This summer, European courts have invalidated targeted financial sanctions imposed in both the counterterrorism and counterproliferation contexts. In June, the Supreme Court of the United Kingdom quashed sanctions imposed on Bank Mellat, a bank controlled by the Iranian government and designated by the United States in 2007 as providing services in support of Iran’s nuclear entities. Just a few weeks later, in July, the European Court of Justice affirmed the annulment of sanctions imposed on Yassin Kadi, a Saudi national identified by the United States, EU, and UN shortly after 9/11 for providing material support for terrorism.
Unless measures are taken to reform the way that courts handle review of sanctions cases, and in some respects the sanctions regimes themselves, these decisions will likely have deleterious effects on the global framework for targeted financial sanctions.
Specifically, they will imperil the very concept of targeted financial sanctions, a method of imposing financial restrictions that has succeeded in putting significant pressure on terrorist networks, WMD proliferators, narcotraffickers, and other illicit actors. Additionally, they put at risk the comprehensive global nature of the sanctions framework, which has galvanized far-reaching international coalitions to clamp down on a broad range of illicit conduct, making it significantly more difficult for people to provide financial support for terrorism, WMD proliferation, or other proscribed conduct.
The United States should therefore make it a high priority to work closely with its allies to achieve the necessary changes. Unless it does so, the availability of an important strategic tool that lies between uses of force and diplomacy will be imperiled, at significant cost to the international community’s ability to effectively manage a wide range of threats.
The first of the significant sanctions cases to come down this year is the British Supreme Court’s decision to quash sanctions imposed on Bank Mellat. The UK Supreme Court held that sanctions were improperly imposed on Mellat for two main reasons. First, the sanctions were “irrational” and “disproportionate” because the UK government did not provide adequate reasons or justification for “singling out” Mellat for sanctions while leaving other Iranian banks to operate in the UK. Second, sanctions were inappropriate because Bank Mellat did not receive advanced notice of the government’s decision to designate it, leaving it without any opportunity to contest the government’s decision before sanctions were imposed.
In parallel, in July, the European Court of Justice affirmed a lower court ruling annulling sanctions imposed on Mr. Kadi essentially because that court found that neither he nor the judicial system had access to sufficiently detailed information about the reasons he was designated.
These two decisions, taken together, may lead to potentially significant limitations on the international community’s ability to impose targeted financial sanctions on wrongdoers.