The World Trade Organization (WTO) regime has a significant role to play in disciplining secondary sanctions. It provides substantial standards and procedures that differ from and supplement applicable standards and potential remedies under general public international law. The WTO system may address the specifics of secondary sanctions in different ways. In this chapter three perspectives are discussed in this regard. First, it is observed that non-discrimination standards in trade law may capture what appears to be unfair about secondary sanctions, as such standards would fail to detect discrimination, where all WTO Members – target Members and third Members – would be sanctioned alike. Second, however, WTO exception clauses can take into consideration that secondary sanctions are significantly more distant in terms of a connection between the measure and a legitimate policy objective as required under standards of good faith. Third and relating to fairness, WTO dispute settlement would open an opportunity for affected Members to seek a rebalancing of rights and obligations even in cases where a measure would be considered to conform to WTO rules.

In the last ten years, secondary sanctions have played an important role for European regulators as well as for compliance officers working for economic operators. Even though such European practitioners are looking for guidance and experience from their interlocutors from the other side of the Atlantic, including from the US Office of Foreign Assets Control, secondary sanctions do not act in the leading role but are one of many risk factors to be considered by economic operators. Instead, prohibitive policies of European economic operators, including financial institutions, against certain governments, such as Iran and to a lesser degree Russia, are mostly based on risks unrelated to secondary sanctions. On this premise, the chapter will briefly describe the relevant regulatory framework and will then explain how the regulations are operationally implemented in international financial institutions. In doing this, the chapter will also touch on practical challenges for sanctions compliance officers, such as extraterritoriality and the EU Blocking Regulation.

This chapter starts from the premise that secondary sanctions are invariably adopted to exert pressure upon foreign economic or financial actors operating in third states, with the intention to modify their conduct in alignment with the primary sanctions already imposed by the sanctioning state against the target state. As follows, due to their extraterritorial scope and their exceptional capacity to encroach upon the sovereignty of other countries, the legal status of secondary sanctions under international law is controversial. This contribution seeks to elucidate if secondary sanctions may amount to economic coercion and whether as a result these measures could constitute a breach to the principle of non-intervention. The chapter closes by exploring the potential avenues for regime interaction between the rules governing the exercise of jurisdiction by states and the principle of non-intervention in the context of secondary sanctions.

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.

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.

This chapter considers whether and to what extent secondary sanctions that contravene commitments under trade and investment agreements may be justifiable under security and general exceptions. It analyses the jurisprudence of various international courts and tribunals on the matter, while focusing on the text of General Agreement on Tariffs and Trade (GATT) Articles XX and XXI (which many international economic agreements replicate or adjust). For non-self-judging security exceptions, it concludes, justifiability hinges on the design of sanctions, their targeting of ‘military’ products or services, and the demonstrability of an essential security risk for the sanctioning party. Secondary sanctions might also be justifiable under general exceptions, which feature finer legal criteria to permit measures that pursue legitimate objectives while controlling their abusive application. The chapter considers the enforcement-related exception of GATT Article XX(d), as well as the public morals exception of GATT Article XX(a), which was invoked to justify sanctions in United States – Tariff Measures on Certain Goods from China. As with other measures at the intersection between economic relations and security, the assessment of secondary sanctions under these exceptions becomes particularly challenging in light of their usual objective: restricting trade or investment vis-à-vis specified states, on the basis not of impersonal objectives but of a state’s perception of its essential security interests.

This chapter explores the extraterritorial application of the U.S. sanctions: namely, the ability of those sanctions regulations to reach non-U.S. actors or activities taking place outside of the United States. The chapter examines a recent trend towards increasing extraterritorial enforcement by the U.S. sanctions authority. In particular, the chapter discusses the objections of China to such extraterritorial application of U.S. sanctions laws. Of particular focus are Russia’s and China’s attempts to de-dollarize and resort to alternative financial networks to lessen the impact of these sanctions.