The role of sanctions in ending apartheid in South Africa and in the Cold War are well known, and more recently in negotiating the nuclear deal with Iran. Sanctions are legal instruments imposed by countries either acting alone (the USA, Australia, Canada and Japan, for example) or as groups of countries (the United Nations and EU in particular). Their aims are varied; to persuade states to change their behaviour in some way, to preserve state assets from dissipation, or to signal disapproval by the international community that falls short of putting boots on the ground.
The past decade has seen an increasing use of ‘targeted’ or ‘smart’ sanctions, which usually impose asset-freezing measures and travel bans on particular individuals and companies and prohibit resources from being made available to them. The aim of introducing ‘smart’ sanctions over the past decade or so has been to try to mitigate the collateral impact of sanctions on a civilian population and to impose pressure on those actually responsible for the policies in question. These often go hand in hand with non-targeted prohibitions on classes of trade or transaction, and export controls that regulate exports of certain goods to particular countries. The legal issues to which these measures give rise are hugely varied, both in a public and private law context.
EU centre stage
Most of the public law litigation has taken place in the General Court of the European Union in Luxembourg (and on appeal to the Court of Justice), where all people and entities listed on targeted sanctions measures have standing to challenge their designation in judicial review proceedings. Article 263 of the Treaty on the Functioning of the European Union gives that court jurisdiction to review the legality of an act of the Council of Ministers challenged by ‘any natural legal person’ to whom that act is addressed and which is of ‘direct and individual concern’.
Over the past 10 years, hundreds of people and entities have challenged their sanctions listings in this way, and a large number (over half) have been successful. The European court has held that because these ‘restrictive measures’ (as EU sanctions are known) have an adverse impact on individuals, those individuals are entitled to basic EU due process. Due process in this context includes the right to be given reasons for an individual’s inclusion, rights of defence (knowing the case against him or her and having a chance to make observations), for the reasons to be supported by a ‘sufficiently solid factual basis’ if their accuracy is challenged, and for effective judicial review by the European court, including on grounds of proportionality. These cases involve the interplay between the fundamental rights of individuals and important public policy aims such as countering terrorism and nuclear proliferation, and the interaction of law and politics.
The basic principles were set down initially in a counter-terrorist case in 2006, Case T-228/02 People’s Mojehadin of Iran. The challenge has been to apply those legal principles to a number of different situations since then. In Case C-402/05 Kadi in 2008, the Court of Justice famously held that those principles of due process apply even where the court is reviewing an EU measure that implements a United Nations Security Council resolution requiring an asset freeze as a matter of international law; since the EU is based on the rule of law, the acts of its institutions must be subject to judicial review, even where they implement binding UN resolutions. Kadi was a landmark case about the relationship between EU and international law, and as a result of it the UN created a new office of Ombudsperson for the Al Qaida sanctions committee.
Other cases where individuals sought to be de-listed from targeted sanctions on Burma/Myanmar and Zimbabwe followed soon after, and then a vast number of Iranian cases, arising from the ramping up of sanctions on Iran at that time, and numerous other regimes. So many listings were being annulled at one time that concerns were expressed about the future viability of targeted sanctions. The numbers of successful cases have decreased more recently for a number of reasons; EU sanctions on Iran have now largely been lifted, the listing criteria have changed so they are less susceptible to judicial review, and procedures have to some extent been improved.
Issues arising: public and private law
Legal issues that will arise in the near future in this context include: (a) the European court’s approach to remedies (damages and injunctions, both of which are difficult to achieve in that court); (b) new procedural rules which provide for ‘closed’ hearings (akin to the UK Justice & Security Act) to permit national security sensitive evidence to be relied upon; and (c) the lawfulness of the EU’s practice of re-listing individuals who win their cases in the European court. Recently giving evidence to the House of Lords EU Justice Sub-Committee, I criticised aspects of the system for imposing targeted sanctions and made practical proposals for change.
There are also numerous private law issues that arise from sanctions. To give just a few examples from a very varied and international area: the commercial courts have had to consider whether the imposition of sanctions has lead contractual performance to be frustrated or illegal, and when banks can close bank accounts because of sanctions. The family courts have looked at the circumstances in which divorce payments were structured to avoid sanctions, and there are chancery issues about what constitutes a prohibited ‘dealing’ with funds. Advisory work on sanctions tends to focus on the structure of transactions and whether they breach particular prohibitions in sanctions measures (including anti-circumvention provisions), on criminal investigations for breach of sanctions, and on designing compliance programs to assist entities not to breach their sanctions obligations.
Significant developments: OFSI and Trump
A number of current developments are likely to be significant for this area of law. First, there is a new agency within HM Treasury, the Office of Financial Sanctions Implementation (OFSI), tasked with enforcing sanctions with new civil penalties, liaising with the National Crime Agency on criminal investigations, and granting exceptions to asset freezes (licences). Some of OFSI’s decisions will be subject to appeals to the Upper Tribunal and to judicial review, which will no doubt add to the body of existing domestic sanctions judicial review cases so far brought against HM Treasury (eg R (Ezz) v HMT  EWHC 1470 (Admin)) and R (Rosneft Oil Co) v HMT  EWHC 248 (Admin)) and against the Foreign & Commonwealth Office in relation to its role in proposing people and entities for EU and UN sanctions lists (eg R (NITC & Golparvar) v FCO  EWHC 282 (Admin), R (Sarkandi) v FCO  EWCA Civ 687 and R (Youssef) v FCO  UKSC 1302).
Second, the election of Donald Trump as US President could lead to divergence of sanctions law and policy. The US and EU have tried to be united in so far as possible in their recent sanctions measures, notably as regards agreeing to lift some sanctions on Iran and imposing and extending sanctions on Russia. The President has indicated that he wishes to unravel the JCPOA which lifted Iranian sanctions, and to soften sanctions on Russia; if he does so there may be international fragmentation in place of convergence.
The Brexit effect
Third, if the UK leaves the EU, there will be significant implications for sanctions law and policy. The UK is likely to have to enact new primary legislation empowering it to impose domestic sanctions instead of acting as part of the EU’s Common Foreign & Security Policy, and will then have to decide what approach to take in relation to each sanctions regime. The EU will have to consider how to impose targeted sanctions without the UK’s involvement (or whether continuing involvement is possible) given that the UK has been the member state principally responsible for sanctions policy and designations. And if domestic imposition and enforcement grows, it may be that there are more judicial review proceedings in the UK.
Contributor Maya Lester QC, Brick Court Chambers. Her sanctions blog is at europeansanctions.com
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