On a recent trip to the Middle East, I was asked repeatedly how the US and other Western countries could justify freezing yachts, airplanes, and other assets owned by oligarchs, giving them only a “pittance” to live on, leveling crippling economic sanctions against an entire country and its population, and the like. Has the West taken leave of its vaunted commitment to the rule of law?
The recent Western imposition of sanctions on Russia and its related banks and persons is, by definition, designed to be disruptive. It is a tool in the diplomatic arsenal to punish the Russian Federation for its invasion of the Ukraine and for the death and destruction the Russian military forces have inflicted. Those sanctions are having their intended effect on the targets. But they are also imposing ripple effects on contract counterparties, currency exchange rates, commodity prices, and world-wide economic activity tied to all of those inputs. They also raise the possibility of counter-sanctions by the Russian government.
Many of the “indirect victims” of the sanctions, as well as observers generally, are questioning whether the sanctions are consistent with the rule of law. The authority to sanction granted by enabling laws in the United States, the United Kingdom, and the European Union is expansive, and limitations are scant. Reversing or appealing these sanctions is, at this point, essentially impossible.
In the United States, the authority to sanction is broad. The only requirement is that sanctions adhere to proper procedure, under which they must: (1) be imposed under the authority of Congressional statutes that are subject to judicial review; (2) follow a formal declaration of a national emergency by the President that necessitates sanctioning; and (3) regulate US persons or activities occurring within the territory of the United States.
In imposing the Russian sanctions, President Biden acted pursuant to authority granted to him by Congress in the International Emergency Economic Powers Act (IEEPA). Under this statutory power, Biden has issued Executive Orders declaring that Russia’s behavior—invading Ukraine, undermining US elections, and engaging in cyberattacks—poses an unusual and extraordinary threat to US national security and foreign policy interests, and has authorized the imposition of attendant sanctions.
The US Treasury Department’s Office of Foreign Assets Control sometimes seeks to prevent non-US persons from dealing or transacting with sanctioned persons, using what are called “secondary sanctions.” Essentially, the US says that if a non-US person materially supports or engages with a sanctioned person, then that non-US person is part of the threat and is subject to being sanctioned themselves.
The US sanctions against Russia’s Central Bank provide a useful illustration. Regulation of a foreign sovereign’s central bank assets might seem to implicate foreign sovereign immunity or other international norms. But to avoid those issues, the United States has prohibited US persons from participating in: (1) the primary and secondary markets for certain bonds issued by the Russian Central Bank and (2) any transaction involving the Russian Central Bank. Of course, these restrictions have significant consequences for Russia and its central bank—and that is the point. Since US banks are considered US persons, any Central Bank assets they hold cannot be transferred, processed, or otherwise dealt in without OFAC approval and are thus effectively immobilized.
Under UK law, the authority to impose sanctions is granted to Ministers by the Sanctions and Anti-Money Laundering Act of 2018. Under the provisions of Chapter 1.1, Ministers may impose sanctions to comply with a United Nations obligation, to comply with an international obligation, or “for a purpose within subsection 2”—a wide-spanning list of nine qualifying purposes to impose sanctions. The Minister proposing a sanction must then justify its imposition in a report before Parliament. Similar to American sanctions, the United Kingdom’s sanctions on Russia follow proper procedure. Moreover, since the “purposes” for imposing sanctions are as expansive as furtherance of a foreign policy objective, the ability to sanction is effectively limitless: It is nearly impossible to prove that a sanction would not fall under furtherance of a foreign policy objective. Although there is a formal appeals procedure under Section 23 of the Sanctions Act, the successful reversal of any recent sanction on Russia presents deliberately difficult standards to meet.
Similar to the US and the UK, the EU also has a formal sanctioning procedure. According to the Sanctions Guidelines of the General Secretariat of the European Council, the European Union imposes sanctions against countries, entities, or individuals within the framework of its Common Foreign and Security Policy. The Council first adopts a decision that is then either implemented across the entire European Union, or at the national level. Decisions that are meant unilaterally and economically to impact a country outside of the EU—such as the sanctions on Russia—are adopted via Regulation. Regulations are binding on all European Union countries, and are subject to judicial review by the Court of Justice and the General Court in Luxembourg—as are sanctions against natural and legal persons.
The recent sanctions meet the Guideline’s somewhat nebulous standards: They were imposed to denounce Russia’s human rights violations, are subject to due process, and are proportionate to their objective. The Guidelines, like the international legal standards they reference, offer no practical limitations on sanctioning authority. Thus, although there are theoretical limitations on sanctions, the EU sanctions on Russia are nearly impossible to challenge—especially since they were meant to address gross human rights violations.
The widespread collateral effects of Western sanctions, including the recent increases in global oil prices, are painful but not relevant to their legality. The fact that sanctions disrupt the world order or indirectly affect other countries does not undermine the fact that they are legal: They are enabled by the laws of the US, UK, and EU. And given that any limits on such sanctions are few and theoretical, the sanctions are difficult to challenge—especially given their widespread support in light of Russia’s outrageous conduct. Resolution of disputes arising from the sanctions will have to be resolved through the political, not litigation, process.
@jbqlaw