Research Handbook on Unilateral and Extraterritorial Sanctions 1839107847, 9781839107849

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RESEARCH HANDBOOK ON UNILATERAL AND EXTRATERRITORIAL SANCTIONS

RESEARCH HANDBOOKS IN INTERNATIONAL LAW This highly original series offers a unique appraisal of the state-of-the-art of research and thinking in international law. Taking a thematic approach, each volume, edited by a prominent expert, covers a specific aspect of international law or examines the international legal dimension of a particular strand of the law. A wide range of sub-disciplines in the spheres of both public and private law are considered; from international environmental law to international criminal law, from international economic law to the law of international organisations, and from international commercial law to international human rights law. The Research Handbooks comprise carefully commissioned chapters from leading academics as well as those with an emerging reputation. Taking a genuinely international approach to the law, and addressing current and sometimes controversial legal issues, as well as affording a clear substantive analysis of the law, these Research Handbooks are designed to inform as well as to contribute to current debates. Equally useful as reference tools or introductions to specific topics, issues and debates, the Research Handbooks will be used by academic researchers, post-graduate students, practicing lawyers and lawyers in policy circles. Titles in this series include: Research Handbook on Feminist Engagement with International Law Edited by Susan Harris Rimmer and Kate Ogg Research Handbook on Child Soldiers Edited by Mark A. Drumbl and Jastine C. Barrett Research Handbook on the European Union and International Organizations Edited by Ramses A. Wessel and Jed Odermatt Research Handbook on International Refugee Law Edited by Satvinder Singh Juss Research Handbook on International Law and Terrorism Edited by Ben Saul Research Handbook on International Law and Social Rights Edited by Christina Binder, Jane A. Hofbauer, Flávia Piovesan and Amaya Úbeda de Torres Research Handbook on Post-Conflict State-Building Edited by Paul R. Williams and Milena Sterio Research Handbook on the Theory and History of International Law Edited by Alexander Orakhelashvili Research Handbook on International Law and Cities Edited by Helmut Philipp Aust and Janne E. Nijman with Miha Marcenko Research Handbook on Unilateral and Extraterritorial Sanctions Edited by Charlotte Beaucillon

Research Handbook on Unilateral and Extraterritorial Sanctions Edited by

Charlotte Beaucillon Professor of Law, Faculty of Legal, Political and Social Sciences, University of Lille, France

RESEARCH HANDBOOKS IN INTERNATIONAL LAW

Cheltenham, UK • Northampton, MA, USA

© The Editor and Contributors Severally 2021

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number: 2021939211 This book is available electronically in the Law subject collection http://dx.doi.org/10.4337/9781839107856

02

ISBN 978 1 83910 784 9 (cased) ISBN 978 1 83910 785 6 (eBook)

For Olympe, a marvel born at the same time as this project; Yann, my uncompromising support; Elisa and Jonas, beautiful trajectories in the making That in your eyes, everything be possible.

Contents

List of contributorsx Acknowledgementsxv List of abbreviationsxvii 1

An introduction to unilateral and extraterritorial sanctions: definitions, state of practice and contemporary challenges Charlotte Beaucillon

PART I

1

CONTEMPORARY STATE PRACTICE

2

Unilateral and extraterritorial sanctions in crisis: implications of their rising use and misuse in contemporary world politics Erica Moret

19

3

South Africa’s position and practice with regard to unilateral and extraterritorial coercive sanctions Hennie Strydom

37

4

From pessimism to accommodation: India’s stand and practice on unilateral sanctions  Rishika Chauhan

55

5

China’s position and practice concerning unilateral sanctions Congyan Cai

70

6

Unilateral and extraterritorial sanctions policy: the Russian dimension Ivan N. Timofeev

90

7

The European Union’s position and practice with regard to unilateral and extraterritorial sanctions Charlotte Beaucillon

8

The US position and practice with regards to unilateral and extraterritorial sanctions: reimagining the US sanctions regime in a world of advanced technology Zachary Goldman and Alina Lindblom

PART II 9

110

130

REGIME UNDER INTERNATIONAL LAW

Articulating UN sanctions with unilateral restrictive measures Jean-Marc Thouvenin

vii

149

viii  Research handbook on unilateral and extraterritorial sanctions 10

Unilateral/extraterritorial sanctions as a challenge to the theory of jurisdiction Yann Kerbrat

165

11

Unilateral sanctions as a challenge to the law of state responsibility  Alexandra Hofer

186

12

Unilateral and extraterritorial sanctions and international investment law Sabrina Robert-Cuendet

204

13

Contemporary blocking statutes and regulations in the face of unilateral and extraterritorial sanctions Daniel Ventura

221

14

Challenging unilateral and extraterritorial sanctions under international economic law: exploring leads at the WTO and the OECD Lena Chercheneff

239

PART III IMPACT ON ECONOMIC OPERATORS 15

Corporations and US economic sanctions: the dangers of overcompliance  Emmanuel Breen

256

16

Embedded extraterritoriality: US judicial litigation and the global banking surveillance of digital money flows Grégoire Mallard and Anna Hanson

270

17

Using extraterritorial sanctions in the fight against financial crime in Latvia: from silver lining to over compliance  Ilze Znotiņa and Paulis Iļjenkovs

288

18

Resisting from the bench: an overview of French and UK courts’ jurisprudence on unilateral and extraterritorial sanctions Marjorie Eeckhoudt

306

19

International bank settlement in China and unilateral sanctions-related disputes: sources, remedies and procedures  Jin Sun

323

20

Unilateral sanctions through an international arbitration lens: procedural and substantive issues  Eric De Brabandere and David Holloway

342

PART IV IMPACT ON HUMAN RIGHTS 21

Unilateral sanctions as unilateral coercive measures: discussing coercion at the UN level Pierre-Emmanuel Dupont

366

Contents  ix 22

From targeted states to affected populations: exploring accountability for the negative impact of comprehensive unilateral sanctions on human rights  385 Ioannis Prezas

23

Due process and unilateral targeted sanctions Anton Moiseienko

24

The right to be protected from the criminal enforcement of extraterritorial sanctions: lessons learned from the Huawei case Muriel Ubéda-Saillard

25

Horizontal sanctions regimes: targeted sanctions reconfigured?  Clara Portela

405

424 441

Index458

Contributors

Charlotte Beaucillon is Professor of International and EU Law at the University of Lille and co-Director of the Master 2 in ‘International Criminal Justice’. She holds a PhD from the European University Institute and was previously Associate Professor at the Sorbonne Law School (Paris 1). Specializing in international law and EU external action law, she headed the COMPLY 2018–2020 research project on unilateral and extraterritorial sanctions and authored various publications in the field. Since 2018, she has been a member of the editorial board of the European Papers - European Forum online journal. Emmanuel Breen is Associate Professor at Sorbonne University, the founder of the ‘compliance officer’ diploma at University Paris II Panthéon-Assas, and also teaches a course in criminal law at Sciences-Po Paris. Emmanuel Breen is a senior counsel at Laurent Cohen-Tanugi Avocats, where he specializes in anti-corruption, economic sanctions and corporate compliance. He graduated from the Ecole Normale Supérieure (Ulm), holds a Masters in Criminal Law (Paris 1), and a PhD in public law (Paris Sud). Congyan Cai is Professor of International Law at Fudan University. His teaching and research fields cover public international law, international investment law and Chinese international law. He recently authored The Rise of China and International Law (OUP, 2019) and co-authored The BRICS in the New International Legal Order on Investment (Brill, 2020). He was a Fulbright Scholar and Global Research Fellow at New York University, Visiting Professor at Columbia Law School and Kobe University, and Senior Research Fellow at Humboldt University. Rishika Chauhan received her PhD from Jawaharlal Nehru University in New Delhi. Her thesis dealt with the Indian and Chinese views on sanctions. Currently she is a Visiting Scholar at the India Centre of China West Normal University and a contributing writer for Asia Pacific Daily. Her chapters and articles have appeared in the Routledge Handbook of China-India Relations (2020), Routledge Handbook of Asia in World Politics (2017), Foreign Policy and The National Interest, among others. Lena Chercheneff is Associate Professor in public law at the University Paris 1 Panthéon-Sorbonne, where she previously defended her PhD dissertation on international financial regulation in 2018. She studied law and economics at the Ecole Normale Supérieure de Cachan and holds a Master’s degree in international economic law from the University Paris 1. Her main research interests lie in the field of international economic law and public international law. Eric De Brabandere is Professor of International Dispute Settlement Law and Director of the Grotius Centre for International Legal Studies. He is also Attorney at Law at the Brussels Bar (partner with DMDB Law) practising in international law and investment arbitration. Pierre-Emmanuel Dupont is a lawyer and a consultant in international law, international investment law and dispute resolution. He has served as legal adviser to the UN Special x

Contributors  xi Rapporteur on unilateral sanctions (UCMs). He is a Senior Lecturer at the Free Faculty of Law and Economics of Paris and a member of the Board of Experts of The Hague Centre for Law and Arbitration. Marjorie Eeckhoudt is Associate Professor in private law and a member of the CRDP, University of Lille. Her research focuses on the law applicable to global companies and the influence of American law on French law. She has organized various scientific events related to white-collar crime (‘Too big to jail: why are top executives not prosecuted for corporate crimes’, May 2015) or business ethics (‘Conflicts of interest in the big three American rating agencies’, April 2015). Zachary Goldman is a Counsel at the global law firm Wilmer Cutler Pickering Hale and Dorr LLP and an Adjunct Professor of Law at NYU School of Law. He previously served as a Policy Advisor in the US Department of the Treasury’s Office of Terrorist Financing and Financial Crime, where he focused on the development of Iran sanctions policy, and as a Special Assistant to the Chairman of the Joint Chiefs of Staff at the US Department of Defense. Anna Hanson was a Postdoctoral Fellow working on the ERC funded project Bombs, Banks and Sanctions before she joined a compliance department in a global bank. She earned her PhD at Northwestern University where she worked on international/legal sociology. Her dissertation research examined the post 9/11 transnational regulatory system of AML/CT financing which examined how various international actors navigate their desire to minimize geo-political risk through financial regulation and increased transparency. Alexandra Hofer is Associate Professor in Public International Law at Utrecht University School of Law, Department of International and European Law. She is a member of the Utrecht Centre for Regulation and Enforcement in Europe (RENFORCE). She received her PhD in international law from Ghent University and is an affiliated member of the Ghent Rolin-Jaequemyns International Law Institute (GRILI). David Holloway is a barrister and arbitrator at Outer Temple Chambers, London, Dubai and Abu Dhabi where he specializes in international trade disputes. He is also Senior Lecturer in Law at the University of Birmingham and teaches and researches in the areas of international trade and international dispute resolution. Paulis Iļjenkovs is a qualified lawyer in Latvia, holding a Master’s degree in law. After studying at the University of Groningen, Singapore Management University and University of Latvia he worked for three years in law firms predominantly in the field of financial crime, including largescale AML and sanctions compliance projects abroad. In 2019 he started working in Latvia’s Financial Intelligence Unit (FIU) as senior expert. He is currently deputy head of the division responsible for building partnerships between public and private sectors. Yann Kerbrat is Professor of International Law at the Sorbonne Law School (Université Paris 1, Panthéon-Sorbonne). He is Director of the Institute of Research in International and European Law of the Sorbonne (IREDIES). He is the author of numerous articles and books on public international law, in particular in the area of international economic law. He is co-author with Pierre-Marie Dupuy of the leading French handbook Précis de droit international public (15th edn, Dalloz, 2020).

xii  Research handbook on unilateral and extraterritorial sanctions Alina Lindblom is an associate at the global law firm WilmerHale in Washington, DC, where she advises on government investigations, congressional oversight, and compliance with US economic sanctions. She previously completed legal internships with the International Criminal Tribunal for the Former Yugoslavia in The Hague and the UN Office of the High Commissioner for Human Rights in Bogotá, Colombia. Grégoire Mallard is Professor in the Department of Anthropology and Sociology and Director of Research at IHEID (Geneva). After earning his PhD at Princeton University, he was Associate Professor at Northwestern University. He is the author and co-editor of various publications in the field of legal sociology and political science with Cambridge University Press and Routledge. In 2016 he was the recipient of an ERC starting grant for his new project titled Bombs, Banks and Sanctions. Anton Moiseienko is Lecturer in Law at the Australian National University. Formerly a Research Fellow at the Centre for Financial Crime & Security Studies at the Royal United Services Institute, London, UK, his research interests cover criminal law and international law, with particular focus on economic crime and sanctions. His publications include a monograph Corruption and Targeted Sanctions published with Brill in 2019. He holds a PhD in law from Queen Mary University of London. Erica Moret holds a DPhil from the University of Oxford. She is Senior Researcher at the Centre for Global Governance, affiliated to the Centre for Humanitarian Studies at IHEID and the University of Geneva and Visiting Lecturer at the Department of International Relations/ Political Science at the Graduate Institute (IHEID). She is Chair of the Geneva International Sanctions Network and Associate Editor of the Journal of Global Security Studies. She serves as an independent advisor to the UN, EU and governments on sanctions and humanitarian matters. Clara Portela holds a PhD from the European University Institute and is a faculty member in Political Science at the University of Valencia (Spain) and a Visiting Professor at the OSCE Academy (Kyrgyzstan), having previously worked at the EU Institute of Security Studies (France) and Singapore Management University (Singapore). She is the recipient of the 2011 THESEUS Award for Promising Research in European Integration. She has been a Visiting Professor at the College of Europe and the University of Innsbruck. Ioannis Prezas is Associate Professor of International Law at the Sorbonne Law School, University Paris 1 Panthéon-Sorbonne, France. He is a member of the Institute of Research in International and European Law of the Sorbonne (IREDIES), the French branch of the International Law Association, the French Society of International Law and the Hellenic society of International Law and International Relations. His recent publications include an edited volume entitled Substance et procédure en droit international public : dialectique et influences croisées (Pedone, 2019). Sabrina Robert-Cuendet is Professor of Law at Le Mans University (France). She is a member of the research centre Themis-Um of Le Mans University and associate member of the Institute of Research in International and European Law of the Sorbonne Law School. She is specialized in international economic law and in international environmental law. She has published and lectured extensively in the areas of international investment law, WTO law, and the relationship between environmental concerns and economic disciplines.

Contributors  xiii Hennie Strydom is Professor in Public International Law and the incumbent of the South African Research Chair in International Law, University of Johannesburg. His research interests include international human rights law, international environmental law, United Nations law, international peace and security and international humanitarian law. He was the President of the South African Branch of the International Law Association (ILA) from 2009 to 2020 and currently one of the ILA’s Vice-Presidents. He serves on the editorial boards of the South African Yearbook of International Law, the African Yearbook of International Humanitarian Law, and the Law Journal of the Faculty of Law, Palacky University (Czech Republic). Jin Sun is a doctoral student at Graduate Institute, Geneva, with Master and Bachelor’s degrees from Harvard University and the Chinese University of Hong Kong. His research received funding from the Staton Foundation, the European Research Council and Swiss Network for International Studies. He has experience in banking and with UNICEF, Harvard Belfer Center and the Council on Foreign Relations. Passing the bar in Beijing, he is a counsel in aviation, banking, bankruptcy, corruption, sanctions, export control and international law. Jean-Marc Thouvenin is Professor of International Law at the University Paris Nanterre, Secretary General of The Hague Academy of International Law, and Associate Member of the Institut de Droit international. He is a member of the Board of the French Society of International Law. He has published extensively on international law, including on the law of the sea and international sanctions. As a practitioner, he represents or has represented states before the ICJ, PCA, ITLOS, ECJ and IACHR. Ivan N. Timofeev is Associate Professor at MGIMO-University. He is also Director of Programmes at the Russian International Affairs Council (RIAC). He is responsible for the intellectual performance of RIAC, managing its programmes and projects. His personal background at RIAC includes working with Russian and foreign diplomats, government officials, experts, businessmen and NGO leaders regarding Russia’s foreign policy and public diplomacy. Before joining RIAC, he was awarded a doctoral degree in Political Science at MGIMO in 2006. Muriel Ubéda-Saillard is Professor of International Law and co-Director of the Master 2 ‘International Criminal Justice’ diploma at the Université de Lille (France). She is also a legal advisor. She notably lectures on general international law, relationships between legal systems, and criminal/humanitarian international law. She has written extensively in this field. She is for example the editor of the Lex Specialis in International Law and the Commentary of the Rome Statute of the International Criminal Court (ed. Pedone, Paris, respectively 2017 and 2019). Daniel Ventura is Associate Professor at Université Côte d’Azur (Institut de la Paix et du Développement). He defended his PhD thesis at Université Paris 1 Panthéon-Sorbonne in 2017 on ‘The Freezing of Assets and Confiscation of Assets of Politically Exposed Persons in International Law’ under the supervision of Professor Evelyne Lagrange. He specializes in asset recovery, state immunities and AML-FT regulations. His work currently focuses on international development law. Ilze Znotiņa was appointed by the Latvian Parliament as the Head of Financial Intelligence Unit (FIU) as of 1 June 2018. Prior to the FIU, Ilze was a successful attorney and partner at the law firm Deloitte Legal, focusing on dispute resolution, regulatory issues, insolvency and

xiv  Research handbook on unilateral and extraterritorial sanctions financial crime, including money laundering. She is a PhD candidate at the Faculty of Law, University of Latvia. She is also an author and frequent lecturer on topics related to law, fraud and corruption.

Acknowledgements

This book is the culmination of the COMPLY collective research project, directed between 2018 and 2020 by the author of these lines, thanks to the support of the University Paris 1 Panthéon-Sorbonne, the Institute for Research in International and European Law of the Sorbonne (IREDIES), as well as the University of Lille and the Centre de Recherche Droit et Perspectives du Droit (CRDP). In its infancy, the project benefited from the valuable insights of many academics and practitioners whom I would like to thank here: Professors Hervé Ascencio, Geneviève Bastid-Burdeau, Régis Bismuth, Pierre Bodeau-Livinec, Laurence Burgorgue Larsen, Evelyne Lagrange, Philippe Maddalon, Arnaud de Nanteuil, and Messrs Nicola Bonucci and Tanguy Stehelin. My thanks also go to several doctoral students: Paul Heckler, Giuliana Marino and Estelle Richevilain, for their enthusiasm and dynamism in launching the project, as well as to Mary Lambard and Ludivine Luc for their additional support. The publication of this book would not have been possible without the help of many people to whom I would like to pay tribute here. I am of course thinking first of all of the 28 contributors to this book. May they all be warmly thanked for their commitment to the project, their precious contributions and their great availability. They were supported at the finishing stage by proofreaders and editors whose meticulous work is to be commended here, and whose names are cited: Christopher Sutcliffe, my unfailing copy-editor who made the editorial work so light during our collaboration, and Sylvain Thiery, an excellent research engineer from IREDIES who helped me to finalize and assemble all the elements of the manuscript before taking his first position as an Associate Professor at the University of Lille. These talents could not have been expressed if this project had not benefited from the confidence of Edward Elgar Publishing and the material support of the institutions mentioned above. Collective research needs the kind of resources they have generously provided.

xv

xvi  Research handbook on unilateral and extraterritorial sanctions

Abbreviations

ABC ABC News ABN ACAMS ACP ACPR AFET AFP AI AIDI AJIL ALA ALI ALM AML AML-FT AMLO ANC ANS AR ARM ARSIWA Art ASEAN ASIL ATP AU BBC BCSC BIMSTEC

Agricultural Bank of China American Broadcasting Company News Algemene Bank Nederland Association of Certified Anti-Money Laundering Specialists African, Caribbean and Pacific Group of States Autorité de contrôle prudentiel et de résolution European Parliament's Committee on Foreign Affairs Agence France Presse Artificial Intelligence Annuaire de l'Institut de Droit international American Journal of International Law American Law Association American Law Institute Organization Al-Muhajiroun Anti-money laundering Anti-money laundering – Terrorism Financing Anti-Money Laundering and Counter-Terrorist Financing Ordinance African National Congress Amendment in the Nature of a Substitute Administrative reconsideration Administrative Reconsideration Measures Articles on the Responsibility of States for Internationally Wrongful Acts Article Association of Southeast Asian Nations American Society of International Law Authority to Proceed African Union British Broadcasting Corporation British Columbia Supreme Court Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation xvii

xviii  Research handbook on unilateral and extraterritorial sanctions BIS BIS BIT BJP BNP BofA BRICS BSA BTC C&ED CA CAA CAATSA CACRs CanLII Cass Com Cass Crim CBC CBI CBRC CBW Act CCP CDD CE CEO CEPII CEPS CERD CESCR CFI CFIUS CFO CFP CFR CFSP CFT

Bank for International Settlements Bureau of Industry and Security Bilateral Investment Treaty Bharatiya Janata Party Banque Nationale de Paris Bank of America Brazil, Russia, India, China and South Africa Bank Secrecy Act Bitcoin Commerce and Economic Development Bureau Cour d’Appel Cour administrative d’appel Countering America’s Adversaries Through Sanctions Act Cuban Asset Control Regulation Canadian Legal Information Institute Chambre commerciale de la Cour de cassation Chambre criminelle de la Cour de cassation Canadian Broadcasting Corporation Central Bank of Iran China Banking Regulatory Commission Chemical and Biological Weapons and Warfare Elimination Act Chinese Communist Party Customer due diligence Conseil d’Etat Chief of Executive Office Centre d’Etudes Prospectives et d’Informations Internationales Centre for European Policy Studies Convention on the Elimination of all Forms of Racial Discrimination Committee on Economic, Social and Cultural Rights Court of first instance Committee on Foreign Investment in the United States Chief Financial Officer Counter-Financing of Proliferation Code of Federal Regulations Common Foreign and Security Policy Combating the Financing of Terrorism

Abbreviations  xix CHIPS CIA CIDOB CIETAC CIF CIFAR CISG CJEU CLOUD Act CMP CNAS CNBC CNN CNS CNY CoCom Cons const COO COSATU CPF CPI CPLC CPR CPS CRIEEA CRS CSIS CT CTA CTBT CUP CWC DARIO DASKA DCFR DETER DFS

Clearing House Interbank Payments System Central Intelligence Agency Barcelona Center for International Affairs China International Economic and Trade Arbitration Commission Cost, Insurance and Freight Canadian Institute for Advanced Research Convention for the International Sale of Goods Court of Justice of the European Union US Clarifying Lawful Overseas Use of Data Act Closed material procedure Center for a New American Security Consumer News and Business Channel Cable News Network James Martin Center for Nonproliferation Studies Yuan Coordinating Committee for Multilateral Export Controls Conseil constitutionnel Chief Operating Officer Congress of South African Trade Unions Counter-proliferation financing Cour pénale internationale Civil Procedural Law of China Civil Procedure Rules Control of Provision of Services Countering Russian Influence in Europe and Eurasia Act Congressional Research Service Center for Strategic and International Studies Counterterrorism Counter Terrorism Act Comprehensive Test Ban Treaty Cambridge University Press Chemical Weapons Convention Draft Articles on the Responsibility of International Organizations Defending American Security from Kremlin Aggression Act Department of Control of Foreign Restrictions Defending Elections from Threats by Establishing Redlines Act Department of Financial Services

xx  Research handbook on unilateral and extraterritorial sanctions DIFC DoC DoJ DoS DoT DPAs DPRK DRC DSU DTROPO EBA EC ECB ECHR ECJ ECOWAS ECR ED Pa Ed./Eds Edn EDNY EEA EFTA EmbA Eos ETS EU EUCO EUISS EWCA EWHC FAFA FATCA FATF FCA FCMC FCPA

Dubai International Financial Center Department of Commerce Department of Justice Department of State Department of the Treasury Deferred prosecution agreements Democratic People's Republic of Korea Democratic Republic of Congo Dispute settlement understanding Drug Trafficking (Recovery of Proceeds) Ordinance Everything but Arms European Community European Central Bank European Court/Convention of Human Rights European Court of Justice Economic Community of West Africa States European Court Reports Eastern District of Pennsylvania Editor / Editors Edition Eastern District of New York European Economic Area European Free Trade Association Swiss Embargo Act Executive orders European Treaty Series European Union European Council European Union Institute for Security Studies England and Wales Court of Appeal England and Wales High Court Financial and Administrative Framework Agreement US Foreign Account Tax Compliance Act of 2010 Financial Action Task Force Financial Conduct Authority Financial and Capital Market Commission US Foreign Corrupt Practices Act of 1977

Abbreviations  xxi FDI FEMA FES FET ff. FFC FFIs FIIA FILJ FinCEN FinTech FIU FL FLA FM clauses fn FOB FRCP FSAM FSB FTAs FTB FY FYRM GA GAFTA GATS GATT GC GC GDP GDPR GIGA GPA GR GSH

Foreign direct investment Foreign Extraterritorial Measures Act Friedrich Ebert Stiftung Fair and equitable treatment and the following pages or lines Foreign Funds Control (OFAC’s predecessor agency) Foreign financial institutions Finnish Institute of International Affairs Fordham International Law Journal Financial Crimes Enforcement Network Financial Technology Financial Intelligence Unit Federal Law Finance Latvia Association Force majeure clauses footnote Free on board Federal Rules of Civil Procedure Financial System Act of Macau Financial Stability Board Free trade agreements Foreign Trade Bank (of the Democratic People's Republic of Korea) Fiscal Year Former Yugoslav Republic of Macedonia General Assembly Grain and Feed Trade Association General Agreement on Trade in Services General Agreement on Tariffs and Trade Grand Chamber General Court Gross Domestic Product General Data Protection Regulation German Institute for Global and Area studies Agreement on Government Procurement Governmental Regulation Gauteng South High Court

xxii  Research handbook on unilateral and extraterritorial sanctions HKCFI HKLII HKMA HM Treasury HRC HRW HSBC IACC IACHR IAEA ICAO ICC ICC ICCPR ICERD ICESCR ICJ ICLG ICSID ICTY IDB IEEPA IEI IFCPA IFRI IHL IIAs IISS ILC ILM ILR IMB IMF IMS INSTEX IOs

Hong Kong Court of First Instance Hong Kong Legal Information Institute Hong Kong Monetary Authority Her Majesty's Treasury Human Rights Council Human Rights Watch Hong Kong & Shanghai Banking Corporation International Anti-Corruption Conference Inter-American Commission on Human Rights International Atomic Energy Agency International Civil Aviation Organization International Chamber of Commerce International Criminal Court International Covenant on Civil and Political Rights International Convention on the Elimination of All Forms of Racial Discrimination International Covenant on Economic, Social and Cultural Rights International Court of Justice International Comparative Legal Guides International Centre for Settlement of Investment Disputes International Criminal Tribunal for the former Yugoslavia International Development Bank International Emergency Economic Powers Act Iran Economic Interest Iran freedom and Counter-Proliferation Act Institut français des relations internationales International Humanitarian Law International investment agreements International Institute for Strategic Studies International Law Commission International Legal Materials International Law Reports International Maritime Bureau International Monetary Fund International Military Services Instrument in Support of Trade Exchanges International organizations

Abbreviations  xxiii IPR IRGC IRISL IRNA ISDS ISIL ISIS IT ITO ITRA ITSR JCPOA JCS KFG KOMID KWM KYC L. & Pol'y Int'L Bus. LCIA LDCs LETA LG LGDJ MAAF MAUs MDNC MEPs METI MFA/MOFA MIT MOC/MOFCOM MODSAF Moneyval MOU MPS

Intellectual property rights Iran’s Islamic Revolutionary Guard Corps Islamic Republic of Iran Shipping Line Group Islamic Republic News Agency Investor-State Dispute Settlement Islamic State of Iraq and the Levant Islamic State of Iraq and Syria Information Technology International Trade Organization Iran Threat Reduction and Syria Human Rights Act Iranian Transactions and Sanctions Regulations Joint Comprehensive Plan of Action Joint Stock Company Kolleg-Forschergruppe Korea Mining and Development Trading Corporation King & Wood Mallesons Know your customer Law and policy in International business London Court of International Arbitration Least developed countries Latvian information agency Landgericht Librairie Générale de Droit et de Jurisprudence Mutuelle d'assurance des artisans de France Monthly active users Middle District of North Carolina Members of the European Parliament Ministry of Economy, Trade and Industry Ministry of Foreign Affairs Massachusetts Institute of Technology Ministry of Commerce Ministry of Defence & Support for Armed Forces of the Islamic Republic of Iran Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism Memorandum of Understanding Ministry of Public Security

xxiv  Research handbook on unilateral and extraterritorial sanctions NAM NATO NCCP NCRI NDA NDAA NDTV NGOs NIOC NPT NSG NSPC NYC OAS OAU OCHA OEA OECD OFAC OHCHR OJ OMM OMPI OPCW OPEC Ord ORF OSCE OSCO OUP PAGC para(s) PBC PCA PCIJ PDVSA

Non-Aligned Movement North Atlantic Treaty Organization New Code of Civil Procedure (France) National Council of Resistance of Iran National Democratic Alliance National Defense Authorization Act New Delhi Television Limited Non-governmental organizations National Iranian oil Company Non Proliferation Treaty Nuclear Suppliers Group National System of Payment Cards New York Convention on the recognition and enforcement of foreign arbitral awards Organization of American States Organization of African Unity United Nations Office for the Coordination of Humanitarian Affairs Organisation des Etats Américains Organization for Economic Cooperation and Development Office of Foreign Assets Control Office of the High Commissioner for Human Rights Official Journal Ocean Maritime Management Company Organisation des Modjahedines du peuple d’Iran Organization for the Prohibition of Chemical Weapons Organization of the Petroleum Exporting Countries Ordonnance Observer Research Foundation Organization for Security and Co-operation in Europe Organized and Serious Crimes Ordinance Oxford University Press Plan d’action global commun paragraph(s) People’s Bank of China Permanent Court of Arbitration Permanent Court of International Justice Petróleos de Venezuela SA

Abbreviations  xxv PEESA PEESCA PEP PESC PICC PILA PL PMDA PMOI PO PRC PTCh. PTIA PWC REIOs Rep. Res RESPECT RG RIC RMB RSP RU SA SACP SADC SADCC SAMLA SAR SC SCA SCB SCOPSR SCR/SC Res SDN SDNT SDNY

Protecting Europe's Energy Security Act Protecting Europe’s Energy Security Clarification Act Politically exposed persons Politique étrangère et de sécurité commune Principles of International Commercial Contracts Swiss Private International Law Act Public Laws Plutonium Management and Disposition Agreement People’s Mojahedin Organization of Iran Presidential Order People’s Republic of China Pre-Trial Chamber Protection of Trading Interests Act PricewaterhouseCoopers Regional economic integration organizations Reports Resolution Realising Europe’s soft power in external cooperation and trade Répertoire général Russia, India and China Renminbi Resolutions on topical subjects Russia South Africa / South African South African Communist Party Southern African Development Community Southern African Development Coordinating Conference Sanctions and Anti-Money Laundering Act Special Administrative Region Statutes of Canada Supreme Court of Appeal Standard Chartered State Commission Office of Public Sectors Reform Security Council Resolution Specially Designated Nationals and Blocked Persons List Specially Designated Narcotics Traffickers United States District Court for the Southern District of New York

xxvi  Research handbook on unilateral and extraterritorial sanctions SEMs SEMA SFC SFO SOR SSI SSIDES

Special Economic Measures Special Economic Measures Act Securities and Futures Commission Securities and Futures Ordinance Statutory Orders and Regulations Sectoral Sanctions Individuals list Support for the Sovereignty, Integrity, Democracy and Economic Stability SSR Sous-sections réunies SSRN Social Science Research Network STE Série des traités européens STRs Suspicious transaction reports STS Science and Technology Studies SWIFT Society for worldwide Interbank Financial Telecommunication SWP Stiftung Wissenschaft und Politik TA Tribunal administratif TAFA Terrorism Asset-Freezing Act TASS Telegrafnoïe aguentstvo Sovietskovo Soïouza (Russian News Agency) TBML Trade-based money laundering TEU Treaty on European Union TFEU Treaty on the Functioning of the European Union TGI Tribunal de grande instance TID Trade & Industry Department Trib arr Luxembourg Tribunal d'arrondissement de Luxembourg Trib Com Tribunal de commerce TRIPS Trade-Related Aspects of Intellectual Property Rights TSC Targeted Sanctions Consortium TWEA Trading with the Enemy Act UAE United Arab Emirates UAV Unmanned aerial vehicle UCMs Unilateral coercive measures UEL Unreliable Entities List UFSA Ukraine Freedom Support Act UK United Kingdom UKHL United Kingdom House of Lords UKSC Supreme Court of the United Kingdom

Abbreviations  xxvii UN UNATMO UNCAC UNCITRAL UNCTAD UN Doc UNGA UNIDROIT UNSC UNSCR UNSO UNTS USA USC USD USSR USTR VTB Bank WB WHO WMD WOLA WTO WTO DSB

United Nations United Nations (Anti-Terrorism Measures) Ordinance United Nations Convention Against Corruption United Nations Commission on International Trade Law United Nations Conference on Trade and Development United Nations Document United Nations General Assembly International Institute for the Unification of Private Law United Nations Security Council United Nations Security Council Resolution United Nations Sanctions Ordinance United Nations Treaty Series United States of America United States Code US Dollar Union of Soviet Socialist Republics United States Trade Representative Vnechtorgbank World Bank World Health Organization Weapons of mass destruction Washington Office on Latin America World Trade Organization World Trade Organization dispute settlement body

1. An introduction to unilateral and extraterritorial sanctions: definitions, state of practice and contemporary challenges Charlotte Beaucillon

1.

THE STUDY OF UNILATERAL AND EXTRATERRITORIAL SANCTIONS

This book is the outcome of the COMPLY research project headed by the author of these lines between 2018 and 2020. The project was initially triggered by the striking contrast between the increased rigour with which the United States has applied its international sanctions policy in recent years and the silence or the rather meek reactions from the states which are not formally targeted by its measures, but whose nationals or companies were nevertheless affected by them. Those third states include not only European countries, but also major powers such as Russia, China or India. As is often the case, this research stems from a series of apparently simple questions. What is the contemporary practice of unilateral and extraterritorial sanctions? What is its scope and lawfulness? Will it have an impact on the progressive development of international law? And what are the consequences of this practice on the affected businesses, individuals and populations? As so often happens, those simple questions led into a forest of challenges, which this book aims to take up. First, the practice of unilateral and extraterritorial sanctions, deriving as it does from multiple sources, is protean and ever-changing. Therefore, the unilateral and extraterritorial sanctions that are the subject of this book raise above all a definitional challenge, the main elements of which will be outlined below (Section 2). Second, the practice of unilateral and extraterritorial sanctions often goes unnamed. It is thus an arduous field of research within the broader field of international sanctions studies. An examination of the scope of international practice quickly pointed to the conclusion that there has been no comprehensive academic study on this subject to date. This Research Handbook therefore offers a series of case studies which show that international practice is not only expanding but is also likely to accelerate sharply in the coming decades (Section 3). Thirdly, in this context of the exponential development of unilateral and extraterritorial sanctions, the question of their regulation by international law has perhaps never seemed more pressing. Yet, the various chapters dealing with the issue reveal the persistence of the international status quo in the absence of any sufficiently clear and systematic state positions (Section 4). It is in this highly specific context that the effects of unilateral and extraterritorial sanctions on the persons and entities they affect must be analysed. Placed in a situation of uncertainty as to the exact scope of their legal obligations and threatened with dissuasive proceedings and penalties, economic operators have become perfect auxiliaries in the enforcement of unilateral and extraterritorial sanctions. This is demonstrated by an analysis of both de-risking practices and state and arbitral case law, which struggles to deal with the matter in the absence of an appropriate legal arsenal (Section 5). 1

2  Research handbook on unilateral and extraterritorial sanctions Because of their individual targets and their cumulative effects, unilateral and extraterritorial sanctions also affect the humanitarian situation of the populations of the targeted states and the human rights of targeted persons. They seemingly require the clarification of a series of civil and criminal procedural guarantees and revive fears about their humanitarian impact that were thought to have been left behind in the 1990s (Section 6). This book shows that while unilateral and extraterritorial sanctions have become and will continue to be indispensable instruments in the conduct of international relations, they stand today at a crossroads between strategic instrumentalization and uncontrolled effects on human rights (Section 7).

2.

THE MULTIPLE DEFINITIONS OF UNILATERAL AND EXTRATERRITORIAL SANCTIONS

2.1

International Policy Tools Aimed at Compelling Their Targets to Change Behaviour

The contemporary practice of unilateral and extraterritorial sanctions is indeed protean and evolving. It is also fragmented, in the sense that each state or organization develops its own unilateral sanctions. This has a methodological impact on the present work, which it is now a matter of setting out. Despite this multiple and changing subject of study, it is worth underlining that none of the 28 contributors to this Research Handbook has had any difficulty in grasping the object at stake in their specific chapters – be it state practice, the state of international law, the practice of affected economic operators, or the humanitarian and human rights impact of the sanctions. This can be attributed to there being a general understanding of what international sanctions are, or, to put it differently, it results from the implicit working definition that can be framed as follows. The term ‘international sanctions’ is generally used to refer to the non-armed coercive measures adopted by a state or organization to put pressure on and ultimately induce a change in behaviour of another state, group of states, or non-state target. From this perspective, the state or organization adopting the international sanctions is often called the sanctioning state, the source or the initiator of the sanctions, while the state or entity that is the subject of the non-armed coercive measures is generally referred to as the sanctioned state or the target of the sanctions. Combining this broad working definition of international sanctions with the notion of unilateralism results in a study focusing on the foreign policy tools that states and some regional economic integration organizations (REIOs), especially the EU, adopt at their own initiative to influence the course of international relations. While this general definition gives an idea of our field of study, it fails to provide sufficient keys for further analysis. This is why the vast majority of the chapters in this book begin with a brief definitional sequence. More interesting still, none of the definitions used is redundant or repetitive. This plurality can be explained first of all by the fact that this Research Handbook brings together several disciplines that make up the field of research on international sanctions, mainly law, political science and legal sociology. These disciplines focus on different aspects of international sanctions and their definitional preferences are complementary indeed. These multiple definitions can also be explained by the fact that international sanctions, both unilateral and extraterritorial, are a large-scale phenomenon in practice. They are instruments of foreign policy, covering a variety of areas, affecting different people, pursuing quite dif-

An introduction to unilateral and extraterritorial sanctions  3 ferent objectives and potentially encroaching upon diverse branches of international law and international relations. Each of the chapters of this Research Handbook thus sheds light on part of the subject matter that brings them together – unilateral and extraterritorial sanctions – and of which I will propose a definition here. To this end, I will tackle in turn three core definitional elements that streamline the chapters of this book. The definition of unilateralism in the field of international sanctions will be expounded (2.2), and followed with the notion of extraterritoriality, put in the broader context of what is now called sanctions design (2.3). Then, the very use of the term ‘sanction’ in the field of unilateral and extraterritorial sanctions will be questioned, deconstructed and compared to alternative legal terminologies which are struggling to make their mark in the face of the widespread use of the term ‘sanctions’ (2.4). 2.2

Unilateralism in the Field of International Sanctions

International sanctions can be adopted by single states or in the framework of international organizations. A more refined definition of unilateral and multilateral sanctions could therefore depend on the institutional setting in which they are adopted. This would imply that unilateral sanctions would be adopted by a single state and multilateral sanctions in the framework of an international organization or by an informal group of states. Although technically correct, this divide fails to take into consideration the primary responsibility of the United Nations Security Council (UNSC) to maintain international peace and security,1 including through the adoption of so-called multilateral or collective international sanctions. More specifically, according to the UN Charter, these are measures that do not involve the use of armed force but are taken in reaction to specific situations listed in Article 39 of the UN Charter.2 From this background, what are generally referred to as multilateral or collective sanctions are the collective measures adopted by the UNSC on the basis of Chapter VII of the UN Charter. These UN measures have been the object of various studies3 and are not dealt with in this Research Handbook, which instead focuses on non-UN international sanctions. By this logic, the distinguishing feature between unilateral and multilateral sanctions is therefore the political impetus that lies behind them. The UNSC, when it acts under Chapter VII of the UN Charter to maintain international peace and security, reacts to ‘any threat to the peace, breach of the peace, or act of aggression’.4 On the contrary, unilateral sanctions pursue a much wider range of goals and objectives which are autonomously defined by the sanctioning states or REIOs according to their own individual foreign policy interests. As such, they are of a very different political nature and are intrinsically the instruments of national or supranational foreign policies. For instance, while the United States’ practice of unilateral sanctions rests on the notion of its national interests and national security, the European Union’s practice rests on the notion of the EU’s interests and the values governing its external action. As illustrated by the latter example, from this perspective where unilateral sanctions are conceived in

Article 25 of the UN Charter. Article 41 of the UN Charter. 3 Vera Gowlland Debbas, United Nations Sanctions and International Law (Kluwer Law International, 2001); Larissa van der Herik (ed.), Research Handbook on UN Sanctions and International Law (Edward Elgar Publishing, 2017). 4 Article 39 of the UN Charter. 1 2

4  Research handbook on unilateral and extraterritorial sanctions opposition to UN collective measures, they may be adopted either by single states such as the US or by REIOs like the EU. From this political perspective, unilateral sanctions may technically be both unilateral or multilateral. This distinction between multilateral sanctions as UNSC sanctions and unilateral sanctions as non-UNSC sanctions sheds light on two main differences between UN and non-UN international sanctions: their reach and their legitimacy. While international sanctions decided collectively at the UN level by the UNSC must be implemented by all UN Member States,5 unilateral sanctions suffer from their narrow reach as they theoretically only bind persons within the sanctioning state’s or REIO’s jurisdiction. However, the effectiveness of international sanctions depends on their being widely applied. Otherwise, the activities or persons targeted by unilateral sanctions would simply find alternative partners and unilateral sanctions would then be virtually devoid of any coercive effect on their target. This explains the emergence of various techniques designed to extend the reach of unilateral sanctions. These include the use of extraterritorial legislation and the multilateralization of unilateral sanctions through contractualization or informal diplomatic alignment (see 2.3 below). Turning to the issue of legitimacy, suffice it to say here that international sanctions adopted by the UNSC derive from a collective decision taken either unanimously or at least by a majority vote of nine out of the 15 members of the UNSC, the UN Charter providing that the UNSC acts on behalf of all UN Member States.6 By contrast, the decision of one single state or REIO to adopt unilateral sanctions depends solely on its own foreign policy options and reflects only its own view and interpretation of the foreign situation to which it reacts and which it seeks to influence. This legitimacy gap probably explains the plethoric practice consisting in adopting unilateral sanctions that are presented as complementary to or supportive of UN multilateral sanctions. For instance, unilateral sanctions supposedly share the same objectives as UN sanctions but extend their material reach. Against this background, and to be sure, REIO measures directed against one of their own member states are excluded from this study as they are institutional sanctions rather than unilateral international sanctions aimed at third countries. 2.3

Extraterritoriality in Contemporary Unilateral Sanctions Design

Sanctions design focuses on the art of tailoring international sanctions so as to best achieve their objectives. Initially, international sanctions took the form of global or comprehensive sanctions against a whole country. The well documented humanitarian crisis that resulted from the imposition of global sanctions by the UN on Iraq, Haiti or Cuba led to a reflection on how to better design these instruments so as to limit their impact on the population of a specific country.7 Targeted or smart sanctions were then defined in contrast to the initial comprehensive or global sanctions. They can take two main forms: sectoral or individual sanctions. Sectoral sanctions first aim at impacting a state’s core economic sector. They generally imply economic restrictions on specific sectors of the domestic economy, such as arms, oil,

Articles 25 and 48 of the UN Charter. Articles 24 and 27 of the UN Charter. 7 Darren Hawkins, Joshua Lloyd, ‘Questioning Comprehensive Sanctions: the Birth of a Norm’ (2003) Journal of Human Rights 2 (3), 443, 445; Anthony Arnove (ed.), Iraq Under Siege: The Deadly Impact of Sanctions and War (Cambridge University Press, 2000). 5 6

An introduction to unilateral and extraterritorial sanctions  5 gold or precious wood. The financial and banking sector is often targeted as well, through bans on financial transactions or restrictions on investments. This rise of financial sanctions explains why various areas of financial regulation and compliance, such as anti-money-laundering, anti-bribery and counterterrorism-financing instruments are today strongly intertwined with unilateral and extraterritorial sanctions. Sectoral sanctions may also take a large variety of non-economic forms, such as air traffic constraints, the downscaling of diplomatic relations or boycotts of cultural and sporting events. Targeted sanctions may also be designed so as to affect the situation of specific persons. These sanctions aim at piercing the veil of the state in directly touching physical and legal persons who are identified as having the power to influence the state’s behaviour. Hence, not only state officials and ministries but also businessmen and banks soon appeared on blacklists. The best known and the most used targeted sanctions take the form of both travel restrictions, including visa bans and travel controls, and financial and banking restrictions in the main form of asset freezes. More recently some states and REIOs have begun to adopt so-called thematic or horizontal sanctions. This new form of targeting focuses on individuals or entities related to specific objectives such as the fight against human rights violations or cyberattacks, without specifically targeting a state. The technique in itself is not new, and was first experimented at the UN level with the post 9/11 counterterrorism sanctions that were the first international sanctions without any territorial link to a state and instead targeting transnational criminal networks like Al-Qaeda or Daesh.8 The same technique is used in thematic or horizontal sanctions, which likewise rest on the establishment of blacklists. These new horizontal unilateral sanctions can overcome diplomatic and legal difficulties associated with the stigmatization of a specific state but they raise issues about the individual guarantees that should accompany this new sanction design. As mentioned above in the discussion of unilateralism in the field of international sanctions (2.2), unilateral sanctions suffer from a major defect compared to multilateral or collective measures adopted by the UNSC: their scope of application is as limited as the jurisdiction of the state or REIO that adopts them. Primary sanctions, which constitute the general practice in the field, apply to individuals and entities located on the territory or bearing the nationality of the state or group of states imposing the unilateral sanctions. These persons are prohibited from entering into the restricted relations that define the material scope of the sanction, which can, as just explained, target activities developed on the territory of the sanctioned state as well as persons operating in its territory or bearing its nationality, or other persons targeted through horizontal blacklists. As such, primary sanctions do not have any controversial extraterritorial reach since they are only binding on persons subjected to the jurisdiction of the sanctioning state/REIO. The only extraterritorial feature lies in the use of the nationality link with a person who remains subject to the jurisdiction of her/his state of nationality when acting abroad. To achieve the broad application of unilateral sanctions, which is a condition for their being effective as has already been pointed out, two main strategies can be highlighted here. A first strategy consists in finding alternatives to the controversial and unlawful use of extraterritoriality in the field of unilateral and extraterritorial sanctions. From this perspective, some states



8

Charlotte Beaucillon, Les mesures restrictives de l’Union européenne (Bruylant, 2014) 452–5.

6  Research handbook on unilateral and extraterritorial sanctions and REIOs undertake diplomatic efforts to make their partners mirror their unilateral sanctions through more or less formalized legal mechanisms ranging from de facto domestic implementation to contractualization through international agreements. Another strategy, which instead raises much controversy, consists in stretching to the maximum the territorial and personal nexus to the jurisdiction of the sanctioning state. This is a key feature of US practice which interprets the territorial nexus by invoking the effects of a foreign situation on US territory or by the clearing in the US of any financial transaction denominated in dollars. The broad understanding by the US authorities of what a US person is, also contributes to the stretching of the personal nexus with the state. This practice of stretching the limits of the theory of state jurisdiction is a first feature of extraterritoriality in the field of unilateral sanctions. A second (complementary) feature of extraterritorial sanctions is much more straightforward and consists in adopting secondary sanctions. Secondary sanctions, which have also become a key feature of US practice of unilateral sanctions, remain isolated and contested. Their aim is to constrain persons located in or bearing the nationality of a third state, to abide by unilateral sanctions although they are not subject to the jurisdiction of the sanctioning state. Secondary sanctions target foreign persons who pursue their relationships with unilaterally sanctioned individuals, entities or states. Secondary sanctions are therefore intrinsically extraterritorial, as they aim at governing activities that fall outside the reach of the sanctioning state’s legislation. Because of the high economic risk they represent for economic operators, practice shows that unilateral and extraterritorial sanctions are stimulating the development of business compliance programmes around the world, notwithstanding their doubtful legal grounds and contested extraterritorial reach. 2.4

The Notion of ‘Sanction’ in the Practice of Unilateral and Extraterritorial Sanctions

The last step in this definitional exercise is certainly to tackle the notion of ‘sanction’ in the contemporary practice of unilateral and extraterritorial sanctions. As underlined above the current and common use of the term sanction is a handy way to refer to a phenomenon as a whole, encompassing the measures aimed at coercing a third state or entity to change its behaviour (2.1). Two elements could explain the crystallization of the use of sanctions terminology. First, as foreign policy tools, unilateral and extraterritorial sanctions are the manifestation of a political sanction against the target, whose behaviour is considered objectionable. In the legal field, however, the notion of sanction bears a much narrower sense, and strictly refers to the consequences that are attached to a breach of the law; hence the link that is traditionally made between unilateral sanctions and the international law of states and IOs responsibility.9 Furthermore, in the legal field, the sanction is generally pronounced by a third party, be it an institutional sanction imposed by an international organization on one of its members10 or a judicial sanction imposed by an independent court. These two points must be discussed further as they have far-reaching consequences for the legality and legitimacy of the unilateral and extraterritorial measures we are dealing with. 9 Linos Alexandros Sicilianos, Les réactions décentralisées à l’illicite, des contre-mesures à la légitime défense (Libraire générale de droit et de jurisprudence, 1990). 10 Wolfgang Friedmann, ‘General Course in Public International Law’ (1969) Collected Courses of the Hague Academy of International Law 127 (II), 116.

An introduction to unilateral and extraterritorial sanctions  7 First, on the question of the lawfulness of unilateral sanctions as such, it should be underlined here that international law does not provide for a one-size-fits-all answer. Every measure adopted as a unilateral sanction must be evaluated against the international obligations governing the relationship of the sanctioned state/REIO and the sanctioning state/REIO. If they do not violate any existing international obligation, these unilateral sanctions will be considered as acts of retorsion, which are intrinsically lawful. If, on the contrary, they do violate pre-existing obligations of the sanctioning state or organization, the latter will engage its international responsibility unless it can demonstrate that these measures are justified as countermeasures, which are recognized circumstances precluding wrongfulness.11 To this end, it must demonstrate that the unilateral sanctions are a reaction to a previous breach of the law by the sanctioned state, generating an intrinsically wrongful act, which the sanctioning state aims to terminate by adopting unilateral sanctions.12 This remnant of private justice13 within the international order derives, among other things, from the absence of permanent courts with unconditional jurisdiction to settle international disputes between states and/or organizations. The institution of countermeasures affords them, under very strict conditions, some lawful means of protecting their legal interests. It is only in this very narrow sense that unilateral sanctions, if they were an effective reaction to previous breaches of international law and would qualify as countermeasures, could be considered sanctions in legal terms. However, nothing is less certain. Firstly, it is not sufficient for states or REIOs to declare that they are reacting to a violation of international law by the target of unilateral sanctions for that violation to be established. The two cases put before the International Court of Justice, opposing Iran to the United States on the one hand and Qatar to the United Arab Emirates on the other hand, show that establishing this prior violation of law as a ground for unilateral sanctions is not to be taken lightly.14 Secondly, the practice, which is widespread today, of resorting to unilateral sanctions as a reaction to very general violations of the law, for example of massive human rights violations in a third country, does not fall for certain within the scope of countermeasures as defined in positive law, but belongs to the emerging and debated practice of third country countermeasures.15 It follows from the above that what are nowadays called ‘unilateral sanctions’ do not, with perhaps a few exceptions, correspond to sanctions under international law stricto sensu. For this reason, many authors, including in this Research Handbook, prefer to use the term ‘restrictive measures’ rather than sanctions, when referring to the unilateral and extraterritorial measures that form the subject matter of this book. In contemporary practice, restrictive measures is the official terminology used in the EU’s 11 Article 22 of the Articles on the Responsibility of States for Internationally Wrongful Acts drafted by the International Law Commission and adopted by the UN General Assembly: Annex to UNGA Resolution 56/83 ‘Responsibility of States for internationally wrongful acts’ (12 December 2001) UN Doc A/RES/56/83; and Article 22 of the Draft articles on the responsibility of international organizations, with commentaries, in Yearbook of the International Law Commission vol II, part II (2011). 12 Chapter II of Part III of the International Law Commission Articles on the Responsibility of States for Internationally Wrongful Acts; and Chapter II of Part IV of the Draft articles on the responsibility of international organizations (n 11). 13 Denis Alland, Justice privée et ordre juridique international (Pedone, 1994). 14 ICJ, Alleged violations of the 1955 Treaty of Amity, Economic Relations, and Consular Rights (Islamic Republic of Iran v United States of America), 3 February 2021, Preliminary objections; ICJ, Application of the International Convention on the Elimination of All Forms of Racial Discrimination (Qatar v United Arab Emirates), 4 February 2021, Preliminary objections. 15 Beaucillon (n 8) 323–31.

8  Research handbook on unilateral and extraterritorial sanctions founding treaties to describe its own practice of international sanctions, both UN-determined and unilateral. Moreover, the fact that unilateral and extraterritorial sanctions are adopted by states and REIOs at their own instigation and in accordance with their own foreign policy objectives, that is, in a purely subjective manner, sets them apart from the objective sanctions of law that may be imposed by impartial third parties in an institutional or jurisdictional capacity. This calls for close questioning of their legitimacy. Can states and REIOs legitimately, even without the use of armed force, compel the behaviour of third states and entities in the name of their own interpretation of international law, their own values, their own interests and their own objectives? The contrast with the multilateral framework for the adoption of collective measures by the UNSC is striking here. This is the reason why many states, particularly those which are members of the Non Aligned Movement, are traditionally opposed to the practice of unilateral sanctions, as they consider legitimate only the collective sanctions adopted by the UNSC. It is this debate, particularly within the United Nations, which has seen the flourishing of the notion of ‘unilateral coercive measures’, a terminology that emphasizes the political purpose of these measures – coercion – and raises the question of the legitimacy of the use of such instruments, particularly between states whose relations should be devoid of such constraints on the grounds of their sovereign equality.16 This clarification of the legal nature of what are commonly referred to as ‘unilateral and extraterritorial sanctions’ – which are in reality only restrictive or coercive measures whose legality is very rarely subject to the control of the international courts – highlights the importance of the stakes that the indisputable growth of this international practice (Section 3) represents for the development of international law (Section 4) and sheds new light on the very important impact it has on economic actors (Section 5) and human rights (Section 6).

3.

MAPPING THE CONTEMPORARY PRACTICE OF UNILATERAL AND EXTRATERRITORIAL SANCTIONS

3.1

Scope and Methodology

Part I of this Research Handbook aims at filling a research gap, as there is yet no comprehensive academic study of the state of unilateral and extraterritorial practice. At most, some law firms, whose data have sometimes been referred to in the case studies presented below, provide short summaries of practice towards international sanctions in general (both UN and unilateral), in states where they have a branch or a correspondent. Therefore, while it is known that some states and international organizations make extensive use of unilateral and extraterritorial sanctions, there is still no complete inventory and analysis of this network of measures. With the exception of the United States and the European Union, most states remain discreet about their position and practice regarding unilateral sanctions. However, it is fundamental to understanding the progressive development of international law that we do not limit ourselves to a position that is exclusively oriented towards the West. Beyond the practice of the European Union and the United States, Part I of the Research Handbook focuses on the

Article 2(1) of the UN Charter.

16

An introduction to unilateral and extraterritorial sanctions  9 practice and diplomatic positions of some states that are members of the group of the BRICS, given their economic weight: China, Russia, India and South Africa. To achieve this goal, inspiration was taken from seminal studies on sanctions aimed at mapping the domestic schemes governing the implementation of (UNSC) international sanctions.17 A common scheme of analysis was drawn up so as to ensure as much consistency as possible across the six case studies. To identify the scope of the practice of unilateral and extraterritorial sanctions, both as perceived by the state in question and as practiced by it, the authors have been asked to systematically draw the distinction between unilateral sanctions on the one hand and extraterritorial sanctions on the other. As is shown in Part II of the Research Handbook, these practices are varied and these characteristics do not raise the same issues from a public international law standpoint (see 2.2 and 2.3 above). From a policy standpoint, sanctions that are only unilateral raise the important question of their motive (human rights, protection of the environment, protection of national interests), which should not be obscured by the most studied practice of US unilateral and extraterritorial sanctions. Where applicable, the authors have also been asked to systematically draw a distinction between sectoral sanctions and individual sanctions (see 2.3 above). Finally, the authors have been asked to choose their examples from two sets of practice. First, some sanctions regimes are highly publicized because they affect a large part of world trade and are used as cross-cutting examples throughout the Research Handbook. They include sanctions against Russia, Cuba, Venezuela, China, and against Iran and North Korea, with the latter two posing the problem of unilateral Trojan horses that claim to complement multilateral measures adopted by the UN Security Council on the basis of Chapter VII of the UN Charter (see 2.2 above). The authors have therefore been careful to distinguish their unilateral emitters where applicable. Second, the six authors have also highlighted in their chapters less well-publicized sanctions regimes that illustrate specific issues within their case studies. This second selection enriches the scope of the Research Handbook exponentially. All the sanctions regimes dealt with, both transversal and specific, can be found in the index. 3.2

Shifting Policies: Unilateral and Extraterritorial Sanctions As the New Normal?

Some states or REIOs have traditionally opposed the use of unilateral and extraterritorial sanctions in international relations. They develop extremely varied positions. South Africa’s position is particularly important not only in terms of its economic influence on the African continent, but also in terms of its past experience as a target for economic sanctions. As Hennie Strydom demonstrates in Chapter 3, South Africa remains the staunchest opponent to the use of any form of unilateral and a fortiori extraterritorial sanctions in international relations. It takes the view that they are contrary to international law and only recognizes the legitimacy of collective measures adopted by the UN Security Council on the basis of Chapter VII of the UN Charter. Of all the case studies presented, South Africa’s position seems the least subject to change, as Strydom shows it is strongly intertwined with post-Apartheid democracy and membership of the Non Aligned Movement (NAM). Another member of the NAM, and another former target of international sanctions, India has also long opposed the use of unilateral and 17 Vera Gowlland-Debbas (ed.), National Implementation of United Nations Sanctions: A Comparative Study (Nijhoff, 2004).

10  Research handbook on unilateral and extraterritorial sanctions extraterritorial sanctions. However, as Rishika Chauhan demonstrates in Chapter 4 with the examples of counter-proliferation sanctions against North Korea and Iran, India has already tempered its position, giving support to US unilateral sanctions and might further explore this practice in the future. China has also traditionally been against any use of unilateralism in international sanctions, and even more so when they are extraterritorial. While Congyan Cai presents the theoretical foundations of this position in Chapter 5, he also shows how the so-called economic war with the United States may well have been a turning point for Beijing. Indeed, China has recently altered its position and adopted its first regulatory framework to compile its own ‘Unreliable Entities List’. Along the same lines, the case of Russia illustrates that a state that is traditionally opposed to the use of unilateral and extraterritorial measures may be pushed to resort to them, in particular in response to unilateral measures imposed on it. In Chapter 6, Ivan Timofeev not only shows the mechanics of this policy shift, but also points to the latest legislative developments aimed at increasing Russia’s resilience to EU and US unilateral sanctions. For its part, the European Union adopts a much less strict position, having used unilateral measures for a decade. Chapter 7 gives an overview of the EU practice of unilateral restrictive measures, presents the related legal framework as well as the procedural guarantees that have been developed in this respect. It shows, however, that the EU’s take is very firm on the extensive extraterritoriality of some unilateral measures, which the EU condemns and undertakes not to use. Instead, it prefers the multilateralization tools such as informal alignment or contractualization, the consequences of which may also be questioned. Finally, Zachary Goldman and Alina Lindblom offer a dive into the US practice of unilateral and extraterritorial sanctions in Chapter 8. They present the legal framework for US unilateral and extraterritorial sanctions and take us to the diverse levers of the US sanctions policy, from the dollar hegemony to the race for software domination. As Erica Moret shows in Chapter 2 with her transversal analysis of the current practice of unilateral sanctions, this trend towards the generalization of unilateral sanctions in industrialized nations and the emergence of the practice in rising powers and non-industrialized countries also holds in Latin America and the Middle East. These unilateral sanctions allow governments to react quickly and publicly to very different situations, while giving the impression of doing something concrete, but without incurring excessive expense such as would result from an armed confrontation, for example. Seen by most states and REIOs as handy tools of statecraft, Moret’s analysis supports the view that the global run to unilateral and extraterritorial sanctions might well exacerbate the issues that are identified in the following Parts of the Research Handbook.

4.

THE REGIME OF UNILATERAL AND EXTRATERRITORIAL SANCTIONS IN PUBLIC INTERNATIONAL LAW

4.1

What is at Stake: The Progressive Development of International Law

Part II of the Research Handbook aims at analysing the regime of unilateral and extraterritorial measures in public international law. As supported by the findings of Part I, the expansion and intensification of the current practice of unilateral and extraterritorial sanctions is predictable. This makes the questions it raises in public international law all the more important. The stakes

An introduction to unilateral and extraterritorial sanctions  11 are high, insofar as the practice of unilateral and extraterritorial sanctions questions the most fundamental principles of the international legal order. The sovereign equality between states, the extent of their international competence to adopt such measures and their relationship with the law of international responsibility are all central examples. The practice of unilateral and extraterritorial sanctions thus appears to be an element of the further development of public international law and has not yet been analysed from this angle. Yet public international law is largely shaped by the positions and reactions of states and international organizations on the international scene. It is thus essential to tackle the question of its long-term effect on tomorrow’s positive international law. To determine this potential evolution, it is necessary to take a benchmark. The topical examples that are traditionally used date back to the 1980s and 1990s. First, the US unilateral sanctions adopted in 1982 to hinder to the construction of a Euro-Siberian gas pipeline between Europe and Russia in the broader context of the reaction to the introduction of martial law in Poland in 1981, triggered important European reactions. Second, the adoption in 1996 by the United States of the Helms-Burton Act18 on Cuba and D’Amato-Kennedy Act19 on Iran and Libya, both with extraterritorial scope and effects on third party companies, particularly European ones, also generated strong reactions. It was at this time that the state of positive international law crystallized, which we take as a reference today. These episodes were interpreted as sealing the victory of the theory of state jurisdiction over the unilateral and extraterritorial velleities of the world’s leading power.20 In contrast, the resumption by the United States, at the turn of the decade, of a very sustained policy of unilateral and extraterritorial sanctions did not generate such strong reactions from the European Union or affected third states. This development in practice is explained in particular by the increased use of unilateral sanctions by states and REIOs.21 Indeed, any jurisprudential or political precedent concerning unilateral and extraterritorial sanctions would limit the practice of unilateral sanctions, which is, as I have shown, in full expansion. This Gordian knot needs to be examined further in so far as it has consequences for the law of international responsibility, for the unilateral and multilateral positions taken by states and international organizations, and for the jurisdictional mechanisms for the settlement of international disputes. 4.2

What Practice Shows: The International Precedent is in the Making

The contemporary practice of unilateral and extraterritorial sanctions is part of a complex legal framework in which unilateral measures must be articulated and distinguished from collective measures adopted within the framework of the United Nations. However, as Jean-Marc Thouvenin shows in Chapter 9, some state and REIO practices consist precisely in combining unilateral and collective measures, making their distinction difficult or inoperative for the addressees of the prohibitions they entail. Thouvenin offers a refined legal analysis of the Cuban Liberty and Democratic Solidarity (Libertad) Act (1996) 22 U.S.C. §§ 6021–6091. Iran and Libya Sanctions Act, Public Law 104–172, 5 August 1996. 20 Charlotte Beaucillon, ‘Practice Makes Perfect, Eventually? Unilateral State Sanctions and the Extraterritorial Effects of National Legislation’ in Natalino Ronzitti (ed.), Coercive Diplomacy, Sanctions and International Law (Brill 2016) 118. 21 Charlotte Beaucillon, ‘Panorama de la pratique contemporaine en matière de sanctions extraterritoriales’ in Alina Miron and Bérangère Taxil (eds.), Extraterritorialités et droit international (Société française de droit international, colloque d’Angers, Pedone 2020) 75. 18 19

12  Research handbook on unilateral and extraterritorial sanctions current practice of states and some REIOs to implement UN sanctions and to impose unilateral sanctions in parallel. Cases differ, depending on the arguments of the states, sometimes going beyond the scope of UN obligations but following the same rationale, sometimes rather arguing to respond to UN authorizations. Some go so far as to impose unlawful extraterritorial sanctions on the alleged grounds of UN requirements. In the end, Thouvenin also addresses the not overly theoretical issue of the imposition of unilateral sanctions that are supposedly contrary to UN sanctions. Against this background, the contemporary practice of unilateral and extraterritorial sanctions questions two fundamental branches of international law: states and REIOs’ competences and their international responsibility. In Chapter 10, Yann Kerbrat offers a specific analysis of extraterritoriality in the field of international sanctions, thanks to a systematic analysis of state practice and diplomatic reactions. Through the prism of the theory of state jurisdiction, Kerbrat shows that the trend to resort to an extensive nexus with the territory or the nationality of the state imposing unilateral sanctions is not lawful under international law. However, he also shows how lukewarm contemporary diplomatic reactions are likely to leave room for the advancement of positive law, from which there will be no turning back. Alexandra Hofer then turns to the analysis of unilateral and extraterritorial sanctions from the perspective of international responsibility law. Although unilateral and extraterritorial sanctions are part of the measures that may be considered as tools of reaction against wrongfulness (see 2.4 above), Hofer shows that their logic goes far beyond this traditional framework of analysis. In particular, she questions the use of such measures to respond unilaterally to violations of obligations owed to the international community as a whole, and the legitimacy of such a developing practice. Proposing an incursion into international economic law, Sabrina Robert-Cuendet shows in Chapter 12 that unilateral and extraterritorial sanctions have a strong impact on international investment law. She thus reveals the power and long reach of unilateral and extraterritorial sanctions, which interfere in unsuspected business relationships. Moreover, its analysis reveals that international investment law is now sometimes used as the silent vector of unilateral sanctions, in particular through the establishment of foreign investment screening mechanisms. These issues having been exposed, the last two contributions focus on the reaction mechanisms available to states and REIOs to contain the effects of the practice of unilateral and extraterritorial sanctions. The major instrument, born of the 1996 crisis recalled earlier, is the adoption by each state or organization of a so-called blocking law/regulation, intended to prevent foreign legislation deemed illegitimate from producing legal effects on its territory. Examining a wide variety of blocking laws – in the EU, Canada, Russia and Mexico, among others – Daniel Ventura shows in Chapter 13 that while these instruments have a clear diplomatic value in marking opposition to the development of the practice, they suffer from structural defects. Ventura shows, moreover, that these legislative defects have repercussions at the level of their application by courts and tribunals, both national and international. He thus suggests a series of corrections affecting not only the text of the blocking laws, but also the legislative context in which they operate, which are indispensable to the effectiveness of these instruments. In the same vein, Lena Chercheneff explores in Chapter 14 the multilateral mechanisms that states and REIOs could use to deal with the rise of unilateral and extraterritorial sanctions. Focusing particularly on the Organization for Cooperation and Development in Europe and the World Trade Organization, Chercheneff shows the reluctance of states to take any steps that could set a precedent that might curb the expansion of unilateral sanctions,

An introduction to unilateral and extraterritorial sanctions  13 whether extraterritorial or not. She shows that only a few states, all targeted by such measures but which do not yet impose them themselves, have attempted to submit their cases to such multilateral fora.

5.

BURDEN-SHIFTING TO PRIVATE PERSONS: THE IMPACT ON ECONOMIC OPERATORS

5.1

The Stark Evolution of Business Practices

Even though contemporary practice relating to unilateral and extraterritorial sanctions calls into question central principles of international law, and although it is firmly condemned by many states, the latter do not manage to deprive the most intrusive unilateral and extraterritorial sanctions of effect on their national territories. This results in the legal and financial risk of compliance with or violation of unilateral and extraterritorial sanctions being borne by national economic operators. According to their own economic logic, these operators will submit to the injunctions associated with the biggest sanctions on the market, even if these injunctions are not legal or legitimate. Indeed, economic operators that are greatly exposed internationally are bound to be compliant so as not to incur domestic proceedings and penalties. To address this situation, that they perceive as a risk for the development of their business activities, economic operators have integrated unilateral and extraterritorial sanctions into their compliance programmes. The combination of these private mechanisms is likely to lead to a phenomenon of over-execution of unilateral and extraterritorial sanctions despite their questionable legitimacy and lawfulness. In this Research Handbook, this phenomenon is referred to as overcompliance. As Emmanuel Breen shows in Chapter 15, the willingness of corporations to be compliant with US unilateral and extraterritorial sanctions so as to guarantee their access to the US market, combined with several factors, leads to overcompliance processes throughout the law enforcement cycle. This phenomenon incidentally illustrates that unilateral and extraterritorial sanctions are complied with depending on the economic risk they represent for the economic actors, which is not necessarily fully correlated with their binding value. Examining the banking sector specifically and taking the example of counter-proliferation unilateral and extraterritorial sanctions, Grégoire Mallard and Anna Hanson show in Chapter 16 how forcefully the compliance programmes are shaping current business practices. They explore the implications of banks’ use of US-based financial data-management software and expose the results of in-depth interviews with former US officials, international organizations and global bank officers to show how the rationale of unilateral and extraterritorial sanctions is perceived and understood. Exploring the same lines, but from the public authority’s standpoint, Ilze Znotiņa and Paulis Iļjenkovs unveil the levers of the ABLV case, the Latvian bank which disappeared in less than a month following its involvement in a matter related to the violation of US unilateral and extraterritorial sanctions. As Znotiņa and Iļjenkovs show in Chapter 17, the intertwinement of unilateral and extraterritorial sanctions compliance with other compliance issues, such as anti-money laundering, can have a windfall effect and give the impression that compliance with foreign unilateral and extraterritorial sanctions is likely to help the adoption of best practices by supervised financial entities. This has led Latvia down an unexpected legislative path, trying to reconcile its membership of the European Union and its voluntary submission to certain unilateral and extraterritorial foreign sanctions.

14  Research handbook on unilateral and extraterritorial sanctions 5.2

The Lack of Case Law Counterbalancing Opportunities

The observation of the evolution of business practices leads to further reflection on the tools at the disposal of economic operators to ascertain their situation with regard to their actual obligations deriving from unilateral and extraterritorial sanctions. An interesting angle of observation to answer this question is to query the national and arbitral litigation relating to unilateral and extraterritorial sanctions. In Chapter 18, Marjorie Eeckhoudt offers a systematic analysis of French and British case law on unilateral and extraterritorial sanctions. She shows that French and British courts face major legal issues when economic operators targeted by unilateral and extraterritorial sanctions challenge them in court. Echoing the flaws of existing blocking statutes and regulations, Eeckhoudt shows that these instruments produce little effect in court, because of their overly narrow scope. Actually, the major legal challenge which is not clearly decided for now, consists in controlling contractual practices such as unilateral termination of contracts on the grounds of the risks generated by extraterritorial sanctions, or the generalization of sanctions clauses in international contractual relationships. Very interestingly, Eeckhoudt also evidences the state practice of imposing unilateral sanctions in parallel to EU sanctions, which is all the more relevant today in the face of Brexit. This practice is paving the way for the development of national jurisprudence on the procedural and substantial guarantees that should accompany domestic listings. If they undoubtedly follow in the footsteps of EU jurisdictions, Eeckhoudt shows that domestic courts may also issue decisions diverging from their EU peers, when asked by the same targeted entity to review two different but complementary sets of domestic and EU unilateral sanctions. Taking another domestic perspective, Jin Sun examines the state of unilateral sanctions-related dispute settlement concerning bank payments in China, Hong Kong and Macau. Chapter 19 thereby opens up a new horizon to the East and provides an uncompromising analysis of the various administrative and judicial remedies that can be found by affected economic operators in these three separate legal jurisdictions in China. Sun also shows the variety of the effects that unilateral and extraterritorial sanctions can have in business relationships in China, Hong Kong and Macau, and exposes the variety of judicial and non-judicial remedies available to any economic operator doing business in China. Turning to the analysis of international commercial arbitration, Eric de Brabandere and David Holloway show in Chapter 20 how international arbitration sometimes has difficulty grasping the specificity of unilateral and extraterritorial sanctions and collective UN sanctions. To do so, they guide us through the analysis of rules governing the admissibility of the arbitration and substantive law applicable to unilateral sanctions cases while recalling the relevant jurisprudential elements relating to international collective sanctions. Then examining the effect of unilateral sanctions on contracts, they illustrate that contractual practice has largely adapted to accommodate the rise of unilateral sanctions, in particular by examining the effect of so-called sanction clauses in contemporary international arbitration.

An introduction to unilateral and extraterritorial sanctions  15

6.

BURDEN-SHIFTING TO PRIVATE PERSONS: THE HUMANITARIAN AND HUMAN RIGHTS IMPACT

The second aspect of burden-shifting to private persons, which results from the combination of the rise of the practice of unilateral and extraterritorial sanctions with the persistence of the international status quo on the lawfulness of this practice, concerns its humanitarian and human rights impact. 6.1

The Unanswered Concerns of the Humanitarian Impact of Unilateral and Extraterritorial Sanctions

Pierre-Emmanuel Dupont exposes in Chapter 21 that the practice of unilateral and extraterritorial sanctions is now grasped at the UN level through the notion of unilateral coercive measures. Still rooted in the logic of the prohibition of coercion between sovereign states, the debate has found a recent development in the field of human rights, as illustrated by the mandate of the UN Special Rapporteur on the impact of unilateral coercive measures on the enjoyment of human rights. Offering an attempted typology of unilateral coercive measures, Dupont shows the variety of unilateral measures liable to have an impact on the humanitarian situation of a state targeted by unilateral and extraterritorial sanctions. Indeed, since its establishment in 2014, this special procedure of the UN Human Rights Council has helped in gathering data on the impact of unilateral and extraterritorial sanctions on human rights. However, Dupont shows that mapping such practices remains very difficult, most states being reluctant to voluntarily report their use of such measures. He advocates the reinforcement of the powers of the Special Rapporteur to conduct this yet missing mapping exercise. Contributing to this line of reflection, Ioannis Prezas proposes in Chapter 22 to explore the international responsibility of states and REIOs for the negative impact of their unilateral sanctions on the humanitarian situation and the human rights of the populations of targeted states. Taking stock of the existing international case law at the domestic, regional and international levels, he highlights various obstacles to the development of specific litigation on this issue. The fact remains that the cumulative impact of unilateral and extraterritorial sanctions on the humanitarian situation of the populations of the targeted states is supported by numerous public data, and that this issue should be the subject of priority corrections in future international practice. 6.2

The Evolutive Impact of Unilateral and Extraterritorial Sanctions on Individual Human Rights

When they take the form of so-called blacklists, unilateral and extraterritorial sanctions are likely to affect the individual guarantees of human rights of the listed persons. This raises the question of the respect of due process when imposing such unilateral sanctions, an issue that is touched upon by various authors in the course of their chapters (Beaucillon, Sun, Prezas). However, this question has been unevenly tackled by states and REIOs that are imposing unilateral and extraterritorial targeted sanctions and deserves a specific focus. To illustrate the variety of the guarantees of due process in current practice, Anton Moiseienko offers in Chapter 23 a comparative analysis of the state of US, EU and UK law in the field. He examines the stage of the imposition of the sanctions and the potential challenges to such unilateral sanc-

16  Research handbook on unilateral and extraterritorial sanctions tions, both administrative and judicial. Moiseienko proposes a rare comparative analysis of the current state of due process guarantees in three of the most important issuers of unilateral and extraterritorial sanctions. By doing so, he also illustrates the marked differences in guarantees between the US, the EU and the UK, which should in turn better inform the strategies that individual targets might favour to ensure their rights are fully observed. In parallel, a new trend arguably resulting from an extension of the practice developed under the international anti-corruption regime consists in imposing criminal sanctions on entrepreneurs and top managers who fail to comply with secondary unilateral and extraterritorial sanctions (see 2.3 above). This raises the question of the right of these persons, who are not the primary targets of unilateral and extraterritorial sanctions, to be protected against such risks, and even more so when the international lawfulness of the sanctions they allegedly violated is questionable. Taking the Huawei case as the starting point of her reasoning, Muriel Ubeda Saillard advocates in Chapter 24 that the logic of unilateral and extraterritorial sanctions should be submitted to the general guarantees of criminal law. However, she shows that the highly political stakes governing the imposition of unilateral and extraterritorial sanctions might well interfere with the implementation of well-set protective standards, notably against political extraditions and should be eagerly defended by the judiciary. Although it is not yet certain how this practice in the making will be settled, it is already clear that a lack of protection from criminal prosecution of top managers for alleged secondary sanctions violations will only reinforce the overcompliance trends illustrated in Part III of the Research Handbook. A third recent development which is likely to affect human rights must be mentioned here. It consists in the new practice of horizontal or thematic unilateral sanctions, as exemplified in US, EU and other practices in reaction to human rights violations or cyberattacks rather than targeting a single state. In Chapter 25, Clara Portela examines the drivers of this trend and exposes its various apparent advantages, including the elimination of the stigmatization effect on states, which is questioned by various authors (Hofer, Dupont). However, this emerging practice in turn raises the old question of the nature of international targeted sanctions – are they preventive or punitive? Indeed, the establishment of thematic lists of targets raises the eternal question of the grounds on which a person should be listed, but this time with no possibility of referring to his or her relation to a targeted state. Portela therefore warns of the guarantees that should accompany these new practices, and advocates the judicialization of such measures.

7.

UNILATERAL AND EXTRATERRITORIAL SANCTIONS AT THE CROSSROADS

The 25 chapters of this Research Handbook show that the practice of unilateral and extraterritorial sanctions stands at a crossroads and undoubtedly constitutes an extremely dynamic field of study for the years to come. Not only is the practice evolving very rapidly, but the instruments used are becoming increasingly sophisticated and the number of actors involved seems to be growing exponentially. As a result, the rise of unilateral and extraterritorial sanctions is likely to lead to changes in the relevant rules of international law that are supposed to govern them. This, in relation to the issues set out above regarding the legality and legitimacy of such unilateral practices, is bound to raise questions.

An introduction to unilateral and extraterritorial sanctions  17 Beyond the issue of their conformity with international law, the generalization of unilateral and extraterritorial sanctions raises the question of their impact on private actors, which is bound to be proportionally exponential to their intensification. One can thus consider – and question – the crossroads at which unilateral and extraterritorial sanctions find themselves in international practice. They stand between the proven risk of their instrumentalization for economic strategy or economic warfare purposes on the one hand, and their humanitarian and human rights effects which one would expect to see corrected, given that human rights and human dignity have been erected as cornerstones of the post-1945 world order.22 Only the evolution of the practice of unilateral and extraterritorial sanctions will make it possible to know the outcome reserved for these questions. Let us trust that the community of academics and practitioners in the field of international sanctions studies, some of whom have honoured this book with their presence, will be ready to analyse it. In the meantime, let us hope that the studies and analyses presented here by a dedicated orchestra conductor will find their echo where they will be most useful.

22 ‘WE THE PEOPLES OF THE UNITED NATIONS DETERMINED to save succeeding generations from the scourge of war, which twice in our lifetime has brought untold sorrow to mankind, and to reaffirm faith in fundamental human rights, in the dignity and worth of the human person, in the equal rights of men and women and of nations large and small, and to establish conditions under which justice and respect for the obligations arising from treaties and other sources of international law can be maintained, and to promote social progress and better standards of life in larger freedom …’. First paragraph of the preamble of the UN Charter.

PART I CONTEMPORARY STATE PRACTICE

2. Unilateral and extraterritorial sanctions in crisis: implications of their rising use and misuse in contemporary world politics Erica Moret

1. INTRODUCTION Transnational challenges require successful global collaboration, including in tackling terrorism, regional instability, armed conflict, the proliferation of weapons of mass destruction (WMD), climate change, trade protectionism and pandemics. The Covid-19 crisis, which brought the world to a standstill in 2020, has only served to highlight the heightened need for better inter-state cooperation.1 Multilateralism has faced a crisis in legitimacy in past decades, however, as most recent United Nations (UN) talks have failed, under-achieved or lacked commitment.2 Even the two most feted global governance accomplishments of the last decade – the Iran nuclear deal (the Joint Comprehensive Plan of Action, or JCPOA) and the Paris climate deal – have been undermined by the United States’ (US) withdrawal from both accords under the presidency of Donald J. Trump, as has the US’s halt on its World Health Organization (WHO) funding at the height of the coronavirus outbreak. The United Nations Security Council (UNSC), for its part, is widely criticized for failing to effectively coordinate appropriate responses to many of the world’s most pressing global security threats or breaches of international norms. Permanent Members (the P5), China, France, Russia, the United Kingdom (UK) and the US, have failed to reach agreement on the ongoing crises in Syria and Venezuela and on areas such as cyberattacks, chemical weapons abuses or human rights violations. In this context of waning solidarity and a loss of faith in multilateralism, the world – unsurprisingly – has seen a rise in the adoption of autonomous or unilateral sanctions used in addition to, or in the absence of, sanctions agreed through the UN framework.

2.

FROM MULTILATERAL TO UNILATERAL MEASURES

Sanctions come in many shapes and forms. Multilateral sanctions are those that are mandated by the UNSC, which all Member States must implement under Chapter VII of the UN Charter. Unilateral (or autonomous) sanctions are those that are employed outside the UN framework by countries or regional groupings. These can be used in two ways. First, to supplement 1 Grégoire Mallard, Jin Sun and Erica Moret, ‘Mitigating the Health Effects of Sanctions in the Age of Coronavirus: A Proposal for a More Effective Global Health Governance Architecture’ (under review). 2 Erica Moret, ‘Effective Minilateralism for the EU: What, When and How’ (2016) European Union Institute for Security Studies, Brief No 17, 3 June.

19

20  Research handbook on unilateral and extraterritorial sanctions multilateral sanctions, typically based on the wording of UNSC resolutions that urge Member States to ‘exercise vigilance’3 (such as the cases of pre-JCPOA Iran and North Korea/DPRK) as well as in relation to the UN’s counterterrorism (CT) related sanctions.4 Second are unliteral sanctions imposed in the absence of multilateral measures, typically when the UNSC has been unable to reach agreement due to opposition by, or the behaviour of, a P5 Member (examples include European Union [EU] and US sanctions against Russia, Venezuela, Syria, chemical weapons, cyber and human rights, and US sanctions against Cuba and Chinese targets).5 Depending on who adopts them, the implementation of such measures might be voluntary, conditional or obligatory.6 2.1

The Purposes of Sanctions and Broadening of Objectives

Sanctions can serve a variety of purposes, including coercing change in the target, constraining access to resources and signalling support for specific norms (as well as stigmatization of the target).7 They may also be used to reinforce leadership and influence in the international arena. The US in particular can be seen to use sanctions to ‘get out in front’ in responding unilaterally to international crises, while also seeking to influence the behaviour of other advanced or emerging economies. On the other side of the coin, the likes of the EU, Japan, China and Russia can also be understood to have used sanctions against third parties with the clear objective of influencing the US.8 Although earlier sanctions regimes employed over the centuries frequently sought to secure the surrender of territory and regime change,9 modern-day targeted sanctions employed by the UN since the 2000s have been used for a variety of other (modest to ambitious) objectives, which have been expanding in scope over the years. These include measures in support of human rights, CT, nuclear non-proliferation, good governance, democracy, judicial process, ending of hostilities, peacebuilding, peace enforcement, responsibility to protect, agreement on negotiations and in support of humanitarian activities.10 Other actors, such as the US, the EU and some of their allies, have also begun to adopt sanctions in relation to new thematic (or ‘horizontal’) objectives in areas relating to the aforementioned issues of chemical weapons, cyber security and human rights abuses not linked to specific countries.11 These are interesting in that they allow for the use of targeted sanctions 3 Thomas Biersteker and Clara Portela, ‘EU Sanctions in Context: Three Types’ (2015) EUISS Issue Brief 26. 4 Thomas Biersteker, Zuzana Hudáková and Marcos Tourinho, ‘The End of Targeted Sanctions? Analyzing the Historical Development of UN Sanctions Design and Implementation’ (under review). 5 For a legal analysis of the articulation of unilateral sanctions with UN sanctions, see the chapter by Jean-Marc Thouvenin in this book. 6 Biersteker et al. (n 4). 7 Francesco Giumelli, ‘New Analytical Categories for Assessing EU Sanctions’ (2010) 45 (3) The International Spectator: Italian Journal of International Affairs 131–44. 8 Brendan Taylor, Sanctions as Grand Strategy (Routledge 2010). 9 Gary C Hufbauer, Gary Clyde, Jeffrey J Schott, Kimberly Ann Elliott and Barbara Oegg, Economic Sanctions Reconsidered (3rd edn, Peterson Institute for International Peace 2007). 10 SanctionsApp, accessed 1 May 2020. 11 See the chapter by Clara Portela in this book; see also Clara Portela, ‘The Spread of Horizontal Sanctions’ (Centre for European Policy Studies 2019) accessed 1 May 2020; Erica Moret, Francesco Giumelli and Nikolay Bozhkov, ‘Space Exploration:

Unilateral and extraterritorial sanctions in crisis  21 against individuals or entities in countries that it would otherwise be too politically sensitive or economically damaging to sanction directly (such as Saudi Arabia or Israel) or where the renewal of existing regimes is based on fragile unity (such as EU restrictive measures relating to the Russia/Ukraine crisis). The EU has branched into other new objectives, including respect for territorial integrity (Russia/Ukraine), measures protecting against the effects of the extraterritorial application of certain legislation (US), misappropriation of state funds (Ukraine), and unauthorized drilling activities in the Eastern Mediterranean (Turkey).12 The EU typically imposes its sanctions in ad hoc collaboration with other countries (particularly the US) and regional powers.13 Going a step further, the US has also expanded its sanctions portfolio in an attempt to tackle areas such as corruption, drug trafficking, the illicit use of cryptocurrencies, the behaviour of telecommunications firms (including against the Chinese firm, Huawei), and in response to regional policy changes (such as on China in response to Hong Kong legislation). The US is also considering their use for new areas such as violations of religious freedoms, public health misinformation and Covid-19 accountability (once again with reference to China, particularly in the latter case).14 In the meantime, a range of emerging and developing countries around the world have also initiated and stepped up their use of autonomous sanctions (described below in Section 3), typically to further domestic concerns rather than in support of international norms or broader global security. The stated objectives and geographical focus of multilateral sanctions have tended to differ from those employed in a fully autonomous capacity over the past 20 years. While the UN has focused in large part on threats to international peace and security, and in particular on violent inter- and intra-state conflicts, CT and nuclear non-proliferation, the US and EU have branched out to cover additional areas (which have tended to be subjects less integral to the core mission of the UNSC)15 such as the promotion of democracy, human rights and good governance, as well as the aforementioned cyber and chemical weapons domains.16 Geographically the use of multilateral and unilateral sanctions also varies. While the UN is largely focused on African conflicts (with the exception of non-proliferation sanctions on Iran and North Korea/DPRK and some CT measures in the Middle East and North Africa), the EU’s restrictive measures appear more evenly spread across Africa, Asia and the Middle East (with a notable focus on its own neighbourhood).17 US sanctions are spread similarly to those of the EU, with a considerable presence also in Latin America and the Caribbean.

Mapping the EU’s Cyber Sanctions Regime’ in Patryk Pawlak and Thomas Biersteker (eds.), Guardian of the Galaxy: EU Cyber Sanctions and Norms in Cyberspace (EUISS, Chaillot Report 2019); Erica Moret and Clara Portela ‘The EU’s Chemical Weapons Sanctions Regime: Defending a Taboo under Attack’ (EUISS Brief 2020). 12 EU sanctions map accessed 1 May 2020. 13 Biersteker and Portela (n 3). 14 European Sanctions Blogs (various) January–May 2020: accessed 1 May 2020. 15 Biersteker and Portela (n 3). 16 ibid. 17 Clara Portela, ‘Sanctions and the European Neighbourhood Policy’ in T Demmelhuber, A Marchetti and T Schumacher (eds.), The Routledge Handbook on the European Neighbourhood Policy (Routledge 2017).

22  Research handbook on unilateral and extraterritorial sanctions 2.2

Types of Sanctions

Also subject to expansion in recent years, there are various types of sanctions that can be employed by international organizations (IOs), regional groupings and governments. The vast majority of sanctions in place today – both multilateral and unilateral – are targeted (or smart) sanctions (as opposed to comprehensive sanctions, or embargos, that target an entire country). Targeted sanctions can include restrictions on certain services or goods (including arms, oil, gold); travel restrictions (visa and travel controls) and air traffic constraints; diplomatic, cultural and sporting restrictions; and financial/banking sanctions (bans on financial transactions, asset freezes, restrictions on investments). Primary sanctions are restrictive measures that apply to individuals or entities located in, or originating from, the jurisdiction of the sanctioning actor, which restrict certain forms of engagement with specific counterparts in or from the sanctioned country. In contrast, secondary sanctions (only used by the US as a rule)18 have an extraterritorial reach, which means that any country, company or individual trading with the target may face prosecution by the sender.19 While EU sanctions practice differs from that of other regional organizations as it imposes sanctions externally as part of its wider foreign policy, like the US,20 they only have effect in EU Member States, though EU companies and citizens are still bound by their reach, even when based outside the EU’s territory. Other related restrictions that have proliferated alongside sanctions in recent years (and particularly since the 11 September 2001 attacks) include terrorism designations, export controls and measures designed for Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (CFT). The Paris-based Financial Action Task Force (FATF) created in 1989 formulates guidance and best practice on AML and CFT and has been playing an increasingly active role in the wider compliance field. Defining what constitutes a sanction remains heavy ground, however, with some arguing that actions such as the withholding of trade, IMF conditionality, World Bank debarment or referrals to the International Criminal Court21 may also be thought of as ‘sanctions by other names’. Similarly, the withholding of aid or funding, the imposition of tariffs and duties, consumer boycotts, naval blockades or other measures of wider ‘economic statecraft’ could also constitute ‘virtual sanctions’. This is particularly the case in emerging economies whose own use of unilateral sanctions is frequently not referred to explicitly but instead can be understood to represent a form of ‘sanctions by other names’ (explored further below).

18 Though they have been used by the UN in the cases of Eritrea and Libya (Thomas Biersteker, personal communication, 11 June 2020) and reportedly by Japan against the DPRK (interviews with a UN sanctions scholar, June 2020 and a Japanese official in March 2019). 19 On extraterritorial sanctions and states’ jurisdiction, see the chapter by Yann Kerbrat in this book. 20 Elin Hellquist, ‘Regional Organizations and Sanctions against Members: Explaining the Different Trajectories of the African Union, the League of Arab States, and the Association of Southeast Asian Nations’ KFG Working Paper Series, No. 59 (Free University Berlin 2014). 21 Interview with a UN sanctions scholar, January 2020.

Unilateral and extraterritorial sanctions in crisis  23 2.3

Shifting Sanctions Use in Multilateral and Unilateral Settings

The adoption of new targeted UN sanctions appears to have slowed or stabilized in recent years, with the number of individual regimes dropping from a high of 16 in 2015 to 15 in 2018, 2019 and 2020,22 currently including some 800 individuals and 300 entities.23 In contrast, the most prolific user of sanctions on the world stage is the US. Although difficult to quantify in light of the complexity of measures imposed by the US Treasury’s Office for Foreign Assets Control (OFAC), one recent study estimates that the US employed over 150 different sanctions regimes in the period between 1990–2015. This contrasts with their estimates of 75 employed by the EU and 35 by the UN over the same time span.24 Earlier studies suggest that the US accounts for between half to over two-thirds of all global sanctions regimes.25 Research by the Graduate Institute’s Targeted Sanctions Consortium (TSC) suggests that the US Treasury has stepped up its enforcement activities against non-US entities from an average of 4 per cent under the Bush administration to 43 per cent under the Trump administration.26 Another study reports that from 2014 to 2018, the number of persons listed under US sanctions fluctuated from 595, 546, 671, 842 to 742 between 2014 and 2018 and the number of individuals removed during the same period went from 450, 352, 263, 388 to 52.27 Recent shifts in US sanctions practice can be explained by a number of factors that include the development of more flexible targeted financial sanctions, the increase in sanctions to tackle counterterrorism, improved mechanisms to identify ‘sanctions busters’ or others evading measures in place, attempts by the US to shift trade balances and introduce tariffs on China as well as its allies, and a more aggressive sanctions practice more generally.28 The EU’s use of sanctions has grown more than threefold in the past 30 years29 and it is now the second most prolific user of unilateral sanctions in the world.30 According to the classification system employed by the EU Sanctions Map31 the total number of all EU sanctions regimes

22 TSC accessed 15 March 2020. 23 The UN imposed roughly one new sanctions regime a year since 1990 but this has stalled in recent years (interviews with a sanctions scholar, June 2020). 24 Hana Attia and Julia Grauvogel, ‘Easier In Than Out: The Protracted Process of Ending Sanctions’ (2019) GIGA Focus, Number 5, October accessed 15 February 2020. Other studies have measured the number of US sanctions regimes differently. For example, Biersteker et al. (n 4) estimate that the UN has imposed 26 sanctions regimes since the Cold War era, and two during or before it. 25 From Biersteker et al. (n 4). 26 ibid. 27 Michael Nesbitt, ‘Canada’s “Unilateral” Sanctions Regime under Review: Extraterritoriality, Human Rights, Due Process, and Enforcement in Canada’s Special Economic Measures Act’ (2017) 48(2) Ottawa Law Review. 28 Interview with a US sanctions expert, June 2020. 29 Iana Dreyer and Jose Luengo-Cabrera (eds.), On Target? EU Sanctions as Security Policy Tools (EUISS Report 25, 2017). 30 Attia and Grauvogel (n 24). See also the chapter by Charlotte Beaucillon in this book. 31 The EU Sanctions Map is a digital platform created under the Estonian presidency of the European Council in 2017 and managed by the European Commission .

24  Research handbook on unilateral and extraterritorial sanctions in place in 2018 was 35, rising to 45 in 2019.32 Of these, nine were UN-measures alone in 2019 that were implemented by the European Council (representing 20 per cent of total cases), up from six in 2018 (representing 17 per cent of total cases). Eight sanctions regimes (or 18 per cent) in 2019 were of a unilateral nature that supplemented UN measures (down from nine in 2018, or 26 per cent) including those relating to targets in North Korea and Iran. By far the biggest category, representing 62 per cent of the total, has been the use of fully autonomous measures imposed in the absence of any UN sanctions at 28 (up from 20 in 2018 which represented 57 per cent of the total). Like most other sanctioning powers acting on a unilateral basis (with the exception of some non-Western countries), the EU has its own strict criteria guiding when and under what conditions sanctions can be imposed. As such, EU unilateral sanctions arguably receive their own form of legitimacy through the complex and sophisticated mechanisms required to arrive at a legally-binding decision on a given sanctions regime among the bloc’s 27 (formerly 28) Member States in the European Council.

3.

GROWING UNILATERAL SANCTIONS PRACTICE

Although it is mainly the US and EU that receive attention for their autonomous sanctioning practices, a surprisingly large number of other countries around the world also employ such measures.33 3.1

Regional Organizations’ Sanctions Practices

Aside from the EU, other regional organizations have also begun to employ their own unilateral sanctions practices in recent years, albeit only imposed against their own members. These include the African Union, the Economic Community of West Africa States (ECOWAS), the South African Development Community, the OSCE, the Organization of American States (OAS) (which voted for non-compulsory economic sanctions on Haiti in 1991)34 and the Arab League (with sanctions imposed against Egypt, Libya and Syria, and which first requested the EU to employ restrictive measures in response to the Syrian conflict). These organizations often work closely with both the EU and the UN.35 Similarly, the South American trade bloc, Mercosur, suspended Paraguay in 2012 and Venezuela in 2017.36 Wider policy activities of

32 Some of the differences year by year could be explained by changes to the ways in which some sanctions regimes were classified. 33 There are not yet any comprehensive data on how many sanctions regimes are employed by each sanctioning actor over time and up to the present day around the world. While this is a significant gap in the literature, it is also a major methodological challenge, particularly for countries like the US (in light of their complexity) or for many emerging economies (in light of their sometimes poorly defined sanctions practices and frequently non-transparent lists of designated individuals and entities). Sanctions regimes also wax and wane over time in terms of their breadth and depth, further complicating the matter. 34 Interview with a UN sanctions specialist, July 2019. 35 Andrea Charron and Clara Portela, ‘United Nations Sanctions and Regional Sanctions Regimes’ in Thomas Biersteker, Sue Eckert and Marcos Tourinho (eds.), Targeted Sanctions: The Impact and Effectiveness of United Nations Action (Cambridge University Press 2016). 36 Interview with a UN sanctions specialist, July 2019.

Unilateral and extraterritorial sanctions in crisis  25 regional organizations can also be closely linked to the UNSC’s adoption of sanctions.37 In the case of Africa, for example, the African Union’s activities, including negotiated peace agreements, missions and calls for action, have often sparked the adoption of UNSC sanctions.38 The Association of Southeast Asian Nations (ASEAN) is the only regional organization to reject sanctions, to date.39 3.2

Autonomous Sanctions Use Among Industrialized Nations

Most other European (non-EU) countries implement their own unilateral sanctions regimes; all guided by different legal frameworks and usually in close alignment or partnership with the EU. These include EU candidate countries (the Former Yugoslav Republic of Macedonia [FYRM], Montenegro, Albania, Serbia and Turkey); countries linked to the Stabilization and Association Process and potential candidates for EU membership (Bosnia and Herzegovina); countries of the European Economic Area (EEA) (Iceland, Liechtenstein and Norway); those with other types of partnership agreements (Ukraine, Republic of Moldova, and Georgia); and neighbouring countries outside any specific category (Azerbaijan and Armenia).40 Switzerland, for its part, aligns with around half of the EU’s sanctions, and is only permitted to impose optional unilateral measures employed by the Organization for Security and Co-operation in Europe (OSCE) or other trading partners, as dictated by the Swiss Embargo Act (EmbA) of 2002.41 Further afield, governments of other advanced economies also tend to align their own unilateral sanctions with those of the US and EU. To describe but one, Canada has recently bolstered its autonomous sanctions capacities through the creation of a new sanctions unit in its Ministry of Foreign Affairs, Global Affairs Canada, which was a direct result of the 2016/2017 Parliamentary review of the country’s sanctions practices.42 3.3

The Use of Unilateral Sanctions by Emerging Powers and Non-Industrialized Countries

With some of the world’s largest and growing economies, regional influence, significant defence capabilities, desirable domestic markets and currencies with mounting regional appeal, emerging powers have also stepped up their use of economic influence for strategic

Charron and Portela (n 35). Interview with a sanctions specialist, January 2020. 39 Charron and Portela (n 35). 40 Hellquist (n 20); Viktor Szép and Peter Van Elsuwege, ‘EU Sanctions Policy and the Alignment of Third Countries: Relevant Experiences for the UK?’ in Juan Santos Vara and Ramses A Wessel (eds.),  The Routledge Handbook on the International Dimension of Brexit (Routledge 2020); Paul J Cardwell, ‘The Legalisation of European Union Foreign Policy and the Use of Sanctions’ in the Cambridge Yearbook of European Legal Studies (2015). 41 Embassy of Switzerland in the UK, ‘Written Evidence, Select Committee on the European Union, External Affairs Sub-Committee, Brexit: Sanctions Policy’ (19 September 2017) accessed 20 November 2019. 42 Anonymous interview with a Canadian official responsible for sanctions policy, February 2020. 37 38

26  Research handbook on unilateral and extraterritorial sanctions advantages,43 including in the field of sanctions, in spite of their long-standing stated opposition to their use. China widely uses a range of unilateral coercive measures and ‘sanctions by other names’, mainly in the form of quarantine measures or non-tariff barriers as well as ‘vague threats, variation in leadership visits, selective purchases (or nonpurchases), and other informal measures’.44 This has included those in relation to human rights, Tibet, Taiwan, and maritime disputes and has also included consumer boycotts, as occurred in 2005 against Japanese goods and 2008 against French goods in response to what was deemed inappropriate behaviour by the two countries’ leaders.45 More recently, China has also employed its own unilateral sanctions that supplement UN measures against the DPRK over the past decade, including following the detonation of nuclear devices by Pyongyang.46 There are some considerable differences between the sanctioning practices of Western countries and the kind of measures employed by China in that they tend to be shorter in duration and more focused on national interests. Beijing also takes care to frame its use of autonomous coercive measures in relation to international law considerations. For example, the Chinese government has sought to avoid problems at the World Trade Organization (WTO), where its use of import restrictions could be criticized as political in nature, by claiming that its coercive measures are in response to damage to Chinese national security, something that is covered by a broad exception at the WTO. 47 In the case of Russia, the Kremlin has regularly used autonomous coercive measures against its former Soviet neighbours, typically as a punishment for behaviour deemed to be unacceptable,48 as well as other diplomatic and travel restrictions, asset freezes, air traffic bans and alterations to export and import tariffs.49 It also employed so-called countermeasures against the EU and US in response to their sanctions imposed since 2014.50 India’s use of unilateral sanctions dates back to pre-Independence and has included autonomous measures against Japan (1939: invasion of China), South Africa (1946: discrimination against Indian South Africans under Apartheid), Israel (1947: in support of Palestinian concerns) and Rhodesia (1965: in protest at minority white rule).51 Sanctions were combined with military force in the cases of Hyderabad (1948: territorial integration) and the Portuguese authorities of Goa (1954: territorial integration).52 Other political and economic concerns have

James Reilly, ‘China’s Unilateral Sanctions’ (2012) 35 (4) The Washington Quarterly 121–33. ibid. 45 ibid. 46 Yang Jiang, ‘Sanctions are an Important Tool in China’s North Korea Diplomacy’ (2019) Danish Institute for International Studies (22 February). 47 On this exception at the WTO, see the chapter by Lena Chercheneff in this book; on China’s practice, see Reilly (n 43); on the US-China ‘trade war’, see the chapter by Congyan Cai in this book. 48 Erica Moret, Thomas Biersteker, Francesco Giumelli, Clara Portela, Maruša Veber, Dawid Jarosz and Cristian Bobocea, The New Deterrent? International Sanctions against Russia over the Ukraine Crisis: Impacts, Costs and Further Action (Programme for the Study of International Governance, Graduate Institute, 12 October 2016). 49 International Comparative Legal Guides (ICLG) ‘Compare & Research the Law, Worldwide’ (2020) accessed 2 April 2020. 50 Moret et al. (n 48). 51 Rishika Chauhan, ‘India and International Sanctions: Delhi’s Role as a Sanctioner’ (2013) Observer Research Foundation Issue Brief 58. 52 ibid. 43 44

Unilateral and extraterritorial sanctions in crisis  27 been at play in sanctions imposed by India on Pakistan (1949: in response to its currency devaluation), Fiji (1987: discrimination against Indian Fijians), Nepal (1989: warming relations with China) and Pakistan (2001: inaction against militant groups, Jaish-e-Mohammed and Lashkar-e-Taiba).53 In Latin America, Mexico employs sanctions for a range of domestic (largely security-related) matters such as organized crime, CT and AML54 and has applied asset freezes and travel bans on various Venezuelan officials since April 2018. The Colombian government also claims to have imposed over 200 travel entry bans on Venezuelan elites close to President Maduro although the list was not made publicly available.55 Panama, with the support of the Lima Group, also imposed short-lived sanctions against Venezuela on 29 March 2018, including targeted measures against President Maduro and a number of other senior serving officials, leading to ‘countermeasures’ imposed by Venezuela against Panamanian officials and companies (including Copa Airlines) on 5 April 2018.56 In the Middle East, countries such as Bahrain, Iraq, Saudi Arabia, Iran, Lebanon and the United Arab Emirates (UAE) are understood to operate their own autonomous sanctions regimes, with varying degrees of transparency.57 In Asia – in addition to the aforementioned Japan, China and South Korea – Malaysia, Singapore and Vietnam are understood to employ different types of unilateral sanctions and the Philippines is in the process of developing its own capability.58 In Africa, countries including Algeria, Egypt, Mauritius, the Seychelles, Sudan, Tanzania and Uganda also enact their own unilateral measures.59

4.

UNINTENDED HUMANITARIAN IMPACTS OF UNILATERAL AND EXTRATERRITORIAL SANCTIONS

The past three decades have seen a consolidated attempt by major sanctioning powers – including the UN, the EU and the US – to use targeted sanctions. They are imposed with the objective of inflicting minimal damage on civilians and, instead, only entailing costs – whether material or symbolic – for individuals or entities linked directly to activities deemed unacceptable by those imposing the measures. In contrast to targeted measures, comprehensive sanctions, used mainly in the 1980s and 1990s, involve an embargo on an entire country. Under these earlier sanctions regimes, the most vulnerable members of society – including children, women, those with chronic health complaints, those on fixed incomes (such as the elderly) and the poorest sectors of society – were understood to have been negatively impacted on a range of levels, particularly in terms

ibid. Eversheds Sutherland, ‘Country Sanctions’ accessed 10 April 2020. 55 ‘Maduro encabeza lista de 200 venezolanos que no pueden entrar al país’ El Tiempo (30 January 2019). 56 Geoff Ramsey, ‘Venezuela Targeted Sanctions Database, Switzerland and Panama Update’, WOLA, Advocacy for Human Rights in the Americas (25 April 2018) accessed 5 September 2019. 57 Eversheds Sutherland (n 54). 58 ibid. 59 ibid. 53 54

28  Research handbook on unilateral and extraterritorial sanctions of health and wellbeing.60 The switch from comprehensive to targeted sanctions came about after the outcry at the humanitarian costs associated, in particular, with US sanctions on Cuba and UN sanctions on Iraq, the former Yugoslavia and Haiti. 4.1

A Return to Comprehensive Measures

In spite of the considerable achievements forged in this field, the 2010s have been marked by a return to de facto comprehensive sanctions in some instances,61 and particularly in relation to some of the world’s most pressing security challenges and humanitarian crises. In the cases of both the US and EU, sectoral sanctions on Iran and Syria have been employed and expanded to an unprecedented degree since 2011/12 where collective measures include extensive sectoral bans in the areas of finance (including central banks) and petroleum.62 Broader EU and US sectoral sanctions have also been imposed in the recent cases of the DPRK (supplementing UN sanctions), Libya and Russia/Ukraine (particularly in relation to Crimea). The US has also broadened its sectoral sanctions against Venezuela since 2017 to include sweeping measures against the state-run petroleum company PDVSA; significant given that the country’s oil sales formerly accounted for some 98 per cent of export earnings and almost 50 per cent of GDP.63 In addition, the US retains its broad sectoral sanctions on Cuba, which have been in place against the Caribbean island for over 70 years. While various aspects of the former embargo were eased under the Barack Obama presidency, they have again been tightened under the current US administration. Elsewhere, Israel’s longstanding naval, air and land blockade against Gaza64 and the naval blockade against Yemen by a Saudi-led coalition,65 while not technically sanctions regimes, involve similar unintended humanitarian consequences.66 4.2

Pain versus Gain and Degrees of Targetedness

Over 60 years ago, Norwegian sociologist Johan Galtung described the ‘naïve theory’ on sanctions, which criticized the dominant view of the day that held that the more significant the economic pain caused on a country through sanctions (and related civilian suffering) the greater the chance of political gain achieved through compliance of the target.67 Later works

60 Erica S Moret, ‘Humanitarian Impacts of Economic Sanctions on Iran and Syria’ (2015) 24 (1) European Security. 61 ibid. 62 ibid. 63 Rocio Cara Labrador, ‘Venezuela: The Rise and Fall of a Petrostate’ (2019) Council on Foreign Relations accessed 10 February 2020. 64 United Nations Office for the Coordination of Humanitarian Affairs (OCHA), ‘Occupied Palestinian Territory: Gaza Blockade’ (2020) accessed 1 June 2020. 65 Biersteker et al. (n 4). 66 On the impact of contemporary comprehensive sanctions on international human rights law, see the chapter by Ioannis Prezas in this book. 67 Johan Galtung, ‘On the Effects of International Economic Sanctions: With Examples from the Case of Rhodesia’ (1967) 19 World Politics 378–416.

Unilateral and extraterritorial sanctions in crisis  29 went on to corroborate that no clear causal link exists between the damage inflicted by a sanctions regime and any observable resulting change in the behaviour of its targets.68 Indeed, research by the TSC into UN targeted sanctions imposed since 1990 suggests decreasing returns in efficacy when a sanctions regime goes over and above a certain threshold of measures.69 The optimal combination appears to be one that targets key export commodities in the sanctioned economy (apart from oil), or sizeable companies that affect entire sectors of a targeted economy. Sanctions that are composed of only one measure (such as an asset freeze or travel ban) are never effective and those at the other end of the spectrum (full-blown embargoes) also result in a lower level of effectiveness.70 However, this is not to say that all unilateral sanctions necessarily have negative humanitarian impacts on populations where sanctions are imposed. On the contrary, the most commonly used targeted sanctions imposed by the likes of the UN, US and EU are asset freezes, arms embargos and travel bans, which do not tend to have negative humanitarian impacts in any obvious way; indeed, they have been designed for this very reason.71 In spite of this, criticism of unilateral sanctions by non-Western observers still often tends to single this particular area out for attention. For example, in one report supportive of the Venezuelan government of Nicolas Maduro, the author makes a direct link between the unilateral nature of sanctions and their impact on food and medicine availability: ‘The international community recognises that unilateral coercive measures are political and economic actions [which] deprive the population of basic products that are imported to the country, among others, basic foodstuffs and medicines’.72 A similar stance is employed in some of the communications of the former Special Rapporteur on the negative impact of unilateral coercive measures on the enjoyment of human rights (Idriss Jazairy, a former Algerian diplomat appointed by the UN Human Rights Council), who: ‘Expressed deep concern at the recent imposition of unilateral coercive measures on Cuba, Venezuela and Iran by the United States, saying the use of economic sanctions for political purposes violates human rights and the norms of international behavior [and] may precipitate man-made humanitarian catastrophes of unprecedented proportions’.73 Rather, it is the degree of ‘targetedness’ and not whether or not sanctions are of a multilateral nature that is arguably more relevant with reference to humanitarian considerations. Indeed, sanctions that receive the backing of the UN can also have negative impacts on civilian 68 Moret (n 60); Thomas G Weiss, ‘Sanctions as a Foreign Policy Tool: Weighing Humanitarian Impulses’ (1999) 36 (5) Journal of Peace Research 499–509. 69 Thomas J Biersteker, Sue E Eckert, Marcos Tourinho and Zuzana Hudáková, ‘UN Targeted Sanctions Datasets (1991–2013)’ (2018) 55 (3) Journal of Peace Research 404–12. 70 ibid. 71 Unless de-risking is under way because of wider exacerbating factors such as war or wider regulations (particularly those in the CT realm). 72 Maria Lucrecia Hernandez and Ana Salazar Maldonado, ‘Medidas coercitivas unilaterales contra Venezuela y su impacto en los derechos humanos’, Informe especial: Estudios y Defensa en Derechos Humanos (SURES) (Caracas 2018). 73 United Nations Human Rights Council, ‘Human Rights Council begins interactive dialogue on the right to development and on unilateral coercive measures’ (12 September 2018) accessed 20 January 2020; see also UN Special Rapporteur on the Negative Impact of Unilateral Coercive Measures on the Enjoyment of Human Rights, ‘Report of the Special Rapporteur’, 17 July 2018, A/73/175, para 52.

30  Research handbook on unilateral and extraterritorial sanctions populations (such as in the cases of the DPRK and Iran). Similarly, the UN’s CT sanctions can be seen as problematic from the perspective of international legal scholarship, including International Humanitarian Law,74 as they do not typically allow aid providers to treat all parties (such as designated terrorist groups) according to the Humanitarian Principles of humanity, neutrality, impartiality and independence.75 4.3

De-Risking, Overcompliance and the Chilling Effect

One of the most notable outcomes of the rise in overlapping (albeit not typically jointly coordinated or monitored) autonomous sanctions regimes is the growing worldwide problem of financial sector ‘de-risking’ or ‘overcompliance’. This refers to the mounting reluctance seen among banks and wider private sector entities regarding exposure to ‘high-risk’ jurisdictions, stemming from the ever more demanding compliance environment caused not only by broader and more multi-layered sanctions but also wider CFT and AML regulations.76 Such a phenomenon has resulted in many countries finding themselves largely ‘unbanked’, which goes hand-in-hand with a broad and devastating range of negative humanitarian consequences.77 It has also led to a steep reduction in corresponding banking channels to heavily sanctioned countries such as the DPRK and Syria, frustrating even the work of the UN and other major aid providers.78 These trends are not surprising given the legacy of monumental fines levied against a number of financial institutions by the US Treasury (sometimes amounting to billions of euros) and the ever-increasing burden caused by greater bureaucratic requirements. De-risking has been recognized as such a fast-growing global problem that organizations such as the FATF,79 Financial Stability Board (FSB),80 International Monetary Fund (IMF)81 and World Bank82 have put out an urgent call for a new approach to deal with the challenge. 74 Alice Debarre, ‘Making Sanctions Smarter: Safeguarding Humanitarian Action’ [online] International Peace Institute (2018) 11. 75 See also the chapter by Ioannis Prezas in this book. 76 The situation is further exacerbated by the fact that international regulatory bodies such as the Paris-based Financial Action Task Force (FATF) highlight some of these countries as high-risk jurisdictions, as argued in Biersteker et al. (n 4). 77 Gregoire Mallard, Farzan Sabat and Jin Sun, ‘The Future of the International Trade of Vital Goods in Sanctioned Jurisdictions: A FinTech Solution to the Current Problem of Payments’ (2020) 26 Global Governance 121–53. 78 Based on the author’s role in moderating the ‘Compliance Dialogue on Syria-Related Humanitarian Payments’ (2018–2020) on behalf of the Swiss government and the European Commission and with the support of the World Bank and the UK’s Department for International Development. 79 Financial Action Task Force (FATF), ‘FATF Takes Action to Tackle De-risking’ (October 2015)

accessed 20 January 2020. 80 Financial Stability Board (FSB), ‘Report to the G20 on Actions taken to Assess and Address the Decline in Correspondent Banking’ (November 2015) accessed 20 January 2020. 81 International Monetary Fund (IMF), ‘The Withdrawal of Correspondent Banking Relationships: A Case for Policy Action’ (June 2016) accessed 20 January 2020. 82 World Bank, ‘Report on the G-20 Survey on De-risking Activities in the Remittance Market’ (October 2015) accessed 20 January 2020.

Unilateral and extraterritorial sanctions in crisis  31 A similar and growing trend is that of the ‘chilling effect’ which refers to the withdrawal of humanitarian organizations and health workers, as well as private sector actors such as medical and food export companies, from ‘high-risk’ countries under complex and far-reaching sanctions and wider regulations.83 This is occurring, in large part, in light of the difficulties navigating and adhering to the costly, confusing and risky regulatory frameworks.84 As such, even countries that are not under particularly broad sanctions regimes, such as Sudan, Somalia, Yemen, Afghanistan, Libya and Iraq, find themselves suffering from these challenges, often with devastating civilian costs. Such concerns will continue to grow until new global processes and agreements can be forged to mitigate the considerable risks caused by the proliferation of multiple sanctions regimes around the world.

5.

MAJOR CHALLENGES ASSOCIATED WITH THE RISE OF UNILATERAL AND EXTRATERRITORIAL SANCTIONS AS A DOMINANT TOOL IN WORLD POLITICS

5.1

Contradicting Views on Global Autonomous Sanctions Practices

In spite of the longstanding and widespread (and seemingly growing) use of sanctions outside the UN-framework across the globe, many non-Western countries continue to argue against their use, often grounded in legal terms, demonstrating something of a contradictory stance.85 One such example was when all non-Western UN Member States voted in favour of a UN Human Rights Council resolution in March 2012, arguing that ‘unilateral coercive measures in the form of economic sanctions can have far reaching implications for the human rights of the general population of targeted states, disproportionately affecting the poor and most vulnerable classes’.86 87 China’s opposition to the use of economic sanctions is particularly ‘legendary’, with Beijing repeatedly criticizing and shaping UN sanctions practice88 and sometimes vetoing the creation of new regimes (as in the cases of Myanmar/Burma in 2007, Zimbabwe in 2008 and Syria in 2011 and 2012).89 For decades, the Chinese government and Chinese scholars alike dismissed the legitimacy of targeted sanctions, though attitudes have gradually softened vis-à-vis their use at the UN.90 Unilateral sanctions regimes have come under particular criticism, with Beijing

Debarre (n 74) 11. Erica Moret, ‘Time to Act: Harmonising Global Initiatives and Technology-Based Innovations Addressing De-risking at the Sanctions-Counterterrorism-Humanitarian Nexus’, SWP, Berlin (forthcoming 2021). 85 Thomas Biersteker and Erica Moret, ‘Rising Powers and Reform of the Practices of International Security Institutions’ in Jamie Gaskarth (ed.), Rising Powers, Global Governance and Global Ethics (Routledge 2015). 86 UN Human Rights Council resolution A/HRC/19/L.12, 15 March 2012. 87 For a legal analysis of unilateral coercive measures, see the chapter by Pierre-Emmanuel Dupont in this book. 88 For China’s position on, and practice of, sanctions, see the chapter by Congyan Cai in this book. 89 Reilly (n 43). 90 ibid. 83 84

32  Research handbook on unilateral and extraterritorial sanctions denouncing them as ‘an immoral punishment of innocent, vulnerable populations’.91 Beijing has also been especially critical of the legality of the US’s use of extraterritorial sanctions and unilateral measures more widely.92 In the case of Russia, its opposition to autonomous sanctions is thought to have its roots in the Soviet era when the USSR and its allies claimed to oppose any form of economic coercion.93 India’s longstanding opposition to unilateral sanctions is grounded in its leading role in the Non-Aligned Movement94 and can also be explained, in part, by its experience as a target of international sanctions on a number of occasions since the 1960s, including in relation to developments in its nuclear weapons capability.95 That emerging economies and developing countries more widely should challenge the legality and legitimacy of autonomous sanctions is not surprising for a number of reasons. Not only have many of them been targets of sanctions in the past (or could envisage being sanctioned in the future), but they also share a collective opposition to interference in domestic affairs by other states, particularly by the US, which they claim violates state sovereignty and undermines the authority of multilateral institutions. They also share the need to prioritize economic considerations (such as internal development and economic growth) before assuming a more sizeable role in international affairs, which comes bound up with greater and more costly responsibilities.96 Indeed implementing sanctions may sometimes entail significant costs not only for the target but also for the country imposing them. 5.2

Extraterritoriality and ‘Maximum Pressure’

US sanctioning practice has seen a rise in the use of extraterritorial or secondary sanctions which allow the US to target non-US persons and entities operating outside the confines of its jurisdiction. In parallel the US has also intensified its application of fines on non-US financial institutions through its extraterritorial measures, in what philosophy professor Joy Gordon has described as ‘second generation US extra-territoriality’.97 The global reach of US sanctions is further reinforced in light of the dominance of the dollar as a global reserve currency and the high level of integration of the US financial institutions (and wider private sector) in the world economy. First used by the US under the Reagan administration in relation to a planned gas pipeline between Siberia and Western Europe, they were implemented more widely in the 1990s against Cuba, Libya and Iran. The use of such measures resulted in international condemnation, raising questions over their legality under international law. The EU has long questioned their legitimacy under international law and has filed complaints against its transatlantic ally at the World Trade Organization (WTO) as well as proposing a blocking statute that prohibits EU entities from complying with the measures. US secondary sanctions were further developed and expanded under the Obama administration and pursued with new vigour under the ibid. ibid. 93 Elena Katselli Proukaki, Countermeasures, the Non-Injured State and the Idea of International Community (Routledge 2009). 94 Biersteker and Moret (n 85). 95 Chauhan (n 51). 96 Harsh V Pant, ‘The BRICS Fallacy’ (2013) 2 The Washington Quarterly. 97 Joy Gordon, ‘Extraterritoriality: Issues of Overbreadth and the Chilling Effect of Sanctions in the Cases of Cuba and Iran’ (2016) 57 Harvard International Law Journal. 91 92

Unilateral and extraterritorial sanctions in crisis  33 Trump presidency. In late 2019 Congressional legislation was passed to allow for secondary sanctions against non-US companies working on the construction of the Russian natural gas pipelines, Nord Stream 2 and TurkStream.98 Extraterritorial sanctions have also been used or made possible against Iran, North Korea, Venezuela and Syria, which play an integral part in the controversial ‘maximum pressure’ campaign. Instigated and ramped up under the Trump presidency, the policy has its roots in a ‘more pain for more gain’ approach, based on the idea that devastating a target country’s economy, with consequent damage to its civilian population, will lead to concessions on the part of the target.99 5.3

States’ Motivations in Using Autonomous Sanctions

Sanctions agreed outside of the multilateral framework have their clear downsides relating to questions of ethics and legality, explored in depth in subsequent chapters. A raft of problems is also posed by the far-reaching and multi-layered nature of many sanctions regimes in the world today, particularly regarding their humanitarian consequences and implications for IHL, Human Rights and various other areas of international law. The situation is compounded by the increasingly complex compliance environment, particularly in the US. Specific challenges are also implicit in the use of ‘sanctions by other names’ or measures by those governments that do not make public the political or juridical processes that underlie their use, rendering them less accountable. Some scholars argue that some of these governments may employ hazy or poorly communicated policies on sanctions implementation as a tactic to provide them with flexibility and credible deniability.100 The law firm, Eversheds Sutherland, writes that where ‘legislation does not provide any exhaustive lists of potential measures’ such an approach affords leaders ‘a lot of discretion’ on their sanctions policies.101 Democracies disproportionately sanction non-democratic countries as well,102 and richer countries sanction poorer countries far more,103 which also raises questions of proportionality. On the other hand, implementing sanctions unilaterally appears to afford the sender certain advantages, which explains why all countries the world over have historically sought to make use of economic instruments for strategic benefits. Firstly, it can represent a way around the impasse experienced at the UNSC on a range of major security challenges and breaches of international norms. It can also allow for a more flexible and rapid response to certain crises or challenges in the world.104 Even in the absence of agreement between P5 members, it can allow for countries and regional organizations to signal their support for a rules-based system and 98 US Congress, ‘S.1790 – National Defense Authorization Act for Fiscal Year 2020’ accessed 20 January 2020. 99 Thomas G Weiss, David Cortright, George A Lopez and Larry Minear (eds.), Political Gain and Civilian Pain: Humanitarian Impacts of Economic Sanctions (Rowman and Littlefield 1997). 100 Reilly (n 43). 101 ICLG (2020). 102 Dan G Cox and A Cooper Drury, ‘Democratic Sanctions: Connecting the Democratic Peace and Economic Sanctions’ (2006) 43 (6) Journal of Peace Research 709–22; Christian von Soest and Michael Wahman, ‘Not All Dictators are Equal: Coups, Fraudulent Elections, and the Selective Targeting of Democratic Sanctions’ (2015) 52 (1) Journal of Peace Research. 103 Erica Moret and Fabrice Pothier, ‘Sanctions After Brexit’ (2018) 60 (2) Survival, Global Politics and Strategy 179–200. 104 In reality, though, the same challenges may also face the EU and other regional organizations.

34  Research handbook on unilateral and extraterritorial sanctions display unity by imposing measures collectively. As such, sanctions look likely to continue to represent an invaluable middle ground between war and words,105 in spite of their shortcomings. This is particularly relevant at a time when normative and budgetary constraints push advanced economies to avoid military engagement in foreign disputes, while simultaneously being expected to lead or assist in curtailing the rise of international instability and security challenges transcending borders.106 Second, is the positive role that autonomous sanctions can play in driving UN action.107 Over 70 per cent of UN sanctions are preceded by measures imposed by individual nations or regional groups, often working in unison.108 The Iran nuclear deal provides a useful case in point whereby the E3/EU+3 (composed of China, France, Germany, Russia, the UK and the US, with the later addition of the EU) largely carried out negotiations with Tehran outside the UN setting, but as soon as the group arrived at an agreement, the deal was rapidly approved by the UNSC.109 Third, scope for joining forces in the autonomous realm (both in supplementing UN measures or in their absence) can also represent an efficient sanctioning strategy and serve as a force multiplier. This can also help to close commercial gaps that could be exploited by the targeted entity or can also enable different sanctioning powers (and their parallel diplomatic processes) to play different roles in parallel policy activities, such as negotiations or peace processes.110 The US and EU have tended to play the ‘bad cop/good cop’ roles in recent decades, including through a heterogenous use of ‘carrots and sticks’ for example, often with effective diplomatic outcomes. Sometimes this has also allowed the EU and other allies to serve as a tempering force on US foreign and security policy (and its sanctions) in cases such as Iran as well as in Latin America and the Caribbean; something that has become all the more pertinent under the current US administration. Fourth, the proliferation of autonomous sanctions outside the UN context has led to the growth of new forms of expertise and sharing of best practice between governments and regional organizations employing the measures. This, in turn, has scope for impacting positively on the design and implementation of UN sanctions. EU sanctions, for example, have developed in recent years to encompass increasingly sophisticated mechanisms, such as fund-transfer controls and complex restrictions on certain types of sanctioned products.111

105 Peter Wallensteen and Carina Staibano (eds.), International Sanctions: Between Words and Wars in the Global System (Routledge 2005). 106 Ali Z Marossi and Marisa R Bassett (eds.), Economic Sanctions under International Law: Unilateralism, Multilateralism, Legitimacy and Consequences (Asser Press 2015). 107 For a legal analysis of the articulation of unilateral sanctions with UN sanctions, see the chapter by Jean-Marc Thouvenin in this book. 108 Biersteker et al. (2016). 109 Charlotte Beaucillon, ‘La sanction des “Etats Proliférants” : Remarques sur l’interaction entre mesures collectives et unilatérales dans le cas iranien’ (2015) XVI Annuaire français de relations internationales. 110 For more on EU values and sanctions, see Charlotte Beaucillon, ‘Restrictive Measures as Tools of EU Foreign and Security Policy: Promoting EU Values, from Antiterrorism to Country Sanctions’ in Stefano Montaldo, Alberto Miglio, Francesco Costamagna (eds.), European Union Law Enforcement: The Evolution of Sanctioning Powers (Routledge 2020). 111 Moret and Pothier (n 103).

Unilateral and extraterritorial sanctions in crisis  35

6. CONCLUSION The world is heading towards a new crisis point regarding the use, misuse and abuse of sanctions.112 Differing views on the legitimacy, usefulness and legality of various forms of sanctions continue to abound around the world. This is likely to intensify in the years to come in light of the growing use of the measures outside the multilateral framework by advanced and emerging economies alike. Not only are they growing in terms of numbers of individual sanctions regimes and their geographical reach, but so too are the numbers of actors seeking to impose them, the objectives which they are designed to tackle, and the variety of targets they seek to influence. This presents very real problems in light of the fact that any form of joint coordination (in areas such as planning, monitoring and lifting) between overlapping sanctions remains ad hoc and poorly orchestrated at best or non-existent at worst.113 This may engender a raft of serious unintended humanitarian consequences and increased costs for private and public sector actors. Furthermore, their use is becoming less discriminate and less targeted in numerous instances, signifying a return to comprehensive sanctions in practice, even if the theory continues to dictate otherwise. This is being intensified through policies adopted under the Trump presidency, such as the ‘maximum pressure’ campaign and a stepped-up use of extraterritorial measures. Indeed, a string of high-profile press and policy articles in the US have mounted their criticism of US sanctions practice in recent months, claiming they are being overused, not being employed judiciously enough, and not being tied strategically to wider US foreign policy, jeopardizing future use of the tool.114 President Trump’s use of the threat of ‘crippling sanctions’ against a wide range of would-be targets is also widely criticized.115 Covid-19 has

112 The last major crisis in legitimacy over international sanctions practice occurred in the late 2000s regarding human rights considerations in relation to areas like due process of sanctions listings. In contrast, this time the focus is on the adequacy of licensing exemptions and whether they come close to addressing real humanitarian needs (interview with a sanctions specialist, May 2020). This will become particularly marked if sanctions and wider regulations are seen as barriers to effective action against the Covid-19 pandemic. 113 This was the subject of a memo submitted in April 2021 by the author to the US Treasury as part of the Biden Administration’s review into the future of US sanctions, entitled “When should the United States use hard-hitting sectoral and financial sanctions?”. 114 Brian O’Toole, ‘Sanctions are Effective—If Used Correctly’ The New Atlanticist (Atlantic Council, 4 November 2019) accessed 3 May 2020; ‘A Harmful U.S. Sanctions Strategy? Foreign Affairs Asks the Experts’ Foreign Affairs (11 June 2019); David Mortlock and Brian O’Toole, ‘US Sanctions: Using a Coercive and Economic Tool Effectively’ (Issue Brief, Atlantic Council, 8 November 2018) www​ .atlanticcouncil​.org/​in​-depth​-research​-reports/​issue​-brief/​us​-sanctions​-using​-a​-coercive​-and​-economic​ -tool​-effectively/​accessed 1 May 2020; Peter Harrell, ‘Is the U.S. using Sanctions too Aggressively? The Steps Washington can Take to Guard against Overuse’ Foreign Affairs (11 September 2018) accessed 3 May 2020. 115 Ilhan Omar, ‘Ilhan Omar: Sanctions are part of a failed foreign policy playbook. Stop relying on them’ The Washington Post (23 October 2019) accessed 5 May 2020.

36  Research handbook on unilateral and extraterritorial sanctions cast these mounting concerns into sharp relief, prompting an array of world leaders to call for a reassessment of their use.116 The range of unintended consequences of these latter trends is creating urgent and global challenges, particularly on the humanitarian front, raising important questions in all areas of international law, including IHL and Human Rights. When combined with wider CT and AML regulations and the compounding impacts of civil war and infrastructure collapse, this leaves a growing number of countries without access to financial institutions or correspondent banking channels. This is already having severe, unforeseen and long-term adverse impacts on civilian populations in a number of heavily sanctioned countries, as well as seriously compromising the ability of humanitarian organizations, health workers and exporters of essential goods from continuing their activities in these jurisdictions. While autonomous sanctions that supplement or replace UN action present some clear advantages to their users, the cumulative effects implicit in their ever-expanding use represent a grave cause for concern. Unless these mounting problems are addressed urgently, the international community may reach a new crisis point in the form of a major outcry over its rapidly shifting use of sanctions. This could compromise the ability of sanctioning powers to continue making use of what is a highly valued tool of foreign and security policy. The UN’s own use of sanctions could also be put at risk due to the possibility being tainted by a backlash associated with the overlapping and interconnected world of sanctions and wider policy activities. Irrespective of our views, sanctions are clearly here to stay.117 It is now time for a radical rethink of how global actors should make use of their preferred instrument of foreign and security policy in the years to come. This will require a change in our normative understanding of how we should best employ sanctions in their entirety – explored further in the rest of this book – and it also necessitates, as a matter of priority, a return to more strictly targeted measures.118

116 ‘Former world officials call on US to ease Iran sanctions to fight Covid-19’ The Guardian (6 April 2020) accessed 7 April 2020; OHCHR, ‘Bachelet calls for easing of sanctions to enable medical systems to fight COVID-19 and limit global contagion’ (24 March 2020) accessed 26 March 2020. 117 David Cohen and Zachary Goldman, ‘Like it or Not, Unilateral Sanctions are Here to Stay’ (2019) 113 American Journal of International Law 146–51. 118 See also Erica Moret ‘More Civilian Pain than Political Gain (Again?): The Demise of Targeted Sanctions and Associated Humanitarian Impacts’, in Andrea Charron and Clara Portela (eds.), Multilateral Sanctions Revisited: Lessons Learned from Margaret Doxey  (Kingston: McGill Queen's University Press, forthcoming).

3. South Africa’s position and practice with regard to unilateral and extraterritorial coercive sanctions Hennie Strydom

1. INTRODUCTION South Africa offers a rather unique case study on the issue of sanctions and their justification. For the greater part of its existence as an independent republic,1 the country and its people had to endure a wide-ranging sanctions regime comprising collective as well as unilateral economic measures in response to the notorious, racially-based domestic policy of apartheid forcefully upheld by a recalcitrant, white minority government for many years. As the intensity of economic measures and calls for disinvestment in the country increased internationally, the debates for and against the sensibility and workability of economic measures to bring about political change became voluminous. Included in this body of opinions were also reflections on whether unilateral coercive measures were lawful under international law or not, a theme that more generally started to attract attention among international law scholars at the time. However, for the cohort of sanctions lobbyists, the political objective was so all-consuming that there was little, if any, concern for legal distinctions between collective, Security Council-authorized measures and other voluntary economic measures individual states elected to impose against South Africa for whatever disclosed or undisclosed reason or objective. The African National Congress (ANC), the undisputed representative political voice of the disenfranchised black voters in South Africa, formed part of this cohort and was unequivocal in its demand for comprehensive and mandatory sanctions ever since its internal boycott actions in the 1950s.2 Hence, for this leading protagonist of South Africa’s international isolation, all measures aimed at this objective were morally and politically justified3 (mainly from a utilitarian standpoint) as well as legally justified in view of the condemnation of apartheid as a contravention of the UN Charter by the United Nations4 and the International Court of Justice,5 a view that had many adherents at the time.



1 2

8.

South Africa gained full independence from Great Britain on 31 May 1961. Mark Orkin, ‘Introduction’ in Mark Orkin (ed.), Sanctions Against Apartheid (David Philip 1989)

3 See Robert Paul Wolff, ‘The Moral Dimensions of the Policy of Anti-Apartheid Sanctions’ in Orkin (n 2) 103; Hilary Joffe, ‘The Policy of South Africa’s Trade Union Towards Sanctions and Disinvestment’ in Orkin (n 2) 57. 4 See for instance GA Res 1248 (XIII); 1598 (XV) paras 3, 4; 1761 (XVII) paras 2–4; SC Res 264 (1969) paras 3, 4; 269 (1969) and 276 (1970). 5 See Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) notwithstanding Security Council Resolution 276 (1970) ICJ Advisory Opinion 1971, 16, paras 109, 112, 117, 119, 126.

37

38  Research handbook on unilateral and extraterritorial sanctions Domestically the major political objectives were achieved in 1994, underscored by the undisputed outcome of the first democratic elections, legitimizing the ANC (which formed a tripartite alliance with the South African Communist Party and the Congress of South African Trade Unions in 1990), the former liberation movement, in its new position as governing party, and by the adoption of the new constitutional dispensation with extensive human rights guarantees and judicial oversight over all laws and conduct of government. What role sanctions played in bringing about this historic event has been the source of extensive debates. A sober view at the time was that it is ‘impossible to establish a direct causal connection between the application of sanctions and their political consequences within the apartheid system’ since ‘sanctions are often a consequence of events within South Africa whose impact obscures those of sanctions’.6 Internationally the historical breakthrough of 1994 also meant that the country could take its rightful place again as a respected member of the family of nations after years of political and economic ostracism. This included three terms (2007–8, 2011–12 and 2019–20) as a non-permanent member of the Security Council, the same body that was responsible for imposing a mandatory arms embargo against the country 30 odd years earlier, the first time a UN member had to suffer such a fate. Ironically it was during these episodes that evidence started to emerge that South Africa’s post-1994 foreign policy was taking a trajectory many South Africans and foreign observers felt was a betrayal of the ANC’s own views in respect of human rights and democratic principles. What triggered these concerns were South Africa’s abstention and negative votes when condemnatory resolutions in the Security Council dealt with country-specific cases of gross human rights violations. It is rather axiomatic that the new alliances the ANC government joined in 1994, namely the Non-Aligned Movement and the African Union, played a significant role in shaping the ANC government’s foreign policy on these and other issues, including the country’s stance on unilateral coercive measures against certain states, especially when the source of the measure was the US or its allies in the West. In such instances it is politically naive to ignore the fact that, while the apartheid government was politically and economically aligned to the West, the ANC government was, and still is, ideologically aligned to the ideas and doctrines that were formulated in Moscow, Peking (now Beijing) and Havana where national liberation movements were in any event welcomed as the natural allies of socialist countries in their struggle against imperialism.7 Against this background this chapter will traverse, albeit in unequal measure, both the preand post-1994 sanctions-related positions and practice with regard to and by South Africa. In doing so the substantive part of the chapter will proceed as follows: sanctions imposed against South Africa, collectively and unilaterally, and the related enforcement issues are dealt with in Section 2; Section 3 focuses on the post-1994 dispensation and the ANC government’s stance on country-specific issues, the issue of unilateral coercive and extraterritorial sanctions and the role of the Non-Aligned Movement and the African Union; and Section 4 explains developments in respect of the domestic legal framework for giving effect to UN imposed sanctions.

6 Catholic Institute for International Relations, ‘The Political Impact of Sanctions on South Africa’ in Joseph Hanlon (ed.), South Africa: The Sanctions Report (Penguin 1989) 142. 7 On the Soviet role in particular see Irina Filatova and Apollon Davidson, The Hidden Thread: Russia and South Africa in the Soviet Era (Jonathan Ball Publishers 2013) ch 9.

South Africa’s position and practice  39

2.

SANCTIONS AGAINST SOUTH AFRICA

2.1

The Role of the UN General Assembly and Security Council

Between 1960 and 1994 South Africa was one of the most heavily sanctioned countries in the world as a result of its notorious, internationally condemned policy of apartheid.8 The measures imposed at the time by both the United Nations and individual members of the international community were still in the form of comprehensive sanctions which traditionally did not distinguish between the delinquent members of a political regime and the population of the sanctioned state. Starting in 1961 the UN General Assembly called on states to consider taking separate and collective action against South Africa,9 followed the next year by a call on states to break off diplomatic relations with the country, close their ports to South African vessels, boycott all South African goods including all arms and ammunition, seize imports from and exports to the country and refuse landing and overflight facilities to South African aircraft.10 At the same time the Assembly called on the Security Council to take appropriate measures, including sanctions, to secure South Africa’s compliance with General Assembly and Security Council resolutions and to consider the expulsion of South Africa from the United Nations in terms of Article 6 of the UN Charter.11 Although recommendatory in nature, these measures paved the way for the progressive isolation of South Africa, helped along by stronger action over time by the UN Security Council. Having called on South Africa already in 1960 to abandon the policies of apartheid and racial discrimination,12 the Security Council in 1963 opted for a voluntary arms embargo against South Africa,13 based on the assessment that the situation in the country was ‘seriously disturbing international peace and security’, a phrase that might fit the object and purpose of Chapter VII of the UN Charter. However, in the 1970s domestic developments called for stronger action. Following the 1976–7 Soweto uprising and the consequent repressive and violent police action, the Council invoked Chapter VII of the UN Charter in imposing a mandatory arms embargo against South Africa14 – the first time enforcement action was authorized against a UN Member State15 – citing the security forces’ resort to violence against and killings of African people, a military build-up in the country and persistent acts of aggression against neighbouring states for its determination that the acquisition by South Africa of arms and related materiel constituted a threat to the maintenance of international peace and security. Two other significant resolutions followed the mandatory arms embargo. In Resolution 421 (1977) the Council established, in accordance with Rule 28 of the Council’s provisional rules of procedure, a Sanctions Committee to oversee the implementation of the embargo, and in 8 For more information on the nature and scope of these policies see Roger Omond, The Apartheid Handbook (Penguin 1985). 9 GA Res 1598 (XV) para 3. 10 GA Res 1761 (XVII) para 4. 11 ibid para 8. 12 SC Res 134 (1960) para 2. 13 SC Res 181 (1963) para 3 and 182 (1963) para 5. 14 SC Res 418 (1977) para 2. 15 The mandatory sanctions imposed by the Security Council in Resolution 232 (1966) against Rhodesia were against a non-Member State.

40  Research handbook on unilateral and extraterritorial sanctions Resolution 473 (1980) the Council called on all states to strictly and scrupulously comply with Resolution 418 and to enact appropriate national legislation for that purpose. Those who believed that the mandatory arms embargo would open the door for further mandatory sanctions under Chapter VII to include economic measures had their hopes dashed by persistent vetoes by the United States and the United Kingdom.16 Even after the declaration of a state of emergency in 1985 and more repressive measures by the apartheid government, the Council, in strongly condemning the state of emergency and the concomitant repressive measures, made no mention of Chapter VII and merely urged UN Member States to adopt measures against South Africa such as the suspension of all new investments, prohibition of the sale of Krugerrands, imposition of sport boycotts, suspension of guaranteed export loans, prohibition of all new contracts in the nuclear field, and prohibition of all sales of computer equipment that might be used by the security forces.17 2.2

Unilateral Sanctions by Individual States and Organizations

Trade sanctions against South Africa go back to 1946 when India imposed a total trade embargo. Following the 1960 Sharpeville massacre, newly decolonized nations imposed general embargoes with the result that, by the end of 1963, 46 states had cut all links with South Africa.18 This was also the year in which the Organization of African Unity (OAU) called for the breaking-off of diplomatic and consular relations between all African states and South Africa and for an effective trade boycott against South Africa.19 In 1973 OPEC oil producers introduced a voluntary boycott and by 1985 all significant producers had official policies banning direct export of crude oil to South Africa.20 During the 1980s trade sanctions by individual states and regional organizations broadened but differed in scope among South Africa’s top 30 trading partners who acted under EC, Nordic or Commonwealth21 sanction packages.22 The measures imposed by these states varied from total bans, to partial bans to voluntary measures,23 and as Moorsom has observed, in practice there was ‘frequently a large gap between rhetoric and action’24 and the ‘patchwork pattern of the measures … [allowed] ample scope for evasion, often quite illegally’.25 In the case of the United States, East–West competition for spheres of influence in parts of the globe including Africa played a significant role in the hitherto ambivalent stance of the US towards sanctions against South Africa, which, at the time was a loyal ally against communist expansion in Africa. Another factor was the protection of US business interests and trade

See John Dugard, ‘Sanctions Against South Africa’ in Orkin (n 2) 117. SC Res 569 (1985) para 6. 18 Richard Moorsom, ‘Foreign Trade and Sanctions’ in Orkin (n 2) 260. 19 OAU CIAS/PLEN.2/REV.2 Resolutions Adopted by the First Conference of Independent African Heads of State and Government, Addis Ababa, Ethiopia, 22–25 May 1963. 20 Moorsom in Orkin (n 18) 260. 21 See also Linda Freeman, ‘All but one: Britain, the Commonwealth and Sanctions’ in Orkin (n 2) 142. 22 Moorsom in Orkin (n 18) 261, 262. 23 For a comprehensive account see Hanlon (n 6) 5–8. 24 Moorsom in Orkin (n 18) 262. 25 ibid 263. 16 17

South Africa’s position and practice  41 relations between the two countries.26 However, by the mid-1980s it became clear that the US could no longer maintain its reluctant stance on sanctions against South Africa. Domestically the divestment movement had not only gained political traction by then but also succeeded in securing the withdrawal of significant sums of money earmarked for investment in South Africa, helped along by the media attention to the eruption of large-scale violent action in South Africa in 1984,27 which eventually led to the declaration of a state of emergency in 1985. How significantly the political mood changed as a result of these factors is illustrated by the passing of the 1985 Anti-Apartheid Act by 295 votes to 127 in the House of Representatives, followed in 1986 by an even stronger Comprehensive Anti-Apartheid Act that made it through Congress on a Senate vote of 78 against 21.28 At the time of these developments, the legality of the unilateral imposition of coercive economic measures started to attract attention in scholarly contributions. For instance, in 1977 Blum29 took the view that unilateral coercive measures constituted a violation of the rule of non-intervention in domestic affairs (Article 2(7) of the UN Charter) and were also incompatible with Article 2(3) of the Charter which obligates UN Member States to first settle disputes by peaceful means. South African authors were divided in their views on the matter. Barrie,30 for instance, relying on the interpretation by several authors of General Assembly resolutions and Charter provisions, considered such measures as interventionist and unjustifiable unless warranted by self-defence or securing redress for an international wrong. He also denounced a justification for such measures on the basis of human rights because state practice and opinio juris, according to him, were still lacking at the time for human rights obligations to have become part of customary international law.31 In opposing this view, Dugard relied on the condemnation of South Africa’s racial policies as contrary to international human rights norms by the political organs of the United Nations and the International Court of Justice as instances of authorization that transformed what ‘might have been an “improper purpose” into a “proper purpose” thereby rendering the economic sanctions employed lawful’.32 2.3

Enforcement Issues

Much has been written about the successes and failures of sanctions against South Africa. A detailed and data-supported analysis of the effects of sanctions on almost every aspect of the South African economy is provided in the 1990 Sanctions Report edited by Joseph Hanlon and referred to earlier on. Those who worked on this project joined in the belief that sanctions were 26 For more on this historical context see Kevin Danaher, ‘The US Struggle over Sanctions against South Africa’ in Orkin (n 2) 131. 27 ibid 135, 136. 28 ibid 136, 137. 29 Yehuda Z Blum, ‘Economic Boycotts in International Law’ (1977) 12 Texas International Law Journal 10–12, 15. See also Christopher Joyner, ‘The Transnational Boycott as Economic Coercion in International Law: Policy, Place and Practice’ (1984) 17 Vanderbilt Journal of International Law 205, 243–51. 30 GN Barrie, ‘International Law and Economic Coercion: A Legal Assessment’ (1985/86) 11 South African Yearbook of International Law 40, 42–7. 31 ibid 47–51. 32 Dugard in Orkin (n 16) 121–2. On the articulation of UN measures and unilateral measures, see also the chapter by Jean-Marc Thouvenin in this book. On unilateral sanctions and the law of international responsibility, see the chapter by Alexandra Hofer in this book.

42  Research handbook on unilateral and extraterritorial sanctions necessary to force the South African government to start genuine negotiations to decisively bring an end to apartheid. Arguably many others would have shared this view at the time since there was real evidence that the South African economy was in decline as a result of the country’s increasing isolation as well as the cost incurred by the South African government in circumventing the sanctions regime. While there is an element of truth in the popular view that sanctions eventually forced the South African government to the negotiating table, it remained but one of several factors that brought about this outcome and often there is too little recognition of the role played by domestic developments in the course of time. In brief these developments included the political acceptance of the fact that the Bantustan policy – black homelands for different ethnic groups (‘grand apartheid’) – was hopelessly unworkable in the face of the growing urbanization of black people and their irreversible presence in and around ‘white’ cities and towns; the dissipation of the apartheid government’s traditional support base; and the risk of a full-scale civil war.33 Several factors made the effective enforcement of sanctions against South Africa problematic. As regards the effectiveness of the arms embargo, the Security Council Committee,34 established by virtue of Resolution 421 of 1977, alluded to loopholes and difficulties with interpretation as reasons undermining the effectiveness of the embargo. On the issue of national enforcement measures, information received from 118 countries showed that national responses were far from uniform. While some countries had to resort to new legislation to give effect to the embargo, others chose to make use of existing administrative and regulatory measures, which were not always appropriate. Furthermore, penalties were inadequate to act as a deterrent and in some cases the lists of embargoed goods, for lack of criteria specific to South Africa, were unsuitable. In some instances, states took care to prevent the military and the police from benefitting from the sale of commodities to private users. US regulations, for instance, required the purchaser to certify that the merchandise would not be used for military or police purposes and that US Government approval would be obtained prior to any resale of the merchandise by the purchaser.35 However, South African laws existing at the time made such restrictions pointless. Under the terms of section 100 of the Defence Act, 44 of 1957, the State President had the power to obtain from any person, and without the consent of that person, machinery, equipment, materials, vehicles, and so on necessary for the mobilization or maintenance of the South African Defence Force or of other forces acting in cooperation therewith. Under the terms of section 3 of the National Supplies Procurement Act, 89 of 1970, the Minister of Economic Affairs could, if deemed necessary or expedient for the security of the Republic, order any person to sell, supply or deliver such goods or services to the state. In the case of a wilful refusal to comply with the order, section 4 allowed for the seizure of the goods or the use of any service provision facility. A peculiar situation arose in connection with African countries, in particular the so-called frontline states which grouped together in 1980 under the Southern African Development

33 See also David Welsh, The Rise and Fall of Apartheid (Jonathan Ball Publishers 2009) 344–81; Hermann Giliomee, The Afrikaners: Biography of a People (Hurst and Company 2003) 603–46; Hermann Giliomee, Die Laaste Afrikanerleiers: ‘n Opperste Toets van Mag (Tafelberg 2012) 291–375; L Scholtz, Kruispaaie: Afrikanerkeuses in die 19de en 20ste Eeu (2012) 153–66; Deon Geldenhuys, The Politics of Persecution: Contemporary Case Studies (Peter Lang 2019) 175–80. 34 UN Doc S/14179 (19 September 1980) para 34. 35 ibid 16, 17.

South Africa’s position and practice  43 Coordinating Conference (SADCC) which was transformed into the Southern African Development Community (SADC) in 1992. Since these countries neither sold arms nor oil to South Africa, the arms embargo was of little use as a sanctions objective for them. Their contribution to the international isolation of South Africa was limited to unilateral action involving sports and culture, trade and transport. However, from a trade perspective, the relevance, for South Africa, of the frontline states paled in significance to the importance of Europe, Japan and the US, South Africa’s major trade partners. This explains the position of the SADCC states as summed up by Hanlon:36 SADCC leaders have repeatedly made their position clear. They have called for sanctions by the industrialized countries, while admitting that they cannot impose sanctions themselves. This is reasonable, because sanctions imposed by SADCC would have a relatively high cost to the SADCC states and yet have little effect on apartheid, while sanctions imposed by the industrialized countries would have a major impact on apartheid and have relatively less cost for the imposing states and fewer knock-on costs to SADCC.

The economic vulnerability several of the SADCC members found themselves in37 became apparent already at the time of the UN sanctions against Rhodesia (now Zimbabwe) when countries like Zambia, Malawi and Botswana had to seek assistance from the UN on the basis of Article 50 of the UN Charter.38 This reality also played itself out in the case of sanctions against South Africa and informed the OAU and Commonwealth decisions to exempt countries neighbouring South Africa from the obligation to apply certain types of sanctions.39 The irony is that exemptions also created ample opportunity for sanction evasion or circumvention which was a generally known fact with the sanctions regime against South Africa.

3.

POLICY CHANGES AFTER 1994: THE ROLE OF NEW ALLIANCES

3.1 The Realpolitik of Human Rights Concerns The international isolation of South Africa through a set of comprehensive sanctions was an integral part of the ANC’s strategy to bring down the minority government40 and end its widely discredited domestic policies. However, if one takes into account the foreign relations,

36 Joseph Hanlon, ‘Tightening and Widening Sanctions: Impact of Sanctions on SADCC’ in Hanlon (n 6) 302, 303. 37 See also Ann Seidman, ‘The Frontline States, Economic Dependence and Sanctions’ in Orkin (n 2) 164. 38 See Hennie Strydom, ‘South Africa (Part I)’ in Vera Gowlland-Debbas (ed.), National Implementation of United Nations Sanctions: A Comparative Study (2004) 413–15. 39 Joseph Hanlon, ‘On the Front Line: Destabilization, the SADCC States and Sanctions’ in Orkin (n 2) 187. 40 After 1984 this strategy was augmented by the so-called ‘people’s’ war, an armed offensive aimed at the destruction of governance institutions and the creation of conditions that would make the country ungovernable, a strategy the ANC took over from the Viet Cong during the Vietnam war and implemented with the assistance of the Soviet Union. On this see Anthea Jeffrey, People’s War: New Light on the Struggle for South Africa (Jonathan Ball 2009) 72.

44  Research handbook on unilateral and extraterritorial sanctions as the government in power after 1994, of the ANC and its alliance partners, the South African Communist Party (SACP) and the Congress of South African Trade Unions (COSATU), the focus on sanctions seemed, in retrospect, more a matter of expediency than of principled choice to be considered and applied in all instances where human rights violations and other internationally wrongful conduct justify such interventions. After all, the principled option is what one may reasonably expect of a political alliance that frequently reminded members of the international community of their moral and ethical duties to impose and effectively enforce sanctions against the apartheid government. Moreover, there was ample evidence soon after the newly democratically elected government assumed power that human rights concerns were to be a guiding light for South Africa’s foreign policy. In 1996 Alfred Nzo, the first Foreign Affairs Minister of post-apartheid South Africa, announced that South Africa’s foreign policy would be principled and ‘if consistently adhered to will render our foreign policy predictable and in line with our perception of the kind of nation we seek to be, and the kind of world we seek to live in’. He then also explained that the principles in question would ‘serve as a yardstick by which the quality of our practical foreign policy decisions may be measured …’.41 In the same year, speaking at the 51st session of the UN General Assembly, the Minister made clear that a high premium would be placed on the promotion of human rights and that the ‘South African government regards it as a priority to contribute to the efforts of the international community to combat the violation of human rights’.42 On this score he echoed Nelson Mandela, soon to be President, who wrote in 1993 that ‘South Africa’s future foreign relations will be based on our belief that human rights should be the core concern of international relations, and we are ready to play a role in fostering peace and prosperity in the world we share with the community of nations’.43 Since the ruling party’s decades long international campaign against the apartheid government was fundamentally built on human rights and democratic rule, it made perfect sense, not only at the time but also in subsequent years, to invoke a commitment to human rights and democratic principles as the guiding light for the country’s foreign policy. For instance, in an aide-memoire in support of South Africa’s candidature for election to the newly established UN Human Rights Council, the South African delegation again referred to South Africa’s commitment to the protection of human rights and the advancement of democracy as a ‘central consideration in South Africa’s foreign policy’.44 This singling out of human rights as a strategic foreign relations theme even had some credibility to it that was manifested in the country’s ratification in time of all the major international human rights treaties. However, over time this exuberant allegiance to the human rights cause has unfortunately faded as a guiding light of the ANC government’s foreign relations.45 For instance, in a 2007 report on the assessment of the voting record on key human rights issues of the UN Human Rights Council’s members, South Africa, together with 15 other developing states with 41 South African Foreign Policy Discussion Document, accessed 21 May 2016. 42 Press release on end of year report on the activities of the Department of Foreign Affairs, 30 December 1996, accessed 21 May 2016. 43 Nelson Mandela, ‘South Africa’s Future Foreign Policy’ (1993) 72(5) Foreign Affairs 86–97. 44 UN Doc A/61/889 (2007). 45 For a more comprehensive account of this development see Suzanne E Graham, ‘South Africa’s Voting Behaviour in the United Nations: 1994–2008’ (PhD thesis, University of Johannesburg 2013) 180 ff.

South Africa’s position and practice  45 membership in the Council, received the lowest score.46 Based on this negative voting record, South Africa was classified as a questionable member of the Council in 2010 in a joint analysis by Freedom House and UN Watch.47 South Africa’s record in the UN General Assembly’s Third Committee, where country-specific resolutions on human rights issues are dealt with, is equally disappointing. Between 1994 and 2008 it consistently abstained from voting on condemnatory resolutions against countries such as Belarus, North Korea, Myanmar, DRC, Kosovo, Iraq, Iran, Turkmenistan and Uzbekistan; or voted against such resolutions in the case of Cuba, Iran and Belarus.48 While reciting the official (inept) line that human rights issues should be dealt with by the UN Human Rights Council as an explanation for its voting in the Security Council, officials admitted in private, according to one commentator, that they were registering their objection to Western powers who were ‘throwing their weight around’ by bringing up human rights issues in the Security Council.49 The Myanmar situation is one of those that has become symbolic of the ANC government’s confusing foreign policy on human rights. In 2018 it abstained, with 19 other states, from voting in the UN General Assembly’s Third Committee in respect of a resolution50 condemning the human rights violations against the Rohingya in Rakhine State, Myanmar on the basis of information sufficient for determining liability for genocide in addition to the crimes against humanity and war crimes committed in several states. The resolution was adopted by 142 votes against 10. Yet when the matter went to the General Assembly, South Africa voted in favour of the resolution,51 an about-turn that was most probably motivated by the criticism at home and abroad of the country’s stance in the Third Committee on a very serious human rights situation. Further context can be gleaned from the 2018 budget speech in the National Assembly by the then Minister of International Relations and Cooperation, Ms Lindiwe Sisulu.52 While affirming that the fundamentals of the country’s foreign policy, namely the focus on human rights, peace, equality, freedom from oppression, racism and poverty, would remain as its central thrust,53 the more illuminating part of the speech is where she explained how this general policy orientation would be given effect in actual inter-state relations. In such instances, she asserted, ‘[w]e take a cautious approach on country-specific issues, in respect of matters of human rights, preferring rather to promote dialogue in resolving disputes including in situations of human rights violations’.54 While this may be an appropriate response in cases where journalists are harassed, political opponents are incarcerated or freedom of speech is rendered impossible, it is grossly inadequate where substantiated allegations of genocide, crimes against

46 UN Watch, Dawn of a New Era: Assessment of the UN Human Rights Council and its Year of Reform (2007) 26, 27. 47 See accessed 23 May 2016. 48 Graham (n 45) 78. See also Terence Corigan, South Africa’s Foreign Engagement: Whither Human Rights? (South African Institute of International Affairs Workshop Report 2009) 10. 49 See accessed 15 April 2020. 50 UN Doc A/C.3/73/L.51 (31 October 2018). 51 GA Res 73/264 (22 January 2019). 52 See accessed 16 April 2020. 53 ibid 2. 54 ibid 3.

46  Research handbook on unilateral and extraterritorial sanctions humanity, war crimes or other gross human rights violations are levelled against a delinquent member of the international community of states. A further example is the country’s abstention in respect of Security Council Resolution 2471 (2019) which was adopted under Chapter VII of the UN Charter following a determination by the Council that the situation in South Sudan constituted a threat to international peace and security in the region at a time when human rights violations remained widespread and serious.55 The purpose of the resolution was to extend the sanctions regime already imposed on South Sudan by the Council. Explaining the abstention, South Africa denounced the sanctions regime as unhelpful in advancing the political process, claiming that sanctions should not be used as a punitive measure and that volatile political processes should be free from external pressure that could aggravate the situation.56 The above developments are based on post-1994 sentiments. Whether the result of principle or political expediency, they have the consequence that past concerns with human rights are not a reliable measure anymore for predicting the current administration’s voting conduct and position in the UN with respect to human rights abuses in other countries. Its relevance for the issue of unilateral coercive sanctions is a function of the ideological connection between the ANC government and its new, post-1994 alliance partners. In 1994 South Africa joined the Non-Aligned Movement, which, with 120 members, constitutes the largest grouping of states after the United Nations and the most important lobby group in global affairs, and in the UN General Assembly, in representing the interests of developing countries. In the same year, South Africa became a member of the African Union, with 54 of its 55 Member States also members of the Non-Aligned Movement.57 Apart from being influential in decisions on country-specific issues in international fora where they can count on significant representation, these alliances have consistently registered their opposition to unilateral coercive measures in various international fora as the next two sections will illustrate. 3.2

The Non-Aligned Movement

The Non-Aligned Movement, whose 120 Member States represent 55 per cent of the world population, is a relic of the Cold War and during its 2019 Summit in Baku, Azerbaijan, its relevance in the post-Cold War era came under scrutiny when India, a founding member, justifiably called for reform of the organization in pointing out that the long-held assumptions and alignments rooted in the legacies of colonialism and Cold War ideologies have lost their relevance in today’s world.58 Whatever the future of the Movement, for current purposes it must be noted that it has consistently objected to the imposition of unilateral coercive economic and other measures against certain states. In fact this topic has become a standard item on the agendas of the organization’s summits and other meetings since it was first raised in the final document of the 2nd

See UN Secretary-General Report on South Sudan, UN Doc S/2020/145 (26 February 2020). UN Doc S/PV.8536, 3. 57 The Sahrawi Arab Republic (Western Sahara) is, despite its disputed status, a member of the AU but not a member of the Non-Aligned Movement. 58 See at: accessed 20 April 2020. 55 56

South Africa’s position and practice  47 summit in 1964.59 For the sake of brevity, and since they are descriptive of the Movement’s position, reference will be made to a few seminal documents of more recent origin only. At the 2011 Ministerial Meeting, the Member States reiterated the ‘need to eliminate unilateral application of economic and trade measures by one State against another that affect the free flow of international trade’.60 Consequently, states applying such measures were urged to discontinue the practice and, since it undermines international law and international instruments,61 NAM members agreed to refrain from recognizing, adopting or implementing extraterritorial or unilateral coercive measures and laws and to support the claims of affected states, including targeted states, to compensation for the damage caused by such measures.62 At the 2016 Summit of Heads of State and Government, this was reiterated but in stronger language. For instance, the Summit strongly condemned the unilateral application of economic and trade measures and called for the immediate elimination of such measures,63 language that was again adopted at the 2019 Ministerial Meeting of the Coordinating Bureau.64 In its 2017 Political Declaration of New York, the Movement reaffirmed its ‘determination to refrain from recognizing, adopting or implementing extraterritorial or unilateral coercive measures or laws, including unilateral economic sanctions …’65 in condemning such measures and calling for their immediate elimination.66 When the annual resolution for ending the US embargo against Cuba was presented during the 2018 session of the General Assembly,67 South Africa supported the call by the Non-Aligned Movement and the Group of 77, as well as the African group in the Assembly, to end the unilateral economic, commercial and financial blockade against Cuba and requested the US to reconsider its policies against Cuba. The Movement’s endeavours in the Third Committee of the UN General Assembly deserve special attention. In 2018 China and Cuba, acting on behalf of the members of the Non-Aligned Movement, submitted a draft resolution on human rights and unilateral coercive measures.68 The resolution was eventually adopted in the Committee by 133 to 53 votes, with three abstentions. South Africa voted in favour. In pursuing this avenue in advocating its stance on unilateral coercive measures in international fora, the Movement invoked the findings and recommendations of other UN bodies69 in

59 See online at 14, 15 and 18, accessed 30 April 2020. 60 NAM 2011/Doc.1/Rev.1, Final Document, 16th Ministerial Meeting, Bali, Indonesia, 23–27 May 2011, 13 para 24.4. 61 ibid. 62 ibid paras 25.4, 25.5. 63 NAM 2016/CoB/Doc.1, Final Document, 17th Summit of Heads of State and Government, Island of Margarita, Venezuela, 17–18 September 2016, 13, para 20.6. See also 14, paras 21.4 and 21.5. 64 NAM 2019/CoB/Doc.1, Ministerial Meeting of the Coordinating Bureau of the Non-Aligned Movement, Baku, Azerbaijan, 20–21 July 2019. 65 Non-Aligned Movement Political Declaration of New York (30 September 2017) para 10. See also para 6. 66 ibid para 11. 67 See UN Doc A/73/L.3 (1 November 2018). 68 UN Doc A/C.3/73/L.32 (31 October 2018). 69 See for instance Report of the Special Rapporteur on the Negative Impact of Unilateral Coercive Measures on the Enjoyment of Human Rights, UN Doc 73/175 (17 July 2018); GA Res 72/168 (19 December 2017) and 70/1 (25 September 2015).

48  Research handbook on unilateral and extraterritorial sanctions urging all states to cease adopting or implementing any unilateral measures not in accordance with international law, international humanitarian law and the Charter of the United Nations on the basis that such measures impede the full realization of the rights in the Universal Declaration of Human Rights as well as the full achievement of sustainable economic and social development.70 In particular the resolution called on UN Member States that have initiated such measures to commit themselves to their international human rights treaty obligations by revoking such measures at the earliest possible time.71 Unsurprisingly the resolution obtained further endorsement during the General Assembly’s 73rd session where the voting pattern remained unchanged.72 The effect of this resolution and its further reiteration during the Assembly’s 74th session73 is that unilateral coercive measures as a human rights concern have remained on the agenda of the General Assembly as a standard item with priority status74 since 1997.75 3.3

The African Union’s Position

The 2000 Constitutive Act of the African Union contains no provision explaining in some way the organization’s position in respect of sanctions as a means to ensure compliance with international law. Where the Constitutive Act does refer to sanctions, that is, in Article 23 thereof, the term is used in respect of the disciplinary measures the Union is authorized to take against AU members who default on their membership dues or fail to comply with decisions and policies of the Union.76 By far the most sanctioned behaviours are unconstitutional changes of government77 which have the effect that an AU member whose government came to power in this manner will be interdicted from participating in the activities of the AU78 and that individual members of that government may be subjected to targeted sanctions. Such measures were imposed by the AU in respect of the Central African Republic (2003–5), Togo (2005), Mauritania (2005–7; 2008–9), Guinea (2008–10), Niger (2009–11), Madagascar (2009–11) and Côte d’Ivoire (2010–11).79 The more directly relevant source on the issue of unilateral coercive measures is the Assembly of the Heads of Government and State of the African Union. The Assembly is the supreme organ of the Union, is responsible for the policies of the Union and takes decisions

UN Doc A/C.3/73/L.32 (n 68) paras 1, 2. ibid para 9. 72 GA Res 73/167 (18 January 2019). 73 GA Res 74/154 (24 January 2020). 74 See GA Res 73/167 para 28 and GA Res 74/154 para 29. 75 See GA Res 51/103 (3 March 1997) para 9. See also (n 87) below. 76 See also the following observation by the UN Special Rapporteur on the negative impact of unilateral coercive measures, UN Doc A/HRC/30/45 (10 August 2015) para 15: ‘Coercive measures imposed by … regional organizations on their own members or on candidates to membership are not usually considered as “unilateral” as they are part of a package of rights and obligations whose prior acceptance by target countries are conditions for membership’. 77 See Andrea Charron, ‘Sanctions and Africa: United Nations and Regional Responses’ in Jane Boulden (ed.), Responding to Conflict in Africa (Palgrave 2013) 83–6. 78 Constitutive Act of the African Union (2000) Art 30. 79 See Konstantinos Magliveras, ‘The Sanctioning System of the African Union: Part Success, Part Failure’, Paper presented to an Expert Roundtable on the Africa Union: The First Ten Years, Addis Ababa, Ethiopia, 11–13 October 2011, 1, 15 ff. 70 71

South Africa’s position and practice  49 on the basis of consensus.80 In 2016, at its 26th Ordinary Session, the Assembly issued a Declaration81 calling for the lifting by the United States of its unilateral sanctions against Sudan, which, the Assembly believed, would allow Sudan to continue with its peace-building process, remove obstacles to the country’s socio-economic development and make it possible for the country to pay its financial contributions to the AU. Although the unilateral US sanctions against Sudan were the subject-matter of the Declaration, certain aspects of it give an indication of the more general scope of the Assembly’s position on such measures and why the Assembly is of the view that such measures are not in compliance with international law. In the preamble of the Declaration, the Assembly considered the Universal Declaration of Human Rights as well as the African Charter on Human and Peoples’ Rights and affirmed the 2014 resolution by the UN Human Rights Council82 on special procedures to assess the impact of unilateral coercive measures on the enjoyment of human rights. Furthermore the preamble in general terms stresses that ‘unilateral coercive measures and legislation are discouraged under international law, international humanitarian law, the UN Charter, the Constitutive Act of the African Union and the norms and principles governing peaceful resolutions among states’. Since the Constitutive Act of the AU is silent on sanctions of whatever kind (excluding the disciplinary measures referred to earlier) its inclusion here is presumably based on the objective of the Union to defend the sovereignty, territorial integrity and independence of its members83 and the principles of sovereign equality and non-interference in internal affairs espoused in the Constitutive Act.84 Hence the Declaration reaffirms that no state may use or encourage the use of any type of measures to coerce another state in order to obtain from it the subordination of the exercise of its sovereign rights and to secure advantages of any kind. In paragraph 4 of the Declaration’s operative part, the Assembly then calls on all states not to recognize these measures or apply them and to counter the extraterritorial application or effects of unilateral coercive measures by means of administrative or legislative measures. In February 2020, during its 33rd ordinary session, the Assembly adopted a resolution on the impact of sanctions and unilateral coercive measures.85 In addition to recalling again the purposes and principles of the Constitutive Act, the preamble aligns the resolution with three other important international instruments, namely the UN General Assembly’s Friendly Relations Declaration86 outlawing the use of any measure to coerce a state in order to obtain from it the subordination of the exercise of its sovereign rights; the General Assembly resolution calling on states not to recognize or apply unilateral coercive economic measures;87 and Constitutive Act of the African Union, Arts 6, 7 and 9. AU Doc EX​.CL/​945(XXVIII) Add.5, Declaration on the lifting of the long-standing United States of America’s Unilateral Sanctions Imposed on the Sudan, 26th Ordinary Session of the Heads of State and Government of the African Union (2016). 82 A/HRC/27/L.2 (18 September 2014). 83 Constitutive Act, Art 3(b). 84 ibid Art 4(a) and (g). 85 Assembly/AU/Res.1 (XXXIII). 86 GA Res 2625 (XXV) of 24 October 1970. 87 The AU Assembly resolution wrongly refers to the resolution adopted by the 31st meeting of the UN General Assembly. The 31st meeting took place in 1976, which would have been a welcome windfall for the then South African government. Presumably the Assembly had in mind the 51st session of the UN General Assembly. See GA Res 51/103 (3 March 1997). As far as could be established this was the first time a resolution of this kind was adopted by the UN General Assembly, which, as in other instances, originated from a report by the Third Committee. 80 81

50  Research handbook on unilateral and extraterritorial sanctions the Human Rights Council Resolution 27/21 of 3 October 2014 which called on all states, inter alia, to cease adopting, maintaining or implementing unilateral coercive measures not in accordance with international law or the UN Charter. On this basis, the AU Assembly resolution strongly condemned the continued application and enforcement by certain states of unilateral coercive measures, in particular against AU Member States, urged all states to refrain from imposing such measures, and strongly objected to the extraterritorial nature of such measures.88 In addition to making clear the AU’s position on unilateral coercive measures in general, the resolution also addressed country-specific cases by calling on the United States to end its unilateral sanctions in respect of Zimbabwe, Sudan, Somalia and Cuba and on the European Union to end its unilateral sanctions imposed on Burundi.89 Another indication of South Africa’s stance on the issue of sanctions in general can be inferred from the so-called Ezulwini Consensus of 200590 which constitutes the African Common Position on the Proposed Reform of the United Nations, a topic which emerged from the Report of the High Level Panel on Threats, Challenges and Change of 2004.91 In response to the High Level Panel Report’s recommendations on improving the effective implementation of and compliance with UN sanctions,92 the Ezulwini Consensus took the following position:93 The power of the Security Council to impose sanctions should be exercised in accordance with the United Nations Charter and international law. Sanctions should be considered only after all means of peaceful settlement of disputes under Chapter VI of the United Nations Charter have been exhausted and a thorough consideration undertaken of the short-term and long-term effects of such sanctions. Further, sanctions should be imposed for a specific time-frame and be based on tenable legal grounds and should be lifted as soon as objectives are achieved. Sanctions should also be smart and targeted to mitigate their humanitarian effects.

4.

THE LEGISLATIVE FRAMEWORK

4.1

The Implementation of UN Sanctions

Where the South African government has taken steps to pass laws or use existing laws for the legal enforcement of sanctions, the established practice was, and still is, to give effect to Security Council sanctions adopted under Chapter VII of the UN Charter. The first occasion arose in the early 1990s, when, by virtue of several resolutions, the Security Council imposed mandatory sanctions against the former Yugoslavia.94 This occurred shortly before the landmark democratic elections in April 1994 which terminated apartheid rule and ushered in a new constitutional dispensation. The only enabling law at the time for the enforcement of the UN sanctions regime against the former Yugoslavia was the Import Assembly/AU/Res.1 (XXXIII) paras 1–3. ibid paras 4–8. 90 AU Doc Ext/Ex.CL/2 (VII), adopted by the AU Executive Council during its 7th extraordinary session, 7–8 March 2005. 91 UN Doc A/59/565 (2 December 2004). 92 ibid paras 178–82. 93 Ezulwini Consensus, 5–6. 94 SC Resolutions 713 (25 September 1991); 757 (30 May 1992); and 820 (17 April 1993). 88 89

South Africa’s position and practice  51 and Export Control Act, 45 of 1963, which empowered the Minister of Trade and Industry to restrict the importation or exportation of certain goods to and from South Africa whenever deemed necessary or expedient in the public interest. It is doubtful whether the nature and scope of this law even remotely complied with what the Security Council had in mind at the time. Presumably the then Minister of Foreign Affairs was acutely aware of the shortcomings of this Act as a sanctions-enforcement measure. Less than a year before the 1994 democratic elections, the Minister explained in Parliament the need for new legislation aimed at the enforcement of Security Council resolutions. In doing so, the Minister made reference to unfolding important world issues that ‘will dominate the international stage in the period that lies ahead’ and indicated that this required of the country the adoption of new policy positions to deal with the new challenges.95 Following this intervention, Parliament adopted the Application of Resolutions of the Security Council of the United Nations Act, 172 of 1993. However, the irony is that this Act has never been put into force and effect and it is unlikely that it will be revived in the future. Seemingly its relevance has become outdated as a result of subsequent developments which led to the adoption of two pieces of legislation in 2001 and 2004, respectively, and which have been in force ever since. The 2001 Act is the Financial Intelligence Centre Act, 38 of 2001 for the combating of money-laundering activities and the financing of terrorist and related activities. Although this Act was initially aimed at enabling South Africa to comply with the Financial Action Task Force (FATF) recommendations, a subsequent amendment in 2017 caused section 3 of the Act to clearly list as one of its objectives the implementation of financial sanctions pursuant to resolutions adopted by the UN Security Council under Chapter VII of the UN Charter. This amendment was necessitated by the Act’s alignment with the 2004 Act mentioned above and which was adopted as the Protection of Constitutional Democracy against Terrorist and Related Activities Act, 33 of 2004. This Act, by virtue of section 25, specifically provides for the proclamation in the Government Gazette of Security Council imposed counterterrorism measures, adopted under Chapter VII of the UN Charter. A proclamation made in terms of section 25 enables Parliament to consider it and decide on the action to be taken.96 This constitutes the sum total of South Africa’s regulatory framework for the enforcement of sanctions. 4.2

Excursus: The Impact of Unilateral and Extraterritorial Coercive Measures on the Financial Industry

There remains one last issue that warrants attention. A state that refuses to adopt or implement unilateral and extraterritorial sanctions may suffer no consequences at the international level. Entirely different, however, is the position of non-state entities within such states especially when such entities are essential partners in the interconnected world of financial transactions. They cannot easily escape the transactional consequences that emanate from the imposition of sanctions by political entities, with the result that they operate in a far more precarious environment. Hansard, 26 November 1993, col 14122. For a more comprehensive analysis of the domestic implications of these Acts see Wynand Spruyt, ‘A Legal Analysis of the Duty on Banks to Comply with Targeted Financial Sanctions’ (2020) 1 Journal of South African Law 1. 95 96

52  Research handbook on unilateral and extraterritorial sanctions To illustrate this point, reference can be made to the impact of US unilateral sanctions on financial transactions in the shipping industry.97 Targeted sanctions relating to ships impact international sales in two main ways: first, they may directly affect the free movement of ships by denying them access to particular harbours or preventing them from refuelling or transhipping goods on board as well as by subjecting the ship and its cargo to seizure and asset freezes; second, they may exert an indirect impact by preventing financial institutions from processing payments in respect of transactions involving a targeted ship. In the case of US sanctions, banks in other countries, which as a cold legal fact may not technically be bound by the US legislation in this regard, will mostly also refuse to process or make a payment on the basis of strong business and reputational considerations.98 The impact of sanctions on the capacity of banks to make payments in international sale transactions is particularly evident in letter-of-credit practice – the dominant method of payment when security of payment becomes a real concern. The letter of credit has developed over the past century99 into a remarkably secure instrument ensuring not only that the seller is paid, but also that the buyer receives the goods contracted for.100 This is not the place to go into the transactional complexities between the different parties involved in a letter-of-credit business.101 However, what should be emphasized is that targeted financial sanctions and security of payment in international sales – to put it mildly – experience a very difficult co-existence. By way of illustration brief reference can be made to the US OFAC sanctions affecting payment by letter of credit in respect of listed sea vessels.102 The US Treasury instructions to financial institutions are to the effect that any funds transfer in respect of a blocked vessel must be rejected and OFAC must be notified of the action with proof of the payment instructions that funds have been returned to the remitter as a result of the possible involvement of a blocked vessel in the underlying transaction. This applies to more than 500 vessels carrying flags of inter alia the DPRK, Iran, Syria, Cuba, Mongolia, Malta, Panama, Trinidad and Tobago, Russia, Comoros, Cyprus, Liberia, Sierra Leone and Tanzania. A practical consequence of these measures is that no US bank involved in a letter-of-credit transaction will process payment of the letter of credit if the transaction involves a blocked vessel.

97 For more detail on this see Charl Hugo and Hennie Strydom, ‘Sanctions, Ships, International Sales and Security of Payment’ in Charl Hugo and Patrick Vrancken (eds.), African Perspectives on Selected Marine, Maritime and International Trade Law Topics (2020/21 forthcoming). 98 See, for example, the litigation in South Africa between Bredenkamp and Standard Bank in which the bank went to great lengths to close the account of Bredenkamp for business and reputational reasons arising from his status as a listed individual: Bredenkamp v Standard Bank of South Africa Ltd 2009 5 SA 304 (GSH); and Bredenkamp v Standard Bank of South Africa Ltd 2010 4 SA 468 (SCA). 99 Much has been written on the historical development of letters of credit. See in this regard Charl Hugo, ‘The Development of Documentary Letters of Credit as Reflected in the Uniform Customs and Practice of Documentary Credits’ (1993) SA Mercantile Law Journal 44 ff. Groundbreaking early work includes that of Omer F Hershey, ‘Letters of Credit’ (1918–1919) Harvard Law Review 1; William E McCurdy, ‘Commercial Letters of Credit’ (1921–1922) Harvard Law Review 539 ff, 715 ff; Boris Kozolchyk, ‘The Legal Nature of the Irrevocable Commercial Letter of Credit’ (1965–1966) American Journal of Comparative Law 395; and Eliahu P Ellinger Documentary Letters of Credit (University of Singapore Press 1970) 26 ff. 100 Robert Sharrock (ed.), The Law of Banking and Payment in South Africa (Juta 2016) 403–4. 101 For an extensive explanation see Hugo and Strydom (n 97). 102 Information available at accessed 1 May 2020.

South Africa’s position and practice  53 Consequently the once highly secure letter-of-credit business has become significantly more risky in these times of targeted financial sanctions. Beneficiaries are less certain of being paid and banks which have paid or have committed themselves to pay may not be able to recover the money paid. A US bank that refuses to pay or reimburse due to the fact that the documents disclose that the goods were carried on a listed vessel will be able to rely on the fact that it would be illegal for it to pay or reimburse. Non-US banks, outside of the United States, however, will not be able to rely on such a defence. Hence such banks which have bound themselves contractually to pay (for example by confirming a credit or by accepting a term bill of exchange against delivery of conforming documents) can conceivably be sued by beneficiaries should they refuse to pay. The legal risk of non-compliance with sanctions has clearly become significant in the context of the document-rich letter-of-credit trade. Moreover, even where no American bank is involved, non-compliance with OFAC sanctions holds enormous reputational risks for the banks involved, which can even lead to a prohibition of maintaining correspondent accounts within US financial institutions, thereby cutting off access to US dollar payment systems and business in the United States generally.103

5. CONCLUSION As indicated in this chapter, the opposition to unilateral coercive sanctions has a long history. While initially a concern of developing countries who grouped together under the Non-Aligned Movement in the 1960s – denouncing such measures as vestiges of imperialism and colonialism and unlawful in international law – over time the opposing voices have become more diverse as the topic has come under scrutiny in a growing number of UN bodies and regional organizations. To what extent this may constitute emerging state practice and/or opinio juris is certainly a matter that needs further investigation. However, from the opposite perspective there is also the persistent and seemingly growing practice of economically powerful states to continue imposing unilateral measures despite the various calls by the UN and other bodies to cease this practice. In the first report to the Human Rights Council by the Special Rapporteur on the negative impact of unilateral coercive measures it was noted that there has been ‘a spectacular increase in the resort to unilateral coercive measures since the 1990s’.104 And according to the Special Rapporteur’s 2018 report the ‘current trend seems to point to a more frequent – if not systematic – use of unilateral sanctions as a foreign policy tool by certain countries’.105 Since the issue of unilateral coercive measures assumed relevance in regional and international fora, the articulation of positions in documents that emerged from organizations representing the interests of developing countries, such as the Non-Aligned Movement, has been formulaic with little, if any, progress over the years towards greater clarity as regards the nature and scope of measures labelled unilateral and/or coercive and whether such measures

103 Barry E Carter and Ryan Farha, ‘Overview and Operation of the Evolving US Financial Sanctions, Including the Example of Iran’ (2013) 107 Proceedings of the Annual Meeting of the American Society of International Law, 319; Joshua Stanton, ‘North Korea: The Myth of Maxed-Out Sanctions’ (2015) 2 Fletcher Sec Review 20, 24. 104 UN Doc A/HRC/30/45 (10 August 2015) para 23. 105 UN Doc A/73/175 (17 July 2018) para 4.

54  Research handbook on unilateral and extraterritorial sanctions are by definition unlawful or not. The same can be said of the repetitive formulations in the resolutions of the UN General Assembly and of its Third Committee. However, in recent years much needed progressive interventions have emerged in other fora and have enhanced the debate and brought substance to the question of the legality or illegality of unilateral coercive measures and the applicable legal rules relevant to the assessment of such measures and their implications. These interventions include the thematic study of the High Commissioner for Human Rights on the impact of unilateral coercive measures,106 the research-based report of the Human Rights Council Advisory Committee on mechanisms to assess the impact of unilateral coercive measures,107 the reports of the Special Rapporteur on unilateral coercive measures referred to in this chapter, and General Comment No 8 (1997) of the Committee on Economic, Social and Cultural Rights.108 Two options in countering the negative impact of unilateral coercive measures seem to have emerged from these sources. The one is to renounce their use as a foreign policy tool, for which there may be a customary international law justification. The other is to apply the available international legal framework to eliminate or mitigate the negative consequences of such measures.109 The law and policy issues both these options entail call for more thorough and substantial responses by developing states – which are more often than not the target of unilateral coercive measures – than the platitudes generated by their summits and assembly meetings.

UN Doc A/HRC/19/33 (11 January 2012). UN Doc A/HRC/28/74 (10 February 2015). 108 UN Doc E/C.12/1997/8 (12 December 1997). 109 See for instance the 2015 report of the Special Rapporteur on the negative impact of unilateral coercive measures, UN Doc A/HRC/30/45, paras 34, 36. 106 107

4. From pessimism to accommodation: India’s stand and practice on unilateral sanctions Rishika Chauhan

1. INTRODUCTION India has turned from being a state under sanctions into a rising power whose cooperation is essential to sustain many Western sanctions regimes. In recent years the subject of sanctions has not sparked as much debate in India as it has in many states in the West. However, it would be incorrect to assume that the topic has been entirely dismissed by the Indian authorities. Unilateral sanctions have long been of interest to Indian scholars and policymakers alike. In fact there is evidence to suggest that the efficacy of sanctions as a policy instrument was discussed even before India’s independence when its leaders were contemplating the new state’s possible foreign policy once formed.1 In the last few decades, however, sanctions have come up for discussion not in themselves but in the context of other subjects. While discussing India’s stand on sanctions imposed on other states, the topic has frequently been brought up in the parliament or by the media. On such occasions, sanctions have been but a secondary issue since the primary concern has been the effect of India’s position on the bilateral relations either with the state under sanctions or with the imposer of the sanctions. It cannot be overlooked that India had spoken at length on such unilateral measures when sanctions were imposed on it by Western powers. After India conducted its nuclear tests, the leaders particularly discussed sanctions while ascertaining their possible impact on the state especially in 1998. Currently the subject is an emotive one. It elicits reactions from leaders because India views itself as a former ‘sanctionee’ – a state that has been a victim of unilateral sanctions and has suffered under them. It is also understood as a means by which India was mistreated by the West, as it was deprived of dual-use technology2 and mistrusted. This long-standing perception seems to have impacted India’s stand on sanctions that it maintains today.3 India has not released any detailed official paper dealing specifically with its policy on sanctions, however, on many occasions it has maintained that it does not believe in sanctions. New Delhi, has argued that it does not support unilateral sanctions, while, being a responsible member of the United Nations (UN), it complies with sanctions imposed by the UN.4 Recognizing the situation, however, and the economic costs of non-adherence, India is found to have made exceptions and, though maintaining its stand and opposing unilateral sanctions, 1 For details see Rishika Chauhan, ‘India and International Sanctions: Delhi’s Role as a Sanctioner’ (ORF Issue Brief, September 2013)   accessed 13 September 2020. 2 Technology that could be used for civilian as well as defence purposes. 3 So far no study has been conducted on the subject, however, the author has discussed the psychological impact of sanctions on India with many late and retired Indian officials. 4 ‘India Global sanctions guide’ (Global sanctions guide 2018)   accessed 13 September 2020.

55

56  Research handbook on unilateral and extraterritorial sanctions it has considered its wider interests. In the last decades, India has adapted somewhat to sanction regimes when the sanctioners have accommodated New Delhi’s interests. US sanctions on Iran are a significant example, where the US granted India exemptions in order to secure its cooperation with its sanction regime against the primary target, Iran.5 However, India’s relations with the main target of the sanctions also impacts New Delhi’s stand on them, thus making its statements often case specific. Hence, to understand India’s stand on unilateral sanctions it is important to study individual cases. Over the years, India has gained power and prestige in international politics, and its confidence while dealing with the great powers has been conspicuous. Moreover, its interests have also expanded worldwide, making it more vulnerable. Indian presence in Africa and West Asia as well as economic investments and connecting projects like the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) are some recent examples that show the augmentation of Indian interests. Through these and similar involvements India has expanded its power and become connected; however, its vulnerability has also increased as a consequence. As India interacts with more states and expands its relations, it will incur a cost if cooperation between states ends or if interactions are checked in any way. Concurrently with the increase in India’s investments around the world, the dependence of other states and entities on India has also increased. In this situation, New Delhi has felt the need to look for more tools in its policy toolkit through which it can support its foreign and security policy goals. In many ways, New Delhi has acknowledged that sanctions remain a potent tool of statecraft that it can employ to safeguard its interests. The knowledge comes with the awareness that India remains vulnerable to sanctions as well, as a result of intricate sanctions regimes that focus not only on primary targets but also penalize secondary entities that choose to interact with the main target.6 Acknowledging the setting, this chapter moves ahead. The first section explains Indian experience with sanctions, discussing the type and impact of sanctions imposed on India after it conducted nuclear tests in 1998. Its focus remains New Delhi’s reactions to unilateral measures. The next section delves into the Indian stand on sanctions. Beginning with the Western and non-Western understanding of sanctions, it briefly touches upon the definitions of unilateral measures. Furthermore it pursues the debates in the Indian parliament on sanctions as well as comments made by Indian officials to the media on the subject. Being a parliamentary democracy, there is a culture of debate and discussions in Indian legislatures. Special time is allotted to topics and members of parliament are allowed to put questions to the relevant ministers/ ministries during the ‘question hour’ on any ongoing and relevant issue. Since there is no official paper that specifically deals with Indian policy on unilateral sanctions, it is important to follow parliamentary debates in order to ascertain India’s position on such measures. To better understand the topic, Section 4 discusses two recent cases – sanctions against Iran and North Korea. India expressed its stand on unilateral sanctions particularly those imposed by the US, domestically as well as in international fora in both cases. Since discussions and references to sanctions in Indian statements and debates are limited and scattered, the chapter does not discuss the entire duration of the conflicts and their resolution, but focuses on the

5 ‘Iran Oil Sanctions: US Exempts India, China’ (Financial Express, 30 November 2013)   accessed 13 September 2020. 6 The US sanctions regime against Iran is a significant example that will be discussed later in the chapter.

From pessimism to accommodation  57 years when the topic became relevant to New Delhi as it was dealing with sanctions concerning the two states. The chapter concludes by attempting to decipher India’s future approach to unilateral sanctions, especially in the context of its impending rise.

2.

INDIA’S REACTIONS TO SANCTIONS IMPOSED ON IT

India’s stand against unilateral sanctions has been influenced by its own experience as a sanctionee. Indian understanding of sanctions has been dictated by a sense of victimization, while its reaction is often verbalized keeping in mind national pride rather than calculations of economic harm. India faced sanctions after it conducted its nuclear tests in 1974 and 1998. The sanctions imposed in 1998 against India remain the most discussed sanctions, as by then many Western states had formulated laws that called for sanctions against a state designated as a non-nuclear weapon state by the Non Proliferation Treaty (NPT), if it conducted nuclear tests. In fact, some of the important guidelines concerning embargoes on nuclear equipment and material designed to halt nuclear proliferation were formulated in reaction to India’s first nuclear test.7 In 1998, as India announced that it had detonated five nuclear devices, the US and many other Western states imposed sanctions on the country. Given Washington’s foreign policy goal of stopping the proliferation of nuclear weapons through sanctions, the US became a prime sanctioner of India. The sanctions were mandated by the Glenn Amendment to the Arms Export Control Act of 1994. There were primarily six types of sanctions that the Act called for – termination of direct aid payments, ending credits and loan guarantees from the Export-Import Bank and the Overseas Private Investment Corp, prohibiting US banks from lending money to state-owned Indian enterprises, stopping military sales as well as assistance, having international financial institutions vote against Indian applications for credits and assistance, proscribing export of dual-use goods and technology.8 On 13 May 1998 the US President declared that ‘India, a non-nuclear-weapon state, detonated a nuclear explosive device on May 11, 1998. The relevant agencies and instrumentalities of the United States Government are hereby directed to take the necessary actions to impose the sanctions described in section 102(b)(2)’.9 Following the President’s declaration, the Department of State issued Public Notice 2825 on 15 May 1998 to revoke all licenses and other approvals to export or otherwise transfer defense articles and defense services from the United States to India, or transfer US origin defense articles and defense services from a foreign

7 Shastri Ramachandaran, ‘Why India Doesn’t Need NSG Membership’ (Outlook, 24 June 2019)  accessed 13 September 2020. 8 Daniel Morrow and Michael Carriere, ‘Economic Impacts of the 1998 Sanctions on India and Pakistan’ (1999) 6 (4) The Nonproliferation Review 10; see also Aaron Lukas, ‘Two Cheers for India Sanctions’ (CATO Institute, 27 May 1998)  accessed 14 September 2020. 9 Memorandum for the Secretary of State, Presidential Determination No 98-22 Federal Register, White House, ‘Sanctions Against India for Detonation of a Nuclear Explosive Device’ (US Government Publishing Office,  13 May 1998)  accessed 14 September 2020.

58  Research handbook on unilateral and extraterritorial sanctions destination to India, or temporarily import defense articles from India pursuant to Section 38 of the Arms Export Control Act.10

Humanitarian aid, food and agriculture exports, food assistance, private bank loans for purchase of food and agricultural commodities and certain transactions involving intelligence activities were excluded from the list.11 Some non-statutory sanctions, restricting high level visits and military to military contacts were also imposed in accordance with the Clinton administration’s policy.12 The sanctions were justified by US officials on many occasions and were understood as a means of strengthening the non-proliferation regime. Speaking at the Brookings Institution in Washington DC in November 1998, Undersecretary of State Strobe Talbott termed sanctions against India (and Pakistan13) as ‘necessary’, explaining that they served the purpose of ‘creating a disincentive’ for conducting tests and helped in keeping the ‘faith’ of other states that had given up nuclear weapons.14 Moreover, through sanctions against India, the US sought to influence India’s nuclear policies while focusing the impact of the measures on the government and not the people. It also believed that, through sanctions, the non-proliferation regime would be strengthened because further nuclear testing would be checked and that India could be pushed to sign treaties like the Comprehensive Test Ban Treaty (CTBT).15 Besides the US, other states like Japan, Australia, Canada, Germany, Denmark and Sweden, also imposed sanctions by cutting bilateral aid to India. Moreover, the G-7 (the US, United Kingdom, France, Germany, Japan, Italy and Canada) and Russia individually and collectively opposed any new non-humanitarian lending to India via the international financial institutions like the IMF, World Bank and Asian Development Bank. It emphasized that as a group they would work on ‘postponement in consideration’ of loans in the World Bank and other international financial institutions to India.16 Nevertheless, most of the US sanctions were lifted within six months of their announcement. US President Bill Clinton in November 1998, released a declaration titled the ‘India-Pakistan Relief Act’ and waived the restrictions imposed by sanctions on the interactions of the US Export-Import Bank, the Overseas Private Investment Corporation, and the Trade Development Agency with India. While the sanctions

10 Public Notice 2825 of 15 May 1998, The Arms Export Control Act, (Federation of American Scientists) accessed 14 September 2020. 11 Jeanne J Grimmett, ‘Nuclear Sanctions: Section 102(b) of the Arms Export Control Act and Its Application to India and Pakistan’ [Updated 5 October 2001] Congressional Report Service, The Library of Congress accessed 13 September 2020. 12 Leonard S Spector, ‘Status of U.S. Sanctions Imposed on India and Pakistan’ (11 August 2001) CNS archive accessed 2 August 2020. 13 He collectively addressed and justified sanctions against India as well its neighbour Pakistan, as the latter conducted nuclear tests shortly after the former and was similarly sanctioned. 14 Strobe Talbott, ‘US Diplomacy in South Asia: A Progress Report’ (Remarks given at the Brookings Institution, Washington, DC, 12 November 1998), 4 accessed 14 September 2020. 15 Morrow and Carriere (n 8) 4. 16 G-7, Communique on Indian and Pakistani Nuclear Tests, 12 June 1998 .

From pessimism to accommodation  59 adversely affected private capital flows, in sum the economic impact of sanctions on India proved ‘marginal’.17 While so far no study has been conducted on the psychological impact of sanctions, it can be argued that Indian leaders have shown their aversion to sanctions that can be traced back to the country’s own experiences as a sanctionee. To some extent, India’s sensitivity to sanctions emerged from its experience of being a colony of a Western state. Unilateral sanctions against the state, imposed to halt its nuclear policies, were viewed by Indian leaders and the public as a means of suppressing the development of their state. Whenever sanctions have been imposed on India it has repeatedly remained defiant in its rhetoric. Reacting to imposed sanctions in 1998, then Prime Minister Atal Bihari Vajpayee said: Every decisive action has its consequences. But if the action is inherently in the national interest – and I believe our decision to conduct the tests is in [the] supreme national interest – then we have to face the consequences and overcome the challenge. Sanctions cannot and will not hurt us. India will not be cowed down by any such threats and punitive step.18

Though Indian discourse is defiant, New Delhi has been rational in analysing the cost of sanctions and making amends. However, at no point has India ignored the fact that it is a significant economy with a sizeable domestic demand and capable of absorbing the effect of sanctions to a substantial extent.

3.

INDIA’S POLICY ON UNILATERAL SANCTIONS

In the absence of an official document on Indian policy on unilateral sanctions, it becomes important to find another means of studying the topic. This section uses official statements, interviews and discussions to form an idea of the Indian view (3.2). It begins by briefly tracing the evolution of sanctions as a policy instrument and delving into the different understanding of the tool in the Western and non-Western parts of the world (3.1). 3.1

Sanctions: The Western and Non-Western Understanding

Sanctions are often understood as a ‘middle ground between diplomacy and the use of military force’.19 Hufbauer et al. (2007) often use ‘economic sanctions’ and ‘economic coercion’ interchangeably, defining them as ‘the deliberate, government-inspired withdrawal, or threat of withdrawal, of customary trade or financial relations’.20 Sanctions have long been used by various states and international organizations. The Megarian Decree of 432 BC is believed to be the oldest documented peacetime economic sanction. Since then sanctions have been used unilaterally by states or multilaterally by international organizations to support their

Morrow and Carriere (n 8) 10. ‘India is Now a Nuclear Weapons State’ India Today (16 May 1998) accessed 10 August 2020. 19 Richard H Speier, Brian G Chow and S Rae Starr, Nonproliferation Sanctions (RAND 2001) 7. 20 Gary Clyde Hufbauer, Jeffrey J Schott, Kimberly Ann Elliott and Barbara Oegg, Economic Sanctions Reconsidered (The Peterson Institute for International Economics 2007) 3. 17 18

60  Research handbook on unilateral and extraterritorial sanctions policies. The UN’s use of sanctions increased significantly in the 1990s, leading to the period being termed the ‘Sanctions Decade’.21 Over time, international sanctions have evolved. Humanitarian concerns arose after the incessant use of comprehensive or ‘blanket’ sanctions, which focused on entire sectors of economic activity. Collateral damage, particularly the impact of sanctions on ordinary people, caused grave worry among policymakers around the world, leading them to introduce ‘smart’ or ‘targeted’ sanctions. The focus of these sanctions is on a particular entity or individual to minimize collateral damage and concentrate the impact on the decision-makers themselves or on those closely related to them. As Drezner explains, the aim of smart sanctions is to maximize ‘the target regime’s costs of noncompliance while minimizing the target population’s suffering’.22 Sanctions have also remained a preferred policy tool of many Western states. The US has used unilateral sanctions the highest number of times in the world.23 The US imposed economic sanctions more than 101 times in the twentieth century, according to the Peterson Institute for International Economics. Speaking about sanctions in 1919, President Woodrow Wilson said, ‘apply this economic, peaceful, silent, deadly remedy and there will be no need for force’.24 In 1998 President Bill Clinton stressed that the US had become ‘sanctions happy’ as its sanctions use was notably frequent. Through sanctions, Washington continues to achieve a number of its foreign and security policy objectives and currently has several sanctions regimes in place. Like the US, many Western states have domestic laws that support and/or are supplementary to UN sanctions. States have also formulated their own laws on sanctions. Similarly both the European Union and individual states in Europe have their own policies and laws on sanctions. Those laws are often intricate and incisive, formulated to propagate a state or international organization’s principles, values or goals. Acknowledging that effective use of sanctions requires cooperation from many states, sanctions are often imposed by states in groups. For instance in 2019 the UK’s Foreign Secretary Dominic Raab voiced his state’s intention to be a ‘good global citizen’ by ensuring that through the use of sanctions those ‘who targeted journalists, whistle-blowers and human rights campaigners’ are checked. In 2020 reports stated that, to further the intention, the UK planned to work with the US and Canada to collate a list of human rights abusers whose assets could be frozen in the UK.25 Unlike Western states, many developing states, often situated in what is termed the global South, are uncomfortable with the idea of using sanctions to pursue their foreign policy or security goals. Such states understand and talk about sanctions as a measure that is used by the West to repress developing countries. In the past, several developing states have been the targets of Western sanctions, leading them to condemn and criticize sanctions in global fora. Collateral damage caused by sanctions has frequently been brought up for discussion.

21 David Cortright and George A Lopez, The Sanctions Decade: Assessing UN Strategies in the 1990s (Lynne Rienner 2000). 22 Daniel W Drezner, The Sanctions Paradox (Cambridge University Press 1999) 107. 23 Gary Clyde Hufbauer, ‘Sanctions-Happy USA’ (The Peterson Institute of International Economics, Policy Brief 98-4, July 1998) accessed 3 August 2020. 24 Wilson quoted by Hufbauer, ibid. 25 Emil Dall, Isabella Chase and Tom Keatinge, ‘Coordinating Sanctions After Brexit. Considerations for the Future of UK Sanctions Policy’ (Royal United Services Institute for Defence and Security Studies, Occasional Paper, May 2020) 1 accessed 3 August 2020.

From pessimism to accommodation  61 Moreover, Western sanctions often restrict economic activities and cooperation among developing states that have made them detest sanctions imposed by the West.26 However, the developing states have not entirely overlooked the use of sanctions in statecraft. While they have condemned Western sanctions, they have at times used sanctions themselves. However, the nature, type and the way that sanctions are used by non-Western states have been different from their Western counterparts, along with the state discourse in which they often identify themselves as the victims of sanctions.27 That also makes states reticent about their own use of sanctions. Developing states like China and India do not always declare when they impose unilateral sanctions on other states and entities but use such measures quietly. Such states do not always have laws to impose sanctions and they do so by other means. For instance, they might delay the renewal of trade agreements with the state they wish to penalize or impose a physical blockade at checkpoints to impede smooth transport, thus causing inconvenience as well as imposing an economic cost.28 Since there are no laws on sanctions in the states concerned, it often affords them the luxury of imposing or removing such measures without much media attention or debate. They can also often deny such use if need be in the future, citing other factors.29 On the rare occasions when such states do talk about using sanctions, they justify their action by emphasizing that such measures support their core interest or norms.30 India is one of the developing states to have been critical of Western sanctions. Most recently India criticized unilateral sanctions against Iran, Russia and North Korea.31 Western sanctions have been imposed on India in the past and, as mentioned, its leaders then spoke critically of sanctions. Nevertheless, India has at times also imposed sanctions, sometimes being vocal while doing so, but many times being discreet. Since there are no acts or stated policy on the use of unilateral sanctions, to understand India’s position it is important to look into parliamentary debates and discussions to check whether sanctions were deliberated there and to examine media interactions with officials. In recent years, such discussions have often come up in the context of New Delhi’s stance on sanctions imposed on other states. Meanwhile, the position that smaller groups like BRICS (Brazil, Russia, India, China and South Africa), of which India is a core member, take on sanctions is also representative of New Delhi’s view. BRICS is a significant group, which has frequently taken an anti-unilateral sanctions stance, especially in the last few years when the subject of sanctions against Iran and North Korea has come up.32 It is important to note that the first four BRICS summit dec26 For details see Rishika Chauhan, ‘Sanctions and Emerging Powers: Examining the Indian and Chinese Stand’ in Teh-Kuang Chang and Angelin Chang (eds.), Routledge Handbook of Asia in World Politics (2017 Routledge) 242. 27 For instance India’s defiant statements in 1998 as discussed in Section 2 of the chapter. 28 For details of how India and China use economic coercion see Rishika Chauhan, ‘China and India Aren’t Afraid to Use Money as a Weapon’ (The National Interest, 14 December 2016)   accessed 13 September 2020. 29 It has often been argued that India has used sanctions against Nepal to check its closeness to China. However, India has denied this. For details see John W Garver, ‘China-India Rivalry in Nepal: The Clash over Chinese Arms Sales’ (1991) 31 (10) Asian Survey 956–75. 30 For China’s policy on sanctions see James Reilly, ‘China’s Unilateral Sanctions’ (2012) 35 (4) The Washington Quarterly 121–33. 31 The Indian stance against the sanctions will be discussed later in the chapter. 32 Matthias Williams, ‘BRICS Agree Not Bound by “Unilateral” Sanctions on Iran: South Africa’ (Reuters, 28 March 2012)    accessed 13 September 2020; see also BRICS, ‘Full text of BRICS Leaders Xiamen Declaration’ (BRICS 2017 China, 5 September 2017)   accessed 13 September 2020. 33 ibid. 34 Primary sanctions on states like Russia and secondary sanctions on India and China. 35 ‘India Against Russia Sanctions, to Add Vigour to Ties in Putin-Modi Meet’ (News 18, 6 December 2014)   accessed 13 September 2020. 36 ‘US Wants India to Act on Iran Sanctions’ India Today (15 July 2010) 1 accessed 3 August 2020. 37 Ministry of External Affairs, ‘Transcript of Weekly Media Briefing by Official Spokesperson’ (Government of India, 2 May 2019) < https://​mea​.gov​.in/​media[briefings​.htm​?dtl/​31234/​transcript+​of+​ weekly+​media+​briefing+​by+​official+​spokesperson+​may+​02+​2019> accessed 1 August 2020.

From pessimism to accommodation  63 tional law,38 adding that unilateral measures also undermine the principles set out in the UN Charter. Hinting at a structural problem, Indian officials have insisted that unilateral sanctions are not an effective means of dealing with an international problem, adding that the effect of such measures is ‘disproportionate’ as it has a negative impact on third parties and adverse effects on ‘trade and economic relations at large’.39 The aforementioned statements have come up either when officials have been questioned about India’s stance on sanctions imposed on other states or while discussing New Delhi’s policy on such measures and their impact on India. Frequently sanctions have been but one aspect of discussions on other issues. A degree of obscurity has recurrently been maintained in the statements while discussing unilateral sanctions, as officials have also been reluctant to give a ‘direct’ answer on the subject.40 For instance, in spite of arguing that India is against US initiated unilateral sanctions on Iran, it has adapted to the secondary sanctions and asked Washington for waivers to secure its cooperation.41 On being questioned about the change in India’s policy – from opposition to adherence, the External Affairs Minister accepted that giving a ‘direct answer’ would be ‘difficult’, stressing that a number of factors were responsible in determining New Delhi’s response to US sanctions, and in this case the considerations and interests were a combination of ‘energy security’, ‘commercial considerations’ and ‘economic security’.42 Hence, a number of considerations dictate India’s current policy on sanctions. The stand as it is expressed sometimes overlooks various nuances that come to the fore as India implements its policy on sanctions. As discussed later in the chapter, in the case of US sanctions against Iran, India has argued that it does not support unilateral sanctions. However, over time it has reduced its oil imports from Iran,43 de facto adapting to the sanctions regime as it realized that it was in New Delhi’s interest to make amends. While India maintains its opposition to unilateral sanctions, there are several factors that dictate its policy on sanctions imposed on other states. Its reaction to sanctions on entities is often case-specific because its relations with and interest in the sanctioned state play a role. To determine New Delhi’s response to a particular sanctions regime it would be beneficial to check whether or not the goal that the regime seeks to achieve is salient in Indian foreign

38 Ministry of External Affairs, ‘Joint Communique of the 16th Meeting of the Foreign Ministers of the Russian Federation, the Republic of India and the People’s Republic of China’ (Government of India, 27 February 2019) accessed 1 August 2020. 39 Ministry of External Affairs, ‘Joint Communiqué of the 15th Meeting of the Foreign Ministers of the Russian Federation, the Republic of India and the People’s Republic of China’ (Government of India, 11 December 2017) accessed 11 August 2020. 40 Ministry of External Affairs, ‘Transcript of Weekly Media Briefing by Official Spokesperson’ (Government of India, 2 May 2019) accessed 1 August 2020. 41 Rishika Chauhan, ‘Adapting India, Accommodating United States: A Case of Iranian Sanctions’ (Foreign Policy, 24 October 2015)   accessed 13 September 2020. 42 ibid. 43 ‘Iran Oil Sanctions: US Exempts India, China’ (n 5).

64  Research handbook on unilateral and extraterritorial sanctions policy discourse. For instance, India often supports sanctions against terrorist organizations as it backs the goal of curbing global terrorism. Moreover, there are certain norms that India supports through sanctions. In the 1940s, when the Indian diaspora faced discrimination in South Africa, India was the first country to impose sanctions against that state. Nevertheless, it is important to note that, though New Delhi asserts that it does not believe in unilateral sanctions, many of the state’s actions can also be viewed as types of sanctions. For example, in the past New Delhi has severed economic and diplomatic ties with Pakistan to penalize the country for supporting terrorist organizations.44 Many of its other actions in the South Asian region can also be understood as sanctions. Given its own experience as a sanctionee, it is understandable that India is not comfortable in supporting unilateral sanctions. It is often to support its primary interests45 and core norms that India imposes sanctions on other states and entities. While India has not dismissed the utility of economic tools like sanctions, it has often spoken about sanctions imposed on it and other states rather than sanctions imposed by it. In international fora, New Delhi has explained its aversion to unilateral sanctions, particularly since it has been a victim of Western sanctions. Although it might not be thought legally and socially acceptable for India to impose sanctions in the way Western states do, Indian leaders and scholars have been given to contemplating the utility of sanctions in recent years. Hence, making provisions for different factors as it deals with sanctions, is an important feature of India’s current approach to unilateral sanctions. To understand the nuances it is important to study individual cases, particularly two recent cases – Iran and North Korea – on which India has expressed its stand on sanctions in various domestic and global fora.

4.

THE CASE OF NUCLEAR SANCTIONS

India’s reaction to unilateral sanctions is significant in understanding its policy towards such measures. Since sanctions were imposed on India after its nuclear tests to change its nuclear behaviour, its stance on nuclear sanctions against other states is even more significant. Two recent cases are discussed here: Iran (4.1) and North Korea (4.2). 4.1

India’s Stand on Sanctions Against Iran

Especially since the early 2000s, Iran’s nuclear ambition has caused concern throughout the world. While many states in West Asia have voiced their opposition to Iran’s nuclear policies, many Western states and international organizations have taken action against the state. Iran’s contentious nuclear development has made the UN and several Western states impose sanctions against the state. Unilateral sanctions by individual states have been imposed on Iran along with multilateral sanctions. The US has imposed the majority of such sanctions and its regime against Iran is said to be one of the world’s toughest.46 While the history of US

44 For details see Rishika Chauhan, ‘India and International Sanctions: Delhi’s Role as a Sanctioner’ (ORF Issue Brief, September 2013)   accessed 13 September 2020. 45 These interests are often security interests. 46 Meghan L O’Sullivan, ‘Iran and the Great Sanctions Debate’ (2010) 33 (4) The Washington Quarterly 7–21.

From pessimism to accommodation  65 sanctions against Iran dates back to the 1979 hostage crisis, the issues for which sanctions are imposed have changed as the measures have been renewed and expanded. Since the mid-2000s, ensuring that Iran’s nuclear programme is confined to civilian purposes has been the goal of the Western sanctions regime against Tehran. Washington has used executive orders and passed specific acts to impose sanctions on Iran. The US-led sanctions regime is meticulous and it involves secondary provisions or sanctions that target non-US citizens and companies to prevent them from doing business with Iran, the primary target of US sanctions. Although the issue was resolved in 2016 after the signing of the Iran deal, the US under President Trump has shown renewed concern and found the deal unsatisfactory.47 However, to understand India’s view on sanctions against Iran, the time between 2006 and 2012 is most crucial and serves as the focus of this section since during that period India issued statements on the topic and explained its stance. Besides Iran, the sanctions also had an impact on Indian entities, prompting New Delhi to react to sanctions at the time. India is among the states that had to deal with the sanctions as many Indian companies work with different Iranian entities. India has acknowledged Iran’s right to a peaceful nuclear programme, however, it has objected to a nuclear weapons programme. Over time, India has shared its stance on sanctions imposed on Iran as well. At the International Atomic Energy Agency (IAEA), on 24 September 2005, India voted against Iran, affirming Tehran was in ‘non-compliance’ of its Non-Proliferation Treaty (NPT) safeguard obligations. In February 2006, India supported a resolution to refer Iran to the UNSC and on 27 November 2009 it sided with the US on a resolution criticizing Iran’s nuclear programme and pressing for the termination of uranium enrichment. Shortly after, in 2012, India came out with a strong position on the issue. The then Foreign Secretary, Ranjan Mathai, said, ‘India did not wish to see the spread of nuclear weapons in West Asia’ but stressed that Iran should be allowed to use nuclear energy for peaceful purposes, while meeting its international obligation as a non-nuclear weapon state under the NPT. India insisted that the IAEA remained the best platform for resolving the issue.48 Even so, India did not support unilateral sanctions against Iran. It shared its views both domestically and in international fora like BRICS. In 2010, Nirupama Rao, then Foreign Secretary of India emphasized: We are justifiably concerned that the extra-territorial nature of certain unilateral sanctions recently imposed by individual countries, with their restrictions on investment by third countries in Iran’s energy sector, can have a direct and adverse impact on Indian companies and more importantly, on our energy security and our attempts to meet the development needs of our people.49

47 While much has happened since the time with respect to US sanctions on Iran, this section focuses on the years when the sanctions became important for India and were mentioned in the media and parliamentary debates as the US was trying to secure India’s cooperation on the sanctions. 48 Ranjan Mathai, ‘Building on Convergence: Deepening India-US Strategic Partnership’ (Speech delivered 6 February 2012 at CSIS: Washington DC). 49 Rao quoted in The Hindu. Sandeep Dixit, ‘Unilateral Sanctions on Iran Will Hurt India: Nirupama Rao’ (The Hindu, 6 July 2010).

66  Research handbook on unilateral and extraterritorial sanctions The US’s secondary sanctions made Indian investors wary of engaging with Iran.50 Reportedly, the Indian state, individuals and companies were affected by US secondary sanctions against Iran and the government reduced oil purchases from Iran.51 Meanwhile BRICS criticized sanctions against Iran. In 2012, during the BRICS summit in New Delhi, the representatives stressed that their state would not cut ties with Iran. However, despite taking a similar tough stand against unilateral sanctions, the BRICS states did factor in their own dependence on Western states. While many BRICS states raised objections about the sanctions, they finally gave up and complied to a great extent with the US sanctions regime against Iran. As state-owned enterprises started coming within the purview of US secondary sanctions, states like India and China reduced their oil imports from Iran in exchange for waivers by the US52 thereby supporting the US sanctions regime in spite of maintaining their objections to unilateral sanctions. Barring Brazil, the BRICS countries have supported UN Security Council resolutions imposing sanctions on Iran. India has again taken a similar position on the Iranian issue in the meetings of another group, commonly referred to as RIC (Russia, India and China). In meetings, the representatives of the three states often shared their ‘serious concern’ over Iran’s nuclear programme, while acknowledging its right to peaceful use of nuclear energy and calling for an ‘exclusively peaceful resolution of the problem on the basis of the available decisions of the IAEA and the Security Council’, while discouraging the use of sanctions.53 In sum, it can be said that while India maintained its ties with Iran and found a way to negotiate through sanctions, it grew conscious of its international obligations since it believes that the issue of nuclear proliferation is significant. 4.2

India’s Stand on Sanctions on North Korea

North Korea’s policies, especially in relation to its nuclear weapons programme, have time and again drawn the attention of the UN and many individual states. Especially after North Korea’s ballistic missile and nuclear weapons tests in 2006, sanctions have been used by the UN and by many states to change Pyongyang’s nuclear policies. Apart from initiating UN sanctions on North Korea, the US has systematically put in place a comprehensive sanctions regime, consisting of direct and secondary sanctions. The US has maintained economic sanctions on North Korea ever since the Korean War. With respect to nuclear and missile proliferation, the US has laid down a number of laws. North Korea has been accused of violating sections of many US acts. Besides laws, executive orders have also been passed to strengthen the sanctions regime

50 John Prentice Caves III, ‘Oil Trade Between Iran and India Plummets’ (The Iran Primer, 12 June 2019)   accessed 13 September 2020. 51 ‘Iran Oil Sanctions: US Exempts India, China’ (n 5). 52 Humeyra Pamuk and Timothy Gardner, ‘US Renews Iran Sanctions, Grants Oil Waivers to China, Seven Others’ (Reuters, 5  November 2018)    accessed 13 September 2020. 53 ‘BRICS on North Korea’ (The Hindu, 23 March 2012) accessed 12 August 2020.

From pessimism to accommodation  67 against North Korea.54 Meanwhile, the EU and many European states have also followed suit and imposed sanctions against North Korea, particularly banning the export of gold, diamonds and luxury items to and imports of minerals from North Korea.55 While India has supported UN sanctions against North Korea, New Delhi has maintained that it does not agree with completely severing diplomatic ties with Pyongyang. In spite of not being a member of the NPT, New Delhi did not support North Korea’s withdrawal from the treaty. New Delhi has maintained that the states that have signed the NPT have an ‘obligation to live up to their treaty commitments’.56 New Delhi had often issued statements after North Korea’s nuclear tests expressing concern. As a reaction to North Korea’s 2009 nuclear tests, the Indian officials stated that the tests were part of a ‘dangerous trend’ and that India is ‘against’ nuclear proliferation.57 The issue has regional implications for India. North Korean and Pakistani nuclear programmes share common backgrounds. According to the former director of the CIA, George Tenet, the Khan network, from which Pakistan’s nuclear programme gained, has sold nuclear designs and blueprints for centrifuges to enrich uranium to North Korea as well.58 Since India and Pakistan do not maintain cordial relations, New Delhi remains wary of any state’s nuclear cooperation with Islamabad, leading it to support efforts to compel North Korea to adhere to the international non-proliferation regime.59 When the issue was discussed in the Indian parliament, E. Ahamed, then the Minister of State for External Affairs, maintained North Korea should ‘refrain from such actions which adversely impact on peace and stability in the region’.60 However, India has emphasized that it is against new sanctions on the country and supports measures that bring North Korea to the negotiating table.61 Moreover, New Delhi has always resisted the efforts of other Western states, especially the US, to overtly cut its ties with the East-Asian state. When in 2017 US Secretary of State Rex Tillerson pressed for a diplomatic boycott of North Korea, India’s Foreign Minister Sushma Swaraj disagreed and argued in favour of diplomatic presence and opening up lines of communication. Though India has banned most trade with North Korea, except food and medicine, she said: ‘As far as the question of embassy goes, our embassy there is very small, but there is in fact an embassy. I told Secretary Tillerson that some of their

54 Dianne E Rennack, ‘North Korea: Economic Sanctions’ [Updated 17 October 2006] Congressional Research Service, The Library of Congress accessed 13 September 2020. 55 European Council of the European Union, ‘EU Restrictive Measures against North Korea’ (last reviewed 30 July 2020) www​.consilium​.europa​.eu/​en/​policies/​sanctions/​history​-north​-korea/​ accessed 13 September 2020. 56 Rajesh Rajagopalan, ‘Nuclear Non-Proliferation: An Indian Perspective’ (2008) FES Briefing Paper 10    accessed 13 September 2020. 57 Ministry of External Affairs, Government of India, ‘Press Statement on Nuclear Test conducted by DPRK’  (3  September 2017)    accessed 13 September 2020. 58 George Tenet, At the Center of the Storm: My Years at the CIA (Harper Collins Publishers 2007) 294. 59 ‘Kim’s Death: Will India-North Korea Ties Improve?’ (NDTV, 20 December 2011)   accessed 13 September 2020. 60 Edappakath Ahamed, ‘Nuclear Tests by North Korea’ (Ministry of External Affairs, Government of India, 13 March 2013) accessed 4 August 2020. 61 ‘BRICS on North Korea’ (n 53).

68  Research handbook on unilateral and extraterritorial sanctions friendly countries should maintain embassies there so that some channels of communication are kept open’.62 Hence, in the North Korean case, India has shown support for the UN sanctions regime against North Korea even if it has not been enthusiastic about the use of unilateral sanctions. BRICS has again disapproved of nuclear tests. The joint statement issued during the BRICS meetings of the leaders in Xiamen condemned the tests. The joint declaration insisted that the group ‘strongly’ deplored the nuclear test, expressing ‘deep concern over the ongoing tension and prolonged nuclear issue on the Korean Peninsula’. However, they emphasized that the issue should be resolved ‘through peaceful means and direct dialogue of all the parties concerned’.63 Anticipating tightening of unilateral sanctions, the document denounced the practice of unilateral military interventions and economic sanctions, emphasizing that ‘no country should enhance its security at the expense of the security of others’. The declaration said: ‘We condemn unilateral military interventions, economic sanctions and arbitrary use of unilateral coercive measures in violation of international law and universally recognized norms of international relations’.64 BRICS countries have taken a stand against North Korea especially when it has tested weapons. However, they have often opposed unilateral sanctions on North Korea and their enhancement. Even in groupings like Russia, India and China (RIC), the topic has been discussed. When in 2012 Pyongyang conducted a rocket test ahead of a RIC foreign ministers’ meeting, the event did find a mention in the representatives’ discussions. Speaking for Russia, India and China (RIC), Russia’s Foreign Minister Sergei Lavrov insisted: ‘We do not believe in new sanctions – they will not help in any way to resolve the situation. We are convinced it is necessary to respond to the challenges at hand exclusively through political and diplomatic means’.65 It can be said that India’s role in the North Korean case is secondary. Since North Korea maintains only limited economic relations, India’s commercial interests are not at stake, making New Delhi more of a bystander supporting resolution of the issue.

5. CONCLUSION As India rises, a change in its policies and approach to various global issues is anticipated. It has been argued that India’s aspiration to moral leadership is in contradiction with the state’s acquisition of hard power, signalling that New Delhi is shifting its outlook from ‘idealism to pragmatism’.66 Prime Minister Narendra Modi promised to ‘reboot and reorient the foreign

62 Swaraj as quoted in Reuters 2017. ‘India Defends Ties with North Korea in Talks with Tillerson’ [Online] (Reuters, 25 October 2017) accessed 10 August 2020. 63 BRICS, ‘Full text of BRICS Leaders Xiamen Declaration’ (BRICS 2017 China, 5 September 2017)    accessed 13 September 2020. 64 ibid. 65 Lavrov quoted in The Hindu, ‘BRICS on North Korea’ (The Hindu, 23 March 2012) accessed 2 August 2020. 66 C Raja Mohan, Crossing the Rubicon: The Shaping of India’s New Foreign Policy (Penguin Books India 2003).

From pessimism to accommodation  69 policy goals, content and process’ in the Bharatiya Janata Party’s 2014 election manifesto.67 However, after winning the elections, the government’s official stand on sanctions remained the same as its predecessor’s, the National Democratic Alliance (NDA). New Delhi has maintained that while it supports UNSC sanctions, it is against unilateral sanctions. However, often geopolitical changes have been important and India has adhered to unilateral sanctions and been conscious of its international obligations. Especially since 2008, when India and the US signed the nuclear deal, India has had to take a more responsible and stronger posture against nuclear proliferation and consequently in favour of the sanctions supporting the cause. Over time India has also become a part of the structure that was once designed to punish its own policies. Having experienced denial and isolation, empathy could be a significant factor in explaining Indian rhetoric against unilateral sanctions. However, it would not be the sole factor, since the rising state has learnt to look ahead and with time the vengeful feelings towards the West have dissipated. Meanwhile, the major powers in the West have also become attentive to the demands and interests of India and have even attempted to alter their own policies to accommodate non-Western interests. In this setting it is not implausible that India’s position on unilateral sanctions might also alter. China, unlike India, has acknowledged the utility of unilateral sanctions and has begun to shift its past stand on the issue.68 According to recent reports, in reaction to the ongoing US-China trade war, Beijing has announced that it ‘intends to adopt certain measures that may have the same effect as sanctions’.69 However, in India no such development has taken place. While India and China cannot be compared in their political structures, their stands on unilateral sanctions have often been similar and the two have taken the same position in groups like BRICS and RIC. Hence, it would not be wrong to assume that if need arises India, like China, could also follow suit and consider drafting its own law on sanctions. In this light it also becomes important to study India’s current position and policy on sanctions even in the absence of a detailed official paper on the subject. There is an ambiguity in India’s position on unilateral sanctions. This grey area often gives India room to manoeuvre adeptly in ever-changing global politics. While the study of India’s understanding of sanctions is ongoing, a gradual shift in the Indian approach to unilateral sanctions has been noticed. New Delhi is certainly moving from pessimism to accommodation on the issue of unilateral sanctions. Studies of India’s views on sanctions are few and far between, making it hard to delve into the subject; but that does not make it less significant. This chapter has been an early attempt to understand the issue.

67 BJP, ‘BJP Election Manifesto 2014 Highlights’ (Narendra Modi 2014) 9 accessed 14 September 2020. 68 See also the chapter by Congyan Cai in this book. 69 Weiyang Tang, Runyu Liu and Siyu Wang, ‘China: Sanctions 2020’ (ICLG, 11 October 2019)    accessed 14 September 2020.

5. China’s position and practice concerning unilateral sanctions Congyan Cai

1. INTRODUCTION Unilateral sanctions are a centuries-old phenomenon in international relations. Currently, a quarter to a third of the world’s population is subject to various unilateral sanctions,1 most of which are imposed by Western powers on developing states. Although the appeal to eliminate unilateral sanctions is repeatedly made2 and although there are great controversies surrounding their legitimacy, legality and effectiveness,3 their use has not declined but intensified in the past two decades. However, a number of new developments may exert some influence on the future of the international practice of unilateral sanctions. These include the emergence of several new major source countries of unilateral sanctions – like China – which traditionally used to be targeted countries. Like many other developing states, China was long a major target country for unilateral sanctions. For most of the time since the founding of the People’s Republic of China (PRC) in 1949, China has been subject to unilateral sanctions imposed by Western powers. Recently, however, a serious concern has been raised as to whether China will become a major source country of unilateral sanctions as it emerges as a world power. In addition to the introduction and conclusion, this chapter consists of three sections. Section 2 briefly debates unilateral sanctions. This provides an understanding of the evolution of China’s policy and practice with respect to unilateral sanctions. Section 3 investigates why unilateral sanctions were and are imposed on China, and how China itself engages in unilateral sanctions practice. Section 4 discusses how China is adjusting its policy on unilateral sanctions and developing a relevant legal regime as it rises as a world power.

1 Idriss Jazairy (Special Rapporteur on the negative impact of unilateral coercive measures on the enjoyment of human rights) Press Conference (17 October 2018), available at accessed 10 March 2020. 2 For instance, United Nations General Assembly, Elimination of coercive economic measures as a means of political and economic compulsion A/RES/51/22, 6 December 1996. 3 See especially the chapters in this book by Yann Kerbrat and Alexandra Hofer.

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China’s position and practice concerning unilateral sanctions  71

2.

A BRIEF DEBATE ABOUT THE CONTEMPORARY PRACTICE OF UNILATERAL SANCTIONS

2.1

Controversies Around Unilateral Sanctions from China’s Perspective

There are arguably two major reasons for unilateral sanctions. One is the weakness of international law and the other is Realpolitik in international relations. The Special Rapporteur appointed by the Human Rights Council in 2014,4 acknowledged in his first 2015 Report on the negative impact of unilateral coercive measures on the enjoyment of human rights, that ‘the political reality, … , has departed from the ideals of the founding fathers based on a vision of the unity of purpose of the victors of the Second World War’.5 In particular, permanent members of the United Nations Security Council (UNSC), by manoeuvring their veto power, often prevent the Council from adopting the collective sanctions necessary to stop the grave abuse of human rights in particular countries. The Special Rapporteur also stresses that the procedure for adopting UN sanctions is ‘too lengthy while the need to resort to coercive measures brook[s] no delay’.6 He thus agrees with an expectation that ‘unilateral coercive measures would be adopted to remedy such deficiencies’,7 should the UNSC fail to take appropriate action in good time. The Report, however, stresses that unilateral sanctions should be considered legitimate only if their objectives are deemed desirable by ‘the international community’ and they achieve ‘their objectives rapidly’.8 In short, a pragmatic way out might be that unilateral sanctions should be considered based on both ‘the efficiency and effectiveness of such measures and on their human rights impact’.9 However, after the Security Council has already taken action and adopted appropriate sanctions, any additional sanctions by individual states beyond UN sanctions are no longer legitimate.10 Furthermore, if unilateral sanctions ‘have caused, by design or by default, egregious violations of basic human rights’,11 the legitimacy of unilateral sanctions is undermined. However, the efficiency and effectiveness of unilateral sanctions are mixed. While unilateral sanctions effectively change the behaviour of targeted countries on some occasions, they fail to do so in most cases; even worse, they deteriorate the economic, political,12 and human rights situation13 in targeted states. In short, unilateral sanctions should be considered legitimate by some states, even though they are not lawful from the perspective of international law, where (1) there is no applicable international law, or the applicable international law does not make a difference to changing the targeted behaviours; 4 Human Rights Council, Human rights and unilateral coercive measures, A/HRC/RES/27/21, 26 September 2014, 5. 5 Report of the Special Rapporteur on the negative impact of unilateral coercive measures on the enjoyment of human rights, Idriss Jazairy, A/HRC/30/45, 10 August 2015, para 59. 6 ibid. 7 ibid. 8 ibid para 61. 9 ibid para 61. 10 ibid para 60. For a legal analysis of the articulation between unilateral and UN sanctions, see the chapter by Jean-Marc Thouvenin in this book. 11 ibid para 61. 12 United Nations General Assembly, Economic Measures as a Means of Political and Economic Coercion against Developing States, A/RES/38/197, 20 December 1983. 13 Office of the High Commissioner for Human Rights, Resolution 2005/14 on Human Rights and Unilateral Coercive Measures, 14 April 2005, 3.

72  Research handbook on unilateral and extraterritorial sanctions (2) the objectives of unilateral sanctions are considered desirable not by source countries alone but by most members of international society; (3) they improve rather than worsen the situations addressed. An important question stems from the above: Would the improvement of international law necessarily reduce recourse to unilateral sanctions? The answer is no, as Realpolitik is another factor leading to unilateral sanctions. It may often triumph over international law. A recent important case is the US’s re-imposition of unilateral sanctions on Iran in 2018. On 14 July 2015, China, France, Germany, Russia, the UK, the US, the EU and Iran signed a ‘historic’ Joint Comprehensive Plan of Action (JCPOA).14 The EU considered the JCPOA ‘the result of a collective effort’ and ‘a good deal for all sides – and the wider international community’, opening up ‘new possibilities and a way forward to end a crisis that has lasted for more than 10 years’.15 It promised to abide by the JCPOA16 and reiterated that it would lift sanctions in accordance with the timeline and modalities specified in the JCPOA.17 However, on 8 May 2018 the US decided to withdraw from the JCPOA. It argued that it is ‘in the national interest’ of the US to re-impose sanctions lifted or waived in connection with the JCPOA.18 While reiterating the commitment to the JCPOA, the UK, Germany and France urged that the US should ‘avoid taking action which obstructs its full implementation by all other parties to the deal’.19 This did not prevent President Trump from issuing an Executive Order on 6 August 201820 re-imposing unilateral sanctions on Iran. Realpolitik explains why most unilateral sanctions are imposed by powerful states and why most developing states are critical of unilateral sanctions. For instance, developing states, in Resolution 27/21 adopted by the Human Rights Council in 2014, condemn the use of unilateral sanctions by powerful states as tools of political or economic pressure, and particularly ‘with a view to preventing these countries from exercising their right to decide, of their own free will, their own political, economic and social systems’.21 According to developing states, unilateral sanctions ‘are contrary to international law, international humanitarian law, the Charter and the norms and principles governing peaceful relations among States’.22 They call on all states to ‘stop adopting, maintaining or implementing’ unilateral coercive measures, especially

Joint Comprehensive Plan of Action, Preamble. Joint statement by EU High Representative Federica Mogherini and Iranian Foreign Minister Javad Zarif, Brussels, 14 July 2015. 16 Council conclusions on the agreement on Iran’s nuclear programme, 20 July 2015 accessed 5 March 2020. 17 ibid. 18 Presidential Memoranda, Ceasing US Participation in the JCPOA and Taking Additional Action to Counter Iran’s Malign Influence and Deny Iran All Paths to a Nuclear Weapon, 8 May 2018. 19 Joint statement from Prime Minister May, Chancellor Merkel and President Macron following President Trump’s statement on Iran, 8 May 2018. 20 Reimposing Certain Sanctions with Respect to Iran, Executive Order 13846 of 6 August 2018. 21 Those in favour of that Resolution are mostly developing countries. They are Algeria, Argentina, Benin, Botswana, Brazil, Burkina Faso, Chile, China, Congo, Côte d’Ivoire, Cuba, Ethiopia, Gabon, India, Indonesia, Kenya, Kuwait, Maldives, Mexico, Morocco, Namibia, Pakistan, Peru, Philippines, Russia, Saudi Arabia, Sierra Leone, South Africa, United Arab Emirates, Venezuela and Vietnam. Those against include Austria, Czech Republic, Estonia, France, Germany, Ireland, Italy, Japan, Montenegro, Romania, Macedonia, South Korea, UK and US, most of which are developed states. Human Rights Council, Human Rights and Unilateral Coercive Measures, A/HRC/RES/27/21, 3 October 2014, 6, 3. 22 ibid 3. 14 15

China’s position and practice concerning unilateral sanctions  73 those of a coercive nature with ‘extraterritorial effects’.23 More specifically they urge all states neither to ‘recognize’ those measures of extraterritorial nature nor to ‘apply them, and to take effective administrative or legislative measures, as appropriate, to counteract the extraterritorial application or effects of unilateral coercive measures’.24 Given the difficulty in fully addressing the two above-identified reasons for states to have recourse to unilateral sanctions – namely, the weakness of international law and Realpolitik strategies – some states, such as Belarus, turn to a pragmatic approach calling for regulations on the imposition of unilateral sanctions. For instance, monitoring mechanisms and penalties concerning unilateral sanctions and penalties for source countries have been proposed.25 It is also suggested that remedies should be available to innocent victims of unilateral sanctions.26 Against this background, several factors may influence the traditional pattern of unilateral sanctions. The first factor concerns the continuous efforts of international institutions to address unilateral sanctions, and especially the Human Rights Council, which might force source countries to consider adjustments to their use and practice of unilateral sanctions. From this perspective, the Special Rapporteur on unilateral coercive measures is required to ‘make guidelines and recommendations on ways and means to prevent, minimize and redress the adverse impact’ of unilateral sanctions.27 His 2015 Report defined the legal nature of unilateral sanctions and explored how to eliminate or mitigate the negative impacts of unilateral sanctions on human rights.28 Such efforts to appraise more broadly the impact of unilateral sanctions on human rights could presumably prompt source countries to reconsider their approaches in the long run. The second factor ironically concerns Realpolitik. Western powers, who were traditionally source countries, might have to change their approach to unilateral sanctions as the structure of international power has significantly changed, which, in particular, refers here to the rise of China as a world power. A rising China is not only more able to resist unilateral sanctions but also more able to impose unilateral sanctions on others, including other powerful states. 2.2

China’s General Policy Towards UN Sanctions

China has traditionally been critical of international sanctions, including UN sanctions.29 A first reason is that China has identified itself as a developing state or a ‘Third World’ state, and therefore advocated traditional principles of international law, and especially the principle of non-intervention in the internal affairs of sovereign states.30 A second reason is that China ibid 3. ibid 3. 25 United Nations General Assembly, Report of the Secretary-General, Human Rights and Unilateral Coercive Measures, A/68/211, 22 July 2013, 3. 26 Report of the Special Rapporteur on the negative impact of unilateral coercive measures on the enjoyment of human rights, Idriss Jazairy, A/HRC/30/45, 10 August 2015, 13. 27 Human Rights Council, Human Rights and Unilateral Coercive Measures, A/HRC/RES/27/21, 3 October 2014. 28 Report of the Special Rapporteur (n 26). 29 See Zeng Ni, ‘From “Negative Opposition” to “Limited Support”: The Change of China’s Response to UNSC Sanctions in the Wake of Cold War’ (2014) 3 International Review 98, 103 (in Chinese). 30 See Wang Tieya, ‘International Law in China: Historical and Contemporary Perspectives’ (1990) 221 Recueil des Cours, Chapter IV. 23 24

74  Research handbook on unilateral and extraterritorial sanctions has long been a target of international sanctions as the result of its disagreements and confrontations with some Western states, including the US, in regard to a number of issues, especially the human rights situation in China.31 Despite being critical of sanctions, China, as a permanent member of the UN Security Council, did not use its veto to block any UN sanctions initiatives until the end of the 1990s. China strongly expressed its view that UN sanctions themselves could not resolve the situations examined by the UNSC and that they might prove detrimental instead. However, it still gave the green light to sanctions initiatives. For instance, China abstained from voting when the UNSC adopted sanctions Resolutions 757 and 1244 against the Federal Republic of Yugoslavia,32 Resolution 929 against Rwanda33 and Resolution 1134 against Iraq.34 This is because China did not deem itself powerful enough to engage in direct confrontation with the US and other Western powers. In addition, as concerns the above examples of economic sanctions, China did not have substantial interests at stake in the targeted states. China’s traditional position has, however, evolved since the twenty-first century. Indeed, China tends to distinguish among different kinds of sanctions. On the one hand, China maintains its traditional policy of opposing any unilateral sanctions imposed without the authorization of the UNSC.35 On the other hand, China has begun to treat more positively the sanctions authorized by the UNSC, which China considers the only authoritative body to represent the international community, and now lends its support to UN sanctions initiatives, with few exceptions. For instance, some UN sanctions initiatives against North Korea were vetoed by China presumably on the strength of geopolitical considerations.36 Two major reasons have led to this change in China’s policy towards UN sanctions in the new context of China’s rise. First, China has been increasingly involved in almost all global affairs. This increased relevance of international circumstances to Chinese state interest has prompted the Chinese government to utilize UN sanctions among other means to prevent serious threats to its state interests. Furthermore, China has to some degree redefined its approach to international law, especially its conception of sovereignty and the principle of non-intervention. According to Liu Zhengmin, a Deputy Foreign Minister of China, China subscribes to the ‘Five Principles of Peaceful Coexistence’, which include (a) mutual respect for each other’s territorial integrity and sovereignty; (b) mutual non-aggression; (c) mutual non-interference in each other’s internal affairs; (d) equality and mutual benefit; and (e) peace-

31 See Dianne E Rennack, ‘China: Economic Sanctions’, CRS Report for Congress (1 February 2006) . 32 UNSC Res 757 (30 May 1992) UN Doc S/RES/757; UNSC Res 1244 (10 June 1999) UN Doc S/ RES/1244. 33 UNSC Res 929 (22 June 1994) UN Doc S/RES/929. 34 UNSC Res 1134 (23 October 1997) UN Doc S/RES/1134. 35 See, for example, the State Council Information Office (China), White Paper on China’s Peaceful Development accessed 5 March 2020) Part Three. 36 See Mu Ren, ‘China’s Non-Intervention Policy in UNSC Sanctions in the 21st Century: The Cases of Libya, North Korea, and Zimbabwe’ (2014) 12 Ritsumeikan International Affairs 101, 105.

China’s position and practice concerning unilateral sanctions  75 ful coexistence.37 China also ‘develops’ them over time:38 for instance, China has accepted the concept of Responsibility to Protect39 and shows greater willingness and ambition to take on more international responsibility.40 Nevertheless, as China pledges to side with other developing states forever,41 China’s increased support for UN sanctions does not mean that it will take the same policy toward sanctions as Western states. In the ‘Position Paper of the People’s Republic of China on the United Nations Reforms’ issued on 7 June 2005, China officially introduced its policy towards sanctions. It reads as follows:42 –– China has always maintained that sanctions should be applied with prudence on the precondition that all peaceful means have been exhausted. Once the Security Council decides to impose sanctions, all countries are obliged to comply strictly. –– China is in favour of improving the sanctions mechanism of the UN, setting a strict criterion, making it well focused, setting explicit time limits and minimizing the possibility of humanitarian crisis arising from sanctions and its impact on the third country. The committees on sanctions should regularly evaluate the humanitarian impact of sanctions. –– The international community should help developing countries build capacity for sanctions implementation. In this Position Paper, China explicitly promises states that it will strictly comply with the UN sanctions approved by the UNSC. Ever since, China has repeatedly expressed its determination to respect and implement UN sanctions. For instance, China, in the Circular to Implement Resolution 1526, confirmed that ‘this resolution is compulsory action taken in accordance with Chapter VII of the Charter of the United Nations and has binding force for every state. In order to implement [the] international obligations China’s government bears, the relevant authorities … strictly implement the relevant Security Council resolution’.43 37 The Five Principles initially appeared in the Preamble of the Agreement on the Trade and Intercourse between the Tibet Region of China and India which was concluded between China and India in April 1954, which was first included in China’s Constitution (1975) and remains in the current constitution (1982, as amended in 2018). See Preamble, Constitution (1975) and Constitution (1982). 38 Liu Zhengming (vice foreign minister), ‘Adhere to Five Principles and Work Together to Build the Community of Destiny’. Speech delivered at International Law Symposium in Memory of the 60th Anniversary of Five Principles of Peaceful Coexistence (27 May 2014) . 39 Ministry of Foreign Affairs of China (MFA of the PRC), Position Paper of the People’s Republic of China on the United Nations Reforms, accessed 5 March 2020, Part Ⅲ.1. 40 See for example, Robert Zoellick, ‘Whither China: From Membership to Responsibility?’ (21 September 2005) accessed 5 March 2020); EU Commission, ‘EU–China: Closer Partners, Growing Responsibilities’ (24 October 2006) COM (2006) 631. 41 Literature Research Center of the Chinese Communist Party (CCP) Central Committee (ed.), Selected Works of Deng Xiaoping (People’s Publishing House 1993) 94, 112; Information Office of the State Council of China, ‘White Paper on China’s Peaceful Development’ (September 2011). 42 Ministry of Foreign Affairs of China (MFA of the PRC), Position Paper of the People’s Republic of China on the United Nations Reforms, accessed 5 March 2020, Part II.6. 43 MFA of the PRC, Circular Concerning the Implementation of UNSC Resolution 1526 (16 March 2004) accessed 1 March 2020.

76  Research handbook on unilateral and extraterritorial sanctions

3.

CHINA AS A TARGET OF UNILATERAL SANCTIONS

In practice unilateral sanctions are regularly imposed on weak states. Therefore, it may come as a surprise that China is a major target of unilateral sanctions. Although in the several decades after the founding of the PRC in 1949 China was not as powerful as today, it was not a weak state like Burma – which has also long been a target of unilateral sanctions – and is instead one of the five permanent member states of the UN Security Council. This section explores why China has become a major target of unilateral sanctions. 3.1

China’s General Policy in Reaction to Unilateral Sanctions

As noted above, China has always opposed unilateral sanctions. For instance, in a recent comment on the imposition of unilateral sanctions on Iran by the US in the wake of its withdrawal from the JCPOA, the spokesperson for the PRC Ministry of Foreign Affairs (MFA) stated that China ‘firmly opposes the US imposition of unilateral sanctions and so-called “long-arm jurisdiction” on China and other countries invoking its domestic law. We urge the US to immediately correct its wrongdoing and earnestly respect other parties’ legal rights and interests’.44 Moreover, at a meeting of the Human Rights Council in 2015, China’s Representative stressed that: to take unilateral coercive measures as a means to impose political or economic pressure on some countries, especially developing states, prevents these countries from seeking to promote and protect human rights in light of the needs of their populations. China calls on the relevant countries to cease the adoption, maintenance or enforcement of unilateral coercive measures not in accordance with the UN Charter, international law and international humanitarian law. The international Society should urge the relevant countries to cease using unilateral coercive measures as political instruments and to impose or to threaten to arbitrarily impose unilateral sanctions on other countries, and endeavor to reduce negative impact of unilateral coercive measures.45

China’s Representative also stated the following: Unilateral coercive measures bring about negative impacts on human rights, development, international relations, trade and investment, etc. To impose unilateral coercive measures as political instruments is not in accordance with the purposes and principles enshrined in the UN Charter, and is totally contrary to the spirit of the promotion and protection of human rights through dialogue and cooperation. China always opposes unilateral coercive measures, … We call on the international society to give a special attention and firmly oppose unilateral coercive measures and urge the relevant countries to cease unilateral measures that intervene in national affairs of other states, impede the economic and social development and achievement of the right to development of targeted countries.46

44 Foreign Ministry Spokesperson Geng Shuang’s Regular Press Conference on 19 July 2019 accessed 1 March 2020. 45 Statement of China at the Biennial Session on the Unilateral Coercive Measures at the 30th Regular Session of the Human Rights Council (17 September 2015) accessed 1 March 2020. Original text in Chinese, translated by the author. 46 Statements of China at the 30th Regular Session of the Human Rights Council (13 March 2015) accessed 1 March 2020.

China’s position and practice concerning unilateral sanctions  77 Obviously China’s general policy towards unilateral sanctions coincides with that of most other developing states. This is not only because China was and often is subject to unilateral sanctions like many other developing states were and are. This is also because China, albeit a rising China, still highlights its affinity with other developing states.47 However, as illustrated in Section 4 below, China is emerging as a new source of unilateral sanctions and its anti-unilateral sanctions policy places China to some degree in a dilemma. Apart from diplomatic protests, China does not take legally aggressive measures such as blocking statutes to counter unilateral sanctions imposed on it. These blocking laws do not appear very effective in countering extraterritorial sanctions imposed by the US, but they are still relevant for reducing some of the negative effects of unilateral sanctions.48 To date, China is one of the major countries not to have adopted blocking laws against unilateral sanctions. However, some Chinese laws currently in force can partly work as blocking laws, though there is no evidence that those laws were initially designed for such a purpose. For instance, the Law on International Criminal Judicial Assistance (2018) provides that ‘no bodies, organizations or individuals in China shall provide foreign countries with evidentiary material and assistance provided for in this Law, … unless the judicial authorities in China so authorize’.49 More importantly China has explicitly expressed the intention to enact blocking statutes. On 31 May 2019 the Ministry of Commerce (MOC) announced that China would establish an ‘Unreliable Entities List’ (UEL). According to the MOC, foreign entities which, for non-commercial purposes, adopt against Chinese entities blockades, interruptions of supply and other discriminatory measures and cause substantial damage to Chinese industries and threats or potential threats to Chinese national security, will be included on that list.50 China’s UEL initiative is primarily a response to foreign countries which, in order to comply with the sanctions recently imposed by the US against Chinese companies like Huawei, reduce or terminate business with Chinese companies.51 On 19 September 2020, China’s Ministry of Commerce issued an order of Provisions on the Unreliable Entity List.52 This is the first unilateral sanction regime that China has announced. In accordance with its Provisions, China’s government will take action against activities by a ‘foreign entity’, which refers to ‘an enterprise, other organization, or individual of a foreign country’, but not against a foreign government.53 Article 2 specifies two kinds of activities to be regulated, which include (1) endangering national sovereignty, security or development interests of China; (2) suspending normal transactions with an enterprise, other organization, or individual of China or applying discriminatory measures against an enterprise, other organization, or individual of China, which violates 47 Congyan Cai, The Rise of China and International Law (Oxford University Press 2019) 53–4, 71–2. 48 See the chapters in this book by Daniel Ventura and Marjorie Eeckhoudt. 49 Law on International Criminal Judicial Assistance (2018), Art 4(3). 50 ‘Ministry of Commerce: China Will Establish the Regime of Unreliable Entities List’ accessed 1 March 2020. 51 See, for example, Reuteurs, 11 June 2019, Fact box: Global tech companies shun Huawei after US ban accessed 9 May 2020. 52 See accessed 20 September 2020. 53 Provisions on the Unreliable Entity List, art 2 (2).

78  Research handbook on unilateral and extraterritorial sanctions normal market transaction principles and causes serious damage to the legitimate rights and interests of the enterprise, other organization, or individual of China.54

In deciding whether or not to include a foreign entity on the list, the competent authority will take into account the following factors: (1) the degree of danger to national sovereignty, security or development interests of China; (2) the degree of damage to the legitimate rights and interests of enterprises, other organizations, or individuals of China; (3) whether being in compliance with internationally accepted economic and trade rules; (4) other factors that shall be considered.55

If a foreign entity is included on the list, in accordance with Article 10, it may be imposed on one or several of the following sanction measures: (1) restricting or prohibiting the foreign entity from engaging in China-related import or export activities; (2) restricting or prohibiting the foreign entity from investing in China; (3) restricting or prohibiting the foreign entity’s relevant personnel or means of transportation from entering into China; (4) restricting or revoking the relevant personnel’s work permit, status of stay or residence in China; (5) imposing a fine of the corresponding amount according to the severity of the circumstances; (6) other necessary measures.

The competent authority may specify a time limit for a targeted foreign entity to rectify its activities in question during which period the sanctions specified in Article 10 should be suspended and after which that foreign entity should be removed from the list if the activities in question have been rectified.56 However, several flexible arrangements are included. First, Chinese companies and individuals may apply for permission to do business with a foreign entity already included on the list.57 Second, even though not rectifying the activities in question, a foreign entity may apply for removal from the list.58 Third, the competent authority may not necessarily include a foreign entity on the list, even though it determines the existence of the activities specified in Article 2.59 Whether these flexible arrangements may be successfully invoked depends on the discretion of the competent authority. It is unclear what factors will be considered by the competent authority in exercising such discretion. Recently more international lawyers have suggested that China should adopt blocking laws. They are of the view that the adoption of blocking laws has several benefits. First, it sends a clear signal to source countries that China, if it deems necessary, will block unilateral sanctions which are imposed either on China or on countries with close partnerships with China. Second, it helps Chinese companies to reduce legal risks. For instance, Chinese companies may argue for force majeure against their business partners by invoking Chinese blocking laws.60 Third, it may discourage foreign companies from complying with unilateral sanctions

56 57 58 59 60 54 55

ibid, art 2 (1). ibid, art 7. ibid, arts 9, 11 and 13. ibid, art 12. ibid, art 13(2). ibid, art 8. See, for example, Yan Ye, ‘On the EU Blocking Statute’ (2020) 28(3) Pacific Journal 50, 62–3.

China’s position and practice concerning unilateral sanctions  79 imposed by other countries.61 However, some Chinese lawyers also acknowledge that Chinese blocking laws may leave Chinese companies in a dilemma of whether to comply with unilateral sanctions or Chinese blocking laws.62 Therefore, they suggest that blocking laws be adopted and enforced flexibly. For instance, the executive bodies should be given enough discretion to enforce blocking laws while Chinese companies should be given opportunities to apply waivers.63 3.2

China’s Experience As a Target of Unilateral Sanctions

Four major factors can be suggested to explain China’s experience as a major target country for unilateral sanctions in the past several decades. They concern ideology, human rights, economic interests and great power politics. While all four factors are often intertwined, the last one may play a prominent role in the contemporary world. Section 3.2.1 will first examine unilateral sanctions arising out of ideology, human rights, or economic interests. However, unilateral sanctions in the context of great power politics will be examined separately in Section 3.2.2 because it might be significantly relevant to the future development of a rising China’s policy towards unilateral sanctions. 3.2.1 Unilateral sanctions arising from ideology, human rights or economic interests First, ideology was prominent in the unilateral sanctions imposed by Western states against socialist China in the Cold War. An important unilateral sanctions programme against China, together with other socialist countries, was the Coordinating Committee for Multilateral Export Controls (CoCom) initially established by the US, the UK, France, Italy, the Netherlands, Belgium and Luxembourg in 1950 and later joined by Norway, Denmark, Canada, West Germany, Japan, Greece and Turkey.64 Second, human rights have been a major factor behind unilateral sanctions against China since 1989 when the Tiananmen Square incident occurred. Some Western states held China’s government responsible for grave and systematic abuses of human rights or the massacre of peaceful protestors.65 Immediately after the Tiananmen Square incident, many Western states like the US therefore imposed a wide range of sanctions against China.66 Recently the US adopted the Hong Kong Human Rights and Democracy Act of 2019. Under that Act, the US may consider imposing unilateral sanctions on entities and individuals in Hong and Mainland China who are identified as responsible for ‘(A) the extrajudicial rendition, arbitrary detention, or torture of any person in Hong Kong; or (B) other gross violations of internationally recog-

61 Baihua Gong, ‘US Unilateral Economic and Trade Sanctions and Their Legal Responses against the Background of Sino-US Economic and Trade Friction’ (2019) 6 Economic and Business Law Review 2, 8. 62 Qingming Li, ‘The Extraterritorial Jurisdiction of the United States: Concept, Practice and China’s Response’ (2019) 3 Chinese Review of International Law 21–2. 63 Yan Ye (n 60) 64. 64 As to the CoCom, see Cecil Hunt, ‘Multilateral Cooperation in Export Controls – The Role of Cocom’ (1982–83) 14 University of Toledo Law Review 1285. 65 See, for example, Rosemary Foot, Rights Beyond Borders: The Global Community and the Struggle over Human Rights in China (Oxford University Press 2000) 113–50. 66 Ming Wan, Human Rights and Chinese Foreign Relations (University of Pennsylvania Press 2001) 68–9.

80  Research handbook on unilateral and extraterritorial sanctions nized human rights in Hong Kong’. The possible sanctions include asset blocking, ineligibility for visas, admission, or parole to the US, and penalties.67 Similarly on 15 June 2020 the European Parliament adopted a resolution68 calling on the European Council to ‘adopt targeted sanctions and assets freezes against Chinese officials responsible for devising and implementing policies that violate human rights’.69 It urges, in particular, that when possible the EU should coordinate with the like-minded Australia, Japan, US, Canada and South Korea.70 However, whether and what sanctions the EU Council will consider remains to be seen. Third, economic interests emerged as a new factor prompting unilateral sanctions against China in the early 1990s. After a decade of ‘reforming and opening-up’ policy, which started in the late 1970s, China’s economy grew rapidly especially through its integration in the international economic order. However, a robust international legal framework regulating economic relations between China and Western states was absent. For instance China stood outside the GATT/WTO until its accession in December 2001. Therefore many economic disputes such as intellectual property infringements could not be effectively addressed by relying on international law and especially the GATT/WTO legal regime. Thus unilateral sanctions were used by some Western states, especially the US, in order to lead China to change its behaviour, including by committing to more international obligations and improving its national governance. For instance, in the early 1990s, the US accused China of failing to protect the intellectual property of American companies and therefore, in accordance with the Trade Act of 1974, initiated several ‘Special Section 301’ investigations and threatened to impose sanctions against China.71 3.2.2 Unilateral sanctions in the context of the China-US 2018–2020 trade war Currently unilateral sanctions against China appear to be increasingly influenced by the asserted struggle for international leadership between China, a rising world power, and the US, which has been a superpower for decades. The US, in its National Security Report of 2017, for the first time identified China as a ‘revisionist power’.72 The US asserted that China would seek to ‘challenge American power, influence, and interests, attempting to erode American security and prosperity’ and to ‘shape a world antithetical to US values and interests’.73 In this regard, a telling example is the adoption by the US of exceptional unilateral sanctions against China since 2018, especially in the form of tariff measures, in accordance with the US Trade Act of 1974 and in the absence of any determinations by the WTO dispute settlement body. A thorough portrayal of unilateral trade sanctions in the China-US trade war can vividly

67 Hong Kong Human Rights and Democracy Act of 2019, section 7 (a) (1), (b) and (c). See in detail Jie Liu and Congyan Cai, ‘From Hong Kong Policy Act of 1992 to Hong Kong Human Rights and Democracy Act of 2019: The Evolution of the US Policy towards Hong Kong in the Context of the Rise of China’ (2020) 13 Journal of East Asia and International Law. 68 European Parliament resolution on the PRC national security law for Hong Kong and the need for the EU to defend Hong Kong’s high degree of autonomy (2020/2665(RSP)). 69 ibid para 12. 70 ibid. 71 See, for example, ‘Special 301 Investigation into China’s IPR Enforcement Practices’, (1995) US Department of State Dispatch, 6 (2) 22. See in detail Guohua Yang, A Research on ‘Section 301’ in the US Trade Law (Law Press 1998) (in Chinese). 72 White House, National Security Report of the United States, December 2017, 25. 73 ibid 2.

China’s position and practice concerning unilateral sanctions  81 demonstrate how the US seeks to contain China by imposing unilateral trade sanctions, and how an increasingly powerful China engages with those unilateral sanctions in a manner that those less powerful countries perhaps cannot do. Trade disputes between China and the US are not new. Since the 1990s, trade disputes have been a recurring issue, provoking endless quarrels among politicians, trade officials and commentators.74 The year of 2018, however, saw ‘the biggest trade war’ in history initiated by the US.75 China argued that the trade war initiated by the US is ‘for the purpose of meeting its political need at home and containing China’.76 Economically the China-US trade war is a result of the huge trade imbalance between the two states. According to the US, its trade deficit in goods with China amounted to US$395.8 billion by 2017.77 Legally, the US accuses China of failing to honour its WTO obligations and claims that the WTO could not manage China’s asserted ‘trade-disruptive economic model’.78 That is, the US argues that there are serious loopholes in the WTO regime which leave China’s state capitalism or state-led economy unregulated. Shea, the US Ambassador to the WTO, suggested that the understanding that ‘the mere existence of the WTO prevents any action by any Member to address its unfair, trade-distorting practices and policies – unless those policies are currently subject to WTO dispute settlement’ is unsound.79 The US considers the WTO rules in existence are ‘not effective in addressing a trade regime that broadly conflicts with the fundamental underpinnings of the WTO system. No amount of enforcement activities by other WTO members would be sufficient to remedy this type of behaviour’.80 Thus, Shea warned that the WTO ‘must avoid falling down this rabbit hole into a fantasy world, lest it loses all credibility’.81 Therefore, the US pledges that, in addition to seeking remedies within the WTO framework, it ‘will take all other steps necessary to rein in harmful state-led, mercantilist 74 See, for example, Jill M Brannelly, ‘The United States’ Grant of Permanent Normal Trade Status to China: A Recipe for Tragedy or Transformation’ (2001–02) 25 Suffolk Transnational Law Review 565; Pasha L Hsieh, ‘China-United States Trade Negotiations and Disputes: The WTO and Beyond’ (2009) 4 Asian Journal of WTO & International Health Law and Policy 369; Dong Wang, ‘US-China Trade, 1971–2012: Insights into the US-China Relationship’ (2013) 24(4) The Asia-Pacific Journal 1. 75 Jethro Mullen, ‘China: The US has started “the biggest trade war” in history’ (6 July 2018) accessed 1 March 2020. 76 China’s MOC Statement of 13 July 2018. 77 Information Office of the State Council of China, The Facts and China’s Position on China-US Trade Friction (September 2018) 22–3. According to China’s statistics, the number is only US$275.8 billion. Furthermore, China has no intention of continuing to run a trade surplus against the US. The imbalance of trade in goods between two states is ‘more of a natural outcome of voluntary choices the US has made in economic structure and market in the light of its comparative strengths’. In particular, if taking into account all trade in goods, trade in services and sales of local subsidiaries in the host country, trade and economic cooperation ‘delivers balanced benefits in general for China and the United States, with the latter reaping more net benefits’. ibid 18. 78 China’s Trade-Disruptive Economic Model, Communication from the United States, WT/ GC/W/745, 16 July 2018. 79 ibid. 80 United States Trade Representative, 2017 Report to Congress on China’s WTO Compliance, January 2018, 5. 81 ibid. Shea also stressed: ‘If the WTO is seen as a shield protecting those Members that choose to adopt policies that can be shown to undermine the fairness and balance of the international trading system, then the WTO and the international trading system will lose all credibility and support among our citizens.’

82  Research handbook on unilateral and extraterritorial sanctions policies and practices pursued by China, even when they do not fall squarely within WTO disciplines’.82 In his 2016 presidential campaign, Donald Trump pledged that, if elected, he would significantly reduce the massive trade deficit with China by implementing various measures.83 In order to keep this promise, President Trump issued a memorandum on 14 August 201784 requiring the United States Trade Representative (USTR) to determine whether the US would initiate an investigation in accordance with Section 301 of the Trade Act of 1974 on China’s relevant trade laws, policies, practices, or actions.85 The USTR initiated a Section 301 investigation on 18 August.86 On 22 March 2018 the USTR released its report,87 asserting China’s Government (1) uses foreign ownership restrictions to require or pressure technology transfer from US companies to Chinese entities; (2) uses administrative procedures to require or pressure technology transfer; (3) directs and facilitates Chinese companies to systematically invest in, and acquire US companies and assets to obtain advanced technologies and intellectual property and to generate large-scale technology transfer in industries which the Chinese government deems important for industrial plans; and (4) conducts and supports unauthorized intrusions into, and theft from, the computer networks of US companies.88 Based on the USTR report, President Trump, on 22 March 2018, issued a memorandum announcing actions against China,89 two of which concern unilateral sanctions. First, on tariffs, the memorandum stated that the USTR should publish a proposed list of products for tariffs and any tariff increases and, after a period of notice and comment, will publish a final list of products and tariff increases. Second, on investment restrictions, the memo suggested that the US should address concerns about investment in the US directed or facilitated by China in industries or technologies that the US deemed important to it.90 On 3 April the USTR released a proposed list of Chinese products for additional tariffs. According to that list, the US would

USTR (n 80) 4. Trump targets China trade accessed 1 March 2020. 84 Presidential Memorandum for the United States Trade Representative, 14 August 2017. The memorandum states inter alia that ‘China has implemented laws, policies, and practices and has taken actions related to intellectual property, innovation, and technology that may encourage or require the transfer of American technology and intellectual property to enterprises in China or that may otherwise negatively affect American economic interests. These laws, policies, practices, and actions may inhibit United States exports, deprive United States citizens of fair remuneration for their innovations, divert American jobs to workers in China, contribute to our trade deficit with China, and otherwise undermine American manufacturing, services, and innovation’. 85 ibid. 86 USTR, Initiation of Section 301 Investigation; Hearing; and Request for Public Committees; China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, Federal Resister, Vol 82, No 163, 24 August 2017. 87 USTR, Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation under Section 301 of the Trade Act of 1974 (22 March 2018). 88 ibid Parts II, IV, Parts III and Ⅴ. 89 Presidential Memorandum on the Actions by the United States Related to the Section 301 Investigation (22 March 2018). 90 ibid; President Trump Announces Strong Actions to Address China’s Unfair Trade accessed 1 March 2020. 82 83

China’s position and practice concerning unilateral sanctions  83 impose tariffs on approximately $50 billion worth of Chinese imports.91 On 5 April Trump further instructed the USTR to consider the possibility of imposing additional tariffs on $100 billion worth of Chinese imports.92 On 29 May 2019 President Trump released a new statement93 based on the memorandum of 22 March announcing, among other things, that in order to protect US national security, the US would implement specific investment restrictions and enhance export controls against Chinese persons and entities involved in the acquisition of industrially significant technology, and that the US would impose a 25 per cent tariff on $50 billion worth of goods imported from China. On 15 June the USTR released a list of Chinese imports that would be subject to additional tariffs. The first set covers approximately $34 billion worth of goods and the additional 25 per cent duty will be collected beginning 6 July. The second set, which covers approximately $16 billion worth of goods, required further review in a public notice and comment process.94 The US began the collection of additional tariffs on Chinese imports on 6 July. The USTR announced on 7 August that the imposition of additional 25 per cent tariff on the second set goods would begin on 23 August. On 18 June President Trump issued a new statement directing the USTR to identify $200 billion worth of imports from China for additional tariffs at a rate of 10 per cent, given that ‘China clearly indicate[d] its determination to keep the United States at a permanent and unfair disadvantage’.95 On 1 August Trump announced that the rate would be increased from the proposed 10 per cent to 25 per cent on $200 billion worth of imports from China. On 17 September the US finalized the list of $200 billion worth of Chinese imports that would be subject to a 10 per cent tariff beginning on 24 September. That rate, according to Trump, would increase to 25 per cent on 1 January 2019.96 On 15 January 2020, the two states finally signed an Economic and Trade Agreement97 alleviating ‘the biggest trade war’ in history. However, it is too early to say whether unilateral sanctions will be re-imposed on China in the near future. 3.3

The Decreasing Impact of Unilateral Sanctions and Increased Resilience of China

Although China has always opposed unilateral sanctions imposed on it, it has on many occasions made considerable compromises with source countries like the US. For instance, as a response to the ‘Special Section 301’ investigations and potential sanctions relating to intel91 Under Section 301 Action, USTR Releases Proposed Tariff List on Chinese Products accessed 1 March 2020. 92 Statement from President Donald J Trump on Additional Proposed Section 301 Remedies (5 May 2018). 93 Statement on Steps to Protect Domestic Technology and Intellectual Property from China’s Discriminatory and Burdensome Trade Practices, 29 May 2018. 94 USTR Issues Tariff on Chinese Products in Response to Unfair Trade Practice accessed 1 March 2020. 95 Statement from the President Regarding Trade with China, 18 June 2018. 96 Statement from the President, 17 September 2018 accessed 1 March 2020. 97 See .

84  Research handbook on unilateral and extraterritorial sanctions lectual property as mentioned in Section 3.2 above, China signed two memorandums of understanding with the US on intellectual property protection in 1992 and 1995 respectively. Under those understandings, China promised substantial improvement of domestic law, including law enforcement, to provide effective protection for American intellectual property.98 In addition China signed the International Covenant on Civil and Political Rights (ICCPR) in November 1998, which, arguably, was partly a response to unilateral sanctions which some Western states imposed on China in the aftermath of the Tiananmen Square incident in 1989. Therefore, unilateral sanctions have made some difference in changing China’s behaviour and its international commitments. However, as China rises as a world power and a more sophisticated player in international institutions, it has more leverage – both nationally and internationally – to withstand and discourage unilateral sanctions. As a result, unilateral sanctions may be less effective in changing China’s behaviour in the future. This trend finds a topical illustration in China’s reaction to unilateral sanctions imposed by the US in the 2018–2020 China-US trade war. Upon the USTR’s initiation of the Section 301 investigation on 18 August 2017, China warned that it would ‘pay close attention to this investigation and take all proper measures to safeguard its legitimate right’.99 The spokesperson for China’s MFA, in commenting on that Presidential Memorandum of 22 March 2018, warned that ‘[w]e do not hope to have a trade war with anyone, but we are never afraid of it’.100 After the USTR released the proposed list of tariffs on $50 billion worth of Chinese imports on 3 April, China immediately announced that it would plan to impose an additional 25 per cent tariff on approximately $50 billion worth of American imports.101 In response to Trump’s statement of 29 May 2018, China condemned Trump’s decision to go against the consensus reached on 19 May.102 While reiterating its position that ‘we don’t want a trade war, but will never quail or recoil from a trade war’, and arguing that the United States’ ‘credibility and reputation’ would be seriously damaged,103 China warned that, if the US implemented tariffs and other restrictions, any agreements would be void, including the reported deal that China had offered to purchase nearly $70 billion worth of goods from the US in return for the suspension of tariffs on Chinese products.104 Upon the release of the list of Chinese imports subject to an additional 25 per cent tariff,

98 See Frank V Prohaska, ‘1995 Agreement regarding Intellectual Property Rights between China and the United States: Promises for International Law or Continuing Problems with Chinese Piracy’ (1996) 4 Tulsa Journal of Comparative and International Law 169. 99 MOFCOM Spokesman Comments on the 301 Investigation of the US against China (21 August 2018) accessed 1 March 2020. 100 Foreign Ministry Spokesperson Hua Chunying’s Regular Press Conference on 23 March 2018 accessed 1 March 2020. 101 China announces new tariffs on 106 US products, including soy, cars and chemicals accessed 1 March 2020. 102 Foreign Ministry Spokesperson Hua Chunying’s Regular Press Conference on 30 May 2018 accessed 1 March 2020. 103 ibid. 104 Ana Swanson, ‘China Offers to Buy Nearly $70 Billion of American Goods if US Halts Tariffs’ (5 June 2018) accessed 1 March 2020.

China’s position and practice concerning unilateral sanctions  85 China announced that it would impose tariffs of the same magnitude as those imposed by the US and that the deal reached in May 2018 would be invalid as soon as the US imposed additional tariffs on Chinese imports.105 On 16 June China announced that it would start to impose an additional 25 per cent tariff on $34 billion worth of US goods from 6 July and that the additional tariffs on another $16 billion worth of US goods would be subject to a later decision.106 On 6 July China began collecting additional tariffs on imports from the US after the announcement by Trump on 1 August that the US would increase the proposed additional 10 per cent to 25 per cent on $200 billion worth of imports from China, China responded on 3 August by announcing that it would add 5 to 25 per cent duties on $60 billion worth of US goods. In response to the announcement of the list of the additional 10 per cent tariff on $200 billion worth of Chinese imports, China announced that it would also begin to impose 5 to 25 per cent duties on $60 billion worth of US goods from 24 September.107 In addition to tariff retaliation, China has taken and is considering other actions to combat the US’s unilateral sanctions. First, politically, China is seeking to convince the international community that the US’s unilateral sanctions on China raise a fatal challenge to the multilateral trade system that the international community has pursued for decades. In other words, American unilateral sanctions not only infringe the trade rights of China under WTO agreements but also place the multilateral trade system in peril. Therefore, the China-US trade war involves not only disputes directly between the US and China, but also disputes indirectly between the US and other WTO Members. Zhang Xiangchen, China’s Ambassador to the WTO, stated that the Section 301 investigation ‘will not only impair the rights and interests of China and other WTO Members, but also seriously undermine the multilateral trading system’.108 He further argued that: Anybody at any time can be its target, and nobody, especially the small and medium economies, can defend themselves on their own. The unilateral tendency of the US’s trade policy shall be of serious concern to all Members and shall be firmly rejected. To do so is not just our responsibility, but also the only right way to cope with it. … China is expecting all members to join hands together and to collectively safeguard the rules-based multilateral trading system …109

After the US imposed a 25 per cent tariff on $34 billion worth of Chinese goods on 6 July 2018, China explicitly labelled the US an ‘outlaw’ state. In a statement issued on 13 July China

105 MOFCOM Spokesman Comments on the US Trade Measures against China accessed 1 March 2020. 106 China announces retaliatory tariffs on $34 billion worth of US goods, including agriculture products accessed 1 March 2020. 107 China hits back: It will impose tariffs on $60 billion worth of US goods effective Sept. 24 accessed 1 March 2020. 108 Statement by Ambassador Zhang Xiangchen on the US Section 301 at the Meeting of the WTO’s Council on Trade in Goods (26 March 2018) accessed 1 March 2020. 109 Statement of Ambassador Zhang Xiangchen, 8 May 2018.

86  Research handbook on unilateral and extraterritorial sanctions condemned the US for ‘not only launching a trade war with China, but also with the whole world’.110 The Statement, among other things, claims that When the United States wilfully exits from groups based on its own interests under the pretext of ‘America First’, it becomes an enemy to all. … It is fair to say that this largest trade war in economic history launched by the United States is not a trade war between the United States and China, but a global trade war. Such US practices will drag the world economy into the ‘cold war trap’, ‘recession trap’, ‘anti-contract trap’ and ‘the trap of uncertainty’, seriously worsen the global economic and trade environment, destroy the global industrial chain and value chain, hinder global economic recovery, trigger global market fluctuations and hurt the interests of numerous multinationals and average customers in the world.111

Second, legally, China seeks to make the US unilateral sanctions unlawful by resorting to WTO remedies. On 4 April 2018 China sent a communication to the WTO requesting consultations with the US concerning the proposed tariff measures that the US was to take under Section 301 of the Tract Act of 1974 on certain goods imported from China.112 After the US began to collect additional tariffs on Chinese imports on 6 July, China, based on the request for consultation of 4 April, filed an addendum to the request for consultation.113 China added a second addendum to the request for consultation on 17 July, after the US published a new list of Chinese products subject to additional tariffs on 10 July.114 China initiated new requests for consultation in August and on 23 September, after the US declared new tariff measures on $200 billion worth of Chinese imports.115

4.

CHINA AS A SOURCE OF UNILATERAL SANCTIONS

4.1

China As Source Country of Informal Unilateral Sanctions

Given the conventional thinking that the imposition of unilateral sanctions is an important instrument that powerful states may readily employ to change the behaviours of less powerful states, a concern may be raised that, as China rises as a world power, it will employ unilateral sanctions increasingly to pursue its state interest. Whether and how China adjusts its policy towards unilateral sanctions has begun to draw attention among some Western observers. Perhaps James Reilly was the first Western observer to take note of the change in China’s policy towards unilateral sanctions. Reilly suggests that China has begun to use unilateral sanctions increasingly to pursue its foreign policy

110 China’s MOC Issues Statement on US Section 301 investigation (13 July 2018) accessed 1 March 2020. 111 ibid (emphasis added). 112 United States – Tariff Measures on Certain Goods from China, WT/DS543/1, 5 April 2018. China argued that the Section 301 investigation and actions are inconsistent with Article I.1 of the GATT 1994 and Article 23 of the DSU. 113 United States – Tariff Measures on Certain Goods from China, WT/DS543/1/Add.1, 5 April 2018. 114 United States – Tariff Measures on Certain Goods from China, WT/DS543/1/Add.2, 17 July 2018. 115 United States – Tariff Measures on Certain Goods from China, WT/DS565/1, 27 August 2018; WT/DS565/2, 3 September 2018.

China’s position and practice concerning unilateral sanctions  87 goals.116 Richard Nephew, a senior fellow at the Brookings Institution, suggests that the use of economic sanctions by China ‘is at an inflection point, both in terms of capabilities and readiness’.117 Three fellows at the Center for New American Security based in Washington, in a lengthy research report completed in 2018, investigate recent experience of China employing unilateral economic sanctions, examine the methodology, evaluate the effect, predict the future and make recommendations for the US.118 According to Reilly, although China invariably expresses its opposition to unilateral sanctions, it actually has ‘repeatedly politicized economic relations, providing aid or refusing trade in support of broader strategic and ideological objectives’.119 As China becomes more powerful economically, Reilly opines that China is shifting from its traditional pattern of employing foreign policy tools to advance its economic interests to ‘deploying its vast economic wealth to support foreign policy goals’.120 Of course, he admits that China’s use of unilateral sanctions to pursue its strategies ‘is hardly unique internationally’.121 Nevertheless, China’s unilateral sanctions are different from those wielded by the US. First, China’s sanctions are ‘more bark than bite’,122 as China often sends threats of sanctions. For instance, China on several occasions threatened to sanction American companies involved in arms sales to Taiwan approved by the US government,123 but there have been no reports that sanctions were actually imposed. Second, China’s sanctions are often short-lived. This practice thus is considered as ‘purchasing diplomacy’.124 From another perspective, however, those short-lived sanctions reduce the cost for China, for instance, the avoidance of the deterioration of relations between China and the target country. Third, China rarely openly declares its unilateral sanctions.125 Actually, China’s government has not officially used the term of ‘sanctions’ for a long period and thus denies it has imposed unilateral sanctions. Fourth, China’s sanctions mainly target individual companies instead of their home countries.126 For instance, while China several times threatened to sanction American companies, it never threatened to do so against individuals and entities in the US Congress and Administration who approved the arms sales to Taiwan. Finally, in contrast with Western states which have often imposed unilateral sanctions in response to particular domestic circumstances in target countries, China has seldom used such considerations to justify its unilateral sanctions. Rather, China, through imposing unilateral sanctions, responds to particular state to state circumstances. For instance, during the escalation of the

James Reilly, ‘China’s Unilateral Sanction’ The Washington Quarterly Fall 2012. Richard Nephew, ‘China and Economic Sanctions: Where Does Washington Have Leverage?’ Global China, September 2019. 118 Peter Harrell, Elizabeth Rosenberg and Edoardo Saravalle, China’s Use of Coercive Economic Measures (Center for New American Security, June 2018). 119 Reilly (n 116) 121. 120 ibid. 121 ibid. 122 ibid 123. 123 See, for example, Foreign Ministry Spokesperson Geng Shuang’s Regular Press Conference on 21 August 2019 accessed 8 May 2020. 124 Reilly (n 116) 123. 125 ibid 124. 126 ibid. 116 117

88  Research handbook on unilateral and extraterritorial sanctions China-Japan maritime dispute (2010–2012), the export of rare earths from China to Japan was halted, which arguably constituted unilateral sanctions.127 Some Western observers have recognized that, while China is currently not powerful enough to deter the US by imposing unilateral sanctions, US allies ‘may be vulnerable’ to China’s unilateral sanctions.128 Nevertheless, as suggested by China’s responsive sanctions in the China-US trade war, the risk of the US being exposed to meaningful unilateral sanctions from China may increase. Therefore, research fellows from the Center for New American Security have proposed several policy recommendations for the Trump administration, Congress and the private sector.129 According to Richard Nephew, the US should acknowledge that ‘sanctions policy is unlikely to remain its largely undisputed province’.130 He further suggests that the US should consider the international discussion of a code of conduct for unilateral sanctions.131 Three reasons can be evoked to explain the approach and methodology behind China’s unilateral sanctions. First, as a developing state, China invariably advocates the ‘Five Principles of Peaceful Coexistence’ as well as fundamental principles such as sovereign equality among states, non-intervention in the domestic affairs of other states, and the settlement of international disputes by friendly means enshrined in the UN Charter. Therefore, China does not aggressively use unilateral sanctions as countries like the US do. Second, given that China persists with an inward state strategy focusing on its own state development, China seeks to minimize the risk and cost of it incurring unilateral sanctions. Therefore, China prefers to target individual companies instead of their governments with short-lived sanctions rather than long-term sanctions and it stops short at rhetorical threats without actually imposing sanctions. In a word, it is expected that China will continue with its self-constrained policy towards unilateral sanctions in the coming years. 4.2

From Informal to Formal Unilateral Sanctions: China’s Emerging Unilateral Sanctions Regime

As noted above, China has seldom if ever openly declared that it is imposing unilateral sanctions. A major reason is that China has not established a robust legal regime with respect to unilateral sanctions. In the past decade, however, there have been ever more new laws or legal initiatives which can be relied on to impose unilateral sanctions. For instance, in 2008 China adopted the Anti-Monopoly Law.132 That Law, under its Article 2, is applicable to ‘forms of conduct outside the territory of the People’s Republic of China if they eliminate or have restrictive effects on competition on the domestic market of the People’s Republic of China’. Similarly, Article 75 of the Law on Cybersecurity adopted in 2016133 provides that where Harrell et al. (n 118) 42. Reilly (n 116) 122. 129 Harrell et al. (n 118) 35–9. 130 Nephew (n 117) 8. 131 ibid. 132 The Anti-Monopoly Law was adopted at the 29th meeting of the Standing Committee of the Tenth National People’s Congress of the PRC on 30 August 2007 and came into force on 1 August 2008 accessed 10 May 2020. 133 The Law on Cybersecurity was adopted at the 24th Session of the Standing Committee of the Twelfth National People’s Congress of the PRC on 7 November 2016 and came into force on 1 June 2017 accessed 10 May 2020. 127 128

China’s position and practice concerning unilateral sanctions  89 foreign entities and individuals engage in ‘attacks, intrusions, interference, damage, or other activities’ that endanger the critical information infrastructure in China and entail serious consequences, legal liability will ensue. The Chinese authorities may also decide to freeze institutional, organizational or individual assets or take other necessary punitive measures. In June 2017 the MOC released the Export Control Law (draft) for public comments.134 Article 64 of the Draft provides a legal basis for unilateral sanctions. It states that ‘[t]he transfer of controlled items or foreign items the value of which reaches a certain percentage of Chinese controlled items from a country outside to a third country is subject to the Law’. A far-reaching development is that President Xi Jinping, in early 2019, required that China speed up the development of its legal regime for the extraterritorial application of Chinese national law.135 It is expected that this new legal policy will enhance the implementation of a legal regime covering unilateral sanctions.

5. CONCLUSION Given the weakness of international law in terms of both content and enforcement which is hardly to be fully addressed in such a state-centred international society, the imposition of unilateral sanctions is considered legitimate by some states on a case by case basis. However, unilateral sanctions are open to abuse in a world of Realpolitik. Therefore, despite there long having been many political and legal controversies, unilateral sanctions do exist and continue to exist in international relations. As a major target of unilateral sanctions in the past several decades and a developing country, China has consistently opposed unilateral sanctions. Western states like the US have changed China’s behaviour to some degree by imposing unilateral sanctions. On the other hand, China arguably employs unilateral sanctions without openly admitting as much. As China rises as a world power, how it adjusts its unilateral sanctions policy is becoming a major concern for other countries. Two tentative observations can be presented. First, China is more able to resist unilateral sanctions, through tariff measures, litigation and the potential adoption of blocking laws. This reduces the relevance of unilateral sanctions in changing China’s behaviour. Second, China may increase its own use of unilateral sanctions in the future. However, given its pro-sovereignty diplomatic policy and national development strategy, China is likely to be a more self-constrained user than countries like the US.

134 Note of Ministry of Commerce of China Concerning the Soliciting of Public Comments on the Export Control Law (draft), June 2017 accessed 1 March 2020. 135 ‘Xi Jinping chairs and delivers important speech at the second meeting of the Central Committee for the overall rule of law’ (25 February 2019) accessed 1 March 2020.

6. Unilateral and extraterritorial sanctions policy: the Russian dimension Ivan N. Timofeev

1. INTRODUCTION Russia has been under extensive Western sanctions since the blast of crisis in and around Ukraine in 2014. Prior to that Russia had already countered US human rights sanctions in 2012. Consequently the list of triggers for more sanctions against Russia has lengthened. It includes alleged interference in elections, cyber security, non-proliferation and other issues. More sanctions exist in the US as pending legislation, which has already been inked but has not yet come into force. Russia has been implementing countersanctions against the US, the EU and other initiators. Moscow has significantly improved its own sanctions arsenal, imposed countersanctions and implemented a number of measures to defend its economy and diminish the impact of restrictions on its relations with foreign partners. However, neither Russia nor the West has changed their respective foreign policies. The former is pursuing its course over Ukraine and other international issues, while the latter is resolved to maintain economic and political pressure on Russia. In other words neither Western sanctions nor Russian countersanctions have changed the political course and behaviour of the two sides, though sanctions themselves have caused harm to both. The sanctions standoff between the two sides has reached an equilibrium. The West is threatening more radical measures but not implementing them. At the same time there is no sign that existing sanctions regimes will be lifted in the foreseeable future. This equilibrium itself remains unstable. Russian-Western political relations are tense. New crises, such as the ‘Navalny case’, may lead to further escalation of sanctions and countersanctions. The purpose of this chapter is to analyse the recent experience of the use of unilateral sanctions against Russia by the US, the EU and other countries and Russia’s adaptation to these sanctions, including the use of countermeasures. What are the key measures of sanctions and countersanctions on both sides? In what way are they reflected in legislation? How is this legislation implemented? These research questions are central to this part of the handbook. This analysis implies the following assumptions. First, the efficiency of Western pressure on Russia in terms of sanctions is confronted with decreasing coordination between the US and the EU. Their reaction to the Ukrainian crisis was relatively similar. Later the American approach turned out to be more radical in terms of both existing and pending legislation. At some point, US sanctions even prompted discontent from the Europeans (for example the Nord-Stream-2 sanctions). Second, there are limits to further escalation of sanctions on both sides. Technically while sanctions against Russia may be more severe, they may cause greater damage to the US and the EU. More sanctions prove unnecessary if there is no significant new political crisis. Russian capabilities in terms of countersanctions have their limits too. The existing damage of sanctions is apparently tolerable for both sides. Combined with the limits for further esca90

Unilateral and extraterritorial sanctions policy  91 lation, this does not encourage the sides to view sanctions as a significant spur to change their foreign policy. Third, both sides have established sophisticated legal mechanisms for sanctions and countersanctions vis-à-vis each other. In the event of another political crisis, new sanctions may appear immediately. The existing legal constraints make a comprehensive revocation of sanctions almost impossible even if the political environment changes. This may be a de-motivating factor to alter the political course of events in relation to sanctions, especially for Russia. Fourth, the future of sanctions in Russian-Western relations may depend on several factors. These are the political climate in mutual relations, the resilience of the Russian economy and the coherence of the US-EU sanctions. Last but not least is the desire of major economies (most of all China) to protect themselves from US restrictions and secondary sanctions. This provides an opportunity for Russia to hedge sanctions risks and protect its trade relations with its major economic partners. This chapter develops an argument for the gradual escalation of sanctions and countersanctions in Russian-Western relations leading to mutual damage but failing to produce political results. It first recalls the framework of analysis used to address the issue of sanctions against and from Russia (Section 2). It then highlights the dynamics of Western sanctions against Russia (Section 3) and deals in turn with the Russian measures to increase the resilience of its national economy and to retaliate with countersanctions (Section 4), before drawing some concluding remarks (Section 5).

2.

FRAMEWORK OF ANALYSIS OF UNILATERAL AND EXTRATERRITORIAL SANCTIONS AGAINST AND BY RUSSIA

This section treats sanctions as an instrument of an initiator state to affect the internal or external policy of a target state. Initiators may compose a coalition or act on behalf of an international organization. Sanctions usually imply financial, trade or other economic restrictions that make it more costly for a target state to pursue its political objectives and force it to change its behaviour at home or abroad.1 However, sanctions may also have a non-economic character. For instance, visa bans are among popular non-economic measures. Or the target may be of a non-state character – it may be a company, an organization or even an individual. Sanctions are not the same as trade wars. They differ in terms of goals and tools. Sanctions address political issues and aim to achieve foreign policy and security objectives whereas trade wars address the issues of the competitiveness of the national economy.2 However, sanctions and trade wars may go hand in hand. For instance, this is a trend of current US policy towards China.3 The same is relevant to the US-Russia relations over Nord-Stream-2. US sanctions seemingly

1 Gary Hufbauer, Jeffrey Schott and Kimberly Elliott, Economic Sanctions Reconsidered (Peterson Institute for International Economics 2009) 3rd edn, 3–5. 2 Robert A Pape, ‘Why Economic Sanctions Do Not Work’ (1997) 22(2) International Security 90–136. 3 Elizabeth Rosenberg, Peter Harrell and Ashley Feng, A New Arsenal for Competition Coercive Economic Measures in the US-China Relationship (Center for a New American Security 2020) 6. See also the chapter by Congyan Cai in this book.

92  Research handbook on unilateral and extraterritorial sanctions aim at both political goals (reducing Russian revenues from gas exports) and economic goals (deriving more advantages from the European market as an alternative supplier of gas). Sanctions of the US, the EU and other initiators are unilateral restrictive measures.4 They differ from the UN Security Council sanctions set out in Chapter VII of the UN Charter. Still, initiators may combine UN sanctions regimes with their own unilateral restrictions.5 The US is the global leader in terms of sanctions imposition6 although the EU is increasingly using unilateral restrictions too.7 Since the end of the Cold War there have been several major trends in sanctions policy. The first is the increase in financial sanctions instead of trade embargoes. Trade sanctions remain in the toolbox of economic statecraft. However, the globalization and extensive rise of financial services have increased the demand for restrictive financial measures especially by US policymakers. The emergence of the dollar as a globally widespread currency and an international role of American banks has provided the US government with wider opportunities to use financial restrictions. After the 9/11 terrorist attacks in 2001, state control over banks and international transactions has increased significantly. The war on terror has improved the capabilities of the US financial authorities to use sanctions.8 Financial sanctions themselves have turned out to be effective in terms of possible damage for target states.9 This trend is fully relevant to the Russian case. Though trade restrictions are part of the Western sanctions toolbox, financial sanctions are in great demand. The blocking of financial assets and sectoral financial restrictions are the backbone of sanctions policy related to Russia. The second trend is the use of targeted (or smart) sanctions.10 Unlike overwhelming embargoes, they imply restrictions vis-à-vis specific persons – companies, state institutions, officials, etc. This allows finer calibration of restrictive measures and partly softens the impact of sanctions on ordinary people. However, if smart sanctions target strategic enterprises, they may cause painful damage. This trend is peculiar to the Russian case as well. Targeted sanctions are widely used against Russian persons or there is a threat of using sanctions against major banks and industries.11

4 Alena Douhan, ‘Negative Impact of Unilateral Coercive Measures: Priorities and Road Map’ (United Nations Human Rights Office of the High Commissioner, 21 July 2020)  accessed 19 September 2020. See also the chapters in this book by Charlotte Beaucillon on EU restrictive measures and Zachary Goldman and Alina Lindblom on US sanctions policy. 5 Michael Brzoska, ‘International Sanctions Before and Beyond UN Sanctions’ (2015) 91(6) International Affairs 1339–49. See also the chapter by Jean-Marc Thouvenin in this book. 6 Hufbauer (n 1) 89. 7 Francesco Giumelli, Fabian Hoffmann and Anna Ksiazczakova, ‘The When, What, Where and Why of European Union sanctions’ (2020) 29(3) European Security  accessed 19 September 2020. 8 Juan Zarate, Treasury Wars The Unleashing of a New Era of Financial Warfare (Public Affairs 2013). 9 Emre Hatipoglu and Dursun Peksen, ‘Economic Sanctions and Banking Crises in Target Economies’ (2018) 29(2) Defense and Peace Economics 171–89. 10 Daniel W Drezner, ‘Targeted Sanctions in a World of Global Finance’ (2015) 41(4) International Interactions 755–64. 11 Joy Gordon, ‘The Not So Targeted Instrument of Asset Freezes’ (2019) 33(3) Ethics and International Affairs 303–14.

Unilateral and extraterritorial sanctions policy  93 The third trend is the growing use of secondary sanctions by the US. This means that US sanctions regimes target foreign persons outside US jurisdiction.12 The US government largely blocks the financial assets of foreign persons who have dealings with sanctioned individuals, entities or states or it imposes financial penalties on such persons.13 In recent decades it has been European banks that have suffered most along with US business itself, however, international businesses prefer to comply with US sanctions regimes and cooperate with the US authorities when facing government investigations.14 US enforcement actions affect international business, stimulating the development of compliance to avoid further risks.15 Secondary sanctions are a part of US policies towards Russia too. As we will show below, several companies have already faced these measures, while many more must abstain from dealing with the Russian economy due to the risk of secondary sanctions. Considerable analysis of Russian sanctions is already to be found in the literature. For instance Richard Connolly has provided a broad overview of both sanctions and Russian adaptation strategies.16 Gayane Barseghyan has assessed the economic effects of Russian sanctions.17 Similar assessments have been made by other authors.18 Emma Gilligan analyses

See also the chapter by Yann Kerbrat in this book. Bryan Early and Keith Preble, ‘Enforcing Economic Sanctions: Analyzing How OFAC Punishes Violators of US Sanctions’ (SSRN, 8 January 2019)  accessed 19 September 2020. 14 Ivan Timofeev, ‘Rethinking Sanctions Efficiency Evidence from 205 Cases of the US Government Enforcement Actions against Business’ (2019) 17(3) Russia in Global Affairs 86–108. 15 Stefano Caiazza, Matteo Cotugno, Franco Fiordelisi and Valeria Stafanelli, ‘The Spillover Effect of Enforcement Actions on Bank Risk-Taking’ (2018) 91 Journal of Banking and Finance 146–59. 16 Richard Connolly, Russia’s Response to Sanctions. How Western Economic Statecraft is Reshaping Political Economy in Russia (Cambridge University Press 2018). 17 Gayane Barseghyan, ‘Sanctions and Counter-sanctions: What did they do?’ (The Bank of Finland Institute for Economies in Transition, 9 December 2019)  accessed 20 September 2020. 18 Antonio Bultrini, ‘EU “Sanctions” and Russian Manoeuvring: Why Brussels Needs to Stay its Course while Shifting Gears’ (Instituto Affari Internazionali, 19 June 2020)   accessed 20 September 2020; Mika Hayashi, ‘The Crimea Question and Autonomous Sanctions’ in Masahiko Asada (ed.), Economic Sanctions in International Law and Practice (Routledge 2020); Francesco Giumelli, ‘The Redistributive Impact of Restrictive Measures on EU Members: Winners and Losers from Imposing Sanctions on Russia’ (2017) 55(5) Journal of Common Market Studies 1062–80; Masha Hedberg, ‘The Target Strikes Back: Explaining Countersanctions and Russia’s Strategy of Differentiated Retaliation’ (2018) 34(1) Post-Soviet Affairs 35–54; Matthieu Crozet and Julian Hinz, ‘Collateral Damage: The Impact of the Russia Sanctions on Sanctioning Countries’ Exports’ (CEP II, 2016)   accessed 20 September 2020; Konstantin Kholodilin and Aleksei Netsunajev, ‘Crimea and Punishment: the Impact of Sanctions on Russian Economy and Economies of the Euro Area’ (2019) 19(1) Baltic Journal of Economics 39–51; Oliver Fritz, Elisabeth Christen, Franz Sinabell and Julian Hinz, ‘Russia’s and the EU’s Sanctions: Economic and Trade Effects, Compliance and the Way Forward’ (European Parliament,  2017)   accessed 20 September 2020; Erica Moret, Francesco Giumelli and Dawid Bastiat-Jarosz, ‘Sanctions on Russia: Impacts and Economic Costs on the United States’ (The Graduate Institute Geneva, 2017) accessed 20 September 2020; Julian Hinz, ‘The Cost of Sanctions: Estimating Lost Trade with Gravity’ (Kiel Institute for the World Economy,  2017) accessed 20 September 2020; Erica Moret, Thomas Biersteker, Francesco Giumelli, et al., ‘The New Deterrent? International Sanctions Against Russia Over the Ukraine Crisis’ (The Graduate Institute Geneva, 2016) accessed 20 September 2020. 19 Ivan Timofeev, ‘The Sanctions Against Russia: Escalation Scenarios and Countermeasures’(Russian International Affairs Council,  1 May 2018) accessed 20 September 2020; Ivan Timofeev and Vladimir Morozov, ‘Sanctions against Russia: 2018 Review and Forecast for 2019’ (Russian International Affairs Council, 25 December 2018) accessed 20 September 2020; Ivan Timofeev, Vladimir Morozov and Yulia Timofeeva, ‘Sanctions Against Russia: A Look Into 2020’ (Russian International Affairs Council, 2 March 2020) accessed 20 September 2020. 20 These are the 27 members of the EU, the US, the UK, Canada, Australia, New Zealand, Japan, Iceland, Switzerland, Albania, Montenegro, Georgia, Ukraine and Moldova. 21 Russian and Western official narratives use different terms to characterize events in Crimea in 2014. The Russian narrative stresses the concept of ‘reunification’, the Western narrative ‘annexation’. 22 Executive Order 13660 Blocking Property of Certain Persons Contributing to the Situation in Ukraine 2014 (US).

Unilateral and extraterritorial sanctions policy  95 the International Emergency Economic Powers Act (IEEPA) of 197723 and declared a national emergency. IEEPA empowers the President to use sanctions to deal with such an emergency. EO 13660 established blocking sanctions in relation to persons directly or indirectly responsible for undermining the democratic process and institutions in Ukraine, its sovereignty and territorial integrity, and so on. Blocking sanctions mean that the provision of any goods, funds or services to the blocked persons within US jurisdiction is prohibited. Such persons are usually included on a Specially Designated Nationals List (SDN) administered by the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury (DoT). EO 13660 also restricted entry to the US for the designated persons. However, EO 13660 did not mention Russia as a target state. EO 13661 of March 19 201424 further developed measures set out in EO 13660. It identified the first list of designated persons and explicitly marked Russian government policies as a source of the crisis. Consequently EO 13661 clarified criteria as to the use of blocking and visa sanctions. These could be government officials, actors in the arms or related sectors as well as organizations (persons) owned or controlled directly or indirectly by a senior official of the Russian government or a blocked person according to EO 13661. In addition, these could be persons who materially assisted, sponsored or provided support to senior officials or persons blocked pursuant to the EO mentioned. EO 13661 is still one of most important legal pillars for sanctioning Russian persons. Further implementation showed that its interpretation by the US DoT as well as the Department of State (DoS) may be quite broad. One of the examples is a designation of Oleg Deripaska – a leading Russian businessman. His connections with the government were among the reasons for his designation on 6 April 2018. Mr Deripaska challenged this designation in the US District Court for the District of Columbia and is still going through the process as a plaintiff.25 Another principal legal pillar on the US side is EO 13662 of 20 March 2014.26 It established the mechanism of sectoral sanctions against Russia. The DoT in consultation with the DoS could now designate those operating in the Russian financial, energy, metals, mining, engineering and defence sectors. Later the DoT released several directives to clarify sectoral sanctions. These directives then were further amended. In the latest version Directive 127 prohibited US persons from acting with the Russian financial services sector in terms of dealing in new debt of longer than 14 days maturity or new equity of persons subject to that Directive. Directive 228 imposed similar restrictions on the Russian energy sector and prohibited dealings in new debt of longer than 60 days maturity. Directive 329 defined similar restrictions for the Russian defence sector in relation to new debt of more than 30 days maturity. Finally Directive 430 restricted US persons in terms of the supply, exporting or reexporting of goods, services or technologies in support of exploration of production for deep water, Arctic offshore or shale International Emergency Economic Powers Act 1977 (IEEPA) (US). Executive Order 13661 Blocking Property of Additional Persons Contributing to the Situation in Ukraine 2014 (US). 25 Deripaska v Mnuchin and Gacki, Case 1:19-cv-00727-APM Filed 05 June 2020 (US). 26 Executive Order 13662 Blocking Property of Additional Persons Contributing to the Situation in Ukraine 2014 (US). 27 Directive 1 (as amended of September 29, 2017) Under Executive Order 13662 2017 (US). 28 Directive 2 (as amended of September 29, 2017) Under Executive Order 13662 2017 (US). 29 Directive 3 Under Executive Order 13662 2014 (US). 30 Directive 4 (as amended of October 31, 2017) Under Executive Order 13662 2017 (US). 23 24

96  Research handbook on unilateral and extraterritorial sanctions projects initiated after 29 January 2018. The list of persons covered by sectoral sanctions appeared on the OFAC Sectoral Sanctions Individuals list (SSI). It differs from the SDN and implies that all other transactions with the exception of those identified by sectoral sanctions are permitted. Finally EO 1368531 established an economic blockade of Crimea. It prohibited US persons from investing, exporting or importing goods to or from Crimea and from conducting financial operations with the region. It also threatened those operating in Crimea with blocking sanctions. The US Congress has also promoted a number of sanctions as Public Laws. On the one hand, these laws codified already existing executive orders of the President, while on the other they increased both the scope and means of restrictive measures. PL 113-95 of 3 April 201432 obliged the President to use sanctions against persons responsible for destabilizing Ukraine. It expanded sanctions on those involved in corruption in Russia. Another piece of legislation was PL 113-272 of 14 December 2014.33 According to the Administration, it set out sectoral sanctions but at the same time went far beyond that. It ordered the President to use sanctions against ‘Rosoboronexport’ – a major Russian venture, responsible for arms sales abroad. It empowered (without compelling) the President to use three or more types of sanctions against foreign persons investing in Russian crude oil projects and to sanction ‘Gazprom’ (a Russian gas market monopolist) in the event of withholding significant natural gas supplies from US allies or close partners. The President could choose sanctions from a ‘menu’ of nine types of restrictions. Another important option was a possibility of sanctioning foreign financial institutions in terms prohibiting them from maintaining correspondent accounts or from making payments through accounts in the US in the event of facilitation of certain defence- or energy-related transactions or transactions on behalf of specially designated nationals (SDNs). In other words, Congress provided an opportunity to use both unilateral and exterritorial sanctions concerning Russia. Finally Congress adopted and the President signed PL 115-44 of 2 August 2017.34 The law constrained the President in revocation of sanctions against Russia – it was connected to the scandal around electoral interference. On Ukraine it further expanded sectoral sanctions and provided an opportunity to impose sanctions against Russian companies in railroads and a number of other sectors (mostly mentioned in EO 13662) and amended DoT Directives 1–4. Unlike the previous two laws, it compelled (not just empowered) the President to sanction special Russian crude oil projects, Russian and foreign financial institutions as well as those violating human rights. EU sanctions policy against Russia on Ukraine went hand in hand with US policy. On 17 March the EU Council adopted Decision 2014/145/CFSP35 and imposed personal visa and blocking sanctions on 21 citizens of Russia and Ukraine. They covered the heads of new authorities in Crimea and a number of Russian members of parliament and military leaders. ‘Decision 145’ set up a legal framework for personal sanctions against Russia on Ukraine. 31 Executive Order 13685 Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine 2014 (US). 32 Support for the Sovereignty, Integrity, Democracy and Economic Stability of Ukraine Act 2014 (SSIDES) (US). 33 Ukraine Freedom Support Act 2014 (UFSA) (US). 34 Countering America’s Adversaries Through Sanctions Act 2017 (CAATSA) (US). 35 Concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine [2014] OJ 2 78/16/16.

Unilateral and extraterritorial sanctions policy  97 Currently it includes 190 individuals and 47 entities. It covers a number of organizations from Crimea and the self-proclaimed republics of Donetsk and Lugansk as well as a sample of Russian military industries. EU Council Decision 2014/386/CFSP of 23 July 201436 and Decision 214/933/CFSP37 of December 2014 prohibited a wide range of trade and investments with Crimea. The European Union has also imposed sectoral sanctions similar to the US ones. EU Council Decision 2015/512/CFSP38 of 31 July 2014 laid down sectoral sanctions. In the armaments industry they banned arms and dual-goods supply to Russia. In the financial sector they limited operations with new debt of longer than 90 days maturity for five major Russian banks. In energy they restricted supply for new deep-water Shell and Arctic projects. Later these restrictions became tougher. Decision 2014/659/CFSP39 reduced the maturity of new debt, available for operations, to 30 days and expanded the prohibition to three major energy companies and three major industrial ventures, producing dual-use or military goods. After the completion of the Minsk-2 Accords in February 2015, the EU linked the possible revocation of sanctions to the implementation of these accords (Decision 2015/971 CFSP).40 In sum, US and EU unilateral restrictive measures followed the same direction and implied similar measures. However, things changed in 2016–2017 when both the US and the EU took restrictive decisions against Russia on other issues beyond Ukraine such as interference and cyber security as well as human rights, corruption and the alleged use of chemical weapons. US sanctions on these issues turned out to be more proactive than the EU’s. 3.2

Unilateral and Exterritorial Sanctions Over Electoral Interference and Cyber Incidents

Interference in elections and cyber incidents had a devastating effect on US-Russia relations after the US presidential elections in 2016. However, the state of emergency on cyber threats under IEEPA had been introduced by EO 13694 of 1 April 201541 even prior to ‘Russiagate’. It was a reaction to the theft of millions of files on US civil servants by hackers, supposedly connected to the Chinese government and who reportedly attacked the US Office of Personnel Management.42 EO 13694 did not mention China, however, it threatened anyone involved in malign activities in cyberspace with blocking and visa sanctions. On 28 December Barack

36 Concerning restrictions on goods originating in Crimea or Sevastopol, in response to the illegal annexation of Crimea and Sevastopol [2014] OJ 2 183/70/16. 37 Amending Decision 2014/386/CFSP concerning restrictive measures in response to the illegal annexation of Crimea and Sevastopol [2014] OJ 2 365/152/70. 38 Concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine [2014] OJ 2 229/13/16. 39 Amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine [2014] OJ 2 271/54/54. 40 Amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine [2015] OJ 2 157/50/50. 41 Executive Order 13694 Blocking the Property of Certain Persons Engaging in Significant Malicious Cyber-Enabled Activities 2015 (US). 42 Mike Levine, ‘China Is “Leading Suspect” in Massive Hack of US Government Networks’ (ABC News,  26 June 2015)    accessed 23 October 2020.

98  Research handbook on unilateral and extraterritorial sanctions Obama signed EO 1375743 that specifically addressed the Russian challenge. Initially it blocked five Russian entities and four individuals. Later on this list grew longer. The US Congress has also covered cyber and interference issues in new legislation. PL 117-4444 obliged the President to impose at least five of 12 types of sanctions against anyone involved in cyberattacks and malign actions as well as anyone acting on behalf of the Russian intelligence services. The list of 12 types of sanctions (section 235) includes restrictions on Export-Import Bank Assistance; export sanctions; restrictions of loans from US financial institutions; opposing loans from international financial institutions; prohibitions on financial institutions; restrictions on the US government procuring goods from sanctioned persons; prohibitions on foreign exchange; limitation of banking transactions; prohibition of some kinds of property transactions; a ban on investment in equity or debt of sanctioned persons; exclusion of corporate officers and sanctions against principal executive officers of sanctioned persons. To implement CAATSA, President Donald Trump issued EO 13849 of 20 September 2018.45 He has also introduced EO 13848,46 which provided a legal framework for the Administration on identification of election interference and consequent imposition of sanctions in retaliation. An important step in the cyber domain was EO 13873 of 15 May 2019.47 It declared a state of emergency regarding security of information and communication technology. It related to technological security rather than specific actions in cyberspace. It has been directed more at China and Chinese companies than Russia.48 However, it is a powerful tool in the hands of the Department of Commerce (DoC) in terms of export and import limitations in digital and communication technologies. The EU has politically supported the US discontent with supposed Russian interference and malign cyber actions. However, European measures were more restrained. On 17 May 2019 the EU Council took Decision 2019/797/CFSP.49 The decision had no specific focus on Russia and is of a ‘framework’ character. It implies blocking and visa sanctions against persons involved in cyberattacks (including attempted ones) with a significant or potentially significant effect. This legal mechanism was first used and amended in July 202050 against Russian and Chinese nationals and entities (four Russian individuals and one of the offices of Russian military intelligence).51 Just recently the EU also designated two Russian nationals and one of

43 Executive Order 13757 Taking Additional Steps to Address the National Security Emergency with Respect to Significant Malicious Cyber-Enabled Activities 2016 (US). 44 Countering America’s Adversaries Through Sanctions Act 2017 (CAATSA) (US). 45 Executive Order 13849 Authorizing the Implementation of Certain Sanctions Set Forth in the Countering America’s Adversaries Through Sanctions Act 2014 (US). 46 Executive Order 13848 Imposing Certain Sanctions in the Event of Foreign Interference in a United States Election 2014 (US). 47 Executive Order 13873 Securing the Information and Communications Technology and Services Supply Chain 2014 (US). 48 See also the chapter by Zachary Goldman and Alina Lindblom in this book. 49 Concerning restrictive measures against cyber-attacks threatening the Union or its Member States [2019] OJ 2 129/13/1. 50 Amending Decision (CFSP) 2019/797 concerning restrictive measures against cyber-attacks threatening the Union or its Member States [2020] OJ 2 246/12/12. 51 See also the chapter by Charlotte Beaucillon in this book.

Unilateral and extraterritorial sanctions policy  99 the structural units of Russian Military Intelligence in reaction to the alleged hacking attack on the Bundestag in 2015.52 3.3

Unilateral and Exterritorial Sanctions Linked to Chemical and Biological Weapons and Related Issues

Another significant reason for Western sanctions against Russia is a supposed violation of international obligations on the non-proliferation of chemical weapons. The incident in Salisbury (UK) in March 2018 (or the ‘Skripals case’) was a hard blow to Russian-Western relations and triggered the use of another round of sanctions. The US implemented PL 102-182 of 1991.53 This is ‘framework’ legislation with no initial focus on Russia. However, the DoS used it to legally justify sanctions against Russia. The assumption was that Russia used a chemical agent (Novichok) abroad in violation of international law. Section 307 of the CBW Act implies two stages of sanctions in such cases. At the first stage the President shall limit foreign assistance, terminate arms sales and financing of such sales, deny on behalf of the US government credit or other financial assistance. The second stage assumes another round of sanctions if the President cannot determine that the government of a target state is not using such weapons, if it cannot provide reliable assurances and if it is unwilling to allow on-site inspections by UN or other credible observers. In this case the President shall impose at least three out of six sanctions. The list includes restrictions on multilateral bank assistance, bank loans, export and import as well as downgrading of diplomatic relations and a ban on access of national air carriers to the US. EO 13883 of 1 August 2019 implemented the demands of the second stage of sanctions ordered by the CBW Act. Sanctions included limitations on making loans to Russia (restrictions on Russian non-rouble sovereign debt), prohibition on financing of Russia via international institutions and further trade restrictions. The EU also reacted in terms of new measures although they were more moderate than the US ones. On 15 October 2018 the EU Council adopted Decision 2018/1544. It established blocking and visa sanctions against persons directly or indirectly involved in the use of chemical weapons or other activities (including preparation or assistance to use such weapons). It is a ‘framework’ mechanism. The EU implemented it against four Russian individuals suspected of involvement in the Salisbury incident and five Syrian individuals and one entity. Both US and EU legislation on chemical weapons may be used against Russia in respect of Alexei Navalny, a Russian opposition politician allegedly poisoned in Russia in August 2020. The EU has already imposed blocking and visa sanctions against six Russian high-level officials and a Research Institute of Organic Chemistry and Technologies, who could be aware of or connected with the incident according to the EU explanatory notes.54 US Congressmen have introduced a bill to sanction Russian government officials, supposedly related to the issue,55 52 Amending Decision (CFSP) 2019/797 concerning restrictive measures against cyber-attacks threatening the Union or its Member States [2020] OJ 2 351/5. 53 Chemical and Biological Weapons Control and Warfare Elimination Act 1991 (CBW) (US). 54 Amending Decision (CFSP) 2018/1544 concerning restrictive measures against the proliferation and use of chemical weapons [2020] OJ 2 341/9. 55 Marco Rubio, ‘Rubio Joins Colleagues Introducing Legislation Targeting Russian Officials Involved in Navalny Poisoning’ (Senator Rubio Web-Site, 24 September 2020)   accessed 23 October 2020.

100  Research handbook on unilateral and extraterritorial sanctions and both chambers have demanded the Administration investigate the incident and use the Magnitsky Act of CBW Act if necessary.56 There are areas where the US imposes sanctions against Russia while the EU still does not. One of them is the situation in Syria. Section 234 of PL 115-44 obliges the President to impose blocking or visa sanctions against foreign entities that support or materially contribute to the government of Syria acquiring weapons of mass destruction, ballistic or cruise missile capabilities, destabilizing numbers of conventional weapons and other arms services. Cooperation with Syria (as well as sanctions against Russian on Ukraine) was, for instance, one of the reasons for blocking Rosoboronexport – a Russian arms export company on 6 April 2018. In 2019 Congress approved the ‘Caesar Syria Civilian Protection Act of 2019’. It has significantly widened sanctions risks for foreign persons (including and most of all Russian ones due to ongoing extensive cooperation with the government of Syria). Now sanctions are a threat to persons dealing with the government of Syria or entities controlled by it; serving as a military contractor, acting on behalf of Russia or Iran; providing significant support for the domestic production of gas, petroleum or petroleum products; selling aircraft or aircraft spare parts and providing significant construction and engineering services to the Government of Syria. In other words, the ‘Caesar Act’ has significantly expanded the list of areas in Syria subject to sanctions in relation to foreign persons including and especially Russia. The EU has its own sanctions regime on Syria but it does not imply secondary sanctions against Russia or any other country. 3.4

Unilateral and Extraterritorial Sanctions Related to Human Rights and Corruption

Other areas are human rights and corruption. Human rights are an important foreign policy topic for both the US and the EU. The US has a rich practice of human rights sanctions imposition, while the framework mechanism on the EU side is still in the design stage. The key US legal instrument on human rights restrictions in relation to Russia is the Magnitsky Act of 2012.57 Initially it targeted Russian individuals (in terms of blocking and visa sanctions) supposedly connected with the death of Sergei Magnitsky in a Russian prison.58 Subsequently the US authorities used the Magnitsky Act to target other Russian individuals whom they claim significantly violated human rights. In 2016 the US Congress internationalized sanctions leg-

56 Eliot Engel and Michael McCaul, ‘Letter to President Donald J Trump’ (US Congress House of Representatives,  8 September 2020)  accessed 23 October 2020. Ben Cardin et al., ‘Letter to Mike Pompeo and Steven Mnuchin’ (Senator Romney Web-Site, 21 October 2020) accessed 23 October 2020. 57 Russia and Moldova Jackson-Vanik Repeal and Sergei Magnitsky Rule of Law Accountability Act 2012 (US). 58 Sergei Magnitsky (1972–2009) was a Russian auditor, who reportedly revealed massive corruption schemes in public spending by governmental authorities. Russia treats the Magnitsky case as a false accusation and a manipulative instrument in US hands.

Unilateral and extraterritorial sanctions policy  101 islation on human rights and approved the Global Magnitsky Act,59 while the President issued EO 13818 to implement it.60 Global Magnitsky became a benchmark for similar legislation in a number of other countries. For instance the UK established a similar regime in 2020 after Brexit (Global Human Rights Sanctions Regulations)61 and designated 49 individuals including Saudis and Russians.62 Besides that, section 228 of CAATSA obliges the President to use blocking and visa sanctions against those violating human rights in any territory ‘forcibly occupied or otherwise controlled’ by the Russian government. As for corruption, the President has to impose blocking and visa sanctions against Russian officials and their close associates and family members (under section 227 of CAATSA amending section 9 of SSIDES). Section 241 of CAATSA has also directed the DoT to prepare a ‘Report on Oligarchs and Parastatal Entities of the Russian Federation’. The unclassified part of the DoT report contained just a list of Russian senior statesmen and businessmen – the so-called ‘Kremlin’s List’. The list does not imply sanctions, however, a number of Russians on the list have been designated by OFAC and the list itself affects the reputation of the persons named. 3.5

US Unilateral and Extraterritorial Sanctions Related to Russian Pipelines

Finally, the US and the EU have different positions on sanctions against Russian pipelines. Washington views Russian pipeline projects as a threat to Ukrainian energy security and a means for Russia to deprive Ukraine of transit gas to Europe. In addition, the US has increased its own gas export capabilities, approaching Europe as a prospective market and Russia as a competitor. The Russian point is to provide alternative gas supplies to avoid political blackmailing from the transit states, including Ukraine. The EU and Germany especially apparently support diversification of pipelines with a condition that Russian Ukraine will remain a transit country as well. Nord-Stream-2 became a central pipeline project aimed at further connecting Russia and Germany. However, the US has taken a tough stance on Russian pipelines. Section 232 of PL 117-44 (CAATSA) empowers (but does not compel) the President with authority to choose five or more of 12 sanctions, set out in section 235 (mentioned above) to target anyone providing goods, services, technology, information or support for the construction of Russian energy export pipelines. On 15 July 2020 the DoS stated its intent to implement section 232 of CAATSA to deal with ‘Nord-Stream-2’ and ‘TurkStream’.63 Both projects are now viewed by the US as a way to undermine US national security and foreign policy interests. Congress has also imposed pipeline sanctions. In December 2019 it adopted the ‘Protecting Europe’s Energy Security Act’ (PEESA)64 as a part of the National Defense Authorization Act of 2019. PEESA targeted vessels engaged in pipe-laying at depths of

Global Magnitsky Human Rights Accountability Act 2016 (US). Executive Order 13818 Blocking the Property of Persons Involved in Serious Human Rights Abuse and Corruption 2017 (US). 61 The Global Human Rights Sanctions Regulations 2020, SI 2020/680. 62 Office of financial sanctions implementation, ‘Financial Sanctions Notice’ (HM Treasury, 6 July 2020) accessed 26 September 2020. 63 Bureau of energy resources, ‘CAATSA/CRIEEA Section 232 Public Guidance’ (US Department of State,  15 July 2020)   accessed 26 September 2020. 64 Protecting Europe’s Energy Security Act 2019 (PEESA) (US). 59 60

102  Research handbook on unilateral and extraterritorial sanctions 100 feet or more below sea level for the construction of Nord-Stream-2, TurkStream or any successors of these projects. It threatened blocking and visa sanctions in relation to foreign persons selling, leasing or providing vessels for construction of such projects. PEESA has had a negative effect on Nord-Stream-2. The Swiss AllSeas company has called back its vessels and abandoned Nord-Stream-2 due to the risk of US unilateral and exterritorial sanctions. This step halted construction due to the absence of alternative suppliers in the market ready to take risks. The Russian partners of the project managed to fit out two other vessels to complete the pipeline. Now the US Congress threatens another bill (PEESCA)65 potentially targeting entities providing insurance and technical supplies for vessels involved in the pipeline projects mentioned. Such sanctions may affect a number of German and EU companies involved with Nord-Stream-2. Even if PEESCA is not adopted, the technical supply of vessels is already targeted by the US Department of State, which declared that PEESA is enough to sanction, for instance, supply of equipment for vessels.66 The EU and Germany have expressed their discontent with the threat of US secondary sanctions. However, it is still unclear to what extent this discontent affects Washington. In any case, US secondary sanctions and enforcement against European business (not just with Russia, but also other cases, including Iran) appeared on the radars of the EU leadership as challenge to deal with.67 3.6

Enforcement and Impact of Unilateral Sanctions on Russia

In addition to major problems of Russian-Western relations, which form a basis for sanctions, the US implements secondary sanctions vis-à-vis Russian persons as a means of enforcement to comply with US sanctions regimes. For instance, OFAC used blocking sanctions against Russian companies suspected of supplying oil to North Korea (DPRK). One of the examples is a designation of NNK Primornefteproduct in 201768 for alleged violation of the DPRK sanctions regime. The company faced reputational and financial losses, however, it managed to get de-listed from SDN69 upon rebuilding the sanctions compliance programme and taking significant remedial measures.70 Two other cases are Gudzon Shipping and Primorye Maritime Logistics. OFAC designated them for the same reason in 2018 and they are still blocked.71

A Bill ‘Protecting Europe’s Energy Security Clarification Act’ 2020 (US). US Department of State, ‘Protecting Europe’s Energy Security Act (PEESA)’ (US Department of State Web-Site,  21 October 2020) www​.state​.gov/​protecting​-europes​-energy​-security​-act​-peesa/​ accessed 23 October 2020. 67 Ursula von der Leyen, ‘Executive Vice-President-designate for An Economy that Works for People’ (European Commission,  10 September 2019)   accessed 26 September 2020. 68 Office of Foreign Assets Control, ‘Treasury Sanctions Suppliers of North Korea’s Nuclear and Weapons Proliferation Programs’ (US Department of the Treasury, 1 June 2017)   accessed 26 September 2020. 69 Office of Foreign Assets Control, ‘Specially Designated Nationals List Update’ (US Department of the Treasury,  2 March 2020)  accessed 26 September 2020. 70 On these processes, see also the chapter by Emmanuel Breen in this book. 71 Office of Foreign Assets Control, ‘Treasury Targets Russian Shipping Companies for Violations of North Korea-related United Nations Security Council Resolutions’ (US Department of the Treasury, 21 August 2018)   accessed 26 September 2020. 65 66

Unilateral and extraterritorial sanctions policy  103 Due to sanctions, Gudzon’s vessels repeatedly face service refusals in foreign ports and the company itself has suffered financial losses. At first glance US and EU blocking sanctions affect quite a narrow range of targets in Russia. For instance OFAC’s consolidated list on Russia now includes 558 Russian entities and individuals. Some 250 entities are subject to sectoral sanctions set out in EO 13662 and its Directives. Another 308 entities and individuals are on the SDN list: 150 of them for Ukraine-related sanctions (EO 13660, 13661, 13661, 13685); 19 individuals and entities for CAATSA designations; 61 persons under cyber-related and election-interference sanctions; 27 persons for DPRK and non-proliferation designations; 12 persons are designated pursuant to the Global Magnitsky and Magnitsky Acts; 18 persons are blocked pursuant to sanctions relating to Syria and terrorism; 14 persons are subject to transnational crimes sanctions, three for Cuba, two for Venezuela, one for Iran and one for Belarus sanctions; 109 entities and individuals belong to the ‘Ukraine’ item of OFAC consolidated lists, some being Crimean residents and companies and others Russian citizens. Magnitsky sanctions also cover 45 other Russian individuals.72 However, the true number of affected persons is larger. Blocking sanctions cover subsidiary companies and persons acting on behalf of sanctioned individuals and entities or owned by them (50 per cent shares or more – the so-called ‘50 Per Cent Rule’). Sanctions also affect partners or clients of the companies which are not listed but are in relation with the companies in SDN or SSI or with the designated managers of such companies. Those dealing with blocked persons may face civil or criminal investigation. Three examples are of interest. First is the case of ExxonMobil, which signed several contracts with Rosneft – Russia’s leading oil company – in 2014. Rosneft is under sectoral sanctions but is not blocked, so the contracts were permitted. But it was Mr Igor Sechin, a director of Rosneft, who signed the contracts. Mr Sechin is a part of SDN, so OFAC exposed ExxonMobil to a civil penalty of $2 million.73 ExxonMobil successfully challenged this decision in the US District Court for the Northern District of Texas in 2019.74 Another example is a case of Haverly Systems, a US based company that provided services to Rosneft when it was already under sectoral sanctions. The delay of payment by Rosneft was understood by OFAC as crediting the Russian company in violation of EO 13662. The US company had to pay $75 375 as a civil penalty.75 The latest example is a civil investigation by OFAC regarding US-based Frequency Electronics. The company provided services to the Russian company Morion, which is owned by Gazprombank – one of the leading Russian banks and on the OFAC SSI list. Morion delayed payments and Frequency Electronics self-disclosed the issue to OFAC as a potential violation of EO 13662.76 These three cases show that sanctions effects 72 Office of Foreign Assets Control, ‘Sanctions List Search’ (US Department of the Treasury, 21 September 2020)  accessed 26 September 2020. 73 Office of Foreign Assets Control, ‘Enforcement Information’ (US Department of the Treasury, 20 July 2017)   accessed 26 September 2020. 74 Exxon Mobil Corporation and others v Mnuchin, Gacki and others Civil Action No 3:17-CV-1930-B (ND Tex) Filed 31 December 2019 (US). 75 Office of Foreign Assets Control, ‘Enforcement Information’ (US Department of the Treasury, 25 April 2019)   accessed 26 September 2020. 76 Frequency Electronics Inc, ‘Annual report’ (Frequency Electronics Inc, 12 August 2020) accessed 26 September 2020.

104  Research handbook on unilateral and extraterritorial sanctions may be indirect and have an impact via third parties, subsidiaries or sanctioned executives. These indirect effects are seemingly no less important than direct designations of Russian persons. At the same time, the overall impact of sanctions on the Russian economy has been quite moderate. They have been harmful but the damage has been tolerable and they have hardly affected Russian foreign policy. Besides that, sanctions were not the only negative factor. The stagnation of the economy started before the Ukrainian crisis due to structural problems. The oil price slump in 2014 caused significant devaluation of the rouble and a brief recession. Sanctions and political instability accelerated negative trends, but were neither a decisive factor nor the only one. Recent IMF research is illustrative in this regard. The key effect of sanctions and political tensions in general is greater uncertainty for markets. Sanctions played a role as such. They constrained the access of Russian banks to international financial markets. But the IMF model shows that its impact is lower than that of oil prices, fiscal policy or financial and monetary factors.77 Earlier research reveals other details. The Russian economy lost 2.4 per cent of GDP directly from sanctions in the three years since 2014, while the losses from the oil-price slump caused much more damage. The unfavourable market conjuncture aggravated the effect of sanctions.78 Other research shows that the Russian economy adapted to sanctions in the short run but faces challenges in the long perspective.79 The decline of the Russian economy and countersanctions have also negatively affected EU exports to Russia.80 The recovery of the ruined trade relations may be problematic even if sanctions are softened or lifted.81 Despite tolerable damage, the problem is uncertainty in political relations between Russia and the West. They repeatedly face new challenges if not crises, which fuel more sanctions. On the US side some of them are already drafted as pending legislation. Two bills are most important. First is Defending Elections from Threats by Establishing Redlines Act (DETER). It addresses the issue of interference and proposes renewal of the ‘Kremlin’s Report’, designation of major Russian banks, restrictions on investments in the Russian energy sector, sanctions against Russian sovereign debt, and so on.82 Another bill is the Defending American Security from Kremlin Aggression Act (DASKA). It covers almost all US grievances towards Russia, starting with Ukraine and ending with interference and non-proliferation. DASKA implies more radical sanctions, including restrictions in relation to liquid natural gas projects, supply of goods, services and investments in the Russian energy sector, sovereign debt sanctions and so on.83 DASKA was strongly criticized by the DoT. The Administration no doubt took 77 International Monetary Fund European Department, ‘Russian Federation Staff Report’ (International Monetary Fund,  2 August 2019)   accessed 20 September 2020. 78 Evsey Gurvich and Ilya Prilepskiy, ‘The Impact of Financial Sanctions on the Russian Economy’ (2016) 1(1) Voprosy Ekonomiki 5–35. 79 Tatiana Mitrova and Vitaly Yermakov, ‘Russia’s Energy Strategy-2035: Struggling to Remain Relevant’ (RussieNeiReports, No 28, IFRI,  December 2019)   accessed 26 September 2020; Connolly (n 16). 80 Fritz et al. (n 18). 81 Hinz, ‘The Cost of Sanctions’ (n 18). 82 A Bill ‘Defending Elections from Threats by Establishing Redlines Act’ 2019 (US). 83 A Bill ‘Defending American Security from Kremlin Aggression Act’ 2019 (US).

Unilateral and extraterritorial sanctions policy  105 a strong line towards Russia’s containment. However, it revealed numerous shortcomings, problems with possible implementation and damage for the US itself.84 Still, both DETER and DASKA are in the Congress pipeline and may be demanded again in case of renewed aggravation of political relations. Existing sanctions and possible new measures prompted Russia to look at countermeasures.

4.

RUSSIAN COUNTERSANCTIONS POLICY

The Russian approach to dealing with Western sanctions includes both offensive and defensive measures. The former imply the use of sanctions in response to hostile action from foreign states (4.1); the latter cover the range of measures to increase the resilience of the economy in the event of sanctions escalation and to protect entities under sanctions (4.2). 4.1

Russian Unilateral Sanctions in Response to Hostile Actions by Third States

The legal basis of Russia’s use of sanctions includes two major acts. The first is the Special Economic Measures Act (Federal Law (FL) No 81) of 200685 and amended in 2019 (FL No 83).86 It coins the term of special economic measures (SEMs). In fact, SEMs is a definition for sanctions used by Russia in a unilateral way as retortion for foreign hostile actions or violations of international law. An act clearly distinguishes SEMs from restrictive measures taken to implement UN Security Council resolutions. The list of SEMs includes restrictions on Russian foreign aid, banning of financial operations, trade restrictions, changes of tariffs, denial of air and sea access to Russian ports, limitations on tourism and withdrawal from international scientific cooperation agreements. Another major legal act is that on Measures of Reaction (Counter-Reaction) to Hostile Activities of the US or other Foreign States (FL No 127) of 2018.87 In general ‘measures of reaction’ coincide with SEMs identified in FL No 281 and vest the President with authority to identify other measures deemed appropriate. The law contains the term ‘national regime’ regarding goods and services originating in ‘hostile states’. The President has the power to decide on sanctions and the government to implement them. In the last six years Russia has accumulated a practice of implementation of these acts. The key trend is a gradual evolution from trade restrictions to a more diversified toolbox, which includes blocking sanctions, similar to those of the EU and the US. On 6 June 2014 the President issued Presidential Order (PO) No 560,88 which is still in effect today. It established restrictions on imports of some categories of raw materials and food originating in countries having imposed sanctions on Russia or Russian citizens. The government identified such countries and the list of restricted goods under Governmental Regulation (GR) No 778 of 84 Mary E Taylor, ‘Administration Views on ANS S482’ (US Department of State, 17 December 2019)   accessed 26 September 2020. 85 Special Economic Measures Act No 281 FL 2006 (RU). 86 Amended Special Economic Measures Act No 83 FL 2019 (RU). 87 On the Measures of Reaction (Counter-Reaction) on Hostile Activities of the US or other Foreign States 2018 No 127 FL (RU). 88 Presidential Order No 560 On Implementation of Special Economic Measures to Protect National Security of the Russian Federation 2014 (RU).

106  Research handbook on unilateral and extraterritorial sanctions August 2014.89 It covers the US, EU and a number of other countries. To implement FL-127 the President issued PO No 592 (2018) on SEMs specially related to Ukraine.90 The government implemented them by GR No 130091 and 1716-8392 of 2018. The novelty of the first was the use of blocking financial sanctions against Ukrainian persons identified by the Ministry of Finance. At present Ukraine is the only target of Russian blocking sanctions. The essence of the second one was the expansion of the import bans on Ukrainian goods. It included items from the manufacturing sector as well as food and agriculture (for example, wheat, vegetables, spirits, paper, gravel, furniture, turbines, pumps, transmissions and so on). Implementation of sanctions policy is a function of a number of ministries and agencies. These include the Ministries of Foreign Affairs, Economic Development and Industry and Trade, depending on the sector of SEM implementation. The role of intergovernmental coordination belongs to the Ministry of Finance. In 2018 it established a Department of Control of Foreign Restrictions (DCFR) dealing with foreign sanctions and Russian restrictive measures. The role of the Central Bank may increase in terms of further enforcement of Russian sanctions regimes in relation to Russian credit organizations. On 27 July 2020 the government introduced to parliament a bill to amend existing legislation on SEMs.93 If the bill is adopted it will empower the Central Bank to control the financial sector in terms of compliance with Russian SEMs. For instance the Central Bank may obtain power to withdraw licences in the event of violation of SEM regimes. Similar to the US DoT ‘50 Per Cent Rule’, the bill makes it possible to sanction entities owned or controlled by already blocked individuals or organizations. In Russia’s case this will be a ‘25 per cent rule’. The enforcement in other sectors (beyond the financial one) will be vested in the relevant ministries. However, the ‘25 per cent rule’ (as well as a ‘50 Per Cent Rule’ in the US case) does not mean secondary sanctions. The latter imply sanctions against those dealing with already sanctioned persons, while the ‘25 per cent rule’ covers only those owned or controlled by such persons. One of the important pillars of any sanctions policy is the legal accountability of national persons in the event of violation of the existing legislation. In the Russian case such a pillar is still under construction. FL No 83 mentions that failure to implement SEMs leads to legal consequences determined by federal laws.94 However, these laws have not yet emerged. The first attempt to introduce such legislation was made in 2018. The State Duma (lower chamber of parliament) proposed a bill to amend the Criminal Code. The bill proposed that it should be a criminal offence to refuse to perform contracts due to compliance with foreign sanctions. It also proposed criminal punishment for those wilfully assisting a foreign state to impose sanctions.95 However, the bill did not correspond to the real demands of regulators to effectively

89 Governmental Regulation No 778 On Measures to Implement Presidential Order No 560 2014 (RU). 90 Presidential Order No 592 On Implementation of Special Economic Measures in Response to Hostile Measures of Ukraine Related to Russian Individuals and Entities 2018 (RU). 91 Governmental Regulation No 1300 On Measures to Implement Presidential Order No 592 2018 (RU). 92 Governmental Regulation No 1716-83 On Measures to Implement Presidential Order No 592 2018 (RU). 93 A Bill No 996800-7 to Amend Selected Legislation of Russian Federation in Relation to Implementation of Special Economic Measures 2020 (RU). 94 Amended Special Economic Measures Act No 83 FL 2019 (RU). 95 A Bill No 464757-7 to Amend Criminal Code of the Russian Federation 2018 (RU).

Unilateral and extraterritorial sanctions policy  107 enforce national sanctions regimes. They were potentially harmful to an investment climate due to a high level of interdependence of Russian persons on the global economy and inevitable compliance of globally oriented Russian ventures with foreign sanctions regimes. More pragmatic norms more widely called for appeared in a bill to amend legislation on SEMs. The Central Bank and other agencies concerned will have administrative instruments to enforce legislation.96 Still, their toolbox requires further clarification and testing. Civil penalties and licence withdrawals may feature among such tools. 4.2

Russian Resilience-Increasing Measures

Russian countersanctions cause damage to trade interests, especially those of EU countries.97 At the same time their impact can hardly affect the policies of Western states vis-à-vis Russia. On both sides, sanctions are rather an instrument of political posturing rather than coercion or constraint. Still, Russian and Western capabilities are asymmetric and unbalanced in favour of the West. The US and the EU have greater leverage to affect Russia in the future, which makes defensive and resilience-increasing measures of paramount importance for Russia. Four major steps by Russian authorities are of particular interest in this regard. First is a limitation of access to corporate information by entities if they are already under foreign sanctions, if there is a threat of their sanctioning due to publication of information or if they are a part of the defence industry (GR No 400 of April 4, 2019).98 Before 2014 Russia was striving to improve corporate transparency in order to make investments more attractive. However, sanctions changed this approach in the sectors affected. Now the goal is to weaken discovery processes of foreign countries, which impose or may impose sanctions. The key problem is to measure the risk of sanctions for a specific company or sector. Some companies may use it to obscure information when the real risk is low. Businesses may use governmental measures to protect themselves from sanctions to further reduce transparency. In other words, business may manipulate sanctions risks to be less transparent. Still, it is too early to make a sound judgement about this trend. Ultimately lack of transparency may affect investment attractiveness and prevent businesses from manipulating information. Second is an adoption of new legislation to provide sanctioned Russian persons with an opportunity to test arbitration disputes with their foreign counteragents in Russian arbitration tribunals (FL No 171 of 8 June 2020).99 Sanctioned persons are not obliged to do so. This is important in terms of the access of sanctioned persons to arbitration for their status of blocked persons may prevent them from participating in legal proceedings abroad.100 However, there is a possibility that sanctioned persons may abuse this norm to force their counteragents to go to arbitration in Russia in the event of sanctions. This may increase the perception of investment risk on the foreign side. Again, practice will show the robustness of this assumption. By now there is already at least one case where FL No 171 has been implemented. Russian Instar 96 A Bill No 996800-7 to Amend Selected Legislation of Russian Federation in Relation to Implementation of Special Economic Measures 2020 (RU). 97 Hinz, ‘The Cost of Sanctions’ (n 18). 98 Governmental Regulation No 400 on Peculiarities of Information Exposure and Reporting Pursuant to Federal Law ‘On Joint-Stock Companies’ and Federal Law ‘On Stock Market’ 2019 (RU). 99 An Act No 171 FL to Amend Arbitration Code 2020 (RU). 100 On unilateral and extraterritorial sanctions related arbitration, see the chapter by Eric de Brabandere and David Holloway in this book.

108  Research handbook on unilateral and extraterritorial sanctions Logistics provided storage services for Canadian Nabors Drilling International. In January 2018 Instar Logistics found itself on the US SDN List pursuant to EO 13661. Nabors halted payments to Instar due to its designation. The contract implied an ICC arbitration clause. However, Instar filed a claim with the Arbitration Court of Moscow, which ordered Nabors to pay damages.101 This was upheld by the Arbitration Court of Appeals and then by the Arbitration Tribunal of the Moscow District after the cassation complaint by Nabors. The resolution of the Arbitration Tribunal of the Moscow District included reference to FL No 171 to bolster the decision in favour of Instar.102 Third, is a significant improvement in a national payment system. In 2014 international payment systems (Visa and Mastercard) halted operations with Russia Bank, owned by Yuriy Kovaltchuk, who had previously been blocked by OFAC pursuant to EO 13661.103 The same problem beset the SMP Bank of Boris and Arkadiy Rotenberg, also blocked by EO 13661.104 In 2019 Visa and Mastercard halted operations with Eurofinance Mosnarbank, blocked by OFAC pursuant to Venezuelan sanctions.105 US pending legislation (DASKA and DETER mentioned above) also proposes sanctions on major Russian banks and prompts resilience measures. The legislation on independent payment systems emerged prior to Western sanctions in 2011 (National Payment System Act).106 Consequently it was repeatedly amended. The principal landmark was the emergence of a National System of Payment Cards (NSPC) owned by the Central Bank. All domestic transactions of Visa and Master Card were covered by NSPC. It launched a National Payment System called Mir and released Mir payment cards. By 2020 84 million cards had been issued.107 All the critical segments of the Russian economy (government bodies, military industries and others) use this new card, being secured from the risk of withdrawal of other payment systems from Russia. A fourth measure is to reduce the share of the US dollar in Russia’s international transactions. Dollar transactions are ‘visible’ to the US financial authorities. In the event of blocking of a particular person by OFAC, the use of US financial services is prohibited. Independence from the US dollar reduces the risk of American secondary sanctions and enforcement. In 2018 Russia’s leading VTB Bank proposed a plan for ‘de-dollarization’. It was further

101 Dmitry Artyukhov, ‘How to amend contract in a Russian court? Back to Instar Logistics v Nabors Drilling International Limited’ (Arbitration Journal, 30 July 2020)  accessed 23 October 2020. 102 Resolution of Arbitration Court of Moscow District of 6 July 2020 Case N A40-149566/2019 (RU). 103 Office of Foreign Assets Control, ‘Treasury Sanctions Russian Officials, Members of the Russian Leadership’s Inner Circle, and an Entity for Involvement in the Situation in Ukraine’ (US Department of the Treasury,  20 March 2014)  accessed 27 September 2020. 104 ibid. 105 Office of Foreign Assets Control, ‘Treasury Sanctions Russia-based Bank Attempting to Circumvent US Sanctions on Venezuela’ (US Department of the Treasury, 11 March 2019)   accessed 27 September 2020. 106 National Payment System Act No 161 FL 2011 (RU). 107 National system of payment cards, ‘MIR Card Factsheet’ (National System of Payment Cards, 27 September 2020)  accessed 27 September 2020.

Unilateral and extraterritorial sanctions policy  109 developed by the government as a long-term strategy until 2024.108 Among other measures, it implies benefits for exporters who use Russian currency in their operations and liberalization of currency controls for them. At the same time this plan does not intend to abstain entirely from the US dollar. It may damage Russia taking into account its integration into the global economy which is dollar dominated. Still, the international economy itself may face significant transformations due to increasing rivalry between China and the US. Russia and China may promote an independent international financial subsystem in the event of further hardening of US sanctions. Until recent times China was hardly enthusiastic to be a ‘black knight’ for Russia – Chinese banks were compliant with US sanctions regulations. However, things may change in the event of further confrontation of China with the US and its allies. This may provide Russia with wider opportunities to adapt to foreign restrictive measures.

5. CONCLUSION Russian-Western relations have been under the pressure of mutual sanctions since the outbreak of the Ukrainian crisis in 2014. The US and EU have created a sophisticated multi-layered legal framework for imposing sanctions against Russia. Sanctions address major political contradictions – the crisis in and around Ukraine, the non-proliferation issue, alleged electoral interference, the Middle East, human rights and other issues. All these measures have harmed the Russian economy but not critically. They have not provided any ground for negotiations or solved any issue in Russian-Western relations. Sanctions have yielded no fruit with the exception of economic damage and the sending of political signals. Moscow has taken extensive adaptation measures and improved its own toolbox of sanctions. But this is hardly enough to change the Western course or to provide robust guarantees that the Russian economy is resilient enough to face a new escalation of sanctions. The prospect of new sanctions depends on political relations between the two sides. Any new crisis may provoke further exchanges of restrictions. They may cause further damage, legitimized by national security and foreign policy goals. The level of damage to Moscow may further depend on the consolidation of US and EU sanctions. The threat of their imposition will prompt Russia to gradually decrease its connection to the US-led international financial system, diversify its trade and promote ideas of transformation of the existing global economy. US-China rivalry may turn out to be a significant independent variable. Simultaneous US (and possibly European) pressure on Russia and China may be an incentive for both countries to promote more autonomous regional financial systems. In any event, sanctions are most likely to remain a feature of Russian-Western relations for decades.

108 Georgy Tadtaev, ‘Minister Siluanov Exposed Details on Russian Economy Dedollarization Plan’ (RBC,  4 October 2018), online at  accessed 27 September 2020.

7. The European Union’s position and practice with regard to unilateral and extraterritorial sanctions Charlotte Beaucillon

1. INTRODUCTION An examination of the position and practice of the European Union with regard to unilateral and extraterritorial sanctions calls for some preliminary remarks. First it is worth recalling the mechanism for adopting restrictive measures as provided for in European Union law. Second it is important to clarify the role that restrictive measures play in the development of the EU’s external action and more specifically its common foreign and security policy (CFSP). Third it will be necessary to specify the practice sample that was selected for this study, explain its choice, and take this opportunity to outline the type of sanctions at stake in the EU’s practice. Having made these clarifications, I will briefly present the structure of this chapter analysing the EU’s position and practice with regard to unilateral and extraterritorial sanctions. First, then, let us look at the conditions imposed by EU law for adopting unilateral sanctions. The term international sanction is not used in the Treaty on European Union (TEU) or in the Treaty on the Functioning of the European Union (TFEU). The TEU provides that the EU, by unanimous decision of the Council,1 may adopt a decision ‘which shall define the approach of the Union to a particular matter of a geographical or thematic nature’.2 The decision to adopt restrictive measures, that is, international sanctions, is subject to this procedure. No distinction is made according to whether international sanctions are multilateral in essence and result from a decision of the United Nations Security Council (UNSC) under Chapter VII of the Charter of the United Nations, or whether they are unilateral sanctions within the meaning of this chapter, that is, decided proprio motu by the EU. The CFSP decision to adopt restrictive measures takes the concrete form of a catalogue summarizing all measures targeting a third country and/or natural or legal persons under international sanctions. It is in the preamble to this CFSP decision that the necessary information to distinguish between these two situations is provided. If the restrictive measures are adopted by the EU to implement a Security Council resolution adopted on the basis of Chapter VII of the Charter of the United Nations, the preamble to the CFSP decision shall expressly list the UNSC resolutions to which it intends to give effect. If the restrictive measures are adopted by the EU on its own initiative, then the preamble to the CFSP decision will refer to the Council conclusions expressing the political reasons for imposing unilateral sanctions. If the EU’s measures implement multilateral sanctions and add unilateral sanctions to them, the preamble to the CFSP decision will refer both to the relevant UNSC resolutions and to the Council

1 2

Art 31 TEU. Art 29 TEU.

110

The EU’s position and practice with regard to unilateral and extraterritorial sanctions  111 conclusions justifying additional unilateral sanctions. In other words, only a detailed and systematic analysis can identify unilateral sanctions in the Union’s practice. Once adopted, this decision binds its Member States, which must support the Union’s position by virtue of the specific application of the principle of loyal cooperation within the CFSP.3 This means that when the competence to implement the measures lies with the Member States, as in the case of the arms trade, for example, they are required to adopt the necessary national measures. Where the EU has the necessary powers, as is the case, for example, with the freezing of funds, it adopts a regulation by qualified majority on the basis of Article 215 of the TFEU.4 This regulation has direct effect in all Member States of the Union as soon as it enters into force.5 Second, it is important to point out that restrictive measures are, under EU law, instruments for the development of its external relations, and more particularly its foreign and security policy. This function is therefore not politically neutral. Indeed the TEU makes it very clear that the EU must pursue certain objectives: In its relations with the wider world, [it] 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.6

This international mission, so to speak, is confirmed and detailed in the chapters on the external action of the Union and its security policy.7 It is worth stressing here that the CFSP and therefore the EU policy on unilateral sanctions is value-driven and relies on the EU’s interpretation of commonly considered universal values such as peace or human rights, as will be shown in Section 2 below.8 It should therefore be made clear from the outset that the EU approach to unilateral sanctions is very different to the US approach, which remains mainly national-security-interest-driven.9 Third, the practice sample on which this study is based needs to be clarified and justified. It is not desirable to provide here a full catalogue of the EU’s practice regarding unilateral sanctions, partly because of the length constraints on this chapter, and secondly because this is not the purpose of the analysis. If statistical considerations are to be used to determine the proportion of restrictive measures implementing multilateral sanctions and those imposing

3 Art 24.3 TFEU. Charlotte Beaucillon, ‘La coopération loyale et la PESC’ in Maria Fartunova and Jean-Félix Delille (eds.), La coopération loyale dans le droit des relations extérieures de l’Union européenne (Bruylant, forthcoming). 4 Art 215 TFEU and Case C‑72/15 Rosneft v Council EU:​C:​2017:​236. 5 Art 288 TFEU. 6 Art 3.5 TEU. 7 Arts 21 and 23 TEU. 8 For a detailed analysis of restrictive measures as instruments for exporting EU values to third parties, see Charlotte Beaucillon, ‘Restrictive Measures as Tools of EU Foreign and Security Policy: Promoting EU Values, from Antiterrorism to Country Sanctions’ in Alberto Miglio, Francesco Costamagna and Stefano Montaldo (eds.), The Evolution of the Direct Sanctioning Power of the European Union: Emerging Challenges (Routledge 2020). 9 See the chapter by Zachary Goldman and Alina Lindblom in this book.

112  Research handbook on unilateral and extraterritorial sanctions unilateral sanctions, it is possible to refer to an earlier comprehensive and systematic study of the practice of the EU in early 2010:10 of the 25 restrictive measures regimes in force at that time, 13 were unilateral sanctions.11 This shows that the practice of unilateral sanctions by the EU is well established and considered a common foreign policy tool.12 The aim of this chapter is to highlight some examples taken from the EU unilateral restrictive measures in force in spring 2021. These examples have been selected either because of their substantial impact on international practice (Iran, Nicaragua, Russia, Venezuela, Syria), or because they are specific to EU practice (Turkey, Republic of Guinea, Transnistria and horizontal/thematic sanctions on the proliferation of chemical weapons and cyberattacks). These cases also exemplify the diversity of the EU practice of unilateral sanctions as far as their scope is concerned as this sample features both sectoral sanctions directed at selected parts of a national economy and targeted sanctions – state-based or horizontal/thematic – focusing on specific persons. Finally, it is possible to sketch the main argument that will be developed in this chapter. It follows from the EU’s position on and practice of restrictive measures that the Union has developed strong tools to impose unilateral sanctions on third parties. While its unilateral sanctions involve some uncontroversial extraterritorial features, which will be expounded, the EU consistently speaks out against extensive extraterritoriality. Its practice can therefore be qualified as strong unilateralism with soft extraterritoriality (Section 2). This strong political opposition to extensive extraterritoriality does not mean either that the EU renounces to influence third parties when it comes to implementing its unilateral measures. The only alternative to extraterritoriality in order to achieve this goal is the multilateralization of its unilateral measures, a process that the EU achieves through both informal cooperation and contractualization (Section 3). Looking inward, then, the EU practice of restrictive measures has also given rise to the elaboration of a specific legal regime under the effective judicial review of the European Court of Justice (Section 4). With the benefit of hindsight, it will be possible to reach some conclusions about the effects of the EU’s position and practice with regard to unilateral and extraterritorial sanctions (Section 5).

2.

STRONG UNILATERALISM WITH SOFT EXTRATERRITORIALITY

European Union practice when imposing international sanctions on its own initiative can be considered to be strongly unilateral as illustrated by the diversity and quantity of the unilateral sanctions it adopts (2.1) as well as their broad scope (2.2). However, EU unilateral sanctions are only softly extraterritorial in that they fit within the limits imposed by the theory of jurisdiction. This in turn explains the strong opposition of the EU to third states’ attempts to have recourse to extensive extraterritoriality in their unilateral sanctions practice (2.3).

That is, immediately after the entry into force of the Lisbon Treaty. Charlotte Beaucillon, Les mesures restrictives de l’Union européenne (Bruylant 2014) 36. 12 See also the data of the German Institute of Global and Area Studies (GIGA) study, cited by Erica Moret in her chapter in this book. 10 11

The EU’s position and practice with regard to unilateral and extraterritorial sanctions  113 2.1

Screening of Contemporary EU Practice

The selected case studies illustrate that the EU is actively involved in the imposition of unilateral sanctions of global importance (2.1.1). Moreover, its practice is also based on more specific examples that highlight certain strategic interests of the EU (2.2.2). 2.1.1 The EU’s contribution to the main contemporary unilateral sanctions regimes The EU is actively involved in the deployment of unilateral sanctions with a global reach. It contributes to the main contemporary unilateral measures regimes, targeting Russia, Syria, Venezuela, Nicaragua and Iran.13 Of these regimes, the majority correspond to measures that are almost entirely unilateral in so far as no multilateral measures have been adopted by the UNSC. This is the case, firstly, with the measures adopted against Syria. The first restrictive measures date back to 201114 and were imposed in reaction to the military repression of civil society demonstrations involving arbitrary detentions by the regime and the firing of live ammunition. Unilateral sanctions against Syria have been renewed and prorogued since then: they are now imposed by a 2013 CFSP decision,15 which was last amended in 2020 and prorogued until June 2021.16 Secondly, the EU adopted unilateral sanctions against Russia in 2014,17 which have been extended since,18 in reaction to Russia’s wrongful annexation of Crimea. More recently and thirdly, the EU decided to target Venezuela. The first decision was adopted in 2017, when the EU called on all Venezuelan political actors and institutions to work in a constructive manner towards a solution to the crisis in the country while fully respecting the rule of law and human rights, democratic institutions and the separation of power.19 These measures were prorogued until November 2021 by a 2020 decision, calling for free and fair elections in the country.20 Fourthly, the EU began in 2019 to impose unilateral sanctions on Nicaragua in reaction to the

13 See also the earlier analyses: Beaucillon (n 11), 314 (Syria), 311 (Iran); Charlotte Beaucillon, ‘Crise ukrainienne et mesures restrictives de l’Union européenne : quelle contribution aux sanctions internationales à l'égard de la Russie?’ (2014) 41 (4) Journal du droit international (Clunet); Charlotte Beaucillon, ‘La sanction des “Etats proliférants”. Remarques sur l’interaction entre mesures collectives et unilatérales dans le cas iranien’ (2015) XVI Annuaire français de relations internationales. 14 2011/273/CFSP, Council Decision concerning restrictive measures against Syria [2011] OJ 2 121/11. No longer in force. 15 2013/255/CFSP, Council Decision concerning restrictive measures against Syria [2013] OJ L 147/14. 16 2020/719/CFSP, Council Decision amending Decision 2013/255/CFSP concerning restrictive measures against Syria [2020] OJ L 168/66. 17 2014/145/CFSP, Council Decision concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine [2014] OJ L 78/16. 18 See for the latest extension until September 2021: 2021/448/CFSP, Council Decision amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine [2021] OJ L 87/35. 19 2017/2074/CFSP, Council Decision concerning restrictive measures in view of the situation in Venezuela [2017] OJ L 295/60. 20 2020/1700/CFSP, Council Decision amending Decision (CFSP) 2017/2074 concerning restrictive measures in view of the situation in Venezuela [2021] OJ L 381/24.

114  Research handbook on unilateral and extraterritorial sanctions use of counterterrorism laws to repress dissenting opinions in Nicaragua and to the repression of the press and civil society.21 In parallel with the adoption of purely unilateral measures, the EU has also developed the practice of supplementing, in a way, multilateral measures adopted by the UNSC with additional unilateral measures.22 This is the case with the measures adopted against Iran, where two grounds for issuing sanctions must be distinguished. The first ground is the fight against the proliferation of nuclear weapons in Iran. The initial decision to impose restrictive measures on Iran adopted in 201023 is still in force and was last amended in November 2020.24 In addition to the implementation of the relevant UNSC resolutions, including resolution 2231(2015) endorsing the Nuclear Deal,25 some supplementary unilateral sanctions in the form of Trojan horses can be identified. This is the case of financial sanctions, where the EU decision creates two annexes of targeted persons: while annex I corresponds to the list of targets established by the UNSC, annex II corresponds to the EU list supplementing the multilateral measures. Trojan horses on sectoral sanctions are less blatant because they all appear listed together. This absence of separation is probably maintained on purpose. It decreases the transparency of the grounds for imposing sanctions, borrowing some legitimacy from the fact that this target is also sanctioned at the multilateral level, and making it more difficult for the state affected to determine which measures are covered by the primacy rule of Article 103 of the UN Charter.26 The second ground for imposing sanctions on Iran is the protection of human rights. These EU measures are purely unilateral sanctions. The first decision adopted on these grounds dates from 2011,27 and was extended in 2020 until April 2021.28 The aim of the EU is to react to violations of human rights in Iran, as illustrated by the increase in executions (including by public stoning) and the repression of Iranian nationals in the exercise of their rights of free speech and assembly.

21 2019/1720/CFSP, Council Decision concerning restrictive measures in view of the situation in Nicaragua [2019] OJ L 262/58; Amended by 2020/607/CFSP, Council Decision amending Decision (CFSP) 2019/1720 concerning restrictive measures in view of the situation in Nicaragua [2020] OJ L 139l/4. 22 On the articulation of UN and unilateral sanctions, see the chapter by Jean-Marc Thouvenin in this book. 23 2010/413/CFSP, Council Decision concerning restrictive measures against Iran and repealing Common Position 2007/140/CFSP [2010] OJ L 195/39. 24 2020/1699/CFSP, Council Decision amending Decision 2010/413/CFSP concerning restrictive measures against Iran [2020] OJ L 381/22. 25 S/RES/2231(2015), 20 July 2015, Non-proliferation. 26 Art 103 of the UN Charter reads: ‘In the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail’. See also Jean-Pierre Cot, Mathias Forteau, Alain Pellet (eds.), La Charte des Nations Unies : Commentaire Article par Article (Economica 2005); Bruno Simma and Nikolai Wessendorf (eds.), The Charter of the United Nations, A Commentary (OUP 2012). 27 2011/235/CFSP, Council Decision concerning restrictive measures directed against certain persons and entities in view of the situation in Iran [2011] OJ L 100/51. 28 2020/512/CFSP, Council Decision amending Decision 2011/235/CFSP concerning restrictive measures directed against certain persons and entities in view of the situation in Iran [2020] OJ L 113/22.

The EU’s position and practice with regard to unilateral and extraterritorial sanctions  115 2.1.2 EU practice based on its strategic interests Other unilateral sanctions adopted by the EU are more specific to the EU’s interests. They have their own characteristics that inform the practice of the regional organization and need to be detailed. Some unilateral sanctions are imposed on the Union’s neighbouring states in reaction to violations of the territorial integrity of some of its partners. This is firstly the case of the measures affecting Moldova, which is part of the European Neighbourhood Policy, and which are in fact intended to sanction a Russian-speaking puppet state, Transnistria, which has proclaimed its independence in an enclave in Moldovan territory and has not received any international recognition except that of Russia.29 The decision to sanction this situation was first adopted in 2010,30 and was extended in 2020 until October 2021.31 Secondly, also falling into this category of EU restrictive measures, are the unilateral sanctions against Turkey, in reaction to the violation of Cyprus’ territorial sovereignty. The EU adopted the decision to impose unilateral measures in 201932 in reaction to unauthorized drilling activities in Cyprus’ territorial waters, which can also be analysed as a political signal intended to back up its Member State’s territorial integrity and sovereignty. In other cases, unilateral EU sanctions are complementary to conventional political conditionality mechanisms. These cases are few but characteristic. One example is the Republic of Guinea, against which the measures adopted in 201033 were extended in 2020 until October 2021.34 These unilateral sanctions are the continuation of restrictive measures adopted in 2009 for the violent crackdown on political demonstrators in Conakry on 28 September 2009. They are linked to political conditionality in the Cotonou Agreement,35 as they were adopted three months after the closing of negotiations in the Cotonou context, triggered by the violation of the ‘essential element clause’ in the treaty, which imposes on all partners among other things respect for the principle of the rule of law. The impossibility of finding concerted solutions within the Cotonou setting triggered the adoption of unilateral sanctions.36

See also the earlier analysis by Beaucillon (n 11) 303. 2010/573/CFSP, Council Decision concerning restrictive measures against the leadership of the Transnistrian region of the Republic of Moldova [2010] OJ L 253/54. 31 2020/1586/CFSP, Council Decision amending Decision 2010/573/CFSP concerning restrictive measures against the leadership of the Transnistrian region of the Republic of Moldova [2020] OJ L 362/29. 32 2019/1894/CFSP, Council Decision concerning restrictive measures in view of Turkey’s unauthorised drilling activities in the Eastern Mediterranean [2019] OJ L 291/47; Last amended by 2020/1657/ CFSP, Council Decision amending Council Decision (CFSP) 2019/1894, concerning restrictive measures in view of Turkey’s unauthorised drilling activities in the Eastern Mediterranean [2020] OJ LI 372/16. 33 2010/638/CFSP, Council Decision concerning restrictive measures against the Republic of Guinea [2010] OJ L 280/10. 34 2020/1556/CFSP, Council Decision amending Decision 2010/638/CFSP concerning restrictive measures against the Republic of Guinea [2020] OJ L 355/3. 35 Signed between the EU and 79 ACP countries, 23 June 2010. 2000/483/EC, Partnership agreement between the members of the African, Caribbean and Pacific Group of States of the one part, and the European Community and its Member States, of the other part, signed in Cotonou on 23 June 2000, OJ L 317/3. 36 For a detailed analysis of the articulation of restrictive measures with treaty-based conditionality, see the earlier analysis by Beaucillon (n 11) 282. 29 30

116  Research handbook on unilateral and extraterritorial sanctions Thirdly, three unilateral sanctions regimes are innovative enough to be pointed out here, as they announce the emergence of horizontal sanctions in the EU practice of unilateral and extraterritorial sanctions. This new practice of unilaterally targeting physical or legal persons through horizontal or thematic unilateral sanctions with no link to a specifically targeted state first emerged in the United States, whereas it had already been tested by the United Nations after the September 11 attacks in the form of multilateral targeted sanctions against international terrorism. This is for instance the case of unilateral sanctions initially adopted in relation with the fight against corruption37, which shifted from anticorruption to the protection of human rights and the rule of law. This trend is exemplified in US practice by the well-known Russia and Moldova Jackson–Vanik Repeal and Sergei Magnitsky Rule of Law Accountability Act of 2012, which was followed in 2016 by the adoption of the Global Magnitsky Human Rights Accountability Act.38 Coming back to EU practice, the first regime of unilateral horizontal sanctions concerns measures adopted in the context of the fight against the proliferation of chemical weapons. These unilateral horizontal sanctions were first adopted in 2018 to support the implementation of the so-called Chemical Weapons Convention (CWC)39 and the work of the Organization for the Prohibition of Chemical Weapons (OPCW) through which it is implemented. The EU pronounces ‘specific measures against those who resort to such weapons or contribute to developing or using them’40 and those measures were extended in 2020 until October 2021.41 The targets are notified separately and through references to other lists.42 Concerned persons include Syrian military personnel as well as the Russian nationals who attempted to murder Sergei Skripal in the UK in 2018.43 The list of targets was extended in October 2020 to include Russian officials and a state-related research institute linked to the assassination attempt on Alexei Navalny in Russia in August 2020. The second unilateral and horizontal EU sanctions regime aims at reacting to cyberattacks threatening the EU or its Member States. In May 2019 the EU Council adopted a first decision setting up a new framework to introduce restrictive measures in relation to cyberattacks but without naming any person.44 It waited until July 2020 to list the first six (North Korean, Chinese and Russian) physical and legal persons targeted under this new horizontal regime, mainly in reaction to two 37 Anton Moiseienko, Corruption and Targeted Sanctions - Law and Policy of Anti-Corruption Entry Bans (Brill 2019). 38 On horizontal sanctions as the new form of smart targeting in sanctions practice, see the chapter by Clara Portela in this book. 39 Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on their Destruction, signed in Geneva, 3 September 1992, entered into force on 29 April 1997, UNTS, vol 1975, 45. 40 2018/1544/CFSP, Council Decision concerning restrictive measures against the proliferation and use of chemical weapons [2018] OJ L 259/25. 41 2020/1466, Council Decision amending Decision (CFSP) 2018/1544 concerning restrictive measures against the proliferation and use of chemical weapons 2019/1722 [2020] OJ L 335/16. 42 For example, Notice for the attention of the persons and entity subject to the restrictive measures provided for in Council Decision (CFSP) 2018/1544, as amended by Council Decision (CFSP) 2019/86, and in Council Regulation (EU) 2018/1542, as implemented by Council Implementing Regulation (EU) 2019/84 concerning restrictive measures against the proliferation and use of chemical weapons [2019] OJ C 27/1. 43 2019/84/EU, Council Implementing Regulation implementing Regulation (EU) 2018/1542 concerning restrictive measures against the proliferation and use of chemical weapons, [2019] OJ L 18I/1. 44 2019/797/CFSP, Council Decision concerning restrictive measures against cyber-attacks threatening the Union or its Member States [2019] OJ L 129/13.

The EU’s position and practice with regard to unilateral and extraterritorial sanctions  117 sets of cyberattacks.45 The first set concerns the well-known ‘WannaCry’ and ‘NotPetya’ 2017 attacks, named after the ransomware/wiper software through which they were conducted, the first of which was allegedly perpetrated by North Korea and the second by Russia, according to the White House.46 The second concerns a 2018 attempted cyberattack against the above mentioned OPCW, reportedly carried out by Russia according to the Dutch security services.47 A third horizontal sanctions regime has been adopted in December 2020, which somehow mirrors at the EU level the US Magnitsky Global legislation mentioned above. It targets those who are considered responsible for ‘gross violations of human rights’, and affects various Russian, Chinese, Libyan, North Korean and Sudanese natural and legal persons, regardless of their possible official role within their state of nationality.48 This new horizontal targeting can be expected to develop in the future as it has two comparative interests in relation to sanctions that formally target a state: it can avert the diplomatic stigma generally linked to sanctions if needed49 and might ease related thorny legal issues such as coercion50 and immunities.51 Be that as it may, these examples drawn from the emerging practice of horizontal unilateral sanctions can only revive the questioning of the guarantee of fundamental rights in this framework, which is – it is worth recalling – one of the conditions of the EU’s external action, as shall be developed in Section 4 below. 2.2

The Scope of EU Unilateral Sanctions

Now that the various case studies have been presented, it is important to analyse their scope. First it is possible to specify the material and personal scope of these unilateral sanctions, which makes it possible to explain which instruments the EU favours in its contemporary practice (2.2.1). It is important in a second step to analyse the scope of these measures in the light of the legal reasons given to justify their adoption. These reasons show the link between unilateral sanctions and the objectives that the Union must pursue in the implementation of its foreign policy as outlined in the introduction (2.2.2).

45 2020/1127/CFSP, Council Decision amending Decision (CFSP) 2019/797 concerning restrictive measures against cyber-attacks threatening the Union or its Member States [2020] OJ L 246/12. 46 White House, respectively: Press briefing on the attribution of the WannaCry malware attack to North-Korea [12/19/2017]; Statement from the press secretary (15 February 2018). 47 Pippa Crerar and others, ‘Russia accused of cyber-attack on chemical weapons watchdog’ The Guardian (4 October 2018). Website: https://​www​.theguardian​.com/​world/​2018/​oct/​04/​netherlands​ -halted​-russian​-cyber​-attack​-on​-chemical​-weapons​-body. 48 2020/1999/CFSP, Council Decision concerning restrictive measures against serious human rights violations and abuses [2020] OJ LI 410/13; Last amended by Council Decision 2021/481 amending Council Decision 2020/1999 concerning restrictive measures against serious human rights violations and abuses [2021] OJ LI 99/25. On the preliminary debates, see: European Parliament, Press release, MEPs call for EU Magnitsky Act to impose sanctions on human rights abusers (14 March 2019). 49 See the chapter by Alexandra Hofer in this book. 50 See the chapter by Pierre-Emmanuel Dupont in this book. 51 Tom Ruys, ‘Immunity, Inviolability and Countermeasures – A Closer Look at Non-UN Targeted Sanctions’ in Tom Ruys, Nicolas Angelet and Luca Ferro (eds.), The Cambridge Handbook of Immunities and International Law (Cambridge University Press 2019) 670–710.

118  Research handbook on unilateral and extraterritorial sanctions 2.2.1 Scope ratione materiae and ratione personae A first classification of the EU’s unilateral sanctions is based on an analysis of their scope ratione materiae. This classification makes it possible to identify two types of unilateral sanctions, which the Union uses simultaneously: sectoral measures and individual measures. The sample of case studies selected for this chapter shows that the EU combines a wide variety of measures in the design of its unilateral sanctions. Indeed the nine case studies reveal the combined use of eleven sectoral instruments and three individual instruments, systematized in Table 7.1 below. Table 7.1 Sectoral/Individual

Sectoral and individual scope of unilateral sanctions in EU practice Content of Measure

Corresponding EU Unilateral Sanctions

Embargo on military and paramilitary equipment,

Venezuela 2017, Republic of Guinea 2010,

Measure Sectoral Measures

embargo on internal repression equipment, embargo Syria 2013 on equipment used to disrupt phone and internet communications Embargo on nuclear sector

Iran 2010

Embargo on crude oil and petroleum

Iran 2010, Syria 2013

Embargo on petrochemical products

Iran 2010

Embargo on natural gas + related

Iran 2010, Syria 2013

industry Embargo on precious metals and

Iran 2010, Syria 2013

diamonds Embargo on ship building

Iran 2010

Embargo on ballistic missiles

Iran 2010

Embargo on financial services

Iran 2010, Syria 2013

Embargo on luxury goods

Syria 2013

Embargo on education and training

Iran 2010

linked to nuclear proliferation Individual Measures

Visa bans

Venezuela 2017, Turkey 2019, Moldova/Transnistria 2010, Republic of Guinea 2010, CWC 2018, Nicaragua 2019, Russia 2014, Iran 2011, Iran 2010, Syria 2013, Cyber 2019, Magnitsky 2020

Financial sanctions (assets and funds freezing)

Venezuela 2017, Turkey 2019, Iran 2010, Republic of Guinea 2010, CWC 2018, Nicaragua 2019, Russia 2014, Iran 2011, Iran 2010, Syria 2013, Cyber 2019, Magnitsky 2020

Prohibition of foreign investment in the EU

Source: Author’s own compilation.

Iran 2010

The EU’s position and practice with regard to unilateral and extraterritorial sanctions  119 The classification of EU restrictive measures according to their purpose makes it possible, at the stage of execution of the measures by the Union, to examine the different competences necessary to implement them.Thus, adopting the classification of EU restrictive measures ratione materiae informs the distribution of competences horizontally within the EU and vertically between the EU and its Member States. A second classification of unilateral sanctions by the EU can be made according to their scope ratione personae: it is a question of distinguishing between measures affecting states and those affecting individuals. The only three unilateral sanctions regimes that do not target a state are the horizontal/thematic sanctions aimed at supporting the implementation of the CWC, reacting to cyberattacks, and reacting to serious human rights violations and abuses. That being said, this theoretical classification of the EU’s unilateral sanctions does not correspond to a distinction in practice. Indeed, the use of so-called targeted or smart sanctions illustrates that even when a state is the formal target of unilateral sanctions – which it is not when the targeting is horizontal – it is most often in reality natural and legal persons who are targeted by the measures, in order to go beyond the veil of the state. These persons sometimes have a close connection with the state concerned, for example when they hold official positions. Measures may also sometimes target non-governmental groups, business people, or legal persons considered to provide direct support to the state concerned or the activities denounced. 2.2.2 Scope ratione causae juris As for the legal cause of unilateral sanctions, our sample of cases confirms that they are invariably reactions against an alleged violation of the law by the target of the sanctions. The Union thus reacts to the violation of a treaty when it sanctions the Republic of Guinea in addition to the appropriate measures provided for in the Cotonou Agreement (rule of law and human rights). It reacts to the violation of the territorial integrity of its Member States, as shown by the sanctions against Turkey (Cyprus) on the one hand, or neighbouring and associated states, as illustrated by the unilateral sanctions against Moldova (Transnistria) and Russia (Ukraine) on the other. It pursues the objective of promoting human rights and the rule of law, as illustrated by the measures against Venezuela, Nicaragua, the Republic of Guinea, Iran and Syria, a package of measures in which it clearly positions itself in favour of a change of regime. Following the same line of external legal policy, it adopted a regime of thematic restrictive measures exclusively designed to respond to massive human rights abuses around the world. It promotes the universalization of the implementation of certain international conventions such as the CWC, which has 165 signatory states out of 193, by targeting individuals associated with the proliferation of chemical weapons. In some cases, finally, it compensates for the blocking of the UNSC, as illustrated by the examples of Russia and Syria. The recent cyber sanctions adopted by the EU might reflect a shift in the way the EU intends to develop its unilateral sanctions practice towards the better inclusion of its strategic interests within its values-and-norms-based system. The purpose of the EU’s unilateral sanctions is twofold: to react to the violation of an international norm by a third party to the Union, while pursuing its objectives in the field of the Common Foreign and Security Policy. It is clear from the above analysis that the violations of international law to which the Union intends to respond by adopting unilateral sanctions are directly related to the objectives of its external action: respect for human rights, democracy and

120  Research handbook on unilateral and extraterritorial sanctions international law among others.52 Yet it is the EU’s interpretation of these relatively universal concepts, which the Union intends to see prevail on the international scene. As regards the aim pursued by the EU in the conduct of its external action, the EU Treaty is unambiguous: ‘in its relations with the wider world, the Union shall uphold and promote its values and interests’.53 The EU must therefore not only promote these values but also try to have them adopted by its third-party partners, states or international organizations. As for the institutional practice corresponding to this mission given to the EU by its constituent treaties, it has been characterized since the 1990s by an essentially unilateralist approach to normative exports in which the EU imposes its norms and values on its partners as a condition for their relations. It is the relative success of this approach that has made it possible to characterize the EU as a normative power, an entity capable of exporting its own standards to the rest of the world.54 As suggested in the introduction of this Research Handbook, this may explain the difference (which remains for the moment) between the interest-based US sanctions policy, which seeks to promote and protect US interests in the international arena, and the EU’s norms-and values-based sanctions policy, which seeks to promote respect for its fundamental values in an international system conceived as inherently multilateral. 2.3

The EU Stance on Extraterritorial Sanctions

2.3.1 Framing EU practice of extraterritorial sanctions The EU’s unilateral sanctions have a certain degree of extraterritoriality. By extraterritoriality, we do not refer to the effect of sanctions outside the issuing state (all sanctions, unilateral and multilateral, share this objective), but to the enforcement, to a certain extent, of sanctions abroad. It is possible to identify some standard formulations in EU practice. For example: ‘The sale, supply, transfer or export of arms and related matériel of all types, … to [Syria/ Venezuela] 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’.55 Beyond the territorial connection for the enforcement of measures, which by definition is not extraterritorial, the criteria for the extraterritorial enforcement of EU unilateral sanctions are based on the nationality of natural or legal persons, the registration of aircraft or equipment, or a partial territorial connection to the territory of the state imposing the sanctions (theory of effects well known in competition law56).These cases of extraterritorial enforcement of international sanctions belong to the generally accepted cases of extraterritoriality under public international law. This consistent practice is the result of a voluntary limitation by the EU, which is clearly reflected in Section ‘J. Jurisdiction’ of the EU Sanctions Guidelines.57 Although a non-binding document, these Guidelines inform the current practice and stance of the EU in this field. For Art 3.5 TEU and 21 TEU. Art 3(5) TEU. 54 Ian Manners, ‘Normative Power Europe: A Contradiction in Terms’ (2002) 40 (2) Journal of Common Market Studies. 55 In identical terms, Arts 1 of the CFSP Decisions adopted against Syria 2011, cit., Venezuela in 2017, cit., and The Republic of Guinea in 2010, cit. 56 Circuit Court of Appeals, 2nd Cir, US v Aluminium C° of America, 12 March 1945, 148 F. 2d 416. 57 General Secretariat of the Council, Sanctions Guidelines – Update, document 5664/18 (4 May 2018). 52 53

The EU’s position and practice with regard to unilateral and extraterritorial sanctions  121 the Union, the existence of a link with the EU is a necessary condition for the enforcement of unilateral sanctions. This link can be territorial or personal. Thus the EU places its practice within the framework of the theory of jurisdiction.58 EU restrictive measures should only apply in situations where links exist with the EU. Those situations, … cover the territory of the European Union, aircrafts or vessels of Member States, nationals of Member States, companies and other entities incorporated or constituted under Member States’ law or any business done in whole or in part within the European Union.59

In the same document, the EU goes further and considers that it should refrain from using any other extraterritorial connecting link that goes beyond the cases just described: The EU will refrain from adopting legislative instruments having extra-territorial application in breach of international law. The EU has condemned the extra-territorial application of third country’s legislation imposing restrictive measures which purports to regulate the activities of natural and legal persons under the jurisdiction of the Member States of the European Union, as being in violation of international law.60

This reference to the EU’s previous positions on extraterritorial sanctions now invites us to recall its contours. 2.3.2 The EU’s opposition to extensive extraterritoriality The EU has on many occasions spoken out against attempts to extend the territorial and personal links described above.61 As for the extension of the personal connection by the use of the control criterion, the EU was quick to express its clear position against the adoption of American sanctions against Cuba through the Cuban Democracy Act of 1992, where prohibitions were addressed at ‘US persons’, a broadly-interpreted category that goes beyond nationality and incorporation. In its Démarche presented on behalf of the European Community Member States to prevent the adoption of the legislation, Ireland stated that: ‘The United States has no basis in international law to claim the right to license non-United States transactions with Cuba by companies incorporated outside the United-States, whatever their ownership or control’.62 As for the extension of the territorial connection by the use of the effects theory, US sanctions against Cuba also gave the EU an opportunity to oppose this practice. The Helms-Burton Act of 1996, Title III of which was activated in May 2019, reinforces the pre-existing Cuba embargo of 1992, funds opposition movements, and sanctions foreign persons investing in properties expropriated from US persons by the Cuban government. Significantly, Article 302 of the Helms-Burton Statute provides that any US person claiming a property title to the confiscated goods was entitled to compensation amounting at least to its value with added

See also the chapter by Yann Kerbrat in this book. ibid, para 51. 60 ibid, para 52. 61 For a detailed historical analysis, see Charlotte Beaucillon, ‘Practice Makes Perfect, Eventually? Unilateral State Sanctions and the Extraterritorial Effects of State Legislation’ in Natalino Ronzitti (ed.), Coercive Diplomacy, Sanctions and International Law (Brill 2016). 62 Doc UNO A747/272, Démarche, 18 April 1990, Annex to the letter to the Members of Congress, Delegation of the EC Commission (27 April 1990). 58 59

122  Research handbook on unilateral and extraterritorial sanctions damages. In this perspective, every expropriated American could trigger compensation proceedings in the US. This so-called property ‘traffic’ by non-US persons was located outside US territory and its extraterritoriality63 is explicitly justified in the Statute on the effects theory: ‘International law recognizes that a nation has the ability to provide for the rules of law with respect to conduct outside its territory that has or is intended to have substantial effect within its territory’.64 Needless to say, international reactions to the Helms-Burton Act have strongly denounced it for being contrary to international law. The EU stance in this regard was reaffirmed in 2019 in the United Nations General Assembly (UNGA): Beyond the damaging impact of the embargo on ordinary Cubans, unilateral US sanctions and other unilateral administrative and judicial measures are also negatively affecting EU economic interests. We have firmly and continuously opposed any such measures, due to their extraterritorial application and impact on the EU, in violation of commonly-accepted rules of international trade. We cannot accept that unilaterally-imposed measures impede our economic and commercial relations with Cuba. The EU strongly rejects the US activation of Title III and IV of the Helms-Burton Act in April 2019. This breaches the commitments made by the US in the US-EU agreements of 1997 and 1998. We will draw on all appropriate measures to address the effects of the Helms-Burton Act, including in relation to our WTO rights and through the use of the EU Blocking Statute, which protects against undue interference and problems for EU citizens, businesses and NGOs residing, working or operating in Cuba.65

To date, no official EU Démarche to the WTO has been made public.66 Beyond its diplomatic opposition to US practice, the EU has equipped itself with the well-known 1996 blocking regulation, intended to prohibit European economic operators from complying with limitatively listed US legislation and regulations (mainly targeting Iran, Cuba and Syria).67 The results of this instrument are mixed in that it does not effectively protect the economic operators affected, either at the stage of the deployment of their economic activities or in the context of legal proceedings.68 As an example, it is difficult to ignore the impact of unilateral US sanctions on the development of the Yamal or Nord Stream 2 industrial projects, which unite various Russian and European groups for the development of Europe’s energy

63 But see Alain Pellet, ‘Conclusions’ in Habib Gherari and Sandra Szurek (eds.), Sanctions unilatérales, mondialisation du commerce et ordre juridique international. A propos des lois Helms-Burton et D’Amato-Kennedy (Montchrestien 1998) 321–35. 64 Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996, 12 March 1996. 65 7 November 2019, New York – European Union Explanation of Vote at the 74th Session of the United Nations General Assembly Resolution on the Necessity of ending the economic, commercial and financial embargo imposed by the United States of America against Cuba. 66 See the chapter by Lena Chercheneff in this book. 67 2271/96/EC, Council Regulation protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom [1996] OJ L 309 /1. Last amended in 2018 by 2018/1100/EU, Commission Delegated Regulation amending the Annex to Council Regulation (EC) No 2271/96 protecting against the effects of extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom [2018] OJ L 199I /1. 68 See the chapters by Daniel Ventura and Marjorie Eeckhoudt in this book.

The EU’s position and practice with regard to unilateral and extraterritorial sanctions  123 supply.69 On another level, Instex, which is the EU370 bartering mechanism set up in January 201971 to bypass the American financial sanctions reinstated against Iran in November 2018 following the withdrawal of the United States from the so-called ‘Iran Nuclear Deal’ (the JCPOA),72 does not seem significant yet in the face of the US injunctions not to do business with Iran. Suffice it to say that it was first used in March 2020 to facilitate the export of medical supplies from Europe to Iran in the context of the Covid-19 pandemic.73 Interestingly, although one might think that this transaction could fall outside the scope of US unilateral and extraterritorial sanctions in light of its humanitarian purpose, it was nevertheless deemed necessary to cover it up by going through Instex’s diplomatic channels. France, Germany and the UK have stated their intention to complete other transactions through Instex in the future, but no additional public information has been made available regarding this announcement.

3.

THE EU’S POLICY ON THE MULTILATERALIZATION OF ITS UNILATERAL SANCTIONS

The multilateralization of unilateral sanctions is a political objective. Indeed the effectiveness of international sanctions depends on their widespread application. From this point of view, and unlike multilateral sanctions, unilateral sanctions are by their nature imperfect. Their multilateralization is thus a matter of political influence, the objective of which is to guarantee the effectiveness of unilateral sanctions and to demonstrate the power of the states or organizations that issue them. While the EU does not use extraterritoriality as a tool for multilateralization, it deploys other techniques, both formal (3.2) and informal (3.1), which should be set out in detail. 3.1 Informal Multilateralization of Unilateral Sanctions The informal mutlilateralization of the EU’s unilateral sanctions is multifaceted. It is possible to distinguish two separate practices, one consisting in exporting measures to third parties and the other in importing lists of targets from third parties. As for the export of unilateral sanctions from the EU to third countries, this is a rather classic case, which takes the form of an invitation. There is a standard provision in all CFSP decisions to adopt restrictive measures corresponding to unilateral sanctions: ‘In order to maximise the

69 This, in turn, has raised concerns in Europe over the EU’s energy autonomy. Given this dissensus among EU Member States, the disruptive effects of US extraterritorial sanctions on these projects may back-up some EU Member States’ foreign policies. 70 France, Germany and the United Kingdom. 71 French Ministry of Foreign Affairs, Déclaration conjointe sur la création d’INSTEX, véhicule spécial destiné à faciliter les transactions commerciales légitimes avec l’Iran dans le cadre des efforts visant à sauvegarder le Plan d’action global commun (PAGC) (31 January 2019). 72 Joint Comprehensive Plan of Action, agreed by the E3+EU3 (China, France, Germany, the Russian Federation, the United Kingdom and the United States, with the High Representative of the European Union for Foreign Affairs and Security Policy) and the Islamic Republic of Iran 14 July 2015). Endorsed by the UNSC resolution 2231(2015), Non-proliferation (20 July 2015). 73 French Ministry of Foreign Affairs, Iran - INSTEX - Q&R - Extrait du point de presse (31 March 2020).

124  Research handbook on unilateral and extraterritorial sanctions impact of the measures provided for in this Decision, the Union shall encourage third States to adopt similar restrictive measures’.74 Multilateralization will thus take the form of a voluntary application of the Union’s unilateral sanctions by a third country. The very similar examples of Japan and Korea are interesting in this respect. The Japanese and Korean Ministries of Economy and Finance have established, under the respective Foreign Exchange Transaction Acts of their countries, identical Guidelines on Payments and Receipts for the Fulfilment of Obligations for International Peace and Security Maintenance, Article 2 of which provide that alongside fourteen UNSC resolutions and four US executive orders, ‘persons sanctioned by the Council of the EU’ are put on the list of persons with whom exchange transactions (including payments and receipt of payments) may be prohibited or subject to approval.75 Turkey seems to have developed a similar practice, where ‘the Turkish Council of Ministers maintains a list of entities sanctioned by it and publishes this list in the Official Gazette. This list consists of the names of individuals and entities that have been listed by the UN and the EU’, reports a Turkish lawyer.76 In addition, the United Arab Emirates and ‘in particular the Central Bank and regulated institutions in the UAE’ are reported to take US and EU sanctions into consideration.77 Although some of these countries have treaty-based relationships with the EU,78 it does not stem from public information that the implementation of EU unilateral sanctions has been formally contractualized with these partners. Another means of informal multilateralization of unilateral sanctions consists for the EU in importing individual target lists from third countries.79 This practice was initiated in the field of counterterrorism sanctions, which fall outside the scope of this study since they either rest on the UNSCR 1267(2009) sanctions regime targeting Al-Qaeda and Daesh among others, or on UNSCR 1373(2001) on the international fight against terrorism, demanding states establish their own counterterrorism lists. The ECJ confirmed in 2017 the possibility for the EU of relying on third states’ decisions to maintain a person on its UNSCR 1373(2001) list.80 This logic has also been followed in the development of specific unilateral sanctions, addressing the issue of combating embezzlement and corruption either after a popular revolution or after an invasion. The unilateral sanctions in question cover Egypt, Syria and Tunisia

74 In identical terms, Art 5 of the 2011 decision on Iran, cit., Art 7 of the 2018 decision on CWC, cit., and Art 12 of the decision on Venezuela of 2017, cit. 75 Kazuho Nakajima, Masahiro Heike, Marie Wako, ‘Japan’. The International Comparative Legal Guide to Sanctions 2020 ; in similar terms Kyung hoon Lee, Jungmin Pak, ‘Korea’ . 76 Selcuk Sencer Esenyel, ‘Turkey’. The International Comparative Legal Guide to Sanctions 2020 . 77 Rima Mrad, Tala Azar, ‘The United Arab Emirates’ The International Comparative Legal Guide to Sanctions 2020 . 78 See for instance Agreement between the European Union and Japan for an Economic Partnership [2018] OJ L 330/3; Free Trade Agreement between the European Union and its Member States, of the one part, and the Republic of Korea, of the other part [2011] OJ L 127L/6. 79 For a critical analysis: Charlotte Beaucillon, ‘La cooperation loyale et la PESC’ in Maria Fartunova and Jean-Félix Delile (eds.), La coopération loyale dans les relations extérieures de l’Union européenne (Bruylant, forthcoming). 80 Case C-79/15 P Council v Hamas EU:​C:​2017:​584; Case C-599/14 P Council v LTTE EU:​C:​2017:​ 583; Case 46/19 P Council v PKK EU:​C:​2021:​316.

The EU’s position and practice with regard to unilateral and extraterritorial sanctions  125 on the one hand, and Ukraine on the other. In these cases, listing requests are made to the Union by third-party state authorities, as may have been the case with the Prosecutor General of Ukraine,81 or are directly requested by the EU from third authorities, who communicate lists of persons whom ‘they wish[ed] to punish’, as has been the case with Tunisia.82 The Council of the European Union accepts these requests under the variable control of the respect of the affected person’s fundamental rights by the Court of Justice. As the case law of the EU currently stands, the Court requires the Council of the European Union to verify that the decisions of the third authorities on which it relies to include a person on a list of targets of unilateral sanctions are adopted in a way that guarantees the protection of the fundamental rights of the persons concerned. This condition, which has emerged in the case law on terrorism,83 has been extended to measures adopted against Russia in the context of the Crimean crisis, 84 and to measures affecting Egypt to counter the misappropriation of state funds in the context of the Arab Spring.85 3.2

Treaty-Based Multilateralization of Unilateral Sanctions

The multilateralization of unilateral sanctions by the EU sometimes takes the shape of a formal agreement, as is the case with the Financial and Administrative Framework Agreement (FAFA) between the EU and the UN, which is aimed at financing: the 2030 Agenda for Sustainable Development and its Sustainable Development Goals, the Sendai Framework for Disaster Risk Reduction (2015–2030), the Paris Agreement on Climate Change and the Addis Ababa Action Agenda on Financing for Development, and to ensure the most effective and efficient delivery of humanitarian assistance in the context of the increasing humanitarian needs worldwide.86

In its version of December 2018, this EU-UN agreement includes a new Article 6a on ‘Exclusion from funding’. Besides providing that the UN shall not provide funds to persons that are included on multilateral UN sanctions lists, the article provides that: 6a.2. The UN shall cooperate with the Commission in assessing if the third parties, whether entities, individuals or group of individuals, selected by the UN to be recipients of funds in connection with the implementation of the respective contribution agreement, fall under the scope of EU restrictive

81 Case T-331/14 Mykola Yanovych Azarov v Council EU:​T:​2016:​49; Case T-434/14 Sergej Arbuzov v Council EU:​T:​2016:​46; Case T-332/14 Oleksii Mykolayovich Azarov v Council EU:​T:​2016:​48; Case T-341/14 Sergiy Klyuyev v Council EU:​T:​2016:​47; Case T-486/14 Edward Stavyskyi v Council EU:​T:​ 2016:​45. 82 Case T-545/13 Fahed Mohamed Sakher Al-Matri v Council ECLI:​EU:​T:​2016:​376. 83 Case C-79/15 P Council v Hamas EU:​C:​2017:​584; Case C-599/14 P Council v LTTE EU:​C:​2017:​ 583. 84 Case C-530/17 P Mykola Yanovych Azarov v Council ECLI:​EU:​C:​2018:​1031. 85 Joined cases C-72/19 and C-145/19 P Suzanne Saleh Thabet and Others v Council EU:​C:​2020:​ 992. 86 Published on the European Commission website accessed December 2019.

126  Research handbook on unilateral and extraterritorial sanctions measures. In the event that such recipients would fall under the scope of EU restrictive measures, the UN shall promptly inform the Commission. 6a.3. In such event, the UN and the Commission shall promptly consult each other with a view to jointly determining remedial measures in accordance with their respective applicable legal framework. Such measures may include, but shall not be limited to, the reallocation of the remaining EU contribution under this Agreement, net of any costs incurred by the UN for undertaking any procurement or award procedure (the ‘Corresponding Amount’). 6a.4. Where such remedial measures are not feasible, the Corresponding Amount shall not be charged to the action or, in the case of Multi-donor action, to the amount corresponding to the Commission’s contribution to the action. This is without prejudice to the suspension or termination of the respective contribution agreement, together with the recovery of any unspent funds contributed by the Commission to the UN, after consultation by the Parties. 6a.5. This provision is without prejudice to the exceptions contained in the EU restrictive measures.

In summary, the United Nations undertakes not to make funds received as voluntary contributions from the Union available to persons targeted by the EU’s unilateral sanctions. If some beneficiaries are included on the Union’s lists, after information and consultation, remedial action must be taken. The sums concerned may be reallocated by the United Nations to other actions and should not be charged to the Union. It is possible to consider other remedial measures that could be considered and that are not expressly mentioned in the agreement. It seems much easier to designate another beneficiary than to reallocate resources to other actions. It is clear from this text that the United Nations undertakes to respect the EU’s individual unilateral sanctions. This is understandable in so far as it would be paradoxical for a person listed by the Union for the violation of human rights in Syria to receive European funds through UN humanitarian programmes. From a systemic point of view, however, this situation is paradoxical, given the questionable – and contested – character of unilateral sanctions, particularly with regard to their humanitarian and human rights effects.87 Moreover, the EU finances many other international organizations and it cannot be excluded that similar clauses have been included in their inter-institutional agreements.

4.

EU SANCTIONS LEGAL REGIME UNDER THE JUDICIAL REVIEW OF THE EUROPEAN COURT OF JUSTICE

The massive use of unilateral sanctions whose real targets are natural or legal persons inevitably raises the question of the remedies available to the persons affected by these measures. This issue is not specific to EU unilateral sanctions, and interestingly was first raised in the EU legal order over the listing of individuals and entities under the two UN multilateral horizontal sanctions regimes targeting international terrorism and implemented at the EU level.88

See also the chapter by Ioannis Prezas in this book. This refers respectively to the UNSC-managed list of targets of the measures based on S/ RES/1267(1999), 1989 (2011) and 2253 (2015), which are specific to sanctions against Da’esh and Al-Qaida and their associates, and to the EU and Member States-managed lists of targets of the measures based on S/RES/1371(2001), which was adopted to fight against international terrorism. See also the chapters by Ioannis Prezas and Anton Moiseienko in this book. 87 88

The EU’s position and practice with regard to unilateral and extraterritorial sanctions  127 While it is not possible to devote lengthy developments to the question of the abounding sanctions-related case-law that has been developed at the EU level,89 three elements must be specified here. They concern the acts that can be challenged before the EU judges, the approximation of the link between a person and a state subject to EU unilateral sanctions, and the prospects for redressing the prejudice suffered by the affected persons.90 To date, it is noteworthy that the only exception to the lack of competence of the European Court of Justice (ECJ) to deal with acts falling within the scope of the CFSP concerns restrictive measures.91 Thus the ECJ has explicit competence to ensure that the regulations adopted to implement the decisions to impose restrictive measures taken in the context of the CFSP do respect human rights.92 In this respect, the Court’s control is in principle total and refers in particular to all the factual elements that motivated the decision of the Council of the Union to include a person on a list of targets.93 In addition, the Rosneft decision of 2017, in which the ECJ agreed to give a preliminary ruling on a request for a review of the validity of a CFSP decision to impose restrictive measures against Russia, may open up new contentious prospects for the future, in so far as the Court accepted there for the first time the principle of controlling the validity of a CFSP act, which a vast majority of legal scholars thought to be inconceivable until then in view of the Court’s lack of jurisdiction in this area. As for the link between the actual individual targets of unilateral sanctions and their formal state targets, the ECJ is developing a very complex jurisprudence making it possible, regime by regime, to determine which presumptions of association can be used and which approximations must instead be rejected.94 Clearly the rise of unilateral horizontal/thematic sanctions regimes in EU practice is too recent to have generated litigation in the ECJ. Yet, in this context, it is likely that the Court will have to adapt its approximation techniques to determine the extent to which individuals listed under chemical weapons, cyberattacks, or human rights abuses sanctions may have actually played a role in the targeted activities. Since these listings are largely based on information provided by national security services, the question of the transmission of classified information to the Court will inevitably arise again with force. Finally, the prospects for compensating for the damage suffered are gradually, but slowly, opening up. The principle remains that the mere illegality of an individual measure annulled by the Court is not sufficient to justify compensation.95 In addition to the existence of damage and a sufficient causal link,96 it must be proved that the damage has not been remedied by annulling the EU regulation providing for the listing of the person in question. Eventually, in 2017, the Court issued a first compensation decision in an Iranian case, in which it considered 89 For a comprehensive and contextualized analysis of the structuring of this case-law at the EU level, see Beaucillon (n 11). 90 For a detailed analysis of these issues: Charlotte Beaucillon, ‘Opening-Up the Horizon: The ECJ New Take on Country Sanctions’ (2018) 55 (2) Common Market and Law Review. 91 Art 275.1 TFEU. 92 Art 215.3 TFEU. 93 Joined cases C-402-415/05 P Yassin Abdullah Kadi, Al Barakaat International Foundation v Council, Commission EU:​C:​2008:​461; Joined Cases C-584, 593 & 595/10 P European Commission and Others v Yassin Abdullah Kadi EU:​C:​2013:​518 paras 125–9; Case C-548/09 Bank Melli Iran v Council EU:​C:​2011:​735 para 113; Case C-380/09 Melli Bank v Council EU:​C:​2012:​137. 94 See for example, on the presumption of the prominent businessman in Syria: Joined Cases C-605/13P Issam Anbouba v Council EU:​C:​2015:​248. 95 Case T-341/07 Jose Maria Sison v Council EU:​T:​2011:​687 (Sison III). 96 Art 340.2 TFEU.

128  Research handbook on unilateral and extraterritorial sanctions that the damage to the reputation of the targeted company was of a certain gravity, in a context where the Council’s breach of its duty to state reasons had continued for three years and had therefore deprived the applicant of its right to an effective legal remedy.97 It follows from the above that the development of compensation litigation is undoubtedly one of the future challenges that the EU legal regime of restrictive measures will have to face.

5.

CONCLUSIONS ON THE EFFECTS OF EU PRACTICE OF UNILATERAL AND EXTRATERRITORIAL SANCTIONS

This chapter has shown that the EU is developing a significant practice in the field of unilateral sanctions. These sanctions are both coercive and individual in scope and aim to achieve the EU’s external action objectives, including by promoting its values and interests on the international stage. Thanks to the Union’s own litigation system, individual targets of unilateral sanctions benefit from legal remedies to obtain the annulment of sanctions against them or, in some very limited cases, compensation for the damage suffered. The EU’s unilateral sanctions are weakly extraterritorial, in that they have an objective and uncontroversial territorial or personal connecting link with the Union. The Union has also constantly protested against attempts by third countries to abusively extend these connecting links. It therefore considers, as most states do, that extensive extraterritoriality in the field of international sanctions is not acceptable under international law. However, the relative ineffectiveness of the blocking regulation it adopted in 1996 and of other circumvention mechanisms proposed since then, such as Instex, shows that, notwithstanding the diplomatic value of its opposition to the adoption of extended extraterritorial sanctions, the question remains open for the Union as to how it could protect its relevant economic operators against the extended extraterritorial practice of third states with respect to unilateral sanctions. This does not prevent the EU from using other methods than extraterritoriality to achieve the multilateralization of its unilateral sanctions, either through informal cooperation or through the conclusion of treaties. It is then possible to question the effects of such a multilateralization practice. If it is not contrary to the rules of international law governing the competence of states and organizations, is it compatible with international human rights law? This is the question asked by the UN Special Rapporteur on the negative effects of unilateral coercive measures on the enjoyment of human rights since his appointment in 2014. While the latter devoted his 2017 report to the issue of extraterritoriality,98 all methods of multilateralization, including lawful ones, are likely to affect human rights. During his mission to the EU in 2018, the UN Special Rapporteur had the opportunity to recall some significant points in diplomatic but clear language.

Case C-45/15 P Safa Nicu Sepahan Co v Council EU:​C:​2017:​402. A/72/370, Report of the Special Rapporteur on the negative impact of unilateral coercive measures on the enjoyment of human rights on his mission to the European Union (2017) see especially ‘D. Extraterritorial sanctions with a focus on multilateralization of domestic sanction policies under international law’. 97 98

The EU’s position and practice with regard to unilateral and extraterritorial sanctions  129 It may be questioned whether multiple sanctions regimes all claiming to be ‘smart’ do not add up to comprehensive sanctions in effect, as is the case for the 52 packets of sanctions currently targeting Syria. … Are we not witnessing the de facto reintroduction of comprehensive sanctions amounting to an embargo, in contradiction of the claims mentioned above? It has been observed in that regard that ‘restrictive measures with a broad scope will almost inevitably affect the economy of the target’, so that the right to development may arguably be affected, and possibly other human rights.

Meaningfully, the Special Rapporteur considers it important to stress that the ‘international law’ referred to here is understood to include not only European Union law [in reference to the remedies available to the targets at the EU level, see Section 4 above], but also public international law in general, including the relevant provisions of customary international law and jus cogens.99

99 A/HRC/39/54/Add.1, Report of the Special Rapporteur on the negative impact of unilateral coercive measures on the enjoyment of human rights on his mission to the European Union (17 July 2018).

8. The US position and practice with regards to unilateral and extraterritorial sanctions: reimagining the US sanctions regime in a world of advanced technology Zachary Goldman and Alina Lindblom

The US sanctions regime, which seeks to advance the foreign policy and/or national security goals of the United States, faces a unique historical moment. Designed during a time when nation-states’ economic power was closely tied to their access to global trade and financial systems, US sanctions have traditionally targeted individuals and countries that rely on the use of the US dollar and are therefore uniquely vulnerable to economic coercion. By denying targeted persons and entities access to the globally-dominant US (and thus dollar-denominated) financial system, US sanctions programmes have attempted to incentivize those actors to change their behaviour. Although US sanctions programmes continue to target trade and financial links, leveraging the use of the dollar, to achieve national security outcomes, changes in the sources of adversaries’ economic power may diminish the utility of sanctions as a tool of statecraft. Specifically, China’s economic strength is increasingly derived from the development and dissemination of advanced technologies – 5G telecommunications infrastructure, artificial intelligence, mobile application and payment systems, among others – rather than the export of goods around the world. The contribution the creators of these technologies make to the power of the Chinese state, through the data they are able to provide, wittingly or unwittingly, to the Chinese Government, and through their economic heft, depends less on access to the dollar-denominated global trade and finance system than did the sources of Chinese government power in previous generations. Additionally, trends in the international commercial and political systems are increasingly ‘decoupling’ sanctions targets from the United States – again, China, but also North Korea – in ways that make them less vulnerable to the use of sanctions to incentivize changes in behaviour. These developments should catalyse new thinking about how the United States projects economic power to achieve national security objectives. This chapter will first set out the mechanisms by which US sanctions operate and will describe their historical development. It will illustrate that most significant sanctions targets since the World War II era have depended in one way or another on access to the US dollar or US economy, which gave US sanctions their great force. The chapter will conclude by describing new ways in which US competitors or adversaries – especially China and North Korea – derive strength from the development or use of software systems. These sources of strength are less dependent on access to the US dollar and thus less vulnerable to sanctions, a trend that should catalyse a shift in how the US thinks about leveraging economic power to achieve national security outcomes.

130

The US position and practice  131

1.

OVERVIEW OF THE US SANCTIONS REGIME

Cross-border trade in goods and services has traditionally been a source of economic strength and power for countries, individuals and other actors while a significant amount of global economic activity has been denominated in US dollars. The Bank for International Settlements reports that the US dollar is on one side of 88 per cent of all foreign exchange trades,1 and is used in approximately 40 per cent of international payments.2 The US dollar also plays a key role in the international trade of goods: economists calculate that ‘the dollar’s share as an invoicing currency for imported goods is approximately 4.7 times the share of US goods in imports’.3 The dominance of the US dollar extends beyond trade, too. In the last quarter of 2019 the International Monetary Fund (IMF) reported that the total official allocated foreign exchange reserves is approximately $11 trillion, of which $6.7 trillion are held in US dollars.4 The US dollar is thus the unparalleled global reserve currency: the next-highest level of reserves is the Euro, representing $2.2 trillion of global reserves, while there are only $215 billion worth of reserves in Chinese renminbi.5 The US dollar also accounts for approximately 50 per cent of all outstanding international debt securities and cross-border loans.6 But countries are not the only players who rely heavily on the US dollar. As of March 2020, US dollar credit to non-bank borrowers outside the United States totaled approximately $12.6 trillion.7 Given the prevalence and strength of the US dollar, since the advent of the modern sanctions regime in the 1970s, tools that have targeted the ability of adversary nations and groups to engage in dollar-denominated trade and financial transactions could be used to great effect to shape their behaviour. The US sanctions regime rests on two primary statutory bases, each of which grants the President broad authority to impose sanctions in response to a wide range of situations, and which have been used over the last several decades to impose trade and financial sanctions in a number of contexts. The first is the Trading with the Enemy Act of 1917 (TWEA), which gives the President authority to impose sanctions against hostile countries during times of war.8 The second is the International Emergency Economic Powers Act (IEEPA), which authorizes the President to impose sanctions in response to a declared national emergency that has its source wholly or in substantial part outside the United States, including those that occur in times of peace.9 1 Bank for International Settlements, Triennial Central Bank Survey: Foreign Exchange Turnover in April 2019 (16 September 2019) . 2 Bank for International Settlements, US Dollar Funding: An International Perspective (June 2020) . 3 Gita Gopinath and Jeremy C Stein, Banking, Trade, and the Making of a Dominant Currency (2 February 2020) . 4 International Monetary Fund, Currency Composition of Official Foreign Exchange Reserves (31 March 2020) . 5 ibid. 6 Bank for International Settlements (n 2). 7 Bank for International Settlements, Statistical Release: BIS Global Liquidity Indicators at End-March 2020 (30 July 2020) . 8 50 U.S.C. §§  4301–4341 . 9 50 U.S.C. §§  1701–1708 . A significant number of additional statutes provide authority for the various US sanctions programmes, but IEEPA is the most important.

132  Research handbook on unilateral and extraterritorial sanctions Successive Presidents have used IEEPA as a basis for imposing both targeted sanctions (for example ‘blocking’ sanctions against terrorist organizations) and comprehensive jurisdictional embargoes in a wide array of scenarios across the world: from human rights abuses to terrorism and nuclear proliferation; from Cuba to the Balkans to North Korea. Presidents exercise their sanctions authority by issuing executive orders (EOs), which direct the executive branch of the US government to execute the President’s orders. The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) in turn is the primary US government agency in charge of implementing the sanctions regime by issuing regulations pursuant to statutory authorities and one or more executive orders. OFAC also administers a process through which persons and entities are ‘designated’ and placed on the Specially Designated Nationals and Blocked Persons (SDN) List and can petition to be delisted from the applicable sanctions regime. US sanctions apply first and foremost to US persons, including all US citizens and permanent resident aliens regardless of where they are physically located, and all persons and entities located within the United States. Transactions that clear through the United States, even if the originator and beneficiary are located outside the US, become subject to OFAC’s rules as well: Most international transactions are ultimately cleared in dollars through New York by American ‘correspondent’ banks. America has a tight grip on the main cross-border messaging system used by banks, SWIFT, whose members ping each other 30 [million] times a day. Another part of the US-centric network is CHIPS, a clearing house that processes $1.5 [trillion]-worth of payments daily.10

Because such a large number of global transactions clear through the United States, a significant volume of worldwide financial transactions are subject to the US sanctions regime. Sanctions violations are generally strict liability, which means that OFAC can determine that a person or entity violated US sanctions law even if the violator did not intend to do so. Currently, the United States has 34 sanctions programmes addressing a wide array of activities across the world: from human rights abuses to terrorism and nuclear proliferation.11

2.

HISTORICAL DEVELOPMENT OF THE US SANCTIONS REGIME

Sanctions are, at their core, coercive tools. By prohibiting US persons and those located within the borders of the United States from transacting with sanctioned persons or jurisdictions, US sanctions aim to deprive designated persons of access to the US financial system. The United States has thus used sanctions in an attempt to shape the behaviour of designated persons (or countries) by manipulating the incentive structure for their behaviour. Specifically, sanctions seek to alter the incentives to which an adversary must respond, typically by raising the cost of the undesirable behaviour, such as pursuing a nuclear weapons programme, engaging

10 ‘America’s Aggressive Use of Sanctions Endangers the Dollar’s Reign’ The Economist (18 January 2020) . 11 US Dep’t of the Treasury, Office of Foreign Assets Control – Sanctions Programs and Country Information .

The US position and practice  133 in territorial aggression, or supporting destructive cyberattacks.12 For example, the United States imposed sanctions on Iran in response to its development of nuclear weapons in the 2007–2013 period in an effort to pressure the regime to negotiate with the international community, and to deprive Iran of access to the specific specialized goods it needed to develop its nuclear weapons programme. Countries like Iran, Russia and Venezuela have been particularly vulnerable to US sanctions because, as oil exporters, their principal source of foreign exchange and revenue is denominated in dollars. Thus, sanctions targeting Iran’s access to the international trade and financial systems targeted its ability both to earn revenue through oil sales and to spend that revenue to obtain goods and services in international markets. The same was fundamentally true of US sanctions on Venezuela (and while sanctions against Russia play on similar dynamics, the story there is more complex). The coercive power of economic sanctions was thus traditionally linked to the target’s need to engage in international trade and finance, and to use the dollar to do so. While Iran, as an oil exporter, was perhaps ideally suited to be a target of US sanctions, the same principle – that economic coercion is imposed because the target desires to access the (mostly dollar-denominated) international trade and economic system – applies across sanctions programmes. During World War II, for example, the Treasury Department’s Office of Foreign Funds Control (the FFC, OFAC’s predecessor agency) sought to deprive Nazi Germany of access to occupied countries’ funds that were held in the United States.13 And during the Korean War, in December 1950, the US government formally created OFAC to block Chinese and North Korean assets subject to US jurisdiction.14 Beginning in the mid-1990s the United States began to shift its sanctions programmes from broad jurisdictional embargoes (like that imposed on Iraq after the Gulf War) to those that ‘target’ specific individuals and entities engaged in wrongdoing. For example, the United States used the US sanctions regime to combat narcotics trafficking, which it viewed as a national security threat, by adopting a sanctions program designed to target the interests of significant foreign narcotics traffickers, especially those located in Colombia.15 In imposing the sanctions, President Clinton cited ‘the unparalleled violence, corruption, and harm’ these drug traffickers ‘cause in the United States and abroad’ as the justification for the sanctions programme.16 Notably no other nation at the time (or since) has adopted a similar programme focused on narcotrafficking.

12 Edward Fishman, ‘How to Fix America’s Failing Sanctions Policy’ Lawfare (4 June 2020) (‘America can wield this power because it possesses … a command of global finance, in which the dollar’s role as the world’s reserve currency and the near-impossibility of conducting cross-border commerce without access to dollars give Washington a weapon it can deploy swiftly, unilaterally and with devastating impact’). 13 US Dep’t of the Treasury, About – Office of Foreign Assets Control (OFAC) . 14 ibid. 15 Exec. Order No. 12,978, 60 Fed. Reg. 54,579 (Oct. 24, 1995). The Executive Order was grounded in the authority provided by the International Emergency Economic Powers Act (IEEPA). See 50 U.S.C. § 1701(a). 16 Exec. Order No. 12,978 (n 15).

134  Research handbook on unilateral and extraterritorial sanctions The approach taken by the United States in turning to ‘targeted’ sanctions mirrored the broad international processes that were established around the same time and that were endorsed by the United Nations.17 In 2000 Switzerland, working in cooperation with the United Nations, organized meetings with international experts to develop recommendations for drafting and implementing targeted financial sanctions.18 In the same year Germany organized the Bonn-Berlin Process, a series of seminars and meetings with expert working groups, to address two types of sanctions: arms embargoes and travel and aviation sanctions. Recognizing that the ‘past record of effectiveness’ for these two forms of sanctions ‘has not been very good’, the Bonn-Berlin Process sought to provide recommendations for modernizing and improving the two types of sanctions.19 Following the terrorist attacks of 11 September 2001, the US and global sanctions regimes once again evolved – expanding to cover an increasingly broad range of conduct taking place in a greater number of sectors of the global economy. The nuance and complexity of these programmes have grown, including through the introduction and repeated use of sectoral sanctions that impose a highly technical set of restrictions on transactions in specific categories of debt or equity of certain Russian and Venezuelan companies.20 The strength of the US sanctions regime has largely been a result of the United States’ asymmetric economic power, which is derived from the outsized role of the US dollar in the global economy.21 Because US dollars have dominated the global financial markets, and in particular

17 Enrico Carisch, Loraine Rickard-Martin and Shawna R Meister, The Evolution of UN Sanctions: From a Tool of Warfare to a Tool of Peace, Security and Human Rights (Springer 2017) (‘The refined sanctions concept allowed the Security Council to intervene regardless whether the offending party is a state and its senior officials, a militia and its warlords and business associates, or terrorists and their financiers and logistical facilitators. Utilizing this concept beginning in … 1999, the Security Council adopted in quick succession targeted sanctions against Al Qaida and the Taliban, UNITA, and soon also the senior members of the Revolutionary United Front that was responsible for war and violence in Sierra Leone’). 18 The Swiss Confederation, Targeted Financial Sanctions: A Manual for Design and Implementation – Contributions from the Interlaken Process (2001) . (‘[Targeted] sanctions are designed to focus on groups of persons responsible for the breaches of the peace or the threats to international peace and security, while ideally leaving other parts of the population and international trade relations unaffected. Such sanctions can target financial assets as well as the freedom of movement of the targeted persons through travel and aviation sanctions.’) 19 Bonn International Center for Conversion, Design and Implementation of Arms Embargoes and Travel and Aviation Related Sanctions: Results of the Bonn-Berlin Process (Michael Brzoska ed., 2001) . (‘As with the Interlaken process, … the results presented are intended to secure more targeted sanctions.’) 20 The Trump Administration has expanded the use of sanctions, adding approximately 785 individuals and entities to the Treasury Department’s sanctions list in 2019 alone, and using existing and new sanctions authorities to address an increasingly broad range of issues. See Johnpatrick Imperiale, Sanctions by the Numbers, CNAS (27 February 2020) ; Alan Rappeport and Katie Rogers, ‘Trump’s Embrace of Sanctions Irks Allies and Prompts Efforts to Evade Measures’ New York Times (15 November 2019) . 21 See Bank for International Settlements (n 2) (‘The US dollar plays a key role in the international monetary and financial system. Its function as the foremost funding currency is reinforced by its use as a vehicle currency for foreign exchange transactions, invoicing currency for global trade and reserve cur-

The US position and practice  135 global trade systems, participants therein have had to be cognizant of the US sanctions regime. As a result, the principal means of exerting pressure on bad actors through sanctions has been to deprive them of access to the global financial system due to the imposition of sanctions by the United States.22 As described above, Section 1, the US dollar remains the dominant global currency. The scope of application of the US sanctions regime – specifically, US-dollar denominated payments that clear through the United States must adhere to US sanctions law because those transactions are processed by US financial institutions – coupled with the ubiquity of the US dollar means that the US sanctions regime reaches a high percentage of global financial transactions. While there are anecdotes about countries and individuals trying to avoid transactions in US dollars in order to escape the reach of US sanctions,23 among other reasons, there seems to be little risk of the dollar’s global role being supplanted anytime soon.24 China, for example, has been one of the most vocal proponents of seeking alternatives to the US dollar-denominated financial system. To that end, it has begun to build an interbank messaging system that can serve as an alternative to the US-influenced SWIFT.25 Even so, use of Chinese renminbi pales in comparison to the US dollar, constituting only 1.86 per cent of global payments by value in July 2020 – as compared to the 38.77 per cent of global payments denominated in US dollars.26 Other countries, too, have sought to avoid transacting in US dollars through various means. President Vladimir Putin has attempted to ‘de-dollarize’ Russia’s economy by, among other measures, converting dollar settlements into other currencies, entering trade agreements

rency for reserve managers.’); see also Laura D Francis, ‘Finance’s Addiction to Dollars Leaves World Vulnerable to US’ (18 June 2020) Bloomberg Law . (‘The US dollar’s growing dominance in international finance means that American problems can quickly pose a threat to the entire world. That’s one takeaway from a report by a committee at the Bank for International Settlements, which noted that the greenback’s share as an international funding currency has grown to levels not seen since the early 2000s’). 22 William Mauldin, ‘US Treasury’s Top Terrorism Cop: How Financial Tools Fight Foes’, Wall Street Journal: Wash. Wire (June 2, 2014, 7:06 AM) (quoting David Cohen as saying ‘One of the reasons that we are able to do what we do is because the US financial system and the US economy is unique. It is the dominant financial system. It is the dominant economy in the world’). 23 Those who have tried to avoid dollar transactions include France, Germany and the United Kingdom, which have established a non-US dollar denominated trade mechanism with the goal of doing certain kinds of business with Iran. See Leila Gharagozlou, ‘EU Implements New Iran Trade Mechanism’ CNBC (31 January 2019) . 24 Adam Tooze, ‘Is This the End of the American Century?’ London Review of Books (4 April 2019) . (‘The hegemony of the dollar-Treasury nexus in global finance remains unchallenged. The dollar’s role in global finance didn’t just survive the crisis of 2008: it was reinforced by it. As the world’s banks gasped for dollar liquidity, the Federal Reserve transformed itself into a global lender of last resort’). 25 Gabriel Wildau, ‘China Launch of Renminbi Payments System Reflects Swift Spying Concerns’, Financial Times (7 October 2015) . 26 SWIFT, RMB Tracker (August 2020) .

136  Research handbook on unilateral and extraterritorial sanctions denominated in Russian roubles, and creating a domestic bank payment system called Mir.27 However, Russia’s percentage of non-dollar-denominated transactions remains low; the share of rouble-denominated settlements between Russia and China and Russia and India, for example, remains between only 10 and 20 per cent.28 Meanwhile, Venezuela has attempted to circumvent the US dollar by creating a digital fiat currency, the Petro, which is supposedly backed by oil, but which has been plagued by technical and other challenges.29 Iran has similarly sought to use cryptocurrencies as a means of avoiding the dollar-dominated financial system: the government has increasingly invested in cryptocurrencies like bitcoin, including by issuing licences for bitcoin mining operations.30 Despite these efforts, the US dollar will continue to play a vital role in global finance and trade, at least for the foreseeable future.

3.

THE CURRENT FOCUS OF THE US SANCTIONS REGIME

Economic sanctions have been and remain fundamentally aimed at controlling the flow of financial and other services to produce desired national security outcomes. OFAC uses ‘the blocking of assets and trade restrictions to accomplish foreign policy and national security goals’.31 While there are different types of sanctions, they share the common feature of seeking to control the targeted entities’ access to the global financial and trade systems. These sanctions have historically targeted actors who are integrated into the global trade and economic systems but nevertheless dependent on access to US dollars. Consider the three principal types of financial sanctions currently in use.32

27 See Henry Foy, ‘Can Russia Stop Using the US Dollar?’ Financial Times (2 October 2018) ; Elliot Smith, ‘Russia’s Bid To Ditch the US Dollar Is Slowly Working, But Obstacles Remain’ CNBC (17 September 2019) . 28 Polina Devitt and Katya Golubkova, ‘Russian Firms Test Non-Dollar Deals To Sidestep Any US Sanctions’, Reuters (18 October 2018) . Russia is also partnering with China to reduce the proportion of transactions between the two countries denominated in US dollars. See Dimitri Simes, ‘China and Russia Ditch Dollar In Move Towards “Financial Alliance” ’ Financial Times (16 August 2020) . (‘In the first quarter of 2020, the dollar’s share of trade between Russia and China fell below 50 per cent for the first time on record, according to recent data from Russia’s Central Bank and Federal Customs Service’). 29 Mary Anastasia O’Grady, ‘Venezuela Puts the Crypt in Cryptocurrency’ Wall Street Journal (2 February 2020) . 30 Tanvi Ratna, ‘Iran Has a Bitcoin Strategy to Beat Trump’ Foreign Policy (24 January 2020) ; Sebastian Sinclair, ‘Iran Issues License for Nation’s Biggest Bitcoin Mining Operation’ CoinDesk (5 May 2020) . 31 US Dep’t of the Treasury, Sanctions Programs and Country Information . 32 It is worth noting, however, that IEEPA grants the President very broad authority to ‘regulate … or prohibit’ a wide range of transactions, enabling a variety of sanctions types beyond those presented here. 50 U.S.C. § 1702(a)(1)(A).

The US position and practice  137 First, comprehensive embargoes are near-total prohibitions on the exchange of goods and services with particular jurisdictions. Generally, embargoes prohibit unlicensed exports of most goods, technologies, and services from the United States to the target country and unlicensed imports of any goods, technologies, or services from the target country into the United States. The US sanctions regime has historically used embargoes against countries that are uniquely dependent either on direct trade with the United States or the global financial and economic systems. Cuba, for example, depended principally on the United States for trade: prior to the Cuban Revolution of 1959, 71 per cent of Cuban exports were destined for the United States, which in turn sold 64 per cent of Cuba’s imports.33 At the time, Cuba was also the ninth largest market for US agricultural exports and the second largest supplier of US agricultural imports.34 The US imposition of a trade embargo on Cuba thus deprived the country of a primary source of trade and, consequently, revenue. Other recent targets of comprehensive embargoes – such as Iraq, Sudan and Iran – depended principally on the export of oil, which is traded in US dollars. US embargoes against these jurisdictions made it more difficult for them to earn, store and use US dollars, with significant economic consequences. Conversely an embargo against a country with fewer trade ties to the United States (or less of a need to use the US dollar) would surely be less impactful. Second, list-based sanctions are prohibitions against dealings with specific individuals or entities. These sanctions require persons with US sanctions obligations to block or freeze the assets of the ‘designated’ persons, thereby denying the targeted person of access to dollar-denominated finance and trade.35 List-based sanctions have been used against a variety of non-state actors, including narcotraffickers, and even against government officials, often in situations where they are involved in gross corruption or human rights abuses. While the non-state actors that have been the subject of blocking sanctions may be less directly affected by the sanctions than the targets of jurisdictional embargoes – these types of sanctions are often designed to ‘name and shame’ or to make policy statements – they, too, have had significant effects when the non-state actor targets are exposed to the dollar-denominated financial system. This is especially the case with respect to the US narcotrafficking and counterterrorism sanctions programmes. Historically, Latin American narcotraffickers have smuggled drugs (usually into the United States), earning illicit revenue in US dollars, repatriating those revenues, and converting those funds to local currency. When OFAC designates a person engaged in narcotrafficking, that person is no longer able to easily access the global financial system and thereby loses the ability to repatriate the revenues of the narcotrafficking enterprise, which

33 Kevin J Fandl, ‘Trading with the Enemy: Opening the Door to US Investment in Cuba’ (2018) 49 Georgetown Journal of International Law 563, 571 (citing Andrew Zimbalist, ‘The Prospects for US-Cuba Trade’ (1978) 20 Challenge 51, 51). 34 Mark A McMinimy, Congressional Research Service, R44119, US Agricultural Trade with Cuba: Current Limitations and Future Prospects (21 September 2016) . 35 See, for example, OFAC FAQ 9 . (‘Another word for it is “freezing.” It is simply a way of controlling targeted property. Title to the blocked property remains with the target, but the exercise of powers and privileges normally associated with ownership is prohibited without authorization from OFAC. Blocking immediately imposes an across-the-board prohibition against transfers or dealings of any kind with regard to the property’).

138  Research handbook on unilateral and extraterritorial sanctions often takes place through complex money laundering schemes. As Adam Szubin, then the Director of OFAC, testified before Congress, the narcotrafficking sanctions programme was successful precisely because its targets depended on access to the global financial system: The SDNT program has enjoyed enormous success in the United States and Colombia. [After designations, n]on-US companies that have no obligation to comply with US sanctions often refuse to work for, supply, or otherwise do business with designated commercial enterprises or employ persons on the SDN List, thereby isolating them commercially. Many Latin American banks, for example, have advised OFAC that they close the accounts of all persons (individuals and entities) on the SDN List as a matter of risk avoidance. As a result, designated persons are impeded from functioning effectively in the legitimate economy or business world.36

Even terrorist groups are vulnerable to the US sanctions regime. Unlike narcotraffickers or countries, terrorist groups do not typically export products to fund their operations. Nevertheless, terrorist groups like al-Qaida rely on the global financial system for funding, which in turn allows them to purchase the weapons and supplies they need for their operations.37 The US sanctions regime seeks to interrupt terrorists’ access to that system and thereby deny terrorists access to the funds they need to operate. Daniel Glaser, then the Assistant Secretary for Terrorist Financing and at the Treasury Department, testified before the US Senate Judiciary Subcommittee on Crime and Terrorism: ‘Like other threats to US and international security, terrorist groups need money to survive … And because money raised by terrorist groups from deep-pocket donors, state sponsors and, increasingly, criminal activity often flows through the international financial system, these financial networks are vulnerable to identification and disruption’.38 And third, the most recent form of sanctions (introduced in 2014), sectoral or ‘hybrid’ sanctions, shares the same quality: these sanctions deny or limit access of actors in specified sectors (for example banking, energy and defence) to US capital markets and certain other components of the dollar-denominated global financial system by prohibiting dealings by US persons in certain types of ‘new debt’ and ‘new equity’ of the identified firms. Russia (that is, the target of sectoral sanctions), like Iran and Venezuela (discussed above, Section 2), is an oil exporter that is uniquely vulnerable to US sanctions due to its dependence on the global economic and financial systems to trade in oil. OFAC enforcement actions further demonstrate the US government’s focus on denying access to finance and the ability to trade goods and services as a means of achieving foreign

36 Statement of Adam J Szubin, Director, Office of Foreign Assets Control, United States Department of the Treasury before the House Committee on Oversight and Government Reform, Subcommittee on National Security and Foreign Affairs (3 March 2010) (emphasis added) . 37 The Islamic State of Iraq and the Levant (ISIS/ISIL) is a notable exception. Because ISIS controlled territory, it operated more similarly to a rogue nation-state than traditional terrorist groups. Consequently, the way in which the United States sought to counter ISIS differed from other terrorist groups: instead of using sanctions to target ISIS, the United States responded with military force. 38 Statement of Daniel L Glaser, Assistant Secretary for Terrorist Financing, United States Department of the Treasury before the Senate Committee on the Judiciary, Subcommittee on Crime and Terrorism (21 September 2011) .

The US position and practice  139 policy and national security objectives. In announcing new sanctions designations, OFAC often notes the implications of such designations: All property and interests in property of these persons that are in or come within the United States or are in the possession or control of US persons must be blocked and reported to OFAC. OFAC’s regulations generally prohibit all dealings by US persons or those within (or transiting) the United States that involve any property or interests in property of designated persons. In addition, non-US persons that engage in certain transactions with the persons designated today may themselves be exposed to designation.39

Government officials responsible for designing and implementing US sanctions programmes also regularly stress the goal of denying targeted persons and entities access to the US dollar and to the international financial system in which the dollar plays such a dominant role. Recently, for example, Under Secretary of the Treasury for Terrorism and Financial Intelligence Sigal Mandelker remarked on her efforts ‘to lead this great organization and to develop and implement strategies to keep money out of the hands of malign actors 80 years after the United States Treasury Department first worked to keep billions of dollars out of Hitler’s grasp’.40 By targeting actors that are uniquely dependent on the US dollar and/or the global financial system, the United States has thus sought to deter or coerce those sanctions targets by depriving them of access to the US dollar and to the international trade and economic systems. In so doing, the United States has sought to weaken those actors and alter their behaviour.

4.

A CHANGING GLOBAL LANDSCAPE

As described above, the US sanctions regime has often targeted actors who are uniquely vulnerable to economic coercion based on their dependence on the US dollar and/or the dollar-denominated global economic and financial systems. Recently, however, there has been a shift in how individuals, entities and countries can generate and exercise economic power that may also reduce the coercive power of financial sanctions that are aimed at limiting access to a global trade and economic system that is dominated by dollars. Specifically, national economic power is increasingly tied to a country’s ability to develop and disseminate technology products, particularly software products, rather than the trade in goods that powers the economies of American adversaries like Iran, Russia, Venezuela and narcotrafficking networks. Countries or companies that can freely disseminate software over the Internet, or that facilitate payment for consumer goods and services in currencies other than the US dollar, can insulate themselves from the impact of US sanctions. That national economic power is increasingly derived from technology rather than trade in goods is no secret to the United States – the last three decades have seen the rise of some of the world’s largest and most powerful technology companies begin in the United States. But what is novel is

39 See, for example, OFAC, Treasury Sanctions Investors Supporting Assad Regime’s Corrupt Reconstruction Efforts (17 June 2020) . 40 OFAC, Under Secretary Mandelker Remarks at the 19th Annual International Conference on Counterterrorism (11 September 2019) .

140  Research handbook on unilateral and extraterritorial sanctions that the United States’ adversaries increasingly derive their power from sources that are more difficult to target using traditional sanctions. In a world in which the basis for US sanctions programmes – that is, financial power in a dollar-denominated economic system – may not reach some important targets, it is reasonable to ask whether the US sanctions regime will continue to have the same coercive effect. Indeed, the autonomous development and use of technology has already allowed rogue regimes and bad actors to escape US sanctions and/or evade their effects. Three examples of the interplay between sanctions programmes and technology – China, North Korea and the rising popularity of stablecoins backed by dollars that are custodied outside the United States – demonstrate this changing dynamic. 4.1 China Although not the subject of a comprehensive US sanctions regime, China may soon prove to be a case study in how a nation can evade the coercive power of the dollar-denominated economy through development of its technological capacities.41 China appears poised to do so in two ways. First, China is building sources of economic strength that depend less on the dollar-denominated financial system – specifically, its own financial ecosystem based on AI-driven software, mobile applications, and other related technology. And second, China is building its domestic ability to produce and export goods – especially highly sought-after technology like 5G – that other nation-states desire. And, at least after the US imposed trade sanctions on telecommunications manufacturer Huawei in 2019, Chinese companies may be doing so relying less on US supply chains. By pursuing these advanced technologies, China may be able to blunt the effects of US sanctions by reducing the cost of any future sanctions’ impact. While China’s economic rise over the last two generations was driven principally by an export-driven economic strategy, the next phase of its growth is unlikely to be as dependent on trade in goods. In 1999 China was one-tenth the size of the United States’ economy, but it has grown to the point where, as of 2019, it is two-thirds the size.42 Economists contend that one reason for China’s rise has been its ability to mass produce goods for export around the world. In a July 2019 report, the McKinsey Global Institute found that China is not only the world’s largest exporter of goods as of 2009, but also the largest source of imports for 65 countries.43 Furthermore, China’s share of global trade in goods has increased from 1.9 per cent in 2000 to

41 China is also not, of course, a US adversary in the same way that Russia, North Korea and Iran are. It is perhaps best termed a strategic competitor, but one holding approximately $1 trillion in US government debt, and whose supply and trade relationships are still (at least for the time being) intricately bound up with those of the United States. 42 Tom Orlik, Scott Johnson and Alex Tanzi, ‘The New Economy Drivers and Disrupters Report: Tracking the Forces Threatening the World’s Hottest Economies’ Bloomsberg Businessweek (29 October 2019) . 43 Jonathan Woetzel et al., ‘China and the World: Inside the Dynamics of a Changing Relationship’ McKinsey Global Institute (1 July 2019) . (‘China has without doubt become a major global player in trade as a supplier and as a market. China became the world’s largest exporter of goods in 2009, and the largest trading nation in goods in 2013’).

The US position and practice  141 11.4 per cent in 2017.44 Given the significant effect that China’s exports have had on the country’s economic development, one could imagine that China may not have been able to achieve its economic gains if it had not been able to access the US dollar-denominated international trade and finance systems. However, China’s reliance on those dollar-dominated global trade systems may be decreasing. As China’s economy expands beyond manufacturing goods for export to other countries, it has necessarily diversified its sources of economic growth. Moreover, as the incomes of its population have risen, so, too, has domestic consumer demand within China. As a result, China’s dependence on US dollar-denominated systems may be decreasing: China’s exposure to the world in relative terms has fallen because the major driver of its economic growth is no longer trade or investment but rather domestic consumption. In 11 of the 16 quarters from January 2015 to December 2018, consumption contributed more than 60 percent of total GDP growth … In 2018, about 76 percent of GDP growth came from domestic consumption, while net trade actually made a negative contribution to GDP growth. As recently as 2008, China’s net trade surplus amounted to 8 percent of GDP; by 2018, that figure was estimated to be only 1.3 percent – less than either Germany or South Korea, where net trade surpluses amount to between 5 and 8 percent of GDP.45

These trends have arisen at the same time as new Chinese commerce and payment systems have been developed, which likely will depend less on the US dollar-denominated financial system than did the drivers of China’s growth from the 1990s through today. Indeed, China has laid the foundation for a financial and communications infrastructure built on domestic technologies that operate with more limited connections to the global financial system than the export-led economy that preceded it. Specifically, Chinese companies and individuals are able to transact domestically through software-based ecosystems like Alipay and WeChat. Alipay is a third-party mobile and online payment platform based in China that has been broadly adopted throughout China, while WeChat is a multipurpose mobile phone app that combines messaging, social media, and mobile payments, among other services.46 Together, these two apps dominate the field of mobile payments in China. According to a recent report published by the Brookings Institution: These two forms of payment dominate the Chinese market. Over 90 percent of people in China’s largest cities use WeChat and Alipay as their primary payment method, with cash second, and card-based debit/credit a distant third. Mobile payments in China have reached over $41 trillion (277 trillion yuan) annually. More than 92 percent of the mobile payments are made over the two dominant platforms: Alipay (53%) and WeChat Pay (39%).47

ibid. Jonathan Woetzel, et al., ‘China and the World: Inside the Dynamics of a Changing Relationship’ McKinsey Global Institute (July 2019) . 46 Connie Chan, ‘When One App Rules Them All: The Case of WeChat and Mobile in China’ Andreessen Horowitz (6 August 2015) . (‘As of earlier this year, WeChat had 549 million monthly active users (MAUs) among over one billion registered users, almost all of them in Asia’). 47 Aaron Klein, ‘Is China’s New Payment System the Future?’ Brookings Institute (June 2019) . 44 45

142  Research handbook on unilateral and extraterritorial sanctions The role of these companies in Chinese commerce is reflected not only in the number of transactions that take place on their platforms, but also the size of their userbase. As of June 2019, Alipay had approximately 1.2 billion users, of which approximately 900 million were located in China.48 Meanwhile, WeChat had approximately 1.1 billion users as of January 2019,49 most of which are located in China.50 Notably, because Alipay and WeChat serve principally a domestic audience in China, and because users often retain funds in these ecosystems,51 their exposure to the dollar-denominated international financial system is more limited. Furthermore, because these companies fundamentally make software, rather than hardware, with its long supply chains that reach into the US, they may be less susceptible to trade control measures than companies like Huawei (discussed below). Notwithstanding the fact that these types of software makers are relatively less exposed to the dollar-denominated banking system than other US adversaries, the United States recently announced sanctions related to WeChat and another China-based mobile phone app, TikTok.52 As of the time of writing in mid-November 2020, the executive orders regarding WeChat and TikTok have not been implemented,53 litigation is ongoing, and the newly-elected administration of Joe Biden may amend or withdraw the executive orders.54 It is unclear how, exactly, the sanctions will impact the apps and businesses and individuals that rely on them, if they are in fact implemented. Because these targets have networks of users and merchants located principally outside the United States, the extent to which current US sanctions can affect their operations may be limited. Indeed, these targets will be impacted by the US sanctions regime only to the extent that they use US dollars that clear through US banks, rely on banks that do significant US business, or depend on services (for example, web hosting) provided by US

48 Timothy G Massad, ‘Facebook’s Libra 2.0: Why You Might Like It Even If We Can’t Trust Facebook’ Brookings Institute (June 2020) . 49 Mansoor Iqbal, ‘WeChat Revenue and Usage Statistics (2020)’ Business of Apps (30 July 2020) . 50 Jing Yang and Liza Lin, ‘US Broadens Attack on Chinese Internet Giants with WeChat Order’ Wall Street Journal (7 August 2020) . 51 See Massad (n 48) 47. (‘The factors described above – convenience, low cost, network benefits, ancillary services, as well as the fact that commercial banks paid low interest on consumer deposits – meant that customers tended to keep funds in the Alipay and WeChat Pay systems, and did not transfer funds back to the traditional banking system. This led to a huge growth of funds outside of the regulated financial system’). 52 See Executive Order on Addressing the Threat Posed by TikTok (6 August 2020) ; Executive Order on Addressing the Threat Posed by WeChat (6 August 2020) . 53 US Department of Commerce, Identification of Prohibited Transactions to Implement Executive Order 13942 and Address the Threat Posed by TikTok and the National Emergency with Respect to the Information and Communications Technology and Services Supply Chain; Preliminary Injunction Order by a Federal District Court, RIN: 0605-XD990 (9 November 2020) . 54 The implementation of the WeChat and TikTok Executive Orders, as well as US-China relations more generally, is an area experiencing significant ferment at the time of this writing. By the time this chapter is published, any number of results could have materialized.

The US position and practice  143 persons. These dynamics may be particularly pronounced to the extent WeChat (or TikTok, but more likely WeChat) needs to engage in foreign exchange transactions in the course of serving users, or working with merchants, outside China. Doing so may require the apps to facilitate foreign exchange transactions that utilize the dollar, and which may clear through US banks, which would be challenging if they were subject to significant financial sanctions.55 Beyond its technology-enabled domestic technologies, China has also begun to ‘decouple’ its manufacturing capabilities from global – especially US-based – supply chains, which in turn may reduce the efficacy of future US sanctions. Consider, for example, Huawei, a significant Chinese telecommunications company. Huawei manufactures smartphones and telecommunications infrastructure and equipment, including for 5G networks. Until recently, Huawei’s manufacturing was dependent on a global supply chain, which included sourcing chips and other equipment from the United States. Given Huawei’s alleged ties to the government of China, however, the United States began imposing export control restrictions related to Huawei. In May 2019, President Trump issued an executive order declaring a national emergency regarding information and communications technology and services supply chains.56 The same day, the US Department of Commerce’s Bureau of Industry and Security (BIS) announced that it would add Huawei and many of its affiliates to the Commerce Department’s Entity List, an action that was effectuated later in May.57 Huawei’s addition to the Entity List resulted in the imposition of restrictions on exports, reexports, and transfers of US goods, technology and software to Huawei and other designated affiliates. In May 2020, the United States imposed a new rule barring Huawei and its suppliers from using US technology and software for its products.58 The rule will have the effect of making it harder for Huawei, a company that the US government views as a vehicle for the Chinese government to access telecommunications globally, to obtain the component parts it needs to create its products.59 A senior Trump administration official has described ‘legal, human rights, and strategic rationales’ for the decision, including ‘Huawei’s alleged theft of intellectual property and aid in developing surveillance technology and new weapon systems’.60 55 Other types of relationships may also be jeopardized by the imposition of US sanctions, but the core provision of services to China-based users may be able to proceed with minimal disruptions. 56 Executive Order on Securing the Information and Communications Technology and Services Supply Chain (15 May 2019) . 57 Press Release, Dep’t of Commerce, Department of Commerce Announces the Addition of Huawei Technologies Co. Ltd. to the Entity List (15 May 2019) . 58 Export Administration Regulations, 85 Fed. Reg. 29,849 (19 May 2020) ; see also Ana Swanson, ‘US Delivers Another Blow to Huawei With New Tech Restrictions’ New York Times (15 May 2020) . 59 See, for example, Charles Rollet, ‘Huawei Ban Means the End of Global Tech’ Foreign Policy (17 May 2019) . (‘Taken together, the moves have been widely interpreted as an unprecedented attack on Huawei’s global ambitions, particularly as it races to be a primary builder of the high-speed 5G networks that will power global communications for years to come’). 60 Bob Davis and Katy Stech Ferek, ‘US Moves to Cut Off Chip Supplies to Huawei’ Wall Street Journal (15 May 2020) .

144  Research handbook on unilateral and extraterritorial sanctions Prior to these export restrictions, Huawei was historically dependent on US-based suppliers for chips and other component parts. Indeed, ‘American software and machinery is crucial to fabricating advanced chips, and it’s been exported to manufacturers, or foundries, in countries across the globe’.61 Ultimately, however, the US restrictions may incentivize China to speed up the process of ‘decoupling’ its supply chain from the United States.62 If Huawei is successful in its efforts to either import chips and component parts from another jurisdiction or develop its domestic capabilities for manufacturing the parts, then future US sanctions against China or Huawei may lose their intended effect – Huawei could face fewer consequences from them, because it will have an alternative, non-US source of parts (one could imagine a similar dynamic unfolding if sanctions against TikTok or WeChat are ever implemented). And if the United States cannot deprive China or Huawei of something it needs (in this case, chips; in historical practice, access to US dollars), then US sanctions could lose their coercive effect. These examples – a domestic, technology-enabled financial system and the decoupling of global supply chains – demonstrate how China may be able to insulate itself in large measure from the effects of any future US sanctions programmes. 4.2

North Korea

North Korea is subject to one of the United States’ five jurisdictional embargoes, meaning that the United States has imposed a near-comprehensive ban on transactions with North Korea. The US sanctions programme against North Korea is principally designed to prevent the development of North Korea’s missile and nuclear technology.63 Despite the broad sanctions programme directed against it, North Korea has developed techniques for evading sanctions that increasingly rely on technology that is not directly linked to the US-based trade and financial system. Relying on digital techniques, North Korea has been able to gain access to the financial and other resources of which the US sanctions programme has sought to deprive it.64 These techniques include hacking, cryptocurrency mining, theft, and ransomware, and internet-enabled bank theft.65 A UN Panel of Experts recently determined that North Korea has conducted cyber operations against financial institutions and cryptocurrency exchanges that have generated $2 billion for the North Korean regime.66 Furthermore, in April 2020, the US Departments of 61 Editorial Board, ‘Huawei and the U.S.-China Tech War’ Wall Street Journal (9 June 2020) . 62 Erica Pandey, ‘US Bans Could Make Huawei Stronger’ Axios (5 March 2020) . (‘The grand decoupling of American and Chinese tech amid trade tensions and cybersecurity concerns, of which Huawei is at the center, is pushing China’s companies to become increasingly self-reliant. Huawei’s progress could position it to take the lead in the global U.S.-China tech race, experts say’). 63 See . 64 Insikt Group, ‘How North Korea Revolutionized the Internet as a Tool for Rogue Regimes’ Recorded Future (2020) . 65 ibid. 66 Report of the Panel of Experts Established Pursuant to Resolution 1874 (2009), UN Doc. S/2019/691, United Nations Security Council (30 August 2019) ; see also Report of the Panel of Experts Established Pursuant to Resolution 1874 (2009), UN Doc. S/2020/151, United Nations Security Council (2 March 2020) . (‘Based

The US position and practice  145 State, Treasury, and Homeland Security and the Federal Bureau of Investigation issued a joint advisory regarding North Korea’s cyber activities. The advisory highlights the country’s activities targeting the financial sector, noting that North Korea uses three key cyber tactics to generate revenue: cyber-enabled financial theft, in which North Korean actors gain access to bank computers or infrastructure or hack cryptocurrency exchanges and users to steal funds; ransomware campaigns, in which North Korean actors gain access to an entity’s computer network and threaten to shut it down unless the entity pays a ransom; and ‘cryptojacking’, in which North Korean actors use an entity’s computer(s) to mine digital currencies for the benefit of North Korea.67 These findings demonstrate that North Korea’s ability to circumvent US sanctions is based on more than just its access to alternative financial systems or trade routes (and more than the willingness of money launderers and rogue regimes to do business with it for profit). Rather, North Korea’s ability to circumvent US sanctions rests also on its ability to leverage technological developments to gain access to funds and resources outside the reach of the formal banking system. 4.3

Stablecoins Backed by Dollars Custodied Outside the United States

A third area where novel technologies may be blunting the impact of the dollar is cryptocurrency (generally) and stablecoins (specifically) that are backed by US dollars custodied outside the US. Stablecoins are a digital representation of value that is backed up by another more stable asset, usually the US dollar, which keeps its price stable.68 These types of digital assets combine the attractive properties of the dollar – its relative stability and near-universal use as a unit of account – with the attractive properties of cryptocurrencies, specifically, their peer-to-peer nature, near real-time settlement, and programmable nature, which allows them to be incorporated into a wide range of potential financial products and services, like decentralized lending. Most dollar-backed stablecoins effectively function as a currency peg, where the digital tokens are freely redeemable for an equivalent number of US dollars. These cryptocurrencies have gained in popularity: there is now more than $11 billion in value of USD-pegged stablecoins,69 and dollar-pegged stablecoins represent the third largest type of cryptoasset.70 Interestingly, USD-pegged stablecoins have continued to grow in popularity throughout

on Member State and open source information, the Panel concludes that the Democratic People’s Republic of Korea continues to perpetrate cyberattacks against financial institutions and cryptocurrency exchanges globally. These attacks have resulted in monetary losses and have provided illicit revenue for the country, in violation of financial sanctions. These attacks are low-risk, high-reward and difficult to detect, and their increasing sophistication can frustrate attribution’). 67 DPRK Cyber Threat Advisory (15 April 2020) . 68 There are other types of stablecoins, including tokens that are backed by digital assets rather than fiat currencies. 69 Pascal Hügli, ‘Hyper-Stablecoinization: From Eurodollars to Crypto-Dollars’ CoinDesk (12 July 2020) . 70 Hasu, ‘USD Stablecoins Are Surging, but Zero Interest Rates Complicate Business Model’ CoinDesk (30 March 2020) .

146  Research handbook on unilateral and extraterritorial sanctions the Covid-19 pandemic, reflecting a desire to facilitate easier access to dollar-like payment instruments.71 By far the most popular USD-pegged stablecoin is Tether.72 Tether is pegged 1:1 to the US dollar,73 and the company appears to custody its reserves of US dollars outside the US.74 Tether has seen a substantial increase in popularity, with its market capitalization increasing from approximately $4 billion in January 2020 to over $10 billion by August 2020, despite allegations by the New York Attorney General that Bitfinex and Tether have been manipulating the integrity of the US dollar reserves underlying its USD-backed stablecoin.75 This is the largest stablecoin by market capitalization by a wide margin, which is notable given the outstanding lawsuit by the New York AG. One potential explanation is that users see as desirable a dollar-like payment instrument backed by dollars that are not custodied in the US (and therefore it is open to question whether Tether’s custody banks are subject to US jurisdiction). If Tether and other US dollar-backed stablecoins continue to rise in popularity, the targets of US sanctions may have another means by which to evade the effects of the US sanctions regime.

71 See, for example, AnTy, ‘USD-Pegged Cryptos & BTC Continue to Rise in Contradiction to the Falling US Dollar’ Bitcoin Exchange Guide (5 August 2020) . (‘Another interesting facet seen in the crypto market while USD continues to lose its value is the increase in the demand of USD-pegged cryptos. Stablecoins have had a rapid rise following the crypto crash in March, which was spurred by a massive sell-off in the global equity markets, which led to a huge rush into cash and a global shortage of dollars’); Ada Wu, ‘Are Stablecoins the Biggest Beneficiaries of COVID-19?’ Long Hash (15 May 2020) . 72 Jamie Redman, ‘Stablecoin Tether Set to Eclipse Bitcoin’s Daily Transaction Value’ Bitcoin. com (23 July 2020) . (‘The most dominant stablecoin in the cryptocurrency ecosystem has seen some competition during the last few years, but the token tether has remained king in the face of rivalry’). 73 About Us, Tether Operations Ltd., https://​tether​.to/​about​-us/​(‘Tether is a token backed by actual assets, including USD and Euros. One Tether equals one underlying unit of the currency backing it, e.g., the US Dollar, and is backed 100% by actual assets in the Tether platform’s reserve account. Being anchored or “tethered” to real world currency, Tether provides protection from the volatility of cryptocurrencies’). 74 Press Release, Tether Operations Ltd., ‘Tether Banking Relationship Announced’ (1 November 2018) . (‘Tether Limited is pleased to confirm that it has established a banking relationship with Deltec Bank & Trust Limited (“Deltec”), a 72-year-old financial institution with headquarters in the Commonwealth of The Bahamas’); see also Steven Ehrlich, ‘After An $850 Million Controversy, What Everyone Should Know About Bitfinex, Tether and Stablecoins’ Forbes (2 May 2019) . (‘The reason why this is even a question is because up until very recently (November 2018) Tether refused to disclosed their banking relationships (Deltec Bank in the Bahamas). Without knowing this information, it is impossible to audit or verify the company’[s] fiat reserves’). 75 Daniel Palmer and Nikhilesh De, ‘New York Attorney General Calls Bitfinex’s Legal Stance ‘Deeply Perverse’ in New Filing’, CoinDesk (13 December 2019) .

The US position and practice  147

5. CONCLUSION The US sanctions regime has historically targeted countries and entities who are uniquely vulnerable to US sanctions because of their dependence on the US dollar and the global financial system. However, the rise of advanced technology may alter this dynamic by making actors less vulnerable to US economic coercion. Instead of relying heavily on access to global trade and financial markets, an individual or country’s economic power can be linked to its technological prowess. By creating and/or deploying technology – whether artificial intelligence, 5G, or cryptocurrency – targets of US sanctions are increasingly able to insulate themselves from the effects of the US sanctions regime by removing themselves from the international trade and finance systems, and thus dependency on the US dollar.76 How will this shift from financial to technological access affect the impact or use of unilateral sanctions? Are the US government’s current tools, which were designed for a world in which economic and financial power were linked, suitable for a world in which economic power is linked to technological power? To the extent a country or target can evade US sanctions altogether (like North Korea) or blunt their economic impact (like China), those sanctions lose their coercive effect. If an adversary can evade sanctions, then the adversary does not suffer the economic or financial repercussions that sanctions are designed to inflict. And in the absence of those impacts, sanctions can fail to exert coercive power.

76 See, for example, Marco Antonio Cavallo, ‘The Growing Importance of the Technology Economy’ CIO (21 December 2016) . (‘Technology has deeply affected the global economy and its usage has been linked to marketplace transformation, improved living standards and more robust international trade’).

PART II REGIME UNDER INTERNATIONAL LAW

9. Articulating UN sanctions with unilateral restrictive measures Jean-Marc Thouvenin

International sanctions are nothing new in international relations.1, 2 However, in contemporary practice they have become more abundant and more complex than ever before, raising questions about their nature, effects and legality. One of these complexities relates to their authors who may sometimes be the UN, sometimes states, and sometimes both at once. The question then arises as to how all these sanctions fit together, which is the topic of this chapter. But before trying to fit anything together, it is necessary to clarify somewhat the notions to be discussed, namely ‘sanctions’, ‘restrictive measures’, ‘collective’ and ‘unilateral’ (Section 1). On this basis, when turning to how all this is articulated, three hypotheses arise that can be wrapped up under three terms: infra, praeter and contra. It is convenient to use the terms infra and praeter for unilateral restrictive measures either merely implementing UN sanctions, or going further than the sole implementation of those sanctions or adopted absent any UN sanction (Section 2); and contra for measures contradicting UN decisions (Section 3).

1.

TERMINOLOGY AND CONCEPTUAL CONSIDERATIONS

1.1

‘Collective’ and ‘Unilateral’ Measures

The difference between collective and unilateral measures does not need any lengthy discussion: measures imposed by a single party are termed ‘unilateral’ while measures adopted by the United Nations are ‘collective’ in reference to Article 1(1) of the UN Charter.3 It is sometimes said that when measures are adopted by more than one state they cease to be unilateral and become ‘multilateral’, but this is confusing since ‘multilateral’ is generally used as an equivalent to ‘collective’. ‘Coordinated’ unilateral measures might be more appropriate.

All webpages mentioned in footnotes below were accessed between 15 and 20 April 2020. Jean-Marc Thouvenin, ‘History of Implementation of Sanctions’ in Masahiko Asada (ed.), Economic Sanctions in International Law and Practice (Routledge 2020). 3 Art 1 of the Charter lists among the purposes of the United Nations: ‘1. To maintain international peace and security, and to that end: to take effective collective measures for the prevention and removal of threats to the peace, and for the suppression of acts of aggression or other breaches of the peace, and to bring about by peaceful means, and in conformity with the principles of justice and international law, adjustment or settlement of international disputes or situations which might lead to a breach of the peace’. 1 2

149

150  Research handbook on unilateral and extraterritorial sanctions 1.2 ‘Sanctions’ The term ‘sanction’ is more problematic. It is widely used to refer to UN measures not involving the use of armed force adopted with a view to obtaining from a state or another category of person that they adopt or abstain from adopting certain behaviour. In practice these ‘sanctions’ are adopted by the UN Security Council pursuant to Chapter VII of the Charter, but the General Assembly may also adopt such measures.4 It is true that the use of the term ‘sanction’ is not self-evident because it does not appear in the Charter.5 Article 39 refers to ‘measures’ ‘taken in accordance with Articles 41 and 42’, and, indeed, Article 41 refers only to ‘measures’, while Article 42 also refers to ‘action’ when it comes to measures involving the use of armed force. The fact remains that lawyers do not hesitate to refer to ‘sanctions’,6 considering generally that the term sanction is appropriate to ‘designate the measures taken by international bodies’.7 More precisely, the term ‘sanction’ in international law is (i) reserved for some sort of peaceful action responding to a breach of the law and constraining or inflicting damage on a target;8 (ii) decided by an authority possessing the legal capacity and legitimacy to do so. The focus here, in so far as international organizations with the legal capacity and legitimacy to adopt such measures are concerned, is on the United Nations,9 and the language 4 Pursuant to Resolution 377(V) Uniting for Peace: ‘If the Security Council, because of lack of unanimity of the permanent members, fails to exercise its primary responsibility for the maintenance of international peace and security in any case where there appears to be a threat to the peace, breach of the peace, or act of aggression, the General Assembly shall consider the matter immediately with a view to making appropriate recommendations to Members for collective measures, including in the case of a breach of the peace or act of aggression the use of armed force when necessary, to maintain or restore international peace and security. If not in session at the time, the General Assembly shall therefore meet in emergency special session within twenty-four hours of the request. Such emergency special session may be called if requested by the Security Council on the vote of any seven members [nine since 1965], or by a majority of the Members of the United Nations’. As an example of ‘sanction’ promoted by the UN General Assembly under this mechanism, see for example Resolution ES-9/1, 5 February 1982, para 12. 5 Likewise, the term ‘sanction’ does not appear in the Covenant of the League of Nations. However, it has been noted that the ‘measures’ referred to in Art 16 of the Covenant of the League of Nations were usually admitted as ‘sanctions’. Indeed, Art 6 of the Protocol for the Pacific Settlement of International Disputes approved by the Assembly of the League on 2 October 1924 (never entered into force), referred to ‘the sanctions provided for by Article 16 of the Covenant’, and Art 11 to ‘economic and financial sanctions’. See Laura Picchio Forlati, ‘The Legal Core of International Economic Sanctions’ in Laura Picchio Forlati and Linos-Alexander Sicilianos (eds.), Economic Sanctions in International Law / Les sanctions économiques en droit international, Centre for Studies and Research in International Law and International Relations of The Hague Academy of International Law (Brill/Nijhoff 2004) 106, fn 26. 6 See ILC, ‘Draft Articles on the Responsibility of States for Internationally Wrongful Acts with commentaries’ (2001) II(2) Yearbook of the ILC 75, para 3. 7 Gaetano Arangio-Ruiz, ‘Third Report on State Responsibility’, 19 July 1991, A/CN.4/440, 8, para 15. 8 Sanctions are, in the words of Prosper Weil, ‘un adjuvant de la normativité internationale’; Prosper Weil, ‘Le droit international en quête de son identité. Cours general de droit international public’ (1992) 237 Collected Courses of The Hague Academy of International Law, 366. 9 Of course other international organizations are sometimes entitled to adopt sanctions against their members. The EU, for example, may sue its Member States in the European Court if they do not respect their EU obligations or it may bring other forms of procedure like suspending the Member State’s voting rights pursuant to Art 7 of the Treaty on European Union. But as interesting as it is, it is not this category of sanction that is under discussion here since the focus is on ‘UN sanctions’.

Articulating UN sanctions with unilateral restrictive measures  151 of ‘sanctions’ to designate UN measures is well accepted. One example among many is Judge Mohamed Bennouna who devoted his special course given at The Hague Academy of International Law to ‘Les sanctions économiques des Nations Unies’.10 The United Nations itself speaks of its ‘sanctions’ rather than its ‘measures’. As a basic illustration, it is easy to check that the UN Security Council website states, among other things, that ‘[s]ince 1966, the Security Council has established 30 sanctions regimes’.11 Despite this practice, one can ask whether it is accurate to use the term ‘sanctions’ for UN Security Council measures not involving the use of armed force adopted pursuant to Article 41 of the Charter. This is because the term ‘sanctions’ is in principle reserved to qualify legal reactions to breaches of the law, while the UN Security Council is not expressly tasked with enforcing international law since, pursuant to Article 24 of the Charter, its responsibility is the maintenance of peace and security. However, it is arguable that UN Security Council measures fall into the category of sanctions in so far as they are adopted against those who breach the ‘obligation, which is imprecise but included in the Charter, to refrain from any act constituting a threat to peace or a breach of the peace and from any act of aggression’.12 It is the case that, in practice, the UN Security Council often refers to violations of international law – including its own decisions – when it adopts measures pursuant to Article 41 of the Charter.13 1.3

Retorsion, Countermeasures

By contrast, even if usually called ‘sanctions’ in ordinary language, unilateral measures adopted outside the United Nations by a state or group of states (whether or not formed into an international organization) to pressure another state in order to obtain a change in its behaviour are generally not viewed by contemporary international lawyers as ‘sanctions’ in the legal sense. Admittedly Roberto Ago as Special Rapporteur of the International Law Commission

10 Mohamed Bennouna, ‘Les Sanctions économiques des Nations Unies’ (2002) 300 Courses of the Hague Academy of International Law 9–77. See also Djacoba Liva Tehindrazanarivelo, Les sanctions des Nations Unies et leurs effets secondaires : Assistance aux victimes et voies juridiques de prévention (Graduate Institute Publications 2005), . See also Jean Combacau, Le pouvoir de sanction de l’ONU (Pedone 1974); Rostane Mehdi (ed.), Les Nations Unies et les sanctions : quelle effectivité ? (Pedone 2000). 11 See . 12 Combacau (1974), 16 ‘obligation, imprécise mais incluse dans la Charte, de s’abstenir de tout acte constitutif d’une menace pour la paix ou d’une rupture de la paix, et de tout acte d’agression’. 13 See on this point Linos-Alexander Sicilianos, ‘Sanctions institutionnelles et contre-mesures: tendances récentes’ in Forlati and Sicilianos (n 5), 11–12.

152  Research handbook on unilateral and extraterritorial sanctions (ILC) advocated the use of this term14 as distinct from the notion of ‘retorsion’,15 but the ILC rejected it,16 opting for the terms ‘countermeasures’ and ‘retorsion’ to cover almost the whole range of non-military retaliatory measures – to the exclusion of measures of ‘reciprocity’ applied under the law of treaties. The main character of a retorsion is that it is ‘unfriendly’ but not unlawful. It may be a response to an internationally wrongful act or to a perfectly lawful act that is simply not appreciated.17 Countermeasures (or ‘non-forcible reprisals’, to use the older term)18 are defined as ‘a feature of a decentralized system by which injured States may seek to vindicate their rights and to restore the legal relationship with the responsible State which has been ruptured by the internationally wrongful act’.19 When adopting measures that are in breach of their international obligation vis-à-vis the target states, states may argue that they are countermeasures, claiming that the targeted state was the first to violate international law to their detriment. Of course it may be a pretext and as indicated by the ILC: a State taking countermeasures acts at its peril, if its view of the question of wrongfulness turns out not to be well founded. A State which resorts to countermeasures based on its unilateral assessment of the situation does so at its own risk and may incur responsibility for its own wrongful conduct in the event of an incorrect assessment.20

This clarification is interesting because in mentioning the inherent uncertainty as to the lawfulness of these unilateral measures, it suggests that it is wise to avoid the term ‘sanction’ as it implies a legitimate legal response to an initial breach of the law. It should be added that the

14 In his ‘Eighth report on State responsibility’, Ago explained that he ‘use[d] the term “sanction” as synonymous with an action the object of which is to inflict punishment or to secure performance and which takes the form of an infringement of what in other circumstances would be an international subjective right, requiring respect, of the subject against which the action is taken. That is, in our opinion, the proper meaning of “sanction”, the meaning most in keeping with international law. It differs both from what we consider to be the excessively narrow meaning attached to the term by those who hold that it comprises only action involving the use of armed force, and from what we consider to be the excessively broad interpretation which goes so far as to include within this single term all the various legal consequences that might flow from internationally wrongful acts. In our view, the authorization of an action such as the application of economic reprisals in no sense involves the use of armed force, but its object is none the less punitive, and this seems to us to be one of the typical attributes of a sanction. Conversely, the sole object of the attribution of the right to obtain reparation for damage suffered is indemnification, which can hardly be described as a sanction’. Roberto Ago, ‘Eighth report on State responsibility’ (1979) II(1) Yearbook of the ILC 39, para 79. 15 ibid 43, fn 192. 16 In the ILC Draft articles (2001) 137, para 3, the ILC still uses the term ‘sanction’ but only when referring to the practice of states not affected by an alleged initially wrongful act, and without itself adopting a position as to whether the use of the term ‘sanction’ is warranted in these cases. 17 ibid 128, para 3. 18 Reprisals have been defined by the Institut de droit international as ‘des mesures de contrainte, dérogatoires aux règles ordinaires du Droit des Gens, prises par un Etat à la suite d’actes illicites commis à son préjudice par un autre Etat et ayant pour but d’imposer à celui-ci, au moyen d’un dommage, le respect du droit’. Institut de droit international, Session de Paris, (1934) AIDI 708. The equivalence between (non-forcible) reprisals and countermeasures is argued notably by Arangio-Ruiz, ‘Third Report on State Responsibility’, 19 July 1991, A/CN.4/440, 10–13. 19 ILC Draft Articles (2001) 128, para 1. 20 ibid 130, para 3.

Articulating UN sanctions with unilateral restrictive measures  153 notion of sanction is generally associated with the exercise by the sanctioning person of some authority over the sanctioned person, which is hardly consistent with the notion that states are equally sovereign. From this point of view, the term ‘countermeasures’ appears more neutral than ‘sanctions’ and so more suitable, at least in the international legal realm. 1.4

‘Third-Party’ Measures

It has been recalled above that in the Articles on the Responsibility of States for Internationally Wrongful Acts the ILC retained the terms ‘countermeasures’ and ‘retorsion’ as covering almost the whole range of retaliatory measures not involving the use of force. Almost the whole range is not the whole range, and indeed there is an exception, namely the measures referred to in Article 54 of the Articles. This provision stipulates that the chapter on countermeasures is not prejudicial to ‘the right of any State, entitled under Article 48, paragraph 1 to invoke the responsibility of another State, to take lawful measures against that State to ensure cessation of the breach and reparation in the interest of the injured State or of the beneficiaries of the obligation breached’. This provision is not about the right of an injured state to take countermeasures against the state responsible in order to induce that state to comply with its obligations of cessation and reparation (as mentioned in Article 42 of the Articles), but refers to ‘lawful measures’ adopted by any third-party in the event of the breach of an obligation to the international community as a whole, or by any member of a group of states in the case of other obligations established for the protection of the group’s collective interest (as per Article 48 of the Articles). Although some authors have no difficulty in qualifying these measures as ‘third-party countermeasures’,21 the ILC clarified that ‘[t]he article speaks of “lawful measures” rather than “countermeasures” so as not to prejudice any position concerning [these] measures’.22 It seems that the reluctance of the ILC to name these third-party measures ‘countermeasures’ derives from two considerations: first, they may include coercive responses to a breach without necessarily being themselves breaches of legal obligations; second, if they are adopted in breach of international obligations, it is arguable that there is a circumstance precluding wrongfulness – not codified in the Articles, the regime of which would be different from the regime of countermeasures. This is of course an important point for discussion,23 but for the time being, the question we wish to address is whether these measures can rightly be called ‘sanctions’. The characterization of such measures as ‘sanctions’ has been recently argued by Alain Pellet24 for whom the term ‘sanctions’ should designate these measures if they qualify as reactions to serious violations of peremptory norms of international law,25 in addition to UN

21 For example Samantha Besson, ‘Community Interest in International Law: Whose Interests Are They and How Should We Best Identify Them?’ in Eyal Benvenisti and Georg Nolte (eds.), Community Interests Across International Law (Oxford University Press 2018) 36–49, 41. 22 ILC Draft Articles (2001) 139, para 7. 23 See the chapter by Alexandra Hofer in this book. 24 See Yearbook of the Institute of International Law, Tallinn Session (2015) 76, 723–6. 25 The rationale for distinguishing between measures in reaction to serious violation of preemptive norms which would be ‘sanctions’, and measures in reaction to standard rules of international law, including some human rights, is explained for example by Jochen A Frowein, ‘Reactions by Not Directly Affected States to Breaches of Public International Law’ (1994) 248 Collected Courses of The Hague Academy of International Law, 401.

154  Research handbook on unilateral and extraterritorial sanctions measures. Although the author regrets that the legal regime of these measures has been left unexplored by the International Law Commission, he recalls that they flourish when the UN Security Council is precluded for political reasons from reacting to serious violations of peremptory norms of international law, and therefore that they appear no less eligible than UN Security Council measures to be considered as ‘sanctions’ in the legal sense. Moreover, to a certain extent, by contrast with countermeasures, referred to by the neutral term ‘countermeasures’ because states having recourse to them act in their own interest, the measures mentioned in Article 54 of the Articles are acts allegedly adopted in the name and in the interest of the international community as a whole and therefore appear more likely to be ‘sanctions’ in the legal sense than measures pertaining to self-help. However, it is not clear that qualifying these ‘third-party’ measures as ‘sanctions’ in international law adds any clarity to the discussion as to their regime. Certainly there are many definitions of the term ‘sanctions’ and it is widely used in practice as a generic term, so that one might think use of it merely reflects practice. However, the view of the present author is that qualifying a measure as a ‘sanction’ in legal language conveys the double idea of statutory legality and legitimate authority, and that UN Security Council measures are at present the only ones deemed to be both lawful (because they formally rely on a legal basis) and legitimate (because they are adopted by an organ which all states have acknowledged has the power to adopt sanctions, including against themselves).26 Another term was used by Joachim Frowein in his course given at The Hague Academy of International Law, namely ‘third-party reactions’. In so far as these reactions include breaches of international obligations, he talks about ‘third-party reactions in the form of reprisals’. But this does not solve the problem mentioned above, since it is admitted that reprisals is the old term to designate what are now countermeasures, which, as seen above, does not fit well with third-party measures. Yet the term ‘sanctions’ can make very good sense as a name for unilateral measures in so far as it is not used to refer to their ‘international’ regime but to their domestic legal content. For example, an embargo is a domestic legal regime by which a state prevents persons and entities within its jurisdiction – this notion being sometimes broadly construed, creating the problem referred to as ‘extraterritorial’ measures27 – from exporting goods to the territory of the targeted state and imposes sanctions, for example fines, for any violations. To illustrate this point, it will be recalled that it is the bank BNP Paribas that has been heavily fined by the US 26 Measures adopted outside the UN invariably entail questions as to their legality. The implementation of conditionality in the EU General Scheme of Preferences Programs is a good example. One can see as a recent illustration the decision adopted by the EU to withdraw Cambodia’s preferential access to the EU market under the Everything But Arms scheme (EBA) due to serious and systematic violations of human rights. This withdrawal may at first sight appear to be a coercive measure that is both lawful (the possibility of such a withdrawal is expressly part of the EBA regime) and legitimate (adopted by the EU Commission after a detailed procedure of fact-finding and contradictory discussions), and therefore a rather acceptable ‘third-party sanction’. See . However, the lawfulness of the EBA regime itself, including conditionality and the withdrawal procedure, is triggered by its consistency with WTO law, which is a priori not the case since it leads to trade discrimination among Least Developed Countries. See for example Lorand Bartels, ‘The Trade and Development Policy of the European Union’ (2007) 18(4) European Journal of International Law 715–46, 745; Ingo Borchert, Paola Conconi, Mattia Di Ubaldo and Cristina Herghelegiu, ‘Trade Conditionality in the EU and WTO Legal Regimes’, RESPECT Working Paper, December 2018, accessed 30 October 2020. See a complete list of resources on US legislation applicable to compliance here accessed 30 October 2020. 27 Financial Action Task Force, ‘Recommendations’ 16 February 2012 accessed 30 October 2020. 28 Association of Certified Anti-Money Laundering Specialists (ACAMS), ‘Navigating FATF Recommendation 16’ September 2016 accessed 4 July 2020. 29 As one SCB employee wrote, ‘this account must remain completely secret to the US’ At that time, the CEO of Standard Chartered’s Iran representative office wrote a memo in support of expanding the Central Bank of Iran account noting that ‘[t]o be the bank handling Iran’s oil receipts would be very prestigious for SCB. In essence, SCB would be acting as Treasury to the CBI/the country’. See Department of Justice, ‘Standard Chartered Deferred Prosecution Agreement’ (2012) accessed 4 July 2020.

278  Research handbook on unilateral and extraterritorial sanctions following factors: (1) the country where the customer is located, (2) the products and services utilized by the customer, (3) the customer’s legal entity structure, and (4) the customer and business type’.30 The agreements also included provisions regarding the software systems banks use. For instance, BNP Paribas’ deferred prosecution agreement states that ‘BNP must update its automated monitoring system. The system must monitor every wire transaction that moves through BNP USA. The system must also track the originator, sender and beneficiary of a wire transfer allowing BNP to look at its customer’s customer’.31 The use of such software packages has become largely unavoidable for any financial institutions seeking to do business within the United States. For the banks that were charged with sanctions busting, such as BNP Paribas, HSBC and Standard Chartered, installing new software packages that monitor every wire transfer that goes through the bank was not just recommended as best practice, but rather, it was included as part of the legal conditions outlined in their deferred prosecution agreements. Moreover as part of the settlement agreements, the majority of the banks were also placed under the supervision of independent monitors who would file quarterly updates on the bank’s progress. The independent monitors come from a private firm approved by the US government, and the banks are forced to pay their fees/labour costs. According to one compliance expert we interviewed, Because the DPA says we need to be monitored we pay [our monitors] somewhere in excess of $15 million a year just for their labor costs … I think altogether our compliance costs are fast approach a billion. So that is $1 billion we spent on compliance for financial crime – not even talking about the rest of legal compliance.

The number of independent monitors that are brought in to any given bank can be upwards of 50, and they do not just observe from afar. The monitors move into the respective bank’s office space and involve themselves with the inner-workings of the bank’s day-to-day operations. As various interviewees with experience working on the floor of a compliance department of a global bank under monitoring programmes told us, the monitors are given total access and at any given moment they can demand to see what an employee is currently working on and how they respond to the software detection signals. Essentially what this creates is the impression of a panopticon situation where everyone working in the compliance department feels as though they are constantly under surveillance through the adoption of new software technologies that make the possibility of sanctions-busting and non-reporting fraud harder to perform. Indeed, these sanctions busting cases, and the DPAs that were ultimately signed, emphasize the role of technology and monitoring software that underpins a banks’ compliance department. However, whether this impression of control is translated in practice into increased efficiency remains an open question. As Umberto Eco writes about the process of digitalization, which is made possible by the increasing amount of publicly available information on the world wide web – in which Eco sees ‘the mother of all lists’ – and the increasing reliance of algorithms analysing such information, the digital world has become ‘both web and labyrinth’ which ‘really does offer us

30 Department of Justice, ‘HSBC Deferred Prosecution Agreement’ (2012) . 31 OFAC (n 25).

Embedded extraterritoriality   279 a catalogue of information that makes us feel wealthy and omnipotent, the only snag being that we do not know which of its elements refers to data from the real world and which does not’.32 The turn to digitalization in the world of compliance may give the impression to the regulator that banks can effectively monitor a mass of information like that processed daily by banks operating millions of financial transactions, but it may be a misleading impression. But as will be discussed, the relationship between the practical world of compliance in banking and the theoretical logic of how the digital world is supposed to be regulated through and by software is a messy one, in which the human factor figures prominently.

3.

THE LIMITS OF ALGORITHMIC GOVERNANCE: DELIMITING THE SOCIAL SPACE OF THE HUMAN FACTOR

It is necessary to move from the world of regulators, lawyers and negotiators of DPAs, to the world of the back office where decisions are translated into routines and practices in order to understand how US regulatory obligations – or rather, new interpretations of what global banks need to do in order to be able to demonstrate regulatory compliance with US law – have been translated in practice by global banks that signed their DPAs with the DoJ in the 2010s. As Bill Maurer writes in an early article on compliance, ‘in the last fifteen years or so, numbers of compliance officers have expanded exponentially’.33 As global banks have been attacked on all sides since 2008, either for their predatory credit practices leading up to the sub-prime crisis or for their gross lack of concern for the regulations and laws imposed by sovereign governments regarding AML legislation or specific sanctions against countries accused of representing a risk to international security (like Iran or the DPRK), the recruitment of ‘ethical’ or ‘care’ officers in the otherwise masculine world of care-free banking seemed logical. This growth may have reflected the industry’s organic response to a problem inherent in its globalized working, but as we have demonstrated, it was also imposed by the US government in the DPAs that the DoJ has signed with global banks. Still, concerns for transparency, traceability and the fight against illicit finance in which most compliance officers serve as front-line soldiers, were not non-existent prior to the 2000s and the wave of DPA signings of the 2010s. But before 9/11 and the diffusion of the risk-based approach favoured by regulators, banking technologies were quite crude, and suspicious transactions, withdrawals and transfers were mostly identified through personal contacts rather than the automated software programs that are now used by banks to check the identity of their customers against lists produced by regulators and widely diffused by states and international organizations, especially the United Nations – rather than lists produced by the banks themselves. It is only since 9/11 and the rise of CFT that banks have received digital updates of lists of suspects on a daily basis.34 With the growth of the compliance industry, lists have gone from being primarily an internally-produced relationship management tool to identify high-net

32 Marieke de Goede, Anna Leander and Gavin Sullivan, ‘Introduction: The Politics of the List’ (2016) 34(1) Environment and Planning D: Society and Space 3–13, 8. 33 Maurer (n 15) 483. 34 World Check, ‘Refinitiv World-Check Risk Intelligence’ 2020. accessed 4 July 2020.

280  Research handbook on unilateral and extraterritorial sanctions worth clients and to determine which customers should be receiving specific marketing and promotional offers, to externally-produced items screened by software designed to track and flag suspicious financial behaviour among their customers. According to one expert, When it came to name recognition software, it didn’t exist. Banks had nothing – nothing at all to check their records and Citibank was the very first bank that had a program and they wrote the program themselves and [this one person] who used to work at OFAC and then became a compliance officer for Citibank … said oh, we’ll show you literally where – where the software is, we can literally physically go there to see it. And there was not a single bank in Europe in 2000 that was using any kind of name recognition software. So this whole industry did not exist [before] … September 11 and then it becomes a competitive market, now you can receive email updates, changes on the UN list, the EU list, OFAC – It’s now a very lucrative business and again – it’s a lucrative business because people are in the market for products which they think can offer up a solution.

Banks now routinely screen their customers against public and private terrorist watch-lists, sanctions lists, geographical areas (that is, the Middle East and Africa), and finally, what makes sense in terms of the financial behaviour of a customer.35 Progress in the management of such external lists was key to helping banks become more efficient. For example, one of the tools most commonly used by financial institutions around the World is a screening software program called World Check. World Check screens a financial institution’s entire client list against global sanctions lists (US, UN, EU, UK, etc.), lists of Politically Exposed Persons, Narrative Sanctions Lists, Global Regulatory and Law Enforcement Lists, Iran Economic Interest (IEI) and others. Screening is done whenever a new customer (individual for retail purposes or a corporate institution) is onboarded, and the entire client population is screened at least once a week so as to make sure any changes on global sanctions lists are captured. The compliance officers we interviewed found that the growth of the financial intelligence industry has helped improve the system of global surveillance of digital money flows, which helps them perform their duty of care and due diligence. But in fact, our interviewees often also look at the adoption of new software technologies critically, as only constituting a legal response to the increased regulatory scrutiny of the US government after a number of these same global banks were caught not complying with US sanctions when operating transactions through US territory. In order to understand how certain banks use banking technology software and how compliance officers understand their merits or limitations, we must first understand what this technology is and how it operates. As said, for years now, banks have utilized technology for datamining purposes in order to create profiles of their customers to determine their profitability and target which promotions should be sent to which clients. Because of this, banks and the financial sector have mountains of information on their clients as well as on their businesses and personal finances. But without an algorithm to read through these constantly updated lists of terrorists, sanctions-busters or politically exposed persons, a bank may find the amount of data to be dealt with is too much for a human to handle, which is why they need to develop some automated way of processing the information. As Fleur Johns writes,

Sullivan (n 11).

35

Embedded extraterritoriality   281 The algorithm enjoys no natural or necessary association with the list, yet the two are frequently related: the algorithm feeds and cleanses the list; it is the list’s carer. It is the background to the list’s foreground; the engineering to its interface; the murmur to its shout.36

A number of incredibly sophisticated software technologies exist that are supposed to help compliance officers avoid freezing the assets of the innocent and determine with a high degree of certainty if a match exists between listed individuals and some of their clients whose assets they are legally required to freeze. The alternative to Googled information is indeed for the bank to either buy or to develop software that will do the job of data selection and triage, which will allow the human compliance officer to concentrate on the task of analysing whether the information looks pertinent and actionable or whether it is lacking. Some financial institutions have developed their own software for datamining, but more often than not, they rely on software packages developed by outside vendors such as NetEconomy, Norkom, World-Check, ATTIV/O, and QuantaVerse. The use of such software packages has not only become unavoidable for financial institutions, but in some cases, banks are actively seeking out partnerships with technology companies. For example, HSBC has developed an advisory board composed of various CEOs and technology scientists working in Silicon Valley to provide it with guidance on technology and digital strategies.37 This is no easy task, as there is not one central database to screen for all potentially suspicious individuals, locations or transactions.38 Instead, software programs have to be manually set to screen against public and private terrorist watch-lists, other sanctions lists, and geographical areas and territories that have been deemed ‘high-risk’ (that is, the Middle East, Africa and the majority of the Caribbean). In other words, despite the fact that these software systems are technically designed to track and flag anything suspicious, it is the employees at the bank who are responsible for writing the rules, or codes, that determine what the software programs will flag as suspicious. And checking for blacklisted names is not as straightforward as it may sound. Not only are banks required to check against several national lists – including, for example the US (OFAC SDN List & Bureau of Industry and Security (BIS) List of Denied Persons), UK, EU, Israeli and UNSC lists – but they are also required to check against privately compiled politically exposed persons (PEP) lists, which include individuals who, because of their political roles, may be increasingly vulnerable to corruption. Here, in many ways, the issue of extraterritorial implementation of US, EU or Israeli law is merely a technical question determined by the choice of the compliance office to set the right parameters in the software: either by restricting the names on each national sanctions list to the relevant territories where such national authorities have jurisdiction (first case); or by adding all names in a global dataset of designated entities, enabling the global banks to be on the safe

36 Fleur Johns, ‘Global Governance Through the Pairing of List and Algorithm’ (2016) 34(1) Environment and Planning D: Society and Space 126–49, 127. 37 Tanaya Macheel, ‘HSBC Turns to Tech Execs for Guidance’ (2017) American Banker . 38 It is also important to differentiate between name screening and payment screening. Name screening is the process of matching an internal record (client, counterparty, etc.) against a sanctioned list record. It is generally more feasible to stop a customer’s onboarding when list screening flags a possible connection between the potential customer and a sanctions list. Payment screening on the other hand focuses on the screening of payment messages. This particular type of screening takes place with current customers and is performed before a payment or message is processed.

282  Research handbook on unilateral and extraterritorial sanctions side if these individuals are involved in dollar-denominated or euro-denominated transactions and even if the transactions take place outside the US or Europe (second case). In the first case, sanctions laws remain national in scope, with banks implementing the law of each country only; in the second case, sanctions laws are given ‘extraterritorial’ effects by global banks. Of course, as banks became increasingly risk-averse after 11 September 2001, leading them to add more names of designated terrorist affiliates and to avoid limiting the implementation of transactions restrictions to national jurisdictions only, they increasingly adopted an extraterritorial approach to sanctions implementation, especially after the Executive Order of 24 September 2001, signed by President Bush, which increased both the number of individuals and organizations named on the US list as well as the ability of US authorities to detect and block transactions associated with individuals on those lists. There are millions of individuals and entities across the globe listed on these public and private watch-lists, and these lists are updated on a daily basis.39 Similarities amongst various names, problems transcribing names from one language to another and the fact that these lists are always changing, means that even something that sounds as simple as checking or screening a name is fraught with countless complications. As an interviewee admits: The key issues that we commonly identified during that time, and to tell you the truth we still do see them … is that you are screening billions and trillions of transactions monthly and you do get – if you[r] [software parameters] are too sensitive – you get so many hits! So how do you deal with all of them, and what is the right size of the team, what’s the level of screening that you have to put in place to be able to then find that needle, right?

The technical difficulties encountered by compliance officers are not always understood by judicial authorities (especially in the US enforcement arm), who may be tempted to believe that all financial crimes could be eradicated if banks were legally obligated to adopt strong software technologies which screen every transaction in search of suspicious patterns. But such a naïve belief ignores the fact that banks are reliant on a whole informational eco-system which they cannot control (and which they often have to pay to get access to) in order to detect suspicious terrorism- or proliferation-related activity. If we take the example of sanctions-busting detection, general guidelines are far too broad to allow any human compliance officer to correctly interpret the information that they are supposed to look for. For instance, the following list details what a global bank’s internal sanctions policy asks its employees to look for: Business Lines, Jurisdictions, and Employees are responsible for identifying any Client with known exposure to a Sanctioned Country. Any known exposure to a Sanctioned Country should be considered: however, some of the circumstances in which such exposure exists include the following: Client is subject to a Sanctioned Country tax jurisdiction; Client is located in a Sanctioned Country; Client is doing business in or with a Sanctioned Country; Client is owned in whole or in part by a legal entity or an Ultimate Beneficial Owner located in a Sanctioned Country.

As anyone can immediately see, more than half of the globe is concerned by such a policy, which over-extends the notion of ‘high-risk territory’ to any territory sanctionable by any of the Western states. In this case, does this internal requirement mean for the compliance officer 39 LexisNexis Risk Solutions, ‘Sanctions List Screening’ accessed 4 July 2020.

Embedded extraterritoriality   283 that a client who is Russian (under sanctions from the EU and US) cannot have a bank account in the bank? Would that mean that the bank account of a client who has a business relationship (trade? or even travel?) in a country such as Russia needs to be closed down? In this case, high risk jurisdictions are not just countries that are sanctioned, they can include countries that are ‘in close proximity to or have trade ties to a country subject to Comprehensive Sanctions’. This even lengthens the list of sanctioned territories to the limits of absurdity. Would that mean that any client from Poland would have to be under special scrutiny because it is close to Russia, which is under EU sanctions? Of course, such a broad understanding of the bank’s internal bylaws would be too discriminatory to become operational. But if internal rules are too broad, then, it is important that banks provide the right amount of detail to the software designers so that the latter do not exclude too many bank accounts or too few. The notion of high-risk territories is thus a key variable for compliance officers as they set the parameters of the software program their bank is using. This includes but is not limited to countries with a ‘reputation’ for being tax havens, countries ‘supporting’ terrorism and countries that are subject to comprehensive sanctions, and it also includes a low volume of USD-denominated cross-border transactions (moderate level of risk) or high level of USD-denominated cross-border transactions (high level of risk). In this case, the bank compliance officers rate the extent to which they are likely to apply US sanctions law to screen a non-US client’s transactions based on its exposure to USD-denominated payments (even if these payments are not associated with transactions involving US persons or US territory). This shows how the OFAC ruling of 2008 on the inadmissibility of U-turn transactions in the case of sanctions against Iran, for instance, can become integrated into the daily routines of compliance officers. When they are confronted with such claims as those made by OFAC about the applicability of US sanctions law to all USD-denominated transactions across the globe, even when parties to the transactions are not US persons, and the sale does not cross US territory at any point, compliance officers do not reason whether they should implement it or not based on legal arguments. For them, the argument is merely pragmatic and technical. They have to see whether the software allows them to block such transactions or whether they can set the parameters so that US sanctions can somehow be scaled to the right level of transactions so that they do not apply everywhere. Extraterritoriality of US law is for them mostly a technical rather than a legal problem. Therefore, when setting the parameters for the monitoring software, it is not enough to simply screen against sanctions lists, banks must also come up with their own internal calculus with regard to how to risk rate countries they or their customers do business in or with. To limit the human arbitrariness in KYC investigations, banks have entire policy documents dedicated to what they refer to as ‘Risk Assessment Methodology’ as well as ‘Client Risk Rating Models’. This relative flexibility in how each global bank sets the parameters of its detection software largely depends on the dialogue (real or fictional) that the bank expects to have with the regulators, as acknowledged by one of our interviewees: You can set parameters for how the software is going to operate. So there is a whole theology behind this and there are whole teams of people who do nothing but this. But basically, you want to be able to demonstrate to a regulator that you have thought carefully about how you set your parameters and you want to make sure that you are not excluding possible hits, but at the same time you can’t bring everything to a screeching halt … And there are different competing products that promise to boil the ocean a little bit better for you or a little bit faster … and there are some really sophisticated ways of testing your system … but [with something like sanctions] it is just the sanctions blob. And it is all

284  Research handbook on unilateral and extraterritorial sanctions types of sanctions, all manifestations of sanctions that banks have to implement … some sanctions programs are more complicated than others so [with] some sanctions programs you could have a hit on an entity, but maybe the activity is permissible or not … or if it is Cuba you can do U-turn transactions you cannot do that with Iran. So every sanctions program comes in different flavors and it is the bank’s job to make sure that it is implementing each flavor of sanctions properly.

To a great extent, banks and software companies are left in the dark by the regulators about how they can actually decide how best to fight against money laundering or terrorism/ proliferation financing. In order to find the parameters that are best to catch and block suspicious transactions, banks have the capacity to test how the software reacts when they change such parameters. Depending on whether they play with the ‘fuzzy logic’ or set strict parameters, which will end up eliminating fewer or higher numbers of transactions and lead to the identification of client names, compliance officers can work on a range of variables and run experiments. However, compliance officers, especially those in global banks which are already under a monitoring programme because of the DPA signed with the DoJ, rarely engage in such experiments and instead give precedence to a form of ‘non-knowledge’.40 One of their main fears is that if they set the parameters too broadly, the software will then highlight a long list of new names that regulators will then be in a position to identify. The software is designed in such a way that compliance officers cannot delete the history of their manipulations of parameters, so any name that may pop up during an ‘experiment’ will be treated by the regulator as a possible suspect, and the regulator will then be in a position to ask bank compliance officers why they did not investigate all the names that appeared, even during ‘experimentation’. Experimentations are here ‘performative’41 in the sense that they may produce negative effects. This situation explains why compliance officers are very careful with experimentations: in most instances, the costs of eliminating many names wrongly identified by the software would be way too high to be worth the effort; and, should they not foot these costs, the risk of a high fines decided by the regulator would greatly increase. As software searches are an open book to regulators, compliance officers cannot operate in a fictional space where ‘hits’ do not matter and names can be erased with the stroke of a pen. This predicament places compliance officers in a position in which they favour non-knowledge over knowledge when it comes to designing the best parameters for their software. Many compliance officers express criticism of the importance taken on by software management. But they do not do so on principled grounds, like the invasion of privacy and the risks of data misuse that poor data protection mechanisms and centralization of information create for bank customers. Rather they argue the system is ineffective at achieving the goals set by the regulators. One compliance officer summarized the issue with the regulations and the ways in which they constrain banks’ ability to master the software in a very critical way. For him, the new three-pronged approach which consists in monitoring, triaging and excluding based on suspicions, and which has worked up steam since 9/11 and the global push in AML, CTF and CPF, is based on mistaken assumptions that only accentuate the risks of driving offenders deeper under cover without setting up real obstacles to their money flows: It’s just – it’s a fruitless exercise. It’s almost – I almost feel like [it would be better if we] just didn’t have any [regulations] and then all the flows [of money] come so that we can build, invest our time, Mallard and McGoey (n 18). Douglas Holmes, ‘Economy of Words’ (2009) 24(3) Cultural Anthropology 381–419.

40 41

Embedded extraterritoriality   285 energy and money and the technologies to screen the transactions. We [would] divert the funds from the compliance and bullshit governance activities that we do, which we know have very limited impact – and reinvest that into studying data analytics … I almost feel it’s actually better to let one of the flows come through because it’s with those flows, it is with having access to those flows that you can actually have information to link situations together. We say oh, high-risk countries Sierra Leone, Angola, whatever, we won’t take payments from them. Okay that is fine. You cut off your right arm but you know what? There are 54 countries in Africa. They’re going to just move it across the border to another country that is considered less risky … Let’s say South Africa. Or you know, Cote d’Ivoire, Cameroon those are deemed less risky than Algeria and Tanzania, but there is no border patrol. So they will just move the money across. So it’s kind of like really – it does not really help. However, if you remove the restrictions and let them put the money through at least we’ve got a record of it.

This compliance officer is thus highly critical of the effectiveness of the new legal infrastructure that banks have had to put in place. Not to mention that some software technologies are not secure enough to prevent hackers from disrupting their services, as illustrated by the hacking of the SWIFT software by North Koreans who sent money from the Central Bank of Bangladesh to North Korean accounts. Still, as far as principles do matter, one of the major concerns some compliance officers working in non-US banks have with installing monitoring software is where the data is being held, and whether or not the US government will be able to gain access to their clients’ data. Experts have pointed to who exactly owns and controls these software companies from which global banks buy their products, not to mention what happens to the data they collect. As one compliance expert acknowledges: Well to be fair, a lot of the software companies… are thinly capitalized Israeli companies. Nobody wants to house their data in a black box that someone else has access to, especially if you are Iran because they do not want to give over control like that to someone else. So there is some structural issues with sanctioned countries re-joining communities because they’re naturally paranoid that things could reverse back … connecting these countries, the first thing we would do is infect their banking system with a virus and try to shut them down … we have done it before … the whole notion of cyber warfare cannot really be divorced from banking because it is the major target.

So what is the solution for banks and governments who, like Iran, wish to join the global financial system but are understandably hesitant when seeing how the US government has pulled out of a deal as hard-negotiated as the 2015 Joint Comprehensive Program of Action (JCPOA), which was itself the object of a legally binding UNSC Resolution (UNSCR 2231) under Chapter VII? Many bankers in Iran, for understandable reasons, are unwilling to install and utilize the standard software programs for fear of data breaches and the potential for malware to infect their systems. Some have looked at blockchain, the technology behind cryptocurrencies such as Bitcoin and Ether, as the solution to the concerns surrounding the current software, but even though some of the major global banks are investing in blockchain technology, its use is still in its infancy, especially in the field of trade-finance, which is still heavily reliant on a paper-based system that by its nature is liable to fraud.42 For example, Bank of America is currently working with Microsoft in order to develop software that utilizes blockchain technology in order to transform the monitoring of trade finance, an area which

42 PricewaterhouseCoopers, ‘Trade Finance: Understanding The Financial Crime Risks’ 2016. accessed 4 July 2020.

286  Research handbook on unilateral and extraterritorial sanctions is still highly manual.43 Despite these predictions, the software is still reliant upon humans having a clear understanding of what risks the bank is exposed to and setting the software parameters accordingly.

4. CONCLUSION Banks were not always considered to be the front-line operators in the global war against terrorists or proliferators and their financiers. As one expert in counter-proliferation financing told us, in the 1990s and up to a certain point in the 2000s, the intelligence community put the emphasis on following commodities, by following ships, and by accessing data from private insurance companies like Lloyds or other data companies like Winwood, which use algorithms ‘to track when ships switch their automated information systems off and it can monitor hundreds of vessels at the same time and so you can set up parameters and all the imagery appears with Google-type of quality so you can see where in the port they’d be picking up and delivering and if it’s coal, you can see it, yeah’. As this expert adds, summing up the general opinion in the field of counter-proliferation finance in the mid-2000s: People say follow the money. If you can’t follow the money, follow the weapons and if you can’t follow the weapons, follow the ships and if you can’t, you know, you can follow ships and aircraft and you can follow weapons some of the time. Following the money is the hardest.

Still, after the wave of fines imposed upon global banks accused of sanctions-busting activities in Iran and Sudan in 2013 and 2014, regulators have placed an increasing burden on banks so that they adopt software, which, according to their hopes and dreams, would make it impossible for them to violate regulation ever again. As we have demonstrated, the system is still very much in its infancy and opportunities for human mistakes, deception, and unintended consequences are many. It will then come as no surprise if the US government engages in yet another round of accusations against global banks, who may find themselves accused again of not conforming to the US interpretation of what sanctions-busting in the case of Iran sanctions means. As some of the interviews demonstrate, this new cycle of accusations may then bring about a new cycle of technological innovation, and new spending on the part of banks. As one expert says, banks and financial services only take the regulations seriously when under public or judicial scrutiny. One reason is that their main concern is to make money and to not lose profitable relations by interpreting sanctions obligations too broadly and severing ties with dubious clients; another reason is that some of the compliance specialists find the mammoth legal infrastructure that was created after 9/11 and after the 2013–2014 rounds of sanctions against Iran to be wholly ineffective, if not counter-productive. In the end, the whole legal infrastructure which grew as a result of this cycle of norm enforcement and rule innovation has fed a new consulting industry, which charges tremendous fees to reluctant banks that do not want to risk another investigation by attacking the new obligations imposed on them by judicial authorities. As one expert said, as compliance

43 Abdel-Qader, Aziz Finance Magnates, ‘Microsoft and BofA Team Up to Transform Trade Finance Through Azure Service’ 2018. accessed 4 July 2020.

Embedded extraterritoriality   287 requirements grew exponentially for global banks, new business opportunities emerged, in which ‘the big four [global consulting firms] were absolutely favored over the second tier firms just because of the scalability and also because of the fact that these projects were huge and Deloitte has like 180,000 employees and PWC had like 120,000 employees’. As these two professional service organizations make over $25 billion in revenue profit they have largely benefited from global tension over the right approach to compliance, especially in the fields of sanctions or AML, and they are very likely to endorse US sanctions law everywhere, considering their ties to the US financial system. With such economic interest in sustaining the integrity and legitimacy of the new compliance infrastructure that banks have had to implement to align themselves with US sanctions law, it is unlikely that internal criticism voiced in the privacy of compliance floors will be turned into a public challenge against its operations in the near future. In this broad socio-technical context, US sanctions are likely to continue to have extraterritorial effects for a long time.

NOTE This is an open access work distributed under the Creative Commons Attributio n-NonCommercial-NoDerivatives 4.0 Unported (https://​creativecommons​.org/​licenses/​by​-nc​ -nd/​4​.0/​). Users can redistribute the work for non-commercial purposes, as long as it is passed along unchanged and in whole, as detailed in the License. Edward Elgar Publishing Ltd must be clearly credited as the owner of the original work. Any translation or adaptation of the original content requires the written authorization of Edward Elgar Publishing Ltd.

17. Using extraterritorial sanctions in the fight against financial crime in Latvia: from silver lining to over compliance Ilze Znotiņa and Paulis Iļjenkovs

1. INTRODUCTION Unilateral sanctions can be an effective foreign policy instrument. However, for sanctions to produce the effects desired by those who impose them, compliance by the private actors is an important prerequisite. Where private operators fail to abide by sanctions, the states imposing unilateral sanctions have developed tools to enforce compliance and punish private actors for non-compliance. Some private actors have more extensive obligations than others in the field of unilateral sanctions compliance. This is because services provided by those private actors are more vulnerable to sanctions evasion; most notably, financial services. These private actors, such as banks, can be compelled to put in place internal control systems for sanctions compliance.1 Internal controls are meant to ensure that the bank is not used unwittingly or otherwise for sanctions evasion by third parties, who may try to do so through complicated chains of transactions involving shell companies,2 forged trade documentation and other mechanisms known to be used for these purposes. The absence or ineffectiveness of such internal control systems may entail administrative liability and the imposition of hefty fines even if no sanctions violation actually occurs.3 If, however, a unilateral sanctions violation does occur due to poor controls by the bank, the fine imposed by the source authorities will probably be significantly higher, as illustrated the BNP Paribas case.4 Some banks, such as the Latvian ABLV bank, have even ceased to exist entirely due to alleged violations of unilateral sanctions.5 Most importantly the unilateral sanctions at stake in the two examples above had extraterritorial reach. 1 Law on International Sanctions and National Sanctions of the Republic of Latvia, Art 13.1 (Starptautisko un Latvijas Republikas nacionālo sankciju likuma 13.1 pants: LV likums. Pieņemts 04.02.2016.) (LV) (Latvian Sanctions Law). 2 Shell entity defined in Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing, Art 1(151) (Noziedzīgi iegūtu līdzekļu legalizācijas un terorisma un proliferācijas finansēšanas novēršanas likums 1.panta 151 daļa: LV likums. Pieņemts 17.07.2008.) (LV) (Latvian AML/CFT Law). 3 Latvian Sanctions Law (n 1) Art 13.2. 4 US Department of the Treasury, ‘Treasury Reaches Largest Ever Sanctions-Related Settlement with BNP Paribas SA for $963 Million’ (2014) accessed 10 April 2020. 5 Frances Coppola, ‘Why The U.S. Treasury Killed A Latvian Bank’ (Forbes, 2018) accessed 10 April 2020.

288

Using extraterritorial sanctions  289 Examples of such practices have been widely covered by the international media and today sanctions compliance should be at the top of the agenda of each and every actor providing financial services. However, sanctions compliance is not an easy task. It is especially complicated in cases of unilateral extraterritorial sanctions and where multiple conflicting sanctions regimes coexist. The first section of this chapter focuses on how the largest locally-owned Latvian bank – ABLV Bank – was forced into liquidation within less than a month due to alleged violations of sanctions imposed by the United States of America (US) against North Korea. The case of ABLV Bank is a prime example of the extraterritorial reach of US sanctions. However, for Latvia it also contributed to the fight against financial crime in general and money laundering in particular. The second section focuses on the amendments to the sanctions legislation in Latvia that followed the fall of ABLV Bank. Controversially, yet in an innovative manner, the respective amendments legitimized the extraterritorial reach of foreign unilateral sanctions to a certain extent. The section analyses the reasons for doing so that are predominantly rooted in the need to safeguard financial stability and provide legal certainty to private actors. The third section focuses on potential overcompliance with unilateral sanctions by private actors and on other legal issues emerging from the application of unilateral extraterritorial sanctions in practice.

2.

THE FALL OF ABLV BANK: ACHIEVING ANTI-MONEY LAUNDERING THROUGH EXTRATERRITORIAL SANCTIONS

2.1

Factual Background

ABLV Bank was registered in 1993,6 soon after the collapse of the Soviet Union, and had been operating in Latvia for over 20 years after the country regained its independence.7 On 13 February 2018 the Financial Crimes Enforcement Network of the US Treasury Department (FinCEN) issued a finding and notice of proposed rulemaking, seeking to prohibit the opening or maintaining of a correspondent account in the US for, or on behalf of, ABLV Bank. FinCEN named ABLV Bank as an institution of primary money laundering concern.8 This sort of notice stemming from the financial intelligence unit of the US, although producing no legal consequences in itself (as it only proposed the rulemaking), is nonetheless highly authoritative for financial institutions worldwide. The FinCEN notice contained significant accusations against ABLV Bank, including its management and employees who had allegedly ‘institutionalized money laundering as a pillar 6 For more about ABLV Bank, see European Central Bank, ‘ECB determined ABLV Bank was failing or likely to fail’ (2018) accessed 10 April 2020. 7 Latvia regained independence from the Soviet Union in 1991, after the Soviet Union had occupied the Baltic States. 8 US Department of the Treasury Financial Crimes Enforcement Network, ‘FinCEN Names ABLV Bank of Latvia an Institution of Primary Money Laundering Concern and Proposes Section 311 Special Measure’ accessed 10 April 2020.

290  Research handbook on unilateral and extraterritorial sanctions of the bank’s business practices’ and tried to obstruct enforcement of the regulatory framework in order to protect them.9 For the purposes of this chapter, however, another equally important allegation was stated by FinCEN: illegitimate financial activity carried out by ABLV Bank allegedly also included execution of transactions for entities related to the US and the UN sanctions against North Korea, including the ones implicated in North Korea’s procurement or export of ballistic missiles.10 In FinCEN’s view, ABLV Bank had the necessary guidance to avoid being misused for illicit purposes,11 and, more importantly, ABLV Bank allegedly executed and even facilitated the North Korea-related transactions after the announcement introducing its North Korea ‘No Tolerance’ policy.12 To conclude on the allegations contained in the FinCEN notice, it contained a clear message that ‘ensuring the effectiveness of the North Korea sanctions program is a top national security and foreign policy priority of the United States’.13 After the FinCEN notice, ABLV Bank experienced a sudden increase in withdrawals of deposits and a lack of access to US dollar (USD) funding and consequent inability to make USD payments. For these reasons, on 23 February 2018, the European Central Bank determined that ABLV Bank was ‘failing or likely to fail’. The European Central Bank deems a bank ‘failing or likely to fail’ in one or more circumstances laid down in the Single Resolution Mechanism Regulation,14 including if the bank is, or there are objective elements to support a determination that the bank will, in the near future, be unable to pay its debts or other liabilities as they fall due.15 Following this determination, another EU agency – the Single Resolution Board – determined that the resolution of ABLV Bank was not in the public interest.16 After all, ABLV Bank was the largest locally-owned Latvian bank. However, its business was overwhelmingly focused on servicing non-residents. According to FinCEN, most ABLV Bank customers were high-risk shell companies registered outside of Latvia.17 Three days after ABLV Bank was determined to be ‘failing or likely to fail’ and that resolution action was not in the public interest, ABLV Bank shareholders passed a resolution to voluntarily liquidate ABLV Bank.18 Although the respective decisions were taken by the European Central Bank, the Single Resolution Board and ABLV Bank itself, respectively, 9 US Department of the Treasury Financial Crimes Enforcement Network, ‘Proposal of Special Measure against ABLV Bank, as a Financial Institution of Primary Money Laundering Concern’ (13 February 2018) 6 accessed 10 April 2020 (FinCEN Notice). 10 ibid. 11 ibid 13. 12 ibid 12. 13 ibid 20. 14 Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 [2014] OJ L225 30 July 2014 (Single Resolution Mechanism Regulation). 15 ibid Art 18(4). 16 European Central Bank, ‘ECB determined ABLV Bank was failing or likely to fail’ (2018) accessed 10 April 2020. 17 FinCEN Notice (n 9) 8. 18 ABLV Bank, ‘Announcement on Voluntary Liquidation of ABLV Bank, AS to Protect the Interests of Clients and Creditors’ (26 February 2018) accessed 10 April 2020. 19 European Central Bank, ‘“Failing or Likely to Fail” Assessment of ABLV Bank, AS’ (2018) 4 accessed 10 April 2020. 20 Financial and Capital Market Commission, ‘FCMC in Control of ABLV Bank AS Voluntary Liquidation Procedure’ (2018) . 21 As is discussed specifically in Parts I and II of this book. 22 Aleks Tapinsh, ‘Latvia Sees Good and Bad as Russian Money Haven’ (Reuters, 2012) accessed 10 April 2020. 23 Financial and Capital Market Commission, ‘Withdrawal of Authorisation of JSC “TRASTA KOMERCBANKA”’ (2016) www​.fktk​.lv/​klientu​-aizsardziba/​anuleta​-as​-trasta​-komercbanka​-licence/​ accessed 10 April 2020. Currently, this bank is undergoing insolvency proceedings.

292  Research handbook on unilateral and extraterritorial sanctions mitted abroad.24 Indeed this was also expressed by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (Moneyval) report on Latvia published in August 2018, whose assessment of Latvia’s capability for fighting financial crime was definitively unfavourable. In short, Moneyval established that the Latvian financial sector was factually exposed to money-laundering risk due to its status as a regional financial centre; however, it failed to assess these risks appropriately.25 ABLV Bank was not the only Latvian bank accused of money laundering.26 The internal economic, legal and security implications of a weak anti-financial crime system and the reputational damage inflicted on Latvia, inter alia, by the fall of ABLV Bank meant that decisive and meaningful steps had to be taken to implement the overdue changes. The financial sector was indeed reformed in a very short time frame.27 As a result, in February 2020 Latvia became the second state ever to be rated as at least ‘largely compliant’ with all 40 FATF Recommendations and avoided being placed on the FATF’s list of countries with strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing.28 As a result, the understanding of financial crime risks and the subsequent ability to fight financial crime more effectively has grown in the private sector as well as in law enforcement. The private sector’s capacity to detect potential money laundering and sanctions evasion is evidenced by unequivocal data. The total amount of freezing orders issued by the Financial Intelligence Unit of Latvia (FIU) grew from €45.7 million in 2017 to €346 million in 2019.29 The freezing orders are issued based on suspicious transaction reports (STRs) received from the reporting entities, such as banks and payment service providers (the FIU can also issue freezing orders at its own initiative or upon a request from authorized foreign institutions to freeze the funds).30 If reasonable suspicions exist that a crime, including money laundering or sanctions violation has been committed, the FIU may issue a freezing order for the respective funds and forward the matter to the relevant law enforcement authority, which then decides whether to initiate criminal proceedings.31 If criminal proceedings are initiated, the relevant 24 Supplemented Latvian National money laundering/terrorism financing risk assessment report (2018) accessed 10 April 2020. 25 Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (Moneyval), Anti-money laundering and counter-terrorist financing measures: Latvia: Fifth Round Mutual Evaluation Report (2018) accessed 10 April 2020 (Mutual Evaluation Report). 26 Mutual Evaluation Report, 56. 27 Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (Moneyval), Anti-money laundering and counter-terrorist financing measures: Latvia: 1st Enhanced Follow-up Report (2020) accessed 10 April 2020 (Follow-up Report). 28 Financial Action Task Force, ‘Jurisdictions under Increased Monitoring – 21 February 2020’ accessed 10 April 2020. 29 Raivis Spalvens, ‘Financial Intelligence Unit Froze EUR 345.98 Million Last Year’ (LETA, 2020) www​.fid​.gov​.lv/​lv/​aktualitates/​2019​-gada​-finansu​-izlukosanas​-dienesta​-svarigakie​-uzdevumi​-fatf​-un​ -moneyval​-procesa​-vadisana​-un​-autonomas​-operacionali​-neatkarigas​-un​-efektivas​-iestades​-izveidosana accessed 10 April 2020. 30 Latvian AML/CFT Law (n 2) Art 32.1(2). 31 ibid Art 55(1).

Using extraterritorial sanctions  293 law enforcement authority may decide to seize the respective funds. Ultimately the illicit funds may be confiscated and returned to the victims of the crimes: either the state or a private individual. In essence, therefore, the extraterritorial reach of unilateral sanctions can produce a spillover effect, namely, it can contribute to improved effectiveness in fighting other forms of financial crime, including money laundering. This is so because of the inextricable links between the evasion of targeted financial sanctions and money laundering. Both being financial crimes, their typologies overwhelmingly overlap, often making it difficult to distinguish between the two crimes without resorting to criminal intelligence measures. By successfully tackling sanctions evasion, money laundering will inevitably be tackled as well and vice versa. Therefore, the extraterritoriality of unilateral sanctions can have a considerable impact on the capability of any jurisdiction to tackle financial crime in general and money laundering in particular. This unequivocally is a significantly positive aspect of unilateral extraterritorial sanctions. 2.3

North Korea Sanctions: A Non-Conflicting Sanctions Regime

The fall of ABLV Bank was precipitated by alleged breaches of the unilateral sanctions regime imposed by the US against the Democratic People’s Republic of Korea (North Korea). Although the FinCEN notice accusing ABLV Bank of sanctions evasion was not itself legally binding, it produced effects that ultimately led to the liquidation of ABLV Bank. Therefore, legally, unilateral US sanctions were not directly applied in the case of ABLV Bank. Nevertheless, US sanctions had an extraterritorial effect, and the bank, although not subject to US jurisdiction, was forced into liquidation due to alleged violations of unilateral US sanctions. The FinCEN notice explicitly specified a non-exhaustive list of sanctioned North Korean entities allegedly involved in transactions facilitated by ABLV Bank: ‘Foreign Trade Bank (FTB), Koryo Bank, Koryo Credit Development Bank, Korea Mining and Development Trading Corporation (KOMID), and Ocean Maritime Management Company (OMM), some of which are involved in North Korea’s procurement or export of ballistic missiles’.32 Sanctions against these entities have been imposed by the US pursuant to various instruments with varying objectives. Two of these entities – FTB (North Korea’s primary foreign exchange bank)33 and KOMID (North Korea’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons)34 – were designated by the US Department of the Treasury pursuant to Executive Order 13382,35 which provides for the blocking of the property and interests in property of certain persons related to the proliferation of weapons of mass destruction. Two other entities – Koryo Bank and Koryo Credit Development Bank – were designated for operating in the financial services industry

FinCEN Notice (n 9) 12. US Department of the Treasury, ‘Treasury Sanctions Bank and Official Linked to North Korean Weapons of Mass Destruction Programs’ (2013) accessed 10 April 2020. 34 US Department of the Treasury, ‘Treasury Sanctions Individuals and Entities Supporting the North Korean Government and its Nuclear and Weapons Proliferation Efforts’ (2016) accessed 10 April 2020. 35 Executive Order 13382, 70 Federal Register 126 (1 July 2005). 32 33

294  Research handbook on unilateral and extraterritorial sanctions in the North Korean economy, pursuant to Executive Order 13722,36 which targets, inter alia, North Korea’s transportation, mining, energy, and financial services industries. Lastly the OMM – a shipping company that allegedly attempted to ship a hidden consignment of arms into North Korea – was designated pursuant to Executive Order 13551,37 blocking property of certain persons with respect to North Korea. Importantly the UN has also imposed sanctions in regard to all of these entities. The EU has therefore implemented all the UN Security Council resolutions regarding North Korea’s nuclear and ballistic missile programmes,38 in addition to the restrictive measures it decided to unilaterally impose on North Korea.39 Sanctions imposed by the UN and the EU, including unilateral EU sanctions against North Korea, are binding and directly applicable under Latvian law, including on ABLV Bank. As explained in Section 2.2, the extraterritorial reach of unilateral sanctions can produce positive effects, impacting one’s capability of fighting financial crime. In addition, what can be inferred from this section is that the extraterritorial reach of foreign unilateral sanctions can potentially expose the deficiencies in the sanctions enforcement regimes of the affected third states, that is, in relation to sanctions that are actually binding on the private actors in these states. This could be perceived as another positive effect of extraterritoriality. That is so because from a purely teleological perspective, the imposition of unenforceable sanctions is a fruitless endeavour that serves only as a symbolic gesture. After all, why would, for example, North Korea change its behaviour if private actors under EU jurisdiction disregarded the EU sanctions against North Korea? From this perspective, sanctions compliance and effective enforcement thereof is imperative to achieve the objectives of their imposition. Hence, regardless of whether FinCEN allegations against ABLV Bank are true, sanctions compliance in general has become a cornerstone of any financial institutions’ compliance system in Latvia and presumably elsewhere in Europe.

3.

GIVING EFFECT TO THIRD STATES’ EXTRATERRITORIAL SANCTIONS THROUGH DOMESTIC LAW

3.1

Legitimizing the Extraterritoriality of Third States’ Unilateral Sanctions Through Parliament

For the reasons described in the previous section, Latvia’s legal framework on sanctions had to be amended. Among other problems, there was a lack of any common understanding as to the necessity and scope of consideration of unilateral sanctions of other jurisdictions.40 The law was silent on this issue. However, financial institutions were provided with guidance in Executive Order 13722, 81 Federal Register 53 (18 March 2016). Executive Order 13551, 75 Federal Register 169 (1 September 2010). 38 Council of the EU, ‘North Korea: Council Aligns Its Sanction Lists with the Latest UN Security Council Resolution’ (2017) accessed 10 April 2020. 39 Council Regulation (EU) 2017/1509 of 30 August 2017 concerning restrictive measures against the Democratic People’s Republic of Korea and repealing Regulation (EC) No 329/2007 [2017] OJ L 224 31 August 2017. 40 Draft Law on amendments to the Latvian Sanctions Law (n 1) 2 (Likumprojekta “Grozījumi Starptautisko un Latvijas Republikas nacionālo sankciju likumā” anotācijas 2.lp.) accessed on 10 April 2020. 41 Latvian Association of Commercial Banks, Policy and guidelines on anti-money laundering and countering the financing of terrorism and sanctions compliance (Latvijas Komercbanku asociācijas noziedzīgi iegūtu līdzekļu legalizācijas un terorisma finansēšanas novēršanas un sankciju ievērošanas politika un vadlīnijas) (2017) accessed 10 April 2020 (FLA Guidelines). Latvian Association of Commercial Banks is now known as the Finance Latvia Association. It is a not-for-profit organization for broad and joint representation of finance, technology and related industries at national and international level. 42 ibid 15. 43 ibid. 44 Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom [1996] OJ L 309 29 November 1996. 45 Mutual Evaluation Report (n 25) 7. 46 Latvian Sanctions Law (n 1). 47 ibid Art 1(1)(2). 48 ibid Art 1(1)(1).

296  Research handbook on unilateral and extraterritorial sanctions Latvia is a Member State.49 However, in certain cases specified in the Latvian Sanctions Law, unilateral sanctions imposed by other Member States of the EU or NATO have to be applied.50 Importantly there are significant limitations to this ‘legitimized’ extraterritoriality of unilateral sanctions that must be clarified from the outset. Firstly, unilateral sanctions of NATO and EU Member States must be applied in certain limited cases specified in the Latvian Sanctions Law, including public procurement and public-private partnerships.51 Most importantly, such unilateral sanctions must be applied by the participants of Latvian financial and capital markets, that is, banks, payment institutions and so on.52 Secondly, only sanctions of those EU and NATO Member States need be applied ‘that affect significant financial and capital market interests’.53 To ensure that Latvian financial institutions observe this requirement in a reasonable manner, the following factors have to be taken into account and evaluated: the currencies in which the institution provides its services and products, the contractual obligations of the institution to other financial institutions or corresponding banks, the region of the activity and provision of services of the institution, and the countries where the customers of the institution operate.54 Therefore, in practice, unilateral sanctions of a few EU or NATO Member States are potentially applicable, taking into account the factors listed above. Thirdly, from the standpoint of Latvian law, compliance with unilateral sanctions of other NATO and EU Member States is a purely administrative requirement. Violation of such sanctions will not entail criminal liability under the criminal justice system of Latvia.55 Nonetheless, by virtue of the amendments to the Latvian Sanctions Law, extraterritoriality of unilateral sanctions has been granted legislative endorsement, which requires a very persuasive justification due to obvious controversy thereof in terms of national sovereignty and apparent conflict with the EU Blocking Statute. 3.2

Legal Reasons for the Legislative Incorporation of Foreign Extraterritorial Sanctions

Legitimizing extraterritoriality of unilateral sanctions imposed by NATO and EU Member States may seem harmful to state sovereignty and a step too far. However, there are multiple lines of reasoning that may justify the approach taken by the Latvian legislator. First of all it can be said that the amendments to the Latvian Sanctions Law legitimized the status quo. Before the amendments to the Latvian Sanctions Law, compliance with US sanctions was part of the internal control systems of the majority of financial institutions

ibid Art 2(2). ibid Art 2(1). 51 ibid Art 11.1. 52 ibid Art 13(4). Financial and Capital Market Commission Regulatory Provisions No 13 ‘Regulatory Provisions for the Management of Sanctions Risk’ (Finanšu un kapitāla tirgus komisijas normatīvie noteikumi Nr. 13 ‘Sankciju riska pārvaldīšanas normatīvie noteikumi’) (LV) (FCMC Regulations No 13). 53 Latvian Sanctions Law (n 1) Art 13(4). 54 FCMC Regulations (n 52) No 13, s 16. 55 Criminal Law, Art 84 (Krimināllikuma 84.pants: LV likums. Pieņemts 17.06.1998.) (LV) (Latvian Criminal Law). 49 50

Using extraterritorial sanctions  297 anyway. For example, even ABLV Bank claimed that it had been screening transactions against lists of Specially Designated Nationals and Blocked Persons published by the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury and deploying other sanctions control measures since the early 2000s.56 Moreover, already in 2017, the leading Latvian non-governmental organization representing the overwhelming majority of banks had issued guidance to its members to comply with US sanctions.57 Therefore it can be concluded that the amendments to the Latvian Sanctions Law followed widely accepted practice in the banking sector; therefore, prompting no meaningful practical changes in the field of sanctions compliance in banks. From this perspective, it seems wrong to condemn the legislator for providing legal certainty to banks and other operators in the private sector. Especially so in Latvia, where every private operator witnessed the consequences of alleged non-compliance with unilateral sanctions of the US that have been widely covered by the media. As commercial entities, the financial institutions in Latvia exist and operate in order to make a profit.58 Therefore, facing a choice between offering financial services to a person subject to US sanctions or complying with US sanctions, the majority of financial institutions will presumably opt for the latter, especially if the former carries the risk of losing the business entirely. Therefore these rather recent amendments to the Latvian Sanctions Law legitimizing the extraterritoriality of some unilateral sanctions could provide private actors with a legal justification to terminate contractual relationships for the sake of compliance with those unilateral extraterritorial sanctions, when this issue arises in the future.59 That is why, in the authors’ opinion, the conflict between the relevant provisions of the Latvian Sanctions Law and the EU Blocking Statute is only apparent. If there were a direct conflict of laws, the EU Blocking Statute would supersede the national law of the EU Member State due to the principle of supremacy of EU law.60 However, no legislative instrument, including the EU Blocking Statute, can actually compel a bank or any other private operator to conclude a contract, to execute a transaction or to retain a certain client. Moreover, the EU Blocking Statute does not apply to unilateral US sanctions against North Korea and other sanctions discussed further in this paper.61 Therefore, the amendments to the Latvian Sanctions Law serve as a legislative support from the state when banks are criticized or even sued for complying with seemingly non-binding sanctions that can nevertheless pose an existential risk to banks and other private operators. Proving the case in point, such an action was brought in the courts of Finland, which apparently did not have legal provisions like those in Latvia granting legitimacy to the extraterritoriality of unilateral sanctions of certain EU/NATO Member States. Russian billionaire Boris Rotenberg, also a citizen of Finland (dual national), sued four Nordic banks in Helsinki District Court for refusing to execute his transactions and for allegedly violating his right to 56 ABLV Bank, AS, ‘Final ABLV Bank, AS Comment Letter 4.17.18’ (2018) 22 accessed 10 April 2020. 57 FLA Guidelines (n 41). 58 Commercial Law, Art 1(2) (Komerclikuma 1.panta otrā daļa: LV likums. Pieņemts 13.04.2000.) (LV). 59 For a comparative analysis, see also the chapters by Marjorie Eeckhoudt and by Eric de Brabandere and David Holloway in this book. 60 Case 6/64 Costa v ENEL [1964] ECR 585. 61 See also the chapter by Daniel Ventura in this book.

298  Research handbook on unilateral and extraterritorial sanctions equal treatment as an EU citizen.62 On 20 March 2014, OFAC designated Boris Rotenberg and his brother Arkady Rotenberg pursuant to Executive Order 13661, pertaining to the actions and policies of the government of the Russian Federation with respect to Ukraine.63 According to the US government, both Boris Rotenberg and Arkady Rotenberg had accumulated substantial amounts of wealth during the years of Vladimir Putin’s rule in Russia.64 However, neither the UN nor the EU had imposed sanctions against Boris Rotenberg. Although restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine have been imposed by the EU, unlike his brother Arkady Rotenberg, Boris Rotenberg was not designated by the EU.65 Therefore, in essence, an EU citizen sued EU banks for complying with unilateral US sanctions – another embodiment of extraterritoriality. The Helsinki District Court delivered its refusal judgment on 13 January 2020,66 which was further appealed by Boris Rotenberg. Notwithstanding that the judgment is not final, it provides compelling reasoning with respect to compliance with unilateral extraterritorial sanctions. The Helsinki District Court relied on the Finnish Act on Credit Institutions,67 which prohibits banks, in the course of their activities, from incurring a risk that fundamentally endangers the solvency or the liquidity of the bank.68 It was established in the proceedings that the consequences of the US sanctions violations by the bank in Finland, that is, a non-US bank, can be severe – complete exclusion from the USD market, which could lead to the bank’s collapse. The reasoning provided by the Helsinki District Court is far from speculative. One example of such consequences – the case of ABLV Bank – was covered in Section 2. In addition, ABLV Bank was not actually excluded from the USD market: it was only suggested that it should be by the FinCEN notice of proposed rulemaking. Moreover, in the case of ABLV Bank, the alleged sanctions violations were not supported by any evidence. In the case of Boris Rotenberg, however, the involvement of the designated individual is unequivocal. In the authors’ opinion, these considerations about sanctions compliance in the framework of prudential requirements for financial institutions will presumably shape the forthcoming debate on the application of unilateral extraterritorial sanctions by private operators. Practice has shown that a European financial institution that appears to be perfectly safe and sound in terms of liquidity and capital requirements can be declared ‘failing or likely to fail’ by the European Central Bank (a determination based on prudential requirements)69 in a matter of days after certain types of actions taken by US government bodies. 62 Kati Pohjanpalo and Leo Laikola, ‘Russian Billionaire Loses Lawsuit Against Nordic Banks’ (Bloomberg, 2020) accessed 10 April 2020. 63 Executive Order 13661, 79 Federal Register 53 (19 March 2014). 64 US Department of the Treasury, ‘Treasury Sanctions Russian Officials, Members Of The Russian Leadership’s Inner Circle, And An Entity For Involvement In The Situation In Ukraine’ (2014) accessed 10 April 2020. 65 Council Regulation (EU) No 269/2014 of 17 March 2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine [2014] OJ L 078 17 March 2014. 66 Helsingin Käräjäoikeus 13.1.2020 Tuomio 20/1612 (Helsinki District Court Judgment). 67 Finnish Act On Credit Institutions in English translation from Finnish accessed 10 April 2020. 68 ibid, s 1, ch 9. 69 Single Resolution Mechanism Regulation (n 14) Art 18.

Using extraterritorial sanctions  299 Indeed, prior to the decisive notice issued by FinCEN, the financial indicators of ABLV Bank did not suggest any existing or potential solvency issues. According to the European Central Bank, ABLV Bank fulfilled the capital requirements.70 However, the FinCEN notice resulted in a reputational effect leading to a sudden increase of deposit withdrawals as well as restricted capacity to obtain liquidity from the market.71 The ECB concluded that it is unlikely that ABLV Bank will be able in the near future to settle its liabilities and therefore deemed it to be ‘failing or likely to fail’.72 The capital requirements for the banking sector are harmonized across the EU,73 based on the EU Capital Requirements Regulation74 and Capital Requirements Directive.75 Therefore there is reason to believe that the reasoning of the Finnish court that has been exemplified in practice by a Latvian bank will serve as a roadmap to other EU banks as well, that is, other EU banks may be prompted to voluntarily comply with unilateral US sanctions if non-compliance may result in the loss of access to the USD market and the prospect of consequent collapse. A legal action similar to that of Boris Rotenberg against a Latvian bank for refraining from processing payments prohibited by unilateral US sanctions would likely be a lost cause due to the amendments to the Latvian Sanctions Law described above. Therefore a reasonable alternative avenue would be to seek for a declaration that the relevant provisions of the Latvian Sanctions Law are void. In such a case, the legality of extraterritoriality of the third country laws will have to be weighed against the necessity of safeguarding the financial stability of the bank, of the Republic of Latvia, and more broadly, the EU. Any court seized with such a question will be prompted to remember why capital adequacy requirements for the banking sector were harmonized across the EU in the first place – to deal with the devastating consequences of the global financial crisis of 2008.76 However, even if the relevant provisions of the Latvian Sanctions Law were declared void, it is very doubtful that the banking practices concerning compliance with the unilateral sanctions of the US would change. Compliance, as evidenced, stems from the power of the USD as a currency in the international financial system. 3.3

Political Reasons for the Legislative Incorporation of Foreign Extraterritorial Sanctions

Apart from legal reasons, there might also be a political and pragmatic explanation for the adoption of the discussed provisions of the Latvian Sanctions Law. As stated before, Latvia 70 European Central Bank, ‘ “Failing or Likely to Fail” Assessment of ABLV Bank, AS’ (2018) 4 accessed 10 April 2020. 71 ibid 6. 72 ibid. 73 Council of the EU, ‘Capital requirements for the banking sector’ (2019) accessed 10 April 2020. 74 Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 [2013] OJ L 176 27 June 2013 (Capital Requirements Regulation). 75 Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC [2013] OJ L 176 27 June 2013. 76 ibid recital 79. Capital Requirements Regulation (n 74) recital 32.

300  Research handbook on unilateral and extraterritorial sanctions did not legitimize the extraterritoriality of foreign unilateral sanctions unconditionally. Unilateral sanctions may be applied by financial institutions only after certain conditions have been assessed, for example, the financial institution has to assess the currencies in which the institution provides its services, the countries where the institution’s customers operate and other factors to establish the unilateral sanctions that may be applicable (see Section 3.1). More importantly, however, Latvia invoked its NATO and EU membership, stating that only unilateral sanctions of other NATO and EU Member States may be binding in Latvia. However, the stated overall political objectives of unilateral sanctions overlap irrespective of their source. For example, the objectives of the EU in imposing sanctions are to maintain and restore international peace and security, to uphold respect for human rights, democracy, the rule of law and good governance.77 The goal of sanctions imposed by the US is to accomplish foreign policy and national security goals of the US.78 Finally the objectives of national (unilateral) sanctions of Latvia are also similar: Latvia may impose unilateral sanctions, inter alia, to achieve peace or to prevent international crimes or human rights violations.79 In the end, these three kinds of sanctions can broadly be politically linked to the general purpose of ensuring international peace and security. From an institutional perspective, it should be emphasized that the EU Common Foreign and Security Policy (CFSP) covers all areas of foreign policy and all questions relating to the EU’s security,80 and that 21 out of 27 EU Member States also count among the 30 NATO Member States. In this respect, NATO Member States have undertaken, in conformity with the UN Charter,81 to settle any international dispute in which they may be involved by peaceful means in such a manner that international peace and security and justice are not endangered82 and to unite their efforts for collective defence and for the preservation of peace and security.83 From that perspective, another conclusion can be drawn: the general objectives to contribute to international peace and security do overlap to some extent between the Member States of military and economic alliances, of which NATO and the EU are prime examples. Therefore, the authors argue that from the Latvian Sanctions Law perspective, respecting sanctions imposed by military and economic partners can appear coherent, in light of these partially overlapping general objectives of the EU and NATO. Most importantly, these considerations have already led to strong operational cooperation in related fields. For instance, Latvia has legally acknowledged and enforced anti-terrorism and proliferation-related lists administered by other NATO/EU Member States since 2016.84 Therefore the amendments to the Latvian Sanctions Law can be seen as the legal expression of a political and operational cooperation that was already in place. It extends the obligation 77 Council of the EU, ‘Basic Principles on the Use of Restrictive Measures (Sanctions)’ (2004) 2 accessed 10 April 2020. 78 US Department of the Treasury, ‘Basic Information on OFAC and Sanctions’ accessed 10 April 2020. 79 Latvian Sanctions Law (n 1) Art 3(1). 80 Consolidated Version of the Treaty on European Union [2008] OJ C115/13, Art 24(1). 81 United Nations, Charter of the United Nations, 24 October 1945, 1 UNTS XVI. 82 The North Atlantic Treaty, 4 April 1949, Art 2. 83 ibid preamble. 84 Cabinet of Ministers Regulation No 138 (Ministru kabineta noteikumi Nr. 138 ‘Noteikumi par valstīm un starptautiskajām organizācijām, kuras sastādījušas to personu sarakstus, kas tiek turētas aizdomās par iesaistīšanos teroristiskās darbībās vai masu iznīcināšanas ieroču izgatavošanā, glabāšanā, pārvietošanā, lietošanā vai izplatīšanā’) (LV).

Using extraterritorial sanctions  301 to comply with unilateral sanctions of other NATO/EU Member States beyond sanctions imposed for activities related to terrorism and proliferation of weapons of mass destruction.

4.

PREDICTABLE CONTINUITY OF OVER-COMPLIANCE STRATEGIES OF EU FINANCIAL INSTITUTIONS

Based on the above developments, conclusions can be drawn that, irrespective of the silver lining, there is a risk that EU operators will engage in a process of excessive and superfluous compliance with unilateral extraterritorial sanctions to an extent that exceeds what is expected by the entities administering unilateral extraterritorial sanctions, for example OFAC. Indeed, the former director of OFAC, who appeared in the above-mentioned proceedings of Boris Rotenberg against the Nordic banks before the Helsinki District Court, disclosed that OFAC can have discretion in determining whether particular transactions violate OFAC sanctions.85 Therefore, the EU operators will not always have legal certainty in terms of the legality of particular transactions from the OFAC sanctions perspective. From this point of view, EU operators might be faced with a choice: to spend more resources to ensure compliance with OFAC sanctions or to abandon some lines of business entirely if the respective customers are potentially related to persons or entities designated by OFAC or customers operating in jurisdictions under OFAC sanctions. Therefore there is a risk that EU banks might terminate contracts and thereby potentially harm legitimate businesses if the banks believe there is a risk of OFAC sanctions violations where no such risk actually exists. The banks could do so because the costs of assessing the actual risk outweigh the profit therefrom or because taking any form of sanctions risk would not conform with a particular bank’s risk appetite. The effects of that could be paradoxical – EU operators might effectively become ‘more compliant’ with US sanctions than necessary. A brief analysis of another example in Latvia is given below. 4.1

Over-Compliance in the Context of the Designation of Latvian Nationals and Related Emerging Legal Issues

On 9 December 2019, International Anti-Corruption day, OFAC designated Aivars Lembergs, a Latvian national, Mayor of Ventspils, a Latvian port city on the Baltic Sea. The basis for OFAC’s designation was Executive Order 13818,86 which builds upon and implements the Global Magnitsky Human Rights Accountability Act, and targets perpetrators of serious human rights abuse and corruption.87 Among other things, OFAC stated that the designated individual ‘controls entities through political parties and corrupt politicians, and systematically exploits those entities and individuals for his own economic gain’.88 Along with the designated individual, four entities that were allegedly owned or controlled by him were also designated, including Ventspils Freeport Authority, which was subsequently removed from

Helsinki District Court Judgment (n 66) 34. Executive Order 13818, 82 Federal Register 246 (20 December 2017). 87 US Department of the Treasury, ‘Treasury Sanctions Corruption and Material Support Networks’ (Treasury Press Release, 2019) accessed on 10 April 2020. 88 ibid. 85 86

302  Research handbook on unilateral and extraterritorial sanctions the sanctions list nine days later89 because the Latvian government passed legislation effectively ending Aivars Lembergs’s control over the Ventspils Freeport Authority. It took very thorough and concentrated efforts by the Latvian officials for it to be achieved in such a short time after the designation. It is noteworthy that the three remaining entities are associations (NGOs) as opposed to commercial companies according to their legal status, meaning they are not profit-making ventures.90 This particular designation raised multiple legal issues. Firstly the mitigation of risk of overcompliance with OFAC sanctions proved to be very challenging for private operators, state institutions and other entities. Hence not only for banks. Secondly there is an ongoing criminal trial in Latvia against the designated individual, who is accused, inter alia, of large scale bribery and money laundering.91 Following the designation of the Latvian individual and related entities, the competent national authorities promptly issued guidelines and amended the legislative framework in order to cope with the consequences of the designation. For example, the Financial and Capital Market Commission, the supervisor of financial and capital market participants including banks, swiftly amended the regulatory provisions for the management of sanctions risk by providing exceptions to the prohibition to provide financial services to the individuals designated by NATO and EU Member States.92 Firstly, a bank may provide financial services to a person designated by an EU/NATO Member State, provided (1) it has received written authorization from the Financial and Capital Market Commission to execute financial transactions, (2) the respective person is related to an EU or European Economic Area Member State and (3) the receipt of services is reasonably necessary and corresponds to the purpose of sanctions imposed by the relevant EU/NATO Member State.93 The scope of permissible transactions is also limited. It includes payments for food, rent, mortgage, medicines and medical treatment, taxes and state fees, insurance premiums, utilities and expenses related to legal services provided to a person.94 In addition, the Ministry of Foreign Affairs of Latvia, the coordinating institution in communication with international organizations and foreign competent authorities regarding the imposition and introduction of sanctions and application of exceptions in Latvia,95 published on its website questions and answers regarding the OFAC designations of 9 December 2019, that is, the designation of Aivars Lembergs and the related entities.96 In accordance with the Latvian Sanctions Law, unilateral sanctions of NATO/EU Member States must be applied in 89 US Department of the Treasury, ‘Treasury Removes Sanctions on Latvia’s Ventspils Freeport Authority’ (2019) accessed on 10 April 2020. 90 Associations and Foundations Law, Art 2(1) (Biedrību un nodibinājumu likuma 2.panta pirmā daļa: LV likums. Pieņemts 30.10.2003.) (LV). 91 Latvian Public Broadcasting, ‘Lembergs Fails to Get Judges Switched in His Epic Trial’ (2020) accessed on 10 April 2020. 92 FCMC Regulations No 13 (n 52). 93 ibid s 18.1. 94 ibid s 18.12–18.13. 95 Latvian Sanctions Law (n 1) Art 12(3). 96 Ministry of Foreign Affairs of the Republic of Latvia, (MFA Guidance) ASV OFAC sankcijas (2020) accessed on 10 April 2020.

Using extraterritorial sanctions  303 limited situations and by limited scope of private operators, that is, participants in the financial and capital market, for example, banks (for more information, see Section 3.1 of this chapter). However, national and international sanctions, that is, sanctions imposed by the Latvian government and sanctions imposed by international organizations of which Latvia is a Member State (EU/UN), are binding on all natural and legal persons.97 In addition, some private operators, for example lawyers, notaries, auditors, accountants, real-estate brokers and others have extended obligations under the Latvian Sanctions Law, for example, to have internal control systems for sanctions compliance98 and an obligation to report suspicions of sanctions evasion to the FIU.99 Therefore all other private operators in addition to providers of financial services need guidance in regard to the necessity and scope of compliance with the latest OFAC sanctions regardless of the fact that the Latvian Sanctions Law does not contain an obligation for these persons to comply with the unilateral sanctions of EU/NATO Member States. After all, the designated individual and entities are Latvian and can therefore be or become clients of not only Latvian financial institutions, but also non-financial service providers. On this issue, the guidance provided by the Ministry of Foreign Affairs is reserved, stating that in such cases there is a risk of secondary sanctions by OFAC against individuals who fail to comply with OFAC sanctions. At the same time, the Ministry of Foreign Affairs noted that the imposition of secondary sanctions in this particular OFAC sanctions regime is not automatic and each such decision would be assessed individually.100 Understandably the Ministry of Foreign Affairs could not give a more extensive clarification as it would then bear the risk of OFAC’s practice being different as the leading authority in the interpretation of OFAC sanctions is OFAC itself. Therefore each private operator has to assess the risks of providing services to the OFAC-designated individual and related parties on their own; hence, the high likelihood of potential scenarios where compliance with OFAC sanctions might seem excessive. Nevertheless the legislative amendments in Latvia that legitimized the extraterritoriality of unilateral sanctions to a certain extent might have decreased the risk of overcompliance. In the absence of any guidance from the Latvian government (including on the right to provide financial services subject to qualifying conditions), most of the financial institutions would have presumably dropped the designated individual as a client unconditionally for fear of suffering the same fate as ABLV Bank. With the legislative amendments and consecutive guidance from the government, legal certainty was provided to some extent in order to retain the possibility for the financial institutions to provide basic financial services. One of the potential scenarios where compliance with OFAC sanctions might seem excessive is the practical application of OFAC’s so-called ‘50 Per Cent Rule’. Generally, persons designated by OFAC are considered to have an interest in all property and interests in property of an entity in which the persons designated by OFAC own a 50 per cent or greater interest. Such entities are themselves considered to be blocked persons, regardless of whether they have been designated by OFAC.101 In the case of designation of the Latvian national, three

Latvian Sanctions Law (n 1) Art 2(2). ibid Art 13.1. 99 ibid Art 17(1)(1). 100 MFA Guidance (n 96). 101 US Department of the Treasury, ‘Revised Guidance On Entities Owned By Persons Whose Property And Interests In Property Are Blocked’ (2014) accessed on 10 April 2020. 97 98

304  Research handbook on unilateral and extraterritorial sanctions associations related to him were also designated by OFAC directly, yet due to the 50 Per Cent Rule all other legal entities owned by the designated Latvian national are also deemed designated. The difficulty in assessing the 50 Per Cent Rule can be amplified by the statement accompanying the designation, specifying that ‘Lembergs controls entities through political parties and corrupt politicians, and systematically exploits those entities and individuals for his own economic gain’.102 Even though OFAC’s 50 Per Cent Rule refers only to ownership and not to control, OFAC’s statement may cause confusion for private operators, who must apply US sanctions. Moreover, the interrelation between the 50 Per Cent Rule and the concept of ultimate beneficial ownership recognized by the international standards is not absolutely clear.103 In Latvia, all legal entities are obliged to disclose their ultimate beneficial owners,104 that is, persons who own or control them; however, the interest necessary to qualify as the ultimate beneficial owner of a legal person is 25 per cent as opposed to 50 per cent.105 In addition, information disclosed about the ultimate beneficial owner may be inaccurate, even though submission of false information about the ultimate beneficial owner constitutes a criminal offense in Latvia.106 Banks and other private operators may have limited sources of information for verifying the truthfulness of the information regarding the ultimate beneficial ownership. However, when in doubt, they may be forced to terminate legal relationships without any actual necessity to do so thereby producing harmful consequences for businesses and individuals that were not targeted by the sanctions at all. That, however, defeats the purpose of the imposition of sanctions in the first place. Another exceptional circumstance of the designation of a Latvian national by OFAC is the fact that this particular Latvian national was accused of money laundering and bribery among other criminal offences in 2008 and the trial has been ongoing since then. However, at the end of 2019, while the trial in Latvia was still ongoing (and is still ongoing at the time of publication of this chapter), the same individual was designated by OFAC on the same grounds, that is, corruption. However, it is unknown whether OFAC’s allegations about Aivars Lembergs’ corruption refer to the same episodes for which he is on trial in Latvia. According to the Executive Order, pursuant to which Aivars Lembergs was designated, corruption around the world is a threat to the national security, foreign policy and economy of the US and the US seeks to impose tangible and significant consequences on those who engage in corruption, as well as to protect the financial system of the US from abuse by these same persons.107 However, the designation of an individual on trial in the courts of a sovereign state for comparable criminal offences inevitably impacts the internal affairs of that sovereign state. Firstly, in Latvia, anyone charged with a criminal offence is presumed innocent until proved guilty according to law.108 Secondly the particular designated individual has been a democratically-elected Treasury Press Release (n 87). Financial Action Task Force, International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation: The FATF Recommendations (FATF Recommendations) accessed 10 April 2020. 104 Latvian AML/CFT Law (n 2) Art 18.1. 105 ibid Art 1(5). 106 Latvian Criminal Law (n 55) Art 195.1. 107 Executive Order 13818, 82 Federal Register 246 (20 December 2017). 108 Convention for the Protection of Human Rights and Fundamental Freedoms (European Convention on Human Rights, as amended) (ECHR) Art 6(2). Criminal Procedure Law, Art 19(1) (Kriminālprocesa likuma 19.panta pirmā daļa: LV likums. Pieņemts 21.04.2005.) (LV). 102 103

Using extraterritorial sanctions  305 mayor of a town in Latvia for decades. For better or worse, the trial of Aivars Lembergs for corruption and money laundering that has been widely covered by the media did not impact his re-election on multiple occasions. Can an OFAC-designated individual continue to be a mayor if democratically elected? It also raises questions about potential OFAC action after the final judgment in the trial against Aivars Lembergs. If convicted, would OFAC also designate the other individuals accused of corruption standing trial alongside Aivars Lembergs? If acquitted, would OFAC lift its sanctions against the designated individual? How would banks react to OFAC sanctions that conflict with the final judgment of the Latvian court? Speculatively they would still apply OFAC sanctions, which would not be a favourable outcome for the authority of the Latvian judiciary. On the other hand, the action taken by OFAC might presumably prompt the parties involved to expedite the trial that has been drawn out for over a decade. After all, the most convincing argument for the designated individual to be excluded from OFAC sanctions would be a final court judgment acquitting him of the crimes for which he has been accused by OFAC.

5. CONCLUSION As sanctions compliance is growing and enforcement actions for sanctions violations amplify, a spillover effect arises, prompting a more effective fight against financial crime in general and money-laundering and corruption in particular. These can certainly be seen as positive consequences of unilateral extraterritorial sanctions. From this perspective, if there was growing support among EU Member States for compliance with unilateral extraterritorial sanctions, it might open the door for legitimized extraterritoriality of sanctions. However, this chapter has also shown that this would not be a grand solution to the uncertainty surrounding EU financial institutions and which leads to overcompliance strategies. The main argument for complying with US sanctions can be boiled down to the power of the USD and the consequent potential damage to the stability of the EU financial sector if financial institutions are excluded from the USD market due to OFAC sanctions violations. Based on the ideas and facts discussed in this chapter, the authors do not expect a decrease in the imposition of unilateral extraterritorial sanctions and in compliance by EU private operators. When in doubt about the interpretation or application of particular sanctions, overcompliance might be inevitable from the private operator’s perspective. In addition, while the USD maintains its current status, there is little prospect of change in regard to compliance with unilateral extraterritorial sanctions.

18. Resisting from the bench: an overview of French and UK courts’ jurisprudence on unilateral and extraterritorial sanctions Marjorie Eeckhoudt

1. INTRODUCTION French and UK companies as well as all companies operating in France and the United Kingdom must not only comply with United Nations Security Council sanctions but also with unilateral EU sanctions and unilateral sanctions issued by the states themselves. In addition these companies may also be subjected to legal injunctions from a state with extraterritorial ambitions.1 These two sets of sanctions, merely unilateral or both unilateral and extraterritorial, raise different issues from the perspective of companies operating in France and the UK which will be developed in turn. For unilateral and extraterritorial sanctions, the US example remains topical. Indeed US extraterritorial sanctions subject European companies to heavy penalties from the US authorities, forcing them to implement compliance measures and abide by particularly intrusive investigation procedures.2 They are of concern to the French3 and UK4 legislators who are determined to prevent them in order to uphold their national sovereignty and protect their national economic operators. Two strategies are explored: avoidance through the establishment of financial mechanisms to trade with targeted countries; and improving the effectiveness of blocking statutes.5 Despite legislative reactions, companies comply with US provisions for fear of record penalties such as that imposed by Washington on BNP which was ordered to pay nearly $9 billion to the US Treasury. As a result, they incorporate US law into their contracts through so-called sanctions clauses whose legality is questionable. Moreover companies find themselves losing market share and having to implement large and expensive compliance programmes.

1 On the current practice of extraterritorial sanctions, see Charlotte Beaucillon, ‘Panorama de la pratique contemporaine en matière de sanctions extraterritoriales’ in French Society of International Law (ed.), Extraterritorialités et droit international (Pedone 2020) 75; on the question of jurisdiction, see the chapter by Yann Kerbrat in this book. 2 See the chapter by Emmanuel Breen in this book. 3 Raphaël Gauvain et al., Rétablir la souveraineté de la France et de l’Europe et protéger nos entreprises des lois et mesures à portée extraterritoriale, Rapport à la demande de M. Édouard Philippe Premier ministre (La documentation française, 26 June 2019); Philippe Bonnecarrère, Rapport d’information fait au nom de la Commission des affaires européennes sur l’extraterritorialité des sanctions américaines (La Documentation française, 4 October 2018). 4 The Protecting against the Effects of the Extraterritorial Application of Third Country Legislation (Amendment) (EU Exit) Regulations 2019, UK Draft SI 2019. 5 See the chapter by Daniel Ventura in this book.

306

Resisting from the bench  307 While unilateral and extraterritorial sanctions weigh heavily on companies, they are only one aspect of unilateral sanctions. In addition to EU restrictive measures – implementing a UN Security Council Regulation or imposing unilateral sanctions – some EU Member States enact unilateral sanctions. With regard to United Nations sanctions, the legal mechanism is justified as a measure to implement Resolution 1373 (2000). Nevertheless when French law punishes persons inciting the commission of a terrorist act, one may question its conformity with international law because the law is broader in scope than the resolution. The question of compliance with European law is also raised. Originally the national measures were justified in the absence of a mechanism to freeze the assets of Community residents6 and because they made it possible to apprehend persons whose activities did not have a cross-border dimension.7 The Lisbon Treaty now allows restrictive measures to be drawn up without any reference to a link with a third country, which argues in favour of uniform European action. Admittedly, when it is a first step towards inclusion on a European list, the measure seems to be in line with European law. Apart from this assumption, the question of the legitimacy and lawfulness of these domestic sanctions arises.8 Anyway, France and the United Kingdom impose their own sanctions measures. As Orders in Council were found to have no sufficient legal basis, UK unilateral sanctions are based on three legislative provisions.9 First the Counter Terrorism Act 2008 (CTA 2008) allows HM Treasury to impose requirements on individuals and companies through ‘directions’. Second the Terrorism Asset-Freezing Act 2010 (TAFA 2010) allows the Treasury to designate individuals suspected of terrorist activity. And third the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) gives HM Treasury and the Secretary of State the power to comply with international sanctions after Brexit and to take measures on a discretionary basis.10 Until now most UN-based and EU autonomous sanctions had been imposed at EU level by CFSP Decisions and EU Regulations.11 Anticipating the possibility of a ‘no-deal’, the United Kingdom has put in place, through SAMLA, legislation to directly implement UN and EU sanctions and to develop UK sanctions. It provides broad powers for the UK to run an autonomous system of sanctions. Prior to this Act, internal UK sanctions regimes were limited to anti-terrorist legislation. When fully implemented, this law will not only impose multilateral sanctions but will also provide an opportunity for the UK Government to adopt new unilateral sanctions measures covering much more than counter-terrorism. These domestic measures will therefore develop after Brexit, and will de facto fuel national litigation. Indeed SAMLA presents a new challenge for economic operators. It substantially amends the current

6 Projet de loi n° 2615 relatif à la lutte contre le terrorisme et portant dispositions diverses relatives à la sécurité et aux contrôles frontaliers, 11. 7 David Anderson, First Report on the Operation of the Terrorist Asset-Freezing etc. Act 2010, Review period: December 2010 to September 2011 (The Stationery Office, 2011) §5.5. 8 Delphine Burriez, ‘Le dispositif national de gel des avoirs : discrète mais contestable mesure de police administrative en matière de lutte contre le terrorisme’ (2017) 43–44 Revue française de droit administratif 139. 9 HM Treasury v Ahmed [2010] UKSC 2. 10 SAMLA provides for financial sanctions, immigration sanctions, trade sanctions, aircraft sanctions, shipping sanctions and other restrictive measures for the purposes of UN obligations. 11 Their implementation was largely based on the European Communities Act 1972, repealed by the European Union (Withdrawal) Act 2018. Approved on 23 January 2020, this Act opens a transitional period during which Union law will remain applicable.

308  Research handbook on unilateral and extraterritorial sanctions legislation, in particular TAFA (2010) which will be partially repealed. In addition it allows the government to impose broader financial restrictions, including prohibitions on access to finance and capital markets. Moreover it applies not only to persons designated by name or linked to a proscribed country, but also to persons designated by a description where their identification by name is not ‘practicable’ because they conceal their identities.12 Finally, with regard to extraterritoriality, SAMLA provides for its application outside the United Kingdom or its territorial waters, to ‘British persons’.13 This may not only raise issues similar to the ones pointed out above with US extraterritorial sanctions but also pose questions of conflict of laws. All this will create an obvious compliance difficulty for companies and will undoubtedly be a source of litigation. To a lesser extent France also imposes unilateral sanctions for the defence of its national interests. In addition to Article L 562-3 of the Monetary and Financial Code which makes it possible to punish persons likely to violate UN or European sanctions pending the adoption of a European regulation,14 Article L 562-2 provides for a national asset-freezing mechanism which may affect foreign nationals but whose effects are confined to the national territory. The text allows the Ministers of the Economy and the Interior to freeze funds and economic resources that ‘belong to, are owned, held or controlled by natural or legal persons, or any other entity that commits, attempts to commit, facilitates, incites, finances or participates in terrorist acts’. This provision is not intended to transpose lists drawn up under EU CFSP Decisions or Regulations or UN Resolutions because these are already implemented through EU law. In contrast, the article makes it possible for France to establish a national list of targeted persons in addition to UN and EU lists. The Treasury Directorate General justifies the existence of the text by applying the requirements of United Nations Security Council Resolution 1373 (2001),15 which is, however, already implemented at the EU level through a CFSP Decision and an EU Regulation. For a long time underused, national asset freezing measures are constantly increasing.16 Although there are still few challenges, national courts are competent to assess the legality of the sanctions imposed from the perspective of both domestic and EU law. Legal remedies in the French or UK courts depend on the nature of the sanction being challenged. In the case of EU unilateral sanctions, national courts have no jurisdiction except to either control the government’s implementation, or interpret and check the validity of the applicable EU law. National courts, on the other hand, are obviously competent to assess the legality of unilateral sanctions imposed by a state.17 UK case law is particularly abundant in the field of international sanctions. In the twenty-first century, some 50 notable decisions on multilateral or unilateral sanctions, largely commented on by major law firms, have been

SAMLA, s 12(4). SAMLA, s 21(1)(b) and (2). In addition, the Queen may extend the sanction to persons from the Channel Islands, the Isle of Man or any British Overseas Territory. 14 In practice it is frequently used to apply asset freezing measures taken by UNSC resolutions or EU Council decisions to Overseas Countries and Territories. 15 See in this regard, the website of the Direction Générale du Trésor (Directorate General of the Treasury) accessed 21 January 2010. 16 Valérie Boyer and Sonia Krimi, Rapport d’information déposé (…) par la Commission des affaires étrangères en conclusion des travaux d’une mission d’information constituée le 24 octobre 2017 sur la lutte contre le financement du terrorisme international (La Documentation française, 3 April 2019). 17 CTA (2008) s 63(2), TAFA (2010) s 26, SAMLA (2018) s 38. 12 13

Resisting from the bench  309 issued. Until now, when EU sanctions were accompanied by national measures going beyond European legislation, legal proceedings were conducted in UK and European courts. Brexit will bring about radical changes as a large proportion of disputes will be transferred to national courts.18 Unlike UK case law, French case law has not been the subject of any recent detailed study. National measures to implement Security Council resolutions have resulted in very few cases, as administrative judges have regularly dismissed their jurisdiction.19 Furthermore, they fall outside the scope of the present chapter, which focuses on unilateral sanctions instead. In a widely commented case in 2004, the Conseil d’Etat considered itself competent to assess the legality of a decree issued against an association on the basis of an EC regulation before the lists of targeted persons had been compiled by the UN and the European Community.20 With the development of unilateral sanctions issued by France, a new panorama of case law can be drawn up.21 In addition, a few decisions testify to a pocket of resistance of French case law to extraterritorial sanctions. The aim of this contribution is to examine the extent to which French and UK courts control or even oppose unilateral sanctions. Do judges resist? Do they even have the power to do so? First, we will assess resistance to extraterritorial sanctions (Section 2). Then, we will analyse the review of unilateral sanctions imposed by France and the United Kingdom (Section 3).

2.

RESISTANCE TO EXTRATERRITORIAL SANCTIONS

Resistance to extraterritorial sanctions is mixed. I know of few court decisions that have so far applied the various blocking statutes, whether of national or European origin (2.1). Moreover, the resistance of judges is contrasted in the area of contracts, which they try to preserve from the effects of unilateral extraterritorial sanctions but whose sanctions clauses they sometimes validate (2.2).

Richard Gordon, Michael Smyth and Tom Cornell, Sanction Law (Hart Publishing 2019) 7.1. In several cases, they considered that the contested decision was ‘not detachable from the conduct of France’s international relations’. See CE 6/2 SSR 29 December 1997, Société Heli-Union, n° 138310, D 1998, 60; CE 6/2 SSR 12 March 1999, Société Heli-Union, n° 162131. 20 CE 10/9 SSR 3 November 2004, Association secours mondial de France, n° 262626; Laurence Burgorgue-Larsen, ‘Lutte contre le terrorisme et contrôle des associations’ [2005] Actualité juridique droit administratif 723; Guylain Clamour, ‘Al Qaida (ou presque) devant le Conseil d’Etat’ [2005] Dalloz 824. As the association was mentioned in the UN and European lists a few days after the decree was issued, the Council of State considered that the national decision did not have to be justified. 21 CE 9/10 SSR 15 December 2014, Banque populaire Côte-d’Azur (BPCA), n° 366640; CE 9 SSSJ 23 July 2013, Banque populaire Côte-d’Azur (BPCA), n° 366640; CE 9/10 SSR 30 January 2013, Caisse de crédit municipal de Toulon, n° 347357; CE Sect 25 July 2007, Société Dubus SA, n° 266735; CE 6/1 SSR 31 March 2004, Etna Finance Security, n° 256355; CE 6/4 SSR 3 December 2003, Banque SBA, n° 244084; CE 6/4 SSR 3 December 2003, Banque de l’Ile-de-France, n° 247985; CE 6/4 SSR 30 July 2003, Compagnie Française de Change, n° 247488; CE 6/4 SSR 30 July 2003, Comptoir français de l’or, n° 248686, to mention only those decisions that have impacted economic operators. 18 19

310  Research handbook on unilateral and extraterritorial sanctions 2.1

A Rare Application of Blocking Legislation

Whether of national or European origin, the various blocking mechanisms undoubtedly illustrate the legislator’s resistance to extraterritorial sanctions. However, to be efficient, they must also be applied by the courts. Unfortunately in France as in the United Kingdom, the jurisprudential applications remain very limited, which US or even UK courts do not fail to highlight. The French blocking law of 196822 has both a broad and narrow scope. It is broad because it is likely, contrary to European regulations, to apply regardless of the country in question. In addition, it covers all ‘documents or information of an economic, commercial, industrial, financial or technical nature’,23 which the US judge considers too broadly protective because of the imprecision of the law.24 Indeed US case law criticizes a statute that does not properly target the sovereign interests to be defended or the specific kinds of materials to be protected. However, the scope of the French blocking statute is quite limited as it merely regulates procedural issues of transmission of evidence and does not generally impede the implementation of extraterritorial sanctions.25 In practice, the main purpose of this law is to prevent US discovery procedures26 and to enforce the judicial cooperation procedure provided for in the Hague Convention of 18 March 1970.27 In reality it does not prohibit companies from complying with unilateral extraterritorial sanctions. Therefore it does not prevent companies from inserting sanctions clauses in their contracts. In addition, the blocking law is also considered to be of little deterrent value in view of the penalties incurred. Indeed it is accompanied by a criminal sanction of six months’ imprisonment and a fine of €18,000 (increased to €90,000 for a legal entity) which weighs little, compared to the US sanctions incurred. All in all, this law is neither widely applied nor dissuasive. That is why it is not recognized by foreign courts, including

22 Loi n° 68-678 du 26 juillet 1968 relative à la communication de documents et renseignements d'ordre économique, commercial, industriel, financier ou technique à des personnes physiques ou morales étrangères. 23 ibid, Art 1. 24 Rich v KIS California, Inc, 121 FRF254, 258 (MDNC 1988). The judge underlines that ‘this statute, which is solely designed to protect French businesses from foreign discovery, is both overly broad and vague and need not be given the same deference as a substantive rule of law … In general, broad blocking statutes, including those which purport to impose criminal sanctions, which have such extraordinary extraterritorial effect, do not warrant much deference … They may be contrasted with other foreign law whose subject is a specifically identified, legitimate interest’. 25 Noëlle Lenoir, ‘Le droit de la preuve à l’heure de l’extraterritorialité’ (2014) Revue française de droit administratif 487. 26 Federal Rules of Civil Procedure (FRCP), Chapter V ‘Depositions and Discovery’, Rules 26–37. The discovery procedure is a procedural investigative phase prior to any trial involving the collection of evidence. It requires the parties to produce all documents relating to the dispute, whether favourable or unfavourable. 27 The Hague Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters. On 7 August 1974, when France ratified the Convention, it declared that it would not ‘execute Letters of Request issued for the purpose of obtaining pre-trial discovery of documents as known in Common Law countries’, under Article 23 of the Convention. However, in 1987 it amended this declaration by stating that ‘the declaration made by the French Republic in accordance with Article 23 shall not apply where the documents requested are exhaustively listed in the Letter of Request and have a direct and precise connection with the subject-matter of the litigation’.

Resisting from the bench  311 UK28 and US29 ones, which consider that French law does not prevent the application of international sanctions imposed by their country. There are not many applications of the French blocking law. To date, there have been fewer than ten decisions none of which have anything to do with the issue of international sanctions.30 The best known, the Christopher X case, dates back to 2007.31 In this case, the Court of Cassation confirmed the €10,000 fine imposed on a French lawyer, correspondent in France of a North American lawyer, for seeking to gather information on the way in which the takeover of Executive Life by Crédit Lyonnais and MAAF had taken place, at the request of the California Insurance Commissioner. More recently the Court of Appeal of Nancy applied the blocking law in the case of SAS Munksjö France et al v SAS ArjoWiggins, where a pre-trial discovery procedure had been initiated by the Eastern District Court of New York requiring the defendant to produce evidence within a certain time limit.32 The latter then asked a company established in France for a large number of documents, which the Commercial Court of Epinal had ordered it to disclose in application of the US decision. After recalling the public policy nature of the blocking law, the Nancy Court of Appeal insisted on the applicability in France of the Hague Convention of 18 March 1970 on the Taking of Evidence in Civil and Commercial Matters. It pointed out that this Convention, to which the 1968 law refers, guarantees the exercise of the rights of the defence, thus responding to the American judges who considered that the French blocking law flouted them.

28 Partenreederi M/S “Heidberg” v Grosvenor Grain and Feed Company Ltd and others, [1993] 2 Lloyd’s Rep 324; IL Pr 718; Elmo Tech Ltd v Guidance Ltd [2011] EWHC 98; [2011] FSR 24; Secretary of State for Health and others v Servier Laboratories Ltd and others [2012] EWHC 2761 (Ch); [2012] EWHC 3663 (Ch); National Grid Electricity Transmission plc v ABB Ltd and others [2013] EWCA Civ 1234; Morris v Banque Arabe et Internationale d’Investissement SA (BAII) [2001] IL Pr 37. 29 Société nationale industrielle aérospatiale v US District Court for the Southern District of Iowa, 482 US 522 (1987); Adidas (Canada) Ltd v SS Seatrain Bennington, WL 423 (SDNY, 30 May 1984); Re Vivendi Universal SA Securities Litig, 2006 WL 3378115 (SDNY, 16 Nov 2006). 30 TGI Nanterre 22 December 1993, n°1993-050136; CA Versailles 16 May 2001, quoted in Daniel Barlow, ‘La loi du 26 juillet 1968 relative à la communication de documents et renseignements d'ordre économique : un état des lieux’ (2007) La Semaine juridique Entreprises et Affaires 2330; Cass civ (2) 20 November 2003, n° 01-15633; Trib com Paris 20 July 2005, n° 2005-2888978; CA Paris, 9e ch. B, 28 March 2007, Juris-Data n°2007-332254; Cass crim 12 December 2007, 07-83.228; CA Nancy 4 June 2014, n°14/01547; rejecting the application of the blocking statute, see Cass crim 30 January 2008, 06-84098. 31 Confirmed by Cass crim 12 December 2007, n° 07-83228; Philippe Delebecque (2008) Recueil Dalloz 2830 (note); Gildas Roussel ‘Pas de communication de documents pouvant servir de preuve dans des procédures judiciaires ou administratives étrangères’ (2008) Actualité juridique - pénal, 97; Bernard Bouloc, ‘Communication de renseignements commerciaux en vue d’une procédure étrangère’ (2008) Revue trimestrielle de droit commercial et de droit économique 639; Daniel Barlow, ‘Première application pénale de la loi de blocage de 1968’ (2008) Revue des Sociétés 882; David Chilstein, ‘Application de la loi de blocage du 16 juillet 1980 sur la recherche de renseignements d’ordre économique’ (2008) Revue critique de droit international privé 626; Marie Danis, ‘Infractions économiques – Sanction de la communication illicite de renseignements à une autorité judiciaire étrangère’ (2008) 35 La Semaine juridique Entreprises et Affaires 21; Georges Affaki and Jean Stoufflet (2008) 9-10 Banque et Droit 52 (note); Éric A Caprioli (2008) 3 Communication Commerce électronique 47 (note); Jacques-Henry Robert, ‘Communication illicite de renseignements à une autorité étrangère – guerre froide judiciaire transatlantique’ (2008) 4 Revue Droit Pénal 47. 32 CA Nancy 4 June 2014, n° 14/01547; Noëlle Lenoir, ‘L’intérêt de la loi du 26 juillet 1968 et l’obtention des preuves au niveau international : un regain d'intérêt’ (2015) 13 Les Petites Affiches 7.

312  Research handbook on unilateral and extraterritorial sanctions Poorly applied, the blocking law is hardly taken seriously by foreign courts, particularly in the United Kingdom. In Elmo Tech Ltd v Guidance Ltd, concerning a patent infringement dispute, a company under contract with the French Ministry of Justice was asked by the UK judge, Mr Justice Lewison, to produce documents concerning an allegedly counterfeit product.33 The company had refused to comply under the pretext of the blocking law. The judge dismissed the arguments related to the French blocking law, arguing that the 2007 case law alone did not increase the criminal risk faced by companies that did not comply with the law. In addition, he criticized the company for not having made any effort to convince the Ministry of Justice to allow it to disclose the requested documents. In the same vein, the case law SSH v Servier Laboratories34 concerning an action based on a violation of then Community competition law is also very clear, the UK judge having pointed out ‘[t]he absence of any successful prosecution in France for breach of the statute, over a period of more than thirty years, with the single exception of the Christopher X case …’.35 On the UK side, a more limited national blocking mechanism is in place through the Protection of Trading Interests Act (PTIA) under which the Secretary of State is empowered to prohibit any person from complying with an order of a foreign court to produce any commercial document or commercial information if it conflicts with the UK’s trading interest or infringes upon UK sovereignty.36 Although the British Secretary of State promulgated a general order in 1992 designating the Cuban Asset Control Regulation (CACRs) as measures to which the PTIA applied, US courts have afforded the UK blocking statute little weight.37 In the same way, the European Blocking Regulation has never been entertained by the US courts, to my knowledge. Since 1996, violations of the European blocking statute have been regarded as criminal offences in the United Kingdom. Following the US withdrawal from the Joint Comprehensive Plan of Action (JCPOA), the regulation was updated in 2018 at the European level and implemented in the UK by the Extraterritorial US Legislation (Sanctions against Cuba, Iran and Libya) (Protection of Trading Interests) (Amendment) Order (2018), which entered into force on 1 February 2019.38 It provides for fairly severe penalties since the fine incurred is unlimited on indictment, or capped (currently £5,000) on summary conviction. This regulation provides for the possibility for any person who suffers damage as a result of the application of certain unilateral sanctions to take legal action to recover remedies, including legal costs. The provision targets US unilateral sanctions against Iran, which will significantly increase the risk of litigation for companies. A draft regulation has already been approved by the UK Parliament to include these provisions after Brexit.39 Placed between a rock and Elmo-Tech v Guidance Ltd [2011] EWHC 98. Secretary of State for Health and others v Servier Laboratories Ltd and others, [2012] EWHC 2761 (Ch). 35 ibid 55. 36 United Kingdom’s Protection of Trading Interests Act 1981 (blocking statute). The maximum penalty for conviction of a violation of this Act is an unlimited fine. 37 United States v Brodie et al, 174 F Supp 2d 294, 23 October 2001 (ED Pa 2001). In this case, the court underlines that ‘The defendant’s expert affidavit on these laws omits any information on whether prosecutions have ever been brought under the U.K. regime and what evidence is necessary to establish a violation’. 38 Extraterritorial US Legislation (Sanctions against Cuba, Iran and Libya) (Protection of Trading Interests) (Amendment) Order 2018, SI 2018/1357. 39 Extraterritorial Application of Third Country Legislation (Amendment) (EU Exit) Regulation 2019. 33 34

Resisting from the bench  313 a hard place, companies will have to choose between compliance with the UK regulation and US sanctions. So far neither the prosecutions nor the amount of the penalties imposed by the various blocking statutes have succeeded in convincing foreign authorities. But, in the area of contracts, penalties can be very high when national judges refuse to give effect to extraterritorial sanctions. 2.2

A Contrasting Resistance in the Contractual Field

The prohibitive amount of penalties for unilateral sanctions breaches, particularly in the United States, often has an impact on international contracts. Indeed some economic operators prefer to terminate contracts rather than risk US sanctions. Is this practice lawful? It is necessary to distinguish between contracts containing a sanctions clause or not. When the contract does not contain a sanctions clause, French and English case law is similar on the subject, refusing to give effect to extraterritorial sanctions. According to French case law, US unilateral sanctions cannot be considered 'the expression of an international consensus'.40 An arbitral award cannot therefore be set aside for failure to comply with US sanctions because they are not provisions of international public policy, unlike UN or EU sanctions. Admittedly, mandatory provisions of the law of another country may apply in international contracts but the situation must have a ‘close connection’ with the country in question.41 In a decision handed down on 25 February 2015, the Paris Court of Appeal42 refused to give extraterritorial effect to a US unilateral sanction against Iran. In this case, a French subsidiary of a US company43 invoked US embargo measures to unilaterally terminate a contract for the supply of medical products concluded with an Iranian company. The Court considered the unilateral termination was wrongful on the ground that US law was not applicable to the contract. Indeed the US regulation44 was considered neither a mandatory rule under French law nor under Iranian law. It was the absence of a link of the contract with the US law imposing extraterritorial sanctions and the legal autonomy of the subsidiary from its US parent company that justified the refusal to give effect in France to US unilateral and extraterritorial sanctions against Iran. As early as 1965, in the famous Fruehauf France case, the Paris Court of Appeal ruled against the application of US sanctions against China to a French subsidiary, two-thirds of whose shares were held by persons resident in the United

CA Paris 3 June 2020, n° RG 19/07261. Cass com 16 March 2010, n° 08-21511; Cyril Nourissat ‘Lois de police étrangères devant le juge français du contrat international : une première sous l’empire de la Convention de Rome et peut-être pas une dernière sous l’empire du règlement de “Rome I”’ (2010) 51 Revue Lamy droit des affaires 63. 42 CA Paris 25 February 2015, n° 12/23757; Matteo Winkler, Arnaud Lacombe, ‘Mesures à vocation extraterritoriale et lois de police : un revers à l’hégémonie juridique outre-Atlantique ?’ (2015) 21 Recueil Dalloz 1260; Louis d’Avout, Sylvain Bollée, ‘Panorama – Droit du commerce international, août 2014-juillet 2015’ (2015) Recueil Dalloz 2031; Fabienne Jault-Seseke, Hélène Gaudemet-Tallon, ‘Panorama de droit international privé, Mars 2015 - Février 2016’ (2016) Recueil Dalloz 1045; Yann Beckers, Nicolas Demigneux ‘Les mesures d’embargo américaines édictées par l’OFAC sont-elles des lois de police applicables en France?’ (2015) 141 Actes pratiques et ingénierie sociétaire 1. 43 As of 26 December 2012, entities ‘owned or controlled’ by US Persons were subject to the Iran Threat Reduction and Syria Human Rights Act (ITRA) as if they were ‘US Persons’. 44 Iranian Transactions and Sanctions Regulations, 31 CFR Part 560.204. 40 41

314  Research handbook on unilateral and extraterritorial sanctions States and which was managed by five US and three French directors.45 In this latter case, the legal autonomy of the subsidiary also justified the application of French law to the exclusion of US extraterritorial legislation. Similarly, UK case law excludes any effect on contracts of unilateral US sanctions, but goes further than French case law. In the Libyan Arab Foreign Bank v Bankers Trust Co case, it was not a subsidiary but a British branch of a US bank that was being sued for breach of contract.46 The Court had to decide whether the branch was governed by English or US law. It ruled that the banking contract should be governed by English law and ordered the branch to pay several hundred million dollars to the Libyan Arab Foreign bank despite President Reagan’s unilateral freezing of Iranian assets. When the case was brought before Mr Justice Staughton, he swept aside the branch’s argument that the payment of $131 million would require the use of an interbank clearing facility and of its bank account in New York. Believing that the bank could always repay the debt by other means, the judge recalled on that occasion a well-established principle of contract law, namely that non-performance of a contract is permissible only where the action required is illegal under the applicable law. Since the US sanction did not apply against the Libyan bank, the branch had a duty to honour its contracts. Following this decision it is interesting to note that the US Treasury has been flexible and has allowed the transfer of funds to Libyans. While French and UK case law in these two cases has refused to give effect to US unilateral and extraterritorial sanctions, it must be noted that not all foreign courts take the same approach. A Swedish decision is in this regard particularly interesting here.47 In 2001 the Court of Appeal of Western Sweden ruled that US legislation as such could not have direct effect in Sweden. However, it concluded that the debtor was entitled not to fulfil its obligations, given the stringent US sanctions against it in the event of a breach of the US embargo against Libya. This case illustrates a nuanced position of the jurisprudence which affirms both that foreign law is not applicable and that the performance of the contract has, in fact, become impossible for the debtor.48 In the same vein, a decision handed down by the District Court of Luxembourg on 11 June 2014 refused to enforce a money transfer on the grounds of a US extraterritorial sanction; the draconian effects of this on the company’s financial health were highlighted.49 In the present case, however, it should be noted that the contract contained a clause by which the bank reserved the right not to perform its obligations if the performance could or might contravene ‘any law or regulation’, which includes US sanctions since the clause had to be interpreted from a global perspective. Sanctions clauses have become common practice in the banking and insurance sector because companies seek to protect themselves from international sanctions by avoiding risky contracts. In practice these stipulations allow them to incorporate the effects of foreign legislation into their contracts. However, these sanctions clauses must be analysed with caution. On the one hand, the question of their lawfulness with regard to the European blocking statute has 45 CA Paris (14th ch) 22 May 1965, n° 9999, Juris-Classeur périodique 1965 II 4274 bis; Recueil Dalloz 1968, 147. 46 [1989] QB 728. 47 Michael Bogdan, Kaj Hobér ‘Court of Appeal for Western Sweden, 2 Nov 2001, Nordiske domme i sjøfartsanliggender 2001’ (2006) 2 Journal du droit international 36 (note). 48 On the effects of foreign public law rules, see Monica-Elena Buruiana, L’application de la loi étrangère en droit international privé (DPhil thesis, University of Bordeaux 2016) 352–3. 49 Trib arr Luxembourg, 11 June 2014, n° 1553/2014 (II).

Resisting from the bench  315 not been clearly decided.50 On the other hand, their interpretation gives rise to contradictory case law. In the light of the European blocking statute, the legality of these clauses is doubtful. Of course the scope of the European Regulation is limited to certain unilateral international sanctions. Moreover it does not require economic operators to maintain their contractual relations with countries subject to unilateral extraterritorial sanctions. In fact it aims to ‘ensure that trade decisions remain free’.51 So, are sanctions clauses lawful or do the operators have to comply with the Blocking Regulation? UK case law is divided on the issue. Having been rather in favour of the legality of the sanctions clauses in 2018, it now seems to be reversing its position. In a first case in 2018, insurance companies were being asked to settle a claim under a marine insurance contract following the theft of a cargo in Iran.52 This contract could be performed on the condition that the payments were made before the re-imposition of the US extraterritorial secondary sanctions. Considering that the performance of the contract did not violate ‘any sanction, prohibition or restriction … under the trade or economic sanctions, laws, or regulations’,53 Mr Justice Teare had not concluded on the question of the violation of the European Blocking Regulation. Nevertheless he took the opportunity to state with ‘force’ that ‘the Blocking Regulation is not engaged where the insurer’s liability to pay a claim is suspended under a sanctions clause’.54 Thus there was no violation of the European Regulation, according to the judge, since the insurer did not comply with the prohibition of a third country but rather relied on the terms of its contract to oppose the payment. The argument was debatable because the highly controversial issue55 of the legality of sanctions clauses was finally not addressed in the Guidance Note for interpreting the European blocking statute.56 As sanctions clauses are frequent in contracts concluded by companies with an international dimension, such an interpretation could make the EU Blocking Regulation ineffective. A recent ruling in September 2019 marks a revision of this jurisprudence.57 In this case, the judge concluded that if the parties could, through the contract, comply with the US extraterritorial secondary sanctions, they nevertheless had to comply with mandatory rules, and in particular the EU Blocking Regulation. However, the scope of this regulation is still limited as it only provides for protection against the effects of the extraterritorial legislation listed in its Annex, including regulations and other legislative instruments. In the present case, as this was a secondary sanction imposed on a Russian businessman and a company registered in Cyprus, the EU Regulation was not applicable due to its narrow scope. This case law nevertheless suggests that the EU Blocking Regulation can defeat certain sanctions clauses, and could defeat more if its scope were to be adapted to the current international practice of extraterritorial unilateral sanctions. On the French side, case law has not ruled on the conformity of sanctions clauses with the European Blocking Regulation. Nevertheless it did not hesitate to sanction such a stipulation 50 Guidance note, Questions and answers: Adoption of the update of the Blocking Statute, Official Journal of the European Union, 2018/C 277 I/03 (7 August 2018). 51 ibid 3. 52 Mamancochet Mining Ltd v Aegis Managing Agency Ltd and others [2018] EWHC 2643 (Comm). 53 ibid n° 2 i). 54 ibid n° 81. 55 There is no CJEU case law interpreting the blocking statute. 56 Guidance Note – Questions and Answers: adoption of update of the Blocking Statute, C/2018/5344. 57 Lamesa Investments Ltd v Cynergy Bank Ltd [2019] EWHC 1877 (Comm).

316  Research handbook on unilateral and extraterritorial sanctions under competition law. A 2007 decision by the Criminal Division of the Court of Cassation sanctioned a boycott clause.58 At the request of a company based in the United Arab Emirates, a French company had agreed not to use an Israeli carrier and not to have the goods transit through Israel. The Court of Appeal had refused to consider this conduct wrongful because the discriminatory measure had occurred in the context of a reciprocal boycott between almost all Arab States and Israel. Sanctioning this reasoning, the Court of Cassation considered that the boycott was unlawful and that it resulted in discrimination in economic matters that could be sanctioned on the basis of Article 225-2 (2) of the French Criminal Code. Apart from the question of the legality of the sanctions clauses, another source of dispute arises from their interpretation. UK case law is particularly contrasted on this subject. At first it seemed to interpret the sanctions clauses strictly, but it is now more flexible towards them. Indeed the above-mentioned case of Mamancochet Mining Ltd v Aegis Managing Agency Ltd and others has highlighted the inadequacies in their standard wording. In this case, the clause was drafted in the traditional way. It was to apply ‘to the extent that … payment of such claim … would expose that (re)insurer to any sanction, prohibition or restriction under … the trade or economic sanctions, laws, or regulations’. On 7 February 2013 the United States decided that foreign subsidiaries of US corporations were prohibited from knowingly engaging in transactions involving Iran or the Iranian government. US parent corporations, in turn, were considered liable for Iran-related sanctions violations committed by their foreign subsidiaries, including subsidiaries registered as separate legal entities outside US jurisdiction. The US Government gave companies until 8 March 2013 to comply. In this case, the claim was presented at a later date. On 16 January 2016 the JCPOA was implemented. Under it the ‘Iran General License H’59 allowed certain transactions. Payments in dollars remained prohibited, but payments in pounds sterling were accepted. Following the declaration by President Trump of the United States’ withdrawal from the JCPOA on 8 May 2018, the General License H was revoked with effect from 27 June 2018. From that date onwards a transitional period began during which companies were allowed to liquidate their activities until midnight on 4 November 2018. Being cautious, the insurer then preferred to use the sanctions clause to refuse payment. During the trial, two experts in US law were called to testify in order to evaluate whether the insurer was likely to be sanctioned under US law. As the request for payment occurred before the General License was granted, the question arose as to whether it could be considered an authorized liquidation transaction. According to one of the experts, Mr Saville, there was a ‘serious question’ as to whether payment of the claim would be authorized by OFAC. According to him, there was a risk the debtor could be convicted. On the contrary, the other expert, Mr Poblete, considered that payment could be made without risk. In this decision, Mr Justice Teare distinguished between being ‘subject to a sanction’ and the mere ‘risk of being exposed to a sanction’. In the present case, the wording of the clause made it possible to cover the insurer only in the event of a real sanction, since the mere risk was not covered. The judge therefore refused to apply the clause. If the intention of the parties was to cover themselves against the risk being sanctioned for disrespect of foreign unilateral sanctions, they should have made this clear by mentioning, for example, ‘exposure to the risk of being sanctioned’ or ‘conduct which the relevant authority might consider to be prohibited’. By adopting a strict interpretation of the sanctions clause, the case law here seems to show a willingness to Cass crim 18 December 2007, n° 06-82245. Iranian Transactions and Sanctions Regulations, 31 CFR Part 560.

58 59

Resisting from the bench  317 resist unilateral extraterritorial sanctions from the bench, even if the judge also acknowledged, obiter dictum, the validity of such clauses with regard to the EU Blocking Regulation. In the above-mentioned case of September 2019, UK case law, on the contrary, adopts a flexible interpretation of a so-called non-default clause that is broad and imprecise.60 A loan in pounds sterling had been concluded outside the USA under English law between a borrower based in the United Kingdom and a company registered in Cyprus and owned by a Russian businessman subject to unilateral US sanctions. The borrower had invoked the illegality clause in the loan agreement exempting the parties from any payment ‘to comply with any mandatory provision of law, regulation or order of any court of competent jurisdiction’. Interpreting the clause in its ‘documentary, factual and commercial’ context, Justice Pelling found that these terms were broad enough to contain US primary and secondary sanctions. This decision therefore marks a break with the judge’s requirement in 2018. By preferring to interpret the clause broadly, the UK court allows the parties to comply with unilateral extraterritorial sanctions provided they do not contravene public policy provisions. Ultimately there are few decisions on extraterritorial sanctions and it is difficult to conclude that the judge is resisting such sanctions from the bench. In fact, there is no principled opposition to such sanctions except where they are contrary to public policy. As for unilateral domestic sanctions issued by the states themselves, national judges monitor compliance with fundamental rights and gradually draw up the outlines of a domestic legal framework.

3.

THE LEGAL FRAMEWORK FOR UNILATERAL DOMESTIC SANCTIONS

Since the People’s Mojahedin Organization of Iran case, EU courts have enshrined the right to a fair trial in matters of international sanctions, in a case where the sanctions measures did not derive from a UN decision.61 In the same way, national judges ensure respect for fundamental rights while trying to reconcile this concern with the protection of the higher interests of the state. They thus ensure respect for the rights of the defence (3.1) and exercise control over the internal legality of the sanction measure (3.2). 3.1

Respect for the Rights of the Defence

The adoption of asset freezing measures is a requirement of the United Nations as part of the international fight against terrorism.62 The measures taken by France to freeze assets may be ordered by the Ministers of the Economy and the Interior autonomously pursuant to Article L562-2 of the Monetary and Financial Code. Because they are administrative police measures, they must be notified to the persons concerned.63 The question arose as to whether they should also be the subject of a procédure contradictoire préalable (prior adversarial procedure) since they constitute unfavourable decisions. In urgent cases, exceptional circumstances or where

Lamesa Investments Ltd v Cynergy Bank Ltd [2019] EWHC 1877 (Comm). Case T-228/02 People’s Mojahedin Organization of Iran v Council [2006] ECR II-04655, Press release No 97/06 12 December 2006. 62 UNSC Resolution 1373 (2001). 63 Article L 211-2 du code des relations entre le public et l’administration. 60 61

318  Research handbook on unilateral and extraterritorial sanctions implementation would be likely to compromise public order or the conduct of international relations, the French law excludes the prior procedure.64 The Administrative Court of Paris has had the opportunity to rule on this issue on several occasions. Invariably it has considered that the asset freezing measure should be exempted from such a procedure as it would deprive the decision of any ‘useful effect’ and ‘would be likely to compromise public policy’.65 In a recent decision in 2019 the Administrative Court of Appeal of Paris justified the latter position of the Administrative Court by explaining that ‘the implementation of a contradictory procedure would allow the person concerned to transfer his assets to places where they could not be seized by the administrative authorities’, that it would ‘deprive the asset freezing measure of any useful effect, and would thus be likely to compromise the public policy it is intended to preserve’.66 However, unlike a decision of 2016,67 the judgment specifies that the renewal of the measures must be subject to the ordinary law of the adversarial procedure. In People’s Mojahedin Organization of Iran, the European Court of Justice had also ruled that access to evidence grounding the listing could be limited for the purpose of adopting the initial listing decision only and not for subsequent decisions to maintain the listing.68 In general, the prior contradictory procedure hardly finds a favourable response in administrative case law. It is understandable that asset freezing measures must operate promptly and by surprise, otherwise they will be ineffective,69 but this is not the case for all international sanctions. In Bank Mellat v Her Majesty’s Treasury (no. 2),70 the Treasury issued an order in 2009,71 pursuant to Schedule 7 to the Counter-Terrorism Act 2008 (the CTA), requiring all persons operating in the financial sector to refrain from entering into or continuing to enter into any transaction or business relationship with Bank Mellat or one of its branches or with a shipping company called IRISL. The UK unilateral sanction, which supplemented EU sanctions, was justified by the UK because of the alleged link between the Iranian bank and Iran’s nuclear weapons and ballistic missile programmes. In this case, the Supreme Court of the UK considered that the procedure was unfair because the decision had not been notified to the bank beforehand and the bank should have been able to present its arguments before the order was issued. On the procedural side, Mr Justice Neuberger makes it very clear that where the executive intends to exercise a statutory power to a person’s substantial detriment, it is well established that, in the absence of special facts, the common law imposes a duty on the executive to give notice to that person of its intention, and to give that person an opportunity to be heard before the power is so exercised.

Article L 121-2 du code des relations entre le public et l’administration. TA Paris 25 April 2013, Bernollin v Ministry of Economy, Preliminary ruling no 1206200/7-1 of 25 April 2013, point 8 for an asset freezing measure. 66 CAA Paris (8th ch) 22 October 2019, n° 18PA02861. 67 TA Paris 30 June 2016, n° 1509432, n° 1600210/7-1. 68 Case T-228/02 People’s Mojahedin Organization of Iran v Council [2006] ECR II-04665, Case C-27/09 P, France v People’s Mojahedin Organization of Iran [2011] aff. C-27/09 CJEU, 21 December 2011, ECLI:​EU:​C:​2011:​853. 69 For an analysis of EU Law, see Charlotte Beaucillon, Les mesures restrictives de l’Union européenne (Bruylant 2014) 486–90. 70 [2013] UKSC 39. 71 Financial Restrictions (Iran) Order 2009 SI 2009/2725. 64 65

Resisting from the bench  319 It was not under Article 6 of the European Convention on Human Rights or Article 1 of the First Protocol that the majority of the judges made their ruling but under one of the oldest principles of the common law.72 Indeed it was in accordance with the principle of fairness that the bank should have been able to submit its observations before the measure was enacted by the UK. Admittedly the Court considers that prior consultation of the sanctioned entity depends on the circumstances. Where secret documents are involved or where prior consultation could prejudice the establishment of evidence by allowing the entity to conceal the facts, this obligation is no longer considered necessary. This was not the case here because a re-organization of business relationships or transactions with the UK financial sector could have taken place ‘just as easily after the direction as before’.73 Prior consultation would not have changed anything. Moreover, the UK Treasury disclosed during the procedure the documentary evidence it held, which it could have done beforehand, before taking action against the bank. Finally the prior consultation was necessary not only for reasons of fairness but also for the proper administration of justice. The Court thus points out that the quality of the decision-making processes at each stage would have been better if the Treasury had had the opportunity, before issuing the direction, to examine the facts submitted by consulting Bank Mellat. The mere possibility of being able to challenge the measure before the courts cannot, according to the Court, guarantee equity insofar as bringing the matter before the courts presupposes a period of time during which the company suffers serious and sometimes even irreversible damage in terms of its image. In cases of urgency or violation of fundamental rights, French civil procedure makes it possible to bring an action for interim relief. The question remains whether this procedure can be used to challenge a unilateral domestic asset freezing measure, especially since these measures last for six months. Although French case law did not seem to favour it in two court cases where the listed targets could have access to funds to cover their current expenses,74 the Constitutional Council defended the principle of summary proceedings.75 It considered that ‘the persons concerned are not deprived of the possibility of challenging these decisions before the administrative judge, including by way of interim proceedings’. On the UK side, the courts are also likely to take interim measures under certain conditions.76 Finally, to organize their defence at trial, sanctions targets must be able to access the evidence gathered against them. However, derogatory procedural rules apply in the United Kingdom. Under the CTA (2008), the TAFA (2010) and the SAMLA (2018), a closed material procedure (CMP) may be initiated, resulting in possibilities for the Treasury to retain certain evidence77 and in camera hearings.78 Under Section 6 of the Justice and Security Act, the use of the CMP has been extended to any legal action relating to the sanctions regime. As a result, defendants do not have full access to the information held by the prosecutor.

Cooper v Board of Works for the Wandsworth District (1863) 14 CB (NS) 180. [2013] UKSC 39 (31). 74 TA Paris (ord) 22 February 2016, n° 1601790; TA Paris (ord) 9 February 2016, n° 1601785. 75 Cons const 2 March 2016, n° 2015-524 QPC. 76 These conditions are those found in the American Cyanamid principles (American Cyanamid Co v Ethicon Ltd (No 1) [1975] AC 396 [1975] 2 WLR 316). On the question, see Richard Gordon, Michael Smyth and Tom Cornell, ibid 7.18 to 7.22. 77 CPR 79.25. 78 CPR 79.17. 72 73

320  Research handbook on unilateral and extraterritorial sanctions In the Bank Mellat case in 2015, the Iranian bank had applied under Section 63 of the Counter-Terrorism Act 2008 to set aside the directions contained in two statutory instruments made by Her Majesty’s Treasury: the Financial Restrictions (Iran) Order 2011 (‘the 2011 Order’) and the Financial Restrictions (Iran) Order 2012 (‘the 2012 Order’).79 Unlike the Financial Restrictions Order 2009, which had been the subject of a previous case and which specifically concerned the Mellat Bank, these orders applied to all Iranian banks. They were taken with the aim of filling the gaps in the sanctions imposed by the European Union by imposing separate and additional restrictions in view of the time lag with EU measures.80 In this case, the UK Court of Appeal questioned the standard of proof to which defendants could have access. In other words, could confidential documents not be disclosed to the applicant and their legal representatives and, if so, could a summary of these documents be notified to them? The Court first recalled that the requirements of Article 6 ECHR depend on the context. Responding to the Treasury’s view that the standard of proof in Secretary of State for the Home Department v AF (No. 3)81 applied only ‘in cases where individual freedom or an equally compelling fundamental interest was at stake’, the Court of Appeal adopted this standard of proof, given the draconian nature of the sanctions imposed on the bank. Consequently the bank should have received sufficient information to enable it to refute the charges against it effectively, to the extent possible. Through these various cases, the case law sets a number of safeguards and shows its attachment to respect for the principle of adversarial proceedings where relevant. The review is not, however, limited to procedural matters, as judges also examine the domestic unilateral sanctions on the merits. 3.2

Control on the Merits

When proceedings are instituted against a unilateral domestic sanction, the judge checks the material accuracy of the facts. In a similar vein to EU case law,82 the decision to include a name on a list of sanctions targets implies that the judge conducts in principle a ‘full review’ of the merits and therefore verifies the reality of the facts. French jurisprudence has admitted that the courts could rule on the basis of notes blanches, that is, notes containing redacted extracts from police reports without letterhead, date, reference or signature. If ‘no legislative provisions or principles’ prevent such evidence from being produced in court as long as ‘the facts they relate are not seriously contested by the applicant’,83 the Conseil d’Etat considers that the court can only rely on the notes blanches if they are sufficiently ‘precise and detailed’.84 Thus not all the elements contained in a note blanche are taken into account when they are imprecise.85

Bank Mellat v Her Majesty’s Treasury [2015] EWCA Civ 1052. ‘The 2011 Order was in force from 21 November 2011 until its expiry by effluxion of time on 20 November 2012. The 2012 Order was in force only from 21 November 2012 until 31 January 2013, when it was revoked because of the coming into force of an EU measure, Regulation 1263/2012/EU, which made similar provision at the EU level’, ibid 11. 81 Secretary of State for the Home Department v AF (No 3) [2009] UKHL 28 [2009] 74. 82 Case C-584/10 P Commission and Others v Kadi [2013] ECLI:​EU:​C:​2013:​518. 83 CE 14 December 2017, n° 416147. 84 CE 26 January 2018, n° 407220. 85 CE 6 January 2016, n° 395620. 79 80

Resisting from the bench  321 Although the use of notes blanches raises some reservations,86 it is on the basis of this evidence that French case law assesses whether violations of fundamental rights are proportionate to the aims pursued.87 This requirement of proportionality is recalled by the Question Prioritaire de Constitutionnalité (Preliminary rulings on constitutionality) of 2 March 2016. By declaring unconstitutional Article L562-2 of the Monetary and Financial Code in its version applicable in 2016 in so far as it punished persons who ‘by virtue of their positions’ were ‘likely to commit’ terrorist acts, the Constitutional Council considered that the text constituted a manifestly disproportionate infringement of the right to property.88 Through this decision, the Council recalls the requirement of proportionality of asset freezing measures. In other words, the sanction must be appropriate to the facts in question and must be based on verified factual bases. Similarly UK case law allows a proportionality review of the unilateral domestic sanction of assets freezing. In 2016 in C v HM Treasury, an individual appealed under Section 26 of the TAFA (2010) against both his initial and renewed designation.89 The individual was not only subject to an assets freeze, but also to a measure providing that without a licence, any other person was prohibited from dealing with him in financial matters. The measure was imposed because the individual provided funds to the organization Al-Muhajiroun (ALM) by employing its members in one of his companies, which it partially subsidized. In addition, he allowed the ALM to use one of his premises. Applying the necessity test, the judge specified that the need for the sanction must be assessed not only at the time of designation but also at the time of the hearing. Thus a designation that would no longer be justified at the hearing could be revoked. In other terms, the Court examines whether the measure is still necessary to ensure the objective of the fight against terrorism. While in 2015 there was sufficient evidence that the measure was indeed necessary, by February 2016 the situation had changed as the new company in financial difficulty had closed and no longer had the premises in question. The sanction should therefore be lifted. Through this case law, the UK courts show their willingness to fully control unilateral domestic sanctions on the merits. By increasing control, they do not hesitate to check whether the measures are justified. In the Bank Mellat case of 2013, the Supreme Court not only found that the procedure for issuing the 2009 Order90 was unfair, but also sanctioned the measure on the merits.91 By prohibiting all persons operating in the financial sector from ‘entering into or continuing to enter into a transaction or commercial relationship’ with Bank Mellat alone because of its alleged link with Iran’s nuclear weapons and ballistic missile programmes, the Treasury’s decision was discriminatory, arbitrary and disproportionate to the objective of preventing the Iranian nuclear programme. Indeed this order was based on general considerations relating to the banking sector but it only targeted Bank Mellat, not the other Iranian banks. In other words there was no evidence that the risk involved was specific to the targeted bank. On a case-by-case basis, UK jurisprudence determines as follows: (1) whether the objective of the

86 153. 87 88 89 90 91

Etienne Vergès ‘Procédure pénale’ (2018) 1 Revue de science criminelle et de droit pénal comparé CE 26 January 2018, n° 407220. Cons const 2 March 2016, n° 2015-524 QPC. C v HM Treasury [2016] EWHC 2039 (Admin). The Financial Restrictions (Iran) Order 2009 SI 2009/2725. Bank Mellat v HM Treasury (No 2) [2013] UKSC 39.

322  Research handbook on unilateral and extraterritorial sanctions measure is sufficiently important to justify the limitation of a fundamental right; (2) whether there is a rational link with the objective pursued; (3) whether a less intrusive measure could be used; (4) finally, whether a fair balance has been struck between the rights of the individual and the interests of the community. In sanctioning the discrimination of a specific target, the reasoning of the UK judges therefore goes further than that of the EU courts, since the European Court of Justice did not declare it discriminatory to single out one particular bank but merely revoked the decision for failure to state reasons, failure to respect the rights of the defence and manifest error.92

4. CONCLUSION This chapter has shown how French and UK courts have reacted to the development of unilateral sanctions, whether extraterritorial or of national origin. In the area of extraterritorial sanctions, the few published cases that have applied the various blocking laws hardly deter foreign authorities and courts from punishing companies. In reality, it is very difficult to assess the extent to which blocking statutes are applied by the French courts, since not all the case law is published. Moreover, the sanctions incurred by the companies are not dissuasive enough for the ‘non bis in idem’ principle to be applied by foreign courts. The same dilemma, also known as ‘double jeopardy’, arises in contractual matters when companies have to assess whether it is preferable to breach a contract or risk a penalty for breaching an international sanction. In this area, the choice is more delicate because the breach of a contract can be heavily sanctioned by the courts. A study of case law shows that particular care must be taken in drafting sanctions clauses and that there is some doubt as to their legality in relation to the European Blocking Regulation. Faced with the lack of a clear response from the European Union, companies therefore opt for compliance with extraterritorial sanctions regardless of their legitimacy. In addition to extraterritorial sanctions, they must also comply with domestic unilateral sanctions. Although limited in scope, these measures can target foreign persons and entities. Fortunately we already observe a common core of procedural principles shared by national and European courts, even if they are not necessarily applied in a similar manner such as the principle of proportionality. The guarantees put in place to protect the rights of the defence and to control the legality of these unilateral internal sanctions reveal the fundamental role of the judiciary in the preservation of fundamental rights. In the context of Brexit, the United Kingdom now has the legal tools to develop an autonomous sanctions policy. UK judges might be asked to re-examine issues that have been addressed in the EU courts. Will they follow EU case law or will they opt for divergent interpretations? What weight will the High Court attribute to lists based largely on evidence originally provided by other EU Member States or by non-EU Member States? In this context, more than ever before, national case law is likely to have an impact on subsequent challenges in Luxembourg or elsewhere.

Case T-496/10 Bank Mellat v Council [2013] ECLI:​EU:​T:​2013:​39.

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19. International bank settlement in China and unilateral sanctions-related disputes: sources, remedies and procedures Jin Sun1

1. INTRODUCTION This chapter aims to conduct an empirical review of the remedies and procedures for foreign unilateral sanctions-related disputes in China, including its two special administrative regions, Hong Kong and Macau. Unilateral sanctions are limited hereafter to those sanctions imposed unilaterally by the major powers like the US or EU2 for coercive offensive or defensive strategic objectives. They are not supported by United Nations Security Council (UNSC) resolutions, they are sometimes adopted contrary to provisions of specific international treaties,3 and they invariably amount to unilateral and extraterritorial sanctions.4 In the specific context of China, these unilateral and extraterritorial sanctions are considered to be unlawful foreign laws or restrictions with no judicial effect in any Chinese court,5 and they are not binding on China’s government or on Chinese individuals or business entities. This chapter will: present an overview the transnational legal orders6 of these unilateral and extraterritorial sanctions7 in Mainland China, Hong Kong and Macau – three legal jurisdictions of China with different legal traditions because of the lasting influences of the Soviet, 1 This chapter is part of the author’s research project that received funding from the European Research Council under the European Union’s Horizon 2020 research and innovation programme (Grant Agreement PROSANCT, ‘Bombs, Banks and Sanctions’, Project 716216) headed by Grégoire Mallard. 2 To be fair, the Chinese government also frequently imposes unilateral sanctions or designated restrictive measures for diplomatic purposes in dealing with disputes in foreign or domestic affairs. On China’s position and practice, see the chapter by Congyan Cai in this book. 3 Such as the treaty signed in 2015 by Iran and the six major world powers (P5+1) – the Joint Comprehensive Plan of Action (JCPOA) often known as the ‘Iran Deal’. P5 stands for the five Permanent Members of the UNSC. Plus 1 is Germany along with the EU. 4 Charlotte Beaucillon, ‘Panorama de la pratique contemporaine des sanctions extraterritoriales’ in Société française de droit international (eds.), Extraterritorialités et droit international (Pedone 2020). 5 Article 3, Law of the People’s Republic of China on the Application of Foreign-Related Civil Relations [including Chinese Anti-Money Laundering (AML) law and sanctions enforcement regulations]: If the application of foreign laws will harm the public interests of the People’s Republic of China, the laws of the People’s Republic of China shall apply. Article 6, Penal Code of China [including AML-related crimes]: This Law shall be applicable to all crimes committed within the territory of the People’s Republic of China, unless otherwise provided by law … If one of the acts or results of a crime occurs within the territory of the People’s Republic of China, it is considered as a crime within the territory of the People’s Republic of China. 6 Terence C Halliday and Gregory Shaffer, ‘Transnational Legal Orders’ in Terence C Halliday and Gregory Shaffer (eds.), Transnational Legal Orders. Cambridge Studies in Law and Society (Cambridge University Press 2015). 7 Beaucillon (n 4).

323

324  Research handbook on unilateral and extraterritorial sanctions English and Portuguese legal systems (Section 2); summarize sources and types of related disputes in bank legal practices arising out of bank compliance with unilateral and extraterritorial sanctions on Iran, North Korea, Russia, Syria and Venezuela (Section 3); introduce a variety of judicial and non-judicial remedies and procedures with cases in Mainland China (Section 4) and Hong Kong (Section 5); and draw a conclusion about Chinese practices in the field of dispute settlement mechanisms related to unilateral and extraterritorial sanctions (Section 6).

2.

TRANSNATIONAL LEGAL ORDERS CONCERNING UNILATERAL AND EXTRATERRITORIAL SANCTIONS IN MAINLAND CHINA, HONG KONG AND MACAU

This chapter focuses on two separate legal regimes of unilateral and extraterritorial sanctions in different legal systems,8 respectively in the US and the EU. In the US, the unilateral sanctions regime is dominated by administrative law enforcement agencies in the executive branch in which the main remedies are found through the petition removal procedure in administrative law, while judicial review is available but often considered to be supplementary to legal practices.9 In the EU, unilateral restrictive measures, including those EU designations due to overt diplomatic pressure from other countries like the US, are generally subject to judicial review in terms of both procedure and substance, for which the remedial procedures in administrative law, although available, are not often relied on, whereas judicial review in the EU courts is often contemplated by the sanctioned entities like Iranian banks for its greater effectiveness in de-listing appeals.10 In the US, the Treasury Department’s Office of Foreign Asset Control (OFAC) has been widely considered to hold absolute power over foreign sanctions, for which any relevant disputes shall be subject to remedial mechanisms in administrative law – the OFAC removal petition. In the US Federal Sentencing Guidelines11 and the Economic Sanctions Enforcement Guidelines,12 full compliance and cooperation with OFAC and the DOJ (US Department of Justice)13 will contribute to a 25–50 per cent reduction in fines, which is otherwise not available in judicial adjudications. This could be considered as an incentive for plea bargaining, a US legal practice of negotiating an agreement between prosecution and defence.14 It might also be taken as a token of potential tension or competition between the executive and judi8 Jin Sun, Gregoire Mallard and Charlotte Beaucillon, ‘Judicial Remedy to Tame the Hegemon: The Legal Battle in Europe Around the Iran Deal’ European Journal of International Law (under review). 9 Steptoe & Johnson LLP, ‘Federal District Court Sides with OFAC in Rare Judicial Challenge of Sanctions Violations Penalty’ (24 May 2016) . All web addresses were accessed on 1 December 2020. 10 For details, see Sun, Mallard and Beaucillon (n 8). 11 US Federal Sentencing Guidelines 2018 Manual Annotated: . 12 Department of the Treasury, ‘A Framework for OFAC Compliance Commitments’ (2 May 2019) . 13 US Department of Justice, Criminal Division, ‘Evaluation of Corporate Compliance Programs’ (Updated April 2019) . 14 On average, less than 7 per cent of cases in the US do not accept plea bargaining but opt for judicial adjudication. For details, see statistics in Grégoire Mallard and Jin Sun, ‘A Viral Process of Global

International bank settlement in China  325 cial branches. It is left to the choice of the defendants, which, in the case of US unilateral sanctions violations, are often global banks. The general pattern of their choices in legal defence strategy is that in US sanctions for banking violations, with the exception of a French bank,15 both US and non-US banks opt to pay millions or often billions of dollars by way of settlement in administrative law, thereby voluntarily relinquishing their procedural remedy rights in the courts of law as part of the Deferred Prosecution Agreement with OFAC or the DOJ.16 In exchange OFAC or the DOJ ‘agrees to release and forever discharge’ the relevant bank ‘without any finding of fault’.17 This also explains other patterns in the US legal orders of sanctions enforcement. Only US entities, as shown by federal court case statistics,18 with no substantial violations but nonetheless minor fines, have sued the OFAC in the federal courts to challenge its listing decisions, because it is expected that there would be little if any reduction in potential fines from settlement. This shows there are comparative advantages in the executive branch’s legal order: it is efficient, it often offers some discount for a negotiable settlement deal, it prevents any further disclosure of more sensitive details (particularly about their clients for reputational concerns) and it ends an enforcement investigation ‘without any finding of fault’. That is why, as shown by the drug cartel removal cases19 as well as Turkish ministers’ OFAC removal for Northeast Syria sanctions,20 US lawyers often advise their clients to file for or negotiate an OFAC removal first, before looking for a remedy in the judicial branch. In China, including Macau and Hong Kong, the executive branch is also dominant. Macau is strictly subject to US coercion for its being the only place in China with gambling businesses – a sector with high risks of money laundering in the US dollar system – and ‘voluntarily’ surrenders its executive, legislative and arguably judicial power with regard to financial sanc-

Governance: How the US Unilateral Sanctions against Iran Changed the Rules of Financial Capitalism’, American Journal of Sociology (forthcoming). 15 See BNP Paribas, who arguably paid for their ‘trust’ in the judicial branch instead of the executive branch of the US authorities: United States v BNP Paribas SA, US District Court, Southern District of New York, No. 14-cr-00460 (LGS) (SDNY April 30, 2015). Also, DOJ (US Dept. of Justice): United States District Court, Southern District of New York, United States of America v BNP Paribas, SA, Defendant. . 16 ‘To waive (1) any claim by or on behalf of Respondent [Standard Chartered Bank], whether asserted or unasserted, against OFAC, the U.S. Department of the Treasury, and/or its officials and employees arising out of the facts giving rise to the enforcement matter that resulted in this Agreement, including but not limited to OFAC’s investigation of the Apparent Violations, and (ii) any possible legal objection to this Agreement at any future date’. IV. Terms of Settlement, P 13, para 64.B, Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Standard Chartered Bank, 9 April 2019: . 17 ibid P 13, para 63. 18 For details see Mallard and Sun (n 14). 19 Narcotics Trafficker Kingpin OFAC Removals: ; US Treasury, OFAC enforcement, Kingpin Act Designations; Counter Narcotics Designations Removals and Designation Update; Cuba Designation Removal, 19 December 2019 ‘The following deletions have been made to OFAC’s SDN List’ . 20 US Treasury, Treasury Removes Sanctions Imposed on Turkish Ministries and Senior Officials Following Pause of Turkish Operations in Northeast Syria – OFAC lifts sanctions on two ministries and three ministers (23 October 2019) .

326  Research handbook on unilateral and extraterritorial sanctions tions, by which it is merely a mirror of UNSC plus US/EU sanctions.21 The aim is to avoid being blacklisted by the US authorities, a lesson they learned from the crippling US sanctions on Banco Delta Asia from 2005 to the present (and very likely forever), for this local bank’s alleged involvement in North Korean money laundering.22 Any de-listing appeal in Macau shall thus be dealt with by the relevant bank directly with the US Treasury or in the US federal courts.23 In practice the Macau government and court have simply dismissed any de-listing complaints, often without stating any specific reasons.24 There is no administrative de-listing procedure available in any administrative agency, either.25 Hong Kong pursues the same objective: it relinquishes much of its de facto power in exchange for the support of the US federal government agencies, whose influence dominates Financial Action Task Force on Money Laundering (FATF) mutual evaluations and the presence of American banks and the Asian offshore US dollar market there as well as its dollar-backed currency system.26 On the level of the Anti-Money Laundering/Combating the Financing of Terrorism/Countering the Financing of Proliferation (AML/CFT/CFP) administrative regulation,27 the Hong Kong regulatory authority for banking officially acknowledges

21 Macao Monetary Authority: Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Notice and Guideline for Financial Institutions (Update January 2019) . Part 7: Financial Sanctions, Article 7.2.2. (P 17): ‘institutions may choose to have access to such database provided by some well-known service providers [from the US, UK or Canada] for performing the screening’ (emphasis added). Article 7.2.3: ‘database for screening is up-to-date and covers at least those persons and entities subject to local, UNSC or other [US and EU] international sanctions’. 22 FinCEN, Finding that Banco Delta Asia SARL is a Financial Institution of Primary Money Laundering Concern - 31 CFR Part 103 (20 September 2005) accessed 28 May 2020; 31 CFR § 1010.655 - Special measures against Banco Delta Asia accessed 28 May 2020. 23 Banco Delta Asia, SARL et al v FinCEN et al (US District Court for the District of Columbia, filed 14 March 2013); ‘US authorities and Banco Delta Asia agree in extra audit to solve years long sanction dispute’ (Macau News Agency, 10 October 2018) ; ‘US authorities rejected Delta Asia Financial Group motion to remove sanctions imposed 12 years ago’ (Macau News Agency, 11 October 2019) . 24 An example is Banco Delta Asia: ‘according to Chapter II of Part IV of the FSAM (Financial System Act of Macau), “among the additional sanctions that may be applied for contraventions is publication of the sanctions. In this case, the contraventions and any sanctions applied will be published in two local newspapers, one being Chinese and the other one Portuguese” … we asked several Macau law firms if they knew about this ad [of publication of the sanctions] and, by the way, if they could send it to us. It was certainly bad luck and coincidence, but nobody knew about it … Two weeks ago, the Court of Final Appeal dismissed another appeal filed by Delta Asia Bank, in which it challenged that decision of the former Chief Executive’. ‘12 Years of Silence’ (Macau News Agency, 7 April 2020) accessed 28 May 2020. 25 Financial Intelligence Office, Macau SAR: The Anti-Money Laundering and Counter-Terrorist Financing Legislation and Regulations accessed 28 May 2020. 26 Article 111, Hong Kong Basic Law. 27 Hong Kong Monetary Authority (HKMA), Guidelines on Anti-Money Laundering and Counter-Financing of Terrorism (Updated October 2018) . 6.11 Sanctions imposed by other jurisdictions; 6.13: ‘a database maintained by a third party service provider’; 6.14: ‘any updates to UNSCRs or

International bank settlement in China  327 the mandatory implementation of US and EU unilateral and extraterritorial sanctions by the local branches or offices of global banks there. The slight differences with Macau are twofold. First, Hong Kong, as an international financial and trade centre with a good understanding of the common errors in Romanizing names and aliases in many Asian languages, renders an administrative petition mechanism28 (similar to, but much more friendly than, the OFAC removal petition) by which the applicant may ask the administrative agency to clarify the accurate ‘aka’ information and state reasons so as to avoid any factual error, besides the judicial remedies embedded in the common law system. Second, the administrative law enforcement agencies including the Police Force and Customs, under external pressure from US diplomacy and the UNSC sanctions expert reports, had been actively investigating about 1800 suspected money laundering cases29 and 180 sanctions violation cases every year30 through front or shell companies or shipping companies in Hong Kong especially related to Iran and North Korea. This is the socio-legal background of the administrative remedies for financial sanctions in Hong Kong, which will be further developed in Section 5 below. Over the two special administrative regions, the Chinese central government has the exclusive rights to decide the application to the regions of any international agreements and ‘to make appropriate arrangements for the application’,31 which could be somehow ‘circumvented’32 by

[foreign unilateral] sanctions lists’; 6.15: ‘should include in its database: (iii) any relevant designations by overseas authorities which may affect its operations’ (emphases added). 28 For details, see Section 5 of this chapter. 29 Figure 3.2: Number of ML investigations in 2013–2017, Hong Kong Money Laundering and Terrorist Financing Risk Assessment Report, April 2018, 15: . 30 ‘Huge increase in investigations by Hong Kong authorities into suspected breaches of UN sanctions in last five years: Police and customs investigated 14 cases between them in 2014 – and 182 last year; Undersecretary for Commerce Bernard Chan says no cases resulted in charges as government deregistered suspect companies or denied suspicious ships entry’ (South China Morning Post, 23 January 2019) . 31 Article 153, The Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China (‘the Basic Law’ hereafter). 32 Strictly speaking, it might not constitute to a serious circumvention, as the following MOUs and seminars are closely associated with Section 1 of Chapter V Economy, particularly Article 109, of the Basic Law: Hong Kong government ‘shall provide an appropriate economic and legal environment for the maintenance of the status of Hong Kong as an international financial centre’.

328  Research handbook on unilateral and extraterritorial sanctions the US-Macau MOU33 or the US-Hong Kong MOU34 or joint US training seminars,35 as long as Beijing does not implicitly object to the detailed arrangement of such MOUs or seminars. In Mainland China’s sanctions law, except for the temporary unilateral trade sanctions (counter-)measures, often declared by the Ministry of Commerce, and the Export Control Law passed very recently on 17 October 2020, it is mainly a set of internal administrative regulations by which the People’s Bank of China (PBC), working as the AML/CFT/CFP36 law enforcement agency in China, forward to Chinese banks the administrative notifications from the Ministry of Foreign Affairs implementing specific UNSCR(s).37 It is, however, another story with regard to legal practices in China. For instance, the UNSCR has never sanctioned the Central Bank of Iran (CBI) or Iran in general, and the same applies to most regular business settlements with Russia, Syria and Venezuela. For this reason, Chinese banks shall not, or at least are not required to, enforce any sanctions on these entities not designated by the UNSCRs. The legal practices show a distinct picture of transnational legal orders in three respects.38

33 US Dept of State, U.S.-Macau Policy Act Report, As of April 1, 2003 . ‘Macau’s financial regulatory authorities continue to direct financial institutions … using lists of individuals and entities designated by the US under relevant authorities, as well as the UN 1267 Sanctions Committee … The Macau government has responded quickly and cooperatively when asked by US law enforcement agencies for assistance on anti-terrorism matters. Macau participated in a voluntary self-assessment exercise for non-Financial Action Task Force (FATF) members [Note: when Mainland China was not an FATF member at that time] in which it evaluated its compliance with the FATF’s Eight Special Recommendations on Terrorist Financing … Under the terms of a September 2000 bilateral Memorandum of Understanding, our two [U.S. and Macau] governments cooperate in enforcing …’ (emphases added). 34 The US-HK FIU (Financial Intelligence Unit) MOU in the framework of the Egmont Group (of which Mainland China is not a member) as well as the US-HK securities regulation MOU signed in 1995 and renewed in 2017. 35 ‘The C&ED [Customs and Excise Department of Hong Kong SAR] and the US Immigration and Customs Enforcement Homeland Security Investigations also co-hosted a seminar on TBML [trade-based money laundering] in January 2017 to share TBML enforcement experience, typologies and case studies with the banking industry. Over 100 AML/CFT and financial crime compliance staff from more than 30 banks participated’. Hong Kong Money Laundering and Terrorist Financing Risk Assessment Report, April 2018, para 5.2.23, P 47 . See also HKMA AML/CFT Training & Seminars accessed 28 May 2020. 36 PBC never officially acknowledges it has exclusive ‘jurisdiction’ over CFP. The State Commission Office of Public Sectors Reform (SCOPSR) clarifies the specific power of each agency. AML/CFT was a ‘jurisdiction’ of the Ministry of Public Security (MPS) only prior to the AML Law of China in 2006. Since 2006, the MPS reserves AML/CFT powers in the Penal Code, and the PBC deals with the administrative, not criminal, violations defined by the AML Law. On CFP, the SCOPSR never issued any public notification: it is presumed to be an exclusive power of the Ministry of Foreign Affairs (MFA). As the MFA does not have supervisory power over banks, the implementation of the UNSCRs has to conduct a form of Notification-Forward (MFA to PBC – PBC to banks) for now. 37 The author’s interviews with senior AML officers or compliance managers in Chinese banks or foreign banks in China. Also, the Chinese official position is that China does not acknowledge any unilateral and extraterritorial sanctions outside the UNSC resolutions. See also the chapter by Congyan Cai in this book. 38 For the latter two legal orders, see Mallard and Sun (n 14).

International bank settlement in China  329 First, although no bank in China is allowed to share its customer information with any foreign court39 as per requirements of the Chinese Banking Law40 and AML Law,41 or even arguably, its Penal Code,42 it is not considered a violation of any legal obligations43 if any banks there, particularly Chinese branches of global banks, internally decide to use any sanctions screening software, designation lists or AML/CFT/CFP protocols sourced from foreign countries or foreign suppliers. Second, as China has been the largest contributor to international trade, Chinese national banks have been widely expanding their international network through new offices and branches across the world, by which its branches in New York and in the EU, are subject to the governance of foreign sanctions laws. The leading Chinese banks such as the Agriculture Bank of China44 (which runs China’s largest banking network), like other global banks from the EU, have been ‘educated’ by the US law enforcement agencies through the AML fines and settlement, resulting in ‘voluntary’ pledges from the big Chinese banks to abide by sanctions standards of the US as well as the EU for the sake of maintaining direct access to the money supply of global central banks as well as to the international settlement network in the dollar/ euro system. This has led the three largest Chinese retail banks, all with branches in the US/ EU, to become the first to enforce restrictive measures on Iranian clients, as complained of by the Iranian Ambassador in Beijing.45 Third, for those local Chinese banks with no international network, global banks, mainly those from the EU, become their leading partners serving as their correspondent banks in charge of international payments in much the same way as Deutsche Bank serves as a correspondent agency for Swedbank,46 by which all these Chinese banks in this type of correspond39 See, for instance, ‘US Appeals Court Upholds Ruling Against Chinese Banks in North Korea Sanctions Probe’ (Reuters, 31 July 2019) ; ‘Three Chinese Banks Hit by US Probe into North Korea Links’ (Financial Times, 25 June 2019) . 40 Article 29, Chapter 3: Protection on Depositor [Clients], Commercial Banking Law of China. 41 Article 5, Article 32, AML Law of China. 42 Depending on the interpretation of ‘state secret’, in Article 111 of Penal Code, Article 9 of Protecting State Secret Law and Article 30(2) AML Law of China. 43 Although an application of foreign-sourced software, screening database and protocol is not a violation or conflict of domestic law, it is a very sensitive area for chief compliance officers in Chinese banks or foreign banks in China, as documented in interviews, considering the Chinese position (in a Soviet doctrine of absolute sovereignty) against any form of unilateral and extraterritorial sanctions, particularly the ‘long arm governance of the US [sanctions] law’. For more details, search ‘long arm governance’ in Chinese at People’s Daily . See also the chapter by Congyan Cai in this book. 44 DFS (Department of Financial Services of the State of New York) and ABC (Agricultural Bank of China) Consent Order Under New York Banking Law §§ 39 and 44 ; DFS Fines Agricultural Bank of China $215 Million for Violating Anti-Money Laundering Laws and Masking Potentially Suspicious Financial Transactions accessed 28 May 2020. 45 These measures were reported by Iranian news agencies like IRNA, Mehr, and the Financial Tribune, which lead the Iranian Ambassador in Beijing to negotiate with the Chinese Ministry of Foreign Affairs and communicate with the Chinese Banking Regulatory Commission and three retail banks . 46 ‘Deutsche Bank, Wells Fargo Were Swedbank’s Dollar Correspondents’(Bloomberg, 20 February) ; ‘Swedbank Report Spotted Anti-Money-Laundering Breaches’ (Reuters, 27 March 2019) . 47 ‘Swedbank Notifies OFAC of Potential Sanction Violations’ (11 March 2020) . 48 It is not based on open records of any administrative investigation but a summary of the interviews with experienced bank AML/CFT officers or Chief Compliance Officers in Asia. 49 ‘An IMB [the International Maritime Bureau (IMB), a unit of Commercial Crime Services of the International Chamber of Commerce (ICC)] investigation on behalf of local banks indicates that roughly two thirds of such transactions on the secondary forfaiting market were fraudulent’. ICC: Trade Fraud hits Iranian shipments accessed 28 May 2020.

International bank settlement in China  331 Standard Chartered and BNP Paribas, took a zero-risk approach towards Iranian payments,50 relocated their global sanctions compliance offices to New York and ‘voluntarily’ subjected themselves to the US unilateral sanctions regulations. For this reason, Chinese banks have become increasingly exposed to the enforcement of US unilateral sanctions laws and regulations.51 When a global bank indirectly disrupted the money transfer in a correspondent bank in the third legal order, or when a Chinese bank – often its overseas branch hidden in some process of international payment settlement – directly did so in the first or second order, there would be a payment settlement dispute in international trade between business entities or with their letter of credit payer/payee bank. To make matters worse, international trade settlement practices in Iran,52 Syria53 and Venezuela54 all rely heavily on the cross-border clearing service of their central banks. This is often due to the Foreign Reserves (FX) control measures implemented by the central bank55 and through the central bank’s front or shell companies in a third-party country. Due to US pressure on their central banks’ shell company accounts in a third-party country like the United Arab Emirates,56 bilateral payment is disrupted occasionally, leading to Type II sanctions-related disputes in China. To put it another way, international trading firms from countries under US/EU unilateral sanctions do not have many choices when it comes to making international payments and are limited to global, Chinese or Russian banks. Above all, their domestic banks or their shell company accounts in a third-party country like the United Arab Emirates are blacklisted by global banks,57 as the list of countries under unilateral sanctions heavily overlaps with that of high-risk countries blacklisted by the FATF58 or the lists of leading sanctions screening

50 Grégoire Mallard, Farzan Sabet and Jin Sun, ‘The Humanitarian Gap in the Global Sanctions Regime: Assessing Causes, Effects and Solutions’ (2020) 26(1) Global Governance: A Review of Multilateralism and International Organizations. 51 (n 39). 52 ‘Banana Containers Held Up at Customs’ (Financial Tribune, 9 May 2020) ‘piled up at Iran’s southern ports but the Central Bank of Iran failed to allocate foreign currency needed to start their customs clearance’ . 53 Al-Jaafari [Syria’s UN Ambassador]: Unilateral Coercive Economic Measures Hamper Syria’s Response to Covid-19 (11 May 2020): ‘the Syrian Central Bank had not been able to take advantage of frozen Syrian funds abroad for years with the aim of financing the import of materials related to the basic needs of the Syrian people’ . 54 See for example Fulvio Italiani, ‘Foreign currency regulations and price controls in Venezuela’ (April 2017) ; Emiliana Disilvestro and David Howden, ‘Venezuela’s Bizarre System of Exchange Rates’ (7 January 2016) . 55 Vice-Governor of the Central Bank of Iran (CBI) responsible for foreign exchange . 56 EO 13382 and EO 13846 (by which NIOC and its shells in UAE are targeted) accessed 28 May 2020. 57 ibid. 58 FATF High-risk and other monitored jurisdictions accessed 28 May 2020; https://​www​.fatf​-gafi​.org/​publications/​high​-risk​-and​-other​-monitored​ -jurisdictions/​documents/​call​-for​-action​-february​-2020​.html>.

332  Research handbook on unilateral and extraterritorial sanctions software suppliers identifying the beneficiary owner of each business entity particularly those shell companies in third-party countries. Alternative channels of international bank settlement have soon withered as well. One is the Chinese banks, like Kunlun Bank, whose controlling shareholder was directly forced by the US Secretary of State to suspend its settlement business with Iran.59 Also, for the chilling effects of US law enforcement on the Agriculture Bank of China, all major Chinese banks have decided to take restrictive measures towards Iranian accounts often by setting a daily cap on money transfers under which the counterpart exporters would not often receive a timely payment in due amount. A concrete example is that, in the Covid-19 pandemic, the Iranians have found the most, if not the only, reliable bank account to quickly accept donations and to procure medical supplies from the Chinese private sector is through the general account of their Embassy in China, held in the head office of the Bank of China in Beijing.60 The other alternative channel is the international payment network through Russian banks, intensively used by Syria61 and Venezuela.62 This is confirmed by the interview with a Chinese exporter with first-hand insights into humanitarian medical exports to the Middle East, especially Iran and Syria, which are supposed to be exempted from any UN or unilateral sanctions63 as requested by the UNSCRs.64 ‘This channel has been quickly drying up as well, as it has now become a top factor for small and medium-sized traders from Mainland China improperly using offshore accounts in Hong Kong, resulting in non-compliant or even illegal high-risk red-flag labelling for which their bank accounts are forcefully closed by bank compliance.’65 A trader ‘receiving money transfer from a Russian [US-] sanctioned bank without reporting in advance, with a couple of other income streams from high-risk countries with no pre-reporting, was treated with all accounts being closed in spite of there being no transaction in violation

59 ‘China National Petroleum Corp May Cut Kunlun Bank’s Ties to Iran: Sources’ (Reuters, 21 December 2018) ; ‘Exclusive: As US Sanctions Loom, China’s Bank of Kunlun to Stop Receiving Iran Payments – Sources’ (Reuters, 23 October 2018) . 60 As reflected by the announcements of the Iranian Embassy in Beijing on Weibo in 2020 over the pandemic, and re-affirmed with an experienced expert with contacts there. 61 ‘Exclusive: Russian Banks Strengthen Ties With Blacklisted Syrian Lenders’ (Reuters, 31 October 2013) ; ‘Report: WikiLeaks Withheld Email Linking Syria to Russian Bank’ (Washington Examiner, 9 September 2016) . 62 ‘Exclusive: Venezuela Shifts Oil Ventures’ Accounts to Russian Bank - Document, Sources’ (Reuters, 9 February 2019) . 63 See for example EU Council Decision (CFSP) 2017/2074, Article 4.1, 4.2 and 6.6 on Venezuela, and OFAC (Office of Foreign Asset Control, US Treasury) Guidance Related to the Provision of Humanitarian Assistance and Support to the Venezuelan People, 6 August 2019 . 64 See for example UNSCR 1718 (2006) para 9–10 on DPRK, UNSCR 1737 (2006) para 9 on Iran, UNSCR 2254 (2015) para 12, UNSCR 2268 (2016) para 5, and UNSCR 2235 (2016) on Syria. 65 The author’s interview with experienced specialists from manufacturers and exporters in East Asia in Spring 2020.

International bank settlement in China  333 of any UN or unilateral sanctions at all’.66 Despite there being no UN sanctions on Russia, the legal practice is that ‘your company account can receive only business-to-business (not individual) money transfers from non-sanctioned banks in Russia conditioned on reporting in advance. With six US-sanctioned banks, you cannot conduct any transactions; otherwise, the receipts shall be returned and your accounts in trouble’.67 This case is also very helpful in understanding why this chapter is constructed around the legal practices in China including Hong Kong, as it is the largest offshore bank settlement centre for the Chinese private imports and exports sector as well as their counterparty traders around the world. The picture of unilateral and extraterritorial financial sanctions would not be complete without examining the transnational legal orders in both civil law and common law systems through onshore and offshore banking services.

4.

REMEDIES AND PROCEDURES IN MAINLAND CHINA

As already underlined, the UNSC resolutions have never sanctioned the Central Bank of Iran, Iranians or Iran in general, and the same is true of Russia, Syria and Venezuela. But global banks, particularly their branches as well as their local partners in correspondent bank relationships in Mainland China and Hong Kong, have to enforce US and EU sanctions for fear of US secondary sanctions. This leads to conflict or tension between positive law on paper and legal practices in international bank settlement in China. It is also where individuals or banks from unilateral and extraterritorial sanctioned countries would look for diplomatic protection from their ambassador in Beijing, as well as professional advice from their trusted lawyers or senior bankers in China. One example is the practical difficulty of opening bank accounts for citizens from US/EU sanctioned countries. Another example is where the cross-border bank settlement system does not work, as explained in Section 3, leading the above presented two types of sanctions-related letters of credit disputes between the relevant parties, like the letter of credit payee, payer, or their banks.68 Moreover, although money payments to Iran, Syria or Venezuela in themselves are not considered to violate inexistent Chinese sanctions, they are very likely to be in violation of the AML/CFT/CFP laws for failing to satisfy either the enhanced regulatory requirement of the risk-based approach with regard to politically exposed person (PEP) screening,69 or the beneficial ownership review on the counterparty bank or payers/payees from high-risk jurisdictions, for instance, as blacklisted by the FATF. Reported cases have shown that some banks have been punished by the PBC for such reasons. There is a trend towards higher administrative fines by the PBC on Chinese banks and also foreign banks in China for violations of AML/ CFT/CFP,70 particularly in the context of the fourth FATF mutual evaluations on China and ibid. ibid. 68 For details, see Section 4.3 of this chapter. 69 ‘FATF Recommendation 12 defines a PEP as being someone who has been (but may no longer be) entrusted with a prominent public function’. For details, see ‘LexisNexis, 10 Things You Need to Know about PEP Screening’ . 70 See for example PBC Shanghai AML/CFP fines on BNP Paribas (China) Limited, its governor, COO, and Compliance Chief, respectively for CNY 2.7 million, 60 thousand, 60 thousand and 45 thousand yuan as of 26 May 2020: PBC Shanghai Fine (2020) #9, #3, #10, and #11. 66 67

334  Research handbook on unilateral and extraterritorial sanctions the implementation of China’s big data governance project. The relevant banks, particularly foreign banks in China in this case, are often unsure about what remedies they could look for from the AML law enforcement agency and/or other authorities in China, what procedures they should follow or pay attention to, and whether or not it is wise to challenge the PBC in the Chinese courts, for which they look for legal advice from practice lawyers with cutting-edge insights in this particular field. These questions are extremely relevant because of the marked differences between the Chinese law of administrative procedure along with its socio-legal course on AML/CFT/CFP law enforcement and that in the US and EU. 4.1

Administrative Complaint and Reconsideration

So, when an Iranian71 student, for example, finds it difficult to open a bank account, as the author documented from the branch AML specialist of a major national bank in China, the best legal advice is to make a complaint72 first to the bank’s head office, and, if that fails, to the Department of Written Complaints of the General Office – the Chinese Bank Regulatory Commission (CBRC) – which has direct and immediate supervisory power over any bank. That is why the Iranian ambassador in Beijing did so at first.73 To be more specific, it should be highlighted that the legal sources of administrative remedies for individuals and banking institutions are different with regard to restrictions on opening bank accounts or money transfer services in China. Besides the administrative complaints, foreign banks from high-risk countries with account restrictions in China or a Chinese bank with AML fines for transactions with them could also seek relief from administrative reconsideration at the CBRC and the PBC, respectively, over banking supervision74 and AML/CFT75 matters.

71 The Iranian community in China has a sizable population of students, businessmen and visitors. Each year about 70,000 people visit China from Iran. But it is a very minor group of Syrians and Venezuelans for an estimate of about 100 long-term residents each in China. 72 The general legal term for this special procedure is administrative petition, but the specific term used by the CBRC is complaint. For a general comparison between administrative petition and litigation, see: Taisu Zhang, ‘Why the Chinese Public Prefer Administrative Petitioning over Litigation [J]’ (2009) 3 Sociological Studies. 73 (n 45). 74 Article 5, Administrative Reconsideration Measures of China Banking Regulatory Commission of 2004 (ARM-CBRC). ‘(1) Refusing to accept the warning, fine, confiscation of illegal income, order to suspend business, revocation of financial license and other decisions made by the CBRC or its dispatched office; (2) Refusing to accept the decision made by the CBRC or its dispatched office to cancel the qualifications of directors and senior managers of banking financial institutions for a certain period of time or for life’ (emphases added). 75 Article 7, Administrative Reconsideration Measures of the People’s Bank of China of 2001. ‘(1) Refusing to accept the administrative penalty decisions made by the People’s Bank of China, such as warning, fine, confiscation of illegal income, confiscation of illegal property, suspension or cessation of financial business, order to suspend business for rectification, revocation of business license for financial business, revocation of representative offices of financial institutions, etc.; (2) Refusing to accept the decision made by the People’s Bank of China to disqualify senior managers of financial institutions’ (emphases added).

International bank settlement in China  335 Administrative reconsideration76 is a very important legal remedy because in China’s fragmented administrative procedural laws and regulations there are at least seven situations in which the administrative court would not admit a case unless submitted for administrative reconsideration first: namely, natural resources, tax, patent, customs, price, parade or march, and financial regulation but excluding AML/CFT.77 Administrative reconsideration works like a tribunal78 composed of professional government legal officers (alongside industry experts and lawyers occasionally) of the administrative agency or the central or provincial government. The government legal officers in administrative reconsideration are required to pass the national judicial examination like any professional lawyer in China. Bear in mind that (a) unlike in the EU there is no subsidiarity doctrine in China, and (b) unlike the US Federal system, China has a unitary political system. The general logic of this institutional design is to run a review system within the executive branch, by which a higher tier of government or its specific administrative agency shall review the specific act of a lower tier or its agency with regard to its specific administrative decision, enforcement or fine on civil entities. The form is similar in Hong Kong’s tax dispute with the Inland Revenue Department, which would refer any dispute first to a tax tribunal. In the UK, there are also many similar tribunals created by statute to deal with particular types of regulatory, disciplinary or administrative matter.79 But the substance in China is very different in a legal order dominated by the

76 He Xin, ‘Administrative Reconsideration’s Erosion of Administrative Litigation in China’ (2014) 2(2) The Chinese Journal of Comparative Law 252–69. 77 ‘(9) Legal liability for acts violating relevant anti-money laundering regulations: Article 191 of China’s Criminal Law provides penalties for five acts that facilitate money laundering by units and individuals including financial institutions. However, the People’s Bank of China shall punish money laundering that is obviously minor and does not constitute a crime in accordance with the provisions of this article … the party subject to administrative punishment may choose to apply for administrative reconsideration, and the administrative organ at the next higher level or the administrative organ prescribed by laws and regulations may decide whether to correct or maintain the administrative punishment decision made by the administrative organ. The parties may also bring a lawsuit directly to the court, and the people’s court shall decide whether to maintain or revoke the administrative penalty decision or change the judgment. If the party concerned chooses the administrative reconsideration procedure, he may also bring an administrative lawsuit to the people’s court if he is not satisfied with the administrative reconsideration’. National People’s Congress Standing Committee: Interpretation of the Law of the People’s Bank of China, Chapter VII Legal Liability, 86–118 (February 2004). 78 There are three tiers of legal orders: (1) administrative reconsideration (AR) against a specific decision, enforcement or fine will be reviewed by a permanent AR commission composed of legal officers from its Department of Legal Affairs (not law enforcement or investigation) in a regional office, (2) AR against the regional office will be reviewed by the AR commission composed of legal officers from the CBRC Department of Legal Affairs, and (3) AR against the CBRC could be filed at the State Council (reviewed by its Legal Office, which is now part of the Ministry of Justice), or at court by administrative litigation against the CBRC/regional office. For details, see (nn 73, 75 and 76). 79 Employment Tribunals, Employment Appeal Tribunal, Competition Appeal Tribunal, First-tier Tribunal (General Regulatory Chamber, Health, Education and Social Care Chamber, Immigration and Asylum Chamber, Property Chamber, Social Entitlement Chamber, Tax Chamber, and War Pensions and Armed Forces Compensation Chamber) and Upper Tribunal (Administrative Appeals Chamber, Immigration and Asylum Chamber, Lands Chamber, and Tax and Chancery Chamber).

336  Research handbook on unilateral and extraterritorial sanctions executive branch, not the legislative or judicial branches. In 201780 and 2018,81 respectively, the PBC settled 60 and 83 administrative reconsideration cases over their punitive measures against financial institutions in China. Over the same period, the CBRC settled 580 and 467 administrative reconsideration cases over their punitive measures against financial institutions in China. By the rankings of the annual volume of reconsideration cases against any ministry or ministry-level agency, the CBRC has been a top-five administrative agency in the Chinese central government for filings by civil entities under this procedure. The implication is that administrative reconsideration is considered as a relatively common remedy for the industry against the fines of the administrative agencies in China. In other words, for those readers who are not familiar with Chinese legal culture, it should be borne in mind that compared with administrative litigation in tribunals (to be explored in the following section), administrative reconsideration, which is still within the executive branch of Chinese government, is more acceptable, or at least, less offensive for banks and regulators alike. 4.2

Administrative Litigation

This procedure operates through the specialized chamber or court of administrative law that are similar to French administrative courts, where in financial regulation related administrative penalty cases, the chamber or court can review appeals against unfavourable administrative reconsideration or against a specific administrative fine by the administrative law enforcement agency directly.82 This procedure of judicial administrative litigation in administrative procedural law would be particularly useful to specific banking institutions claiming to be unfairly or inappropriately treated by a particular administrative agency.83 Again it is another story entirely in legal practice. Lawyers and senior bank officers with experience of compliance and AML/CFT/CFP report the following. It might consider a remedy from judicial administrative litigation if and only if they are individual clients with an AML violation penalty from the PBC. For financial institutions in China, ‘you are literally committing suicide if you dare to do so’.84 The statistics support this rule of thumb: until now,

80 Ministry of Justice, ‘Statistics on Administrative Reconsideration and Administrative Litigation Cases in 2017’ accessed 28 May 2020. 81 Ministry of Justice, ‘Statistics on Administrative Reconsideration and Administrative Litigation Cases in 2018’ accessed 28 May 2020. 82 See Minxin Pei, ‘Citizens v Mandarins: Administrative Litigation in China’ (1997) China Quarterly 832; Kevin J O’Brien and Lianjiang Li, ‘Suing the Local State: Administrative Litigation in Rural China’ (2004) 51 The China Journal 75–96; Xin He, ‘Judicial Innovation and Local Politics: Judicialization of Administrative Governance in East China’ (2013) 69 The China Journal 20–42; Ji Li, ‘Suing the Leviathan—An Empirical Analysis of the Changing Rate of Administrative Litigation in China’ (2013) 10(4) Journal of Empirical Legal Studies 815–46; Wei Cui, ‘Does Judicial Independence Matter: A Study of the Determinants of Administrative Litigation in an Authoritarian Regime’ (2017) 38(3) University of Pennsylvania Journal of International Law 941–98; Haibo He, ‘How Much Progress Can Legislation Bring: The 2014 Amendment of the Administrative Litigation Law of PRC’ (2018) 13 University of Pennsylvania Asian Law Review 1. 83 (n 75). 84 The author’s interview with the branch AML/compliance head of a Chinese insurance company with administrative AML fine by the regional PBC office in Winter 2018–19.

International bank settlement in China  337 no financial institution in China including any local branch of global banks has ever sued the PBC for any dissent with its AML/CFT fines, often amounting to many millions of dollars. The logic is simple: it is widely believed that the PBC, if offended, would immediately start a new round of on-site AML/CFT inspections, which would result in more violation findings with more fines and serious punishments like suspending certain bankers. Over the period of temporary suspension for investigation, it is not allowed to pay any remuneration but the minimum wage to the bankers concerned. At the end of the investigation, it is within the PBC’s discretionary power to ‘disqualify senior managers of financial institutions’ based on Article 7(2) of the PBC Law.85 For the reasons above, it is strongly recommended that banking institutions refrain from seeking a remedy of judicial administrative litigation against any AML/CFT decision by the PBC in any Chinese tribunal, it being preferable to resolve disputes through administrative complaint or reconsideration procedures. 4.3

Judicial Litigation: Judicial Mediation and Adjudication

Under China’s civil procedural law,86 the courts can engage in mediation as well as adjudication. For practical reasons, a court will first encourage the parties to undertake a mediation process; if any party declines, then the court will adjudicate. In sanctions-related disputes concerning letters of credit or other forms of payment or trade finance (e.g. T/T payment, collections, forfaiting, factoring, collection of promissory notes),87 the effect of extraterritorial sanctions by the US/EU is visible in China because normal bank settlements were blocked or disrupted in specific cases, as shown by the record of court cases in China. There is therefore an alternative litigation strategy for such unilateral sanctions-related disputes in China, arising out of the visible effects that unilateral sanctions have in disrupting settlement in international trade. Indeed in cases of letter of credit disputes88 it is reasonable to take the view that in law the dispute is not against an AML/CFT decision but of a commercial nature. For this reason, the court could treat it as a normal civil case, protect the trade transactions and instruct the bank to deal with money transfer or reparations for the settlement struck in some known or unknown process due to the extraterritorial sanctions. As the court consents to it being heard as a commercial dispute, it is not required to be submitted for administrative reconsideration first. In other words, the wisdom of this litigation/defence strategy is to resolve a sanctions dispute by ignoring sanctions, and thus, it is not necessary to review restrictive measures.

(n 76). Article 9, Civil Procedural Law of China (CPLC). 87 More examples are available at Trade Finance Business, Dept. of Corporate Banking in Bank of China: www​.bankofchina​.com/​cbservice/​cb3/​, and Global Trade Receivable Finance solutions in HSBC: www​.gbm​.hsbc​.com/​solutions/​global​-trade​-receivables​-finance. 88 See for example Bank Pasargad dispute with its L/C counterpart bank in China, Bank Eghtesad Novin’s correspondent account in Chinese Kunlun Bank, and Bank of Industry and Mine (Persian: ‫کناب‬ ‫ندعم و تعنص‬‎) vs Chinese Kunlun Bank. 85 86

338  Research handbook on unilateral and extraterritorial sanctions

5.

REMEDIES AND PROCEDURES IN HONG KONG

As illustrated by the example of Chinese medical exporters to the Middle East in Section 3, Hong Kong is an international financial and trade centre for its sophisticated cross-border arrangement with Chinese exporters and their buyers in Syria, Iran, Venezuela, Russia and elsewhere through offshore bank accounts there, which are often connected with onshore bank accounts in Mainland China under Chinese law. Meanwhile, it is mandatory for global banks in Hong Kong to enforce US/EU coercive unilateral and extraterritorial sanctions, which might disrupt or block certain payments between the onshore and offshore accounts because of conflicts of laws in transnational legal orders. For these particular reasons, it is very important to understand the remedies and procedures in Hong Kong for unilateral sanctions, which could be viewed as the laws and practices of Chinese offshore banking denominated in US dollars as well as in Chinese currency.89 Hong Kong implements UNSC sanctions through a set of AML/CFT regulations,90 the core of which is the United Nations Sanctions Ordinance (Chapter 537) (UNSO).91 In addition to the Hong Kong Police and Customs as the main AML/CFT/CFP enforcement agencies, four other administrative agencies92 are also responsible for sanctions implementation, namely, the Commerce and Economic Development Bureau (C&ED), the Trade & Industry Department (TID), the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC), with regard to implementing UNSC sanctions, trade sanctions and financial sanctions including US/EU unilateral sanctions. Readers might notice the potential tensions between the C&ED and two financial sanctions law enforcement agencies – HKMA and SFC. While only those acts in violation of the

89 See for example HKMA Booklet: HONG KONG: The Global Offshore Renminbi Business Hub ; Hong Kong Financial Services Development Council: Hong Kong: A Leading Financial Hub of Offshore RMB: ‘RMB trade settlement handled by banks in Hong Kong … accounting for 89% of total RMB cross-border trade settlement [in the world]’ ; SWIFT ‘More than 100 countries are now using the RMB for payments with China and Hong Kong’ (27 October 2016) .

Horizontal sanctions regimes  453 regime due to the close connection between corruption and human rights violations in the developing world.75 This is particularly relevant where the illicit exploitation of mineral wealth is concerned, a source of human rights violations which several international schemes try to address.76 Some highlight that, while many autocrats restrict economic rights in the countries they rule for political gain, they keep their own assets in foreign constituencies where property rights are solidly protected.77 Then again, other scholars point to the low likelihood that designees will opt to operate in jurisdictions protected by robust anti-money laundering legislation like Canada.78

4.

OPEN QUESTIONS IN THE EMERGING PRACTICE OF HORIZONTAL SANCTIONS: BEYOND LEGAL CHALLENGES

While the obligation to grant due process guarantees to designees and the judicial scrutiny exercised by the Court of Justice of the European Union (CJEU) on sanctions regimes implemented by the EU have taken centre stage in European scholarship over the past decade,79 they are hardly the only challenges faced by horizontal sanctions. Issues related to design, finalité and effectiveness deserve comparable attention. 4.1

The Question of De-Listing

The formulation of conditions for de-listing is as central as the designation criteria. Many sanctions regimes fail to specify what actions are required for bans to be lifted. In countries that have experienced democratic backsliding, free and fair elections usually bring about an end to restrictions.80 In armed conflict, the cessation of hostilities and implementation of a peace agreement lead to the termination of sanctions. In instances of weapons proliferation, verifiable disarmament brings about the lifting of measures. During ongoing crises, designees can achieve de-listing by switching sides or by agreeing to participate in talks. By contrast it is unclear what action is required from designees to be removed from a themed list. Notably none of the EU horizontal sanctions regimes under discussion in this chapter specifies the circumstances under which perpetrators can come off the list. However, this question is worth clarifying in view of its relevance for incentivizing behavioural change, a classical objective of sanctions.

75 Zamora and Marullo (n 61); Landale (n 74); Transparency International, ‘Including corruption in the future EU Global Human Rights Sanctions Regime’, June 2020. 76 Aula (n 22). 77 Dursun Peksen, ‘How Do Target Leaders Survive Economic Sanctions? The Adverse Effect of Sanctions on Private Property and Wealth’ (2017) 13 Foreign Policy Analysis 215–32. 78 Andrea Charron and Meredith Lilly, ‘More Sanctions Is The Wrong Tool for Human Rights Protection’ (2017) Policy Options, Institute for Research on Public Policy, Montreal. 79 Marco Gestri, ‘Sanctions Imposed by the European Union: Legal and Institutional Aspects’ in Natalino Ronzitti (ed.), Coercive Diplomacy, Sanctions and International Law (Nijhoff 2016) 70–102. 80 Andrea Charron and Clara Portela, ‘The UN, Regional Sanctions and Africa’ (2015) 91(6) International Affairs 1369–85.

454  Research handbook on unilateral and extraterritorial sanctions The US Global Magnitsky Act foresees the possibility of termination of a listing when the designee has ‘credibly demonstrated’ a ‘significant change in behaviour’ and ‘credibly committed’ not to engage in similar actions in the future.81 Yet it is difficult to imagine how a designee can accomplish this in practice. The legislation also considers the appropriate prosecution of a designee for the activity for which sanctions were imposed as a reason for de-listing. It is not unprecedented for the EU to blacklist individuals in the interest of international prosecution. However, it listed war criminals Radovan Karadžić or Ratko Mladić after they had been indicted by the International Criminal Tribunal for the Former Yugoslavia.82 In the planned EU human rights regime, prospective designees are not expected to have been convicted previously by the states they serve, in a departure from the Yugoslav precedent.83 Interestingly no clear pattern is discernible in the US case: the first round of designations in the US Magnitsky Act featured eight individuals designated for involvement in corruption, out of which three had faced charges at home.84 To the extent that future prosecution by a domestic or international court is expected, sanctions tools may be taking a step toward the judicialization of these measures.85 Dutch Foreign Minister Stef Blok referred to the human rights sanctions regime as an instrument ‘to supplement the criminal law’.86 Scholars regard blacklists as approximating a permanent ‘policing mechanism’ or even ‘criminal procedures’.87 The US experience with anti-corruption sanctions has been described as a ‘mélange of politics and criminal justice’.88 This is particularly true of horizontal sanctions regimes: because they are not linked to the resolution of any specific crisis, these tools can be expected take on an open-ended character that turns theoretically exceptional, temporary freezing into de facto confiscations and semi-permanent bans. This phenomenon has already been witnessed with UNSC Resolution 1267, which has evolved into a permanent global counterterrorism arrangement.89 Closely related to this is the existence and possible proliferation of multiple listings. Currently there is no mechanism for the allocation of designations to country-based regimes or thematic lists. Designations for toxic attacks in Syria feature concurrently on two lists. Both the Syria sanctions regime and the sanctions regime on chemical weapons include involvement in toxic attacks as a designation criterion. As a result, certain – but not all – actors implicated in chemical weapons use in Syria feature on both lists. Such multiple listings, which see individuals designated under different sanctions regimes for the same wrongdoing, are not unusual: the US has listed Iran’s Islamic Revolutionary Guards under seven sanctions authorities.90

Global Magnitsky Human Rights Accountability Act 2015. Council Common Position 2004/694/CFSP of 11 October 2004 on further measures in support of the effective implementation of the mandate of the International Criminal Tribunal for the former Yugoslavia (ICTY) OJ L315/52. 83 Rettman (n 59). 84 Anton Moiseienko, Corruption and Targeted Sanctions (Brill 2019). 85 Gowlland-Debbas V, ‘Security Council Change: The Pressure of Emerging International Public Policy’ (2009) 65(1) International Journal 119–39. 86 Blok (n 66). 87 See, respectively, Tourinho (n 4) 1402 and Wallensteen and Grusell (n 23) 217. 88 Moiseienko (n 84) 5. 89 Tourinho (n 5). 90 James Gibney, ‘Trump’s Sanctions Are Losing their Bite’ (Bloomberg, 2 April 2020). 81 82

Horizontal sanctions regimes  455 The question is, however, how multiple listings can be optimally organized. One possible logic is that one actor is blacklisted for two different wrongdoings. In that case, the removal of the designee would be conditional upon different actions. One actor would be required to satisfy different sets of conditions to achieve its de-listing from various lists. In the absence of such logic, naming the same actor in two separate lists for the same wrongdoing is a source of confusion.91 In the EU, duplicate listings tend to result from the co-existence of country-specific and horizontal sanctions regimes, suggesting an organizational gap. Transferring all actors involved in chemical weapons usage in Syria to the new horizontal regime would ensure clarity, while multiple designations could be reserved for actors designated for different wrongdoings. Again, publicizing the rationale for double-listings would present designees with clear incentives and make it easier for the sanctions regimes to promote compliance. 4.2

The Impacts of Targeted Individual Sanctions

The trend towards individualization observable in sanctions practice has not received commensurate attention in scholarly circles. A key difficulty with efficacy assessment is that it is routinely conducted with reference to country cases despite the proliferation of individual sanctions.92 Studies do not systematically evaluate the effects of sanctions on individuals, but the impacts of the sanctions package on a crisis as a whole. Those few works examining sanctions against individuals concentrate mostly on the UN experience. Targeted sanctions are commonly portrayed as measures of modest efficacy. Some analyses of sanctions suggest that targeted measures are somewhat less efficacious than comprehensive embargoes.93 The study conducted by the Targeted Sanctions Consortium (TSC) usefully disaggregated country cases into episodes. It surveys UN targeted sanctions in the post-Cold War era assessing impacts through various evaluative criteria and concludes that their efficacy is comparable to that of comprehensive embargoes.94 Yet this finding is largely attributable to the fact that evaluation combines a measurement of coercion alongside other aspects, such as the communicative value of the measures.95 Most studies base their scepticism on the diminished impact of individual sanctions on their weaker effects, positing that more targeted impact translates into more limited impact.96 On the basis of TSC data, Kimberly Elliott explores whether individual sanctions display primarily psychological impacts on those targeted and their supporters. She finds that among targets of individual sanctions, political impacts are observable, while economic and psychological impacts are not. By contrast, where broader sectoral sanctions are used, economic as well as political impacts are detected in more than half the episodes.97 Contrary to expecta Portela and Moret (n 51). Clara Portela, European Union Sanctions and Foreign Policy (Routledge 2010). 93 Gary Hufbauer, Jeffrey Schott, Kimberly Elliot and Barbara Oegg, Economic Sanctions Reconsidered: History and Current Policy (Institute for International Economics 2007). 94 Biersteker, Eckert and Tourinho (n 2). 95 Lee Jones and Clara Portela, ‘Evaluating the Success of International Sanctions: A New Research Agenda’ (2020) Afers Internacionals 125. 96 Kimberly Ann Elliott, ‘Trends in Economic Sanctions Policy’ in Wallensteen and Staibano (n 41) 3–14. 97 Elliott (n 18). 91 92

456  Research handbook on unilateral and extraterritorial sanctions tions, she finds that psychological impacts are uncommon even when sanctions prominently target individuals. Moreover, narrowly targeted sanctions typically have fewer impacts than other types, and psychological impacts are never associated with any degree of sanctions effectiveness. Elliott’s findings help materialize assumptions about these measures’ capacity to stigmatize targets. Stigmatization was more obvious in cases involving armed conflict, where it often eroded political support for targets, than in cases of actors involved in terrorism, violence against civilians or coups d’état. At the micro-level, former designees in Sierra Leone and Liberia were surveyed by Erica Cosgrove to ascertain their experience under UN bans. A former Sierra Leonean designee confirmed the presence of psychological impacts in terms of stigma, shame and fear, as well as a significant loss of prestige on account of his inclusion on a UN blacklist. Yet he did not attribute any changes in his political views and allegiances to the pressure he came under due to the listing.98 A former member of the Liberian cabinet explained that the immediate effect of the listing was to confirm his loyalty to the Liberian leadership and dissipate any suspicion of proximity with hostile foreign powers. He claimed that he would have been regarded with suspicion if his name had not featured on the UN blacklist where fellow ministers were included.99 Given that a suspicion of disloyalty would have endangered his personal safety, the stigmatizing effect was marginal: ‘it brought a lot of blessings to me to have been included, otherwise I might have been … probably accused of providing information that probably led to this kind of situation’.100 The designee reported that he did not feel singled out because he viewed the blacklist ‘as a punishment on the government’ he belonged to.101 An analysis of data on 450 individuals featuring on eight different UN country lists explored listing strategies and their impacts. Researchers Peter Wallensteen and Helena Grusell found that designations followed a preference for initially modest listings that could be escalated subsequently, as well as for limiting the overall number of designations to prevent them from uniting as a group in opposition to the UN. However, some interviews revealed that blacklists were mocked for the inclusion of not more than three designees, who, albeit violators of the UN resolution, were viewed as peripheral to political power. Here designation tactics ultimately undermined the credibility of the sanctions.102 The enquiry also reveals that as the number of listed individuals decreased, the level of seniority of the designees decreased too. With the notable exception of the Liberian case, most sanctions regimes refrained from targeting leaders, focusing instead on senior officials, supporters and ‘traders’, a category encompassing traffickers and other middlemen. The trend of designating persons other than leaders is counterintuitive given that the lower individuals are placed in the decision-making hierarchy, the fewer opportunities they have for influencing policy. In measuring individual sanctions’ effectiveness to bring about compliance with UNSC demands, Wallensteen and Grusell find that the compliance ratio is no higher than for other sanctions types, which is estimated at between 20 and 34 per cent. Overall this result is satisfactory given that the case in favour of targeted sanctions is not predicated on their superior

98 Erica Cosgrove, ‘Examining Targeted Sanctions. Are Travel Bans Effective?’ in Peter Wallensteen and Carina Staibano (n 41) 207–28. 99 ibid. 100 Cited in ibid 223. 101 ibid 220. 102 Wallensteen and Grusell (n 23).

Horizontal sanctions regimes  457 effectiveness compared to full embargoes but on their capacity to exact a considerably lower human cost. Nevertheless the authors assert that their effectiveness could increase with the help of improved targeting policies. They ascribe the ineffectiveness of sanctions listings to a suboptimal or untimely use of the measures, uninformed by awareness of the circumstances prevailing in the specific context to which sanctions are applied.

5. CONCLUSION With the development of horizontal sanctions, international sanctions practice has reached a new stage. After cultivating a targeted sanctions practice in which individual sanctions, the narrowest variant of this type of measures, took centre stage, senders are moving towards their detachment from country-specific political crises. Paradoxically the evolution observed confirms that, while the Kadi case contested the legitimacy of the UN sanctions regime, it ‘simultaneously contributed to a normalisation of the principle of targeted sanctions’.103 The present chapter has outlined the context against which this novel organizational logic for designations has been introduced, as well as its rationales, challenges and effects. The abundance of horizontal sanctions regimes in US practice might suggest that embracing this type of list responded to a desire to approximate EU sanctions legislation to that of its main transatlantic partner, a development that will facilitate the joint blacklisting of designees on both sides of the Atlantic. One can conjecture that this development is due to Washington’s desire to see its European partners adopt legal instruments that admit the transfer of its own listings while the UK was still a member of the EU, which is apparent in the fact that it directly lobbied for the adoption of a pendant to its Global Magnitsky Act. After all, the launch of the horizontal sanctions regimes against chemical weapons and cyberattacks took place before its closest ally, the UK, withdrew from the EU. Thanks to the enactment of horizontal sanctions regimes, EU sanctions practice increasingly resembles the practice of the US, the world’s most prolific sender of sanctions. However, the analysis presented in this chapter reveals that another powerful driver can be found in the political uses one can give to these listings. A key advantage of thematic lists lies in their lack of connection to a country: it allowed the EU to address what it perceived as security threats without ascribing blame to any specific country. Playing with this ambiguity, Brussels listed individuals and entities responsible for chemical or cyberattacks on its members.104 In view of an unpersuasive record of individual sanctions in promoting compliance, it is far from certain that the possibility of designation will have a corrective or deterrent effect on (potential) perpetrators. However, the enactment of sanctions regimes and the accompanying listings deliver a clear yet subtle message to the authorities behind such attacks: that the EU views them as a direct security threats and that it is prepared to attach a ‘price tag’ to hostile actions.

103 Marieke de Goede, ‘Blacklisting and The Ban: Contesting Targeted Sanctions in Europe’ (2011) 42(6) Security Dialogue 499–515, 501. 104 Council of the European Union, Council Decision (CFSP) 2020/1127 of 30 July 2020 amending Decision (CFSP) 2019/797 concerning restrictive measures against cyber-attacks threatening the Union or its Member States OJ L 246/12, 30 July 2020.

Index

ABLV Bank 13, 288–94, 299 ABN Amro 275–6 accountability assessment challenges 400 comprehensive sanctions causal links 398–401 challenges to 390–98 extraterritorial human rights obligations 390–92 remedies 393–8, 403–5 Covid-19 pandemic 21 international law, due process 393–4 UK targeted sanctions, in 421–2 Administrative Court (France) 318, 336 affected populations unintended impacts of sanctions 15–16, 27–31, 33, 35–6, 53, 60, 385–9, 442–3 African National Congress 37–8, 44–5 African Union 25, 48–50 aggression, definition 368 Agriculture Bank of China 329, 332 Alipay 141–2 anti-corruption credibility of evidence 411 criminal sanctions 16 EU sanctions 96–7, 100, 124–5 horizontal sanctions 451–4 misappropriation sanctions 409, 418–20 oil and gas pipelines sanctions 11, 101–2, 169–70, 173 over-compliance, and 256 sanctions trends 116–17, 447, 452–3 targeted sanctions 124–5, 137, 175, 407–9, 411 UN Convention (UNCAC) 409 US sanctions 21, 96–7, 100–101, 116, 189–90, 256, 301–5 Global Magnitsky Act, influences of 116, 301, 451–4 anti-money laundering ABLV Bank 289–94 best practice 22 OFAC cases 275–6 policy development 5, 273 secondary sanctions role in 289–94 US settlement procedures, conflicts with 235–6 windfall effect 13

applicable law arbitrability of sanctions, and 343–5, 350 conflict of law rules 353–4 illegality of contracts 355–6 overriding mandatory provisions 343 unilateral sanctions disputes 345–6, 348–9 Arab League 24 arbitrability applicable law, and 343–5, 350 public policy, and 343–6 blocking measures 350–51 enforcement, influences on 349–53 EU judicial interpretation 350–51 jurisdictional conflicts 343–5, 350 sanctions regime applicability judicial interpretation 346–8 relevance of, generally 345–6 UN sanctions, and 346–8 unilateral sanctions, and 348–9 arbitral awards effect of, nullification 350–51 enforcement of foreign awards 313, 343–4 public policy grounds for refusal 351–3 arbitration applicable law choice of court provisions 345 conflict of law rules 353–4 generally 343–5 overriding mandatory provisions 343–5 substantive law 353–5 unilateral sanctions disputes 345–6, 348–9 disputes involving sanctions, arbitrability judicial interpretation 346–8 public policy influences on 349–53 UN sanctions 346–8 unilateral sanctions 348–9 national security exception 218 police powers doctrine, and 217 substantive law, applicability of law variations and contradictions 353–4 mandatory rules 353–4 unilateral sanctions, and 353–5 tribunal jurisdiction, sanctions impact on 343–5 arms embargoes 29, 39–43 arrest due process infringements, and 428–9

458

Index  459 European Arrest Warrant 437 ASEAN 25 asset freezing 5 compensation for 217, 394 consequences of 409–10 due process, and 409–10 EU, by 215, 415–20 expropriation measures, protection from 215–17 fair and equitable treatment, violation of 215 France, by 317–18 misappropriation sanctions 418–20 police powers doctrine 216–17 standard of proof 215, 415–21 UK, by 420–21 US, by 137, 411–12 use trends 29, 92, 189 Australia 156–7, 159–60 autonomous sanctions benefits of 34, 36 criticism of 31–3, 35–6 UN sanctions, and 34, 160–61 use trends 25–6, 33–4 Banco Delta Asia 326, 341 banking sector anti-terrorism policy impacts on 92, 271 global banking practices algorithmic governance 279–86 blacklisting 331–2 compliance challenges 282–6 compliance trends 273, 276–7, 279–80 digitization of money flows 274, 276–81 enforcement obligations 333–4 financial due diligence, and 272–3, 277–81 independent monitoring bodies 278–9 international settlements disputes 330–33 international transfer 'travel rule' 276–7 know-your-customer guidelines 236, 272–3, 283 regulatory guidance 282–4 surveillance 270, 273–4, 278–9, 282–4 US influences on 273, 276–9, 281–2, 285–6 overcompliance in 13, 271 sanctions, and impacts on 30, 51–3, 286–7 Iran, against 273, 275–7, 283–6 US extraterritoriality policy, influences of 270–87 DPAs, role of 272–3, 278–9

OFAC sanctions compliance cases 274–7, 283 Belgium 227 bilateral investment treaties 204–5 bitcoin 136 Bitfinex 146 blacklists 5, 331–2, 441–2, 444–6, 448 listing and de-listing 324–6, 453–5 blockades 22, 28, 47, 96, 225 undeclared blockades 374, 377–8 blocking measures applicability of 230–32 avoidance of 230–32 benefits of 78–9 Canada, by 224–5, 227, 236 China, by 77–9 claw back mechanisms 236–7 compensation 236–7 data protection 222–3 development of 12 discovery orders, and 233 effectiveness of 223, 237–8, 310 comity conflicts 223–5 contract law conflicts 228–30, 237 non-compliance penalties 226–8 enforcement, private rights of 236–7 EU, by 122–3, 128, 222–4, 226–31, 234–6, 264 force majeure, and 78 France, by 222, 233 implications of 12, 221–2, 237 lawfulness, judicial interpretation 228–32 limitations of 221–8, 237–8 Mexico, by 225, 227, 236 purpose 221, 223, 231–2 Russia, by 95, 105–6, 225 secondary sanctions, and financial crime initiatives 234–6 implications for 232–8 US judicial self-restraint, and 232–4 US settlement procedures 234–6 sovereign immunity, and 237 US, by 101–3, 132, 223–4, 232–6 blocking statutes see blocking measures BNP Paribas 154–5, 167, 259, 275–6, 278, 288, 306 Bonn-Berlin Process 134 boycotts 5, 22, 26, 316 South Africa, against 37, 39–41 Brazil 376 Brexit 14, 307, 312, 450 BRIC states 61–2, 68 Canada sanctions enforcement, protection from

460  Research handbook on unilateral and extraterritorial sanctions double criminality standard 430–32 extradition law, and 428–34 fundamental rights obligations, and 436 human rights, and 436–8 political offences exception 433–4 sanctions use 25 anti-corruption 452 blocking measures 224–5, 227, 236 Foreign Extraterritorial Measures Act (FEMA) 224–5, 227, 236 horizontal sanctions 447–8, 452 Justice for Victims of Corrupt Foreign Officials Act 2017 447–8 Special Economic Measures Act 160, 172, 447 subsidiary companies, applicability to 172–3 UCMs 380 US-Canada extradition treaty 428–9, 439–40 Capital Movements Code (OECD) 245 causality claw back mechanisms, and 237 human rights obligations vs. sanctions conflicts, and 398–401 overcompliance, as cause of violation 259, 268–9, 400 sanctioning states, contribution assessments 400 central banks 290–91, 330–34 chemical and biological weapons attacks 99–100, 116 Convention on 116 sanctions EU measures 99–100, 116, 119, 448–9 horizontal sanctions 448–50 Russia, against 99–100, 116, 448–9 chilling effect 31, 332 China cybersecurity law 88–9 economic development 140–44 financial system AML/ CFT/ CFP enforcement 328–9, 333–7, 341 bank account/ money transfer restrictions 330 central banks enforcement obligations 333–4 correspondent agency role 329–30 developments 140–44 dollar, reliance on 140–41 information sharing 329 investments, blocking 206–7 letter of credit disputes 330–33 money laundering 325–7 non-compliance penalties 333–4

payment settlements disputes 330–33 technology developments 141–2 foreign policy blocking measures 77–9 development, influences on 74–5 economic aggression 206–7 Five Principles of Peaceful Coexistence 74–5, 88 GATT/ WTO obligations 80–82, 85–6 international agreements 84 international criminal judicial assistance 77 international law principles, recognition of 73–4, 88 regulated activities 77–8 resilience 83–6 Russia, rivalry with 109 sanctions, views on 73–4, 76, 87, 161 targeted measures 77–9 transnational legal orders 328–30 unreliable entities list 10, 77–8 US-China trade war 80–6, 88, 140–41 voluntary pledges of compliance 329 remedies administrative remedies 325–7, 334–6 Hong Kong, in 338–40 litigation 336–7 sanctions against 21, 70, 79–83 administrative remedies 325–7, 334–6 asset freezing 89 bank payments dispute settlements 14, 330–31 Cold War, during 79 countermeasures 77–9 Covid-19 accountability 21 de-listing 326 dispute sources and types 330–33 enforcement agency cooperation 325–8 enforcement obligations 333–4 EU, by 407–8 financial sanctions 325–6 Hong Kong, regarding 79–80, 326–7, 338–40 Huawei 16, 143–4, 426–40, 429–34 human rights basis for 79–80 impacts on 83–6 international law obligations, and 84 international presence, impacts of 74–5 judicial mediation and adjudication 337 lawfulness of 323 Macau, regarding 325–6 reasons for 79–80 remedies 325–7, 333–7 resilience, and 83–6 settlements trends 325–7

Index  461 US, by 79–86, 140–44, 182, 325–6, 434–5 sanctions by approaches 83–4, 87–9 blocking measures 77–9 features of 87–8 policies with similar effects 69, 88–9 policy development 74–7 UCMs, policy on 377 use trends 26, 61, 70, 86–9 China Banking Regulatory Commission (CBRC) 334, 336 choice of law 237, 350 claw back mechanisms 236–7 Codes of Liberalisation (OECD) 242–6 collective countermeasures 188 internationally wrongful acts, state responsibility for 192–4 proportionality of 200–202 collective measures, interpretation 149 Colombia 27, 447 Combating the Financing of Terrorism (CFT) financial transparency policies 270, 279–81 sanctions design 5, 22, 444 comity 223–5, 242–3 Committee on Economic, Social and Cultural Rights (CIESCR) 54, 391, 401 compliance 256 automation of 271–3 costs of 262 covert compliance 264–5 financial due diligence, and 272–3, 277–81 global banking sector, in (see banking sector) influences on 256, 262–3 know-your-customer guidelines 272 non-compliance penalties, proposals for 73 overcompliance (see overcompliance) regulatory complexity, challenges of 33, 262 comprehensive sanctions accountability, and causal links 398–401 challenges to 390–98 extraterritorial human rights obligations 390–92 remedies 393–8, 403–5 targeted sanctions, differences 405–6, 442 unintended humanitarian impacts 15, 27–8, 27–31, 33, 35–6, 53, 60, 385–9 unlawful countermeasures, as 401–3 use trends 27–8, 60 constitutional rights, protection of 436–7 contract law blocking measures, conflicts with 228–30 choice of law 237 claw back mechanisms, and 237

contractual obligations 237, 343, 357 force majeure 360–63 frustration 358–60 grounds for excusal from 358–64 UNIDROIT Principles 356–7, 360–61 contracts sanctions impacts on 14 applicable law, illegality under 355–6 arbitration, and 355–64 enforcement exclusion grounds 358–63 force majeure 360–63 frustration 358–60 illegality 355–8 penalties 313–14 performance, partial prohibition of 356 place of performance, illegality in 357–8 remedies 360 Convention for the International Sale of Goods (CISG) 360–61 corruption, fight against see anti-corruption Counter-Financing of Proliferation (CFP) 272, 329, 333–4, 336–41 counter-terrorism blacklists 441–2 collective countermeasures, lawfulness of 192–3 data protection conflicts 429 extradition law conflicts 429 financial sanctions, role of 92 financial transparency policies 270, 279–81 horizontal sanctions role in 441–2 humanitarian impacts 30 sanctions design 5, 92, 441–2 state obligations 20 UCMs role in 424–5 countermeasures China, use by 77–9 collective countermeasures 188, 192–4 human rights impacts 401–3 international law, compliance with 184 internationally wrongful acts, as 187–9, 199, 202–3, 373, 401–3 interpretation of 151–3, 187–8 justifications for 188, 190–91 lawfulness of 184, 187–8, 190–91 non-state actors, against 189–91 proportionality 200–202 response to wrongful behaviour, as 191–5 Russia, use by 26, 90–91, 105–9 self-help measures, as 188 third-party countermeasures 7, 191–5 UCMs, as 373 Court of Justice of the EU asset freezing 215, 415–20

462  Research handbook on unilateral and extraterritorial sanctions blocking measures, lawfulness of 229–30 compensation form damage, and 127–8 conflict of laws 437 criminal enforcement of sanctions 437 EU competence 127, 416–17 EU sanctions, judicial review 126–8 fair and equitable treatment 215 fundamental rights protection 437 misappropriation sanctions 418–20 presumptions of association 127 standard of proof 415–18 targeted sanctions, challenging 215, 415–20 Covid-19 pandemic accountability sanctions 21 economic coercion 374–5 overcompliance, implications of 267 policy implications of 19, 35–6 political offences extradition exception 434–5 US sanctions policy, and 434–5 credible information standard 411 criminal cooperation see extradition criminal justice enforcement of sanctions (see under enforcement) criminal sanctions 16, 410 cryptocurrencies cyber-enabled theft, and 144–5 de-dollarization, and 136 dollar-backed stablecoins 145–6 growth trends 145–6 overcompliance, implications of 266 sanctions circumvention mechanism, as 144–6 Cuba 11, 28, 47, 121, 137, 170, 173–4, 176–80, 389 cyberattacks electoral interference, sanctions for 97–9 horizontal sanctions 447–50 individual sanctions 16 North Korea, by 144–5 targeted sanctions 407–8, 447 cybersecurity sanctions design features 5 EU, by 98–9, 116–17 US initiatives 97–8 data protection 222–3, 429 de-dollarization 108–9, 130, 135–6 de-risking 30, 257, 262, 400, 410 Declaration on the Prohibition of Military, Political or Economic Coercion in the Conclusion of Treaties 368 Deferred Prosecution Agreements (DPAs) 272–3, 278–9, 325

definitions countermeasures 151–3, 373 international sanctions 2, 150–51 investment 205 multilateral sanctions 3–4, 149 sanctions 1–3, 6, 22, 59, 150–51, 153–5 third-party measures 153–5 unilateral sanctions 3–4, 149 denial of benefits clauses 219 Deutsche Bank 275 discovery 233 disguised sanctions 22, 26, 33, 61 foreign investment screening mechanisms 206, 212–13 UCMs 372–4 dispute settlement mechanisms see international dispute settlement mechanisms disputes bank payments disputes 14, 330–33 involving sanctions, arbitrability (see arbitration) double criminality standard 322, 427, 430–32 Draft Articles on State Responsibility for Internationally Wrongful Acts 186–9, 198, 202–3 Draft Code of Offences against the Peace and Security of Mankind 367–8 drug trafficking 133, 137–8, 447 due diligence 257, 271–2 due process of law human rights and sanctions conflicts 15–16, 393–4, 405 international law, accountability challenges 393–4 protections arbitrary imposition, guarantees against 409–10 Due Process Clause (US) 412–14 exceptions 414–15 judicial interpretation of 413–14 standard of proof 411–12, 415–18 stigma plus doctrine 414 targeted sanctions, and 405–23 economic aggression 206–7 economic coercion see also unilateral coercive measures (UCMs) condemnation of 367–9 definition and interpretation 366–9 energy coercion 374 force, threat or use of 368–9 humanitarian aid, withholding 22, 31, 374–5 licences, loans and approvals, refusal of 375 treaties concluded under 368

Index  463 economic measures see economic coercion; unilateral coercive measures (UCMs) economic sanctions anti-terrorism policies, influences of 92 development of 59–61 investment restrictions (see international investment law) opposition to 31–2 role of, generally 1, 4–5, 59, 257 UCMs, as 373 unbanking effect 30 US overcompliance risks 256–69 windfall effect 13 economic warfare 206–7 ECOWAS 24 effectiveness blocking measures, of 223, 237–8, 310 comity conflicts 223–5 contract law conflicts 228–30, 237 non-compliance penalties 226–8 sanctions, of complexity, relevance of 28–9, 33, 35 humanitarian impacts 27–31 pain vs. gain theory 28–9 Russia, against 90–91, 109 South Africa, against 41–3 targeted sanctions 29, 92 unilateral sanctions, generally 5–6, 71–2 US, by 130, 134–5, 139–40 effects doctrine/ effects test 121–2, 176–7, 185 electoral interference 97–9 embargoes arms embargoes 29, 39–43 definition and interpretation 154–5 jurisdictional embargoes 132–3, 144–5 trade embargoes (see trade embargoes) emerging power and non-industrialised countries sanctions, criticism of 31–2, 72–3 sanctions use by 10, 21, 25–7, 61 energy coercion 374 enforcement criminal enforcement criminal risk concept 426–7 international/ law vs. domestic law conflicts 425–6 right to protection from 424–40 criminal sanctions, protection from constitutional rights 436–7 domestic courts role in 439–40 double criminality standard 430–32 extradition law 428–35 human rights law 435–8 judicial activism or restraint 436 political offences exception 432–5

EU

International law, of 186, 198–200 punishment, role of 199–200, 203 blocking measures 32 applicability of 228–32 avoidance of 230–32 Blocking Regulation 122–3, 128, 222–4, 226–32, 234–5 chemical and biological weapons 99–100, 116 claw back mechanisms, and 237 data protection 222–3 disputes, arbitrability of 350–51 effectiveness of 226–7 financial crime, and 234–6 guidance on 350–51 lawfulness of 228–30 purpose of 231–2, 264 Russia, against 103 sanctions clauses, and 314–16 human rights criminal enforcement of sanctions, protection from 437 horizontal sanctions 452 right to fair trial 317–20 restrictive measures countermeasures, as 401 features of 111–12, 307 Instex bartering mechanism 123 interpretation of 155–6 political status of 111, 158 prescriptive jurisdiction 174–5 procedures for 110–111, 307 thematic measures 119–20 sanctions approaches to 21, 92, 111–17 arbitrability of disputes 350 asset freezing 118, 215, 415–20 autonomous sanctions 160 challenging 415–20 chemical and biological weapons 98–9, 99–100, 116, 119, 448–9 Common Foreign and Security Policy decisions 110–111, 300 conflicts, approaches for 155–6 corruption 96–7, 100, 124–5 counter-terrorism 124, 448 criticism of 128–9, 239 cyberattacks 98–9, 116–17, 119, 448–50 design features 324, 441 domestic law, relationship with 307–8 effect, scope of 22, 128 enforcement 120–21 EU competence 127

464  Research handbook on unilateral and extraterritorial sanctions EU-UN Financial and Administrative Framework Agreement (FAFA) 125–6 Euro-Siberian gas pipeline 101–2, 173 extraterritoriality 120–23, 128 financial sanctions 118 financing restrictions 125–6 foreign investment restrictions 118, 212–13 general principles 415–18 horizontal sanctions 116–17, 448–50, 452–4, 457 human rights basis for 114, 117, 119, 452–3 import of target lists from third countries 124–5 individual sanctions 118–19 informal multilateralization 123–5 international obligations, and 155–6 Iran, against 114, 174–5 judicial review, and 126–8, 324, 394 limitations on 121–3 listing and de-listing 324 misappropriation sanctions 409, 418–20 multilateral measures 114 negative impacts, causality 399–400 Nicaragua, against 113–14, 119 North Korea, against 116–17, 157 nuclear weapons 114 purpose of 119–20, 128 remedies 127–8, 324 restrictive measures (see restrictive measures) Russia, against 96–103, 109, 113, 115, 117, 119, 189, 194 Sanctions Guidelines 120–21, 155, 159 sectoral sanctions 114, 118–19 standard of proof 415–18 strategic interests, role of 92, 115–17 supplementary sanctions 114 Syria, against 100, 113 targeted sanctions 114, 116–17, 406–9, 415–18 travel restrictions 118 treaty provisions regarding 110, 125–6, 155 Trojan horses 114 Turkey, against 115, 119 UCMs, policy on 379–80, 424–5 unilateral measures 113–20 US policy, compared with 111 use of 21–4 Venezuela, against 113, 189–90, 194 European Central Bank 290–91 evidence

asset freezing, standard of proof for 411–18 discovery 233 rights of defence 311, 319–20 Executive Orders, of US President 131–2, 156–7, 180–81 export controls 22, 57, 83, 89, 123–4, 143 expropriation 210, 215–16 extradition 428–35 constitutional rights 436–7 counterterrrorism conflicts 429 criminal sanctions, protection from 16, 427–35 data protection conflicts 429 domestic courts role in 439–40 double criminality standard 430–32 due process infringement defences 428–30 formalities as safeguards 428–30 human rights law 435–8 judicial activism or restraint 436 material requirement breach defences 430–35 political offences exception 432–5 procedural circumvention 429–30 US-Canada extradition treaty 428–9 extraterritorial sanctions see secondary sanctions extraterritoriality effects vs. application 166–7, 390–92 EU sanctions 120–23, 158 human rights obligations 390–92 interpretation of 120, 154–5, 166–7 jurisdiction, exceeding (see jurisdiction) personal scope 166–7 purpose of 388 reasonableness principle, and 168–9 third-party measures, and 154–5 US sanctions 11, 121–2, 158, 170, 173–4, 176–9 Ezulwini Consensus 2005 50 fair and equitable treatment 205, 214–15, 217 Financial Action Task Force (FATF) 22, 274, 277, 331 financial aid, restrictions on 58–9 Financial and Administrative Framework Agreement (FAFA) 125–6 financial crime blocking measures, and 234–6 combating Latvia, in 288–305 non-state actors role 288 policy development 273–4 secondary sanctions role in 234–6, 288–305 transparency measures 270 criminal enforcement of sanctions 426–7

Index  465 Financial Crimes Enforcement Network 289–90 financial data datamining processes 270, 280–81 financial transparency requirements, and 270, 276–7 financial institutions see also central banks blocking measures, influences on 235–6 overcompliance 271 structural problems 235–6 transparency measures 270 UCMs by 372 US settlement procedures, and 235–6 Finland 297–8 force majeure 78, 360–63 force, threat or use of 368–9 foreign investments fair and equitable treatment 205, 214–15, 217 IIAs, role of 204–5 sanctions affecting categories of 209–10 China, against 206 disguised sanctions 206, 212–13 EU, by 118, 212–13 expropriation measures 210, 215–16 IIAs applicability as protection from 205, 208–12, 216–20 impacts of 12, 205–10 investment activity or existence restrictions 214–16 investment admission restrictions 118, 205–6, 209–12 investment control model 210 investment screening mechanisms 206, 212–13 justification for 207 national treatment model 210–212, 214 secondary sanctions, role of 204, 209 sources and targets 208–9 targeted sanctions 209, 211 US, by 211–13 foreign policy, generally sanctions use as tool in 4, 53, 60–61, 198–200 UCMs, legitimacy of 366 foreign sovereign compulsion doctrine 232–4 France sanctions arbitral awards, legality of 313 asset freezing measures 317–18 basis for 308 blocking measures 222, 233, 310–312 case law 14, 174, 311–14, 318, 320

contract law - sanctions conflicts 313–14 control on the merits 320–21 criminal enforcement of 427, 437 double criminality standard 322, 427 EU and UN sanctions, relationship with 307–8, 310 fundamental rights, and 317–19, 322 judicial remedies 308–9, 320 legitimacy of 307 limitations of 310–312 Monetary and Financial Code 308, 317 notes blanches 320–21 prior adversarial procedures, role of 317–18 proportionality reviews 321 rights of the defence 317–19, 322 sanctions clauses 310, 315–16 US sanctions, conflicts with 310–311, 313–14 free trade agreements 204–5 frustration of contract 358–60 fundamental rights constitutional protection of 436–7 criminal enforcement of sanctions, and 436–8 international law protection of 437–8 right to fair trial 317–20, 322, 415, 438 rights of the defence 311, 317–20, 322, 415, 438 unilateral sanctions as unlawful countermeasures, and 401–3 GATS and GATT dispute settlement mechanism 246–53 sectoral sanctions, compatibility with 195–6 Gauvain Report 2019 222, 233 Gaza 28 geoeconomic world order 207–8 Germany 134, 227, 437 GitHub 265 global banks see under banking sector global financial system anti-terrorism policy influences on 92, 138–9 de-dollarization 108–9, 130, 135–6 US sanctions 136–9 global sanctions, benefits of 444–6 Hong Kong AML/CFT regime 338–41 sanctions administrative remedies 339–40 bank payments dispute settlement 14, 332

466  Research handbook on unilateral and extraterritorial sanctions financial sanctions implementation 338 financial sanctions remedies and procedures 338–40 judicial review 340 US economic sanctions overcompliance 263 US sanctions against China 79–80 Hong Kong and Shanghai Banking Corporation 262, 275 Hong Kong Monetary Authority 338–9 horizontal sanctions anti-corruption 451–4 anti drug-trafficking 447 benefits of 444–6, 457 blacklists 444–6, 448 Canada, by 447–8 chemical weapons 448–50 counter-terrorism 448 criminal prosecution, targeting for 454 cyberattacks 448–50 de-coupling 446 de-listing 453–5 design features 5, 407–8, 441, 444–5 development 441–2 EU, by 448–50, 452–4, 457 global sanctions 444–6 human rights sanctions 451–3 human rights violations 451–3 legal challenges of 5 multiple listings, challenges of 454–5 psychological impacts of 455–6 stigmatization, and 455–6 supplementing UN measures 449 targeted individual sanctions 455–7 UK, by 450 US, by 446–7, 451, 457 US Global Magnitsky Act, influences of 116, 451–4, 457 uses for 20–21 Huawei 16, 143–4, 426–7, 429–40 human rights adjudication 397–8 rights of the defence 311, 317–20, 322, 415, 438 sanctions, and causal considerations 398–401, 403–4 design features 5 due process, and 15–16, 393–4, 405 extraterritorial obligations 390–92, 395–6 horizontal sanctions 451–3 judicial protection 436–8 lawfulness considerations 403–4 negative implications of 15–16, 29–31, 366, 369–70, 385–9

peacetime, applicability in 390 proportionality, and 202 remedies 393–8, 403–5 Russia, against 100–101 UCMs 366, 369–70, 424–5 unlawful countermeasures 401–3 US, by 100–101 wrongful sectoral sanctions 197–8 territorial limitations 392 Human Rights Council resolutions, extraterritorial obligations 390–92 Special Rapporteur on UCMs 15, 71, 73, 370–72, 386–7 human rights law criminal enforcement of sanctions, protection from 435–8 constitutional protection 436–7 EU, in 437 habeas corpus 436 international protection 437–8 right to fair trial 438 humanitarian aid chilling effect of sanctions 31 imports, and 388, 398 overcompliance, implications of 267–8, 388, 400 withholding 22, 31, 374–5 humanitarian impacts naive theory on sanctions 28–9 unintended impacts of sanctions 15, 27–31, 33, 35–6, 53, 385–9, 442–3 humanitarian law applicability criteria 390 derogations 400 extraterritorial obligations 390, 392 unlawful countermeasures, unilateral sanctions as 401–3 India foreign policy development 56, 68–9 sanctions role in 56, 59, 62–4 sanctions compliance with 55–6 imposed on 57–9 Iran, against 64–6 North Korea, against 66–8 nuclear testing, for 56–8 nuclear weapons sanctions imposed by 64–6, 68–9 opposition to 9–10, 32, 55–7, 59, 61–4 South Africa, against 40 UCMs, policy on 377 UN sanctions, support for 62–3, 69

Index  467 use of 26–7, 40, 55, 61–2 individual sanctions anti-corruption 16 criminal sanctions 16 design features 5, 443 impacts of human rights, on 15–16 psychological and reputational 455–6 seniority, and 456–7 types and scope of 455–7 targeted individual sanctions 455–7 Instex 123 interference non-intervention principle, and 41, 193, 217 opposition to 31–2 international arbitration 14 arbitrability, tribunal obligations 350 UNCITRAL Model Law 354 International Court of Justice counter-terrorism countermeasures, justifications for 193 fair and equitable treatment 214 human rights obligations cases jurisdiction 397–8 sanctions remedy proceedings 397–8 International Covenant on Economic, Social and Cultural Rights 1966 (ICESCR) 391–2, 396–7 International Criminal Court conflict of law rules 354 court officials, sanctions against 257 force majeure model clause 363 sanctions, influences on arbitrability 346–8 international dispute settlement mechanisms Codes of Liberalisation 241–6 comity, and 242–3 effectiveness of 242–6, 254 OECD 241–6 reform proposals 254 WTO 246–53 international institutions, generally role and powers 73, 150–51 international investment agreements 204–5 capital transfer provisions 216 denial of benefits clauses 219 exception mechanisms 216–19 host state obligations 214 limitations of 211 national security exception 206–7, 218, 245, 249 police powers doctrine, and 217 post-investment provisions 214–16 pre-investment provisions 210–212 purpose of 205

sanctions, protection from 205, 208–12, 216–20 international investment law economic aggression, and 206–7 fair and equitable treatment 205, 214–15, 217 overview 204–5 sanctions (see foreign investments) International Law Commission Draft Articles on State Responsibility for Internationally Wrongful Acts 186–9, 198, 202–3 Draft Code of Offences against the Peace and Security of Mankind 367–8 third-party measures, interpretation 153–4 international law, generally accountability challenges 390–98 due process 393–4 enforcement of 186, 198–200 international legal order, overview 186–7 prescriptive jurisdiction 167–9 progressive development 10–11 punishment, role of 199–200, 203 Realpolitik, influences of 72 sanctions, and interpretation 150–51 limitations of 187 internationally wrongful acts sanctions, classification as 187 state responsibility (see state responsibility) interstate adjudication 397–8 investment screening mechanisms 206, 212–13 investor-state dispute settlement 205 Iran Nuclear Deal 34, 114, 123, 164 sanctions against banking payment settlement disputes 330–32 EU, by 114, 174–5 financial sanctions 273, 275–7, 283–6 horizontal sanctions 447 human rights impacts 389 India, by 34, 64–6 prior violations, need for 7 US, by 7, 11, 64–5, 72, 123, 133, 137–8, 156, 170–71, 174–5, 180–81, 183, 273, 275–7, 283–6, 389, 447 UCMs, opposition to 376–7 Israel 28, 162–3 Italy 437 Japan 124, 380 judicial review challenges of 14

468  Research handbook on unilateral and extraterritorial sanctions EU, in 126–8, 324, 416–17 negative impacts of sanctions, remedies for 393–4 US, in 232–4, 324–5 jurisdiction arbitral tribunals, of 343–5 extraterritorial jurisdiction cause and effect theory 395 human rights impacts of sanctions, and 395–6 non-harm principle, and 395 limits, whether sanctions exceed 165, 183–5 national jurisdiction, interpretation of 171–2 personal nexus 6, 167–75 foreign subsidiaries, applicability to 171–5 lawfulness of 171–5 US 'control' criterion 169–75, 258–9 prescriptive jurisdiction 167–75 reasonableness 168–9 secondary sanctions, and lawfulness of 183–4 US practice 180–82 state jurisdiction theory 6, 11, 175–6 control criterion, lawfulness of 177–80 effects test 121–2, 176–80, 185 territorial nexus 6, 12, 167–8 interpretations of 175–6 lawfulness of 177–80, 185 US 'effects' theory 176–7, 185 Kovrig, M. 439–40 Kunlun Bank 332 Latvia ABLV Bank collapse 289–305 background 289–93, 299 freezing orders, volume of 292 North Korea sanctions breaches 293–5 policy development impacts of 292–6 sanctions against US, by 301–5 sanctions framework compliance obligations 295–6 EU regulatory measures, and 297, 300 financial institutions, overcompliance risks 301–5 legal influences on incorporation of extraterritorial sanctions 296–9, 303–4 overcompliance risk 301–5 policy developments 292–6 political influences on incorporation of extraterritorial sanctions 299–301

US guidance 294–5 Law Reform (Frustrated Contracts) 1943 360 Lemberg, A. 301–5 letters of credit 52–3 lex fori 221, 343, 349 lex loci arbitrari 349 Libya 11, 24, 28, 231, 275, 312, 314, 347 listing and de-listing 324–6, 453–5 Luxembourg 314 Maduro, N. 29 maximum pressure campaign 32–3, 35 Mayanmar 45 Mercosur 24 Mexico 27, 225, 227, 236, 447 misappropriation sanctions 409, 418–20 Moldova 115, 119 money laundering see anti money-laundering multilateral sanctions, generally definition 3–4, 19, 149 trends 21 multilayered sanctions 29–30 mutual assistance in criminal matters see extradition naive theory on sanctions 28–9 national security exception emergency in international relations, interpretation 252 essential security interests, interpretation 252–3 international investment agreements 206–7, 218, 245, 249 trade restrictions 218 foreign investment restrictions, and 206–7, 218 interpretation of 207 secondary sanctions, and 183–4, 245, 249–53 Navalny, A. 90, 99–100, 116 negative impacts of sanctions human rights, on causality 398–401, 403–4 interpretation 398–9 non-state actor responsibilities 403–4 sovereignty considerations 404 Special Rapporteur statements 385 UCMs, of 366, 369–70 US sanctions against Iraq 385–6 remedies 393–8, 403–5 due process, and 393–4 human rights mechanisms 395–7 ICJ adjudication 397–8 judicial review 393–4

Index  469 legality of 394 sanctioning entity proceedings 394 targeted entities, for 403 unintended consequences 60 causal links, and 398–401, 403–4 chilling effect 31 humanitarian impacts 15, 27–31, 33, 35–6, 53, 60, 385–7, 442–3 overcompliance, of 266–8, 400–401 Nepal 374, 377 Netherlands 230–31 New York Convention 1958 (arbitral awards) 343–4, 349, 351 Nicaragua 113–14, 119 no-default clauses 317 Non-Aligned Movement (NAM) overview 46 Political Declaration of New York 2017 47 role of 32 UCMs policy 370 unilateral sanctions, opposition to 46–7, 53 non-armed coercion see unilateral coercive measures (UCMs) non-discrimination 217, 246 investment restrictions, and 205, 215–16 non-forcible reprisals 152–3 non-intervention principle countermeasures, lawfulness of 193 police powers doctrine, and 217 South African sanctions, and 41 non-state actors banking sector, in (see banking sector) sanctions against countermeasures, as 190–91 internationally wrongful acts, state responsibility for 189–91 justifications for 190–91 US, by 137 sanctions, generally internal control mechanisms 288 negative impacts, responsibility for 403–4 obligations under 288 North Korea sanctions against ABLV Bank collapse, influences on 293–4 cyberattacks attacks 116–17, 447 domestic implementation obligations 160 EU, by 116–17, 157, 407–8 human rights impacts 389 India, by 66–8 nuclear weapons, for 66–8 UN, by 160, 162

US, by 144–5, 162, 293–5, 389, 400, 447 nuclear weapons/testing India, in 56–8 Iran Nuclear Deal 34, 114, 123, 164 proliferation, US policy 57 sanctions imposed for 56–8 Iran, against 64–6, 114 North Korea, against 66–8 OECD Codes of Liberalisation 242–6 Decision on Conflicting requirements being imposed on Multinational Enterprises 242–3 Declaration of International Investment and Multinational Enterprises 242–3 dispute settlement mechanisms 241–6 Office of Foreign Assets Control (OFAC) compliance with 52–3 covert compliance 264–5 overcompliance 256–9, 261, 268–9, 301–5 powers, scope of 132, 267–8, 324–5, 406 remedies 234–6, 324 sanctions by 154, 259 banking practices, influences on 52, 272–7, 283 '50 per cent rule' 303–4 financial institutions, on 167–8, 234–6 guidelines 324–5 humanitarian aid exception 267 Latvian nationals, against 301–5 Russian companies, against 102–4, 107–9 SDN list 95–6, 103, 132, 138, 182, 258, 281, 297 trends 23, 136–9 Venezuela, against 108 oil industry oil and gas pipeline sanctions 11, 101–2, 169–70, 173 trade boycotts 40 Organization for Security and Co-operation in Europe (OSCE) 24–5 Organization of African Unity (OAU) 40 Organization of American States (OAS) 24 overcompliance 13 covert compliance 264–5 de-risking 30, 257, 262, 400 definition 256 due diligence, and 257 EU financial institutions, risks of 301–5 financial institutions, by 271

470  Research handbook on unilateral and extraterritorial sanctions humanitarian aid, implications for 267–8, 388, 400 risks of 30, 256–69 reputational and legal risks 265–6 social consequences 266–8 solutions for 268–9 US economic sanctions, and 256–69 cause of violations 259, 268–9 covert compliance 264–5 enforcement process, stages in 260–61 forms of 257–61 judicial interpretation, role of 263–4, 268–9 motivations for 256–7, 261–3 OFAC powers 268 primary sanctions 257–9 regulatory influences on 263–4 secondary sanctions 260 transaction stripping cases 259 pain vs. gain theory 28–9 Panama 27 payments bank payments disputes 14, 330–33 de-dollarization of 141 online payments, development of 141–2 sanctions impacts on ability to make 30, 51–3 People's Bank of China 328, 333–4, 336–7 peremptory norms 153–4, 373 personal nexus 6, 167–8 definition 169 extraterritorial sanctions, basis for 169–75 US 'control' criterion 169–75, 258–9 lawfulness of 171–5 police powers 216–17 political offences criminal enforcement of sanctions, protection from 432–5 extradition exception 432–5 politically exposed person (PEP) screening 333 prescriptive jurisdiction 167–75 primary sanctions, generally 5, 22, 258 Principles of International Law concerning Friendly Relations and Co-operation among States 368–9 procedural due process see due process proportionality 33 sectoral sanctions, and 199–202 unilateral sanctions as unlawful countermeasures 401–2 prudential requirements 298 public policy, generally arbitration, and 343–6 enforcement, influences on 349–53

grounds for refusal 351–3 jurisdictional conflicts 343–5, 350 punishment international law, role in 199–200, 203 purposes of sanctions 20–21 Qatar 7, 190, 192–3, 195–6, 198, 397 Realpolitik 71–3 reasonableness, theory of 168–9 reciprocity 152 Regional Organizations 24–5, 34 see also EU Register of UCMs 382–3 remedies compensation asset freezing, for 217, 394 claw back mechanisms 236–7 negative impacts of sanctions, for 393–8, 403–5 due process, and 393–4 human rights mechanisms 395–7 ICJ adjudication 397–8 international law, compatibility with 394 judicial review 393–4 legality of 394 sanctioning entity proceedings 394 targeted entities 403 proposals 73 Republic of Guinea 115, 119 reputational effect of sanctions 265–6, 410, 414 restrictions foreign investments, on activity or existence restrictions 214–16 admission restrictions 118, 205–6, 209 fair and equitable treatment 205, 214–15 non-humanitarian lending, on 58–9 restrictive measures (see restrictive measures) trade restrictions (see trade embargoes; trade restrictions) trends 22 restrictive measures 7–8 EU CFSP decisions 110–111 EU use of 155–6 retaliatory measures countermeasures (see countermeasures) retorsions 152–3, 187, 373 third-party measures 153–5 retorsions 151–3, 187, 373 rights of the defence 311, 317–20, 322, 415, 438 Rotenberg, B. 297–8 Russia

Index  471 economy de-dollarization 108–9, 135–6 payments system developments 108 trends 104 Federal Bills 105–6, 225, 228 foreign policy arbitration opportunities for sanctioned persons 107–8 blocking measures 225, 228 China, rivalry with 109 Department of Control of Foreign Restrictions (DCFR) 106 developments 90, 107–9 economic protection 90 information access restrictions 107 non-compliance penalties 106–7 resilience increasing measures 107–9 special economic measures 105–7 trade restrictions 105–6 sanctions against 90–104 blocking measures 95, 101–6 chemical and biological weapons 99–100, 116, 448–9 countermeasures 26, 90–91, 105–9 cyberattacks 97–9, 117 effectiveness of 90–91, 109 electoral interference 97–9, 104 enforcement of 102–3 EU, by 91, 96–7, 101–2, 109, 113, 115, 117, 119, 189, 194, 407–8 financial implications of 104, 109 horizontal sanctions 448–9 human rights violations 100–101 indirect effects of 103–4 influences on 90 limitations on 90–91 negative impacts, causality 399 oil and gas pipelines 11, 101–2, 169–70, 173 resilience, and 107–9 secondary sanctions 93, 102–3 targeted sanctions 92 triggers for 90 Ukraine conflict, relating to 94–7, 162, 193–4 US, by 90, 93, 97–105, 109, 138, 181–4, 189–90, 194, 196, 201 sanctions by blocking measures 225, 228 countermeasures 26, 90–91, 105–9 implementation 106–7 information access restrictions 107 special economic measures 105–7 trade restrictions 105–6 use trends 26, 90–91

sanctions, generally opposition to 10, 32, 102 UCMs, policy on 377 UN sanctions, views on role of 161 sanctions clauses 14, 310 EU blocking measures, and 314–16 judicial interpretation 315–17 legality of 306, 314–16 no-default clauses 317 use trends 314–15 Saudi Arabia 28 secondary sanctions blocking measures, and financial crime initiatives 234–6 implications for 232–8 US judicial self-restraint, and 232–4 US settlement procedures 234–6 design features 6, 22, 239–40 development 4, 165 dispute settlement mechanisms (see international dispute settlement mechanisms) foreign investment restrictions 204, 209 implications of 226 jurisdictional conflicts 180–84 justifications for 183–4, 239–40 lawfulness of 6–8, 183–4, 240–41, 291 national security exception 183–4, 245, 249–53 opposition to 72–3, 239–41 overcompliance, and 260 purpose of 239–40, 260 US, by 32–3, 180–84, 226, 239–41 banking sector, in 271–8 EU regulatory measures, and 297, 300 financial institutions, overcompliance risks 301–5 foreign nations compliance obligations 295–6, 306 implementation guidance 294–5 judicial self-restraint, and 232–4 legal influences on incorporation of 296–9, 303–4 national sovereignty conflicts 306 opposition to 240–41 overcompliance, and 260, 301–5 policy developments 292–6 political influences on incorporation of 299–301 purpose 258 settlement procedures 234–6 support for 305 sectoral sanctions compliance with international law 198–9

472  Research handbook on unilateral and extraterritorial sanctions countermeasures, lawfulness as 197–8 design features 4–5, 190–91 GATT/ GATS, compatibility with 195–6 proportionality, and 199–202 purpose of 198–200 wrongful sectoral sanctions 195–8 settlement agreements 237, 325 Skripal, S. 99, 116, 448 smart sanctions see targeted sanctions software banking sector, in algorithmic governance, limits of 279–86 digitization of money flows 274, 276–81 financial datamining 270, 280–81 surveillance role 271–4, 276–9 US extraterritoriality, and 271–9 mobile software and social media 137 South Africa African National Congress 37–8, 44–5 anti-money laundering activities 51 anti-terrorism measures 51 Apartheid, termination of 41–4, 50 foreign policy human rights, and 43–7 Non-Aligned Movement, role in 47 political alliances, role of 38, 43–4, 46 post-1994 developments 43–50 UN voting patterns 45–8 internal boycotts 37 sanctions against arms embargo 39–43 criticism of 41, 50 effectiveness of 41–3 enforcement of 41–3, 50–51 financial sector, impacts on 51–3 impacts of 37–8, 41–3 justification for 37 legality of 41 pre-1994 37–41 post-1994 38, 43–50 scope of 37 state sanctions against 40–41 trade sanctions 40–41 UN sanctions 39–40 US, by 40–41, 52 sanctions, generally opposition to 9, 47 state of emergency , declaration of 40–41 UCMs, opposition to 376–7 UN Security Council, influences on 38 South African Development Community 24, 42–3 South Korea 380

sovereign equality 8, 10–11, 49, 166 punishment, protection from 199, 203, 424 sovereign immunity 237 sovereign risk 204–5 sovereignty negative impacts of sanctions, and 404 police powers doctrine 217 Spavor, M. 439–40 Special Rapporteur on UCMs 15, 71, 73, 370–72 Specially Designated Nationals and Blocked Persons List (SDN) 95–6, 103, 132, 138, 182, 258, 281, 297 stablecoins 140, 145–6 Standard Chartered Bank 234–5, 275, 277 state jurisdiction theory of 6, 11, 175–6 control criterion, lawfulness of 177–80 effects test 121–2, 176–80, 185 state responsibility human rights, extraterritorial obligations 390–92, 395–6 internationally wrongful acts, for collective countermeasures 192–4 compliance with international law, and 198–200 countermeasures 187–9, 191–5, 199, 202–3, 373, 401–3 exclusions 189–91 fundamental right impacts, and 401–3 ILC Draft Articles 186–9, 198, 202–3 obligation, degrees of 191–2 proportionality 200–202, 401–2 response to wrongful behaviour, as 191–8 sanctions as 187–9 targeted sanctions against non-state actors 189–91 Ukraine conflict sanctions 193–4 wrongful sectoral sanctions 195–8, 202–3 third-party measures, and 153–5 subsidiaries control nexus, applicability of sanctions to 171–5, 258–9 Sudan 49, 137, 211, 389, 399 suspicious transaction reports 236, 292–3, 339 Sweden 226–7, 314 Switzerland 25, 134 Syria sanctions against banking payments disputes 330–32 EU, by 100, 113 human rights impacts 389, 399–400 UN, by 159 US, by 100, 170–71, 389

Index  473 sanctions, generally domestic implementation obligations 159–60 targeted sanctions accountability human rights obligations, and 390–92 remedies 393–8 UK mechanisms 421–2 anti-corruption 124–5, 137, 175, 407–9, 411 asset freezing (see asset freezing) benefits of 442–4 blacklists 5, 331–2, 441–2, 444 challenging EU sanctions 415–20 UK sanctions 420–22 US sanctions 411–15 civil liberty conflicts 410–411 commodity bans 443 see also trade embargoes comprehensive sanctions, differences 405–6, 442 consequences of 409–11 countermeasures, lawfulness of 191–5 criminal justice influences on 406–8, 422–3 cyberattacks, for 407–8 de-risking 410 design features 4–5, 22, 406–7, 422, 441–4 development 406, 441–3 difficulties with 422–3 due process, and 405–23 efficacy of 29, 92 EU, by 114, 116–17, 406–8, 415–20 challenging 415–20 general principles 415–18 misappropriation sanctions 409, 418–20 standard of proof 415–18 extraterritoriality of 388 horizontal sanctions 407–8 individual sanctions 443 international law, compatibility with 386 internationally wrongful acts, as 189–91 legal safeguards, and 405 misappropriation sanctions 409, 418–19 naming and shaming 444 nature and purpose of 16, 29, 189–90, 386, 407–8 non-state actors, against 189–91 political influences on 406–8, 422 remedies human rights mechanisms 395–7 ICJ proceedings 397–8 sanctioning state judicial proceedings 394 reputational effects 410, 414

selectivity, implications of 422–3 targeted individual sanctions 455–7 thematic sanctions 407–8 travel bans 5, 29, 118, 374, 410, 444 types of 407–9, 443 UK, by 406, 408–9 standard of proof 420–21 unintended humanitarian impacts 27–31, 33, 35–6, 387–9, 442–3 US, by 406, 408, 411 challenging 411–15 standard of proof 411–12 use trends 23–4, 27–9, 35, 60, 92, 406, 442 uses for 20–21, 189–90, 407–8 wrongful sectoral sanctions 195–8 territorial nexus 6, 12, 167–8 interpretations of 175–6 lawfulness of 177–80, 185 US 'effects' theory 176–7, 185 terrorism, fight against see counter-terrorism Tether 146 thematic sanctions design features 5, 407–8, 441–2 development of 441–2 legal challenges of 5 uses for 20–21, 441–2 third-party measures countermeasures 7, 191–5 extraterritoriality, and 154–5 interpretation 153–5 lawfulness of 154 TikTok 142–4 trade embargoes 22, 137, 189 denial of benefits clauses 219 non-compliance penalties 154–5 overcompliance, implications of 267–8 South Africa, against 39–43 trade restrictions 22 GATT/ GATS, and compatibility with 195–6 dispute settlements 249–53 national security exception 218, 249–53 overcompliance, implications of 255–8 US-China trade war 80–6, 88 transparency banking surveillance (see banking sector) due diligence, and 257, 271–2 travel restrictions 5, 29, 118, 374, 410, 444 treaties, generally coercion, concluded under 368 Turkey 115, 119, 124, 377–8 UAE 7, 27, 124 Ukraine 94–7, 106, 162, 193–4 UN Charter 3–4, 150–51

474  Research handbook on unilateral and extraterritorial sanctions UN General Assembly resolutions, extraterritorial human rights obligations 390–92 restrictive measures 150, 163 UN sanctions differences from EU/ US sanctions 92 EU-UN Financial and Administrative Framework Agreement (FAFA) 3–4, 8, 12 implementation of 3–4, 8, 12 influences on 25, 34 interpretation of 149–51, 154 lawfulness of 154 sanctions contrary to 12 trends 23, 60 unilateral restrictive measures, and in absence of UN sanctions 162–3 counter to UN sanctions 164 criticism, immunity from 158–60 domestic implementation obligations 156–60 extraterritorial effect of 159–60 implementing UN sanctions 156–60 international law obligations conflicts 158–60 lawfulness of 158–9 outside UN sanctions 160–63 supplementary to UN sanctions 161–2 UN Security Council criticism of 19, 71 responsibilities of 3–4 restrictive measures, power to adopt 150–51 veto powers 71 unbanking 30 UNCITRAL Model Law on International Commercial Arbitration 354 UNIDROIT Principles of International Contracts (PICC) 356–7, 360–61 unilateral coercive measures (UCMs) Brazil's policy on 376 Canada's policy on 380 China's policy on 377 counter-terrorism, and 424–5 critisicm of 31–2, 53–4, 72–3, 366, 369–70, 383–4 declared users of 378–80 definition and interpretation 368–9, 371–2 development 8, 15, 71, 368–9 EU policy on 379–80, 424–5 extraterritorial application 378–9 financial institution practices as 372 human rights, and impacts on 366, 369–70 UN Draft Resolution 424–5

Human Rights Council Special Rapporteur on 15, 71, 73, 370–72, 386–7 humanitarian aid, withholding 374–5 identification 372–5 comparison challenges 372–4, 383–4 countermeasures 373 disguised sanctions 372–3 retorsions 373 types of 374–5 India's policy on 377 Iran's policy on 376–7 Japan's policy on 380 legitimacy of 378–9, 383–4 licences and approvals, refusal of 375 loans, refusal of 375 mapping, challenges of 380–84 national practice variations 375–6 Non Aligned Movement policy on 370 opposition to 367–9, 376–8, 424–5 Register of 382–3 reporting procedures 380–82 Russia's policy on 377 South African policy on 376–7 Turkey's policy on 377–8 UN Draft Resolution 424–5 US policy on 378–9, 424–5 unilateral restrictive measures in absence of UN sanctions 162–3 counter to UN sanctions 164–4 criticism, immunity from 158–60 domestic implementation obligations 156–60 extraterritorial effect of 159–60 features of 92 implementing UN sanctions 156–60 international law obligations conflicts 158–60 interpretation 149, 156 lawfulness of 158–9 outside UN sanctions 160–63 supplementary to UN sanctions 161–2 unilateral sanctions, generally criticisms of 31–2, 35, 195 definition 3–4, 19, 149 effectiveness 5–6, 71–2 geographical trends 21 lawfulness of 6–8, 31–2, 71–2 limitations of 5, 20, 187 non-state actor obligations 288 opposition to 9–10, 13 personal nexus 6, 167–75 prior violation, need for 7 Realpolitik, influences of 71–3 territorial nexus 6, 12, 167–8, 175–80 use trends 23–4, 70, 92, 206

Index  475 uses for 19–20, 71–2, 91, 187, 206–7 windfall effect 13 United Kingdom Brexit 14, 307, 312, 450 sanctions 60 accountability 421 asset freezing 321 blocking measures 226, 228–30, 312–13 case law 14, 228–30, 314, 316–17, 321–2 challenges of 307–8 challenging 420–22 chemical and biological weapons 99, 116, 450 closed material procedure 319 contract law conflicts 314 control on the merits 321–2 Counter Terrorism Act 2008 307, 318–19 double criminality standard 322 EU and UN sanctions, relationship with 307–8, 312–14, 408–9, 420–21 fundamental rights, and 318–20, 322 Global Human Rights Sanctions Regulations 2020 101, 408–9 horizontal sanctions 450 judicial remedies 308–9, 312, 321–2 legal basis for 307–8 no-default clauses 317 prior adversarial procedures 318–19 proportionality reviews 321 Protection of Trading Interests Act 1981 312 rights of the defence 318–20, 322 Russia, against 99 Sanctions and Anti-Money Laundering Act 2018 307, 319, 408–9, 421–2, 450 sanctions clauses 315–17 sovereignty, protection of 312 standard of proof 420–21 targeted sanctions 408–9, 420–22 Terrorism Asset-Freezing Act 2010 307–8, 319, 321 trade restrictions 318–19 United Nations Convention Against Corruption (UNCAC) 409 United States banking sector Deferred Prosecution Agreements (DPAs) 272–3, 278–9, 325 extraterritoriality policies, influences of 272–3, 278–9, 281–2 dollar

de-dollarization trends 108–9, 130, 135–6 dollar-backed stablecoins 145–6 global role of 131, 134–5 Due Process Clause 412–14 foreign policy blocking measures 101–3, 132, 223, 312 Covid-19 pandemic 434–5 criticism of 32–3 double criminality standard 430–32 extraterritorial jurisdiction 169–77 extraterritorial measures trends 32 foreign sovereign compulsion doctrine 232–4 fundamental rights obligations, and 436 investment screening mechanism 212 JCPOA, withdrawal from 72, 164, 224, 264 overcompliance, influences on 264 political offences extradition exception 433–5 US-Canada extradition treaty 428–31, 439–40 US-China trade war 79–86, 88 sanctions anti-corruption 21, 96, 100–1, 116, 189–90, 256, 301–5, 451–4 arbitral tribunal disputes, and 350 asset-freezing 137, 411 bank payments, impacts on 52 blocking measures 101–4, 132, 136, 223–4, 232–6 challenging 411–15 chilling effect of 31, 332 China, against 79–86, 140–44, 182, 434–5 circumvention mechanisms 144–6 control criterion 169–75, 177–80 counter-terrorism 134, 137–8 criticism of 32–3, 35 Cuba, against 11, 28, 47, 121, 137, 170, 173–4, 176–80, 389 cyberattacks 97–9, 144–5 de-dollarization, impacts of 108–9, 130 de-listing 454 development of regime 130, 132–6 drug trafficking 133, 137–8, 447 economic sanctions 131–2, 136 effectiveness of 130, 134–5, 139–40 effects theory 176–7, 185 electoral interference 97–9, 104 electronic payments mechanisms 141–2 enforcement of 93, 102–4, 138–9 extraterritoriality of 121–2, 158

476  Research handbook on unilateral and extraterritorial sanctions features of 92–3, 324–5 financial transactions, applicability to 132, 139 foreign financial institutions, against 182–3 foreign investment restrictions 211–13 horizontal sanctions 446–7, 451, 457 humanitarian consequences of 385–6 India, against 57–8 Iran, against 11, 64–5, 72, 123, 133, 137, 156, 170–71, 174–5, 180–81, 183, 273, 275–7, 283–6, 447 Iraq, against 385–6 judicial review 232–4, 324–5 jurisdiction 169–77 jurisdictional embargoes 132–3, 144–5 Latvia, targeted sanctions 301–3 lawfulness of 183–4, 291 Libya, against 11, 28, 275, 347 mobile software and social media 137 non-state actors, against 137 North Korea, against 144–5, 162, 293–5, 400, 447 OFAC role (see Office of Financial Assets Control) oil and gas pipelines 11, 101–2, 169–70, 173 overcompliance 256–9, 256–69, 261, 268–9, 301–5 personal nexus 169–75, 258–9 Presidential authority for 131–2, 156–7, 180–81 purpose 130, 132–3, 136, 138–9, 147, 258 reform proposals 134 regime overview 131–2 Russia, against 11, 90, 97–105, 109, 138, 181–4, 189–90, 194, 196, 201 SDN list 95–6, 103, 132, 138, 182, 258, 281, 297 secondary sanctions 32–3, 93, 102–4, 182–84, 226, 232–6, 258 sectoral sanctions 27, 138 settlement trends 324–5 South Africa, against 40–41, 52 standard of proof 411–12 statutory bases for 94–5, 131–2 strict liability, and 132 Sudan, against 49, 137, 211 Supreme Court rulings 233 Syria, against 100, 170–71 targeted sanctions 32–3, 93, 100–101, 133–4, 137, 406, 408, 411

technology implications 139–47 territorial nexus 176–80 trade embargoes 137 UCMs, policy on 378–9, 424–245 Ukraine, Russian activity in 94–6, 162, 193–4 UN sanctions, policy relationships with 156, 160 use trends 21, 23, 27, 32–3, 35, 60, 101, 133 Venezuela, against 28, 138, 189–90, 194–5, 266–8 visa sanctions 101 vulnerability to 133, 139 WTO disputes 248, 250–51, 253 sanctions legislation Administrative Procedure Act 1946 412, 415 Arms Export Control Act 1994 57 Caesar Syria Civilian Protection Act 2019 100 Consolidated Appropriations Act 2018 411 Countering America's Adversaries Through Sanctions Act (CAATSA) 98, 101–3, 181 D’Amato-Kennedy Act 1996 181, 224 Defending American Security from Kremlin Aggression Act (DASKA) 104–5 Defending Elections from Threats by Establishing Redlines Act (DETER) 104 Global Magnitsky Act (US) 101, 103, 116, 301, 406, 408, 411, 445–6, 451–4, 457 Helms-Burton Act 1996 11, 121–2, 176–9, 225 Hong Kong Human Rights and Democracy Act 2019 79–80 International Emergency Economic Powers Act (IEEPA) 1977 94–5, 131–2, 258–9 Iran freedom and Counter-Proliferation Act 2012 180–81 Joint Comprehensive Plan of Action (JCPOA) 19, 72, 123, 164, 224 Magnitsky Act 2012 100–101, 103, 116, 408, 411, 446, 451 National Defense Authorization Act 2012 182 Protecting Europe’s Energy Security Act 2019 101–2, 181–2 Threat Reduction and Syria Human Rights Act 2012 170, 174–5

Index  477 Trading with the Enemy Act of 1917 (TWEA) 131, 258–9 Venezuela de-dollarization 136 Defense of Human Rights and Civil Society Act 2014 253 sanctions against 27–8 banking payments disputes 330–32 EU, by 113, 119, 189–90, 194 horizontal sanctions 447 human rights impacts 389, 399 negative impacts, causality 399 US, by 28, 138, 189–90, 194–5, 266–8, 389, 399, 447 WTO DSB cases brought by 249, 253 veto powers 31, 40, 71, 74, 162 virtual sanctions 22 vital interests justification 183–4

Wanzhou, M. 426–40, 429–34 weapons of mass destruction (WMD) 270, 447, 450 WeChat 141–4 Western sanctions, generally countermeasures, lawfulness of 194–5 use trends 25, 60–61, 71–3 World Check 280 wrongful sectoral sanctions 195–8, 202–3 WTO dispute settlements China, with 26 GATS/ GATT mechanisms 246–53 Yanovych, V. 420 Yemen 28 Yugoslavia (former) 50–51 Zimbabwe 380