The Legal Challenges Surrounding Sanctions on Russia

The sanctions imposed on Russia as a consequence of its aggression on Ukraine were the focal point of a BLEST (Bocconi Lab in European Studies) workshop on "The war in Ukraine and International Law: where are we now?" which was held on 16 June 2023. In particular, the fact that these measures were enacted unilaterally, outside the framework of the United Nations' multilateral system, poses a legitimacy issue in terms of international law.

First of all, if Russia's invasion and assault on Ukraine can be unequivocally classified as aggression, then the response to this violation must also adhere to international legal standards. Specifically, Professor Tom Ruys, an expert in international law at the University of Ghent, argued that while sanctions may be considered legitimate countermeasures, their compliance with other principles of international law, such as rules regarding immunity, needs to be evaluated.

For instance, the European Union implemented a prohibition on all transactions associated with the administration of reserves or assets belonging to the Russian Central Bank. According to estimates by the EU, approximately €300 billion worth of assets from the Central Bank of Russia deposited with both central banks and private institutions have been frozen in EU and G7 countries, so that as a result of immobilising such assets, the Central Bank of Russia can no longer access those assets. However, central banks are among the organs of a state that enjoy immunity from execution of sovereign assets which means that they are not subject to confiscation by foreign governments. Some options for overcoming this legal hurdle, like taking executive action (rather than judicial) or limiting sovereign immunity, have been already reviewed by scholars.

As proposed by Dr. Ruys, an alternative to asset confiscation would involve active management of the immobilized assets. This approach would enable the profits generated from the administration of the reserves to be seized for the benefit of Ukraine. Although this option may appear to be a feasible practical solution, it introduces various legal, technical challenges and most importantly, it requires political will from states.

Another controversial legal aspect of the numerous sanctions that the EU has adopted against Russia concerns the territorial and personal jurisdiction. In short, the territorial principle enables the EU to adopt and enforce sanctions within its territory or on board aircraft or vessels under Member States' jurisdiction, while personal jurisdiction means that the EU can apply sanctions against the EU nationals in any location and against companies and organisations incorporated under the law of a Member State – including branches of EU companies in third countries.

While the European Union has always taken a restrictive approach by limiting sanctions to the European territory and entities therein located, the United States has adopted so-called secondary sanctions. These secondary sanctions extend the reach of U.S. legislation to non-U.S. individuals and entities operating outside U.S. jurisdiction.

Secondary sanctions are useful for responding to the avoidance of sanctions through trade with third countries. The main idea behind them is to prevent third parties from trading with countries subject to sanctions issued by another country - even if these third parties are neither citizens nor based in the country that adopted such sanctions. In practice, secondary sanctions introduce elements of conflict with third countries that are not directly involved in the conflict, especially absent a UN security Council Resolution. These issues were analysed more extensively in the contribution by Ms Isabelle van Damme, a partner at the law firm Van Bael and Bellis, specializing in international trade law.

Moreover, one of the main issues concerning sanctions today, mentioned in the presentation by Dr. van Damme, is their enforcement. On the one hand, there is the problem of the fragmentation of the national legal systems responsible for the concrete application of sanctions, which encourages circumvention. On the other hand, companies face legal uncertainty when it comes to compliance. In this regard the European Commission has proposed harmonising national systems and introducing a criminal offence for those who do not comply or circumvent sanctions.

Some critical issues concern the identification of those obliged to comply with EU sanctions when they belong to corporate groups with a global dimension. For example, the obligation to respect sanctions extends to EU nationals and companies outside the EU (including foreign branches of EU companies/dual nationals), foreign companies in respect of activities clearly connected to the territory of the EU. In some complex cases, it can be challenging to identify the link with the EU territory; furthermore, each enforcement authority may apply different standards. In order to increase the effectiveness of sanctions, EU institutions and Member States should improve the legal framework for sanctions and make it more certain.

Finally, the unprecedented scale of sanctions raises issues of the sustainability of the enforcement system. The European institutions, the Commission and the Court of Justice, which have seen an exponential increase in disputes over sanctions, both through annulment proceedings and preliminary rulings by national courts, and national authorities were ill-prepared to administer such a large number of sanctions. Even without interference into national legal systems, more coordination between the Commission and the Member States could lead to more efficient functioning of the sanctions regime.