GLOBAL DIALOGUE
Volume 2 ● Number 3 ● Summer 2000—Sanctions: Efficacy and Morality The Legality of US Sanctions
UN Multilateral SanctionsThe United Nations and its member states implement sanctions under Article 41 of the UN Charter. Article 41 stipulates that
The [UN] Security Council may decide what measures not involving the use of armed force are to be employed to give effect to its decisions, and it may call upon the Members of the United Nations to apply such measures. These may include complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations. (Italics added)
The measures listed in Article 41 are illustrative, not comprehensive. Under Article 39 of the charter, the objective of UN sanctions must be to maintain or restore international peace and security. The power to impose sanctions rests with the Security Council, consisting of five permanent members—the United States, Russia, China, France and the United Kingdom—and eleven non-permanent members. To impose sanctions under Article 41, nine members of the Security Council must vote for the sanctions. All permanent members must either vote in favour or not oppose. After the Security Council decides to impose sanctions, all UN members required under the applicable resolution(s) must implement them.
Before 1990, the United Nations imposed sanctions under Article 41 against only Rhodesia, several times between 1966 and 1977, and South Africa, once in 1977. While comprehensive import, export and other sanctions were imposed on Rhodesia, only an embargo on arms imports was imposed on South Africa.
Since 1990, the United Nations has directed arms, trade and/or other sanctions against numerous countries/areas, including Iraq, Yugoslavia, Somalia, Libya, Liberia, Haiti, Angola, Rwanda, Sudan, Sierra Leone, the Taliban-controlled region of Afghanistan, Eritrea and Ethiopia. The primary reason for the increased use of sanctions has been the end of the Cold War, which has resulted in greater co-operation between the United States and Russia and reduced the likelihood of a permanent-member veto against Security Council action. Legality of UN SanctionsThe economic sanctions imposed by the United Nations have generally been considered legal, with the possible exception of those involving food, medicine and other humanitarian items, as discussed further below. Nonetheless, the legitimacy of the current Security Council is increasingly being questioned, thereby undermining its power effectively to enact sanctions and other measures. Its legitimacy has diminished because the overall power of permanent Security Council members has declined relative to the rest of the world since the United Nations was created in 1945. It is likely that the United Nations will attempt to address this issue in the next decade by expanding the membership of the Security Council to make it more representative of the modern world. Some claim that, to make it truly representative, the veto powers granted to permanent members must be removed. The drawback of such an approach is that great powers would be less inclined to be active participants because they would have much less influence over the decision-making process. Without the diplomatic, economic and military support of the great powers, UN efforts to maintain international peace and security would suffer. One reason why the League of Nations regime failed between the First and Second World Wars is that the world’s most powerful country, the United States, did not participate.
Virtually all of the Security Council’s Article 41 sanctions resolutions have had some type of exemption to allow for continued shipments of foodstuffs, medical supplies and other humanitarian assistance. However, implementation of some resolutions has resulted in civilians being denied these basic necessities and caused suffering. This raises the issue of whether sanctions causing such deprivation violate international humanitarian law, a question that became particularly controversial with the UN sanctions regime against Iraq. In response to concerns that the sanctions were causing, or were being blamed as causing, suffering to Iraqi civilians, the Security Council passed Resolution 986 on 14 April 1995 to allow Iraq to sell oil to pay for humanitarian assistance.
International humanitarian law is codified in agreements such as the 1977 Additional Protocols to the Geneva Conventions, the Universal Declaration of Human Rights, and the constitution of the World Health Organisation (a specialised agency of the United Nations), and is binding on the signatories to these agreements. If it becomes a general and consistent practice for signatories and non-signatories to comply with the agreements, their standards may become binding on all nations as customary international law. Perhaps the provisions of the Universal Declaration of Human Rights are most to the point in this area. In Article 25 it says: “Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services.” Article 54 of the Geneva Protocols prohibits the starvation of civilians as a weapon of war. The WHO constitution also has provisions that could be construed as questioning the validity of sanctions without effective humanitarian exemptions.
On the other hand, the claim could be made, at least in some cases, that the exemptions in the sanctions resolutions have adequately provided for humanitarian assistance and that the target countries themselves caused the lack of assistance. For example, in the UN sanctions against Iraq, the United States and United Kingdom have argued that humanitarian assistance would have been provided to Iraqi civilians if Iraqi President Saddam Hussein had allowed them to make distributions directly to civilians. Further, one could argue that Security Council resolutions take precedence over international humanitarian law under Article 103 of the UN Charter which states: “In the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail.” However, others have argued that human rights agreements coming into force after the UN Charter take precedence.
Even if Article 103 authorises comprehensive sanctions despite humanitarian agreements/treaties, the UN Security Council has demonstrated a sensitivity to this issue, as demonstrated by its relaxation of sanctions against Iraq in the “oil-for-food” resolution of 1995. Moreover, on 19 April 2000 the UN Security Council passed Resolution 1296 in an effort to increase the protections provided to civilians in armed conflict. (The resolution did not involve a specific dispute or conflict.)
In the resolution, the Security Council “[r]eiterate[d] the importance of compliance with relevant provisions of international humanitarian, human rights and refugee law” and “[r]eaffirm[ed] its strong condemnation of the deliberate targeting of civilians or other protected persons in situations of armed conflict”. It “call[ed] upon all parties to put an end to such practices”. Although addressed to armed conflicts, not sanctions imposed in “peacetime”, Resolution 1296 does show that the Security Council is taking steps to ensure consistency between its resolutions and international humanitarian law. At least in cases concerning protracted sanctions, it also demonstrates that UN sanctions do not enjoy political support if they are applied to the point of causing civilian suffering. In future cases, the council will need to be more sensitive to humanitarian issues if it is to maintain a consensus. US Unilateral SanctionsThe United States is the undisputed sanctions champion of the world. It has imposed unilateral sanctions sixty times in just the last five years.1 US sanctions have been imposed for a wide range of objectives, including those of foreign policy, counter-terrorism, non-proliferation of weapons of mass destruction, human rights, the war against narcotics and environmental protection. Unilateral sanctions are attractive to US politicians because they offer what appears to be a relatively cost-free way of doing something about a problem without using military force or taking other steps.
US unilateral sanctions have been controversial with other countries because of their extraterritorial attempts to govern the actions of non-US companies and individuals in third countries. The vast majority of other countries believe that such sanctions interfere with their sovereign rights as independent states. This section of the article first discusses the legal bases and implications of two US unilateral sanctions measures that have probably caused the most friction with US allies in the last five years: (1) the Cuban Liberty and Democratic Solidarity Act of 1996 (popularly known as the Helms–Burton Act); and (2) the Iran and Libya Sanctions Act of 1996 (popularly known as ILSA).2 It then discusses the legal foundations of US trade and investment restrictions administered by the US Treasury Department and the export controls on commercial “dual-use” items3 administered by the US Commerce Department; the comprehensive US embargoes against Cuba, Iran, Libya, Sudan, Iraq, Afghanistan and the Federal Republic of Yugoslavia (including Serbia, but not Kosovo or Montenegro); and some of the other prominent US unilateral sanctions and extraterritorial controls.
In the United States, exporting is considered to be a privilege, not a legal right. Under the US Constitution, Congress has the power to “regulate Commerce with foreign Nations”. To impose trade sanctions, either Congress must approve legislation by a majority vote that is then signed into law by the president (but if the president vetoes the legislation, Congress must pass it with a two-thirds majority), or the executive branch must impose sanctions under authority provided by federal statute.
Both Helms–Burton and ILSA were cases in which Congress exercised its constitutional power to regulate commerce with foreign nations. Both sanctions measures were driven by the Republican majority in Congress. After passage by the Congress, both measures were signed into law by President Clinton, a member of the Democratic Party. His refusal to exercise his veto power was probably motivated by political reasons and fears that vetoes would have been overridden by Congress. In response to vociferous criticism from and countermeasures by US allies, President Clinton has greatly reduced the impact of both laws by exercising waiver or suspension rights. Not surprisingly, this has outraged many of the sanction laws’ supporters in Congress. The Helms–Burton ActThe Helms–Burton legislation initially appeared unlikely to be enacted. But when Cuba shot down two US private light aeroplanes in 1996 the legislation was quickly passed to strengthen US sanctions on Cuba. The fact that these sanctions already amounted to a near total embargo explains why it was difficult to pass stronger legislation without damaging relations with US allies.
Helms–Burton extends the extraterritorial reach of US sanctions in two ways. First, under Title III, it gives US nationals the right to recover damages in US courts from non-US persons who are “trafficking” in property belonging to the plaintiff that was confiscated by the Cuban government on or after 1 January 1959. Damages can equal the amount certified by the Foreign Claims Settlement Commission plus interest, the amount determined by a special master appointed by a court, or the fair market value of the confiscated property. Second, under Title IV, the act requires the US government to deny entrance into the United States by non-US nationals who “traffic” in confiscated property that is the subject of a claim by a US person. The exclusion must also apply to any spouses, minor children, or agents of non-US nationals involved in “trafficking”. “Trafficking” is defined broadly and includes dealing in confiscated property or engaging in a commercial activity using or otherwise benefiting from such property (but not passive stock ownership in a company said to be trafficking).
Under authority provided by the act, the Clinton administration has managed continually to suspend the right of US nationals to bring suit under Title III. The suspension must be renewed every six months. However, action on Title IV’s exclusion provisions has been taken, in line with published State Department guidelines. As a result, the State Department has given notice to Sherritt International, a Canadian mining company; Grupo Domos, a Mexican telecommunications company; and the BM Group, an Israeli-owned firm registered in Panama, that certain of their executives, directors, and/or shareholders and their families cannot enter the United States. Title IV’s sanctions against Grupo Domos were lifted in response to measures taken by that company to comply with Helms–Burton. Title IV’s provisions are inapplicable only if a non-US national must enter the United States for medical reasons or in connection with litigation under Title III. The Iran–Libya Sanctions ActILSA mandates sanctions against non-US companies and sometimes their affiliates for making certain petroleum-related investments in Iran or Libya. More specifically, the statute requires the president to impose at least two of seven listed sanctions against non-US persons who knowingly make an investment of $40 million or more ($20 million or more for Iran since 5 August 1997) that directly and significantly contributes to the enhancement of either country’s ability to develop its petroleum resources. The act also requires the same sanctions against persons who knowingly provide to Libya equipment and other assistance, as prohibited by UN resolutions against Libya, if they significantly and materially contribute to Libya’s military or paramilitary capabilities, Libya’s ability to develop its petroleum resources, or Libya’s ability to maintain its aviation capabilities.
The seven types of sanctions from which the president must choose are: (1) denial of licences for exports and re-exports to the sanctioned party; (2) denial of Export–Import Bank assistance for exports to the sanctioned party; (3) ban on US government procurement of goods or services from the sanctioned party; (4) prohibition on imports from the sanctioned party; (5) ban on US financial institutions making loans or providing credits in excess of $10 million (in any one-year period) to the sanctioned party; (6) (for a sanctioned party that is a financial institution) prohibition on service by the sanctioned party as a primary dealer in US government bonds; and (7) (for a sanctioned party that is a financial institution) preclusion of service by the sanctioned party as a repository of US government bonds.
Sanctions have not yet even been imposed under ILSA, although the State Department is reviewing a number of cases. By its terms, the act will expire on 5 August 2001 if not amended. Allies OutragedEnactment of Helms–Burton and ILSA provoked a firestorm of controversy with US allies, particularly the European Union, Canada and Mexico, who all claimed that the measures infringed their sovereignty and violated international law. In 1997, the European Union passed a regulation to block compliance with the acts (and also with certain other US sanctions against Cuba) in its territory and to allow citizens and companies of its member states to recover any damages caused by application of the sanctions. Canada and Mexico enacted comparable laws to counteract Helms–Burton. These US sanctions and non-US blocking statutes create situations in which individuals and companies can violate US law by complying with the applicable non-US law and vice versa. Such dilemmas create fascinating opportunities for lawyers to try to weave a clear path between Scylla and Charybdis, but mean unpleasant choices for clients.
In October 1996, the European Union initiated World Trade Organisation dispute-settlement proceedings challenging the legality of the Helms–Burton Act and the US embargo of Cuba. Canada participated as a third party in the case. The United States took the position that the dispute involved national security and foreign policy issues beyond the scope of the WTO. Based on the possibility of successful negotiations with the United States, the European Union suspended the case in April 1997. In April 1998, the case expired, although the European Union has the right to initiate another one. In May 1998, the United States and the European Union reached an agreement to resolve the dispute. The European Union agreed not to revive its WTO case so long as the United States did not impose any penalties on EU companies under either act. The agreement exempted Total, a French oil company, from any sanctions for its participation in a $2 billion oil and gas investment project in Iran. (Sanctions also were not imposed on Total’s partners in the deal, Gazprom of Russia and Petronas of Malaysia.)
The United States also committed itself to amend the Helms–Burton Act to provide waiver authority to Title III’s exclusion provisions and to modify ILSA to provide expanded waiver authority. The agreement provided for the creation of a global registry of expropriated properties in dispute. Companies that invest in legitimately disputed properties would be denied financial assistance, export credits and any other government assistance. According to Leon Brittan, the then EU trade commissioner, the registry would not cover investments that had already been made by European companies in Cuba.
In June 1996, Canada and Mexico had stated that they would challenge the legality of Helms–Burton under the North American Free Trade Agreement (Nafta). While consultations were held under Nafta, a case was never initiated. Canada delayed its challenge in the hope that the European Union would be able to succeed in its negotiations with the United States. Since the May 1998 agreement between the European Union and the United States, Canada has not pressed forward with a Nafta case. International LawDo Helms–Burton and ILSA comply with international law (putting aside any applicable standards of the WTO and Nafta4)? According to the Restatement (Third) of the Foreign Relations Law of the United States (1987), to comply with international law a state’s extraterritorial law must be based on one or more of the following principles or tests:
1. territoriality principle (for conduct taking place within the state’s territory);
2. the nationality principle (for activities by the state’s nationals anywhere);
3. protective principle (for certain narrow categories of conduct—e.g., espionage, counterfeiting, falsification of official documents, perjury and conspiracy to violate immigration or customs laws—outside the state’s territory by non-nationals that is directed against its security);
4. effects test (for conduct outside the state that has or is intended to have substantial effect within its territory); and,
5. universality principle (for certain offences that are of universal concern—piracy, slave trade, attacks on or hijacking of aircraft, genocide, war crimes and, perhaps, certain acts of terrorism).
If one of the bases listed in (1) to (4) is present, a state still may not properly have jurisdiction if it would be unreasonable. The universality principle authorises jurisdiction even if none of the other bases is present.
Based on the position of the Restatement, for Helms–Burton and ILSA to comply with international law, one or more of the first four bases listed above must apply and the exercise of jurisdiction must be reasonable. Alternatively, the universality principle must apply.
The authors of the Helms–Burton Title III anti-trafficking provisions apparently believed that the effects test authorised jurisdiction. Subsection (9) of Title III’s Findings states that “[i]nternational law recognizes that a nation has the ability to provide for rules of law with respect to conduct outside its territory that has or is intended to have substantial effect within its territory”. To buttress the assertion of jurisdiction, subsection (8) of the Findings notes that the “international judicial system, as currently structured, lacks fully effective remedies for the wrongful confiscation of property”. Therefore, the act’s anti-trafficking provisions needed to be enacted because the United States has an “obligation to its citizens to provide protection against wrongful confiscations by foreign nations” and also to “deter trafficking in wrongfully confiscated property”.
The Findings of ILSA state that the efforts of Iran and Libya to obtain weapons of mass destruction and their support for international terrorism endangered the national security and foreign policy interests of the United States and its allies. Of the five bases listed above, the effects test is the strongest argument for jurisdiction in this case.
Of the two laws, ILSA appears to have a stronger case for legality since it is more likely to implicate the universality principle. ILSA is intended to limit the ability of Iran and Libya to support international terrorism, which possibly might qualify as an offence of universal concern. If so, this alone might warrant US jurisdiction. The issue boils down to whether the terrorist offences addressed by the acts are, in fact, of universal concern. Recent UN Security Council resolutions imposed on Libya, Sudan and Afghanistan for supporting terrorism or harbouring terrorist(s) suggest that certain types of terrorism (e.g., bombing civilian planes or government embassies, attempting to assassinate political leaders, etc.) are of universal concern. However, in view of recent UN General Assembly resolutions against unilateral extraterritorial economic measures, one could argue that sanctions against terrorist‑supporting states need to be authorised by the UN Security Council or imposed on a multilateral basis to accord with international norms. Moreover, the broad sanctions of ILSA do not come close to being a universally supported response.
Some US trade officials, scholars and practitioners believe that the acts comply with international law. While this position is not completely lacking in merit, it is instructive that almost no one outside the United States supports this viewpoint. During the 1990s, the UN General Assembly adopted numerous resolutions requesting the elimination of unilateral extraterritorial economic laws in general. In particular, the assembly adopted Resolution 53/4 on 14 October 1998 urging the termination of the US embargo on Cuba and the repealing of other unilateral extraterritorial economic laws in general to conform with obligations under the UN Charter and international law. Although the resolution was addressed to all unilateral extraterritorial laws, the preamble specifically mentioned the Helms–Burton Act as an example of such a law. The resolution was approved by a vote of 157 to 2 (the United States and Israel against), with 12 abstentions. On 9 November 1999, the assembly adopted virtually the same resolution again (Res. 54/21), this time by a vote of 155 to 2 (the United States and Israel against), with 8 abstentions. While these resolutions do not have the binding nature of Security Council resolutions, they demonstrate an international consensus against such US unilateral extraterritorial measures.
In effect, using the language of the Restatement, other countries do not believe that the universality principle is applicable in the cases of Helms–Burton and ILSA and feel that US extraterritorial jurisdiction is unreasonable even assuming that one of the other bases is available. US Sanctions RegimesThe US Treasury and Commerce Departments administer the primary US economic sanctions.5 Both departments administer far-reaching and ever-changing extraterritorial restrictions that govern the activities of US firms and their overseas affiliates as well as those of wholly non-US companies. Under the US system, the controls of more than one department or agency will often apply, particularly those of treasury and commerce. In cases of overlap between controls of different agencies, exporters and re-exporters will often need to obtain authorisation from two agencies, not just one.
Through its Office of Foreign Assets Control (OFAC), the Treasury Department administers comprehensive trade and investment embargoes against Cuba under authority provided by the Trading with the Enemy Act (TWEA),6 and against Iran, Iraq, Libya, Sudan, Afghanistan and the Federal Republic of Yugoslavia (including Serbia, but not Kosovo or Montenegro) under the International Emergency Economic Powers Act (IEEPA).7 The Iraq and Yugoslavia sanctions have been less controversial than the other comprehensive programmes because these target countries have also been subject to UN sanctions (although there has been much debate over whether UN sanctions against Iraq should be relaxed for humanitarian purposes and whether they should continue to be maintained at all). Some of the sanctions against Libya had UN support, although the UN sanctions have now been suspended.
In these comprehensive sanctions programmes, the following types of activities are generally prohibited by OFAC: Exports/Re-exportsExcept for “informational materials”, no products, technology or services may be exported or re-exported to these proscribed countries unless authorised by the Bureau of Export Administration (BXA) of the Commerce Department by specific licence or regulation, or by OFAC by specific licence or regulation. More often than not, the re-export prohibitions apply to shipments to the proscribed destinations by non-US parties of non-US products incorporating US content. (Informational materials are not permitted for Iraq by regulation although some question whether they are authorised to a certain extent by the First Amendment to the US Constitution.)
In April 1999, President Clinton announced that licensing policies in US unilateral sanctions programmes would be revised—where allowed by US law—to permit case-by-case review of proposals for the commercial sale of agricultural commodities and products, as well as medicine and medical equipment. In August 1999, this policy was implemented in the Iran, Libya and Sudan programmes. ImportsGoods or services originating from proscribed countries may not be imported into the United States either directly or through third countries unless licensed by OFAC. Bank Accounts and Other AssetsAny dealings by US persons or persons subject to US jurisdiction in assets or financial dealings with proscribed countries or their designated nationals (and sometimes with any of their nationals) generally require specific licences. (Assets of Iran have not been frozen since 19 January 1981.) ContractsContracts involving persons subject to OFAC controls in which proscribed countries or their nationals have an “interest” (a term very broadly interpreted) are prohibited unless licensed by OFAC. Such contracts can include remote interests, such as a brokerage contract for a third-country national service contract with a third-country national oil company related to its work in the offshore waters of a proscribed country. Informational exchanges, business discussions and non-binding letters of intent are generally permissible in all countries (except perhaps Iraq). However, binding contracts, even conditioned upon obtaining all required US licences, are generally prohibited without a specific licence or regulatory exception. PaymentsFor licensed transactions, documents must reference a specific licence issued by OFAC or BXA. For example, legal services are usually authorised by general licence, but receipt of payment often requires a specific licence. TravelFor some countries such as Cuba, special permission is required for those subject to OFAC’s controls to travel there. In the case of other countries, there is no need for special permission for travel, but there are often tight restrictions on permissible activities while in the country. Types of EmbargoesBoth the TWEA (Cuba) and IEEPA (Iran, Iraq, Libya, Sudan, Afghanistan and Yugoslavia) statutes grant broad authority to the US president to proscribe nearly all types of transactions with designated countries “by any person, or with respect to any property, subject to the jurisdiction of the United States”. They provide two separate bases for the assertion of jurisdiction over transactions from outside the United States, (1) where a person subject to the jurisdiction of the United States is involved (in personam), or (2) where property subject to the jurisdiction of the United States is involved (in rem). Neither statute defines the terms “person subject to the jurisdiction of the United States” or “property subject to the jurisdiction of the United States”, or expressly provides for application on an extraterritorial basis. Nonetheless, both have been interpreted to permit far-reaching extraterritorial application, particularly TWEA.
Under the authority of TWEA, the prohibitions of OFAC’s Cuba embargo regulations apply to non-US subsidiaries or companies owned or controlled by US persons even if such companies are incorporated in the non-US country of location and no US content is involved in the relevant transaction. In contrast, when no US content is involved, the prohibitions of the IEEPA embargoes are limited to US citizens, permanent residents of the United States, persons in the United States, and companies incorporated in the United States, including their non-US branches, but not their subsidiaries organised under non-US law. However, authority is available under the statute to extend the prohibitions to such non-US subsidiaries of US companies. This in personam extraterritorial feature of the TWEA-based Cuba embargo has sparked enormous controversy, especially with the European Union and Canada, which claim that it violates their sovereign right to regulate their own nationals. It became particularly controversial in 1992 after the passage of the Cuban Democracy Act, which generally prohibited OFAC from issuing licences for transactions between non-US subsidiaries of US companies and Cuba. The measures enacted by the European Union and Canada in response to Helms–Burton also attempted to protect their nationals from the effects of, and damages from, OFAC’s Cuba embargo, including the Cuban Democracy Act. The European Union’s WTO action against Helms–Burton also challenged the legality of OFAC’s Cuba embargo.
OFAC will generally license overseas branches of US banks and others outside the United States to take an action (e.g., unblock funds) if they can demonstrate that not doing so will subject them to penalties under host country laws. This unofficial policy of comity requires a strong showing and is usually implemented quietly on a case-by-case basis only. BlacklistingUnder both the IEEPA and TWEA sets of embargoes and sanctions, OFAC has listed individuals, companies, other entities and vessels as “Specially Designated Nationals” of the embargoed countries. As such, they are generally subject to the same prohibitions as the target nation itself. Their assets are frozen and US persons (or persons subject to US jurisdiction) are prohibited from dealing with them. The effect of blacklisting has been to extend the reach of OFAC’s controls.
Persons can challenge their listing as Specially Designated Nationals and the seizure of their assets. However, as a practical matter, the effectiveness of these remedies is severely limited. Typically, these cases are treated either as non-justiciable political questions by US courts, or if justiciable, OFAC’s decisions are accorded great deference on the grounds that foreign policy or national security issues are involved.
A recent case illustrates the difficulties of confronting the US government in cases involving the seizure of assets. On 3 May 1999, OFAC unfroze $24 million of assets in the United Kingdom belonging to Salah Idris, a national of Saudi Arabia who owned a pharmaceutical plant in Sudan that was destroyed by a US cruise missile attack on 20 August 1998 because it was believed to be a chemical weapons production facility. US banks, acting on informal OFAC direction, had frozen the assets four days after the attack even though Idris had not been listed as a Specially Designated Terrorist (a type of Specially Designated National) as is required by OFAC regulations. Idris assembled a team of lawyers and experts who exhaustively investigated and refuted the US government’s “evidence” against him, consisting mainly of his alleged links to Osama bin Laden and a soil sample obtained near the plant which allegedly contained a nerve gas precursor chemical. Idris’s legal team filed suit against the Treasury Department, claiming that his assets had been seized illegally since he had not been designated as a terrorist (which would have meant that the US government believed he was a terrorist or was controlled or acting on behalf of a terrorist).
In view of the weakness of its evidence, the US government released the seized funds. However, a White House spokesman refused to exonerate Idris and said that the government continued to have concerns about him because of his dealings with “reprehensible” partners. The spokesman said the government did not want to expose its “sensitive intelligence sources and methods”, which allegedly would have been necessary for it to make its case in court. The Idris case demonstrates that even parties with first-class lawyers and a rock-solid case must expend vast resources to win and that even then the “victory” can be far from complete in terms of the damage done to reputation, for example. A Trap for the UnwaryAnother controversial aspect of OFAC’s sanctions programmes is the prohibition against US persons, or persons subject to US jurisdiction, facilitating certain transactions by a person who can perform them lawfully. This prohibition is a trap for the unwary because of its inherent lack of clarity and the fact that it is set forth explicitly only in the Iranian Transaction Regulations (ITRs), even though OFAC has interpreted virtually all of its sanctions programmes to embody the same type of prohibition.
The best way to describe the facilitation prohibition is to discuss the relevant provisions in the ITRs. The ITRs limit extraterritorial reach in that they do not prohibit certain activities of non-US persons that are prohibited for US persons (such as re-exporting non-US products or, from inventory, certain low-tech US products). Section 560.208 of the ITRs prohibits US persons, wherever located, from “facilitating” activities of non-US persons that are permissible if engaged in by non-US persons, but not if done by US persons. The ITRs do not provide a definition of “facilitating” or its variants. However, the facilitation provisions prohibit US persons from approving, financing or guaranteeing permitted activities by non-US persons if it would be illegal for the US person to engage in the activity itself.
While other OFAC sanctions regimes do not contain explicit prohibitions against facilitation, the office has interpreted virtually all of them to have such a prohibition via their prohibitions against US persons engaging in transactions in which the sanctioned entities have an interest.
As a general rule, non-US companies should assume that re-exports of US-origin products to embargoed destinations are prohibited. However, there are notable exceptions with respect to Iran and less so Libya. OFAC’s ITRs maintain less stringent restrictions on re-export than any of the office’s other comprehensive regimes. If an item could have been exported to Iran without the need for specific export licence applications prior to 7 May 1995, then the re-export control prohibitions of the ITRs do not apply. Because strict unilateral US re-export controls had already applied to Iran, this provision only authorises re-exports of certain basic hardware products, but almost no electronic goods. But, even for Iran, non-US companies must be very careful in utilising re-export exceptions because they would apply only if the original exports from the United States came to rest in inventory or otherwise in a third country. The exceptions do not apply if a non-US company enters an order with a US seller for the purpose of re-exporting a specific product to Iran because that would be soliciting an export from the United States knowing that the ultimate destination is really Iran. That is a very fine line and one that is easy to cross by accident in practice. (As discussed above, US persons clearly may not make such re-exports or even facilitate re-exports legally made by non-US persons.) Commerce Department SanctionsThe Commerce Department’s BXA regulates exports and re-exports of commercial “dual-use” products, software, technology and other items under its Export Administration Regulations (EARs). Since 1994, the EARs have been based primarily on the authority provided by IEEPA pursuant to presidential executive orders.
Under the foreign policy controls of the EARs, BXA’s controls supplement and overlap with those of OFAC in administering embargoes. With the increasing number of embargoes in recent years, the seemingly ad hoc scheme of overlap between OFAC controls and the BXA-administered EARs and other export controls has been quite problematic for exporters. In some cases, an export or re-export licence issued by BXA is alone sufficient. In others, only an OFAC licence is required. In still others, one must obtain licences from both agencies for the same or similar transitions. Thankfully, BXA has spelled out this overlap much more clearly in EAR 746, though turf battles have inhibited efforts to rationalise their overlapping jurisdictions on a consistent basis. There has been little consistency over the years, and determining which agency has primary authority has been a function of who is in charge of the agencies at the time particular sanctions are imposed as much as any other rationale.
In the 1990s, BXA controls did not attract the same level of controversy from US allies as Helms–Burton, ILSA and OFAC embargoes. Unlike the TWEA embargoes, the EARs traditionally have not governed the activities of non-US subsidiaries of US companies or non‑US companies controlled by US firms if no US content is involved (although EAR Part 744 does, more and more often, apply to certain activities of “US persons” supporting certain proliferation or encryption activities). Most of the controls administered under the EARs are also implemented by nearly all of the technologically advanced countries, albeit often less robustly. Finally, many offshore shipments of non-US products with US content are beyond the scope of the EARs under the so-called de minimis rules because they incorporate 25 per cent or less controlled US content (except that shipments to embargoed or terrorist-supporting destinations have a threshold of 10 per cent). Nevertheless, the EARs continue to have significant extraterritorial reach, which imposes substantial burdens on US and non-US companies.
BXA primarily bases its extraterritorial controls on the US-origin content of a product, software or technology. These in rem controls, known as re-export controls, apply regardless of the nationality of the individual or entity which makes the shipment. While these extraterritorial controls of the EARs are not considered by US administrations as unilateral sanctions because they are not typically directed at particular countries, they certainly have the same effect of placing US industry at a competitive disadvantage since virtually no other countries administer extraterritorial controls on dual-use items based solely on content. In fact, many countries or areas, such as the European Union and Japan, believe that re-export controls based solely on the existence of US content in a product or technical data violate international law. And because the United States enforces export controls more strictly than any other nation (for instance on exports to China), non-US companies from time to time have publicly stated a policy of “designing out” US content to avoid such unilaterally applied re-export controls.
The most famous instance involving extraterritorial Commerce Department export controls occurred in 1982, when the Reagan administration attempted to extend anti-Soviet sanctions on US oil and gas equipment and technical data to non-US subsidiaries of US companies and non-US companies controlled by US companies in cases where no US content was involved. The objective was to prevent the transfer of non-US equipment to the Soviet Union to be used in the building of a gas pipeline from that country to Western Europe. The European Community took the position that this type of extraterritorial control violated international law because the affected companies were nationals of European countries, not of the United States. The US action was ineffective in accomplishing its primary purpose, but exceedingly effective in causing an international reaction to what was viewed as an excessive use of extraterritorial export controls. The Reagan administration backed down and restrained its use of such controls, mooting several cases challenging their legality.
BXA (and certain other US agencies) imposed controversial sanctions on India and Pakistan in May 1998 after they exploded nuclear weapons. These sanctions were mandated in part by the Glenn Amendment to Section 102 of the Arms Export Control Act. The sanctions included restrictions on exports of certain commercial and all defence items, termination of certain financial assistance, and other sanctions. BXA implements the sanctions on shipments of commercial items under which a licence is required for virtually all exports and re-exports to all end-users in India and Pakistan of items controlled for reasons of nuclear non-proliferation or missile technology. In addition, BXA maintains a list of Indian and Pakistani entities subject to special proliferation sanctions.
The sanctions against India and Pakistan have been controversial in the United States on a variety of grounds, including the lack of presidential authority to waive the sanctions (Congress provided waiver authorities in subsequent legislation); the inclusion of entities without clear proliferation links (a recent amendment to the EARs deleted some of these entities from the list); and the risk that the sanctions would destabilise Pakistan and worsen the prospects for non-proliferation. Some hardliners in the United States thought the sanctions too mild. Sub-federal SanctionsOther US government agencies also administer unilateral sanctions and other export controls. In particular, the State Department’s Office of Defense Trade Controls (ODTC) regulates the export and temporary import of defence articles and services through the International Traffic in Arms Regulations (Itar). The distinction between civilian and military articles is often unclear, and many items that appear to be civilian in nature are in fact controlled by ODTC either because of legislation or because ODTC believes that the item is of sufficient military concern that it should be treated as a defence article. The transfer of commercial communications satellites from BXA to ODTC jurisdiction has sparked enormous controversy both within and outside the United States because it has subjected these satellites to the far more burdensome arms-licensing process. As a result, the US satellite industry has seen its global market share plummet, and non-US companies have either had to deal with lengthy delays in obtaining US satellites and components or deliberately to design them out of their products.
Itar requirements are based primarily on the authority provided by the Arms Export Control Act (AECA), which like IEEPA and TWEA provides extremely broad authority to the president to impose sanctions and far-reaching extraterritorial restrictions. ODTC maintains arms embargoes against numerous countries, including but going well beyond those discussed above. Most recently, ODTC suspended export licensing of arms to Indonesia. ODTC also maintains another list of individuals and entities subject to debarment from eligibility to obtain licences and other approvals. Another part of the State Department, the Bureau of Non-proliferation, administers sanctions against entities for missile, nuclear, chemical-weapon and biological-weapon proliferation. The latter proliferation sanctions are required by federal legislation, as are some of the country arms embargoes.
A few other US agencies, for example, the Nuclear Regulatory Commission and the Energy Department, administer more specialised sanctions/export controls. Many lending agencies also administer sanctions, but their role in enforcing US sanctions is secondary to OFAC, BXA and ODTC.
Recent procurement sanctions imposed by individual US states and localities against US and non-US companies for doing business with Burma, Indonesia and several other countries have also generated enormous controversy in the United States and abroad. In the United States, the National Foreign Trade Council initiated with broad support a federal court challenge against a Massachusetts state law imposing state government procurement restrictions against companies doing business in Burma. Federal district and appellate courts found that the Massachusetts law was unconstitutional in 1998 and 1999, respectively. Then, on 19 June 2000, the US Supreme Court, the highest judicial body in the country, upheld the ruling of the appellate court and found that the Massachusetts state law was unconstitutional. The Supreme Court held that the Massachusetts law was pre-empted by federal sanctions against Burma which were enacted into law as part of the Omnibus Consolidated Appropriations Act of 1997. (The European Union and Japan had also challenged the legality of the Massachusetts law before the WTO.)
The Supreme Court’s decision does not directly void all US state and local sanctions, although it sets a precedent and thus weakens their chances of surviving a similar constitutional challenge. According to USA*Engage, a coalition of US business and agriculture groups and other members working to reform the US sanctions system, certain US states and localities have laws imposing sanctions on one or more of the following: Burma, Cuba, Indonesia, Nigeria, Northern Ireland, Tibet, countries employing “sweatshop” labour, and insurance companies with policies with Holocaust victims where survivors were denied policy proceeds.8 Pressure for ReformUN-supported sanctions have not been as controversial as most US unilateral sanctions simply because the former are implemented only with an international consensus and on a multilateral basis (even though the United States generally implements them more strictly than others). The negative international response to Helms–Burton and ILSA demonstrates that the United States has become increasingly isolated on the issue of unilateral sanctions. Interestingly, in the last decade, the most controversial US unilateral sanctions have been imposed by federal legislation, not through executive action, so these measures clearly have not been the actions of one official lacking public support.
The overwhelming number and types of US unilateral sanctions have led to the rise of a sanctions reform movement in the US business community and in Congress with the objectives of rationalising the sanctions imposition process and limiting sanctions to instances where they have a chance of succeeding. To have a chance of success, if the goal is to change the behaviour of a country versus simply distancing the United States from it, sanctions usually must be imposed on a multilateral basis and include the participation of major supplier and/or consumer nations. The Clinton administration and most of Congress have not yet supported meaningful reforms, except with respect to limited agricultural and medical exports. In view of the strong tradition of unilateralism in US foreign policy and the fact that sanctions are more politically palatable than war or other alternatives, this is not surprising.
Nonetheless, let us hope that the sanctions reform movement succeeds in making the United States less sanctions-happy and in putting US sanctions on a firmer footing within international law.
2. ILSA has also been referred to as the D’Amato Act, but this term has fallen into disuse.
3. “Dual-use” items are those items with legitimate commercial and military end-uses.
4. An analysis of the legality of the acts under the WTO and Nafta is beyond the scope of this article.
5. In a particular case, the controls of other US agencies might also apply. Determining the controls applicable to any given shipment or transaction is fact-specific and depends on the unique circumstances of each case.
6. On 19 June 2000, OFAC lifted its longstanding embargo on North Korea. However, OFAC continues to maintain certain sanctions on this country under the TWEA. Also, certain other US agencies continue to maintain stringent controls on many shipments to North Korea.
7. OFAC also administers more narrowly targeted sanctions programmes.
8. See [www.usaengage.org/news/status.html]. |