Economic Sanctions and International Law

Economic Sanctions and International Law 

The relationship between economic sanctions and international law is complex because there is no one body of international law which authoritatively governs the legality of economic sanctions. For that matter, international law doesn’t even define economic sanctions. The result is that there is no universal accepted compliance mechanism which authoritatively determines the lawfulness of economic sanctions. Thus, the lawfulness of economic sanctions has to be searched for among different legal figures of international law.

The lawfulness of economic sanctions is frequently discussed (together) in relation to secondary sanctions, i.e. boycotts and the legality of extra-territorial application of economic sanctions (see below).

However, to understand these discussions, it is important to comprehend how countries legally justify their sanctions regimes and how these relate to general public international law.

Generally speaking, countries have traditionally justified their economic sanctions as retorsions, enforcement sanctions or as (non-forcible) counter measures.

The problem with these justifications is that they cannot produce an effective analysis regarding the lawfulness of economic sanctions. Each of these legal figures foresee different legal outcomes under international law. Furthermore, given the legal complexities, Senders of sanctions are not always consistent in their legal justifications. In practice sanctions regimes are justified on the basis of one or more of the above-mentioned legal figures (so-called cocktail approach). Therefore, it is difficult to pinpoint the exact lawfulness of economic sanctions under international law.

fish_justice_cartoon.This lastly has caused the most intense trade disputes, in particular between the U.S. and close allies (see below Trans-Siberian Pipeline Dispute).

In the field of economic sanctions, and for that matter export controls, the U.S. is a country which is continually at odds with the rest of the world. 

Since 1945, the U.S. has resorted to adopt unilateral sanctions regimes beyond recognized international legal principles. The effect of these types of sanction regimes is to impose U.S. laws and regulations extra-territorially, which have proven unpopular given their interference with the sovereign rights of other countries. This has led to the common belief that U.S. sanctions violate international law given the hostile reactions of other countries.

Economic statecraft in practice_comprehensive versus limited sanctions regimesThe U.S. approach is certainly unconventional, at times novel even innovative, but it is questionable whether U.S. sanctions regimes can be totally characterized as being unlawful under international law.

This is partly caused by the fact that economic sanctions cover international legal issues which are far from settled. 

This is for instance reflected in the debates surrounding the definitions of “protecting essential security interests,” under international economic law, e.g. Article XXI of the GATT or the famous U.S. Declaration (Connally Reservation) regarding the recognition of the compulsory jurisdiction of the International Court of Justice (1946), stating that the declaration is not applicable to “disputes with regard to matters which are essentially within the domestic jurisdiction of the United States of America, as determined by the United States of America.”

Another reason why legal justifications are awkwardly constructed is because the imposition of economic sanctions is at times insufficient to satisfy the need for effective responses to strategic security threats. A significant problem is the frequent lack of international consensus to effectively deal with security issues within the United Nations Security Council (UNSC), e.g. the Council’s decision-making process is blocked. Right or wrong, the inability of the Council to act is a frequent justification to impose economic sanctions. 

In the twenty-first century, the absence of an universal legal compliance mechanism regarding economic sanctions is arguably an imperfection. It opens the possibility that countries, especially powerful ones, expose themselves to criticisms that they abuse their power when adopting economic sanctions. 

 

Evolution of Economic Sanctions under International Law

The use of economic sanctions, i.e. non-military coercive strategies in the pursuit of foreign policy objectives short of war have been around since ancient Greece. 

During ancient and medieval times, non-military measures were usually enforced by individual countries or private individuals. These measures aimed to settle grievances of Senders which could extend to the kidnapping of persons or seizures of property until an acceptable settlement was reached. Examples hereof are: 

  • in ancient Greece the practice of kidnapping, as retaliatory measure – coined with the term androlepsia, was held permissible if a citizen had been unjustly murdered in another state, and that state refused to punish the perpetrators of the crime.
  • in medieval times, private citizens could ask their leaders, i.e. sovereigns, through letters of marque to license a private reprisals (also known as Withernamium), which aimed to address grievances of private persons suffered during peace-time.  

Crusader knights take Antioch on the Firt CrusadeMultilateral sanctions were the exception, given the fragmented structure of the international system. One notable exception were the arms embargoes imposed  during the Christian crusades against Muslim-held lands.

Another tactic, also originating from ancient Greece was to enforce maritime blockades. In 1414, King Henry V authorized English citizens to seize Genoan citizens in response to the illegal seizure of a shipment of English wool in Genoan waters.

A third common unfriendly measure was the use of retorsion, a response to an initial action which was technically legal, but hostile in nature, usually the same response to an initial hostile act. For example, in 1904 before the Russo-Japanese War, Russia imposed laws that prohibited Japanese fishermen from Russian waters. In response, Japan threatened to impose differential duties on Russian imports to Japan. 

By the end of the eighteenth Century, the licensing of private reprisals became obsolete due to the increased role of the state in the conduct of foreign relations. During this period, sovereign states increasingly perceived the injuries suffered by its nationals as a direct injury to its interests, and as such, implemented reprisals for the unlawful seizures of its citizen’s goods. In this context, private reprisals were perceived to be rough justice, a system open to abuse, but more importantly, actions which could have dire consequences for the peace and stability.

Towards the twentieth-century, international legal norms were introduced to limit the scope of measures which Senders could apply, e.g. the measures had to be proportionate to the injury, measures had to respect the sovereignty of other countries, private reprisals were no longer tolerated, and most importantly, since the creation of the United Nations, coercive measures could no longer be applied as a policy of armed aggression. For instance, the Charter of Economic Rights and Duties of States, United Nations General Assembly Resolution – G.A. Res. 3281 (XXIX), which was reaffirmed by  the United Nations General Assembly in 2011 (regarding unilateral economic sanctions directed against developing countries – 122 votes in favor (mainly developing countries), 2 against (Israel & U.S.) and 53 abstentions – (mainly rich countries).  Note that economic coercion, however unfairly applied in peacetime, in itself, is not defined as armed aggression under the United Nations Charter. 

In essence, the evolution of economic sanctions, in the context of international law, developed through custom, state practice and the governance of the global community. This lastly entails a concerted effort to develop a legal framework which encourages the respect for peaceful resolution of international disputes based on the equality of countries and the respect for the rule of law.

 

Economic Sanctions as a Legal Concept under International Law

Economic sanctions resemble legal concepts such as retorisons, enforcement sanctions, or counter measures.

 

State practice demonstrates that countries justify economic sanctions as:

  • restrictive measures enforcing UNSC economic sanctions (enforcement sanctions as a response to threats or breaches to international peace and security)
  • restrictive measures withdrawing unilateral benefits in the form of retorsions (as a signal of disapproval or disgust for repugnant conduct or policies)
  • restrictive measures in the form of reprisals or counter measures imposed as a reaction to a perceived violation of an international obligation, which can include a violation of a international legal norm (to induce or coerce the Target to restore the previous lawful situation or pay compensation for the consequences of the wrongful act)

NB Reprisals, i.e. counter measures in the context of economic sanctions, should not be confused with counter measures applied by belligerents during times of war or during armed conflicts.

UN Security Council at workEnforcement Sanctions

Enforcement sanctions usually refer to the legal obligation of countries to enforce United Nations Security Council (UNSC) sanctions

As cited elsewhere, the UNSC is the primary body in the world responsible for the maintenance of international peace and security.

In the case that the UNSC determines a threat or breach of international peace and security, under Chapter VII of the United Nations Charter, all countries are legally obligated to enforce the wishes of the Council,  even if this is in conflict with other legal obligations (see  article 103 UN Charter).

In essence, UNSC Chapter VII economic sanctions override all other legal obligations which a country can have with a Target of UNSC sanctions. Unlike retorsions and counter measures, UNSC measures can be extremely broad in nature, and are not limited to correct a specific wrong; instead they aim to maintain or restore international peace and security, which can include the use of force. The legal consequence is that countries have no discretion whether or not to implement restrictive measures against the Target, at least not without UNSC authorization. Further, countries also have the legal obligation not to facilitate, i.e. enable, the Target to evade or circumvent UNSC sanctions.

The problem with enforcement sanctions is that they only apply to specific situations, i.e. threats to international peace and security. In this context, the UNSC also has to formally adopt restrictive measures under Chapter VII, which is not always possible(or after substantial time delays). Further, UNSC measures are imprecise given that restrictive measures are vaguely formulated and the implementation is largely delegated to the UN member states on the basis of their national laws and regulations. 

Can Countries Impose Sanctions if the UNSC has adopted Chapter VII Sanctions
Another issue is whether Senders of sanctions violate international law if they go beyond what the UNSC has authorized, such as in the case of the U.S. and the EU in their unilateral sanctions against Iran post 2010 (e.g. sanctions against Iran’s oil, gas sector and sanctions imposed against Iran’s Central Bank).

There is a general consensus that the discretion of countries to deviate from the UNSC sanctions is limited or sometimes non-existent. This lastly can be explicit, e.g. when the UNSC orders that countries stop their unilateral sanctions (as this can block a diplomatic solution) or implied, e.g. when the UNSC only authorizes target sanctions, which by their nature prohibit the imposition of comprehensive sanctions.

Opinions are divided on the issue. However, the answer to this question is not limited to legal issues, but is also rooted in the way that the UNSC functions as a political body. 

  • From a political perspective, it is extremely difficult for countries to agree on the imposition of economic sanctions, let alone agree on the legal niceties of their actions. In many cases, the scope and type of sanctions authorized by the UNSC is the outcome of political negotiations often conducted under considerable time and political pressure, whereby the priority is to secure political consensus within the Council, and not to focus on the legal compliance issues (e.g. establish clear definitions of prohibitions or legal criteria regarding the implementation of UNSC sanctions regimes). In this context, the outcome of the political negotiations can be to accommodate all points of views and leave the more controversial issues to the implementation phase. However, the lack of clearly defined compliance criteria (and for that matter a general standard how to interpret UNSC sanctions) is a matter for further attention. Therefore, one could argue that the unclear language gives countries (and UN Sanctions Committees) some discretion to interpret UNSC sanctions regimes. 
  • From a legal compliance perspective, this leads to situations where the language of UNSC resolutions, is intentionally left unclear. This can lead to interpretation differences, whereby countries, such in the case of the invasion of Iraq in 2003 or the post 2010 EU and U.S. sanctions against Iran, differ from opinion on the limits of UNSC authorized sanctions. The result is that there is no uniform implementation of UNSC sanctions, which leads to different compliance obligations for companies and exporters operating in different countries. Whether these differences can be resolved through legal means alone, is doubtful.
    • Firstly, the language of UNSC resolutions reflect finely balanced political agreements, often between the UNSC Permanent Members, which are probably not open to legal scrutiny by an all authoritative court or tribunal. As UNSC resolutions are not subject to an authoritative judicial review, interpretations of UNSC resolutions is left to the Council itself and the countries enforcing the measures. In this context, the legal interpretations of UNSC sanctions cannot be divorced from the political circumstances – background and discussions – in which they were adopted. 
    • Secondly,  there is evidence of state practice to suggest that countries have imposed, without controversy, additional sanctions through counter measures, on Targets parallel to UNSC sanctions, or when the UNSC has decided not to impose sanctions, or which go beyond them, e.g. 1950 U.S. counter measures against China and North Korea in response to the invasion of South Korea, 1997 countermeasures by the U.S. against Sudan in response to grave violations of human rights; 1998 countermeasures by EC Member States against Yugoslavia in response to grave violations of human rights; and 2006 Japan’s imposition of a variety of countermeasures against North Korea following its test launch of missiles in the Sea of Japan

(Sources: Martin Dawidowicz, Public Law Enforcement Without Public Law Safeguards? An Analysis of State Practice on Third-Party Countermeasures and Their Relationship to the UN Security Council, 2007 and N. Jansen Calamita, Sanctions, Countermeasures, and the Iranian Nuclear Issue, 2009)

  • This lastly could also apply to both the EU and the U.S. sanctions against Iran. In this context, the countries involved reported to the relevant UN Sanctions Committee of their enforcement actions regarding UNSC imposed sanctions, which explicitly mention their unilateral (autonomous) sanctions.
    • An example how complex this issue can be, is illustrated by paragraph 12  UNSC Resolution 1737. This paragraph requires that UN member states impose financial sanctions, e.g. freezing of funds, owned or controlled by UNSC blacklisted individuals, entities, which also extends to the prohibition of making frozen funds, etc “available… to or for the benefit of these persons entities.”
    • For seasoned compliance officers, the highlighted passage shouldn’t raise too many eyebrows as this covers traditional facilitation prohibitions. In many cases, compliance with the passage will be determined by reviewing the relevant national laws and regulations.
    • However, from an international law perspective, critics of the post 2010 EU and U.S. unilateral sanctions have argued that these violate UNSCR 1737. In my view, this argument cannot be sustained, given the aim of the UNSC to restrict certain transactions (which is also prohibited in later UNSC resolutions), the implicit blacklisting of Iranian persons/entities and their cloaks, and the role of the Iranian Government in the energy sector. A matter for debate is whether countries going beyond UNSC authorizations impose their unilateral restrictions on the basis of good faith and are proportionate to the aims of the UNSC.

Full text of par. 12 UNSCR 1737

Decides that all States shall freeze the funds, other financial assets and economic resources which are on their territories at the date of adoption of this resolution or at any time thereafter, that are owned or controlled by the persons or entities designated in the Annex, as well as those of additional persons or entities designated by the Security Council or by the Committee as being engaged in, directly associated with or providing support for Iran’s proliferation sensitive nuclear activities or the development of nuclear weapon delivery systems, or by persons or entities acting on their behalf or at their direction, or by entities owned or controlled by them, including through illicit means, and that the measures in this paragraph shall cease to apply in respect of such persons or entities if, and at such S/RES/1737 (2006) 06-68142 5 time as, the Security Council or the Committee removes them from the Annex, and decides further that all States shall ensure that any funds, financial assets or economic resources are prevented from being made available by their nationals or by any persons or entities within their territories, to or for the benefit of these persons and entities;

 

US Mexico Border Crossing AP Photo Lenny IgnelzRetorsions 

Retorsions are lawful actions designed to injury a Target, as an expression of disapproval or disgust regarding conduct or policies of the Target, e.g. the withdrawal of unilateral benefits such as foreign economic aid.  

Retorsions are only legal if there is no legal obligation (e.g. a treaty) for the Sender to provide the service, goods or funds which is being withdrawn or refused. An example of a retorsion is for instance the withdrawal of Generalized System of Preferences (GSP) by the EU. Here the EU reserves the right to withdraw GSP on the grounds of, for example, forced labor, unfair trading practices or non-compliance with anti-terrorism conventions.  

image_business_closed

The legality of retorsions is based on state practice, that countries are free to conduct or stop trade with whoever they please as confirmed by international tribunals – e.g. Case of the S.S. Lotus (France v.Turkey), 1927 P.C.I.J. (ser. A) No.10 and the International Court of Justice (ICJ) (in 1986 the Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America)).

However, in the same last case, the ICJ did state that economic coercion can violate international law when it violates “matters which each State is permitted, by the principle of state sovereignty, to decide freely…it [the Sender] uses methods of coercion in regard to choices that must remain free, such as the choice of a political, economic, social, and cultural system, and the formulation of foreign policy.”

Unlawful economic pressure or coercion could be for example the disproportionate pressure with the threat to use armed force which aims to submit a country to the will of another country (e.g. the aggressive foreign policy of Nazi Germany before the outbreak of the Second World War). 

However, small and developing countries, especially those with a history of being colonized or being the victims of armed aggression, view any form of economic pressure by Senders (usually powerful countries and/or former colonizers) as violating their sovereignty.

 

Justifying Economic Sanctions under the Laws of Counter Measures 

fish_justice_cartoon.In the absence of UNSC authorization or if retorsions are not applicable, Senders may justify the imposition of economic sanctions under the laws of counter measures, i.e. according to the criteria set out in the International Law Commission Draft Articles on State Responsibility

The aim of counter measures is to induce the wrongdoer to restore a lawful state of affairs. At their core, counter measures are coercive measures that are normally illegal, but are justified if they are applied as a response to an initial illegal (wrongful) act. In other words, there has to be an injured party to claim that an international obligation has been violated. When applied to economic sanctions, controversy arises whether Senders can qualify as an injured state (and meet the procedural requirements required to impose lawful counter measures).

The main problem with counter measures, is their imprecision. They are an awkward instrument to justify economic sanctions, as they are generally based on the self-judgment of Senders whether an international obligation, albeit it a legal norm, has been violated. Further, senders of counter measures also have to meet some procedural preconditions, e.g. a demand to cease a violation and fulfill its obligations – see ruling of the 1997 International Court of Justice in Gabčíkovo-Nagymaros Project. Most controversial is when Senders of sanctions regimes claim that the Target of their restrictive measures has violated so-called erga omnes obligations, i.e. obligations vital to the functioning of the international (legal) system where no derogation is permitted. Erga omnes obligations can cover acts of aggression, genocide, slavery or other acts of racial discrimination. 

From a compliance perspective, a breach of erga omnes obligations is considered a breach of a legal obligation towards the whole international community, whereby all countries have an interest and may adopt counter measures in response.  

Images of IAEA Board Resolution on Iran_2001-2009.state.govHowever, given the imprecision of counter measures, the lawfulness of economic sanctions based on counter measures is far from settled. 

A common critique is that self-judgment can lend itself to abuse. Powerful countries can impose their views on the rest of the world. Although this might be unfair or at times an unwise method to induce compliance, this shouldn’t lead to the conclusion that economic sanctions based on counter measures are unlawful.

In practice, the question boils down to the issue whether the discretion of Senders of economic sanctions based on counter measures, albeit erga omnes obligations, have genuine claims to impose counter measures. Genuine links can be assessed by reviewing:

  • the gravity of the breach which caused the adoption of counter measures, and
  • the circumstances in which the measures were adopted, e.g. the general standing of the Target within the world.
    • For instance, does the Target of the sanctions regimes have a history of breaching other international obligations, a track record of armed aggression, threatening its neighbors or maltreatment of its citizens in regard to human rights.
  • Furthermore, as international law is not static, world opinion can evolve regarding what is considered a breach of  an international obligation, e.g. cyber security. 

Nuclear Iran Deal UN Building Vienna_14072015_Joe Klamer_Pool Photo APHighly relevant to this discussion  is the case of EU and U.S. unilateral sanctions against Iran regarding it’s controversial uranium enrichment program.

Although it goes too far to fully outline the legal issues involved, critics of the EU and U.S. policies question whether Iran’s failure to honor its obligations under the Treaty on Non-Proliferation of Nuclear Weapons (NPT) falls under an erga omnes obligation, whereby the EU and U.S. can legally claim the status of injured state.

On the other hand, supporters of the EU and U.S. unilateral sanctions, justify the counter measures because the risks of nuclear proliferation are a threat to the whole community of nations, and therefore a breach of an erga omnes obligation. This is based on the aims of the NPT and the fact that majority of countries are parties to the NPT, which reflects the importance that the global community attaches to full compliance with NPT obligations, not to mention that the UNSC has declared Iran’s conduct as a threat to international peace and security in several resolutions. 

In a perfect world, such legal questions would be reviewed by an independent court. However, as we don’t live in a perfect world, the application of counter measures remains subject to debate and controversy.

 

Jurisdictional Issues 

A field of international law which has caused some controversy regards the lawfulness of unilateral sanctions, in particular if these are applied extra-territorially. 

Jurisdiction is a legal concept which sounds very technical, but is in practice rarely well understood. In regard to the jurisdictional aspects of economic sanctions, one point  often overlooked is that the imposition of any economic sanctions regimes, e.g. primary sanctions or unilateral secondary sanctions, always have extra-territorial working. It would be grossly naïve to think otherwise.

To believe that only primary sanctions comply with international law because they only aim to regulate subjects of Senders overlooks the fundamental “outward looking,” nature of sanctions. All sanctions regime aim to coerce conduct of Targets in foreign countries.

Therefore, to only condemn unilateral secondary sanctions and ignore the extra-territorial effects of primary sanctions regimes might be seen to be illogical. In this context, it should be preferable to condemn the causes why sanctions regimes are imposed in the first place.

 

The Difficulty of Defining (Extra-Territorial) Jurisdiction

Under international law jurisdiction is territorial in character, closely connected to the principle of sovereignty, whereby sovereign states have the exclusive right to exercise their jurisdictions without interference of other states, i.e. the principle of non-intervention or more bluntly put, the non-of-your-business rule.

Simply defined, jurisdiction is the exercise of power of a country over persons (natural or legal), property and activitiesThe exercise of powers refers to three core powers of sovereign states, i.e.

 Parliament at WorkPrescriptive Jurisdiction This covers the power of a state to make laws and regulations over property, persons or events, e.g. impose license requirements for the export of strategic goods or a prohibition not to trade with sanctioned entities without prior authorization.

enforcement jurisdiction - sniffer dog at workEnforcement Jurisdiction This covers the power of a state to physically interfere with property, persons or events, e.g. the power to arrest an exporter for exporting strategic goods without a license or the power to order the blocking/freezing of financial assets of a sanctioned entity. [/su_content_slide]

judicial jurisdictionAdjudicative Jurisdiction This covers the power of a state to allow courts/tribunals to hear cases concerning the enforcement of these laws, e.g. a court may rule over a situation in which an exporter’s goods have been confiscated or financial assets have been frozen by a governmental agency.

Tensions will always arise when countries, in particular the U.S., attempt to regulate persons or activities beyond their territories, e.g. extra-territorial jurisdiction. However, countries can have genuine reasons to regulate the conduct of foreign persons or activities outside their territories, as these can impact their jurisdictions, e.g. the sale of weapons of mass destruction in third-countries which can potentially be used against them.

In the twenty-first century, the principle of sovereignty is no longer considered absolute, although the grounds to override sovereignty is subject to intense debate, e.g. the duty to protect. Absent a treaty, multilateral cooperation regimes, consent or UNSC authorized measures under Chapter VII UN Charter, the principle of non-intervention cannot be violated.

From a legal perspective, the core jurisdictional issue is whether and to what extent the principle of non-intervention is violated.  As long as countries can prove a genuine link, i.e. nexus to regulate persons or activities beyond their territories, claims of extra-territorial jurisdiction will meet less opposition, but nevertheless can still lead to controversy. In this context, there is no universal accepted compliance mechanism which governs the exercise of extra-territorial jurisdiction. Thus, in reality, lawfulness also depends if other countries accept the exercise of extra-territorial jurisdiction. Friction is frequently caused by expansive interpretations of: security threats, nationality applied to foreign subsidiaries (of U.S. companies) or over the origin of goods.

There are two possible ways how extra-territorial economic sanctions are implemented: 

Countries claim outright extra-territorial jurisdiction, e.g. Title III (which is subject to semi-annual presidential waivers) and Title IV Helms-Burton Act 1996 regarding the liability of any non-U.S. person trafficking in confiscated property by the Cuban Government of U.S. citizens, albeit naturalized Cubans. In the view of many countries, especially the EU and other close allies of the U.S., these types of laws violate international law, which have lead to the most hostile of reactions, including blocking laws.

Countries give their national laws extra-territorial working. Applied to economic sanctions, this means that countries impose prohibitions on their citizens or companies not to engage in specific activities, e.g. trade or investment opportunities, with countries, persons or entities which conduct business with Targets of their primary sanctions regimes.

International law allows this  as long as the extra-territorial effects are rooted in accepted principles of jurisdiction, e.g. nationality, effects doctrine  and national security (see below for definitions). The conventional thinking is that Senders of these types of jurisdiction have a burden of proof to show a genuine nexus with persons, properties and activities which they wish to regulate.

When do countries exercise Extra-Territorial Jurisdiction? 

The most controversy concerns how Senders justify their nexus to regulate extra-territorial conduct. 

The outright claims of extra-territorial, as in the case of the Helms-Burton Act, are rare because they are generally deemed to violate international law. 

In contrast, giving national laws extra-territorial effect are more common because they meet less international opposition. In this context, Senders may choose this type of extra-territorial jurisdiction precisely because they fear that claims of outright jurisdiction may over-step accepted state practice. 

In most cases, controversial exercise of extra-territorial jurisdictions are expressed through diplomatic protests or enactments of blocking statutes (e.g. a law adopted in the jurisdiction of third-countries which aim to obstruct the extra-territorial working of laws enacted by the Sender of secondary sanctions regimes). 

Where countries cooperate or share a common goal, e.g. anti-terrorism, anti-proliferation or activities which cause moral outrages – child pornography or sex tourism, claims of extra-territorial jurisdiction are usually uncontroversial. 

In other cases, which has applied to security related trade controls, Senders have had to back-down or scale back their extra-territorial claims in the face of hostile reactions from other countries, e.g. the Trans-Siberian Pipeline Dispute (1980’s U.S. versus Allies, e.g. EU) or the Helms-Burton Act (1996 U.S. versus EU).

fish_justice_cartoon.Therefore, the lawfulness of extra-territorial jurisdiction largely depends on how this is exercised. 

In regard to economic sanctions, security threats addressed by them usually span over national borders. A conspiracy to evade or circumvent sanctions regimes to facilitate, i.e. enable the development of weapons of mass destruction (WMD), may involve different actors, intermediaries and financial transactions in many jurisdictions. However, jurisdiction can be both territorial and extra-territorial.

It is territorial when exercised within its territory, e.g. licensing policies regulating the trade of WMD proliferation sensitive technologies, restricting the admission of foreign persons to academic institutions involved in nuclear energy research,  or prohibits its citizens or companies, regardless of location, to engage in or to facilitate WMD related business or financial transactions.

It is extra-territorial when it regulates foreign elements of the conspiracy which impacts its territory. The exercise hereof can be lawful when the nexus to its territory or other recognized types of jurisdiction, e.g. citizens, can be proven (and of course accepted by other countries).

The problem is that countries disagree on the limits of the nexus. How substantive do the links have to be to trigger jurisdiction? In the context of security related trade controls, i.e. export controls and economic sanctions, the U.S. is for instance a country which interprets the nexus very broadly, which has led to epic clashes. 

In the Trans Siberian Pipeline Dispute (see further below), the main opposition to the U.S. claim of extra-territorial jurisdiction surrounded the retroactive imposition of export controls imposed on foreign companies which had already been authorized to export U.S. origin goods out of the U.S. 

Read More - Trans Siberian Pipeline Dispute

Flags of the Cold War super powers

The general back-ground to the dispute relates to the broader issues related to the application of U.S. led security related trade controls during the Cold War, namely:

  • Declining consensus regarding the implementation of U.S. security related trade controls. During these years, although there was common agreement between the U.S. and its allies to restrict strategic exports to the Communist Block, U.S. allies weren’t always ready to follow the U.S. line and forego economic benefit. From a trade perspective, this had also to do with the fact that allies, e.g. European countries and Japan, had developed very successfully alternatives to U.S. goods, and as such were increasingly in direct competition with the U.S.
  • U.S. concerns over energy and economic security. Parallel to these problems was the wish of the Soviet Union to develop a gas pipeline between it and Western European countries. This was a means for the U.S.S.R. to earn sorely needed hard currency. For the involved European countries, the construction of the pipeline was a considerable investment, the construction of the pipeline was estimated to cost U.S.$ 15 billion. From a strategic point of view, the U.S. was worried that the construction of the pipeline would negatively affect the strategic balance, as Western European countries, would exchange a reduced dependency on Middle Eastern gas with a greater dependency of Soviet natural gas, which might be more difficult to control given the super-power status of the Soviet Union. 
  • Deteriorating relations between the U.S. and the Soviet Union. Relations between the two super-powers deteriorated with the 1979 Soviet Union’s invasion of Afghanistan and the 1980 imposition of martial law in Poland to crack-down on the Solidarity led reforms. Both the Carter and Reagan Administrations imposed a series of trade restrictions against the U.S.S.R., in contrast to Western European countries.

As a result, the U.S. was finding it more difficult to co-ordinate its security related trade controls with its allies. The U.S. had several policy choices, namely to enforce stricter export controls, which could substantially effect its own industry that was in the midst of a trade deficit, reach multilateral consensus regarding the implementation of security related trade controls, or expand its extra-territorial jurisdictional claims over the (re)export of U.S. origin goods. The U.S. Government under President Reagan choose for the last option. Thus, the seeds were sown for a trade dispute with its allies and major trading partners.

The U.S. imposed its restrictions in two phases. The first phase was in December 1981 and the second phase was in June 1982. Note that the restrictions are an example how the U.S. combines export controls and economic sanctions. The imposed restrictions covered:

  1. exports and re-exports, e.g. from third-countries, from the U.S. to support the pipeline construction (exercise of territorial jurisdiction)
  2. prohibitions of “persons subject to the jurisdiction of the United States” to support or facilitate the pipeline project (exercise of nationality jurisdiction)
  3. (most controversial) retroactive prohibitions of re-exports of U.S. origin-goods already lawful exported from the U.S.

The first two types of restrictions were consistent with U.S. practice, as such restrictions had been imposed earlier during the Cold War, e.g. against China. The last type of restriction was new and went beyond the customary international law, and was considered extremely controversial.

The December 1981, restrictions in essence contained prohibitions to limit or prevent any exports of U.S. origin goods from the U.S. to support the pipeline project, and thus to the Soviet Union. This was done by:

  • Imposing a far stricter licensing policy for oil and gas refinement equipment destined to the Soviet Union.
  • Further, the U.S. also imposed a license review and suspension of all pending licenses.
  • Finally, restrictions were imposed on the transmission of all U.S. technologies related to oil and gas goods, regardless of location, whereby the non-U.S. recipient had to give written assurances that such technologies or non-U.S. products manufactured directly on the basis of U.S. technologies would not be re-exported to the Soviet Union. If such an assurance would or could not be given, then an export license would have to be requested, which would in all probability not be granted.

Furthermore, although not at first apparent, the restrictions also placed restrictions on re-exports of such U.S. origin goods from third-countries.

The relevant U.S. regulations, the Export Administration Regulations (EAR), permitted (and still does) the licensing of the re-export of such goods, even already lawfully exported from the U.S., to the U.S.S.R. which would ordinarily require a license if the same goods were directly exported from the U.S. to the Soviet Union (in 2015 to an end-destination, albeit sanctioned by the U.S., which requires an EAR license).

In effect the restrictions were a retroactive restriction on re-exports of U.S. origin goods and technologies. Until then, the U.S. had never applied such retroactive controls. Although unpopular with U.S. allies, the December 1981 restrictions did not lead to a serious trade dispute. From a policy perspective, the restrictions were reluctantly supported.

In contrast, the June 1982 restrictions did cause an international outrage against the ever tightening U.S. restrictive measures.

After the U.S. failed to convince allies to support it’s sanctions against the Soviet Union, it imposed unilateral trade restrictions on U.S. subsidiaries/ branches of U.S. based companies, but also on U.S. foreign subsidiaries and non-U.S. companies using U.S. origin technologies which they had already been licensed from U.S. companies.

By June 1982, many non-U.S. companies, including U.S. foreign subsidiaries, had already signed contracts with the U.S.S.R. to delivery manufactured equipment for the pipeline project. The new prohibitions effectively forbade non-U.S. companies from honoring their contractual obligations with the Soviet Union. This was not only an extraordinary claim of extra-territorial jurisdiction, but more importantly the retroactive nature of the restrictions put many companies into serious problems, as they could no longer honor contractual obligations.

The international response to the June 1982 restrictions was, to put it mildly, hostile. European countries, joined by Japan, ordered companies within their territories to disregard the June 1982 restrictions and continue their respective involvement with the pipeline project. The U.S. response was even more draconian, namely it blacklisted, i.e. sanctioned, all non-U.S. companies which continued to disregard the restrictions (a temporary denied persons list was created). This was not only limited to the activities surrounding the Soviet Union’s pipeline project, but also their general access to all U.S. oil and gas related origin goods and technologies, which significantly affected their overall operations. 

Also from a legal point of view, the affected European countries and Japan, filed diplomatic protests claiming the June 1982 restrictions to be in conflict with international law. In the only court case directly addressing the issue of U.S. extra-territorial claims, the District Court of The Hague, refused that a Dutch subsidiary of a U.S. company use the 1982  restrictions as grounds not to honor contractual obligations. 

In view of the international response, by November 1982, the U.S. backed-down, and rescinded most of the restrictive measures relevant to the pipeline project and lifted the blacklisting of non-U.S. companies. 

The legacy of the Trans-Siberian Pipeline incident is rather different. Although the U.S. backed-down in 1982, it did not abandon its extra-territorial claims to regulate U.S. origin items or expand which persons are subject to its jurisdiction, which is highlighted in its Cuba boycott (especially the 1996 Helms Burton Act) and current sanctions regimes against Iran. The elements of the 1981 and 1982 restrictions are the now the cornerstone of U.S. security related trade controls, although the U.S. has scaled back most of its retroactive controls, even amending the relevant statue – Export Administration Act (in 1985). 

The essence of the international hostile reaction to the U.S. 1981 and 1982 restrictions regard the retroactive controls. Although there is still tension how the U.S. applies its extra-territorial jurisdiction within the context of its security related trade controls, major trading partners are generally in agreement with the aims of U.S. security related trade controls. They just don’t like them, when they are directed towards them and in situations when its debatable if the national security of the U.S. are threatened. However, this hasn’t stopped the U.S. from reasserting its extra-territorial controls (think of the 1996 Helms Burton Act regarding U.S. Cuba sanctions). Thus, it’s a question of time when the U.S. will clash with its allies…

 

Read More - Definition of a U.S. Person & Clashes of Jurisdictions
Under most regulations, a U.S. Person is defined as (a) any United States citizen, (b) permanent resident alien, (c) entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or (d) any person in the United States – see 31 C.F.R. 560.314; 31 C.F.R. 538.315 (Sudan sanctions); 31 C.F.R. 541.312 (Zimbabwe sanctions).  

The Cuba boycott applies a broader definition, to include foreign subsidiaries of U.S. companies (see definition persons subject to the jurisdiction of the United States 31 C.F.R. 515.329 & 330). However, the Iran regulations were recently expanded so that they now more aligned with the definitions found in the Cuba boycott – see 31 C.F.R. 560.215 (which includes entities owned or controlled by a U.S. Person and established or maintained outside the United States). 

The expanded application of what is considered to be a U.S. person has also led to hostile conflicts of jurisdiction, which places companies in extremely difficult positions. Examples of such negative reactions were in relation to the passage in 1996 of both the Iran-Libya Sanctions Act and the Helms-Burton Act.

  • The United Nations General Assembly (UNGA) issued, although not legally binding, numerous resolutions to end “… unilateral extraterritorial laws that impose sanctions on corporations and nationals of other States,” and [encourages] “all States not to recognize or apply unilateral extraterritorial coercive economic measures imposed by any State, which are contrary to recognized principles of international law.” See UNGA Resolutions calling for the Elimination of Coercive Economic Measures as a Means of Political and Economic Compulsion, G.A. Res. 51/22, U.N. Doc. A/RES/51/22 (Dec. 6, 1996); G.A. Res. 53/10, U.N. Doc. A/RES/53/10 (Nov. 3, 1998); G.A. Res. 57/5, U.N. Doc. A/RES/57/5 (Nov. 1, 2002)
  • The Helms-Burton Act also resulted the enactment of so-called blocking laws, designed to prohibit the extraterritorial application of U.S. sanctions and export controls. For example, Canada prohibited Canadian companies from complying with demands from their U.S. parents to adhere to the U.S. Cuba boycott; which was followed by Mexico; and the EU which adopted Council Regulation 2271/96. While the blocking laws differ, their common features is to prohibit their nationals from complying with specified U.S. security related trade controls.  

A highly publicized case, involved the 1997 “Cuban Pajama jam,” of a Canadian subsidiary of Wal-Mart Stores Inc. which was selling Cuban-made pajamas.

When the U.S. discovered the activities of the Canadian Wal-Mart subsidiary, it demanded that the Canadian subsidiary stop the sales of pajama’s manufactured in Cuba in order to comply with U.S. sanctions regulations. The company quickly removed the offending items from its Canadian stores, but was then faced by Canadian authorities, who insisted that Wal-Mart Canada continue to sell Cuban-origin products or face significant fines. Eventually, Wal-Mart Canada decided to comply with Canadian law rather than comply with U.S. laws. In the end, the U.S. Government took no further action.

  • The application of extra-territorial jurisdiction regarding foreign subsidiaries is controversial. This is illustrated through the above-mentioned examples. For instance during the Trans Siberian Pipeline Dispute, European countries did not accept the claims of the U.S. Although this was based on the U.S. retroactive controls and the fact that the U.S. did not base its claims on the basis of national security, but on the basis of the nationality principle, i.e. control theory. The control theory, although a good enforcement tool, is not a fully recognized method of establishing nationality under international law. The International Court of Justice established that the nationality of a commercial entity is not solely based on the nationality of its owners or shareholders, but also place of incorporation (Barcelona Traction Case). However, even though the control theory may not be an accepted principle under international law, it may be justified (in the rare occasion) regarding unilateral secondary sanctions if based on a permissive type of jurisdiction, e.g. the effects doctrine, protective principle or the territorial principle. For instance,
    • if the foreign subsidiary was involved in a conspiracy to circumvent sanctions prohibitions with its domestic parent,
    • the effect of a foreign subsidiary’s conduct had substantial negative effects in the territory of the state claiming jurisdiction or
    • the conduct seriously jeopardized national security. This lastly could be based on the concept that the implementation of a national program, essential to the forwarding of major national interests, can only be achieved through foreign subsidiaries. 

Given the subjective nature of these conditions and the fact that Senders of secondary sanctions, as in the case of the Trans-Siberian Pipeline Dispute, do not clearly justify their sanctions regimes, its no surprise that extra-territorial jurisdiction regarding foreign subsidiaries has been met with hostility. On the other hand, claiming that extra-territorial jurisdiction regarding secondary sanctions violates international law should also be viewed with some skepticism. 

In reality however, possible problems can be solved if foreign subsidiaries voluntarily submit to the jurisdiction of their parent companies, e.g. a national of the country claiming extra-territorial jurisdiction, as in the case of foreign subsidiaries of U.S. companies during the Trans-Siberian Pipeline Dispute. Although this is considered by some legal scholars to be controversial, there is no rule under international law which prohibit companies from voluntarily submitting to the jurisdiction of other countries. 

Such voluntary submissions are done for reputational reasons or to improve their standing within the market. In this context, parent companies, wishing to avoid liability under sanctions laws and regulations could compel their foreign subsidiaries, through corporate statues, to comply with relevant prohibitions. This could be lawful, as long as the foreign subsidiaries do violate any laws of their home states, e.g. a blocking law, or violate protests of their governments, which, as demonstrated in the Trans-Siberian Pipeline Dispute, are commonly resolved through political or diplomatic channels.

Read More U.S. Origin Goods Based Jurisdiction

  • From a legal perspective, origin-based jurisdiction aims to give goods (permanent) nationality. In this context, the nationality of a good justifies the claim for extra-territorial jurisdiction. Currently, this is unique to the U.S., which imposes outright extra-territorial jurisdiction over U.S. origin goods. 
    • In relation to security related trade controls, there are several ways how countries exercise this type of jurisdiction. For instance, tailor-made agreements, especially in regard to military items, whereby countries agree to provide each other with goods and technical assistance, whereby the receiver of the goods promises not to allow further shipments or re-exports of such items without the consent of the giving party or to regulate such movements, e.g. the use of end-user certificates is an example hereof. Non-compliance with such arrangements can stop such arrangements, which can have considerable political not to mention economic repercussions.
    • The U.S. policy however, goes a step further. In regard to U.S. strategic goods, the U.S. claims jurisdiction over its goods, technologies or software in perpetuity, as it claims the right to assert jurisdiction over goods if they are destined to be re-exported in third-countries to other foreign owners.
      • For certain goods, this is uncontroversial, e.g. conventional military equipment, given that the recipients of U.S. military items are close allies and frequently identify with such restrictions (and usually agree or impose similar to ex ante restrictions).
      • More problematic is the application of U.S. origin-based jurisdiction based on the “U.S. Content,” of foreign made goods (so-called de minimis rule/ for military goods the U.S. applies the so-called see-through principle). In effect, the U.S. applies outright extra-territorial jurisdiction over these goods, as the broad scope of U.S. jurisdictional reach is now further expanded to assert extra-territorial jurisdiction over non-U.S. origin items (and activities of non-U.S. persons) that contain certain levels of U.S. content, as well as over “foreign-made commodities that are ‘bundled’ with controlled U.S.-origin software,” (see 15 C.F.R. 734.4 & 5).
      • Thus, U.S. content can taint foreign-origin items, so as to bring those foreign-origin items within the jurisdictional scope of U.S. export controls and under certain circumstances U.S. economic sanctions. There are various types of U.S. content, for both military and dual-use items, e.g. for the latter the standard U.S. content threshold is 25% by value, but is sometimes as low as 10% or no de minimis can apply for certain national security controlled items (e.g. 15 C.F.R. 734.4(a) (3)/(4), (c), (d)).
      • This type of item origin-based jurisdiction is extremely expansive, but is also aggressively enforced (on the basis of strict liability), which presents practical challenges.
        • Firstly, the origin based jurisdiction not only covers re-exports and trans-shipments, but also in-country transfers, which can also cover routine in-house transfers between business units of the same company.
        • Secondly, it can also be difficult to determine what a non-U.S. origin item’s U.S. content percentage is, e.g. in regard to technology and software.
        • Thirdly, the origin based jurisdiction is a departure from how trade actually occurs, as it relegates origin determinations to abstract accounting principles divorced from any practicalities,  given the increased outsourcing of production activities, and increased use of electronic instruments to transfer knowledge or technical assistance.

A keen reader will notice that this type of jurisdiction was at the core of the Trans-Siberian Pipeline Dispute. Although the U.S. backed-down in 1982, the origin based jurisdiction, albeit limited to few items, remains one of the cornerstones of U.S. security related trade controls policy. In some ways, the extra-territorial reach of the U.S. has become more expansive given its prominent position and role in the current liberalized global economy. 

  • From a policy perspective, justifying this broad jurisdictional reach is clear: the U.S. wants to prevent unwanted transactions and activities, no matter where they occur. However, this is controversial (think of the Trans-Siberian Pipeline Dispute).  
    • It is the application of wartime laws to peacetime, which unnecessarily complicates the legal justification to apply extra-territorial jurisdiction for legitimate security threats. The roots of the origin-based jurisdiction is the application of the concept of wartime contraband (invented by European countries). The peacetime application, in combination with economic sanctions was utilized during the Cold War extensively by the U.S. led boycott against the Communist bloc (think of the COCOM). 
    • The application of origin-based jurisdiction on the basis of the nationality principle arguably violates current international law, as the U.S. expands the nationality principle beyond recognized principles of international law. The permanent nationality of goods is traditionally only extended to: aircraft, maritime vessels, spacecraft, and goods which can be categorized as cultural heritage goods. This is because these goods have a special relationship with a country, e.g. can also be seen as an extension of their territories, which cannot be said of the internet, computers or a microchip which in themselves can affect the national security of a country (only think of the rising security threats regarding cyber security).
      • Therefore, a wiser approach, in the absence of a fundamental review how the U.S. and its major allies could apply security related trade controls more effectively, would be to base this on the effects doctrine or the protective principle. However, even the most liberal interpretations of national security, claiming origin based jurisdiction in perpetuity, clearly over-steps the mark. In this context, you can’t have your cake and eat it at the same time. 
    • The fundamental problem with origin-based jurisdiction is that the policy is awkward, as it attempts to reconcile the traditional U.S. policy to support outbound trade with national security concerns. 
      • Since 1945, when the U.S. assumed its super-power status, it has attempted to balance its trade interests while preventing to restrict trade in goods which could and can affect its national security interests. In the Cold War, e.g. through the Marshall Plan, the U.S. had a vested interest in promoting trade, also that in strategic goods as its key allies, devastated by the ravages of war, needed to build up credible defenses against the Soviet Union. This policy is most clearly articulated in the statute governing the export of dual-use items – especially in regard to the changes made in 1979 – Export Administration Act 1979 (EAA) Sections 4 (b) and 5 (d). In these sections, the intent of the U.S. Congress is clear, to regulate the (re)export of critical dual-use items. In Section 4 (b), Congress explicitly prescribes to give the EAA extra-territorial effect, although the EAA does not mention origin jurisdiction – only its implementing law – so-called Export Administration Regulations.
      • Given that the international security paradigm has changed, origin based jurisdiction has become increasingly awkward to implement (think of the 1994 creation of the looser export control regime through amongst other the Wassenaar Arrangement). During the Cold War it was easier to impose origin based jurisdiction, as the reason to deny goods to certain end-destinations was politically clear and commonly understood, e.g. the defeat of communism through economic isolation. The term ‘easier,’ is used to reflect the known disagreements among allies. Since then, also as illustrated by the Trans-Siberian Pipeline Dispute, origin based jurisdiction is problematic; trade with ex-communist countries is, despite the political differences or now temporary sanctions against Russia, desired. The world has moved on, major U.S. trading partners, then and now, have developed into mature economies with real alternatives to not only U.S. products, but also different foreign policy approaches. In this context, major U.S. allies, have also even welcome(d) U.S. restrictions, as U.S. reluctance to trade could be turned into economic opportunities (to the frustration of the U.S.).
      • Origin based jurisdiction focuses too much on the item, which can impede a more holistic approach to compliance. The focus on items with military origins, but have now widespread commercial applications does not fully reflect the security realities of the twenty-first century. We live in a world in which end-use and end-user controls, are rapidly becoming more important. Nor does it reflect the undue costs to industry wasted on compliance efforts, which could be put to better use (think of the U.S. Export Control Reform Initiative).
        • The solution for the future, is to impose controls which cover all aspects of national security, e.g. not only individual transactions regarding types of controlled goods, but also the end-uses, end-users and end-destinations. This could afford both governments and industry a more holistic approach to compliance, and for that matter align jurisdictional issues more closely to the risks confronting authorities and companies in the twenty-first century. Whether a further coordination and multilateral accepted controls is sufficient to remove the necessity of extra-territorial jurisdiction, is questionable. Mature security trade control licensing regimes already incorporate waivers (exemptions) for low risk countries or allied countries. However, this does not translate into a waiver of jurisdiction, whereby the trust in another country’s regulatory supervision is effectively brought into question. Why should a waiver of a license not be translated into a waiver of jurisdiction? This could certainly apply to certain types of dual-use goods and technologies, with broad commercial applications. The problem with this approach is not so much dominated by national security concerns, but by economic factors. For instance, the most sensitive items covered by U.S. origin based jurisdiction are funded by tax payers, or at least with considerable public funding, which governments would not be willing to surrender their jurisdiction easily. Therefore, it could be argued that extra-territorial jurisdiction will never totally vanish. 

Examples of origin based jurisdiction items are: 

  • Military items are listed as designated defense articles which are listed in the U.S. Munitions List – Section 38(a)(1) of the Arms Export Control Act (AECA)/ Part 121 of the International Traffic in Arms Regulations (ITAR), which implements the AECA.
  • Dual-Use items are listed in the Commerce Control List – EAA 1979 (as amended)/ Part 774 Export Administration Regulations (EAR) which implements the EAA. 
    • The so-called de minimis levels (thresholds between 0% or 10%-25%). 
    • Alternatively, in some cases, restrictions are placed on U.S. commercial goods which ordinarily would not require an export license, but due to concerns regarding: the end-destination (embargoed/sanctioned end-destinations), or concerns regarding an end-user or concerns regarding the support of a prohibited end-use might require a license or prior authorization from the U.S. Government.
  • Sanctions Regimes administered by the Department of Treasury/ The Office of Foreign Assets Control (OFAC) also places restrictions on the (re)export of U.S. origin goods. The scope and depth of the restrictions depends on the particular sanction regime. For example, restrictions relating to Iran (31 C.F.R. 560.420) or to Sudan (31 C.F.R. 538.507). Note that in many cases, OFAC refers to the EAR regarding restrictions for dual-use items. Restrictions relating to defense articles, e.g. arms embargoes, are listed in the ITAR itself.
  • In some cases, U.S. origin goods are also determined by the amount of controlled U.S. value content, e.g. components or technologies/software, incorporated into foreign-goods, i.e. non-U.S. goods. 

maritime sailingRecognized Principles of International Law justifying Extra-Territorial Jurisdiction

The core issue, which is subject to intense debate, is that Senders of extra-territorial sanctions regimes claim that giving their national laws extra-territorial effect does not always amount to prohibited interference, despite the fact that they can have far-reaching implications for foreign parties. 

The legal distinction is that giving national laws extra-territorial effect, aims to regulate foreign conduct which impacts the well-being of their territories or populations, and not the outright conduct of foreign parties.

Images of Foreign Policy and Economic SanctionsFor instance, a government might demand that foreign companies wishing to operate in its territory must ensure that they do not engage in business with parties which it finds repugnant, human rights violators or terrorists or allow that its financial system be used to process financial funds of such parties.

These national measures are designed to protect their jurisdictions or combat trans-national or even global problems, but not to directly regulate the conduct of foreign parties or foreign activities. Note that there are other fields of law which countries (not necessarily the U.S.) give their national laws extra-territorial effect, e.g. anti-trust laws, environmental protection, and the genetic modification of foodstuffs. 

State practice has proven that the following legal principles can establish a genuine nexus to exercise extra-territorial jurisdiction: 

Active Nationality Principle: countries have traditionally been allowed to exercise prescriptive jurisdiction over persons subject to their jurisdiction (citizens, permanent residents, companies – and their foreign branches registered under their laws) for activities in their territories and outside their territories (e.g. if they commit criminal acts outside the territory of the home-country. This lastly is based on the legal concept that these persons owe allegiance to their home-country.

Passive Nationality Principle: the exercise of jurisdiction over foreign persons by the home-country of a victim of crimes committed outside the territory of that state (e.g. crimes against diplomatic staff or property, acts of terrorism or other crimes). In this context, home-countries reserve the right to start prosecutions against foreign persons if the country in which they committed the crime (or the suspect’s home-country) refuses or is unable to prosecute the perpetrator of the crime.

Objective Territorial Principle (or Effects Doctrine): prescriptive jurisdiction may be asserted over acts that occur outside the territory of country but have harmful or detrimental “substantial effect within,” the territory of the country claiming jurisdiction (e.g. anti-trust conspiracies of foreign companies which affect the interests of consumers in their territories or freezing of financial assets of foreign based terrorists which have committed acts of terrorism in a country’s territory).

Protective Principle: the claim of jurisdiction over criminal acts committed by foreigners directed against the fundamental security of a country (e.g. acts such as the overthrow of the government, espionage, conspiracy to violate immigration laws, and forging of its currency). This type of jurisdiction originates from the concept of self-preservation or self-defense of countries.

Universal jurisdiction principle: exercise of jurisdiction over crimes committed by foreigners outside of their territory that are of universal concern to the community of nations (e.g. piracy, slave-trade, war crimes, crimes against the peace, crimes against humanity, genocide or torture). Theoretically speaking, this could apply to security related trade controls, although a prosecutor would have to prove that, for instance, the sale of an export controlled good or the facilitation, i.e. enabling evasion or circumvention, of a financial transaction aimed to bring about such a crime or was intended to support it.

To illustrate how extra-territorial jurisdiction could be applied, see the following example.

Economic Sanctions_False_Sense_of_SecurityImagine the case in which the terrorist group W explodes a bomb in State X. In response, the government of State A imposes financial sanctions against W, whereby it orders its citizens (regardless of location) and banks to freeze all assets of W. 

If the perpetrators or victims of the bombing have no links with State A, then State A could justify the freezing order on the basis of the protective or effects doctrine

  • For instance, State A could declare that W is part of a global terrorist group AQ which has designs to commit terrorist attacks against it or persons subject to its jurisdiction, thus has substantial effects within its territory or interests.
  • Further, W could as a reaction to the bombing be blacklisted by the United Nations Security Council (UNSC), whereby State A would be legally obligated to implement sanctions against it. As cited elsewhere, State A could under certain circumstances continue to impose the freezing order parallel to the UNSC measures.

 If the perpetrators or victims of the bombing are nationals of State A, then State A could base the freezing order on the basis of both enforcement and prescriptive jurisdiction. A justification under universal jurisdiction would depend whether the bombing is considered a crime which falls under universal jurisdiction.

 Another possibility to justify State A’s freezing order is that State A has a law based on its foreign policy goals not to allow its territory or persons subject to its jurisdiction to engage in any business or investments with global terrorists and their affiliates – e.g. AQ and W. The claim of jurisdiction in this case is then obvious, namely a primary sanctions regime to regulate the conduct of its nationals (anywhere in the world) or all persons within its territory. 

enforcement jurisdiction - sniffer dog at workImagine now that State A discovers that State C has aided and abetted W or AQ with its terrorist activities, it decides to impose unilateral sanctions regime against State C.

If these prove ineffective, State A could order persons subject to it’s jurisdiction, including foreign subsidiaries owned or controlled by persons or companies of State A, not to engage in trade or investments with third-countries or cloaks which trade with State C (a secondary sanctions regime).

  • State A could justify the secondary sanctions on the basis of the protective, territorial and effects doctrine, a measure to regulate the conduct of its citizens and banks and foreign subsidiaries regardless of the effects on third-countries and foreigners. 
  • In regard to foreign subsidiaries, owned or effectively controlled by persons subject to the jurisdiction of State A, the actions could be justified if the prescriptive jurisdiction is based on the basis of: 
    • territorial jurisdiction to prevent or to punish the activities of the foreign subsidiary which has violated State A’s freezing order through a conspiracy involving it’s parent company
    • the effects doctrine if the activities of the foreign subsidiary, to evade or circumvent the freezing order, has substantial negative effects in the territory of State A
    • protective jurisdiction if the activities of the foreign subsidiary seriously jeopardizes the national security of State A


Critics of State A’s secondary sanctions might argue that these measures are unacceptable because they violate their sovereign rights to conduct business with State C.

If these countries either do not accept State A’s justifications – e.g. State A has not conclusively proven the national  security threats of State C’s support of AQ or W (on substantial negative effects to its territory).

  • This is a slippery slope because national security remains a self-defined concept, which are not easily dispelled, especially in regard to global terrorism, unless the claims seem outrageous or violate accepted international norms. Although the burden of proof lies with State A, risks to national security are justified if analyzed in a broader context, e.g. history of State C rendering support to terrorism, attempts by State A to resolve its differences with State C through peaceful dispute settlements, record of aggressive foreign policies, general standing within the international community or the general relations between State A & State C. 
    • A difficult case regarding the burden of proof, could be the case if State A authorizes the freezing of the assets of company M subject to the jurisdiction of State D, which sells chewing gum to State C. State A would be hard pressed to justify how the sale of chewing gum affects its national security. 

 

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