This chapter delves into the question of the impact of extraterritorial and secondary sanctions on private contractual relations. It opens with a discussion of the characterisation of extraterritorial and secondary sanctions as potential legal or factual impediments to the performance of contractual obligations. A detailed analysis of the case law follows, bringing to the fore some degree of reluctance on the part of judicial authorities to allow operators to suspend the performance of their contractual obligations or to terminate contractual relations on account of their exposure to extraterritorial or secondary sanctions, at least in the absence of sanctions or force majeure contractual clauses. The chapter also explores the potential tension between such sanctions, on the one hand, and measures – commonly referred to as blocking statutes – enacted by states or by the EU to thwart their effects, on the other hand. A discussion, in this respect, of the relevant case law reveals a quest for a balance between policy objectives and economic soundness and shows the existence of incongruent views on the compatibility of sanctions clauses with blocking statutes.

In 2019, the United States indicted Turkiye Halk Bankasi (Halkbank), a Turkish state-owned bank, alleging a multiyear scheme to evade US sanctions against Iran by using fraudulent transactions to transfer the proceeds of oil and gas sales to Iran. This chapter evaluates the charges against Halkbank under both US domestic law and customary international law. After briefly reviewing the charges against Halkbank and the US district court’s analysis of the extraterritoriality questions, the chapter considers the application of the US presumption against extraterritoriality, concluding that all the charges except for the bank fraud charges survive this analysis. The conclusion with respect to customary international law, however, is quite different. Under customary international law, the United States lacks jurisdiction to prescribe when its only connection to the foreign defendant is the clearing of transactions through banks in the United States. Because the International Emergency Economic Powers Act authorizes sanctions on financial transactions only when the person or property is subject to the jurisdiction of the United States, the sanctions regulations cannot lawfully be applied to Halkbank.

Sanctions are intrinsically complex. Implementation of sanctions regulations often entails navigating an extremely dynamic environment consisting of numerous restrictions and prohibitions, difficulties in interpretation, inconsistent measures adopted by imposing jurisdictions and countermeasures. This has been evident following the sanctions against Russia, often described as unprecedented in scale. The more frequent resort to sanctions further means that an increasing number of international contractual relationships are affected. Financial institutions operating globally are particularly impacted. This is exacerbated by the use of secondary sanctions which remain a controversial foreign policy tool and even subject to countermeasures, for example, blocking statutes. Consequently, financial institutions and other economic operators with an international presence, torn between two conflicting regimes, face an unsolvable legal dilemma. This uncertainty extends to the termination of contracts involving persons or activities subject to secondary sanctions. Although in most cases international (financial) contracts contain sanctions clauses (often under force majeure provisions), it remains unclear whether these can be relied on, especially where the institution’s own jurisdiction opposes secondary sanctions. This chapter presents in more detail what are the practical challenges in sanctions implementation. It focuses on financial institutions and provide recommendations on how such challenges could be addressed.

Non-US corporations, especially banks, have long experienced the expansive enforcement of unilateral US sanctions regulations. The common factor in these cases is that jurisdiction is based on the alleged use of the US financial system. A recent case shows that the US authorities have expanded their jurisdictional claim even further by establishing a new theory of sanctions liability. Under what we call the correlation theory, a sufficient US nexus exists if a sanctions-related transaction correlates with a transaction which, at some point, is processed via the United States. This expansion signifies an enlargement of what the United States considers as primary sanctions. It goes hand in hand with a reduction of what it considers to be secondary sanctions. So far, the US authorities have not provided a clear and comprehensive definition of their newly developed liability framework. Less nebulous than the parameters of the correlation theory is the outcome it produces: any transaction involving a sanctioned client by an internationally active bank can potentially be pulled into US sanctions jurisdiction.

The effects of sanctions have been extensively studied in both the political science and economic literature, but with little appreciation of their consequences for third countries and the firms in these countries. This is an important oversight, given that secondary sanctions have the stated objective of holding third countries not party to the original sanctions regime to account for their actions. This chapter surveys the economic theory behind the possible effects of sanctions on firms in third countries and then extends this to the specific case of secondary sanctions. Looking at the US sanctions regimes on Cuba and Iran, and using the scarce empirical evidence available, this chapter concludes that secondary sanctions are likely to amplify the effect of sanctions. However, their effects will depend on the particular firm, the overall trading relationship between the third party and the sanctioned party, and the relationship between the firm and the sanctioning country.

The growing range and changing nature of unilateral sanctions have seen the emergence of a new label of so-called ‘secondary’ sanctions, as opposed to the more traditional ‘primary’ sanctions. While there is no accepted legal definition of secondary sanctions, in essence, secondary sanctions restrict economic transactions between third countries which may be entirely lawful under the law of these countries. Their extraterritorial character gives secondary sanctions their distinctive and particularly controversial character. Secondary sanctions create inter-State tension and may possibly violate a number of public international law regimes. They may harm the politico-economic interests of third States and cause headaches for private economic operators, whose potential exposure to secondary sanctions complicates the already complex web of multi-jurisdictional norms governing their international business transactions.

Whilst the United States ever more frequently imposes unilateral secondary sanctions, the debate on their lawfulness has only intensified. This chapter focuses specifically on the legality of imposing access restrictions, that is, denying third state sanctions evaders access to the United States and its commercial and financial markets. Until the late 2000s, it was widely held that access restrictions were a means of enforcing US prohibitions. The issue, therefore, was whether the United States had prescriptive jurisdiction to impose such prohibitions. If not, enforcement by way of access restrictions was unlawful. More recently, this has become contested. Some now argue that access restrictions are justified on uncontroversial jurisdictional grounds because they only regulate the behaviour of US persons on US territory. Others argue that access restrictions merely amount to a lawful withdrawal of privileges. In this chapter author’s view, these arguments are not convincing. Based on the relevant US legislation, the chapter shows why access restrictions are indeed enforcement tools. Since the underlying prohibitions cannot be justified under customary international law, such enforcement is unlawful. Furthermore, the international community has consistently condemned US secondary sanctions legislation, including access restrictions, as unlawful, leading to a customary international law prohibition.

The aim of this conceptual chapter is to define international secondary sanctions and to address the contemporary legal challenges they raise. It proposes to explain such complex legal mechanisms, to overcome the apparent definitional wanderings in their regard, and to identify concrete keys to tackle the legal problems encountered by public and private practitioners. To this end, the analysis begins with an explanation of the core concepts underlying secondary sanctions and focuses on the aim of (extraterritorial) secondary sanctions to extend their scope, what the author calls ‘the reach dilemma’. The unilateral and extraterritorial mechanics of secondary sanctions are then illustrated by three original figures, allowing the reader to grasp the complexity of the different levers involved. The study then addresses the additional difficulty arising from the apparent plurality of definitions of secondary sanctions and proposes an explanatory key enabling to retain only one working definition of secondary sanctions stricto sensu. Finally, the chapter goes on with the identification of the main difficulties currently facing public and private legal practices in this field and presents legal solutions that offer avenues for resolution, in the short, medium and long term.

A few years into the post-Cold War era, the adoption by the US of sanctions legislation geared to penalise foreign firms investing in countries under Washington’s sanctions elicited resistance from European allies, which coalesced into an unusually unified response by the EU. This response notably combined elements from the Community trade toolbox and that of the répertoire of the Common Foreign and Security Policy (CFSP). In the event, a negotiated solution to the conflict could be reached. However, secondary sanctions resurfaced some fifteen years into the new millennium, most conspicuously in the framework of the settlement of the Iran nuclear proliferation crisis, pitting Brussels and Washington again. Notably, the use of secondary sanctions after Trump administration’s withdrawal from the Joint Comprehensive Plan of Action threatened its survival altogether, jeopardising a key CFSP goal. This chapter explains the background to the current political conflict over secondary sanctions, illuminates the political dynamics that inform it, presents the tools developed for addressing the dilemma they pose to the EU and assesses recent developments.

The prohibition of the threat or use of force, enshrined in Article 2(4) of the Charter of the United Nations, is the most important principle in the charter, and the need for international solidarity through the collective action of third states is of the utmost importance when a flagrant violation of that principle occurs. After briefly introducing the case study of the 2022 Russia’s aggression against Ukraine, this chapter analyses whether the current customary legal regime on international responsibility provides for any legal obstacles precluding indirectly injured states from adopting secondary sanctions. In particular, the chapter analyses the use of the concept of ‘lawful measures’ in Articles 41(1) and 54 of Articles on the Responsibility of States for Internationally Wrongful Acts. It also considers that the collective system of the United Nations should be conceived, according to these same provisions, as the preferred framework for cooperative action. The chapter finally argues that when the unlawful use of force reaches the level of an act of aggression third states that are indirectly injured should be able to react through secondary sanctions. These measures, if adopted when the United Nations Security Council is deadlocked, should be considered as lawful because their objective is to remedy the wrongful non-compliance of third states with collective obligations arising from a serious breach of jus cogens norms by the aggressor state.

This chapter explores how the imposition of unprecedented sanctions against Russia following the large-scale invasion of Ukraine in 2022 and the constant cat-and-mouse game of enforcement and evasion that ensued have altered the secondary sanctions landscape. More specifically, it examines to what extent, notwithstanding its longstanding and entrenched opposition to far-reaching US secondary sanctions, the European Union has gradually moved towards adding a ‘secondary’ layer to its own sanctions toolbox. The chapter first exposes the EU’s ambiguity towards extraterritoriality, both within and without the sanctions domain. It subsequently zooms in on a number of specific EU measures, namely the imposition of the so-called ‘price cap’ on Russian oil, the adoption of far-reaching import and export restrictions, including the prohibition to import certain Russian products even after these are located or have already been processed in third countries, and the threat of financial sanctions against, and criminal prosecution of, non-EU persons that facilitate the circumvention of EU sanctions against Russia. It then offers some concluding observations.

This chapter addresses the issue of legality of ‘secondary sanctions’ from the viewpoint of international investment law. The theoretical situation considered is that of a foreign investor, having made an investment in the US, being subjected to penalties or restrictions under a US secondary sanctions regime, based on its conduct of certain transactions with a targeted country or entity, even though such business activities have no US jurisdictional ‘nexus’. The chapter first attempts at identifying the potentially relevant substantive standards of investment protection, including the prohibition of expropriation without compensation and the ‘fair and equitable treatment’ standard. The likelihood of a successful invocation of these standards by the claimant in an investor–State arbitration claim is discussed. In that process, it is considered inter alia whether the deterrent effect of secondary sanctions may per se amount to a violation of an investment protection instrument. The chapter then turns to the assessment of the possible defences that the respondent State may put forward in order to seek to escape its liability for the possible breach of a standard of bilateral investment treaties, notably defences relating to ‘security exceptions’ provisions in treaties and allegations as to the ‘illegality’ of the investment.

China has long been a major target of primary sanctions and more recently of secondary sanctions. Like many other states, China has begun to explore legal efforts to resist US secondary sanctions, for instance by adopting a blocking statute. Unfortunately, it appears that these legal efforts, like those of many other states, cannot make much difference in practice, although they are not meaningless. However, China is different from many other states in that it has the potential to economically or technically overtake the US. Due to its ever-growing economic power, together with its legal efforts, China is expected to be able to neutralise US secondary sanctions in the future. Going forward, China, despite its growing power, is expected to maintain its basic policy of opposing unilateral sanctions and is unlikely to impose secondary sanctions to achieve its foreign policy aims. It will continue to emphasise the principles of sovereignty equality and non-intervention in internal affairs.