15 - Secondary Sanctions and Force Majeure Clauses

Summary

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.