral or autonomous sanctions measures, even in the absence of agreement at the UN level.4 This trend looks set to continue, albeit that the EU–US sanctions rapprochement has not been without its problems.5 11.3 The proliferation of sanctions measures as an instrument of EU and domestic foreign policy should be viewed alongside the inherent complexities in the way sanctions law

1 See ch 1 for a more detailed history of UN sanctions, including the background to this policy shift. 2 See ch 2 for a detailed breakdown of EU sanctions law and policy. 3 S Lehne, ‘The Role of Sanctions in EU Foreign Policy’, Carnegie Europe, 14 December 2012, available at: carnegieeurope.eu/publications/?fa=50378. 4 See the sanctions measures imposed by the EU and US in relation to the situations in Syria (2012) and Ukraine (2014). 5 See, eg, EU resistance in 2017 to US sanctions on Russia; J Brunsden and C Weaver, ‘EU ready to retaliate against US sanctions on Russia’ Financial Times (23 July 2017), available at: www.ft.com/content/211de800-6fbc11e7-aca6-c6bd07df1a3c. In 2018, following President Trump’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA), the EU announced it would reactivate the so-called ‘blocking statute’ by updating the list of US sanctions on Iran falling within its scope. The blocking statute – Regulation (EC) 2271/96 – prohibits EU persons from complying with US extra-territorial sanctions, allows companies to recover damages arising from such sanctions from the person causing them, and nullifies the effect in the EU of any foreign court judgments based on them.

258 Private Sector Implementation of Sanctions works. In the UK, for example, issues with private sector implementation are exacerbated by the fact that each sanctions regime is governed by a separate set of EU Regulations and domestic statutory instruments. Although the broad prohibitions and obligations contained in each regime are similar, they are not identical, and firms should therefore be mindful of the precise regime pursuant to which they must act in relation to each designated individual they encounter.6 Separately, firms have to contend with the fact that sanctions generally emanate from multiple jurisdictions, thus potentially creating problems for foreign subsidiaries, as well as in cases where foreign sanctions apply extra-territorially.7 This is particularly challenging for firms with a global presence. 11.4 In the UK, firms must comply with UK sanctions law, whether imposed unilaterally at the domestic level, or incorporated into domestic law pursuant to an EU or UN obligation. However, international firms with their headquarters in the UK must also deal with compliance issues arising in particular from the far-reaching prohibitions imposed by US sanctions law. This includes, for example, ensuring that dollar-denominated transactions are not entered into in breach of US sanctions prohibitions.8 In this regard, it is notable that US enforcement of sanctions legislation, even in relation to breaches by non-US firms, has to date been considerably more robust than enforcement in the EU and UK. Nevertheless, this may be about to change, at least in the UK,9 with the establishment of the Office of Financial Sanctions Implementation (OFSI) and the coming into force of the Policing and Crime Act 2017, which contains significant new enforcement powers for UK authorities.10 11.5 If enforcement does become tougher in the UK, there will undoubtedly be a call for greater clarification of sanctions measures by national authorities. In this regard, the translation of high-level political decision-making into effective implementation has often been a slow process, particularly in the EU, with some commentators noting the communication problems between the public and private sectors, as well as the fact that firms will not always respond to sanctions legislation in the manner anticipated by government bodies.11 6 Individuals on the Consolidated List may have been designated under different regimes. To this extent, when firms identify a ‘match’ they should ensure that they know which specific sanctions regime governs their obligations vis-a-vis that individual. 7 This occurs where sanctions imposed by a state apply outside the territorial jurisdiction of the state in question (eg, certain US secondary sanctions aimed at preventing non-US persons from accessing US financial and commercial markets where the sanctions violation occurs outside the US). See ch 4 for more information on the extra-territorial reach of US sanctions. 8 US sanctions usually extend to dollar-denominated transactions as the latter will in most cases need to be cleared through a US bank (ie, a ‘US person’ will be involved for the purpose of US sanctions measures). This is sometimes known as ‘correspondent account jurisdiction’. For example, in 2014, BNP Paribas was fined USD US$8.9 billion for, among other things, causing an unaffiliated US financial institution to process a US dollar transaction with a person designated under US sanctions law. See US Department of Justice, Information, United States v BNP Paribas, SA, (SDNY 2014), available at: www.justice.gov/opa/pr/bnp-paribas-agrees-plead-guilty-and-pay89-billion-illegally-processing-financial. 9 OFSI opened 133 breach cases in 2017, with the most serious being reported to the National Crime Agency for further investigation. See OFSI, ‘Office of Financial Sanctions Implementation: an introduction’, 1 March 2018, available at: ofsi.blog.gov.uk/2018/03/01/office-of-financial-sanctions-implementation-an-introduction/. 10 See OFSI, ‘New penalties for breaching financial sanctions now in force’, 3 April 2017, available at: www.gov. uk/government/news/new-penalties-for-breaching-financial-sanctions-now-in-force. 11 T Keatinge et al, ‘Transatlantic (Mis)alignment: Challenges to US–EU Sanctions Design and Implementation’, RUSI Occasional Paper, 10 July 2017, available at: rusi.org/publication/occasional-papers/transatlantic-misalignment-challenges-us-eu-sanctions-design-and.

Introduction 259 The latter is perhaps most evident where financial institutions opt to ‘de-risk’ and pull out of certain jurisdictions altogether rather than face the rising costs of compliance with increasingly complex financial sanctions regimes.12 11.6 National and supranational authorities have attempted to mitigate private-sector misunderstandings regarding the implementation of sanctions law by publishing detailed guidance.13 Although this guidance is not legally binding, it remains the best starting point when it comes to the implementation of sanctions measures by the private sector. Official guidance should be read alongside the material published by major trade associations,14 as well as guidance compiled in the context of public–private collaborative efforts.15 Interestingly, concerns raised regarding the interpretation and implementation of sanctions law have on occasion given rise to a form of public–private dialogue whereby misunderstandings are gradually ironed out as part of an iterative process.16 11.7 In examining the key aspects of private sector implementation, this chapter will focus primarily on financial sanctions compliance by UK firms, whether in relation to domestic legislation or extra-territorial US measures.17 In this regard, it is important to note that UK sanctions law does not impose any positive obligations vis-a-vis compliance programmes to be implemented by firms. On the contrary, the relevant legislation merely imposes an absolute prohibition on proscribed conduct, with civil and criminal penalties potentially resulting from any breach. However, regulated firms must at all times comply with relevant obligations imposed and monitored by the Financial Conduct Authority (FCA), which include provisions regarding the establishment and maintenance of appropriate policies and procedures in order to prevent activities relating to money laundering and terrorist financing.18 Accordingly, firms must ensure that they have relevant procedures in place, and bear responsibility for the effectiveness of the compliance programmes they devise. This is complicated by the fast-moving nature of sanctions law and the fact that individuals are frequently added to and removed from the relevant lists of designated persons. It is up to firms to ensure that they stay ahead of these developments.

12 The caution exercised by firms in their dealings with sanctioned jurisdictions (eg, Russia) and the ensuing chilling effect on business have been referred to as ‘silent sanctions’ by Natalia Orlova, chief economist at Alfa-Bank, cited in ‘The punishment continues’ The Economist (5 August 2017). 13 See, eg, OFSI’s ‘Financial Sanctions: Guidance’ or the EU’s ‘Best Practices for the effective implementation of restrictive measures’. 14 See, eg, the Joint Money Laundering Steering Group’s (JMLSG) ‘Guidance for the UK financial sector’ (JMLSG Guidance). 15 See, eg, the material published by the Joint Money Laundering Intelligence Taskforce (JMLIT). 16 eg, the Financial Markets Law Committee (FMLC) raised a number of interpretive issues in a paper published in August 2015 entitled ‘Issues of legal uncertainty arising in the context of EU contract sanctions’. The paper drew attention in particular to ambiguities in some of the sanctions imposed against Russia in the context of the situation in Ukraine. The following month, in September 2015, the EU Commission published a Guidance Note on the interpretation of certain provisions of the relevant EU Regulation (Regulation (EU) No 833/2014). 17 It is of course true that multinational companies based in the UK will have to take into account a large number of different national and supranational sanctions regimes according to where they do business. To this extent, the approach to compliance in the UK examined in this chapter will have to be replicated across multiple jurisdictions. 18 In 2010, the FSA (as it was) imposed a £5.6 million fine on RBS for failing to have adequate systems in place to prevent breaches of financial sanctions. See the FSA Decision Notice, 2 August 2010, available at: webarchive. nationalarchives.gov.uk/20100806151418:www.fsa.gov.uk/pubs/other/rbs_group.pdf (FSA Decision Notice).

260 Private Sector Implementation of Sanctions 11.8 Separately, this chapter will also consider the use of strategic export controls in the UK alongside financial sanctions and other measures contained in specific sanctions packages. In this regard, whilst financial sanctions and certain related measures will usually be contained in specific instruments targeting a particular situation, country or non-governmental organisation,19 the UK’s strategic export control regime is governed by a more comprehensive legislative scheme, with the Export Control Act 2002 and Export Control Order 2008 at its centre. The result is that, whereas each set of financial sanctions measures can be traced to a specific sanctions regime (usually by reference to a country or situation), export controls are regulated and managed on a much more centralised basis. In particular, the Export Control Joint Unit (ECJU) and the Export Control Organisation (ECO) are responsible for oversight of the UK’s export control regime. Breaches of export control obligations are investigated and enforced separately by Her Majesty’s Revenue and Customs (HMRC), and cases may then be referred to the Crown Prosecution Service (CPS). In short, the UK’s export control regime should be treated separately from the many and varied financial sanctions regimes in force at any given time. Companies operating in the UK should be mindful of their specific export control obligations, even if the latter are likely to apply only to companies specialising or engaged in either the export of items from the UK, or the brokering of trade in restricted items between third countries.

Brexit 11.9 The UK’s withdrawal from the EU will undoubtedly have an impact on the private sector implementation of sanctions in the UK. As discussed in chapter three, the Sanctions and Anti-Money Laundering Act 2018 (SAMLA 2018) received royal assent on 23 May 2018 and is due to come into force once the withdrawal process is complete. Although there is no current indication that the UK’s overall sanctions policy will change a huge amount post-Brexit, the departure from the EU bloc will inevitably create uncertainty for businesses, at least until the actual sanctions regimes come into force under SAMLA 2018. In this regard, it should be borne in mind that although the new legislation sets out the framework for the creation of new autonomous sanctions regimes, we will not know the content of those regimes until the relevant secondary legislation is passed into law.20 Even when the new regimes do come into force, it is likely to be some time before all the interpretative issues are addressed. However, OFSI has committed to continue to provide guidance to ensure that the establishment of the UK’s autonomous sanctions framework goes as smoothly as possible. Moreover, the hope has been expressed in some quarters of the business community that SAMLA 2018 will allow the UK’s competent authorities to set up a more workable licensing system.21 19 See, eg, the UN Security Council resolutions setting out specific sanctions packages in relation to the situation in North Korea (see, eg, resolutions 2270 (2016), 2321 (2016), 2375 (2017), among others), or EU Council Decisions and EU Regulations doing the same at the EU level (see, eg, Council Decision 2016/849 and Regulation (EU) 2017/1509, among others). 20 s 1(1) SAMLA 2018 contains the power for an appropriate minister to ‘make sanctions regulations’ where it is considered appropriate to do so in order to achieve one of the purposes set out in the statute. 21 Under s 15(2) SAMLA 2018, regulations may provide for general exceptions to sanctions prohibitions, as well as for prohibited conduct to be authorised under the terms of licences issued by an appropriate minister.

Financial Sanctions 261

Financial Sanctions Overview of UK Financial Sanctions 11.10 Although certain sectors and industries bear the brunt of financial sanctions implementation,22 it is nevertheless the case that most of the restrictions and prohibitions contained in UK sanctions law apply generally to all firms operating within the UK or where there is a connection to the UK. This section will therefore set out what is generally expected of firms when it comes to financial sanctions compliance. 11.11 As noted above, there is no single piece of legislation governing sanctions applicable in the UK, and the relevant obligations are contained in various different sources of law.23 To this extent, although a firm will have to implement general compliance procedures to guard against the risk of breaching financial sanctions, once a potential breach has been identified (eg, because a customer has been identified as a designated person), the firm will have to be mindful of the specific restrictions imposed under the applicable sanctions regime. In the UK, most financial sanctions regimes are imposed at the EU level via EU Regulation, and then implemented domestically by way of statutory instrument.24 11.12 By way of example, if a bank discovers that an account holder is a designated person under the EU regime dealing with Russia and the situation in Ukraine, that bank will have to take into account the restrictions contained in the relevant EU Regulations governing that regime,25 as well as the UK statutory instruments implementing the regime domestically.26 On the other hand, if the person is designated pursuant to a separate regime, the bank will have to consult a separate EU Regulation and corresponding UK statutory instrument. Whilst the restrictions contained in each financial sanctions regime are similar (ie, standard wording is used to establish the basic prohibitions), they are not necessarily identical. Moreover, one regime may contain specific obligations that are not contained in another.

Who is Concerned by UK Financial Sanctions Law? 11.13 Financial sanctions in force in the UK apply to all persons within the UK, as well as to all UK nationals and bodies incorporated or constituted under UK law but o perating 22 This is most obviously true in relation to the financial sector which, because of the nature of financial sanctions prohibitions, carries the heaviest compliance burden. 23 Note that this will remain the case after Brexit when SAMLA 2018 comes into force. In particular, the Act contains new powers for the creation of UK sanctions regimes, but these new regimes will be set out and governed by separate delegated legislation. 24 One notable exception to this is the financial sanctions regime under the Terrorism Asset-Freezing etc Act 2010 (TAFA 2010), which is a purely domestic regime (albeit introduced pursuant to an obligation imposed by the UN). After Brexit, the UK’s sanctions regimes will all take effect pursuant to domestic legislation. 25 Regulation (EU) No 208/2014 (as amended); Regulation (EU) No 296/2014 (as amended); Regulation (EU) No 692/2014 (as amended); and Regulation (EU) No 833/2014 (as amended). 26 The Ukraine (European Union Financial Sanctions) Regulations 2014; the Ukraine (European Union Financial Sanctions) (No 2) Regulations 2014; and the Ukraine (European Union Financial Sanctions) (No 3) Regulations 2014.

262 Private Sector Implementation of Sanctions outside the UK.27 To this extent, foreign subsidiaries of UK companies do not have to comply with UK financial sanctions, albeit that problems will arise if the foreign subsidiary employs UK nationals who are involved in breaches of UK sanctions law. In particular, UK sanctions jurisdiction will extend to situations where any UK person or company is involved in the approval of transactions carried out by foreign subsidiaries. 11.14 OFSI has confirmed that it does not consider that its enforcement jurisdiction is limited to breaches occurring within the UK, but it will only intervene in situations where there is a ‘UK nexus’.28 Whether there is a UK nexus is a fact-sensitive question, but it has been suggested that one will exist in the following circumstances: where a UK company is operating overseas; where transactions are executed using clearing services based in the UK; where the relevant conduct is carried out by a local subsidiary of a UK company (depending on governance); where action taking place overseas was directed from within the UK; or where financial products purchased on UK markets are held or used overseas.29 This shows that OFSI intends to take a wide approach to its own enforcement jurisdiction, in line with that taken by the Office of Foreign Assets Control (OFAC) in the US.

Basic Prohibitions 11.15 Financial sanctions in force in the UK generally contain three basic prohibitions:30 i. The prohibition on dealing with funds or economic resources owned, held or controlled by a designated person. ii. The prohibition on making funds or other economic resources available, directly or indirectly, to a designated person. iii. The prohibition on engaging in actions that, directly or indirectly, circumvent the financial sanctions provisions, or enable or facilitate the contravention of those p rovisions. 11.16 In practice, the prohibition on dealing means, for example, that firms must freeze any assets they hold belonging to designated persons. OFSI maintains a consolidated list of designated persons (the Consolidated List), which contains the names of all the individuals and entities that have been listed under each of the separate sanctions regimes in force in the UK.31 The Consolidated List is constantly updated, and firms must ensure that they apply the most recent version at all times. The common approach for large firms is to use automated screening software, whether internally or outsourced to a specialist provider. Inevitably, the vast majority of matches (by name) identified by reference to the Consolidated List are ‘false positives’, that is, they do not actually refer to a designated person (eg, they merely 27 See, eg, regulation 1(2) of the Syria (European Union Financial Sanctions) Regulations 2012. 28 OFSI, ‘Monetary penalties for breaches of financial sanctions – guidance’, April 2017, para 3.6, available at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/637470/Monetary_penalties_for_ breaches_of_financial_sanctions.pdf. 29 ibid, para 3.7. 30 See ch 3 for more detail on the scope and interpretation of the basic financial sanctions prohibitions that apply in the UK. 31 The Consolidated List is available at: www.gov.uk/government/publications/financial-sanctions-consolidatedlist-of-targets/consolidated-list-of-targets.

Financial Sanctions 263 share the same name). In this regard, OFSI distinguishes between ‘name matches’ and ‘target matches’, the latter being name matches that have subsequently been confirmed as referring to a designated person.32 11.17 As one of the main functions of retail banking is to hold funds on behalf of customers, customer due diligence will obviously be an important aspect of guarding against financial sanctions breaches. Banks will also have to ensure that their customers are periodically screened in order to take into account updates to the Consolidated List. Moreover, firms should be mindful of the fact that a named individual or entity may not be the ultimate beneficiary of the funds or economic resources in question. In the case of Elaine Hmicho v Barclays Bank Plc,33 for example, the defendant bank, having frozen the account of a non-designated customer and been sued for doing so, successfully argued that it had reasonable cause to suspect that the funds in the claimant’s account were in fact controlled by the claimant’s husband, Mr Hmicho, who was a designated person under the Syrian sanctions regime. 11.18 Separately, given the prohibition on making funds available to designated persons, firms should maintain screening systems in place in relation to all transactions with third parties. This process must be particularly thorough in order to cover the risk of indirectly making funds or economic resources available to a designated person. ‘Indirect payments’ would include, for example, payments to an individual or entity acting on behalf of, or for the benefit of, a designated person. This will be the case where payments are made to nondesignated entities which are nevertheless owned or controlled by a designated person.34 To the extent possible, transaction screening should therefore extend to verification of the counterparty’s beneficial owners and associated parties. 11.19 In relation to the prohibition on making economic resources available to designated individuals and entities, it should be noted that there is some uncertainty as to whether or not this captures the provision of services which allow the designated person to make money. According to OFSI, the provision of services is generally permitted,35 albeit that a licence will be required for the designated person to make any payment for those services.36 This includes the giving of legal advice, although legal advisers will again have to obtain a licence in order to be paid.37 Notwithstanding OFSI’s general guidance, it is unclear whether this permissive approach extends to situations where the designated person is able to obtain a clear financial benefit from the services provided (eg, where a designated person is able to undertake a transaction on the basis of commercial and legal advice provided by a UK firm). UK service providers should therefore exercise caution in this regard. 32 See OFSI Guidance, para 2.3 (‘Using the consolidated list’). 33 Elaine Hmicho v Barclays Bank Plc [2015] EWHC 1757 (QB). 34 See the EU’s Best Practices for a discussion of ‘ownership or control’. Broadly speaking, a company is considered to be owned by a designated person where the latter holds a proprietary interest in it of over 50%. Control, on the other hand, is assessed by reference to a list of factors including whether the designated person has the right to appoint or remove management. 35 Note that TAFA 2010 explicitly prohibits the provision of financial services to designated persons, albeit that exemptions do exist. 36 See OFSI Guidance, August 2017, para 3.1.9. 37 ibid, para 3.4.1.

264 Private Sector Implementation of Sanctions 11.20 Firms operating in the UK should also be wary of so-called ‘secondary liability’ under the circumvention and facilitation provisions. In particular, UK financial sanctions law makes it an offence to circumvent sanctions prohibitions, or to facilitate or enable infringements of those prohibitions. In relation to these provisions, it is likely that OFSI will take its cue from the manner in which its US counterpart, OFAC, has approached the issue of circumvention. In this regard, OFAC has clamped down on a number of methods by which firms have sought to obscure customer identities in order to avoid US sanctions prohibitions (see paragraph 11.56 below). Firms should therefore be mindful of signs indicating that payment messages and other transaction procedures have been deliberately tampered with.38

Other Prohibitions 11.21 As noted above, each financial sanctions regime in force in the UK varies in terms of the precise scope of the prohibitions contained therein. Although the basic prohibitions discussed above are included in most UK sanctions regimes, the latter may also include ancillary prohibitions, depending on the nature of the regime and the policy objective sought to be achieved. For example, the Syrian sanctions regime contains the standard asset freeze provisions,39 but also a number of ancillary restrictions, including a prohibition on the sale or purchase of certain Syrian bonds.40 Moreover, the Syrian measures prohibit the establishment of new banking relationships, as well as the provision of insurance and reinsurance products to named individuals and entities.41 The lesson for UK firms and firms operating in the UK is that they must be aware of each of the financial sanctions regimes in place at any given time, and the different prohibitions that apply in relation to each. To this extent, a firm cannot simply apply a standard sanctions compliance policy. Instead, given the diverse nature of sanctions restrictions, a firm must ensure that it is aware of the sanctions risk in relation to particular jurisdictions and industries.

Reporting Obligations 11.22 Reporting obligations form a particularly key part of the implementation of financial sanctions by the private sector. In fact, national authorities effectively rely on firms to act as an unofficial supplementary means of monitoring designated persons and potential sanctions breaches. This is now all the more so given the recent expansion in the scope of sanctions reporting requirements in the UK.42 As with other sanctions-related obligations, 38 See, eg, PricewaterhouseCoopers, ‘Sanctions: circumvention methods under scrutiny’, November 2016, a vailable at: www.pwc.com/us/en/financial-services/financial-crimes/publications/assets/sanctions-circumvention.pdf. 39 See Part 2 (Funds and Economic Resources) of the Syria (European Union Financial Sanctions) Regulations 2012. 40 See Part 3 (Restrictions on Financial Services) of the Syria (European Union Financial Sanctions) Regulations 2012. 41 ibid. 42 See the European Union Financial Sanctions (Amendment of Information Provisions) Regulations 2017, which came into force on 8 August 2017.

Financial Sanctions 265 reporting requirements are set out in a number of different sources of law, and firms should be aware of the fact that a single set of circumstances may give rise to separate obligations to notify various government bodies under multiple pieces of legislation. 11.23 The primary reporting obligations are contained in the relevant statutory instruments implementing the particular financial sanctions regime. These contain an obligation compelling certain firms to inform OFSI as soon as practicable if they know or have cause to suspect that a person is (i) a designated person, or (ii) has committed a sanctions infringement.43 Under recent legislation, this reporting obligation now applies to both any ‘relevant institution’ and any ‘relevant business or profession’.44 ‘Relevant institution’ is defined in such a way as to effectively apply only to financial institutions,45 whilst ‘relevant business or profession’ includes a number of other businesses.46 Failure to comply with these reporting obligations is a criminal offence.47 To simplify the reporting process, OFSI has provided a notification template.48 11.24 As well as the obligations contained in domestic statutory instruments, firms should be aware of the general information requirement contained in most EU financial sanctions Regulations.49 In particular, firms are obliged to share any information with the competent national authority which would facilitate compliance with the Regulation in question. For UK firms, however, it seems unlikely that this provision adds anything to the obligations contained in the relevant statutory instruments discussed above. 11.25 Although there is no specific obligation to report sanctions breaches to the FCA, regulated firms should consider doing so pursuant to the FCA’s Principles for Businesses. Under Principle 11, firms should ‘deal with regulators in an open and cooperative way’, and ‘disclose to the FCA anything relating to the firm of which the FCA would reasonably expect notice’. The FCA has indicated that it would expect to be notified of any breach of sanctions law, but not of target matches.50 11.26 Firms should also be mindful of reporting obligations contained in separate but related instruments. For example, a breach of financial sanctions may also give rise to a suspicion of terrorist funding, which would in turn trigger an obligation to make a

43 See, eg, the Schedule to the Ukraine (European Union Financial Sanctions) (No 2) Regulations 2014. 44 Previously, the reporting obligations applied only to ‘relevant institutions’, but the scope of the obligations has been expanded to also cover any ‘relevant business or profession’, pursuant to the European Union Financial Sanctions (Amendment of Information Provisions) Regulations 2017. 45 See, eg, regulation 2(1) of the Syria (European Union Financial Sanctions) Regulations 2012. 46 In particular, a ‘relevant business or profession’ is defined as one of the following: an auditor; a casino; a dealer in precious metals or stones; an estate agent; an external accountant; an independent legal professional; a tax adviser; and a trust or company service provider. See, eg, regulation 19(5) of the European Union Financial Sanctions (Amendment of Information Provisions) Regulations 2017. 47 See, eg, regulation 21 and para 4(1) of the Schedule to the Syria (European Union Financial Sanctions) Regulations 2012. 48 The template is available at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/512772/ ofsi_breach_form_template_march_2016.docx. 49 See, eg, Article 8 of Regulation (EU) No 269/2014. 50 See JMLSG Guidance, para 4.115.

266 Private Sector Implementation of Sanctions isclosure to the relevant authorities pursuant to the Terrorism Act 2000.51 Equally, firms d should consider reporting obligations arising from the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2017. Whilst there is no ‘tipping-off ’ restriction in UK financial sanctions law, firms should nevertheless be aware that tipping-off provisions under the terrorist-financing or money laundering rules may apply.

Compliance Obligations 11.27 As noted above, there are no specific compliance obligations pursuant to UK sanctions law. However, a failure to have in place appropriate procedures for screening and reporting sanctions breaches could amount to an infringement of general compliance obligations for firms regulated by the FCA. Under Principle 3 of the FCA’s Principles for Businesses, a regulated firm must take reasonable care to organise its affairs responsibly and effectively, with adequate risk-management systems. Moreover, the FCA’s Senior Management, Arrangements, Systems and Controls Sourcebook (SYSC) contains specific provisions requiring firms to establish and maintain effective systems and controls to counter the risk that the firm might be used to further financial crime.52 11.28 Separately, regulation 19 of the Money Laundering Regulations 2017 states that a ‘relevant person’53 must establish and maintain policies, controls and procedures to mitigate and manage effectively the risks of money laundering and terrorist financing. Again, although there is no specific reference to sanctions infringements, it would clearly be possible for the failure to maintain an adequate sanctions compliance programme to amount to a breach of regulation 19. In fact, this is what the legacy financial services regulator (the FSA) found in relation to RBS in 2010.54 The bank was fined £5.6 million for failing to have adequate systems in place to prevent breaches of financial sanctions under the Money Laundering Regulations 2007 (which preceded the current Regulations).55 Similarly, Turkish Bank (UK) Ltd was fined £294,000 in 2012 for failing to establish appropriate anti-money laundering procedures in relation to its correspondent banking relationships.56 The FSA noted that the failure to identify and verify the identity of respondent banks and their beneficial owners meant that Turkish Bank was not in a position to conduct s anctions screening.57 51 Under s 21A of the Terrorism Act 2000, for example, regulated firms have an obligation to make a Suspicious Activity Report (SAR) to the National Crime Agency (NCA) where they know, suspect, or have reasonable grounds for knowing or suspecting that a person has provided funds or other property which may be used for the purposes of terrorism. 52 See rules 3.2.6 and 6.1.1 of the SYSC. 53 A ‘relevant person’ is defined as any of the following, provided that an exception does not apply: credit institutions; financial institutions; auditors, insolvency practitioners, external accountants and tax advisers; independent legal professionals; trust or company service providers; estate agents; high value dealers; and casinos. See regulation 8 of the Money Laundering Regulations 2017. 54 See FSA Decision Notice. 55 Note that under the Money Laundering Regulations 2017, ‘terrorist financing’ is defined as including, among other things, contravention of asset freezes under the ISIL (Da’esh) and Al-Qaida (Asset-Freezing) Regulations 2011, as well as under TAFA 2010. 56 See the FSA Decision Notice, 26 July 2012, available at: webarchive.nationalarchives.gov. uk/20130202000754:www.fsa.gov.uk/static/pubs/final/turkish-bank.pdf. 57 ibid, para 4.32.

Financial Sanctions 267 In particular, the FSA observed that the sanctions screening should have included the use of an appropriate official database such as the Consolidated List.58

Penalties and Enforcement in the UK 11.29 To date, enforcement in the UK has been patchy, with only a handful of prosecutions and fines meted out for breaches of financial sanctions obligations.59 However, this appears likely to change with the establishment of OFSI as the new authority responsible for financial sanctions enforcement, and the entry into force of the Policing and Crime Act 2017 in April 2017, which contains a range of new enforcement powers. Most notably, the new legislation increases the maximum term of imprisonment on conviction for breach of financial sanctions to seven years.60 That will rise to a maximum of 10 years when the Sanctions and Anti-Money Laundering Act 2018 comes into force.61 Also, OFSI now has the power to impose civil penalties for sanctions breaches, including fines of up to £1 million or 50 per cent of the value of the funds or economic resources in question, whichever is greater.62 11.30 It is worth restating that breaching the main financial sanctions prohibitions is a criminal offence. Moreover, managers and directors may incur personal liability for sanctions infringements where the offence in question is committed with their consent or connivance or is attributable to their neglect.63 Although prosecutions are rare in the UK, convictions have been handed down for sanctions infringements. In 2009, the construction company Mabey & Johnson received the first conviction for breaching prohibitions implemented pursuant to UN sanctions obligations, and was fined £3.5 million.64 The firm pleaded guilty to, among other matters, ‘making funds available’ to Iraq in violation of Article 3 of the Iraq (United Nations Sanctions) Order 2000.65 In addition, three former employees were found personally liable for their role in making the illegal payments, and were sentenced to terms of imprisonment. 11.31 Also in relation to the Iraqi sanctions regime, Weir Group PLC was found guilty by a Scottish court in 2010 of making payments to the Iraqi Government, and fined £3 million.66 In handing down sentence, Lord Carloway had regard to the penalties imposed 58 ibid, para 4.43. 59 See, eg, C Binham and J Pickard, ‘Value of UK financial sanctions breaches rises to £1.4bn from £117m’ Financial Times (26 February 2018), available at: www.ft.com/content/97056714-18b8-11e8-9e9c-25c814761640. 60 See s 144(3)(a) of the Policing and Crime Act 2017. 61 See s 17(5)(a) of the Sanctions and Anti-Money Laundering Act 2018. 62 See s 146(3) and (4) of the Policing and Crime Act 2017. 63 See, eg, regulation 11(1) of the Ukraine (European Union Financial Sanctions) (No 2) Regulations 2014. 64 Of the total fine of £3.5 million, £2 million was attributed to the sanctions breach, which was considered the most serious offence. See C Hope, ‘Mabey & Johnson fined £3.5million for breaching UN sanctions and bribing officials’ The Telegraph (25 September 2009), available at: www.telegraph.co.uk/news/politics/6232469/Mabeyand-Johnson-fined-3.5million-for-breaching-UN-sanctions-and-bribing-officials.html. 65 The Iraq (United Nations Sanctions) Order 2000 was introduced under the United Nations Act 1946 in order to implement UN Security Council resolution 661 (1990). 66 See ‘Weir Group fined £3m over Saddam sanctions breaches’ BBC News (15 December 2010), available at: www.bbc.co.uk/news/uk-scotland-glasgow-west-11999668.

268 Private Sector Implementation of Sanctions on Mabey & Johnson for breach of the same sanctions prohibitions.67 Since 2010, however, there have been no UK prosecutions for financial sanctions infringements. 11.32 In 2010 RBS was fined for breach of compliance obligations under the Money Laundering Regulations 2007.68 The then FSA found that the bank’s lack of adequate policies and procedures gave rise to an unacceptable risk that it could have breached UK financial sanctions. The fine of £5.6 million was imposed pursuant to regulation 20(1) of the Money Laundering Regulations 2007, relating to the establishment and maintenance of policies and procedures for the prevention of activities relating to money laundering and terrorist financing. 11.33 The 2007 Regulations have been replaced by the Money Laundering Regulations 2017, which contain a similar requirement for relevant persons at regulation 19(1). As noted above, regulated firms should continue to be mindful of their broader compliance obligations under the FCA’s Principles for Businesses. In early 2017, the FCA imposed its largest ever penalty in relation to inadequate anti-money laundering controls.69 Specifically, the FCA found that Deutsche Bank AG had acted in breach of Principle 3 of its Principles for Businesses by failing to maintain an adequate anti-money laundering control framework, and imposed a fine in excess of £163 million. This shows that the FCA intends to wield its enforcement powers in the area of money laundering and terrorist financing to the fullest extent possible.

Export Controls Overview of UK Export Controls 11.34 Strategic export controls should be treated as a stand-alone framework of restrictions and prohibitions. They inhabit a different corner of the modern sanctions world, albeit that provisions relating to export controls may overlap with provisions relating to financial sanctions and other measures. In the UK, export controls are implemented, overseen and enforced by separate government authorities. As a result, the UK’s export control regime exists in parallel to the UK’s financial sanctions regime. It appears that this will continue to be the case after Brexit, when SAMLA 2018 comes into force.70 11.35 The UK’s strategic export control regime is overseen by the ECJU, and managed in conjunction with the ECO and HMRC.71 The prohibitions regarding certain strategic 67 See the transcript of the sentencing remarks made by Lord Carloway in HMA v Weir Group PLC, available at: www.scotland-judiciary.org.uk/8/695/HMA-v-WEIR-GROUP-PLC. 68 See FSA Decision Notice. 69 See FCA Press Release, ‘FCA fines Deutsche Bank £163 million for serious anti-money laundering controls failings’, 31 January 2017, available at: www.fca.org.uk/news/press-releases/fca-fines-deutsche-bank-163million-anti-money-laundering-controls-failure. 70 See ch 3 for a full discussion of SAMLA 2018 and what it entails. 71 The ECJU was established in July 2016 and brings together staff from the Department of International Trade, the Foreign and Commonwealth Office and the Ministry of Defence.

Export Controls 269 exports are extensive and complex, and the domestic framework established by the Export Control Act 2002 is not the only legislation exporters need to be aware of. In practice, however, most prohibitions are now contained in the Export Control Order 2008 (the ‘2008 Order’), which was introduced under the Export Control Act 2002.72 The 2008 Order supplements the provisions of the EU ‘dual-use’ Regulation,73 which sets out the key restrictions in relation to goods which may ultimately be used in the production or development of prohibited weapons. 11.36 Broadly speaking, UK exporters should be aware of the restrictions that apply in relation to (i) the export of certain items from the UK, and (ii) the brokering of trade between third countries where certain restricted items or embargoed destinations are involved. As might be expected, the main restrictions apply to military goods and ‘dual-use’ items (i.e. goods that could serve either a military or a civilian function). Restrictions regarding the export of dual-use items are particularly problematic, and are set out in numerous statutory and EU law instruments. In this regard, exporters should be aware of specific ‘end-use’ restrictions, most notably in relation to the production of weapons of mass destruction. All prohibited items are gathered together in the consolidated UK Strategic Export Control Lists (‘The consolidated list of strategic military and dual-use items that require export authorisation’).74 Exporters should be familiar with the goods listed in this document and seek authorisation from the ECJU in order to export them. 11.37 Restricted and embargoed countries are set out in Schedule 4 of the 2008 Order, with some destinations more tightly regulated than others. The toughest restrictions apply in relation to Iran and North Korea, which are the only two countries listed in Part 1 of Schedule 4 (‘embargoed and no exception for transit’). Of particular note in this regard is the so-called ‘brokering’ prohibition, which makes it an offence to do any act calculated to supply, or promote the supply, of any goods subject to trade controls from one third country to another third country that is an embargoed destination.75 The UK considers itself to be one of only two countries in the world that has enforced this arms brokering prohibition, the other being the US.76 Between 2004 and 2014, there were seven successful prosecutions in the UK for illegal arms brokering.77 In 2012, for example, Michael Ranger was convicted at Southwark Crown Court of brokering the sale of man-portable air defence systems (MANPADS) from North Korea to Azerbaijan. 11.38 Export control prohibitions in the UK are subject to an extensive licensing regime. That regime is managed electronically by the ECJU and licence applications are assessed by

72 See ch 3 for a detailed breakdown of the relevant legislation. 73 Regulation (EU) No 428/2009. 74 The consolidated UK Strategic Export Control List is updated periodically; the December 2017 version is available at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/669089/controllist20171216.pdf. 75 2008 Order, Article 20(2). 76 Department for Business, Innovation & Skills, ‘A pre-licensing register of arms brokers: call for evidence’, April 2014, 10, available at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/304269/bis14-662-call-for-evidence-pre-licensing-register-of-arms-brokers.pdf. 77 ibid.

270 Private Sector Implementation of Sanctions reference to eight ‘Consolidated Criteria’, including respect for human rights and fundamental freedoms in the country of final destination, as well as respect by that country for international humanitarian law. The Secretary of State for International Trade is ultimately responsible for export control licences, and licensing decisions may be appealed within 28 days of written notification.78 Failing that, licensing decisions can be judicially reviewed in the Administrative Court. 11.39 In 2017, the Administrative Court heard a high-profile judicial review claim regarding licences granted in respect of arms exports from the UK to the Kingdom of Saudi Arabia.79 In particular, the claimant asserted that the Secretary of State for International Trade was obliged by law to suspend extant export licences to Saudi Arabia because of the ‘clear risk’ that the material exported was being used to cause serious breaches of international humanitarian law (by reference to the Consolidated Criteria). The claimant relied on voluminous evidence suggesting that a coalition of countries led by Saudi Arabia had targeted civilians in Yemen in breach of international humanitarian law. However, the Court held that although the reports of civilian casualties were ‘worrying’, the Secretary of State was ‘rationally entitled’ to decide that the coalition was not deliberately targeting civilians.80 On that basis, the Court dismissed the claim, although the decision is likely to be appealed to the Court of Appeal.

Who Does UK Export Control Law Apply To? 11.40 Export restrictions apply in relation to any person exporting goods from the UK to a destination outside the UK and the Isle of Man.81 This includes bodies corporate and incorporate, as well as individuals. Brokering prohibitions, on the other hand, apply only to (i) persons carrying out activities in the UK, and (ii) UK persons.82 A ‘UK person’ usually means a UK national or a body incorporated or constituted under the law of any part of the UK.83

Compliance Obligations 11.41 As with all sanctions, export controls are frequently amended and updated in order to track foreign policy developments. Although the only legally binding compliance obligations relate to record-keeping, it is advisable for businesses to ensure that they maintain up-to-date compliance procedures. In an attempt to address the compliance issues that flow from export controls, and to encourage businesses to actively manage their compliance 78 2008 Order, Article 33(5). 79 R (Campaign Against Arms Trade) v Secretary of State for International Trade [2017] EWHC 1726 (QB). 80 ibid, [210]. 81 See, eg, 2008 Order, Article 3: ‘no person shall … export military goods’. 82 See, eg, 2008 Order, Article 20(1). 83 ‘United Kingdom person’ is not defined in the 2008 Order. However, in s 44(1) of the Counter-Terrorism Act 2008, a United Kingdom person is defined as a ‘United Kingdom national or a body incorporated or constituted under the law of any part of the United Kingdom’.

Export Controls 271 procedures, the ECO has published a Compliance Code of Practice.84 This document sets out the broad expectations that the ECO has in respect of individual businesses operating in areas that may be affected by export controls. 11.42 The Code of Practice encourages businesses to nominate personnel who are responsible for handling compliance issues on a day-to-day basis. It also encourages businesses to make an overarching commitment to compliance by way of a statement from the business’ UK Chairman, Chief Executive Officer or other senior officer. Essential compliance procedures are also dealt with in the Code of Practice, including the need for every business to ascertain which of its products require an export licence, and what type of licence is required. 11.43 Of particular importance are the record-keeping requirements, which are enshrined in the 2008 Order. Article 28(1) of the 2008 Order requires any business trading under the authority of an export licence to provide written notice of the address where copies of its trading records may be inspected. Article 29 of the 2008 Order requires those businesses to keep detailed records of any trading or other acts undertaken under the authority of an export licence. The exact requirements of those records are set out at Article 29(2). Businesses must keep these trading records for at least four years (where the activity is carried out under the authority of a general licence) or at least three years (in any other case).85 11.44 Compliance is monitored by the ECO Compliance Team, with ‘Compliance Certificates’ awarded to companies with a good compliance record. By way of example, the ECO Compliance Team carried out 572 inspections of UK licence holders in 2016, with only 50 Compliance Certificates awarded during this period. Conversely, 84 warning letters were issued to company directors in respect of breaches of licence conditions.86

Penalties and Enforcement of UK Export Control Law 11.45 Enforcement of export controls falls to HMRC, which is responsible for assessing all alleged breaches of export controls. There are three penalties available to HMRC in respect of breaches of restrictions in this area: (i) seizure of goods; (ii) imposition of compound penalties; and (iii) referral to the CPS for prosecution. 11.46 The offence of being knowingly concerned in breaches of the key export control prohibitions carries a maximum sentence of seven years’ imprisonment.87 The main brokering offences, on the other hand, carry a maximum term of 10 years’ imprisonment on

84 ECO, ‘Compliance Code of Practice’, March 2010, available at: www.gov.uk/government/publications/ compliance-code-of-practice. 85 2008 Order, Article 29(3). 86 UK Strategic Export Controls Annual Report 2016, July 2017, 22, available at: www.gov.uk/government/ publications/uk-strategic-export-controls-annual-report-2016. 87 See sub-ss 68(2) and (3) of the Customs and Excise Management Act 1979.

272 Private Sector Implementation of Sanctions indictment where it is found that the person intended to evade the relevant prohibition.88 Whilst seizures of goods are made on a fairly regular basis, the imposition of compound penalties and referrals for prosecution are resorted to in far fewer cases.89 However, there have been a number of notable prosecutions in recent years. 11.47 In 2013, Christopher McDowell, the managing director of arms brokering company Wellfind Ltd, was convicted of being knowingly concerned in the unlicensed supply of goods subject to export controls. In particular, he was found to have made over US$4 million from brokering the sale of fighter jets from China to Ghana without a valid licence. He was sentenced to two years’ imprisonment, which was suspended for two years, and ordered to carry out 200 hours community service. His Honour Judge Critchlow noted that he did not accept that McDowell did not understand the legislation, and commented that the defendant had taken no steps to make enquiries of the relevant government department, or obtain legal advice. 11.48 Convictions for export control breaches will almost certainly be followed by confiscation proceedings, the purpose being to deprive the convicted person of any financial benefit obtained through criminal conduct. In 2014, for example, Gary Summerskill of Delta Pacific Manufacturing Ltd was convicted of exporting specialised alloy valves to Iran in contravention of the EU ‘dual-use’ Regulation. Mr Summerskill was jailed for 30 months and his company was fined £225,000. Confiscation proceedings duly followed and he was personally ordered to pay £68,000 within six months or serve a further 15 months in prison. Separately, Delta Pacific Manufacturing Ltd was ordered to pay more than £1 million in confiscation.

US Sanctions for Non-US Businesses Enforcement of US Sanctions Breaches by Non-US Persons 11.49 In contrast to the UK’s arguably subdued enforcement to date, the US has aggressively penalised sanctions violations, with fines of up to US$9.6 billion.90 In this regard, US sanctions enforcement has become notorious both for the size of the penalties imposed, and for the targeting of prominent non-US institutions. The scope of US enforcement jurisdiction with regard to sanctions breaches is extensive, and as a result non-US firms should be aware of the various ways in which their conduct outside the US may constitute a breach of US sanctions. This section will examine the OFAC enforcement record as against non-US firms, with a view to determining the main lessons for compliance.

88 See 2008 Order, Article 34(5). 89 In 2016, 183 seizures of goods were made whilst only two compound penalties were imposed, and no breaches were referred for prosecution. See UK Strategic Export Controls Annual Report 2016. 90 See US Department of the Treasury, ‘Treasury Reaches Largest Ever Sanctions-Related Settlement with BNP Paribas SA for $963 Million’, 30 June 2014, available at: www.treasury.gov/press-center/press-releases/Pages/ jl2447.aspx.

US Sanctions for Non-US Businesses 273 11.50 US sanctions apply primarily to US persons, whether operating inside or outside US territory.91 This includes the US branches of non-US parent companies, and can include majority-owned foreign subsidiaries of US companies. However, OFAC has also pursued non-US entities for sanctions violations where the connection to the US is less clear. In most of these cases, liability for non-US companies is established via one of two routes: (i) where the non-US firm is found to have processed US-dollar transactions involving sanctioned entities; or (ii) where the non-US firm is found to have caused a US firm to engage in prohibited conduct (usually the processing of US-dollar transactions involving sanctions entities). 11.51 As a general point, UK businesses should also be aware that US financial sanctions apply more broadly than the equivalent EU or UK measures. In particular, the US prohibitions on ‘dealing’ with designated persons extend to more than just making funds available to them; the prohibition imposes an immediate across-the-board prohibition on transfers or dealings of any kind. This includes, for example, terminating an agreement with a designated person, or entering into a contract with a non-designated person where the authorised signatory is a designated person.

Processing US-dollar Transactions 11.52 The processing of wire transfers and other transactions denominated in US dollars by non-US firms usually involves clearing and settlement via a correspondent bank. To this extent, large multinational banks that have their headquarters outside the US often offer correspondent banking services to other non-US firms, which in most cases involves clearing the transactions through their US branches. Over the last decade, the processing of transactions through the US has been OFAC’s preferred means of establishing a US nexus by which to enforce sanctions against non-US persons.92 In 2014, for example, OFAC announced a US$9.6 billion settlement with the French bank BNP for sanctions violations.93 In particular, BNP was found to have ‘processed thousands of transactions to or through US financial institutions that involved countries, entities, and/or individuals subject to the sanctions programs administered by OFAC’.94 11.53 In many of these cases, OFAC found that non-US banks concealed the identity of sanctioned customers in order to avoid compliance systems used by US banks. This practice is often referred to as ‘wire stripping’, and involves the deliberate manipulation of information pertaining to wire payments so as to make it difficult or impossible to identify transactions involving sanctioned entities or states. If uncovered, OFAC will unsurprisingly

91 See also ch 4 for a detailed discussion of the jurisdiction and extra-territoriality of US sanctions regimes. 92 See, eg, the OFAC settlements with Crédit Suisse (2009); Lloyds TSB (2012); ING Bank (2012); Standard Chartered (2012); BNP Paribas SA (2014); Commerzbank AG (2015); Crédit Agricole Corporate and Investment Bank (2015); Barclays Bank plc (2016); and CSE Global Limited (2017). 93 See US Department of the Treasury, ‘Settlement Agreement with BNP Paribas SA’, 30 June 2014, available at: www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140630_bnp_settlement.pdf. 94 ibid.

274 Private Sector Implementation of Sanctions take this kind of deliberate concealment into account when it comes to determining the appropriate civil penalty to impose.95 11.54 Interestingly, an update published in 2016 to OFAC’s guidance regarding the Joint Comprehensive Plan of Action (JCPOA) with Iran clarified that foreign financial institutions could process transactions denominated in US dollars that involve Iran provided that such transactions do not involve, directly or indirectly, the US financial system or any US person, and do not involve any sanctioned person.96 This indicates that OFAC considers it possible to process transactions in US dollars without involving US persons or the US financial system generally, which might technically be the case where a non-US correspondent bank processes a transaction on behalf of a non-designated Iranian entity without routing the transaction via the US. 11.55 In any event, it should be noted that the vigorous enforcement of US sanctions violations has led to many large financial institutions reassessing the value of providing correspondent banking services on a global basis.97 In particular, the tough enforcement and rising cost of compliance has driven some banks to de-risk and cease providing services where there is a danger of inadvertently breaching US sanctions. The impact of this de-risking has been widely felt, and the culling of banking relationships has driven up the cost of financing for developing countries, as well as in some cases making it difficult for charities to transfer funds to targeted jurisdictions.98 Separately, some major European banks have considered dissolving their US dollar clearing operations, or even attempting to establish an offshore US dollar clearing centre in Europe.99 In short, the enforcement of US sanctions violations has had serious repercussions for the global financial system as a whole, and there are no signs as yet that OFAC has any intention of softening its position regarding breaches by non-US firms.

Causing a Violation in the US 11.56 Pursuant to an amendment in 2007 to the main statute governing US sanctions,100 a non-US person may now commit an unlawful act where he or she causes a violation of a sanctions measure (either in the US or by a US person). The new prohibition was applied in the recent OFAC settlement with CSE Global Limited, in which the latter agreed to pay the regulator just over US$12 million for ‘causing at least six separate financial institutions

95 See OFAC, ‘Economic Sanctions Enforcement Guidelines’, Appendix A to 31 CFR Part 501, available at: www.treasury.gov/resource-center/sanctions/Documents/fr74_57593.pdf. 96 See OFAC, ‘Frequently Asked Questions Relating to the Lifting of Certain US Sanctions Under the Joint Comprehensive Plan of Action (JCPOA) on Implementation Day’, updated on 15 December 2016, available at: www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_faqs.pdf. 97 See PwC, ‘Correspondence Course: Charting a Future for US-Dollar Clearing and Correspondent Banking Through Analytics’, September 2015, available at: www.pwc.com/us/en/risk-assurance-services/publications/ assets/pwc-correspondent-banking-whitepaper.pdf. 98 See ‘Poor correspondents’ The Economist (14 June 2014). 99 See D Kerr, ‘Clearing: European banks weigh up US dollar clearing options’ Euromoney (5 January 2015). 100 International Emergency Economic Powers Enhancement Act, Pub L No 110-96, § 2(a), 121 Stat 1011 (2007) (amending 50 USC § 1705(a)).

US Sanctions for Non-US Businesses 275 to engage in the unauthorized exportation or re-exportation of financial services from the United States to Iran’.101 In particular, the non-US firm entered into several contracts with sanctioned Iranian entities to deliver and install telecommunications equipment. As part of these agreements, CSE Global Limited initiated multiple US dollar wire transfers to several sanctioned entities. Since all of these funds were processed through the US, the company was found to have caused numerous US financial institutions to engage in the prohibited exportation of financial services to sanctioned entities.102 In this regard, it would appear that the prohibition on causing US persons to violate sanctions will be more likely to apply where the individual or entity in question is not processing the US dollar transaction itself (ie, because it is not a bank) but rather requiring another entity to process the transaction on its behalf. 11.57 A similar approach has been taken by OFAC in the prosecution of a Turkish trader, Reza Zarrab, for multiple sanctions violations. The indictment charges the defendant with, among other counts, conspiring to violate US sanctions relating to Iran.103 In applying for bail, the defendant challenged the jurisdictional basis of the prosecution, arguing that: the only basis upon which the alleged conduct in this case could be subject to the jurisdiction of the United States is that the non-US banks that Mr Zarrab used to send the US dollar payments to the non-US recipients elected to do so by involving US banks in the payment chain.104

11.58 However, the Court denied the bail application, noting OFAC’s assertion that the offences in question ‘apply to foreign nationals operating in foreign countries when they conspire to evade or avoid the IEEPA and the ITSR or to cause a violation of those provisions’.105 In other words, the Court accepted that OFAC could found jurisdiction based on the fact that the defendant knowingly engaged in US dollar transactions with sanctioned entities, which required the involvement of US banks at some stage in the settlement process and thus caused a US person to violate sanctions. 11.59 The case is important for a number of reasons, not least for confirming that OFAC looks set to continue to pursue enforcement action in relation to conduct that occurs outside the US where it involves US dollar-denominated transactions that must be processed through the US financial system. Moreover, the case shows that non-US persons may incur criminal liability for sanctions violations, even where the only connection to the US is the settlement of US dollar transactions via US financial institutions. In this regard, it is important to note that violations of the International Emergency Economic Powers Act (IEEPA) carry a maximum term of imprisonment of 20 years.

101 See OFAC, Enforcement Information for 27 July 2017, available at: www.treasury.gov/resource-center/ sanctions/CivPen/Documents/20170727_transtel.pdf. 102 ibid. 103 United States v Reza Zarrab US District Court 15 Cr 867 (SDNY 7 April 2017), Superseding Indictment. 104 United States v Reza Zarrab US District Court 15 Cr 867 (SDNY 16 June 2016), Decision and Order, 7. 105 ibid, 9.

276

INDEX Introductory Note References such as ‘178–79’ indicate (not necessarily continuous) discussion of a topic across a range of pages. Wherever possible in the case of topics with many references, these have either been divided into sub-topics or only the most significant discussions of the topic are listed. Because the entire work is about ‘sanctions’, the use of this term (and certain others which occur constantly throughout the book) as an entry point has been restricted. Information will be found under the corresponding detailed topics. 1718 regime 25–27 accountability 60, 87, 115 accounts, frozen 68, 76 actions for annulment 6, 37, 143, 147, 152, 154–57, 164, 167–68 actors 4, 21 acts of aggression 13, 27 administration, good 151, 189 Administrative Court 52, 152, 154, 161, 182–83, 185, 196, 270 administrative reconsideration 228–29, 231, 233–36, 238 requests for 228, 233–34 administrative record 229–30, 235, 237–38 unclassified 230, 236, 238 administrative remedies 235 administrative review 173, 191, 236 admissibility 205, 209–10, 212 Afghanistan 33, 130 aggression, acts of 13, 27 aircraft 39, 48, 86–87, 214, 220 ambiguities 13, 52, 69, 75, 206, 216–17, 222 American Cyanamid test 184–85 ammunition 48, 86, 97 annual reports 25–26, 87, 116, 141 annulment 145, 150, 155, 159–60, 164, 176–77 actions for 6, 37, 143, 147, 152, 154–57, 164, 167–68 appeals 145, 148, 153–54, 163, 172, 186–87, 189–90, 270 applicability 110, 175, 178, 182, 210 direct 192 arbitrariness 141, 206, 219, 222 armed conflicts 60, 93, 100 armed force 11, 13 arms embargoes 17–18, 20, 23, 28–29, 45, 48–49, 84–88, 127–30 general 128–30 targeted 128, 130–31

asset freezes 3, 17–18, 22–24, 79, 81, 127–31, 218, 243–45 assets 2, 17, 31, 47, 54, 153, 230–31, 235 financial 47, 218 assistance financial 45, 49, 52 humanitarian 120, 123 technical 49, 86–87, 89 authorisations 49, 76, 79–80, 91, 97, 116, 269 export 49, 88, 107, 269 import 97 automatic renewal 255–56 autonomous measures 19, 37, 44 autonomous sanctions 16, 19, 21, 36, 39, 60, 257, 260 balance of convenience 71, 177, 185 fair 188, 220 of probabilities 82–83, 190, 195 banks 113, 176–77, 179, 183–84, 188–89, 250, 261, 274–75 Iranian 175, 188 large multinational 169, 273 non-US 113–14, 273, 275 United States 253, 273, 275 basic needs licences 79 best endeavours 59, 173, 191, 203 best practices 40, 50–51, 55 bilateral sanctions 157–58 blocked persons 110, 116, 228, 231, 233 blocking statutes 108–9, 168–69 bombings 3, 30, 33, 127, 129 Bosphorus presumption 206, 208, 214–15, 220–21, 227 Brexit 36, 56–62, 65, 167, 192, 198, 201, 208 brokering 75, 89, 94–95, 260, 269–70, 272 burden of proof 150; see also onus of proof; standard of proof business relationships 68, 172, 187, 245 businesses 1, 8, 60, 63, 69–70, 74, 92, 241–71

278 Index capital punishment 89, 91 capricious decisions 120, 229, 236–38 case-by-case approach 230, 235, 238 case-by-case basis 47, 49, 119, 121, 138, 144, 223, 226 causal links 165–66 Central African Republic 34, 86–87, 111, 130 CFSP (Common Foreign and Security Policy) 35–40, 44–45, 52–53, 55, 61, 144–45, 152, 161–62 challenges to sanctions measures ECHR level 204–27 EU level 143–70 UK level 171–203 UN level 127–42 United States 228–39 chemical weapons 7, 68, 78, 172 China 19, 26, 168, 272 circumvention 51, 54, 72–73, 80, 264 citizenship 24, 127, 134–36, 138 civil enforcement 108, 122 civil penalties 83, 94–95, 99, 120–22, 267, 274 civil rights 204, 221 civil wars 33, 127 civilians 11, 28–29, 33, 60, 93, 270 CJEU, see European Court of Justice no claims clauses 50, 247–48 claims for damages 50, 165, 177–81, 198–201, 252 classified information 235, 237–38 closed material procedures 145, 162–63, 172, 175, 178, 180, 182, 190–91 comitology procedure 42–43 commercial contracts 244–45, 253 Commercial Court 200–1, 244, 247 committees, sanctions 23–26, 104, 106, 133–35, 138, 140–42, 179–80, 198 commodity interdictions 17–18 Common Foreign and Security Policy, see CFSP Common Military List 48, 86, 88, 98 companies 83, 113, 167, 169, 200–1, 246, 250, 271–72 non-US 113, 273 UK 71, 95, 262 United States 118–19, 273 company officers 82–83 compensation 50, 200, 229, 247 competences 35, 37–38, 46, 48–49, 86, 96, 103, 146 legislative 38–39, 104 competent authorities 45, 49, 70, 73, 77–78, 90–91, 98, 148 competing international obligations 194, 215–16, 218, 221, 227

compliance 121, 220–21, 246–47, 258–59, 265–66, 268, 270–72, 274 monitoring 52–53, 80, 109 sanctions 148, 167, 259, 261, 264, 266 systems 83, 273 compound penalties 95, 99, 271–72 comprehensive sanctions 26, 30, 132 comprehensive trade embargoes 2–3, 11–12, 22, 29, 108 confidential information 148, 163, 238 confidentiality 95, 138, 163 Congo 33, 128 consensus 4, 24, 40, 104, 112, 127–31, 137–39, 142 consent 22, 24, 82–83, 267 consequential losses 178, 201 constitutional protection 232, 234, 237 contracts 47, 50, 68, 76, 78, 273, 275 commercial 244–45, 253 prohibitions 244–46 and sanctions 243–56 contractual arrangements 47, 140, 246–47 contractual disputes 246–53 contractual obligations 50, 243, 246, 248–49, 253 control 47–48, 51, 73, 96, 99, 220, 253–54, 266 controls, export, see export controls convictions 81, 94–95, 99–100, 105, 204, 267 cooperation 35–37, 43–44, 121, 214 informal 22 international 37, 43, 214, 220 peaceful 11 corporate entities 46, 73, 122, 132 costs 62, 95, 200, 226, 259, 274 Côte d’Ivoire 33 countermeasures 1, 14–15 country of final destination 92–93, 270 coups, military 29, 33–34, 130 courts domestic 133–34, 151–52, 154, 174, 196, 199, 204, 210 English 101, 197–98, 200, 243–44, 247–48, 250, 252 European Union 52–54, 70, 142–46, 149–62, 164–65, 167–70, 181, 196 Swiss 218, 222 United States 120, 228, 231–32, 234–35, 237–38 CPS (Crown Prosecution Service) 67, 94–95, 260, 271 crime 69, 76, 106, 122, 204 criminal liability 114, 275 criminal offences 60, 63–64, 68, 70, 91, 205, 265, 267 criminal penalties 64–65, 81, 94–95, 99, 122, 257, 259

Index 279 Crown Prosecution Service, see CPS Cuba 169 customary international law 14–15 Da’esh 23, 128, 141 damage(s), non-material 165–67 damages 144, 148, 165–66, 171, 176, 178, 198–200, 226 claims for 50, 165, 177–81, 198–201, 252 decisions, re-listing 161, 184, 196 declaratory relief 178 defence, rights of 146, 157 deference 120, 230, 252 deferred prosecution agreements, see DPAs de-listing 24, 26, 31–32, 127–31, 133–42, 147, 151–52, 234 procedure 31, 135, 138, 142 process 31, 135, 141, 224 recommendations 133, 140 de-mining equipment 49 democracy 35–36, 60 deprivation of property 220, 234, 251 derogations 14, 49, 77–78, 97–99, 245 designated entities 149–50, 160, 244–45 designated individuals/persons 2–3, 46–47, 67–68, 71–75, 77–80, 228–33, 245–48, 261–65 designation decisions 6, 66, 172, 179–81, 229–31, 236, 238 designations 59–60, 66–67, 148–49, 186–87, 189–91, 228–31, 233–37, 239 judicial review 61, 229 sanctions 58–59, 61, 143, 181, 183, 228–29, 234–35, 237 destinations 85, 88, 92, 117, 269–70 embargoed 85, 89, 94, 118, 269 final 88, 92–93, 270 intended 85, 88, 92, 118 detention 213, 220, 225 diplomatic relations, severance 11, 18, 132 diplomatic sanctions 17–19 direct applicability 192 direct effect 39, 70, 87, 180, 246 direct implementation 58–59, 192, 194 disclosure 157–58, 175–76, 179, 182–84, 190, 199, 230, 238 selective 179, 199 voluntary 83 discretion 102, 105, 141, 162, 165, 229, 234, 236–37 disputes 28, 101, 141, 205, 211, 220 contractual 246–47, 249, 251 dollar-denominated transactions 258, 275 domestic courts 133–34, 151–52, 154, 174, 196, 199, 204, 210; see also individual countries domestic implementation 20, 100, 212, 222, 224 domestic judicial review 6, 221–22, 227

domestic legislation 5, 36, 39, 65, 85, 87, 191, 195 domestic remedies 204–5, 207, 210 domestic sanctions 66, 82, 167, 180, 186, 202, 227 DPAs (deferred prosecution agreements) 64, 82 dual-use items 48–49, 85, 87–91, 107, 269 due process 138, 141–42, 218, 229–31, 234–36, 238–39 ECHR rights 171, 184, 199–200, 217, 219, 223–24, 226–27 protection 204, 207–8, 215 ECJ, see European Court of Justice ECO (Export Control Organisation) 57, 84–85, 260, 268, 271 economic resources 45–47, 50, 67, 71, 78, 244, 247, 262–63 economic sanctions 84, 108–9, 111, 120, 159, 255 EEA nationals 104–5, 107 EEAS (European External Action Service) 35, 38, 41, 45, 257 effective implementation 21, 27, 36, 55, 258 effective judicial protection 51, 54, 73, 157, 163, 189, 222 effective judicial review 146, 174 effective remedies 193–94, 205, 221–22 effectiveness 140, 145, 162, 176, 185, 189, 259 embargoed destinations 85, 89, 94, 118, 269 embargoes 56, 106 arms, see arms embargoes trade, see trade, embargoes enclaves 224–25 enemy aliens 100–1 enforcement 36, 50, 80–81, 84, 248, 258, 267, 274 action 114, 121, 275 civil 108, 122 mechanisms 57, 64 and penalties 80, 94, 99, 120, 267 powers, new 81, 258, 267 sanctions 4, 45, 57, 69, 80, 109, 257, 267 English courts, see United Kingdom, courts enjoyment, peaceful 193, 205, 208, 214, 220 entities 23–26, 30–31, 50, 73, 78–80, 138–39, 166–69, 262–64 corporate 46, 73, 122, 132 designated 149–50, 160, 244–45 listed 69, 75, 139, 149, 159 non-designated 263, 274 non-US 114, 273 Russian 75, 195 equipment 48–49, 86, 90 de-mining 49 military 25, 48–49, 85, 88, 98, 206, 208, 215 non-lethal 49 paramilitary 48, 86 equivalent protection 140, 206, 208, 215, 221

280 Index Eritrea 33, 127 error 148–49, 156–58, 160, 165, 238 material 178, 188 European Commission 22, 38, 40, 42, 45, 57, 143 European Court of Human Rights 1, 6–7, 58, 61, 200, 202–4, 206–9, 219 European Court of Justice 47, 51–54, 72, 143–50, 152–55, 157–63, 165, 195–96 European External Action Service, see EEAS European Union challenges to sanctions measures 143–70 Commission 22, 38, 40, 42, 45, 57, 143 Court of Justice 47, 51–54, 72, 143–50, 152–55, 157–63, 165, 195–96 courts 52–54, 70, 142–46, 149–62, 164–65, 167–70, 181, 196 damages claims 165–67 essential principles 156–62 European External Action Service 35, 38, 41, 45, 257 future 167–70 High Representative 35, 39, 41, 44 Political and Security Committee (PSC) 40–41 preliminary issues 154–55 procedural issues 162–65 RELEX 40–43, 61 sanctions 35–55, 61–62, 70, 151–53, 167, 169, 176–77, 202 amending and updating 41–43 content and interpretation 45–55 financial 65 legal basis 36–44 mechanics of sanctions implementation/ legislative process 39–41 timing of applications to General Court 155–56 evidence 145–49, 151, 157–58, 160, 164, 166, 228–30, 234–36 new 146, 158–59 exceptional circumstances 28, 178, 201, 226 exemptions 23–25, 49, 76, 119–20, 210 humanitarian 135 exhaustion of domestic remedies 210 experts 25–26, 128–31, 135 groups 25, 128–29 export authorisations 49, 88, 107, 269 Export Control Organisation, see ECO export controls 57, 85–87, 90, 94–95, 99, 117, 260 compliance obligations 270–71 penalties and enforcement 271–72 strategic 260, 268 United Kingdom 268–72 export licences 84, 90, 92–93, 270–71 export restrictions 2, 45, 49, 84–85, 89, 94, 97, 270 exporters 89–90, 92, 95, 117, 269 extra-territoriality 8, 71, 108–9, 114–15, 169, 259

FAC (Foreign Affairs Council) 37, 40–41 facilitation 117–18, 264 fair balance 188, 220 fair hearing 208, 221 fair trial 145, 204 right to 145, 204 fairness 137, 189 family life 188, 205, 208, 223–24 FATF (Financial Action Task Force) 21–22, 57 FCA (Financial Conduct Authority) 176, 259, 265–66, 268 FCO (Foreign and Commonwealth Office) 56, 87 final decisions 83–84, 119, 134, 155, 165, 205, 211, 235–36 final destination 88, 92–93, 270 Financial Action Task Force, see FATF financial assets 47, 218 financial assistance 45, 49, 52 Financial Conduct Authority, see FCA financial guarantees 50, 248 financial indemnities 50, 248 financial institutions 2, 63, 67, 115–16, 161, 259, 265, 273–75 financial restrictions 46, 49, 66, 68, 172, 175, 177, 190 financial sanctions 46–48, 62–67, 69–71, 73–77, 79–84, 101–3, 243–44, 260–63, 265–68 basic prohibitions 71–73, 262–64 compliance 259, 261 compliance obligations 266–67 domestic 66–69 EU 65 EU-derived 76, 81 exemptions and licensing 76 implementation 64, 80–81, 261, 264 international 65 interpretation 69–70 jurisdiction 70–71 law/legislation 63, 70–71, 83, 257, 264, 266 notification requirements 73–74 ownership and control 73 penalties and enforcement 267–68 private sector implementation 261–68 reporting obligations 264–66 targeted 22, 25, 57, 257 UN 65 unilateral 66 United Kingdom 62–84 United States 116 financial sector 45, 68–69, 187, 245 financial services 45, 74, 109, 129, 266, 275 financial systems 22, 57, 113, 169, 274–75 financing 23, 52, 84, 87, 117–18, 274 terrorist 22, 57, 62, 68, 172, 259, 266, 268 fines 109, 267, 272

Index 281 flag vessels 48, 86–87 flow charts 41, 43, 136, 139 Focal Point 24, 31–32, 127–31, 133–37, 141–42 force 47–48, 55–56, 64–67, 99–101, 180–82, 186, 244–46, 260–62 armed 11, 13 Foreign Affairs Council, see FAC Foreign and Commonwealth Office, see FCO foreign policy 35–38, 43–44, 60–61, 109–10, 198, 230–31, 236, 239 goals 19, 108, 234 Foreign Policy Instruments, see FPI foreign subsidiaries 114, 118, 258, 262, 273 Foto-Frost principle 174, 196–97 FPI (Foreign Policy Instruments) 7, 42–43, 45, 52 France 19, 28, 59, 168, 212 freedoms 146, 159, 204–5, 211, 225–26 fundamental 14, 92, 141, 222, 270 freezes, asset 3, 17–18, 22–24, 79, 81, 127–31, 218, 243–45 freezing orders 69 front-line actors 257 frozen accounts 68, 76 frozen funds 50, 78 frustration 244, 248–51, 253 fundamental freedoms 14, 92, 141, 222, 270 fundamental rights 153, 156–57, 159, 187–88, 193, 207, 213–14, 220 disproportionate restriction 157, 159 protection 155, 206, 214, 220 general application 53, 144, 150, 152, 162 general interest 146, 159, 205, 220 general licences 76, 79, 91, 119, 271 general principles 53, 77, 153, 157, 199, 213, 220, 251 of international law 16, 205, 213, 220 of interpretation 54 good administration 151, 189 good faith 20, 50, 83, 247, 255 goods 48–49, 84–85, 87–89, 91–92, 94–99, 114, 117–18, 269 luxury 25, 129 seizures 271–72 US-origin 114, 117–18 Greece 200 groups of experts 25, 128–29 guarantees, financial 50, 248 guidelines 24–25, 51, 55, 80, 119, 122, 200 Guinea-Bissau 34, 130 Haiti 3, 29 harm 83, 121, 166 irreparable 164, 185, 213 harmonisation 36, 44, 90, 227

Her Majesty’s Revenue and Customs, see HMRC hierarchy of norms 15, 215–19, 224 HMRC (Her Majesty’s Revenue and Customs) 80, 94–96, 99, 260, 268, 271 Home Office 57, 102–5, 184, 188, 190 human rights 6–7, 35, 37, 58, 60–61, 199–200, 202–27, 251 fundamental 16 jurisdictional issues 209 protection 37, 141, 208 humanitarian assistance 120, 123 humanitarian exemption 135 humanitarian law, international 60, 92–93, 270 IAEA (International Atomic Energy Agency) 21, 168 ILB (Import Licensing Branch) 57, 84, 96, 98–99 illegality 2, 186, 196, 243–44, 248, 250–51 implementation 7–8, 20–21, 23–26, 40–44, 57–58, 63–65, 194–98, 217–19 direct 58–59, 192, 194 domestic 20, 100, 212, 222, 224 effective 21, 27, 36, 55, 258 financial sanctions 80–81, 261, 264 private sector 257–75 UN sanctions 20–21 implementing powers 41–42 import 3, 29, 45, 57, 84–85, 87, 95–100, 190 import authorisations 97 Import Licensing Branch, see ILB import restrictions 45, 84, 96, 98–99 importers 84, 96–98 imprisonment 60, 81–82, 94–95, 99–101, 110, 267, 271–72, 275 indemnities, financial 50, 248 indemnity 50, 247–48 independence 29, 31–32, 37, 133, 140–41 independent judicial forum 132–33 indictment 81, 94–95, 99–100, 272, 275 individual rights 145–46, 202 individuals, designated 2–3, 46–47, 67–68, 71–75, 77–80, 228–33, 245–48, 261–65 informal cooperation 22 information 67–68, 73–74, 138–39, 162–63, 183, 228–30, 233–34, 237–38 classified 235, 237–38 confidential 148, 163, 238 relevant 24, 120, 142, 210 sufficient 149, 158, 166, 176, 184 torture-tainted 179 unclassified 234–35 insurers 254–56 intended destination 85, 88, 92, 118 interdictions, commodity 17–18

282 Index interference 188, 208, 213–14, 219–20, 223–24 intolerable 146, 159 relevant unlawful 178, 201 interim relief 164, 173, 176–77, 184–85 international cooperation 37, 43, 214, 220 international financial sanctions 65 international humanitarian law 60, 92–93, 270 international law competing obligations 194, 215–16, 218, 221, 227 customary 14–15 general principles 16, 205, 213, 220 international obligations 4–5, 11–12, 20–21, 85–87, 92, 102–3, 180, 215–17 competing 194, 215–16, 218, 221, 227 international organisations 2, 4, 208, 214, 220, 244, 254, 257 international peace 12, 20, 56, 60, 84, 148, 212, 222 interpretation 22–23, 25, 35–36, 45, 51–54, 115–17, 152, 205–7 EU instruments setting out restrictive measures 51–54 financial sanctions 69–70 general principles 54 Security Council resolutions 27–28 interruption 39, 251 partial 11, 13, 132 intolerable interference 146, 159 Iran 31, 68, 114, 145–46, 168–69, 187–88, 229–30, 274–75 banks 175, 188 Iraq 18, 29, 32–33, 100–1, 128, 216, 222, 267 Ireland 206, 214, 220–21 irreparable harm 164, 185, 213 ISIL (Islamic State in Iraq and the Levant) 23–24, 41–42, 127–28, 141 Islamic State in Iraq and the Levant, see ISIL JCPOA (Joint Common Plan of Action) 31–32, 109, 114, 168, 274 judicial protection 132, 140, 142, 206, 208, 215, 218, 222 effective 51, 54, 73, 157, 163, 189, 222 judicial review 59–61, 151–54, 171–76, 182–83, 186, 218–19, 228–33, 236–37 designations 61, 229 of designations 61, 229 domestic 6, 221–22, 227 effective 146, 174 United States 236–39 jurisdiction 21–22, 52–53, 112–13, 150, 153–54, 161–62, 204–5, 209–11 EU courts 52–53, 150 financial sanctions 70–71 multiple 6, 258 ratione loci 211, 213

ratione materiae 211–13 ratione personae 211–12 ratione temporis 211, 213 United States 113 jurisprudence 51, 70, 72, 76, 157, 167, 171, 202; see also Table of Cases Kenya 3, 30, 127 Kuwait 29, 32 language 139, 193, 217–18, 236, 253 lawfulness 15, 146, 153, 157–58, 160, 175, 180 Lebanon 33, 129 legal advice 77–78, 263, 272 legal basis 109, 111, 113, 147, 158–59 EU sanctions 36–44 UN sanctions 12–22 United States sanctions 109–15 legal frameworks 15, 36, 106, 108, 180, 203 legal persons 46, 50, 53, 143, 152, 154, 244, 247 legality 14–16, 50, 52–53, 176, 179, 197, 199, 202 principle 58–59, 143, 174, 193–95 legislation 5, 64–65, 67, 97–98, 143–45, 171–73, 204–5, 227–29; see also Table of Legislation primary 5, 56, 59, 64, 66, 174, 180 secondary 5, 59–60, 64–65, 74, 81–82, 89–90, 192, 195 legislative competence 38–39, 104 legislative process 36, 39, 44 liability 49–50, 63, 77, 166, 246–47, 249, 273 criminal 114, 275 non-contractual 144, 148, 165 potential 80, 118 secondary 264 strict 94 Liberia 33 liberty 184, 204, 224–25, 229 Libya 18, 28, 33, 129, 169 licences 68, 76–80, 85, 91–93, 96–98, 119, 250–52, 263 basic needs 79 export 84, 90, 92–93, 270–71 financial sanctions 76–77, 80 general 76, 79, 91, 119, 271 licensing 76–79, 91, 98–99, 107, 110, 119–20, 270 policy 119–20 regimes 68, 96, 250, 260, 269 listed entities 69, 75, 139, 149, 159 listed individuals 135, 222 listed persons 3, 47, 138, 167, 207, 217 listing 23–24, 31–32, 132–34, 136–39, 147–50, 155–57, 160, 174, 222–23 reasons for 24, 32, 136, 148–49, 162 lists, sanctions 7, 20, 23–25, 31, 59, 130, 135, 141 local subsidiaries 71, 262

Index 283 losses 165–66, 177–79, 199, 201 consequential 178, 201 reflective 178, 200 luxury goods 25, 129 majority-owned subsidiaries 114, 273 manifest error of assessment 148, 156–57, 160 material damage 148, 166–67 maximum sentences 60, 95, 99–101, 271 military coups 29, 33–34, 130 military equipment 25, 48–49, 85, 88, 98, 206, 208, 215 military purposes 39, 48, 85 military vehicles 48, 86 monetary penalties 80–81, 83, 106, 121 civil 121–22 money laundering 6, 56–57, 68, 172–73, 182, 259–60, 266–68 monitoring compliance 52–53, 80, 109 teams 20–21, 23, 25 multilateral sanctions 4, 64–65, 108, 180–81, 185, 189, 191–98 national authorities 4, 36, 57, 87, 90–91, 101, 257–58, 264 competent 148, 223, 265 national emergencies 111–12 national interests 68–69, 172, 187 national security 57, 60, 93, 102, 109, 224, 230–31, 236–39 natural persons 158 negligence 50, 247 NGOs (non-governmental organisations) 106, 120, 123, 205, 260 non-contractual liability 144, 148, 165 non-designated entities 263, 274 non-EEA nationals 104–5 non-lethal equipment 49 non-liability clauses 50, 246–47 non-listed persons 47 non-material damage 165–67 non-state actors 11, 37, 56 non-US banks 113–14, 273, 275 non-US businesses 108, 258, 272–75 non-US companies 113, 273 non-US entities 114, 273 non-US persons 113–15, 232, 272–75 no-objection procedure 135–36 normative conflict 207, 214, 216, 218 normative hierarchy, see hierarchy of norms North Korea 6–7, 17–18, 25–27, 98–99, 103, 109, 111, 269 notice 116, 121–22, 156, 229–30, 234–35, 255–56, 265, 271

notification requirements 73–74, 79 notifications 23, 80, 93, 143–45, 154–56, 234, 270 nuclear proliferation 68, 103, 147–50, 162, 168–69, 183, 187 nuclear weapons 26, 31, 69, 90, 187 obligations competing 194, 206, 214–16, 221 conflict of 13, 206, 216, 222 contractual 50, 243, 246, 248–49, 253 human rights 4, 14 procedural 234, 237 reporting 65, 116, 264–66 to state reasons 149, 157–58 offences 67–68, 82, 93–95, 99–101, 105, 267, 269, 271 OFSI (Office of Financial Sanctions Implementation) 63–64, 69, 71–73, 75–81, 83–84, 258, 262–65, 267 OGELs (Open General Export Licences) 92 OGILs (Open General Import Licences) 96–98 OIELs (Open Individual Export Licences) 92 oil 18, 147, 169 Ombudsperson 1, 6, 24, 31, 127–28, 133–34, 137–42 omissions 205, 211, 255 onus of proof 50, 160, 166, 248 Open General Export Licences, see OGELs Open General Import Licences, see OGILs Open Individual Export Licences (OIELs) 92 opportunity to be heard 139, 175, 189, 229, 234–36 Orders in Council 58, 171, 174 ownership 51, 73, 100 and control 51, 73 indirect 73 minority 118 public 3 parallel international proceedings 210–11 parallel proceedings 143, 171, 181, 196, 228 paramilitary equipment 48, 86 partial interruption 11, 13, 132 peace 12–13, 27, 35, 37, 131 international 12, 20, 56, 60, 84, 148, 212, 222 peaceful enjoyment 193, 205, 208, 214, 220 penalties 1, 45, 64–65, 81, 83–84, 204–5, 267–68, 271–72 amounts 83–84, 121–22 civil 83, 94–95, 99, 120–22, 267, 274 compound 95, 99, 271–72 criminal 64–65, 81, 94–95, 99, 122, 257, 259 and enforcement 80, 94, 99, 120, 267 maximum 83 monetary 80–81, 83, 106, 121 Penalty Notices 121–22

284 Index petitioners 136, 138–39, 229–30, 232–36, 238–39 petitions 127, 134–35, 139, 229, 233 Political and Security Committee (PSC) 40–41 possessions 177, 201, 205, 214, 220 powers enforcement 81, 258, 267–68 implementing 41–42 sanctions-making 57, 59–60, 109, 186, 191 statutory 4, 175, 189 preliminary rulings 35, 52–54, 143–44, 151–52, 154, 195 Pre-Penalty Notices 121–22 presumptions 20, 63, 149, 206, 214–17, 222 Bosphorus 206, 208, 214–15, 220–21, 227 primacy 112, 153, 207 primary legislation 5, 56, 59, 64, 66, 174, 180 private sector implementation of sanctions 257–75 probabilities, balance of 82–83, 190, 195 procedural obligations 234, 237 procedural rights 14, 154, 160 procedures, compliance 261, 270–71 process rights 138, 142, 229, 234, 236, 238 process violations 230, 235, 238–39 proof burden of 150 onus of 50, 160, 166, 248 standard of 67, 82, 179, 194–95 property 17, 101, 110–11, 116, 216, 219–20, 229, 232 deprivation 220, 234, 251 peaceful enjoyment 193, 220 use 205, 220 proportionality 16, 144, 150, 162, 175, 187–90, 213, 220–24 prosecutions 67, 94–95, 100, 105, 267, 269, 271–72, 275 protection 37, 48, 206–7, 215, 220–21, 223, 225, 232 constitutional 232, 234, 237 of ECHR rights 204, 207–8, 215 equivalent 140, 206, 208, 215, 221 of fundamental rights 155, 206, 214, 220 of human rights 37, 141, 208 public authorities 95, 171, 197, 199, 252 public interest 94, 187, 205, 214, 220, 223, 252 public policy 100, 105, 252 Al-Qaida 23–24, 33, 41–42, 79, 81, 127, 133, 137 reason to know 117–18 reasonable person 63, 253 reasonable time 152, 204, 251 reasons obligation to state 149, 157–58 statement of 147, 149, 158–60, 234–35

substantiated 156, 160 unsubstantiated 157, 160 recommendations 22, 55, 57, 133, 136–37, 139, 141, 143 re-exportation of US-origin goods 114, 117 reflective losses 178, 200 re-insurers 254 relevant information 24, 120, 142, 210 RELEX 40–43, 61 relief 171, 177, 184–85, 192, 196, 248 declaratory 178 interim 164, 173, 176–77, 184–85 re-listing 161, 163–64, 177, 196 decisions 161, 184, 196 of individuals 164 remedies administrative 235 domestic 204–5, 207, 210 effective 193–94, 205, 221–22 repayment 245, 250–51 reporting obligations/requirements 65, 116, 264–66 reports, annual 25–26, 87, 116, 141 reputation 95, 148, 166–67 residence 103, 127–31, 136, 138, 209, 225, 255 state of 24, 134, 224, 226 resources, economic 45–47, 50, 67, 71, 78, 244, 247, 262–63 respondent states 206, 209–14, 217–21, 224–26 restrictive measures 23–25, 38–40, 42, 45–46, 48–55, 145–47, 155–60, 162–68 effective implementation 36, 55 imposition 147–48, 156–58, 160 review 52–53, 152–53, 156–58, 160–62, 172–73, 191, 206–9, 236–37 administrative 173, 191, 236 deferential 236 of de-listing requests 135–36 judicial, see judicial review substantive 175, 214, 222 Rhodesia 29, 32 rights 146, 159–60, 171, 187–88, 204–5, 207–9, 219, 223–25 of defence 146, 157 due process 138, 142, 229, 234, 236, 238 ECHR 171, 184, 199–200, 217, 219, 223–24, 226–27 to a fair trial 145, 204 fundamental, see fundamental rights human, see human rights individual 145–46, 202 procedural 14, 154, 160 to respect for private and family life 205, 208 Russia 3, 19, 21, 28–29, 61, 98, 104, 110

Index 285 sanctions, see also Introductory Note autonomous 16, 19, 21, 36, 39, 60, 257, 260 bilateral 157–58 challenges to 127–28, 142–44, 150–54, 170–72, 178–84, 200–2, 204, 226–28 clauses 253–56 committees 23–26, 104, 106, 133–35, 138, 140–42, 179–80, 198 comprehensive 26, 30, 132 and contracts 243–56 definition 1–4 designations 58–59, 61, 143, 181, 183, 228–29, 234–35, 237 diplomatic 17–18 domestic 66, 82, 167, 180, 186, 202, 227 economic 84, 108–9, 111, 120, 159, 255 financial, see financial sanctions implementation 5, 8, 25, 36, 38, 180, 215, 250 imposition 27, 62, 104, 162, 208, 245–46, 251 multilateral 4, 64–65, 108, 180–81, 185, 189, 191–98 policy 12, 35–37, 56, 58, 61–62, 168–69, 257, 260 post-Brexit 60, 227 private sector implementation 257–75 programs 7, 109–11, 114–19, 123, 234, 273 regimes 6–7 risks 63, 254, 256, 264 secondary 115 smart 3, 22, 30, 132 targeted 3, 7, 17–18, 127, 141–42, 169–70, 207–8, 226–27 trade 2–3, 84–87, 89, 91, 93, 95, 97, 99 unilateral 4–5, 57–58, 61–62, 112, 114, 180–81, 186–87, 189 United Kingdom 56–107, 115, 202, 227 United States 5, 8, 108–23, 231–32, 238, 246, 253, 272–75 sanctions-making powers 57, 59–60, 109, 186, 191 Saudi Arabia 93, 270 SCPOs (serious crime prevention orders) 64, 82 SDNs (Specially Designated Nationals) 110, 112, 116, 123, 230–31 secondary legislation 5, 59–60, 64–65, 74, 81–82, 89–90, 192, 195 secondary sanctions 115 securities, transferable 3, 45, 52, 75 security 48–49, 93, 145, 148, 162–63, 204, 212, 222 national 57, 60, 93, 102, 109, 224, 230–31, 236–39 Security Council 11–17, 19–20, 22–23, 25–31, 127–32, 134–35, 137–40, 215–17 resolutions 4–7, 13–15, 19–25, 27–31, 43–44, 137–38, 191–94, 216–18; see also Table of Legislation interpretation 27–28

selective disclosure 179, 199 sensitive material 145, 163, 183 sentences, maximum 60, 95, 99–101, 271 serious crime prevention orders, see SCPOs Serious Fraud Office (SFO) 80 severance of diplomatic relations 11, 18, 132 SFO (Serious Fraud Office) 80 shareholders 47, 200–1 SIELs (Standard Individual Export Licences) 92 smart sanctions 3, 22, 30, 132 software 88, 262 Somalia 33, 127 sources of law 2, 4–5, 261, 265 South Africa 29, 32, 252 South Sudan 34, 131 Specially Designated Nationals (SDNs) 110, 112, 116, 123, 230–31 SPIRE 91–92 Standard Individual Export Licences (SIELs) 92 standard of proof 67, 82, 179, 194–95 standing 154–55, 167, 182, 192, 207, 209, 211 state actors 56 state of residence 24, 134, 224, 226 statement of case 24, 135–36 statement of reasons 147, 149, 158–60, 234–35 statutory powers 4, 175, 189 Strategic Export Control Lists 85, 88–89, 91, 107 strict liability 94 subsidiaries 51, 72, 114, 116, 118, 177–79 foreign 114, 118, 258, 262, 273 local 71, 262 majority-owned 114, 273 subsidiarity 204, 207, 210 substantive review 175, 214, 222 Sudan 33, 117–18, 123, 128–29 South 34, 131 sufficient information 149, 158, 166, 176, 184 suspicion 63, 74, 148, 166, 190, 265 Switzerland 58, 61, 206, 208, 210, 215, 217–18, 221–26 courts 218, 222 Syria 45, 48, 74–75, 81, 90, 98, 104, 263–64 Taliban 17, 30, 33, 130, 174, 193 Tanzania 3, 30, 127 targeted arms embargoes 128, 130–31 targeted financial sanctions 22, 25, 57, 257 targeted sanctions 3, 7, 17–18, 127, 141–42, 169–70, 207–8, 226–27 technical assistance 49, 86–87, 89 technology 48, 88, 114, 117, 147 terrorism 16, 22, 57, 60, 62, 66, 93, 102

286 Index terrorist activity/acts 33, 66, 130, 172, 186, 190, 237 terrorist attacks 30, 34, 127, 130 terrorist financing 22, 57, 62, 68, 172, 259, 266, 268 terrorist organisations 146, 190, 229, 239 third countries 39, 85, 89, 94, 114, 117–18, 260, 269 third parties 47, 72, 263 threats 12–13, 26–28, 30, 62, 67, 69, 148, 153 times of war 100, 111 timing 121, 155, 211 torture 15, 89–91, 97, 179, 198, 204, 213 trade 3, 45, 48, 91, 96, 101, 254–55, 260 controls 89, 269 embargoes 244 comprehensive 2–3, 11–12, 22, 29, 108 sanctions 2–3, 84–87, 89, 91, 93, 95, 97, 99 transaction controls 115, 117 transactions 48–51, 71–72, 76–77, 116–20, 148, 199, 262–63, 273–75 dollar-denominated 258, 275 transferable securities 3, 45, 52, 75 transit 18, 49, 103–4, 217, 226, 269 transparency 22, 87, 134, 137, 234 transshipments 117–18, 123 travel bans 3, 12, 17–18, 24–25, 30, 49, 101–5, 127–32 UAE (United Arab Emirates) 16 UK, see United Kingdom Ukraine 3, 21, 61, 75, 98, 261 unclassified administrative record 230, 236, 238 unilateral sanctions 4–5, 57–58, 61–62, 112, 114, 180–81, 186–87, 189 United Arab Emirates (UAE) 16 United Kingdom 56–71, 84–89, 91–107, 179–82, 192–98, 200–3, 260–64, 266–70 Administrative Court 52, 152, 154, 161, 182–83, 185, 196, 270 Border Force 57, 102 challenges to designations under CTA 2008 187–89 challenges to designations under SAMLA 2018 191 challenges to designations under TAFA 2010 189–91 challenges to manner in which international measures are implemented 192–96 challenges to UK contribution to international decision-making 196–98 companies 71, 95, 262 courts 56–71, 84–89, 91–107, 179–82, 192–98, 200–3, 260–64, 266–70 damages 198–201

disclosure 199 export controls 268–72 FCA (Financial Conduct Authority) 176, 259, 265–66, 268 future 201–3 government 56, 60, 65–66, 80, 88, 179, 186, 196 HMRC (Her Majesty’s Revenue and Customs) 80, 94–96, 99, 260, 268, 271 penalties and enforcement 267–68, 271–72 preliminary issues 181–85 sanctions 56–107, 115, 202, 227 Secretary of State for International Trade 87, 93, 96, 270 Strategic Export Control Lists 85, 88–89, 91, 107 United Nations 11, 20, 28, 37, 102, 153, 215, 222 challenges to sanctions measures 127–42 Ombudsperson 1, 6, 24, 31, 127–28, 133–34, 137–42 sanctions 4–7, 11–34, 58–59, 131–37, 142, 193–94, 202–3, 224 aim 11 content and interpretation 22–28 establishment of regimes 19 financial 65 future 140–42 history 29–34 implementation of sanctions measures 20–21 interaction with other institutions 21–22 in international law 12–17 legal basis 12–22 review 134–40 types of measures 17–19 Security Council, see Security Council United States 4, 7, 21, 28–30, 108, 110–17, 168–69, 272–75 administrative reconsideration 228–29, 231, 233–36, 238 banks 253, 273, 275 challenges to sanctions measures 228–39 companies 118–19, 273 constitutional protection 232, 234, 237 courts 120, 228, 231–32, 234–35, 237–38 essential principles 233–39 extra-territoriality 8, 71, 108–9, 114–15, 169, 259 Government 67, 120, 122, 234 implementation of international measures 112–13 judicial review 236–39 jurisdiction 113

Index 287 persons 110, 113–14, 116–18, 232, 273–75 preliminary issues 231–33 sanctions 5, 8, 108–23, 231–32, 238, 246, 253, 272–75 content and interpretation 115–23 legal basis 109–15 for non-US businesses 272–75 transaction controls 115, 117 transshipments 117–18, 123 unlawfulness 155, 177, 181, 199 domestic 197 prospective 199 unsubstantiated reasons 157, 160 US, see United States US-origin goods 114, 117–18

violations 113–14, 120–22, 205–6, 208, 216, 226, 238, 274–75 alleged 209, 211–12, 223 apparent 80, 120–22 process 230, 235, 238–39 sanctions 64, 80, 109, 113, 121, 272–73, 275

validity 143–44, 152, 154, 156, 158, 173–74, 180, 195–96 victims 171, 178–79, 187, 198, 201, 205, 209, 225

Yemen 34, 93, 130, 270 Yugoslavia, former 3, 214

war civil 33, 127 crimes 102, 105 times of 100, 111 weapons 17–18, 28, 48, 60, 68, 84, 86, 94 chemical 7, 68, 78, 172 of mass destruction 26, 57, 88, 269 nuclear 26, 31, 69, 90, 187

Zuckerfabrik test 173, 176, 185