Categories
Disease X-19 from Michael Novakhov - Covid-19 News Review

1. US Security from Michael_Novakhov (88 sites): Just Security: Dissecting the Executive Order on Int’l Criminal Court Sanctions: Scope, Effectiveness, and Tradeoffs

Spread the News

The Trump administration’s Executive Order threatening sanctions on parties associated with the International Criminal Court (ICC) through the use of the International Emergency Economic Powers Act (IEEPA) is almost certainly not what the drafters of that emergency law back in the 1970s had in mind. IEEPA is the authorizing legislation for these prospective sanctions as it is for almost all U.S. sanctions. It was designed as one of several pieces of post-Watergate “good government” statutes (alongside the Foreign Corrupt Practices Act and others). The law was meant to instill discipline in the Executive while allowing robust congressional oversight of a realm of foreign affairs – a power that the legislature has long been challenged to exercise. IEEPA was meant to cabin the Executive by limiting its ability to operate under National Emergency powers in perpetuity. Over the last forty years, however, it has morphed into a tool that presidents have used in increasingly unfettered ways. President Trump has taken it to even greater levels.

Having served as the Senior Advisor to the Director of the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC – the lead U.S. Government agency charged with implementing and enforcing economic sanctions) and working on sanctions on the National Security Council and now in private law practice, I aim to explain what exactly this E.O. does and doesn’t do and its far-reaching potential impact and policy implications.

Broadly speaking, IEEPA provides the president the authority to put restrictions on “property” under U.S. jurisdiction if that property is associated with identified malicious actors emanating principally from outside the United States. In its very brief text IEEPA appears to largely contemplate short-lived restrictions on property related to parties representing “unusual and extraordinary” threats to U.S. national security. That it has become the legislative bedrock for the dozens of U.S. sanctions programs currently in effect is an eventuality that in itself would likely leave the law’s drafters dumbstruck.

That the tool is now being deployed as a threatened broadside against an organization dedicated to redressing international crimes – rather than against an adversary state (like Iran, North Korea, or Cuba) or a specific threat (like terrorism or WMD proliferation), as all other sanctions programs are – is bizarre and troubling.

Importantly, this particular E.O. in the case of the ICC establishes only a latent authority – that has yet to be implemented – to impose undoubtedly meaningful sanctions that could impact not just the work of the ICC as a whole, but also the livelihoods of ICC staff, judges, and any parties (such as financial institutions, consultants, and the like anywhere in the world) who provide assistance to the Court’s work.

However, not only is it uncertain that such sanctions will ever be imposed, but also there is significant risk to U.S. interests – far beyond the bounds of international justice – to this approach. Even without any follow through of actual sanctions, the cost to U.S. foreign policy and national security could be substantial. Consequently, because this administration may be willing to suffer those costs (especially in an election year) and because challenging this action is unlikely to be availing, the answer to undoing its harm lies less in fighting the E.O. itself and more in either amending IEEPA or changing the Executive.

Legality of the Executive Order

Though the E.O. may be many things depending upon your political and policy perspective – from appropriately aggressive to unwise and counterproductive or worse – it is likely not illegal. IEEPA is exceedingly flexible and, in order to implement its authorities, all the president is required to do is find an “unusual and extraordinary threat to the national security and foreign policy of the United States” and to “declare a national emergency to deal with that threat.” Such determinations – of which there have been dozens since 1977 – have included situations that are clearly threats to the United States (e.g. terrorism or WMD proliferation) and others that may be tragic, worrisome, and unfortunate but are likely not the sorts of imminent threats to the United States that IEEPA’s drafters were concerned about (e.g. instability in Mali or global human rights abuses and corruption). In practice, determinations concerning national security issues receive a high degree of judicial deference, if they are challenged at all. Pursuant to IEEPA, the president must report his National Emergency declaration to Congress (and renew it annually to Congress), but Capitol Hill – short of new legislation – is unable to overturn any such action.

Structure and Impact of the Executive Order

In all but its target, this E.O. is nearly identical to other IEEPA-based sanctions and E.O.s of the past. Following its preamble and the declaration of National Emergency by the president the document operates as follows:

Section 1 (a) sets out the impact of any sanctions. This E.O. provides for “blocking sanctions” on foreign persons – which includes both natural persons and legal persons such as organizations. IEEPA’s flexibility extends to allowing the president to impose almost any sort of restriction on property. The most severe consequence available – and the one most frequently chosen under similar E.O.s – are “blocking” measures. As a practical matter, this means that if persons are sanctioned, they are listed on the Specially Designated Nationals and Blocked Persons list (the “SDN List”), which is maintained by OFAC.

Such a listing entails two immediate outcomes – unless OFAC provides for a wind-down or grandfathering (which is rare), the impact is simultaneous with a listing. First, all property held by an SDN (and the property of any entity that the listed party owns 50 percent or more of) in the United States is “blocked.”  Such property is not seized or surrendered, but during the pendency of the blocking a party cannot exercise ordinary property rights over it, including its use or sale. Similarly, U.S. persons or entities located anywhere in the world – including any who may work in an organization that becomes sanctioned – are not able to transact or provide services to sanctioned parties or entities that sanctioned individuals own 50 percent or more of (absent an overriding OFAC license). If the ICC were sanctioned, U.S. persons would not be able to continue working in or with the Court.

The definition of property that becomes encumbered and services that become prohibited to parties on the SDN List is without meaningful limit – it includes tangible, intangible, and even future or conditional property interests. In short, it becomes prohibited for any individual or organization under U.S. jurisdiction to provide a sanctioned party almost any benefit whatsoever. OFAC has even deemed the signature of a sanctioned person to be a property interest prohibited under this provision. For example, if the ICC Prosecutor or Registrar became sanctioned, a U.S. person (or a person under U.S. jurisdiction) would be prohibited from entering into an agreement signed by them.

The second, and perhaps more important impact of being listed as an SDN for many foreign persons and entities without assets in the United States or ties to U.S. jurisdiction is that a designation to the SDN List entails that all property that comes into U.S. jurisdiction becomes blocked. The way this usually manifests is through financial transactions. The vast majority of international trade is conducted via the U.S. dollar. Such U.S. dollar-denominated transactions – even if they are between two non-U.S. counterparties – usually require a U.S.-based correspondent bank to clear the transactions. Those correspondent institutions are under U.S. jurisdiction and a transaction that passes through them – even momentarily, solely for the purpose of clearing, and without any other U.S. touchpoint – comes under OFAC jurisdiction and must also be blocked. The importance of the U.S. dollar – and the fear of losing access to risk-averse U.S. correspondent banks and potentially running afoul of OFAC’s material support provisions – means that most major financial institutions around the globe regularly choose to comply with the SDN List (and broader OFAC regulations) even in transactions in which there is absolutely no connection to U.S. dollars, U.S. persons, or U.S. jurisdiction.

As a consequence of these two effects of being listed, a designated party – be it an individual or an organization – finds itself effectively unable to engage in the vast majority of formal commerce and trade, both domestically and internationally. It is not surprising that designated parties in Colombia took to calling an OFAC designation akin to muerte civil (“Civil Death”).

Section 1(a)(i) describes who is currently sanctioned, who is sanctionable, and what officials have been delegated the authority to make sanctions determinations. With respect to currently sanctioned parties, if the E.O. had sanctioned anyone at its promulgation this section would refer to an annex listing designated entities. Without an annex this is a “naked E.O.,” which is not unprecedented but has been historically disfavored. In other words, no one has yet been sanctioned, but there is authority now to do so. We can be fairly certain of this because in order for a sanctions listing to work the private sector needs to know who it cannot deal with – the SDN List is, and must be, a public document.

With respect to potentially sanctionable parties, this E.O. (like most sanctions E.O.s) identifies that only “foreign persons” are eligible to be listed. As such, while U.S. persons can be enforced against for engaging with sanctioned persons they cannot be designated under this E.O.

The delegation of authority for designations differs across E.O.s, but most include at least the State Department and the Treasury Department, and often the Department of Justice. The consultative provision means that, as a matter of practice, such designations are a product of interagency coordination. Even if State has the putative lead in this case, Treasury (and in particular OFAC) will maintain a critical role. This is because Treasury is the entity that not only maintains the listings (and must defend the listings) but also is the agency with the most substantial experience in developing designation packages.

The following sub-sections (A, B, C, D) are the “designation prongs” of the E.O.; they delineate the bases upon which a designation can be made. In this case, any natural or legal foreign person “engaged in any effort by the ICC to investigate, arrest, detain, or prosecute” any U.S. personnel or personnel of a country that is an ally of the United States without the relevant country’s consent is eligible for designation. In line with many other E.O.s, no definitions are provided for any of these terms or concepts; for example, the E.O. provides no guidance regarding how concrete, direct, or even effective an activity must be in order to be deemed an “effort” to “investigate, arrest, detain, or prosecute.” This naturally leaves significant, and unnerving, discretion in implementation.

Similarly, as is present in almost all E.O.s, any party (once again, limited here to foreign persons) “materially assisting” such efforts, or owned or controlled by a listed party, can also be designated. Importantly, despite the language of this provision (seeming to include both “activities” described in the E.O. as well as “persons” listed under its authority), in practice such “material support” prongs have, at least in the past, been used solely as a basis for derivative designations of specific persons. That is, until a person is officially listed under the E.O., there is no basis for another person to be designated for providing material support to them. To be sure, it is possible that this provision could be interpreted more broadly in an unprecedented fashion – for example, to include the provision of support for specified activities prior to any designation of individuals. However, this seems unlikely if only because OFAC will retain an important role in implementing the E.O. OFAC has always been, and continues to remain, a completely professional agency (i.e. with no political appointees anywhere in its ranks).   This should provide some comfort that there will unlikely be such a radical departure from prior interpretations or processes leading to designation.

The remainder of the E.O. is boilerplate, describing that exemptions can be provided (Section 1[b]), delineating certain prohibitions following a designation (Section 3), providing visa bans for identified parties and their families – which is uncommon but not unprecedented (Section 4), setting up certain enforcement provisions (Section 5), setting out a limited set of standard definitions (Section 7), justifying the absence of notice before designation (Section 8), and authorizing the Secretary of the Treasury both to implement regulations and to submit annual reports to Congress regarding the National Emergency (Sections 9, 10).

What Next?

It is possible that nothing happens next. The E.O. could remain “naked” in perpetuity; there is no obligation for the administration to ever name any entity or individual. If the National Emergency is not renewed, the E.O. would cease and any designations under it would be erased. In this way, the E.O. presently exists only as a looming threat to the ICC and its personnel, but nothing more.

On the other hand, if the administration wished to designate a party, the process would involve the administration (the State Department likely assisted by OFAC) developing an evidentiary record (which can derive from both open and classified sources) that demonstrates that a specific individual or entity meets one or more of the designation prongs. To be clear, the E.O. would allow almost any part of the ICC – up to and including the entire Court itself – to be sanctioned. In the past, OFAC has sanctioned corporations, subsidiaries of organizations, political bodies, and even sports teams – in addition to thousands of individuals from more than 150 jurisdictions. If the entire ICC were sanctioned that would not mean that all ICC employees were automatically sanctioned, but it would greatly complicate the court’s operations, its ability to use its funds, and, in the absence of OFAC granting a license, would prohibit U.S. persons from working with or for the Court.

The impact of such measures could be both institutional and personal. For instance, if the administration lists the ICC’s Prosecutor, which seems like the individual most in line with the concerns raised by the administration and in the E.O., the implications would be immediate and severe. Putting her on the SDN List would not only greatly complicate, if not make impossible, the ability of the Court to pay her salary, it would also impose the “civil death” on her more generally in her personal and professional life. It would have ripple effects on anyone who transacts with her. Indeed, these effects are not fully within the U.S. government’s control. Once the power of listing is unleashed private sector actors dealing with the Prosecutor (such as financial institutions, insurers, and even landlords) would have to make their own risk-based assessments regarding what sort of activities with the Prosecutor could potentially cause them to potentially become sanctioned themselves for providing “material” support to a “person whose property and interests in property are blocked….”

While historically OFAC has limited material support designations to those who provide support to designated parties in aid of the activities that caused the party to be designated, many private sector actors take a much broader view of the risks in dealing with sanctioned persons.  This is not surprising — due to its practical breadth and at times the existential consequences of a listing, the sanctions instrument can be a crude one and that is at least partly by design. After all, sanctions are meant to impose significant costs on terrorists, narcotics traffickers, WMD proliferators, and other malefactors and anyone who would wish to aid them.

The level of proof needed to actually designate is modest – as this is an administrative, and not a judicial, act, the agency needs to provide only “a reasonable basis to believe” that the party in question meets one or more of the prongs. And a combination of three factors — the level of proof needed is low, the deference provided by courts to the Executive’s sanctions determinations is high, and the government’s ability to use classified sources to support designations is unfettered — makes challenges to listings difficult and very rarely successful.

It is also possible, based on the language of the E.O., that the administration could sanction individuals and organizations for prior behavior. This has been disfavored due to ex post facto issues, and it is beyond the realm of how and why sanctions are traditionally imposed. Traditionally, the goal of sanctions is to change behavior of listed parties, not punish them for past “transgressions.” While the line between past behavior and deterring future behavior can be difficult to delineate, my assessment is that if the administration wished to engage in designations for retroactive reasons, they would have already named some parties to the list. In other words, it would not have issued a naked E.O. That it was a naked E.O. leads me to conclude, tentatively for now, that the goal is to chill current and future activities. Again, the professional staff at OFAC, State, and DOJ would likely object to any designation based solely on past actions.

Enforcement

Following a designation, the prohibitions on interactions between U.S. parties and any transaction with a U.S. nexus (such as a correspondent transaction described above) relating to a designee immediately come into force. Section 5 of the EO underlines some standard prohibitions – including action that evades or avoids or has the purpose of seeking to evade or avoid the prohibitions or to form a conspiracy to do so. These prohibitions, among others, are actually covered in IEEPA itself and require a U.S. nexus for enforcement to be undertaken.

In the case of enforcement, IEEPA provides for significant civil and criminal penalties. On the civil enforcement side (which OFAC manages), penalties of more than $300,000 per transaction are authorized; on the criminal side (which the National Security Division of the Department of Justice manages), prosecution and incarceration, albeit uncommon, are possible. IEEPA contains a strict liability regime, meaning that for civil enforcement, no mens rea is required and there are no de minimis exceptions. Despite this, enforcement remains comparatively rare (with OFAC finalizing approximately 30 cases per year compared with the hundreds of new designations annually), and the professional staff at both OFAC and DOJ continue to shy away from manifestly political enforcement. This means that the enforcement actions pursued have, at least historically, been almost all on the egregious, recidivist side of the spectrum.

Challenges to enforcement are also possible and some courts have begun to more forcefully question OFAC’s activities.  However, success is rare; the strict liability standard, along with the traditional judicial deference to executive agencies, imposes substantial hurdles for any party seeking to challenge enforcement decisions.

Impact

For supporters of the ICC’s independence and authority, this E.O. is troubling and for good reason. The threat of sanctions (let alone actual sanctions) may well work. Although it is possible that it could also backfire and make pursuit of U.S. and U.S. allied personnel more likely, the potential devastation of being sanctioned could significantly reduce the ICC’s interest and even ability to pursue both U.S. personnel and U.S. allied personnel. Quite simply, the individuals who work at or with the ICC on the Afghanistan situation will have to assess that the risk to their own livelihoods is worth it; and, just as importantly, any counterparties who assist the ICC on this matter (the Court’s financial institutions, insurers, consultants, airlines, hotels, technology and logistics providers, and staffing services, etc.) will have to also make the decision that assisting the ICC in these efforts is also worth it.

Even in the absence of actual sanctions, I would imagine that current service providers to the ICC are already reassessing – if only as a matter of their own fiduciary obligations – whether continuing to work with the institution is prudent. Because the fear of U.S. sanctions has led to a torrent of bank de-risking throughout the world, with financial institutions often over-complying with U.S. regulations, it is likely that any ICC-related de-risking will be broader than only with respect to the issue covered in the E.O. A relatively straightforward example of how such a measure could quickly metastasize concerns ICC staff salaries. The ICC’s bank processes the salaries of Court staff. Some of these staff may work on both the Afghanistan situation and on other situations the Court is currently addressing. Due to the difficulty in disaggregating such payments, the bank may decide to cease processing any staff salaries for fear that some of those monies would go to efforts that the U.S. might deem sanctionable. As a consequence, the ICC’s wider work – even in atrocity situations where the U.S. clearly supports accountability – could also be impeded. 

Potential Responses? Counter-Sanctions and Further Erosion of Alliances

While the ICC’s supporters are unlikely to take this action lying down, in truth, they have limited tools to aggressively respond due to the importance of the U.S. dollar and the absence of meaningful alternatives. Though some have suggested that sanctions overreach like this will move the world ever more quickly away from the U.S. dollar, it is unlikely that this action will be the inflection point – especially because the principal and most important instigator to such a post-dollar world is China, and Beijing’s approach to the ICC is almost as cool as Washington’s.

However, there have been stirrings of a response, especially in Europe, to counteract the unilateralism of the Trump administration’s sanctions approaches. The ability of Europe to make the Euro a meaningful competitor to the U.S. dollar in international commerce is limited, at least in the near term (the combination of Brexit and COVID-related economic softness provides limited flexibility for Brussels or the member states).

Despite that, the European Union’s Blocking Statute, which broadly prohibits parties in the EU from complying with the U.S. government embargoes of Iran and Cuba, could be a tool used here. Doing so would further erode support not just for U.S. ICC policy but potentially U.S. policies unrelated to the ICC – including with respect to counter-terrorism, WMD proliferation, and otherwise. The Blocking Statute, which in some EU member states has been implemented to criminalize compliance with U.S. sanctions on Iran and Cuba (in order to protect EU policy prerogatives regarding those issues), had been broadly unenforced since its implementation in the mid-1990s. However, since the Trump administration’s withdrawal from the Iran nuclear deal, the Blocking Statute has been expanded and started to see meaningful action, with the European Commission and member states becoming increasingly animated in referencing it and even enforcing it.

Given the EU’s strong support for the ICC (reiterated after the E.O. announcement), this new E.O. could be added to the list of U.S. unilateral sanctions that receive Blocking Statute protection. At the extreme, that could make any European actors currently assisting the ICC think hard about ceasing that assistance in order to be compliant with U.S. measures. Even if most European counterparties still find a way to comply with U.S. measures, it will further weaken the once-robust trans-Atlantic bond that has in the past effectively imposed multilateral sanctions against common adversaries, including Russia, terrorists, WMD proliferators, and more.

In closing, I should emphasize that this is not just another E.O. or unilateral action by this administration. It is especially meaningful not only because it challenges a central international norm but also because it could impart long-standing damage to core U.S. interests more broadly. There are other ways that the United States could have more constructively pushed back on the ICC – protecting legitimate U.S. interests without further alienating the international community and our allies or potentially gutting the work of the Court writ large. While it will be difficult to challenge the E.O. – because of the nature of U.S. power, the structure of IEEPA-based sanctions, and the implacability of the current administration – it will undoubtedly reinforce calls for reforming IEEPA (and the National Emergencies Act) while further underlining just how much is at stake in the November election.

Image: (Photo credit Busakorn Pongparnit / Getty)

The post Dissecting the Executive Order on Int’l Criminal Court Sanctions: Scope, Effectiveness, and Tradeoffs appeared first on Just Security.

Just Security

1. US Security from Michael_Novakhov (88 sites)


Spread the News