Global Investigations Review - The law and practice of international investigations

The Guide to Sanctions - First Edition

Introduction

Three Raymond Buildings

Jenner & Block

Steptoe & Johnson LLP

Our era of sanctions

As we write, the United States (US) is opening up new fronts in its sanctions ‘wars’. The US Congress has adopted legislation that would authorise asset blocking measures against designated persons and secondary sanctions against related financial institutions, in response to the People’s Republic of China’s (PRC) passage of a national security law for Hong Kong, while the Trump Administration is promising to revoke Hong Kong’s ‘special status’ under US laws and impose new export controls over sensitive technologies, dual-use goods and items exported for military end use to Hong Kong. Meanwhile, there is the threat of further US sanctions against participants in the Nord Stream 2 gas pipeline that runs from Russia to Germany, to which the European Union is preparing its own response. By the time this guide is published, the US may have applied sanctions against Chinese and Hong Kong government officials and the world’s largest banks, perhaps forever changing Hong Kong’s role as a global financial centre, and there may be a new chapter in the long-running US-EU dispute regarding the former’s use of extraterritorial sanctions.

If this were not disruptive enough, a global pandemic and economic recession continue to rage, posing an imminent threat of unprecedented humanitarian crises affecting the well-being and security of individuals and vulnerable populations, among them the people of Iran, Syria and Venezuela, and other territories subject to severe economic sanctions. The authoritative structures of the international community – the United Nations (UN), the World Health Organization, the World Trade Organization, the European Union (EU), to name a few – who might otherwise offer a coordinated solution to these shared challenges, instead find themselves under attack from within by powerful Member States (with some states opting out entirely).

Many of these situations were unthinkable even one year ago, except perhaps to the most cynical among us. Who could imagine, for instance, that Hong Kong – the gateway between East and West – would become a ‘sanctioned territory’ or that the United States – a driving force in maintaining global order – would lash out with threats to sanction the International Criminal Court, its officials and their families for investigating alleged war crimes and crimes against humanity. Whether expressive of the internal politics of nations or the broader geo­political scene, sanctions, and disagreements about sanctions, have become a defining feature of international law and relations in the 21st century.

The expanding role of sanctions

Conceptualised in the early and mid 20th century as a non-forcible, multilateral means of responding to threats against international peace and security, in the 21st century economic sanctions are again taking on an increasingly unilateral character, with major sanctions programmes administered well outside the purview of the UN Security Council. The growth of sanctions as tools of foreign policy and security can be explained, in part, by the rapid globalisation of trade and financial services, which has increased the opportunities for nation states to exercise economic leverage over foreign adversaries. The fragmentation of inter­national accord as a consequence of the Cold War and, later, the Iraq and Afghanistan wars, among other factors, has prevented effective regulation by the international community of individual states’ use of sanctions.

Since the early 2000s, targets of sanctions have overwhelmingly included non-state actors, both entities and individuals, as both multilateral and unilateral sanctions programmes have attempted to get ‘smarter’. Some sanctions could also be seen as an inappropriate substitute for law enforcement (without its commensurate due process) when used to target and punish persons accused (but not necessarily ever convicted) of ‘ordinary’ criminal offences such as drug trafficking, corruption and embezzlement. Examples include the EU’s sanctions against former members of the governments of Tunisia and Egypt accused of misappropriating state assets introduced in lieu of court-supervised asset recovery processes, the US ‘Kingpin’ sanctions against suspected drug traffickers, and ‘US Transnational Criminal Organizations’ sanctions, the latter having even been used against a payment services provider accused of facilitating mail fraud.

Unlike other tools of state, such as the military, diplomatic and ideological instruments firmly under the control of governments, economic sanctions derive their force in large part from the private domain. A foreign minister may declare a sanction against a target. However, it is the subsequent withdrawal of goods and services by commercial actors that give that sanction its bite. Without the compliance of private actors, a government’s sanctions are merely hortatory. It follows that the economic success of a sanctions episode depends on two factors: (1) the magnitude and importance of commercial activity available to be withdrawn; and (2) the degree to which individuals and entities comply with the sanctions. It is no wonder, then, that the United States, with its massive domestic market, global financial networks, and aggressive law enforcement, has achieved the greatest power potential in this regard. By threatening to deny access to its markets through secondary sanctions, the United States multiplies its leverage by demanding compliance from persons over whom it ordinarily would have no legal jurisdiction.

Other nations are starting to flex their enforcement muscles. The United Kingdom (UK), approaching Brexit, has inaugurated the Office of Financial Sanctions Implementation (OFSI), established an autonomous sanctions framework (under which it has already launched an ambitious human rights sanctions programme with targets in Myanmar, North Korea, Russia and Saudi Arabia) and imposed its first multimillion-pound civil penalty for financial sanctions breaches. The Netherlands, with its engineering prowess, has investigated local companies for exporting machinery to assist in the construction of a bridge across the Kerch Strait in Crimea. Singapore, once a significant trading partner to North Korea, has charged several of its nationals with evading UN sanctions or committing fraud in selling sugar, wine and luxury goods to the hermit kingdom. The PRC, a frequent user of economic statecraft, is fast developing a legal framework for sanctions that could rival others. The result: more companies caught in the cross hairs as they navigate conflicting sanctions regimes.

A practitioner’s guide

In recognition of the ineluctable role compliance plays in the sanctioning process, we sought to create a ‘practitioner’s guide’ encapsulating the experiences of the yet small community of international experts in sanctions. Their contributions offer a guide to problem-solving about sanctions in daily practice. Though highly political, sanctions are a product of law and amenable to the lawyer’s usual toolkit: interpretation, application, negotiation, investigation, defence, among others. We have selected topics relevant to each of these skills as illustrated from the perspective of corporations and financial institutions. (We hope in a future edition to include the distinct perspective of charities and humanitarian organisations, and others.) We draw on the insights of lawyers and forensics firms with reputations for leadership in the field, having been involved in significant recent matters. Though the ‘right answer’ to many sanctions problems eludes us, as exemplified by conflicts imposed by US secondary sanctions or the EU Blocking Regulation, the ‘risk-based’ framework offers some welcomed clarity for decision makers and their advisers. Beyond knowledge of sanctions law, today’s practitioners require commercial, technological and political savvy.

We intend this guide to fulfil multiple aims. For the reader who is new to the topic of sanctions, we hope to provide an accessible introduction to the essential legal concepts and challenges faced by practitioners the world over. A young lawyer opening this guide today may very well contribute to the next edition. For the seasoned experts, we believe the chapters that follow will affirm for them many of the principles central to the practice of sanctions law. Often, simply having one’s understanding confirmed can be helpful. Nonetheless, we believe every reader, no matter their experience, will find something new herein.

The 17 chapters in this volume take a thematic approach to sanctions, categorised broadly across legal regimes and select practice topics. Chapters one to seven offer an overview of the major features of the UN, EU, US and the new post-Brexit UK sanctions regimes and their enforcement. While individual perspectives shine through, the authors helpfully arrange each chapter along similar outlines, for ease of comparison. Chapter eight deals with the ever-thorny subject of balancing conflicting sanctions regimes, notably those of the US and the EU. Chapters nine, 10 and 11 explore sanctions in the context of three areas of special concern to the practitioner – corporate transactions, litigation and disputes, and in financial institutions and regulated entities. Chapter 12 offers a principled guide to building sanctions compliance programmes according to risk, in light of recent guidance from the US Office of Foreign Assets Control (OFAC) and other agencies. Chapters 13 and 14 provide an overview of EU, UK and US export controls, a complex but increasingly important topic as countries seek to regulate the movement of sensitive goods and technology, often in conjunction with the imposition of financial sanctions. Chapters 15 and 16 offer perspectives from the Asia-Pacific region, China and Hong Kong, where practitioners face special challenges in navigating developing, sometimes conflicting, rules. Finally, chapter 17 examines the role of forensics and technology in sanctions compliance, with recommendations of best practices.

Change is an almost constant feature in sanctions law, as regimes develop in response to events in states’ international relations and domestic politics. Inevitably then, the sanctions regimes described in this guide will have developed by the time of publication. The law is stated as at 1 July 2020, unless otherwise indicated.

Debts of gratitude

On behalf of the editors, we extend our deepest thanks to Sigal Mandelker, former US Treasury Under Secretary for Terrorism and Financial Intelligence, for providing her valuable insights into US sanctions policy and the private sector in a stimulating foreword, and to Global Investigations Review, in particular, Mahnaz Arta and Hannah Higgins, for their consistent and ever-enthusiastic support of this guide, and for gently nudging the contributors (editors included) to bring the project to a successful and timely conclusion. To each of the contributors, we thank you for sharing your time and unique expertise, generously reflected in the thoughtful and thought-provoking pieces that follow.


Footnotes

1 Rachel Barnes is a barrister at Three Raymond Buildings, London, Paul Feldberg is a partner at Jenner & Block London LLP and Nicholas Turner is of counsel at Steptoe & Johnson in Hong Kong.

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