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
 

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

 

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
 

Read More - Definition of a U.S. Person & Clashes of Jurisdictions

Read More U.S. Origin Goods Based Jurisdiction

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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