Part III - Weaving Transnational Legalities

9 Targeting Bad Apples or the Whole Barrel? The Legal Entanglements between Targeted and Comprehensive Logics in Counter-Proliferation Sanctions

Grégoire Mallard and Aurel Niederberger

9.1 Introduction

Jurists and legal historians have increasingly come to the realization that the story of their discipline is not, in fact, that of the gradual diffusion of Western concepts to the rest of the world. The emergence of new norms of global governance and the history of international law more generally are made up of multiple stories that have no single point of departure.¹ The history of legal concepts, imaginaries and fields of practice is full of examples of such ‘legal entanglements’ between various systems of law, located at different scales, and generated according to different temporalities and historicities.² The new historiography on colonialism and empires, for instance, has insisted on the two-way transport of legal concepts and practices and the plurality of legal orders that were constituted over time during the Spanish, British, French and even German empires.³ In many cases, scholars of colonial law have demonstrated that the colonizers’ rule was far from being the sole source of authority and legitimacy in disputes between colonizers and colonial subjects.⁴ The resulting ‘legal entanglements’ may have looked contradictory in principle but were effective in practice.⁵

Similarly, political scientists have looked at the co-constitution of normative and/or rules-based regimes, which has grown increasingly more complex through practices of interlinkages. Experts often push the boundaries of technical fields of governance by claiming jurisdiction over the regulation of innovations in adjacent fields. Such practices promote an ever tighter entanglement between expert knowledge and policy domains, leading to either conflict, cooperation or free-riding by transnational policy networks, private companies and states.⁶ Political sociologists and socio-legal scholars have also recently paid attention to the circulation of various kinds of capital (economic, cultural, political or even colonial) and their transmission across entangled national and international regulatory fields. These scholars conclude that the distribution of such forms of capital does not follow a purely national logic, such that we need a transnational perspective on the workings of the state in the age of globalization.⁷

Although these various disciplines differ in methods and findings, we find, across fields, a number of scholars who seek to explain the evolution of complex forms of transnational legal rules as ‘legal entanglements’. These scholars converge on some epistemic principles. They hold that history originates from many parts of the world; that asymmetries of power are inscribed in norms but that it is mostly in practice where power actually manifests itself – most often, through practices of knowing, classifying and reifying certain visions of the world.⁸ They also tend to agree that although some hidden path dependency may well explain the overall direction of history, the continued existence of normative contradictions within any given ‘regime complex’⁹ leaves room for contingencies and even sudden reversals. Importantly, scholars who use the notion of ‘legal entanglement’ accept that normative contradictions do not necessarily threaten the working and stability of a transnational legal order.¹⁰ This position departs from the traditional rationalistic view that a normative system can only be stable if it is based on clear, self-reinforcing and non-contradictory principles, such that one can derive from it rules of conduct and agreed-upon punishments in case of violations. The notion of ‘legal entanglement’ therefore introduces a ‘postmodern’ perspective¹¹ to modernity’s rationalist project of building universal rules beyond the nation state based on clear and quasi-constitutional foundations.

In this chapter, we adopt a similar perspective on ‘legal entanglements’ to explain contemporary dynamics in transnational legal orderings in the field of security. In particular, we want to explain the normative order by which states adopt international sanctions against individuals and/or states which have threatened international security and/or violated agreed-upon rules. We start from the assumption that sanctions are better thought of as bodies of norms and practices, also known as ‘sanctions regimes’.¹² These sanctions regimes have long been elaborated at the intersection of various bodies of law, both at the domestic and international levels, which define principles related to the responsibility of states and/or norms ensuring the protection of human rights. For instance, the notion that innocent civilians should not suffer from the application of sanctions was translated in the United Nations Security Council (UNSC) sanctions regimes that were once ‘comprehensive’ and showed little respect to the human rights of populations in sanctioned areas, and that have become more targeted – or, in other words, ‘smarter’.¹³ This ‘miniaturization’ of UN sanctions began with various sanctions against conflict actors in Africa in the late 1990s and early 2000s, and it was further developed with the well-known sanctions regimes against Iran and North Korea, at least in their earlier stages in the 2000s. These processes occurred according to different temporalities and scales depending on where they were located.

This chapter argues that, on the one hand, the developments that have affected the sanctions regime have strengthened the normative coherence of the UN system of norms and rules, giving it more legitimacy and unity. The new UNSC sanctions regime was indeed greeted as a reconciliation of the UNSC’s main responsibility to safeguard international peace and security with better respect for other pillars of international law and the UN, namely human rights, which include the right to access vital goods such as food or medical care.¹⁴ On the other hand, it remains to be seen whether new contradictions have not also spurred from some of the latest developments in the broader ‘sanctions regime’, which not only includes the UNSC sanctions but also multiple domestic sanctions regimes, in particular in the United States and Europe. In contrast to the story of a clear paradigmatic shift characterized by the emergence of a new ‘targeted sanctions’ paradigm, relegating to the dustbin of history all previous forms of comprehensive sanctions that clashed with other UN norms, we explain how, particularly in counter-proliferation sanctions, contradictions persisted in the legal entanglements between targeted and comprehensive logics and in overlapping multilateral and domestic legal sources of sanctions. We further explain why the presence of such contradictions in counter-proliferation regimes has gone largely unnoticed by ‘targeted sanctions’ designers and advocates who do not use the notion of ‘legal entanglement’.¹⁵

In this chapter, we will thus show the heuristic power of the notion of ‘legal entanglement’ when applied to the evolution of global sanctions regimes in the last thirty years. To demonstrate how targeted sanctions regimes in the field of counter-proliferation are best analysed as ‘legal entanglements’ between targeted and comprehensive logics, as well as between multilateral and unilateral regimes, the chapter proceeds in three parts. In Section 9.2, we show how a discourse on the ‘targetedness’ of sanctions was promoted by sanctions entrepreneurs, policy experts and international governmental and non-governmental organizations in the context of the ‘War on Terror’ during which sanctions increasingly targeted specific individuals listed by states for their association with non-state networks of terrorists, namely Al Qaeda, the Taliban and later ISIS. In Section 9.3, we show how the multilateral machinery that was created in the context of counter-terrorism initiatives, especially under the aegis of the UNSC, extended its reach to the field of counter-proliferation, when specific sanctions committees modelled after the Al Qaeda Sanctions Committee were created in the UNSC to monitor UN member states’ compliance with new UNSC Resolutions (UNSCRs) that targeted the Democratic People’s Republic of Korea (DPRK) and Iran’s sanctioned nuclear activities. In Section 9.4, we show how, during the early 2010s, the targeted sanctions that the UNSC imposed on the DPRK and Iran were ‘comprehensivized’. This process of comprehensivization, we show, followed different pathways: the comprehensivization of UNSC sanctions occurred either directly at the level of the UNSC (as in the case of the DPRK), or indirectly (as in the case of Iran), because of the entanglement between UNSC sanctions with the comprehensive logic of domestic sanctions adopted in a unilateral fashion by the United States and the European Union. This was the case regardless of claims by the USA, and especially by the EU, that their ‘multilateral restrictive measures’ (as sanctions are called in EU parlance) did not amount to comprehensive measures.

Our analysis shows that the legal entanglements between targeted and comprehensive logics that traverse the global sanctions regimes rest on a few core mechanisms. These mechanisms include the assertion of judicial authority by US regulators over the world’s financial transactions denominated in US dollars; the use of instruments that designated central actors within designated jurisdictions (in particular, the central banks of sanctioned states); and the ambiguity of the concept of ‘risk’ held by global financial actors, which allowed financial institutions to adopt a ‘zero-risk’ approach when it came to the implementation of financial sanctions.¹⁶ The ambiguity of this concept of risk, which circulated through a network of cross-references across regulatory documents,¹⁷ led financial institutions to massively cut their operations in the targeted economy while remaining, on the face of it, within the bounds of the targeted logic of ‘risk-based approaches’. We conclude by highlighting key normative reflections that derive from the realization that such entanglements between targeted and comprehensive logics are central to the operation of counter-proliferation sanctions.

9.2 The Creation of the UNSC Counter-Terrorist Sanctions Regime and Its Extension to the Field of Counter-Proliferation: A Case of Isomorphism?

The application of sanctions is not new, as states have long agreed upon historically specific appropriate responses against threats to peace and security as well as violations of international norms and rules.¹⁸ However, the move towards targetedness appears to be a more recent phenomenon, spurred by the UNSC’s efforts to respond to recent crises, taking advantage of equally recent phenomena, such as the new information technologies that facilitate the identification of individual targets,¹⁹ the acceptability of designating non-state actors as subjects of international law and the desire of the international community to protect innocent civilians during responses against state and non-state perpetrators.

The global push towards more coherence in the UN system of norms that affected the design and monitoring of sanctions at the UNSC came with the realization that, after the Cold War, comprehensive sanctions proved too devastating in a less divided world. From 1945 until 1989, the world was divided into trading blocs; thus, a country that was excluded by one bloc could still trade with the other bloc. Therefore, ‘sanctions’ in the sense of trading restrictions applied by the West for instance may have been comprehensive in design, but never fully sealed off a country. Furthermore, the UNSC sanctions that were adopted in 1966 against Rhodesia, and in 1977 against South Africa, were limited to arms embargoes. This changed with the end of the Cold War. In 1990, the UNSC unanimously imposed comprehensive sanctions on Iraq after Saddam Hussein’s invasion of Kuwait. While these sanctions were modelled on the initiative of the West, in particular the USA, they were backed by universal condemnation of the Iraqi act of aggression. These sanctions initially consisted of an embargo against all Iraqi imports and exports and were to be applied by all UN member states. Their effects were drastic and counterproductive: even though exemptions on food and medical supplies were gradually introduced, the impact on the civilian population was devastating, while hardly hurting – or, by some accounts, even strengthening – Saddam Hussein’s regime.²⁰ This paradigmatic case of comprehensive sanctions convinced the international community to move towards a targeted design of sanctions to avoid hurting civilians in sanctioned territories.²¹

In the following years (i.e. the late 1990s and early 2000s), a ‘transnational policy network’ of diplomats, national politicians and academics promoted these targeted sanctions, consisting of tools such as assets freezes, travel bans, sectoral economic restrictions and arms embargoes.²² These targeted sanctions became the only type of sanctions imposed by the UNSC since, with early applications responding to internal armed conflicts in Angola, Sierra Leone, and Liberia in the late 1990s and early 2000s.²³ Since then, as a sign of the normative appeal of targeted sanctions, human rights organizations – staunch critics of the comprehensive sanctions against Iraq – have repeatedly called for the imposition of targeted sanctions in the context of various civil wars.²⁴ Consequently, academic literature on sanctions has usually spoken of a clear break between the comprehensive Iraq sanctions and the post-Iraq era of ‘targeted sanctions’,²⁵ whose coherence with the broader system of UN norms is emphasized by many.²⁶

In the late 1990s and early 2000s, a series of large-scale terrorist attacks – most prominently 9/11 – pushed states to confront transnational non-state groups as significant threats to their security. The ensuing War on Terror involved UN targeted sanctions that were similar in their formal setup to the peacebuilding sanctions put in place in response to African civil wars, but came with longer lists of targeted individuals and entities. As a further difference, while early peacebuilding sanctions included sectoral trade embargoes (such as diamonds), the targets of counter-terrorism sanctions were too amorphous for such measures. Instead, these sanctions regimes relied chiefly on financial measures and travel bans. During the 2000s, under the stimulus of the UNSC, the financial sector thus became heavily mobilized in the quest for more efficiency and more targetedness in the fight against individual terrorists linked to Al Qaeda.²⁷ The range of measures imposed on those individuals who were added to the list of identified terrorists were (and continue to be) forceful, including asset freezes and the systematic screening of all cross-border transactions. Immediately after 9/11, the United States – and then the UNSC – asked the financial sector to help them with implementing this targeted logic with measures to counter the financing of terrorism (CFT). This request inspired new conceptions, practices and technologies.²⁸ For instance, before 9/11, banks conceived of financial fraud as a problem of organized crime and corruption and used almost no digital technology to detect such fraud among their clients; after 9/11, however, financial watchdogs and software companies offered their techniques as weapons in the War on Terror, enabling identification and blocking of specific transactions, as well as automatic freezing of the money held in suspicious accounts.²⁹ It was, therefore, as part of the War on Terror that targeted financial measures were devised and implemented on a large scale.³⁰

Thus, after targeted sanctions were initially designed as a response to the costly impact of comprehensive sanctions against Iraq (as explained earlier in this section), the War on Terror played an important role in further developing and promoting this tool. Throughout the years, the UNSC made a consistent effort to keep the sanctions directed at the right targets and not to harm innocent civilians by constantly improving the technical characteristics of its mode of designation. For instance, the UNSC sought to specify the identities of targeted terrorists with enough detail to prevent banks from unintentionally applying the penalties against ‘false positives’ (i.e. entities or individuals who are mistakenly identified as sanctioned actors because their names coincide with names on the sanctions list). After international pressure and legal conflicts in European countries, the UNSC also created the office of the ‘Ombudsperson’ which gives listed individuals the possibility to appeal for delisting by demonstrating that they no longer meet the listing criteria.³¹ The ‘politics of lists’³² and financial surveillance thus became intrinsic parts of the logic of targetedness that was developed in the new War on Terror, first within the Bush administration and later by the international community at the UNSC level.

New actors entered the domain of CFT, as counter-terrorism sanctions incited new cooperation (or intensified existing cooperation) between member states’ bureaucracies (notably intelligence agencies and treasury departments), private companies (especially airline companies and global banks) and international organizations.³³ Prominent among the last of these was the Financial Action Task Force (FATF): an international organization of like-minded states that was established at a G7 summit in 1989 with the mandate to ‘examine and develop measures to combat money laundering’.³⁴ In October 2001 – in the aftermath of 9/11 – the FATF mandate was then extended from anti-money laundering (AML) to CFT, leading to FATF’s entry into the field of international security; as we show in Section 9.3, the mandate was later expanded to include counter-proliferation finance (CPF). It wasn’t so much the FATF staff which lobbied to be entrusted with these security-related tasks, as at that time it possessed little expertise and credentials in international security. However, according to policy insiders we interviewed, the member states deemed it preferable to entrust a small organization, largely dependent upon member state intel, with the tasks of improving CFT strategies and helping the UNSC enrol the banking sector in its fight against terrorists.

The FATF worked hard to empower member states with ‘better’ legislation through the diffusion of best practices or model law in AML, CFT or CPF fields, as well as to provide private financial institutions with knowledge about typical money-laundering and terrorism-financing schemes.³⁵ As such, the UNSC and the FATF have cooperated in the elaboration of a logic of targetedness in the design of counter-terrorism sanctions. In parallel, in the UNSCRs against Iran (for instance, in UNSCR 1803),³⁶ the UNSC started to make explicit references to and praise the work of the FATF, and called on all governments to push legislation addressing financial sector reform that would enable banks and other private financial operators to fully cooperate with the creation of the new system of targeted sanctions. All international organizations with a stake in the global sanctions regimes have thus seemed to converge towards the same goals, well in line with broader UN norms.

When applied against ‘pariah’ states designated by the Bush administration in 2003 – in this case, Iran and the DPRK – the same logic of targetedness that shaped the design of counter-terrorism sanctions meant that new counter-proliferation sanctions would also avoid hurting the civilian populations who were not responsible for the undeclared nuclear programmes.³⁷ After Iran’s file was sent from the International Atomic Energy Agency (IAEA) Board of Governors to the UNSC in 2006, as well as after the UNSC passed sanctions against the DPRK in the wake of its first nuclear test in 2006, the UNSC adopted successive rounds of sanctions against both countries that were targeted rather than comprehensive in scope, and discriminatory rather than non-discriminatory in nature.³⁸ Their targeted nature was exemplified by the specific designation of companies and individuals allegedly associated with Iran’s or the DPRK’s nuclear programmes. These entities were systematically listed in the appendices of each of the UNSCRs targeting the two countries – just like the UNSC Al Qaeda sanctions listed scores of names associated with the terrorist network.

In the case of Iran, for instance, UNSCR 1737, passed in December 2006, banned the supply of specific goods (e.g. nuclear-related material) to Iran and froze the assets of specific individuals and companies associated with Iran’s hidden centrifuge programme.³⁹ Similarly, UNSCR 1929, passed in June 2010, only called upon states to exercise vigilance over the transactions of the assets of entities associated with the procurement of illicit goods, such as members of the Iranian Revolutionary Guard Corps listed in its Annex II.⁴⁰ The same logic of targetedness characterized UN sanctions against the DPRK, at least until the end of the Obama presidency, whose focus was on negotiations with Iran rather than the DPRK. Therefore, the UN counter-proliferation sanctions were indeed initially devised as targeted sanctions.

The institutionalization of the logic of targetedness in the domain of counter-proliferation was facilitated by the UNSC’s cooperation with other international organizations and by intertextuality and cross-referencing across various actors. As with the counter-terrorism sanctions, the UNSC worked in tandem with other organizations, again notably with the FATF.⁴¹

The UNSC passed UNSCR 1803 in 2008, which commended the guidelines issued by the FATF that same year with regard to the detection of suspicious activities in proliferation finance.⁴² UNSCR 1803 ‘called upon’ all states to exercise ‘vigilance’ regarding activities of financial institutions in their territory with banks domiciled in Iran ‘in order to avoid such financial support contributing to the proliferation sensitive nuclear activities’ (para. 10), and to report to the UNSC’s Sanctions Committee on Iran the steps undertaken to this end.

The UNSC and the FATF thus incentivized states and banks to work towards a decentralized and autonomously targeting financial system, in which private and public financial institutions are individually responsible for establishing mechanisms to ensure compliance with sanctions regimes. In principle, these institutions remained committed to the same logic of targetedness: both FATF documents and UNSCRs promoted specific measures (like ‘enhanced due diligence’ protocols) that global banks could adopt in order to conduct proper calculations of the risk of certain activities of their clients being related to Iran’s sanctioned nuclear activities. Banks should only prevent those activities if the risk was substantial. As described in interviews we conducted with US sanctions specialists, such intertextuality and cross-referencing were strengthened due to the fact that the same experts (largely Western experts, in particular those working on sanctions in the US State and Treasury Departments) contributed to the activities of both institutions (the UNSC and FATF).

Still, some other trends in the sanctions against Iran and the DPRK force us to rethink the narrative of a clear break with the comprehensive logic of sanctions. Considering the increasing difficulties that countries under sanctions (like Iran or DPRK) meet when they have to respond to the humanitarian needs of their populations,⁴³ does that mean that the paradigmatic shift towards targeted sanctions has been reverted? Or has that paradigmatic shift in fact never fully happened, as a comprehensive logic (or a process of comprehensivization) continued to be produced as a result of the entanglement between various sanctions regimes, some at the unilateral level, others at the multilateral level? As UNSC sanctions haven’t operated in a vacuum since the turn to ‘targeted sanctions’, and as they have consistently been complemented by domestic sanctions unilaterally adopted by UNSC permanent member states (especially the P3 – the USA, the UK and France), has the UNSC relinquished its duty of ensuring the coherence of its actions vis-à-vis the broader UN normative system? These questions are especially urgent to ask since the legality and normative coherence of unilateral sanctions adopted by the P3 with other UN principles, such as the protection of human rights, has increasingly been the object of criticism, even from within the UN system, as illustrated for instance by the many reports published by the office of the UN Special Rapporteur on the Negative Impact of Unilateral Coercive Measures on the Enjoyment of Human Rights.⁴⁴

9.3 The Internal Dynamics Driving the Gradual Comprehensivization of Sanctions: The Role of Panels of Experts

Some analysts may argue that counter-terrorism sanctions, and most notably the financial measures they entailed, buttressed the normative standard of hitting those responsible while avoiding costs for innocent civilians.⁴⁵ However, we argue that those sanctions also entailed a redirection of intervention practices, new types of expertise, technologies and cooperative engagements that amounted to a loss of control in how UNSC sanctions were to be implemented by the private parties (global banks especially) in charge of blocking financial transactions on the basis of suspicion rather than a demonstrated relation to the nuclear programmes of Iran or North Korea. In this section, we want to show how the logic of targetedness that the UNSC and FATF inscribed in the regulation of counter-proliferation finance was gradually entangled with a logic of comprehensiveness.

The UNSC’s innovative approach to targeted sanctions went well beyond the publicization of lists of names of suspected terrorists and nuclear proliferators, and the description of their financial practices, found in the documents voted upon by fifteen UNSC and thirty-seven FATF member states. The powerful states behind the edification of the new sanctions regimes called for implementation by all states and for cooperation by private actors around the world (such as global banks and airline companies), asking them to deeply reform their compliance systems in order to catch suspicious transactions. It is thus important to understand UN sanctions and FATF recommendations not simply as an attempt by the UNSC or FATF to reign in one specific actor (Al Qaeda and its individual affiliates, or the individual companies and persons related to the nuclear programmes of Iran and the DPRK), but as an attempt to govern states – all of them – and to convince them to reform their banking sectors so as to ensure that they can detect suspicious transactions and freeze the assets of terrorists and suspected nuclear proliferators in seconds, without hurting the rest of their population.

Here is, thus, a particular mélange of international and transnational logics inherent to targeted sanctions, as they target non-state actors through addressing state jurisdictions. States were furthermore not just asked to inhibit certain flows of finances, goods and people, but to change their domestic financial regulations more broadly. This focus on broader financial regulations was likely promoted by the FATF, as the FATF is less concerned with individual security threats such as those emanating from Al Qaeda, Iran or the DPRK, and more with systematic patterns and risks of abusing the financial system. These more systematic concerns were increasingly integrated into UNSC resolutions, asking all UN member states to change their domestic jurisdictions.

These demands contain the seed of a ‘comprehensivization’ of supposedly targeted sanctions, as banks worldwide were pushed by the UNSC and FATF (through the pressure these two international organizations placed on governments) to become part of a larger governance infrastructure, whose algorithms automatically hooked the compliance departments of global banks to the listing decisions of the UNSC and other entities. Even though the UNSC itself remained rather conservative with regards to listing individuals (its list of targeted terrorists containing about 350 individuals/entities), its regulations contributed to a dynamic of ever-growing lists and their almost automatic adoption by global banks: the targeting is supposed to become decentralized and automatized at a systematic level, a far cry from the few handpicked, high-profile targets of the early peacebuilding sanctions whose evolution remained heavily centralized in the hands of the UNSC.

The banking reforms adopted by the UNSC and FATF have led to the creation of a system of private ‘algorithmic governance’⁴⁶ which led to eternally growing lists that were supposed to capture a fluid enemy. Given the fluidity of this non-state enemy, the asset-freezing measures could never be called ‘comprehensive’: soon, private companies such as World-Check proactively identified targets on their own and sold these listings to global banks.⁴⁷ As many compliance officers working in the banking sector told us in the context of a large-scale interviewing campaign conducted between 2017 and 2019, once individuals are on a list sold by compliance software companies to banks, they will remain black-listed by some banks for the rest of their lives, even if their name is later removed from listings due to the decision of a court or the UNSC ombudsperson. The exclusion of individuals has also become maximalist because private companies have tended to pile up names from not only UNSC listings, but also all the domestic lists that states from all over the world publicize, rarely having the means of checking in which jurisdictions any given individual is listed and therefore just applying all lists globally.

The demands for domestic regulatory change that the UNSC made on behalf of international security concerns have had other important implications. Existing literature has analysed it as an indication of the UNSC becoming a ‘global legislator’.⁴⁸ Here, however, we want to point out a different implication, namely the creation of new institutions and monitoring mechanisms that would contribute to a network of cross-referencing reports and regulatory guidelines. As the UNSC set up new sanctions regimes, it instituted new Sanctions Committees, to which it appended specific Panels of Experts (PoEs), which participated in the expansion of lists of designated individuals and which changed the relationship between political negotiation and the rule by experts. PoEs are mandated to ‘gather, examine and analyze information from States, relevant United Nations bodies and other interested parties regarding the implementation of the measures imposed in [the respective resolutions]’ and to ‘make recommendations on actions the Council, or the Committee or Member States, may consider to improve implementation of the measures’ in their annual or biannual reports.⁴⁹ PoEs are supposed to have the necessary independence from UN member states to scrutinize the national implementation of specific UNSCRs, like those targeting Al Qaeda, Iran or the DPRK.

It is necessary to point out that the setup of these PoEs has been very political, as the nationalities of their members mirror the five permanent members of the UNSC plus the composition of member states involved in the broader negotiation with, respectively, Iran and the DPRK.⁵⁰ This political dimension of their work goes largely unacknowledged, even though some observers of the UN sanctions machinery acknowledge in interviews a divide between PoE members who adopt a maximalist interpretation of the UNSCRs, which come closer to the views of the P3, and others who take a minimalist interpretation closer to the souverainism of Russia and China. It should be noted that, despite their formal independence, many PoE members hold a background in national ministries or agencies and sometime maintain close contacts with their country representatives in New York or even with their capital throughout the mandate, and interpret sanctions violations in accordance with their capital’s view.⁵¹ As for PoE members from P3 countries, this also entails closer direct or indirect ties to other multilateral institutions which hold similar views, like the FATF, or with like-minded think tanks specialized in the monitoring of the global arms trade or illicit finance, like the Stockholm International Peace Research Institute or the International Crisis Group. In their daily practice as PoE members, they are entitled to escape the logic of pure diplomatic negotiation by checking information that they obtain through personal networks and then pushing for factual consensus on such sensitive issues as sanctions implementation, enforcement, and redress.⁵²

In the field of CPF, PoEs and the FATF have reinforced each other, mutually ‘enhanc[ing] their own position by linking up with bodies of norms produced by other, reputed institutions’.⁵³ In so doing, they elaborated and universally promoted a set of financial rules that originated in Western states and was diffused by the P3 to the rest of the world. To begin with, PoE reports – which are submitted to the UNSC and made public – regularly refer to FATF reports: for example, the section on financial sanctions in the first report of the DPRK PoE mostly just reprinted the heuristics on money laundering from a 2008 FATF report. Already in its first report on the DPRK sanctions, the PoE recommended that ‘[a]ll Member States should be encouraged to adopt and implement the non-proliferation and anti-money-laundering/combating the financing of terrorism guidelines published by FATF’ (DPRK S/2010/571, recommendation 15).⁵⁴ We should assume that the term ‘member states’ refers to UN member states here (as it usually does in PoE reports), not to FATF member states, meaning that the PoE recommended that states adopt FATF guidelines even if they are not a member of the organization.

Another illustrative example concerns measures against front companies, which have frequently been used to circumvent sanctions: front companies have been repeatedly problematized in FATF reports,⁵⁵ but remained largely ignored by UNSCRs, with the minor exception of a few designations of front companies in UNSCR 1803 on Iran.⁵⁶ However, after the DPRK PoE recommended more systematic measures be forcefully undertaken against front companies (S/2015/131, recommendation B7),⁵⁷ the issue was addressed more systematically in UNSCRs (from UNSCR 2270/2016).⁵⁸ This process of cross-citation shows how UNSC permanent member states, like the United States, the United Kingdom or France, who place a lot of attention on the work of the FATF, can leverage the work of PoEs to raise the relevance of certain issues related to sanctions implementation, CFT or CPF in the global international security agenda; and how they can use the UNSC and its complex institutional architecture to commend FATF recommendations at multiple levels.

PoEs have played another important role by increasing the frequency of the monitoring and evaluation of national financial sanctions adopted by the UNSC. PoEs have sometimes gone beyond the FATF, which has a relatively thorough monitoring mandate involving eighteen-months of mutual evaluations, but at distant intervals – every five years or so. In contrast, PoEs conduct all-year-long, more or less independent investigations of any UNSC sanctions breaches reported by states, and issue up to two reports per year. Through their monitoring activities, the FATF and the PoEs participate in strengthening the expert belief that new ‘targeted’ sanctions always need to be added to past rounds of sanctions, according to a logic of a continuous progress in the detection of new types of practices and actors associated with illicit finance and sanctions violations. Whereas new measures are usually only added to an existing sanctions regime in response to actions that threatened international security and/or constitute a serious breach of the existing sanctions regime, PoE reports are routinely suggesting new targets to existing sanctions, based on the discovery of new methods or actors of sanctions evasion. With the precise enumeration of verified violation cases by PoEs, and the submission of their documentation to the scrutiny of the UNSC and its Sanctions Committees, the PoEs diffuse the view that new sanctions designations shall always improve the system of ‘targetedness’ and perfect the sanctions regimes already in place. Typical demands in PoE reports on the DPRK, for instance, are to close down new shell companies and new circuits of exchange (from cash economies to hawalas or networks exchanging digital currencies), which are created by proliferators in response to past rounds of targeted sanctions. PoEs not only seek to verify the validity of leaked intelligence and public information on new sanctions evasion techniques, but also lobby the UNSC member states to pass new rounds of sanctions meant to close the observed loopholes. Whether such an accumulation of targets leads to the progressive comprehensivization of sanctions or whether they can remain targeted in scope and discriminatory in nature is the question that we assess in Section 9.4.

Some examples illustrate how PoEs have encouraged states to go beyond the explicit requirements of UNSCRs and leave the ethos of diplomatic prudence in favour of a more expert-based justification for independent monitoring and forceful implementation of all of the UNSCRs’ obligations and recommendations by UN member states. For instance, the UNSC decided in 2013 that member states shall prevent transfer of bulk cash through/to/from their territories if it ‘could contribute to the DPRK’s nuclear or ballistic missile programmes, or other activities prohibited by resolutions’ (2094/2013 para. 11, emphasis added; UNSCR 2270 subjected gold transports to the same measures).⁵⁹ The term ‘could’ is ambiguous and may invite very broad interpretations, but, if interpreted along a logic of targetedness, the measures should refer to cases with a credible risk that the gold/cash is being used for prohibited purposes. However, the wording suggests a broader interpretation, recommending that smuggled bulk cash or gold by DPRK nationals should be frozen and that member states ‘ensure that [frozen gold/cash amounts] cannot be used for prohibited activities or evasion of sanctions before releasing them’ (S/2017/150, para. 253).⁶⁰ Ensuring that assets cannot be used for prohibited tasks is a higher threshold pertaining to an eventual future that goes beyond the threshold of a credible risk that was more likely implied by the UNSCR.

To add another example, in UNSCR 2321,⁶¹ the UNSC decided that ‘all States shall take steps to limit the number of bank accounts to one per DPRK diplomatic mission and consular post, and one per accredited DPRK diplomat and consular officer, at banks in their territory’. The PoE repeatedly asked member states to go beyond these measures; in the following year, it passed the recommendation that member states ‘must ensure that additional accounts are not established in the names of family members’ (S/2017/742 recommendation C 5).⁶² Yet another year later, the PoE also recommended that member states apply the restrictions to all embassy personnel,⁶³ as opposed to only the ‘accredited DPRK diplomat and consular officers’ mentioned in the UNSCR.⁶⁴ A year later, the PoE recommended that states provide banks with a list of names of all family members of DPRK diplomats, to ensure that diplomats cannot open bank accounts in their names⁶⁵ and that only one bank within each country be allowed to hold accounts of DPRK diplomats.⁶⁶ Furthermore, the PoE recommended that ‘Member States advise their financial institutions not to open accounts for diplomats of the Democratic People’s Republic of Korea who are not accredited to their country’,⁶⁷ based on the finding that North Korean embassies have served as traditional conduits of illicit financing. Still, if DPRK diplomats are prohibited, per UNSCRs, from holding more than one bank account, it lies in the discretion of the UNSC and its Sanctions Committee to designate any third-party individual assisting in the violation of this rule and there is, as of now, no UNSCR demanding that banks target family members of diplomats or that diplomats should not be allowed to choose a bank of their preference. The PoE thus recommends states to prevent sanctions evasions by recommending additional sanctioning measures that are not asked for by the UNSC. This is the very logic of illicit finance expertise that PoE members have endorsed.

A last example shows how private financial actors, too, can respond to the recommendations of the PoEs. In its 2017 report, the PoE on DPRK sanctions remarked that the Society for Worldwide Interbank Financial Telecommunication (SWIFT) maintained in its system North Korean banks that were designated for special attention by the UNSC.⁶⁸ As SWIFT is (only) the messenger between banks exchanging value through its system, and to the extent that banks are supposed to conduct the risk analysis related to specific payments (depending on a range of criteria), SWIFT’s decision to keep these banks in its system may not have appeared a case of violation of the new UNSCR to its managers. Indeed, SWIFT provides the infrastructure that allows money to flow between accounts, and it leaves to those using that messaging infrastructure and ordering the money movements (e.g. banks sending messages through SWIFT) the responsibility to comply with the rules of UNSC, EU and US sanctions, and any other local systems of sanctions that may apply. This view of SWIFT’s neutrality, however, was strongly challenged in the run-up to the Iran nuclear deal, when the P3 repeatedly asked SWIFT to disconnect some Iranian banks from its system between 2012 and 2015, and yet again after the USA left the Joint Comprehensive Plan of Action (JCPOA) after 2018. After the publication of this 2017 DPRK PoE report, SWIFT cut off the last North Korean banks from its messaging networks, thus cutting the whole North Korean formal financial system from the global network.⁶⁹ In so doing, the Belgian-based financial organization implemented what looks like comprehensive rather than targeted sanctions against North Korea’s financial system. It may have responded to the pressure due to the publication of the PoE report, or it may also have been retaliating due to the fact that the DPRK had manipulated its system by hacking the financial software that SWIFT sells to banks in order to initiate transfers of funds from one bank to another. In fact, in the last five years, it is estimated that the DPRK made more than US$1 billion in this way,⁷⁰ a huge sum compared to the income that the DPRK regime generated over the same period from arms sale in certain African countries, like Namibia or Ethiopia.⁷¹ These hacks may have convinced SWIFT that it needed the protection of the long arm of US judicial authorities to chase the hackers, bring them to justice and thus obtain a deterrent against other hacks in order to re-establish its credibility in the market of financial data management equipment.⁷² Whatever the reason, the publication of the PoE report was likely factored into its calculation when SWIFT decided to cut off the whole financial system of the DPRK regime from its messaging system.

It is understandable that PoEs would come up with strict interpretations of sanctions implementation, given that they are supposed to conduct monitoring and see themselves confronted with numerous violations. What matters in our context, however, is that the PoE recommends to member states that they take a maximalist interpretation of measures in UNSCRs that is mutually reinforcing with FATF recommendations and the comprehensive sanctions favoured by the USA in its campaign for ‘maximum pressure’ against states like Iran and the DPRK. It is worth emphasizing that the PoEs also formulate recommendations to the UNSC Sanctions Committees, which the UNSC Committees then discuss and vote upon. And even if Sanctions Committees do not act upon these recommendations, today, public and private authorities use the biannual PoE reports as interpretation guidelines for UNSCRs. As a consequence, PoE reports have shaped the expectations of the financial industry and their willingness to take risks, as each exchange in goods or financial transaction carries a remaining risk of inadvertently violating sanctions, should one, for instance, fall victim to deception or incomplete information. Just like the FATF, PoEs have continuously stressed that both private and public actors must be made aware of the importance of adopting a ‘risk-based culture’.⁷³ But this call for a ‘risk-based culture’ can be interpreted very differently: either that you should accept that every decision comes with the risk of making the wrong decision, and that risks are part of life; or that you should take no risk of making a mistake by authorizing suspicious payments, especially when the penalty for making the wrong decision is too high. Clearly, the latter became the dominant interpretation, and this extension of the domain of what can be considered a ‘risky activity’ plays a role in the comprehensivization of sanctions, so we argue.

9.4 The External Dynamics in the Comprehensivization of Sanctions: Legal Entanglements between Multilateral and Domestic Sanctions

If the institutional innovations of the 2000s may give the impression of a general, sudden and unbeatable adoption of the targeted sanctions paradigm, and a stark contrast to the comprehensive sanctions against Iraq, some other trends already highlighted point to the entanglements between targeted and comprehensive logics as well as multilateral and unilateral sanctions regimes. One reason for this is that targeted sanctions were embedded in a broader decentralized network of comprehensive domestic prohibitions on any type of trade with certain countries under UNSC sanctions, especially Iran. We have already identified various facilitating dynamics in the entanglement of targeted and comprehensive logics at the level of the UNSC, which were most prevalent in the case of the DPRK, where the ‘maximum pressure’ campaign has been steered by the UNSC itself.

However, in cases like Iran, the UNSCRs only served to give a legal basis for sanctions that were otherwise mostly adopted in a unilateral manner, supposedly to ‘complement’ ‘soft’ UNSCRs that only ‘called upon’ states to adopt certain financial restrictions. In this case, the decentralization of targeting practices at the level of the P3, and the ‘deputization’ of sanctions implementation to Western-led global banks in charge of enforcing financial sanctions, as well as the inherent tendency of lists to grow⁷⁴ under the proactive efforts of private sector vendors of sanctions lists, were much more influential processes explaining the comprehensivization of UNSC sanctions than efforts by PoEs and other international organizations like FATF. In what follows, we focus on a key driver of the entanglement between comprehensive (domestic) and targeted (UN-based multilateral) logics: a change in the notion of risk that was particularly fostered by US regulators.

While this section further works out the role of the USA as a key actor in fostering this entanglement, it also shows how ‘the scope of relevant actors goes well beyond the governmental [or intergovernmental] sphere’⁷⁵ by pointing out the important role of private financial institutions. As the history of the last ten years of US judicial prosecution of financial crime shows,⁷⁶ financial institutions have come to adopt a strategy of complete risk aversion with regards to sanctions under the influence of two important mechanisms: the adoption of comprehensive sanctions by the United States against Iran and the DPRK, and the extraterritorial effect of such unilateral sanctions on multinational companies – even outside the USA. These multinational companies were thus forced to choose between applying those sanctions to their global activities or facing the risk of exclusion from the US financial sector. Hence, when considering the risk of imposing comprehensive sanctions on civilian populations in Iran, global banks weighted another risk: that of being excluded from the leading world market and losing all of their US revenues. Furthermore, many of the UNSC sanctions against Iranian businesses involved prohibitions related to trade finance, and when they were framed by additional sanctions adopted by the USA and then by the EU (with the prohibition, after 2011, of oil import and export as well as of investment, insurance and credit related to the oil trade), it became easy for the US government to use the UNSCRs against Iran as a lever to police the activities of the world’s leading banks in general, and the field of trade finance in particular.

For two decades, domestic US legislative acts slowly built up a comprehensive net that was supposed to catch any activity involving Iranian oil and the import/export of other commodities, with pretensions of legal extraterritoriality. At the domestic level, beginning in 1994 the USA passed the Nuclear Proliferation Prevention Act and Executive Order (EO) 12938 instituting a ban on US procurement from any person who, on or after 30 June 1994, knowingly and materially contributes, through the export of nuclear-related goods or technology, to the efforts of any individual, group or non-nuclear weapon state to acquire a nuclear explosive device or unsafeguarded special nuclear material. Through EO 12938, President Clinton declared a ‘state of emergency’ with respect to the proliferation of weapons of mass destruction. Then, the Export-Import Bank Act of 1996 instituted a ban on access to credit to any person who, after 23 September 1996, knowingly aided or abetted a non-nuclear weapon state to acquire a nuclear explosive device or unsafeguarded material, like Iran’s enriched uranium not currently placed under IAEA safeguards. In the 2000s, a number of EOs complemented this legal basis, leading up to EO 13622, and EO 13645, which was adopted in 2013 and which prevented European and Japanese car companies present in Iran from continuing to sell cars and spare parts to the Iranian market. In parallel, the US Congress also passed a wide range of acts which banned trade with Iran and claimed extraterritorial competence: from the Helms–Burton Act to the 2011 Comprehensive Iran Sanctions, Accountability, and Divestment Act to the Iran Freedom and Counter-Proliferation Act and the Nuclear Iran Prevention Act of 2013 as well as various Defense Appropriation Acts in the early 2010s. During this period, reports abound of US pressure exerted directly by the US Treasury on foreign banks without going through national finance ministries, to directly push them ‘to stop dealing with Iran’.⁷⁷

Taken together, these US ‘emergency’ measures with extraterritorial ambitions banned credit, guarantees or insurance in support of exports to Iranian sanctioned individuals; forbade US imports from sanctioned entities; and froze the assets of Iranian sanctioned entities within US jurisdiction even before a trial could be held. From 2008 until 2015, wholesale sectoral prohibitions (especially targeting Iran’s financial sector), which had been opposed – and specifically vetoed – by the Russian and Chinese governments in the UNSC, were unilaterally added post hoc by EU and US governments in the form of domestic instruments. For private actors like global banks, applying only the targeted sanctions of the UNSCRs against Iran would thus have meant ignoring US and EU sanctions, and exposing themselves to the ‘risk’ of committing sanctions violations in the two largest economies of the world, even if the transactions concerned didn’t take place in the USA or Europe.

Some banks originally contemplated such action, but they were convinced to change strategy and take maximal measures to avoid any kind of financial contact with individuals and entities targeted by the US Treasury – and not only with them, but also with entities that may be suspected of carrying a second or third degree of relationship with such targeted entities, as interviewees in Washington told us. In a few years, from 2005 to 2015, the US government levied fines against global banks that handled transactions to Iran and Sudan which were prohibited under US law (but not under UNSC resolutions or even EU law) if these transactions were denominated in US dollars. These fines amounted to billions of dollars, as in the case of the fine that BNP-Paribas had to pay to US authorities for clearing transactions in its New York branch related to Iranian oil proceeds coming from or going to Iran and Iranian entities that were denominated in US dollars.⁷⁸

Our interviewees, who worked as compliance officers in private financial institutions before the signing of the JCPOA, insisted that it was impossible to apply the logic of targeted sanctions to Iran during this period: for them, the potential benefits of admitting Iranian clients or carrying out transactions from/to Iran were not worth the intense vetting procedures that would have been required each time; furthermore, the remaining risk of unwittingly admitting prohibited transactions despite such vetting procedures was even less acceptable. While it is true that entities linked to either Iran’s or now North Korea’s nuclear programmes have taken many covert identities and used many masks to hide their links to these programmes, with this amount of suspicion in these cases, banks and their compliance departments that were asked by the UNSC to adopt ‘vigilance’ and its associated concepts of ‘enhanced due diligence’ in fact stopped calculating the risks associated with every transaction and rather engaged in wholesale practices of derisking.⁷⁹

The signing of the JCPOA didn’t change that situation, as it left in place many US domestic sanctions based on the US designation of many Iranian entities as linked to groups (like Hezbollah) that the US government designated as terrorists, which meant that global banks were still wary of too quickly changing their regulation with regard to Iran. After the JCPOA was signed, the logic of targetedness should have meant that, with the lifting of the comprehensive EU and US trade sanctions that targeted the oil trade and investment activities in Iran, the financial sanctions would have been lifted at the same time as sectoral restrictions. This is not what happened. The post-JCPOA situation in Iran suggests that sanctions against Iran followed the logic of comprehensive sanctions.⁸⁰ According to the logic of comprehensive sanctions (and, as previously illustrated in the case of sanctioned individuals whose names are likely to stay on the financial sector’s blacklists forever, even if they have been delisted by the UNSC), once a country has been labelled as a ‘cause of money laundering concern’ by the organizations in charge of issuing such statements (e.g. the FATF, or the US Treasury and its Office of Foreign Assets Control (OFAC)), it becomes almost impossible for that country and its economy to be brought back into the community of global banks.

It is therefore not a surprise that, after the Iran nuclear deal of 2015, the first law that Iran contemplated was the so-called ‘FATF bill’ – heatedly debated in the Iranian Parliament – which required that Iranian banks adopt AML and CFT measures promoted by the FATF in order to convince the FATF to change its designation of Iran as a country of money-laundering concern. But even as this legislative effort was pursued in Iran, it was clear that the efforts would hardly bring a change in the FATF’s assessment of Iran’s political economy, not to speak of OFAC’s assessment, and that the reinclusion of Iranian financial institutions (after years of exclusion) was next to impossible, even if the JCPOA explicitly called on European private companies and banks to work towards Iran’s economic recovery by investing massively in its oil sector.

This path dependency illustrated the comprehensive logic of CPF sanctions. It was reinforced, in the specific case of Iran, by the decision made by the US president to pull out of the JCPOA, despite the fact that UNSCR 2231 gives it the force of law. After 2018, banks faced for the first time a stark option: either follow the logic of targeted sanction, by applying only the prohibitions contained in the UNSCRs, or to follow US domestic changes in their worldwide activities. Their over-cautious behaviour, and their refusal to touch any oil-financing schemes in Iran clearly shows which direction they have chosen to follow since 2018. It is unlikely that, even with the change in the US administration, the contradictions between US and multilateral sanctions will be eliminated and that the logic of targetedness will be strictly followed in the counter-proliferation field.

9.5 Conclusion

Today, many international organizations, including the World Bank⁸¹ or the International Monetary Fund (IMF), have issued warnings after realizing that global banks and other financial actors have massively pulled out of sanctioned jurisdictions as they applied sanctions in a comprehensive manner rather than by implementing narrow sanctions exclusively targeting the culprits responsible for a country’s wrong policy course.⁸² International organizations such as the IMF or the World Bank see such cases of overcompliance as illegitimate in an age when comprehensive sanctions are no longer deemed appropriate under new norms of ‘civilized’ state conduct. Still, global banks and other financial actors are not solely responsible for that ‘comprehensivization’ of sanctions: the movement is spurred by the entanglements between targeted and comprehensive logics, especially in the field of counter-proliferation sanctions. These legal entanglements have been patiently weaved together by a proliferation of other international organizations, including the FATF and the Panel of Experts created by the UNSC Sanctions Committees, particularly those verifying the implementation of sanctions against Iran and the DPRK. Together, these organizations have participated in the creation of a fiction which implies that ‘targetedness’ would necessarily rhyme with ‘narrowness’, when in fact ‘targetedness’ is not necessarily incompatible with ‘comprehensiveness’: if the list of ‘targets’ is gradually or suddenly extended to become all-encompassing, then targeted sanctions could be both targeted and comprehensive in principle.

If we observe a general trend towards the ‘comprehensivization’ of so-called ‘targeted’ sanctions, then why do all these institutions still claim to design, monitor and enforce ‘targeted’ sanctions? In fact, we claim that the logic of targetedness is no longer an empirical fact, or even a policy goal, which would be shared by UNSC member states, but it has become a functional assumption that is necessary for the system to continue operating. By implicitly accepting that states are compartmentalized and cannot be assumed to be in full control of their many state agencies nor private actors, all the organizations which claim that the system operates under the logic of targetedness enact a useful charade or ‘fiction’⁸³ that allows all governments to distance themselves from the entities suspected of breaching US, EU or UNSC sanctions: if parts of a government are blamed by a PoE or by a foreign government branch (the US Department of Justice or OFAC in particular) for sanctions violation, the central authorities can always claim that such entities couldn’t have acted on behalf of the state, and that they weren’t responsible for such failings. Here, the logic of ‘targetedness’ – with its separation between states and individual perpetrators – protects member states and thus makes their consent to sanctions, including sanction enforcement and monitoring, more likely.

We not only see this protective mechanism functioning in the cases of US sanctions enforcement against Europe’s major banks (from BNP-Paribas to HSBC), in which European governments have largely turned their eyes away from the settlements, but also during PoE investigations, as in the case of the DPRK. It is standard practice for most UNSC PoEs that PoE members would never publish information in their report without first giving the monitored state (for instance, Russia, Vietnam or Ethiopia) the chance to either deny and disprove accusations or work to solve problems. Thus, where PoEs uncover sanctions violations in a given country, they tend not to link violations to governments as a whole but only to specific actors or entities within a country (even if the actors in question are state agencies). For instance, as reported by the DPRK PoE in 2018 in the case of Russia, Russian companies that forged joint ventures with DPRK state companies in violation of UNSC sanctions needed to be investigated, and the PoE members could gain Russia’s support for their investigations by allowing the government to claim that such entities had violated the government’s will if they did create such joint ventures. By operating under the assumption that states are not complicit in sanctions violations before having been alerted of the existence of these violations by PoEs or by OFAC investigations, multilateral and domestic investigatory bodies give them the benefit of the doubt, and strengthen the belief that a few bad apples within the state may have covered up such illegal behaviours, or that miscommunication problems within complex administrations may have prevented such information from surfacing. Investigatory bodies in the field of sanctions enforcement normally use this assumption as a public script when interacting with states or private actors, even where they may find it hard to believe it themselves.

In this chapter, we have also identified several reasons why UNSC member states (especially the P3) have preferred to entangle a comprehensive set of interventions with a targeted sanction regime, rather than imposing comprehensive sanctions in the first place: first, the lack of legitimacy of blatantly comprehensive regimes, at least since the Iraq case; second, the fact that within the UNSC, Russia and China, and sometimes European states, would not agree to adopt comprehensive sanctions against a UN member state, as they are rather critical of sanctions; and third, because the fiction that enforcement actions against sanctions violations should also be targeted helps protect UN member states from being accused of having been complicit in sanction violations, which means, in turn, that sanctions violators are likely to opt more often for cooperation rather than conflict when accused of misdeeds.

Sanctions experts and policy-makers who pursue an interest in upholding peace and the rule of international law through sanctions (rather than war) as well as a concern for human rights may be convinced of the necessity to fight the trend towards comprehensivization, as it risks creating the same human rights disasters in Iran, Venezuela or Syria today that were witnessed in Iraq in the 1990s. They may see this trend as a distortion of their original intent and a misuse of the instruments of algorithmic governance that they collectively created. However, we argue that the financialization of the sanctions regimes bore in its premises an inherent dynamic towards comprehensivization, which could only reveal itself after the first wave of sanctions were adopted and implemented, when contradictions between comprehensive domestic sanctions regimes and narrower multilateral sanctions regimes were partially solved to the benefit of the former, with one reason being the private financial sector’s changing notion of ‘risk’.

To that extent, we believe that the concept of legal entanglement, which places the focus of socio-legal scholars and international organizations specialists at the intersection between these domestic, transnational and multilateral dynamics, is particularly useful to social scientists who are dissatisfied with the old notion of ‘international regime’, even reworked through the use of the updated notion of ‘regime complexity’, as well as to policy-makers who are interested in reconciling sanctions with a concern with human rights. Its use suggests that although efforts to arrive at a more coherent system of rules are welcome, they rarely achieve complete success, and that regimes traversed by a plurality of contradictory rules are not inherently unstable: to the contrary, such legal entanglements can be quite stable over time.

10 Seamstress of Transnational Law How the Court of Arbitration for Sport Weaves the Lex Sportiva

Antoine Duval

Lex mercatoria, lex petrolea, lex electronica and lex sportiva have gradually entered the mainstream vocabulary of legal scholarship as phenomena highlighting the functionalization and privatization of law in a globalizing world.¹ They embody what are often qualified as distinct legal orders or systems arising out of transnational communities segregated along functional lines.² This chapter aims to show that the work of the Court of Arbitration for Sport (CAS), which is often identified as the institutional centre of the lex sportiva,³ can be understood as that of a seamstress weaving a plurality of legal inputs into authoritative awards. In other words, the CAS panels are assembling legal material to produce (almost) final decisions that, alongside the administrative practices of sports governing bodies (SGBs), govern international sports. It is argued that, instead of purity and autonomy, the CAS’s judicial practice is best characterized by assemblage and hybridity. This argument will be supported by an empirical study of the use of different legal materials, in particular pertaining to Swiss law, EU law and the European Convention on Human Rights (ECHR), within the case law of the CAS. The view advanced here should not be confused with one arguing that the CAS is fully integrated into the Swiss legal order, the EU legal order or into a monistic international legal order. Its main claim is that the judicial practice of the CAS can be captured as the work of a seamstress weaving ‘different bodies of norms with one another’⁴ and that lex sportiva can ‘no longer be understood without an account of the ways in which its different parts are entangled’.⁵

The CAS plays a central role in the governance of international sports as the main judicial body to which athletes, clubs or federations can turn to challenge the decisions of international SGBs.⁶ Its core function in global sports governance is to act as a review mechanism through its appeal procedure which is regulated by the Code of Sports-Related Arbitration (CAS Code).⁷ Thus, the CAS is dealing with almost all the high-profile disputes that occupy the sports pages (and sometimes beyond) of our newspapers. It decided whether Caster Semenya or Oscar Pistorius can participate in athletics competitions,⁸ it determined whether Michel Platini or Sepp Blatter can be banned from football for violating FIFA’s (Fédération Internationale de Football Association) ethics rules⁹ and it assessed whether Maria Sharapova or Alejandro Valverde have committed a violation of the World Anti-Doping Code (WADC).¹⁰ In short, very few of the fundamental decisions that shape the way we experience international sports escape the CAS. While there is no doubt that international sports are being ruled by a transnational regime in which private associations play a fundamental role and dispose of considerable regulatory powers, this regime also provides an interesting terrain to study transnational legal entanglements.¹¹

To this end, I focus on the way the CAS produces its awards. I aim to show that the lex sportiva is not an isolated set of norms produced by an autonomous community but results from the blending of different laws assembled through discursive weaving by CAS panels. In this regard, not all national laws are equal at the CAS and, as we will see in Section 10.1, Swiss law is more equal than the others. In practice, the CAS panels draw heavily on Swiss law, its actors, doctrines, rules and decisions.¹² Despite being a global court, the CAS remains anchored (physically, sociologically and legally) in a local context. In addition to Swiss law, Sections 10.2 and 10.3 highlight how CAS arbitrators are also weaving references to EU law and the ECHR into their awards. This chapter is a first attempt at looking at the hermeneutic practice of the CAS from the perspective of a transnational legal pluralism that goes beyond the identification of a plurality of autonomous orders to turn its sights towards the enmeshment and entanglement characterizing contemporary legal practice.¹³

10.1 The Ubiquity of Swiss Law in CAS Awards

In its awards, the CAS refers to many different national laws. However, one is clearly more present than the others: Swiss law.¹⁴ The centrality of Swiss law at the CAS can be linked to three factors: the sociology of the CAS practitioners, the shadow of the Swiss Federal Tribunal (SFT) and the localization of the seats of the SGBs. To start with the last of these, the majority of the international SGBs, which are the primary purveyors of CAS appeals, are located in Switzerland. This means that in most appeal cases Swiss law will be subsidiarily applicable under R58 CAS Code which determines the applicable law and acts very much as a ‘reception norm’ in the sense outlined in Chapter 1.¹⁵ Furthermore, the appeals are often based on CAS arbitration clauses enshrined in the statutes of the SGBs which can expressly provide for the application of Swiss law.¹⁶ Second, the legal seat of the CAS is Lausanne. Hence, its awards can only be appealed at the SFT where they are reviewed, relatively leniently, on the basis of Article 190(2) of the Swiss Private International Law Act.¹⁷ The CAS panels are naturally aware of the need for their awards to pass this (relatively low) bar and therefore pay specific attention to Swiss law in their decisions. Finally, arbitrators, lawyers or administrators active at the CAS often have a Swiss background.¹⁸ In this section, I aim to substantiate the depth of the entanglement between Swiss law and CAS awards through a case study focused specifically on appeals against FIFA decisions.

10.1.1 Swiss Law as Applicable Law in FIFA Cases

Appeals against FIFA decisions constitute an important share of the caseload of the CAS appeal division. In particular, cases involving transfer disputes and the application of the FIFA Regulations on the Status and Transfer of Players (FIFA RSTP) are numerous and CAS panels have repeatedly been asked to determine the law applicable in these cases. In principle, as FIFA is seated in Zürich, Swiss law is subsidiarily applicable in the absence of any other choice of law as provided under R58 CAS Code. Moreover, CAS panels have regularly pointed out that the parties are, at least indirectly, affiliated to FIFA (i.e. ‘members of the FIFA family’)¹⁹ and therefore bound by the choice of Swiss law enshrined in Article 57(2) FIFA Statutes 2019.²⁰

Yet, the applicability of Swiss law is not only justified by the parties’ contractual choice but also on functional grounds, that is, in order to ‘level the playing the field’ in football disputes. For example, a CAS panel concluded in 2005 that the ‘indispensable need for the uniform and coherent application worldwide of the rules regulating international football’ is secured ‘[o]nly if the same terms and conditions apply to everyone who participates in organized sport’.²¹ Similarly, another panel concluded, ‘if the desired uniformity is to be achieved, also the interpretation of the FIFA rules and regulations cannot be affected by the peculiarities of the domestic legal system in which they are called to apply’.²² Thus, appeals against FIFA decisions will necessarily trigger the application of Swiss law ‘for all the questions that are not directly regulated by the FIFA Regulations’.²³ In this context, ‘there is no place for the application of the rules of another national law, except in the case where these rules would have to be considered as mandatory according to the law of the seat of the arbitration, i.e. Swiss law’.²⁴

Nevertheless, based on the wording of R58 CAS Code, Swiss law should not prevail over the express choice of law of the parties.²⁵ Even then, recent awards determined that such cases give ‘rise to a co-existence of the applicable regulations, Swiss law and the law chosen by the Parties’, in which ‘Swiss law is confined to ensuring uniform application of the [FIFA] Regulations’.²⁶ In other words, in order to protect the uniform interpretation of FIFA Regulations, Swiss law is deemed to supersede the parties’ choice of law.²⁷ This view, first advanced by Professor Ulrich Haas, was subsequently endorsed as the ‘Haas doctrine’ by a series of CAS panels.²⁸ Finally, if FIFA Regulations are considered sufficiently clear and comprehensive by the CAS panels, Swiss law does not come into play, as it ‘does not supersede or supplant all aspects of the regulations of FIFA’.²⁹ Yet in practice, as Section 10.1.2 shows, the FIFA Regulations are often ambiguous and in need of interpretation.

10.1.2 How Swiss Law Shapes CAS Awards in FIFA Cases

The recognition of the (exclusive) applicability of Swiss law to interpretative questions related to the FIFA Regulations would, however, remain meaningless if it were not relied upon in practice. While it is in theory possible to construct the FIFA Regulations as sufficiently clear and comprehensive, in practice Swiss law plays a crucial interpretative role in CAS appeals against FIFA decisions. Indeed, many concepts that are at the heart of the FIFA Regulations have been defined and concretized with references to Swiss law, Swiss doctrine and Swiss precedents. This includes questions related to:

• the method to be followed to interpret the FIFA Regulations;³⁰

• the applicability of mandatory rules, such as EU law;³¹

• whether a party has standing to sue or to be sued;³²

• who bears the burden of proof;³³

• the calculation of time limits;³⁴

• whether there is a contract or an offer ‘in writing’;³⁵

• whether an offer has been received;³⁶

• whether there is ‘just cause’ for one of the parties to terminate an employment contract between a player and a club;³⁷

• the amount of damages that a party is entitled to in case of a contractual breach;³⁸

• the conditions that must be met for a renunciation by a player of his outstanding wage to be valid;³⁹

• the validity and amount of a penalty clause;⁴⁰

• the validity of a waiver to the right to receive a training compensation;⁴¹

• the validity of a dual pricing method for a transfer fee;⁴² and

• the interest rate applicable in case of payment default.⁴³

These examples are a large but certainly incomplete sample of the many instances in which Swiss law has been relied on to support a specific interpretation of the FIFA Regulations. These interpretative decisions are not trivial. They affect, for example, whether a party will have standing to appeal a decision before the CAS, whether a party will be deemed to have broken an employment contract or the amount of damages a party will be able to obtain in case of breach. For each of these questions, the CAS panels have leaned on Swiss law to justify their interpretative (and therefore distributive) choices. This use of Swiss law is not limited to cases involving FIFA decisions. It is relevant to a majority of appeals against the decisions rendered by international SGBs. It shows that the CAS is not engaging in the production of denationalized awards with little connection to state law. Instead, it is weaving the local and the global, as the transnational private rules of the SGBs are being entangled with norms, case law and doctrinal authorities grounded in Swiss law. What might, from a distance, appear like a sort of global law without a state is actually intimately linked to, and reliant on, the law of the Swiss state.

The fact that Swiss law has a prominent position at the CAS is not an original claim. Scholars and practitioners had emphasized it before.⁴⁴ Yet, it raises interesting questions connected to the theme of this volume, which have so far been widely ignored. How are the CAS panels applying Swiss law? What is the purpose and effect of this entanglement between Swiss law and the private regulations of the SGBs? What is the responsibility of Switzerland with regard to the shape of the transnational sporting regime? How can Swiss law be leveraged to change the shape of this regime in one way or another? These questions can become relevant only once we perceive the lex sportiva as a transnational assemblage and see the fundamental role of Swiss law in it. This intertwining of normative material at the CAS extends, in much more limited fashion, to other types of legal filaments, such as EU law or the ECHR.

10.2 The Limited Entanglement of EU Law in CAS Awards

EU law and the private regulations of the SGBs have a long history of ‘war and peace’.⁴⁵ The famous Bosman⁴⁶ ruling of the Court of Justice of the European Union (CJEU) constitutes the high point, in terms of public visibility, of this encounter. Despite the intense relationship between the private regulations of the SGBs and EU law, the latter was until recently quite absent from the CAS.⁴⁷ Nevertheless, in an important award dating back to 1999, a CAS panel already recognized the applicability of EU law. It found:

With regard to EC competition law, the Panel holds that, even if the parties had not validly agreed on its applicability to this case, it should be taken into account anyway. Indeed, in accordance with Article 19 of the LDIP, an arbitration tribunal sitting in Switzerland must take into consideration also foreign mandatory rules, even of a law different from the one determined through the choice-of-law process, provided that three conditions are met:

1. (a) such rules must belong to that special category of norms which need to be applied irrespective of the law applicable to the merits of the case (so-called lois d’application immédiate);

2. (b) there must be a close connection between the subject matter of the dispute and the territory where the mandatory rules are in force;

3. (c) from the point of view of Swiss legal theory and practice, the mandatory rules must aim to protect legitimate interests and crucial values and their application must allow an appropriate decision.⁴⁸

Thus, arguments grounded in Swiss private international law played a pivotal role in opening the possibility for the application and entanglement of EU law at the CAS. Yet, before 2010, only a few (published) CAS awards referred to EU law and even fewer were engaging with it in detail.⁴⁹ This has changed in recent years, with a couple of awards addressing at length EU law questions.⁵⁰ Such a development is potentially related to the greater sensitivity of legal counsels to EU law and to the arbitrators’ growing awareness of the considerable risk that the cases would in fine reach the European Commission or the CJEU. In general, EU law has found two main applications at the CAS: it has been mobilized to challenge the legality (even constitutionality) of the SGBs’ regulations and it has been constructed as part and parcel of the SGBs’ regulations.

10.2.1 EU Law as Constitutional Check at the CAS

EU law does not regulate transnational sports through the imposition of detailed primary rules. Instead, it imposes a duty of justification on the SGBs.⁵¹ EU law forces, through the strength of its internal market rules, the SGBs to advance legitimate objectives for their regulations and to argue why their rules or decisions are to be deemed proportionate means to attain the set objectives. In other words, it functions analogously to a constitutional review of the rules and decisions of the SGBs. This duty of justification has been formally imported in a number of cases submitted to the CAS, in which the panels have conducted proportionality assessments of the rules and decisions challenged. In many cases, the CAS does not conduct a deep appraisal of the proportionality of a disputed measure.⁵² It has, for example, regularly considered that the fact that the FIFA RSTP are based on an agreement with the European Commission suffices to guarantee their compatibility with EU law.⁵³ Nevertheless, in a range of recent cases, the CAS panels quite comprehensively engaged in a proportionality assessment of the reviewed regulations.⁵⁴

More precisely, in the Galatasaray⁵⁵ and Seraing⁵⁶ awards, delivered in 2016 and 2017, the CAS was asked to review the compatibility of two controversial rules introduced respectively by the Union of European Football Associations (UEFA) and FIFA. It is interesting to note that Jean-Louis Dupont, who represented Jean-Marc Bosman, was acting for the claimants in both cases. The Galatasaray case involved the UEFA Club Licensing and Financial Fair Play Regulations (UEFA FFP Regulations) and their compatibility with EU law. It is not the right place to revisit the debate on the compatibility of the UEFA FFP Regulations with EU law, but it is interesting to note that the CAS panel decided to conduct a comprehensive proportionality analysis relatively similar to the one that would have been conducted by the European Commission or the CJEU if they were asked a similar question. Likewise, the Seraing case, in which the Belgian club was challenging the validity under EU law of FIFA’s 2015 ban on third-party ownership, also led to the integration of a proportionality analysis grounded in EU law into the CAS award.⁵⁷ In both cases, the CAS concluded that the regulations were pursuing a legitimate objective and represented necessary and proportionate means to attain that objective.

It is uncertain whether the CJEU or the European Commission would reach the same conclusion, but the above awards highlight that the two CAS panels were in the position of decentralized EU law enforcers, not unlike national courts but without the obligation or capacity to refer a preliminary question to the CJEU. The question whether the CAS is applying EU law properly, for example as the CJEU would, is almost impossible to settle until a case reaches Luxembourg. A review of the CAS awards involving EU law shows that the SGBs’ regulations are very rarely deemed in contravention of EU law. In fact, there is only one example in which a CAS panel struck down an SGB regulation on this basis.⁵⁸ It involved the Romanian Football Federation (FRF) and its home-grown players regulations, which imposed a fixed quota of locally trained players in the teams of Romanian clubs participating in national competitions. The panel was not convinced that the FRF had demonstrated that its regulations were necessary and proportionate. In any event, the use of EU law as a vehicle to conduct a constitutional check of the SGBs’ regulations constitutes another (rare) form of legal entanglement at the CAS. Additionally, beyond this constitutional role, EU law is also directly interwoven in the genome of the FIFA RSTP.

10.2.2 Interpreting the FIFA RSTP with a Little Help from EU Law

After the Bosman ruling, FIFA devised a new transfer system regulating the transnational movement of football players between clubs.⁵⁹ This new system, however, was quickly challenged at the European Commission on the basis of EU competition law and a protracted negotiation started between the European Commission, FIFA, the players’ union FIFPro, the European Club Association and UEFA.⁶⁰ It concluded with the adoption of the general principles upon which the FIFA RSTP is officially grounded.⁶¹ This peculiar transnational genealogy of the RSTP became relevant at the CAS because panels have considered that, insofar as the statutes of large entities are concerned, ‘it may be more appropriate to have recourse to the method of interpretation applicable to the law’ and therefore adopt a ‘contextual approach’ that entails reviewing the legislative history and purpose.⁶²

The first case involving an interpretive use of EU law was the Mexès case which concerned the interpretation of Articles 21(1) and 23(1) FIFA RSTP 2001 edition.⁶³ The key question was whether the prolongation of the contract of a professional football player would trigger an extension of the stability period – a period during which the player could not leave the club without risking a sporting sanction. To answer this question, the Panel analysed the question in light of EU law as it decided to go back to the ratio legis of the provisions to determine their concrete meaning.⁶⁴ The text of the award refers to the Bosman ruling as well as to the decision of the European Commission in the competition law case opened against FIFA.⁶⁵ Hence, to support its decision, the CAS panel felt that it had to grapple with EU law requirements, although whether it did so in an orthodox fashion is another matter. This first example of recourse to EU law as part of the relevant context for a proper interpretation of the RSTP was endorsed in following awards.⁶⁶ Most prominently, in a case pitching the Italian football clubs Juventus F.C. and A.S. Livorno Calcio against the English club Chelsea F.C., the CAS provided an extensive analysis of this interpretive link between EU law and the RSTP.⁶⁷ The case was related to the legal saga surrounding Chelsea’s 2005 dismissal of Adrian Mutu over his consumption of cocaine. The CAS panel considered it necessary to do an in-depth review of the legislative history of the FIFA RSTP in order to determine whether Article 14(3) FIFA RSTP 2001 edition applied, and therefore whether Juventus and Livorno jointly owed a considerable transfer fee to Chelsea. In doing so, it carefully scrutinized the case law of the CJEU and the decisions of the European Commission.⁶⁸ This led the arbitrators to reject the interpretation advanced by Chelsea as contrary to the EU law foundations of the RSTP and to conclude that Livorno and Juventus were free to recruit Adrian Mutu without compensation after his dismissal.⁶⁹

As demonstrated, EU law finds its relatively narrow way at the CAS. This limited enmeshing of EU law in CAS awards is most likely driven by external challenges to the SGBs’ regulations and decisions in national courts or before EU institutions. In fact, EU law’s capacity to disrupt the authority of CAS is certainly a (rational) pathway to drive the entanglement of EU law into its awards.⁷⁰ However, by harnessing EU law, the CAS panels might also be betraying it. The CAS is not referring questions to the CJEU and CAS awards are, for reasons of costs and time, rarely challenged in national courts on EU law basis. In the absence of systematic control of CAS awards, the panels’ approach to EU law escapes the possibility of direct oversight by EU institutions. In other words, CAS might be speaking an EU law dialect that is primarily fitted to the needs and power structure of its social context, while at the same time formally proximate to and at a substantial distance from the EU law of the EU institutions.⁷¹

10.3 The Influential Use of the ECHR in CAS Awards

While EU law has been dancing a slow-moving tango with the SGBs’ regulations since the 1970s, the ECHR was, until very recently, almost entirely foreign to the world of sport.⁷² The European Court of Human Rights (ECtHR) only started to indirectly scrutinize the practice of the CAS and the world anti-doping regime in 2018 and has done so in a relatively restrained fashion.⁷³ In spite of this, the ECHR has been regularly mentioned in CAS awards.⁷⁴ Even though some panels expressed ‘serious doubts’⁷⁵ regarding the applicability of the ECHR to the SGBs’ private regulations or even sometimes squarely denied it,⁷⁶ when confronted with claimants invoking the ECHR most CAS awards at least considered its application. This inconsistency can be traced back to the unstable composition of CAS panels and non-binding nature of CAS precedents. In any event, most panels at least emphasized the need to respect the procedural rights enshrined in Article 6(1) ECHR.⁷⁷ Indeed, a panel ‘should nevertheless account for their [the provisions of the ECHR] content within the framework of procedural public policy’.⁷⁸ In a more direct language, a sole arbitrator found ‘rather obvious’ that ‘a federation cannot opt out from an interpretation of its rules and regulations in light of principles of “human rights” just by omitting any references in its rules and regulations to human rights’.⁷⁹ In this latter version, the ECHR seems to be even assimilated to an ‘overarching norm’.⁸⁰

10.3.1 CAS Jurisdiction and the ECHR

Among the many legal questions that have triggered references to the ECHR, some are connected to the jurisdiction of the CAS. For example, the CAS faced a case in which an athlete was challenging the validity of the arbitration clause on the basis of the ECHR.⁸¹ In order to allow the case to proceed, the CAS had to determine whether the clause was compatible with the ECHR. The main argument advanced by the claimant was that the unequal bargaining power between the parties to the arbitration (i.e. the athlete and the SGB) threatened the validity of the arbitration agreement. The panel considered that ‘[i]f – according to this jurisprudence of the ECtHR – the right of access to the courts enshrined in Art. 6.1 ECHR can be subject to a weighing up in the event that arbitral jurisdiction is prescribed by statute, then the same must apply also in a case of unequal bargaining power’.⁸² Therefore, it concluded: ‘only if there were no reasons in terms of “good administration of justice” in favour of arbitration a violation of article 6.1 ECHR could be acknowledged’.⁸³ As the panel, maybe unsurprisingly, identified some reasons which justified that CAS arbitration was linked to the ‘good administration of justice’, it decided that the arbitration agreement was valid under the ECHR.⁸⁴

Furthermore, the CAS jurisdiction in appeal cases is dependent on the conditions enshrined in statutory arbitration clauses enshrined in the SGBs’ regulations. This has led in particular to challenges, on the basis of the ECHR, against a ten-day time limit to request a decision from FIFA’s dispute resolution bodies in order to lodge a CAS appeal. While the CAS panel recognized ‘that the time limit of ten days is short’, it concluded: ‘the provision serves a legitimate purpose i.e. to cope with the heavy caseload of FIFA and contributes to the goal of an efficient administration of justice’.⁸⁵ To support this conclusion, the panel invoked the fact that ‘even’ the ECtHR ‘has all along allowed the right of access to the courts to be limited “in the interests of the good administration of justice”’.⁸⁶ However, this does not extend automatically to any other statutory limitation to the scope of the review of the CAS.⁸⁷ Indeed, the CAS also invoked the ECHR to remind that ‘[r]estrictions to the fundamental right of access to justice should not be accepted easily, but only where such restrictions are justified both in the interest of good administration of justice and proportionality’.⁸⁸ In this latter case, the sole arbitrator failed ‘to see why a restriction of his mandate – contrary to the clear wording of the Art. R57 of the CAS Code – would be in the interest of good administration of justice’.⁸⁹

As one can gather from these examples, the ECHR and its interpretations by the ECtHR are used by CAS panels to justify fundamental choices regarding their scope of jurisdiction. The entanglement is complex as the ECHR is both used against an athlete, who is challenging the validity of a CAS arbitration clause, and SGBs, who are trying to reduce the scope of the CAS review of their decisions. It highlights the importance of references to the ECHR as legitimating devices to support the CAS’s interpretation of its jurisdictional space.

10.3.2 Challenging the Compatibility of the SGBs’ Regulations with the ECHR

Like EU law, the ECHR can also be used to impose a form of constitutional review upon the rules and decisions of the international SGBs. In that framework, it operates as a kind of cosmopolitan constitution that would extend beyond the state parties to private entities engaging in transnational regulation. Yet, in practice, such a use of the ECHR as a constitutional check remains relatively rare at the CAS.

10.3.2.1 The ECHR Compatibility of the WADC

One of the vexing questions of international sports law is whether the current world anti-doping regime based on the WADC is infringing on the human rights of athletes subjected to it.⁹⁰ Many commentators have raised this issue and it is therefore unsurprising to see the validity of the WADC being tested on the basis of the ECHR.⁹¹ As a consequence, the World Anti-Doping Agency (WADA) has along the years requested a number of opinions from respected scholars and practitioners to certify the compatibility of the WADC with human rights, and the ECHR in particular.⁹² Numerous CAS panels have religiously invoked these opinions as authoritative material supporting the compatibility of the WADC with the ECHR.⁹³ Jean-Paul Costa, the former president of the ECtHR, concluded in his 2013 expert opinion that the WADC is ‘in harmony’ with ‘the accepted principles of international law and human rights’.⁹⁴ Based on this conclusion, one Panel noted that ‘the previous President of the European Court of Human Rights’ had ‘vouched for’ the proportionality of the WADC.⁹⁵ More broadly, with regard to the fixed minimum sanctions in doping cases, a CAS panel concluded ‘that legal scholars, CAS panels and the Swiss Federal Tribunal seem to concur that the current sanctioning system based on the WADA Code does not conflict with fundamental human rights’.⁹⁶ Finally, an award endorsed the compatibility with Article 8 ECHR of the long-term storage of samples (for up to eight years).⁹⁷ In all these cases, the panels did not engage in deep proportionality assessments of the compatibility of the WADC with the ECHR but merely invoked the (scholarly or professional) authority of expert opinions to reject the challenges.

10.3.2.2 The ECHR Compatibility of Other Disciplinary Rules and Decisions of the SGBs

The ECHR could naturally also find an application with regard to other types of disciplinary proceedings in the sporting context. In fact, CAS panels have recognized that SGBs must comply with the nulla poena sine lege principle enshrined in Article 7 ECHR.⁹⁸ In other words, ‘before a person can be found guilty of a disciplinary offence, the relevant disciplinary code must proscribe the misconduct with which he is charged’.⁹⁹ However, challenges on the basis of Article 6(2) ECHR to the widespread use of strict liability in sports regulations have not been successful.¹⁰⁰ More specifically, clubs and athletes argued that strict liability runs contrary to the presumption of innocence guaranteed in Article 6(2) ECHR. One award referred to ECtHR case law to support the claim that the recourse to strict liability is not per se contrary to the ECHR.¹⁰¹ In another more recent case, the panel rejected Article 6(2)’s applicability to the disciplinary sanctions of SGBs ‘as Article 6(2) is only applicable to criminal proceedings and the present proceedings are not of a criminal nature’.¹⁰² Furthermore, the CAS also touched upon whether disciplinary proceedings run counter to the privilege against self-incrimination recognized by the ECtHR,¹⁰³ rejected on the basis of the ECHR the retroactive application of a longer statute of limitation to a case that was already time-barred at the time of the entry into force of the new provision¹⁰⁴ and invoked the lex mitior principle and its interpretation by the ECtHR.¹⁰⁵ In short, while disciplinary sanctions have a direct and profound effect on those subjected to them, the CAS has been quite reluctant to engage in a constitutional review of the SGBs’ decisions on the basis of the ECHR.

10.3.3 The CAS and the Procedural Guarantees of Article 6(1) ECHR

The procedural rights guaranteed by Article 6(1) ECHR, and in particular their interpretation by the ECtHR, are more present in CAS awards. The ECtHR’s case law plays a fundamental role in defining the intensity of procedural review exercised by the CAS with regard to the decisions of the SGBs, as well as in justifying the key procedural constraints applicable to the CAS itself.

10.3.3.1 The ECHR and Due Process Inside the SGBs

The internal disciplinary bodies of the international SGBs are taking most of the disciplinary decisions affecting international sports. In fine, only a small share of these decisions is subsequently appealed at the CAS. Yet, the CAS has consistently refused to assess the compatibility of these first instance proceedings with Article 6(1) ECHR, relying instead on the curative quality of an appeal before the CAS.

Sometimes awards simply exclude the applicability of the ECHR to internal proceedings of the SGBs, such as when a panel noted that it ‘does not see any reason in the present case to depart from the line established in earlier jurisprudence, namely that the ECHR is not applicable to disciplinary proceedings before a Sport association’s jurisdictional bodies’.¹⁰⁶ In other words, ‘procedural fundamental rights protect citizens against violations of such rights by the State and its organs and are therefore only applicable to a jurisdiction established by a State and not to legal relationships between private entities such as associations and their members’.¹⁰⁷ The panel would only consider otherwise if the SGB had ‘inserted into its Constitutional Rules and Regulations procedural rights based on the ECHR or if it had referred to the ECHR as applicable to disciplinary proceedings before its jurisdictional bodies’.¹⁰⁸

Many panels, however, do not share this view. Contrariwise, another panel recognized that ‘there are more and more authorities in legal literature advocating that the ECHR also applies directly to sports associations’.¹⁰⁹ Yet, CAS panels have also long held that ‘if the hearing in a given case was insufficient in the first instance […] the fact is that, as long as there is a possibility of full appeal to the Court of Arbitration for Sport, the deficiency may be cured’.¹¹⁰ This curative ability has been supported with references to the case law of the ECtHR.¹¹¹ Awards claim that this jurisprudence is ‘in line’¹¹² with the Bryan v. The United Kingdom ruling of the ECtHR and the Wickramsinghe decision of the European Commission of Human Rights. The latter held, citing the former, that ‘even where an adjudicatory body determining disputes over civil rights and obligations does not comply with Article 6(1) [ECHR] in some respect, no violation of the Convention will be found if the proceedings before that body are subject to subsequent control by a judicial body that has full jurisdiction and does provide the guarantees of Article 6 (1)’.¹¹³

This position of the CAS has fundamental consequences for those going through the internal judicial systems of the SGBs, as it basically endorses, with the (alleged) blessing of the ECtHR, any type of procedural wrongs at the level of the internal adjudicative bodies of the SGBs.

10.3.3.2 The ECHR and Evidence at the CAS

The CAS has also leveraged references to the ECtHR case law to justify allowing certain types of evidence in CAS proceedings. First, the CAS has had to decide whether recourse to anonymous witnesses infringes the right to be heard under Article 6(1) ECHR.¹¹⁴ In particular, the CAS referred to the jurisprudence of the SFT drawing on the case law of the ECtHR which allowed the recourse to anonymous witnesses if necessary for the personal safety of the witness.¹¹⁵ Nevertheless, the Panel also relied on the ECtHR’s jurisprudence to nuance this conclusion by highlighting that the right to be heard must be guaranteed by other means such as ‘by cross examination through “audiovisual protection” and by an in-depth check of the identity and the reputation of the anonymous witness by the court’.¹¹⁶

Second, the CAS has had to decide whether the use of illegally obtained evidence in disciplinary proceedings is contrary to the ECHR.¹¹⁷ For example, a panel refused to draw an analogy between the Texeira de Castro decision of the ECtHR, which found that Portugal contravened the ECHR in a case in which the police had gathered evidence through illegal means, and the reliance by FIFA on evidence gathered illegally by an English newspaper.¹¹⁸ This led the arbitrators to deny the claimant the right to rely on the ECtHR’s case law to challenge the admissibility of evidence obtained indirectly through unlawful wiretapping by the press. In support of this conclusion, the panel referenced the ECtHR’s case law on freedom of expression insofar as it protects the intrusion of the press in a person’s private life.¹¹⁹ In a subsequent award, the CAS panel went further by invoking the ECtHR’s finding that ‘the courts shall balance the interest in protecting the right that was infringed by obtaining the evidence against the interest in establishing the truth’.¹²⁰ While another panel concluded that ‘the interest underlying the fight against doping can be preponderant over the individual’s interest, whether an athlete or athlete support personnel, in not having an illicitly obtained evidence admitted in an arbitral procedure concerning an alleged anti-doping rule violation’.¹²¹ The arbitrators insisted that this balancing test is ‘in line’¹²² with the jurisprudence of the ECtHR.

The question of the admissibility of evidence is crucial in determining the outcome of any judicial process. Instead of relying on self-made principles, it is interesting to note that the CAS has borrowed from the ECtHR’s jurisprudence to support its relatively liberal view regarding the admissibility of evidence. The latter can be traced back to the difficult position in which SGBs are placed when enforcing their regulations, as they do not enjoy the police powers (or the capacity) to conduct typical investigatory measures and are mostly reliant on indirectly (and often illegally) obtained information.

10.3.3.3 The ECHR and Due Process at the CAS

Lastly, one case has led the CAS to evaluate the compliance of its own procedures with Article 6(1) ECHR, with the panel concluding, perhaps unsurprisingly, that the CAS Code was compliant.¹²³ Based on a number of ECtHR decisions, the panel held that ‘in compliance with the constant jurisprudence of the ECtHR’ the athlete had freely consented to the jurisdiction of the CAS and that, therefore, ‘the guarantees required by Article 6 para. 1 ECHR do not have to be fulfilled by the CAS’.¹²⁴ In spite of this preliminary conclusion, the CAS Panel went on to argue that, in any case, it was fully compliant with Article 6(1) ECHR.¹²⁵ In particular, the need for both parties to agree for a hearing to be held in public was deemed to ‘not constitute a violation of Article 6 para. 1 of the ECHR as this provision allows, in its second sentence, restrictions with regards to the publicity of the hearing’.¹²⁶ More precisely, it held that disputes ‘relating to doping controls very often give rise to numerous questions concerning, on the one hand, the private life of the parties involved and, on the other hand, sophisticated technical mechanisms and data especially developed in order to establish anti-doping rule offences’, and, therefore, it found that ‘publicity of the hearing would have prejudiced the interests of justice’.¹²⁷ In addition, it insisted that ‘confidentiality of hearings is very common in private arbitration and no judicial precedent has to date stated that such confidentiality would violate Article 6 para.1 ECHR’.¹²⁸ Ironically, a few years later, the ECtHR itself would reach the exact opposite conclusion on both the free consent of athletes to CAS arbitration and the need for the publicity of CAS hearings in doping cases.¹²⁹ This fundamental divergence highlights the potential gap between the CAS’s application of the ECHR (or Swiss law and EU law) and the ECtHR’s own interpretation (or the SFT’s and the CJEU’s interpretation). This situation of interpretive pluralism is not dissimilar to the interaction between national courts and the CJEU or the ECtHR. Thus, this entanglement opens up a field of dialectical play between textual proximity and interpretative distance which will never be entirely bridged.

In different ways, and for different purposes, CAS arbitrators have weaved the ECHR into their judicial reasoning. Such intertwinement is never anodyne, however. It supports important substantial and procedural choices with clear distributive consequences for the parties to CAS arbitration.

10.4 Conclusion

The CAS is a special place. It is not really an arbitral tribunal, nor is it a proper international court, but it stands as a living embodiment of the ‘unidentified legal objects’¹³⁰ that proliferate in transnational legal practice. It is often presented as necessary to the transnational governance (and mere existence) of international sports. Important CAS decisions, such as the recent Semenya award, are subjected to global attention and intense scrutiny. This chapter portrays the CAS as a judicial site where awards are being produced through a process of legal weaving that enmeshes different types of legal material. Its practice is not a solipsistic work based only on the denationalized law of an autonomous transnational community but rather an artistic mélange of styles producing a textual assemblage that is tailored to each case. In the context of the lex sportiva, entanglement is undoubtedly the ‘normal state of the law’¹³¹ and the CAS represents a striving ‘Inter-Legality Hub’.¹³²

Nevertheless, it is true that not all legal texts are equally present in CAS awards. As we have seen, Swiss law is much more present than, say, French law (or any other national law for that matter). Similarly, EU law and the ECHR are regularly invoked while there are very few mentions of other sources of international law. One should not lose sight of the fact that the CAS is not an a-national construct hovering above our heads, but is embedded (like many international SGBs) in the territorial and legal context of Switzerland. Furthermore, entanglements cannot be severed from the actors.¹³³ Many of the professionals active before the CAS as arbitrators or lawyers are Europeans or even Swiss. Finally, the main avenue to challenge CAS awards is the SFT (and, to a much lesser extent, other European courts and administrative bodies). It is thus quite logical that when CAS panels are called to assemble an award, they draw on both what they know and what they want to assuage. Thus, the CAS works not so much as an autarkic judicial machinery reliant on its own supply of power and inputs but rather as a transnational legal assembly line importing various parts of its awards from different suppliers on a case-by-case basis. Hence, the judicial practice of the CAS can help us move beyond the billiard ball model of autonomous transnational legal orders or systems in order to perceive the hybridity of transnational legal practice.¹³⁴ At the CAS, Swiss law, EU law and the ECHR are not so much clashing with the lex sportiva as they are entangled within it. They become an integral part of the lex sportiva. This conclusion does not imply that the ECtHR or the CJEU should defer to the CAS, to the contrary. It means that they should scrutinize closely the way it speaks ‘their’ language, like they assess the way national courts are speaking it. In a world where nobody is in a position to impose top down a single set of global rules applied in a uniform way, transnational legal practice is bound to be the result of strange loops and contextual assemblages.

The complex beauty of these rhetorical entanglements should not hide the fact that the CAS is taking distributive decisions which are very hard (i.e. costly) to challenge. This chapter has not focused on the politics lurking behind these entanglements. In other words, what are their underlying drivers or unspoken purposes? In order to answer this question, one would need to carefully investigate who does the entangling and why. There is no reason to believe that these entanglements are per se fair or just. Therefore, the ethics of those producing legal entanglements must be subjected to strict scrutiny.¹³⁵ In fact, the dark face of the ubiquity of transnational legal entanglements might be that ultimate political accountability becomes difficult to locate as decisions are enmeshed in a plurality of political and legal contexts. Who should be blamed for a particular interpretation of the FIFA RSTP? Is it the responsibility of FIFA, the European Commission, the CAS or the SFT? Where can we ask to change it and how? The risk is that entanglements lead to a form of organized irresponsibility, as if the legal assemblages of the CAS were not the result of deliberate choices but natural reflections of what a patchwork of laws say. Hence, the age of entanglements calls for a relentless critique of the politics lurking behind the textual assemblages. If legislators are found simultaneously in multiple places and levels, inside the SGBs, at the Swiss parliament or in Brussels, we need to think about how to recreate a transnational democratic space (and process) adapted to this multiplicity. Similarly, if the CAS is in a position to assemble its awards relatively freely, in light of the extremely limited control exercised by the SFT and the high costs of challenging a CAS award elsewhere, then we must seriously consider those who are doing the assembling. Who are they? How is their legitimacy and authority justified? Are they sufficiently impartial and independent from the SGBs? How are they selected? What are the mechanisms in place to prevent the rise of conflicts of interests? Once we recognize that the assembling or entangling of transnational law is the new normal, we must urgently grapple with these questions. The hybridization and pluralization of transnational legal practice might be a necessary consequence of the liquefaction of our transnational lives, but it raises fundamental problems for the way in which political agency is exercised and decision-makers are held accountable. One answer to this conundrum could be to move towards entangling our politics and accountability mechanisms, meaning that the citizenry has to exercise agency at multiple levels (e.g. through social movements, consumer boycotts or simply voting at the European Parliament elections) and to move strategically between different accountability fora (e.g. the European Commission, national competition authorities, national courts, Organisation for Economic Co-operation and Development contact points or the ECtHR).¹³⁶ In the context of the CAS and the lex sportiva, Claudia Pechstein has shown the way, even though it came at great personal costs,¹³⁷ by challenging her doping ban before the SFT, the German courts and the ECtHR. To initiate these critical shifts in the way we engage in politics and law, it is first essential to grasp the ubiquity of legal entanglements in the operation of transnational law. The aim of this chapter was to contribute to this prise de conscience by exposing how the CAS transforms transnational sporting disputes into legal gold: authoritative awards.

11 The Struggle for International Financial Standards An Historical Analysis of Entangling Legalities in Finance

Francesco Corradini

11.1 Introduction

The global financial order is key to our economy but highly fragile. And the norms and institutions to stabilize it are themselves plural and fragmented – in fact, a prime example of multiple bodies of norms coexisting in global governance. This order is characterized by a multiplicity of norms and institutions with various claims to authority, reflecting different priorities and normative orientations. How have actors dealt with the tensions that this plurality generates and where has this left the multiple legalities and their relations?

To answer this question, this chapter examines the recent history of the global administration of financial stability. In the last two decades, this area of financial regulation has been shaped by responses to the perceived risks associated with multiplicity of norms and institutions. The contemporary administration of financial and monetary affairs seems to be surrounded by ‘mystery’¹ and ‘ambiguity about the relationship between all of the various sources of international regulatory standards’.² This complexity may partly depend on our limited understanding of the organizational structures of these relationships and the drivers behind them.

In various contexts of global financial governance, characterized by a significant degree of informality, regulatory decentralization and dynamic institutional interactions, societal actors have shaped different ordering projects in opposition to ‘chaos’ over time. From a macro perspective, previous studies have helpfully analysed the broad historical and political contexts in which these ordering projects have come about by placing emphasis on ‘the power and interests of leading financial powers, domestic political dynamics, and the role of transnational actors’.³ Yet we do not quite know the forms through which institutional multiplicity has been organized and with what effects for the overall order. Drawing upon the concepts of this volume, this chapter analyses different forms of entanglements in contexts of global financial regulation, focusing on some of the sites, actor constellations and dynamics behind them.⁴ This chapter uses the term bodies of norms to connect the variety of recommendations, standards, best practices and codes recognized by regulators as factors of financial stability. At various decision-making settings, financial regulators, legal professionals and economic experts disagreed over the identification of the relevant sources of authority and their organizational structures. For example, the prevailing regulatory response that followed the global financial crisis of 2008 was a call for a more or less centralized institutional framework for ‘a global banking and financial system’. Some lawyers imagined a new field of international financial law or lex financiera.⁵ Many argued that the International Monetary Fund (IMF) should have institutional primacy, while others regarded the Financial Stability Board (FSB) as the appropriate locus of authority, and yet others suggested that the function of a new World Financial Authority should be allocated. However, opposing views defended a more modest reform through a pluralist approach to ordering.⁶ This chapter questions ambitious attempts at structuring and controlling multiplicity through one ‘common frame of reference’⁷ such as legalization in finance. I contrast this dominant view with the perspective of ‘entangled legality’⁸ as an alternative way of thinking about relations between multiple kinds of laws populating global finance. From this perspective, the project of legalization is only one among a variety of ways of ordering multiplicity, which may equally contribute to dynamics of enmeshment. While these relations are embedded in a mosaic of interactions between multiple orders, elements of this wider environment form the background of the analysis.

The analysis proceeds as follows. Following this introduction, Section 11.2 describes international financial standards as interrelated bodies of norms and foregrounds how they became entangled in regulatory settings over time. Drawing on public documents from the Bank for International Settlements (BIS), the United Nations (UN) and the IMF, I examine the forms in which these bodies of norms were brought into relation by different actors. In the wake of the Asian financial crisis of 1997, officials at the IMF, UN and BIS made claims ordering institutional fragmentation. In this context, the Financial Stability Forum (FSF) emerged as a ‘site of entanglement’ and the drafters and users of its Compendium of Standards came to play a central role in organizing relations between norms that were identified as ‘international standards’. Against this historical backdrop, Section 11.3 identifies different interface norms and examines how they were used by actors in norm-making and norm-implementation settings. Within the debate on the reform of the international financial architecture, regulatory harmonization and overarching institutions have been dominant responses to the perceived risks of institutional multiplicity. Yet, while there seems to be no consensus over the content of these overarching institutions, competing forms of ordering persist.

11.2 Contexts of Entanglement in Global Financial Governance over Time

From the perspective of international legal theory, the actors and structures characterizing global financial regulation differ from those encountered in traditional fields of international law. Three striking features of this area of global governance are the informality, multiplicity and dynamic interactions of its norms, institutions and sites of decision-making.⁹ In many of these settings, state officials, international organizations, financial institutions and other private actors have recognized norms that often take the form of best practices and standards rather than more established categories of international law.¹⁰ Equally striking, these norms have often made their appearance in groups, resembling a relatively loose assemblage of ‘clusters’ of norms. In this respect, the term bodies of norms seems apt to underline their interrelatedness.¹¹ Institutional players in global financial regulation have often highlighted this particular feature of international standards by placing emphasis on their interconnectedness and interdependence as commonsensical, just the ‘normal’ thing to do,¹² and in doing so they have not found it problematic to blur their boundaries, for example by referring to their own previous work or work done by others.

An early manifestation of the discursive formation of these associations could be observed circa 1995 at the ‘Tripartite Group of Banks, Securities and Insurance Regulators’. An informal working group created by the Basel Committee on Banking Supervision, the Tripartite Group facilitated the encounter of national bank, securities and insurance regulators¹³ to exchange information and perform ‘intensive cooperation’ to address regulatory problems related to ‘financial conglomerates’. A senior official from the US Treasury reported that states’ competing interests made it challenging to agree on one single supranational institution to provide a solution to these problems.¹⁴ It is worth mentioning what this informal working group aimed at innovating against. Until then, challenges associated with ‘financial conglomerates’, in particular the ‘regulatory arbitrage’ problem, had been dealt with from the perspective of different ‘regulatory groups’.¹⁵ In contrast, the Tripartite Group responded to pluralism ‘from a joint perspective’. The making of this ‘joint perspective’ in opposition to the ‘different approaches adopted by supervisors’ enabled national financial regulators to ‘synthetize’ the work that had previously been done.

This synthesis was recognized by members of the Basel Committee on Banking Supervision (BCBS), the Technical Committee of the International Organization of Securities Commission (IOSCO) and the International Association of Insurance Supervisors (IAIS) as a ‘sound basis for further collaborative efforts’¹⁶ which led to the creation, in 1996, of a ‘Joint Forum on Financial Conglomerates’.¹⁷ The Joint Forum was an informal setting where senior bank, insurance and securities supervisors from thirteen countries¹⁸ assembled to ‘exchange information’ and practice ‘supervisory coordination’. The Basel Committee’s Minimum Standards for the Supervision of International Banking Groups and their Cross-border Establishments, IOSCO’s Principles for Memoranda of Understanding and IAIS ‘Insurance Concordat’ – Principles Applicable to the Supervision of International Insurers and Insurance Groups and their Cross-border Establishments – were jointly recognized by members of the Joint Forum as ‘a common set of principles’ to practice exchange of information among supervisors.¹⁹

Another informal site of interaction between ministers of finance, central bankers from ‘industrial countries’²⁰ and ‘emerging markets’²¹ and representatives from international institutions and international standards organizations²² was the Working Party on Financial Stability in Emerging Market Economies. In 1997, under the chairmanship of Mario Draghi, the Working Party issued a report on the banking sector in emerging markets, referring to ‘a corpus of sound principles and practices’²³ by which they brought norms produced by ‘international groupings’ into relation.²⁴

11.2.1 Ordering Bodies of Norms after Financial Crises

The anecdotal evidence just presented suggests that informal settings of interaction between institutional players have also been ‘sites of entanglement’ where bodies of norms have been pieced together through social ‘practices of recognition and deference’.²⁵ This section takes a closer look at similar statements pronounced by situated actors at three different regulatory sites: the IMF, the UN and the BIS, to examine whether and how, in the aftermath of financial crises, dynamics of entanglement played out there.²⁶ Financial crises have often been moments of change in the historical development of the global financial order.²⁷ They have also been key historical contexts in which regulatory actors formulated reform efforts to reorder institutional multiplicity. For example, in response to the Asian financial crisis of 1997, IMF jurists and economists placed emphasis on ‘international standards and codes’ against the different domestic laws that some IMF officials saw as problematic for financial stability.²⁸ However, the definition of these bodies of norms and the articulation of their relations were neither uncontroversial nor necessary decisions but occurred in multiple and incremental steps.

In 1997, Morris Goldstein,²⁹ an IMF economist, published a book entitled The Case for an International Banking Standard³⁰ which strengthened the project of international harmonization in the banking area. Goldstein argued for the creation of a new international banking standard (IBS) through the combination of existing norms and practices. The envisaged standard had to be shaped through ‘vigorous cross-agency cooperation’ rather than by one single decision-maker, and be comprehensive and broad in scope and design. The Basel Committee ‘should not be the only group working on an IBS’³¹ – instead, the new norm should draw not only on the expertise and norms of good banking supervision by the Basel Committee but also on those of international accounting and transparency, traditionally considered to fall under the jurisdiction of the International Accounting Standards Committee (IASC) and IMF respectively.³² Goldstein’s approach straddled boundaries between standards traditionally considered to be confined to well-defined domains. The IBS would only aim at ‘partial’ as opposed to ‘full’ international harmonization of banking standards, leaving ‘room for states to maintain their national preferences towards risk, as well as to maintain some of their institutional diversity’.³³

Actors associated with the Bretton Woods institutions began referring to ‘internationally accepted best practices’ and ‘international standards’ to bring together select bodies of norms that they recognized as central features of the new international financial architecture.³⁴ IMF officials referred to ‘international financial standards’ to link multiple bodies of norms deemed relevant to ‘the soundness of the financial system’.³⁵

An international consensus on how standards relate to each other and with domestic legal orders was shaped through various tools, including monitoring practices performed by international financial institutions. Through these practices, IMF and World Bank officials connected norms produced by the IMF itself, the World Bank or other international standard-setting organizations and associated them with domestic legal orders in developed and developing economies.³⁶ In particular, the creation of the Financial Sector Assessment Program (FSAP) authorized IMF officials to link standards that they recognized as relevant for a safe international financial system and bring them into relation with domestic legal orders.³⁷ One important outcome of monitoring practices performed in the context of FSAP is the production of a report on ‘Financial System Stability Assessment’. This report is subsequently taken into account when the IMF conducts ‘bilateral surveillance’ and performs ‘consultations’ with domestic authorities being assessed, under Article IV of the IMF Articles of Agreement.³⁸ Through these monitoring practices, IMF officials have deferred to the authority of twelve international standards setters³⁹ they consider to be ‘relevant’ in the context of their work.⁴⁰ The report resulting from these monitoring practices verifies and strengthens the recognition of standards but their recommendations also provide ‘feedback’ to the standard-setting organizations that produce standards.⁴¹

Previous historical analyses of international financial institutions have argued that the IMF’s monitoring practices have normative power and ‘hegemonic’ features. In particular, IMF conditionality has discursively reinforced colonial relations of domination reinscribing the North–South divide.⁴² Indeed, ‘globalization […] requires the replacement of numerous national laws and jurisdictions by uniform global standards in order to remove the barriers to capital accumulation at the global level’.⁴³ From these perspectives, conditionality operates as a ‘path to entanglement’ based on coercion,⁴⁴ which is often made invisible by taking the form of ‘incentives’. For example, according to the IMF, it is ‘in countries’ own interest to adopt and implement internationally recognized standards and codes’.⁴⁵ For borrowing countries, highlighting linkages with international standards becomes crucial to persuade institutional creditors of their creditworthiness. These linkages appeared for example in the ‘letters of intent’ of Korea, Indonesia and Thailand as they requested institutional creditors’ support to recover from an economic crisis.⁴⁶ Similarly, the government of Turkey deferred to the authority of international standards⁴⁷ and officials from Colombia gave weight to international standards on auditing, the Basel core principles and codes of conduct on money laundering and terrorism financing.⁴⁸ From the perspective of states seeking financial support there have been incentives and constraints to tie their domestic legal orders to international financial standards, although the latter are formally non-binding.⁴⁹ In this context, entanglement was driven by both states’ rational interests and the realization of their position in a relation of economic dependency, close to a material condition of coercion.⁵⁰ In the UN context, officials represented the ‘international financial architecture’ as a ‘system’. For example, a UN Task-Force led by José Antonio Ocampo⁵¹ argued that ‘the international financial system is an organic whole and requires a comprehensive approach’.⁵² From this systemic perspective, the UN Task-Force articulated a vision of the international financial architecture in close connection with human rights laws and UN institutions. UN officials did not invoke the UN Charter but relied instead on the provisions of the Covenant on Economic, Social and Cultural Rights to create normative expectations for all the subsystems constituting the international financial architecture.

At the BIS, ‘international standards’ were also invoked against institutional pluralism.⁵³ Here, Hans Tietmeyer⁵⁴ criticized the ‘fragmented supervisory structures’ characterizing the status quo and suggested improve ‘international cooperation and coordination’ by ‘bringing together the major international institutions and key national authorities involved in financial sector stability’ and to include ‘emerging market economies’.⁵⁵ Arguing that the model of the Joint Forum⁵⁶ had to be applied ‘in a comprehensive manner’, Tietmeyer referred to ‘accepted best practices’ to bind the ‘Core Principles issued by both the BCBS and IOSCO, and those being developed by other international groupings’ together.⁵⁷ Based on Tietmeyer’s report, the Group of Seven (G7) created the Financial Stability Forum.⁵⁸ The new organization enabled the encounter of a large number of actors, mainly ‘public’ but also ‘private’ ones.⁵⁹ Andrew Crockett⁶⁰ was appointed as first chairman for a three-year term.⁶¹ A member of the Board of Trustees of the International Accounting Standards Board (2000–3), an organization with the mission to create a global financial reporting standard,⁶² Crockett was in favour of global approaches to ordering multiplicity⁶³ and regarded international financial standards as ‘interrelated’.⁶⁴

11.2.1.1 Competing Ordering Projects

At their second meeting, FSF members introduced a ‘Compendium of Standards’, describing it as ‘a common reference for the various economic and financial guidelines, principles, and codes of good practices that are internationally accepted as relevant to sound, stable and well-functioning financial systems’.⁶⁵

Yet the FSF’s response to institutional pluralism was not uncontroversial. Born in the midst of controversies over a new ‘international financial architecture’,⁶⁶ the Compendium triggered opposing reactions. Some interpreted it as ‘a single global rule book’ providing ‘reference rules’ for the operation of financial markets.⁶⁷ BIS officials supported the ‘pragmatic multitherapy’ approach to ordering provided by the Compendium in contrast to an institutional framework.⁶⁸ However, some lawyers sought to embed its prescriptions within an institutional structure, in particular within the jurisdiction of the rule of law.⁶⁹ For example, Mario Giovanoli⁷⁰ invoked the rule of ‘international law’ as the frame of reference to govern institutional multiplicity.⁷¹ The legalization project was similar to the idea of ‘international regulation’ under a new ‘World Financial Authority’ advocated by economists Barry Eichengreen, Lance Taylor and John Eatwell.⁷² Two institutional innovations provoked by the 2008 financial crisis had implications for reorganizing multiplicity. The Group of Twenty (G20) replaced the G7 as a central forum of economic diplomacy and transformed the FSF in the Financial Stability Board, enabling participation of state representatives from the G20.⁷³ These institutional rearrangements meant that a larger group of actors was able to assemble and shape the Compendium by recognizing new standards. However, the majority of FSB members were (and still are) public regulators, and regulators from the Global North seem to have greater influence than those from other regions. Furthermore, interactions with market participants and other private actors have remained limited.⁷⁴

While the G20 and the FSB provided a limited ‘vertically integrated’ structure of economic decision-making,⁷⁵ the two organizations also sidelined ambitious efforts to create overarching institutions, including through a reform of the IMF. Calls for ‘international harmonization’ and attempts to ‘reset’ the ‘international financial (non-) system’⁷⁶ became the dominant responses to institutional heterogeneity.⁷⁷ The project to bring multiplicity within the jurisdiction of international law and international lawyers has been one manifestation of this trajectory towards legalization.⁷⁸ Finding a contradiction between a ‘global’ financial system and the lack of a coherent institutional framework, many lawyers called for a global ‘ruler’ in international finance. In keeping with a professional sensibility shared by many jurists, the legalization project has sought to conceptualize ‘international financial law’ as the frame of reference to contain the panoply of norms and practices in finance. From the standpoint of the legalization project, sometimes this heterogeneity is framed as a ‘black hole’.⁷⁹ This expression refers to an absence of traditional frames of international law, and the contrast is often made with more established fields of international economic law, such as international trade and investment law.

The rationale underlying this approach is that ‘international solutions are needed for international problems’.⁸⁰ Under this view, the IMF should become the institutional centre of the international monetary and financial system. Proponents of this way of thinking have regarded international trade law as a model to design a rule of law-based system in international financial and monetary interactions. The envisaged system would provide for a ‘World Financial Authority’ and an international dispute settlement mechanism to fill the ‘black hole’ in international law and finance.

Others have seen the FSB as a more suitable site and actor to promote the movement of international financial law ‘from a heterarchical setting to a more centralized and coordinated pattern’.⁸¹ When articulating their position in relation to multiple bodies of norms, FSB members have described themselves as providers of a ‘framework for strengthening adherence to international standards’.⁸² They have called for ‘international coordination’ through practices of ‘international harmonization’ among domestic regulators. Another approach has sought to articulate a vision of the global financial order against institutional pluralism through the notion of ‘multilayered governance’. This perspective seeks to identify ‘common core values shared by the international community’ as guiding principles for the allocation of regulatory power among the various layers of governance.⁸³ Similar to the legalization project, advocates of this mode of ordering start from an intra-systemic perspective from which they formulate a global regulatory framework to construct full coherence among the different parts of the overall system.

Yet competing visions have been sceptical of legalization as a workable way of organizing diversity in global financial governance. Critics have contended that the idea of one overarching institution – a ‘global sheriff’⁸⁴ of sorts – seems out of touch with the heterogeneity and competition of national concerns and interests driving global business firms operating in modern global finance.⁸⁵ For an environment characterized by ‘increasing multipolarity’ and ‘dispersed economic power and interests’, a model of pragmatic ‘minilateralism’ may be a better fit than an institutional grand design.⁸⁶ The project of harmonization sought to provide a centre of gravity – a new ‘architecture’ – against or irrespective of the autonomous norms and practices of legal technique and self-regulation that market actors, including private organizations such as the International Swaps and Derivatives Association, use in their financial business operations on over-the-counter derivatives but that fly under the radar of overarching institutions.⁸⁷

11.3 Responding to Multiplicity in Global Financial Governance

Against the historical and doctrinal background of some of the projects of reordering global financial regulation discussed so far, this section looks more closely at the interface norms associated with projects to respond to multiplicity in the different institutional settings examined.

11.3.1 The Project of Harmonization: Overarching Norms and Reception Norms

The historical process of associating bodies of norms after the Asian financial crisis and global financial crisis was partly defined by competing efforts to reimagine the global financial order. Two manifestations here were the projects of ‘international regulation’ and ‘legalization’ advocated by actors associated with the IMF institutional context. Though the two projects had different nuances, they adopted an intra-systemic perspective to govern institutional relations from a central vantage point. Indeed, they both imagined a common integrating principle – ‘international regulation’ or ‘international law’ – at the apex of the ‘international financial architecture’. Thus, the philosophy of overarching norms informed both reform projects.⁸⁸ In the UN context, the approach to ordering followed a somewhat similar logic. Relying on a similar form but a different content of interface norms, the UN Task-Force referred to ‘sustainable human development’ and ‘democracy’⁸⁹ as principles governing the decision-making process within the envisaged international financial architecture. The UN Task-Force interpreted ‘International codes of conduct, improved information, and enhanced financial supervision and regulation’ as an overarching framework governing the system. However, they went so far as to argue that the framework would ‘include international standards to combat money and asset laundering as well as corruption and tax evasion’ but also ensure ‘consistency’ with human rights, particularly those in the International Covenant on Economic, Social and Cultural Rights.⁹⁰ Moreover, the UN Task-Force went beyond a purely intra-systemic perspective to take into view relationships between the international financial system and different domestic legal systems. While emphasizing the ‘global’ character of ‘financial regulation and supervision’, the UN Task-Force also gave weight to domestic legal orders and their ‘different national financial structure and traditions as regards financial regulation and supervision’.⁹¹

While it is not obvious that UN officials perceived domestic legal systems as integrated parts within the ‘international financial system’, it seems more plausible that they relied on the more flexible interface norm of ‘taking into account’ to connect ‘domestic’ and ‘international’ systems.⁹² When bringing these legal orders into a mutual relation, the UN body of experts relied on reception norms in so far as they required that ‘due account should be taken’ of local circumstances in domestic legal systems.⁹³ The project of international harmonization was never uncontroversial and provoked tensions with domestic sites of governance, as evidenced by the attitudes of some national authorities creating resistance to international standards. For instance, the deputy governor of the Reserve Bank of India articulated a ‘national law perspective’ highlighting the ‘discretion’ and ‘considerable flexibility’ that officials in India had while interpreting ‘general principles’ in international standards and bringing them in relation to the domestic legal order.⁹⁴ This language is similar to reception norms in its effect of creating distance between international standards and the Indian domestic legal system.

After the 2008 financial crisis, the reform of the international financial architecture emerged as a new site of struggle between lawyers, economists and policy-makers to redefine interactions between bodies of norms.⁹⁵ In this context, forms of entanglement mirrored the dominant response to multiplicity, in particular at the IMF, that followed the Asian financial crisis of 1997. Seeking more centralization and unity than diversity and collaboration, many actors sought to frame multiplicity from a systemic perspective, adopting a functional analysis. They have often done so by deploying interface norms such as the ‘rule of law’.⁹⁶ Particularly in Europe, a similar reliance on overarching norms characterized most responses to institutional diversity,⁹⁷ placing emphasis on regulatory coherence and centralization of authority.⁹⁸ For example, the ‘de Larosière Report’⁹⁹ proposed an integrated approach to financial regulation in Europe and at the international level.¹⁰⁰ Noting the ‘evident lack of a coherent framework’, the authors of the report recommended that a ‘reformed FSF would be in the best position for coordinating the work of the various international standard-setters in achieving international regulatory consistency’.¹⁰¹ They envisaged a treaty establishing a ‘full international standard-setting authority’ creating binding obligations for states and monitored by the IMF through its Article IV Consultations powers.¹⁰² At a more general level, this argumentative structure reflects the imagery suggested by proponents of constitutionalism in controversies over the shape of postnational law and politics. Sharing a similar ambition, many theorists of international financial regulation have sought to construe a legal system to ‘contain’ the plurality of sources characterizing global financial governance.¹⁰³

11.3.2 Making the Compendium of Standards: Straddling Practices and Reception Norms

As a ‘joint product’, the Compendium was produced by an ad hoc Task-Force on Implementation of Standards (Task-Force), a group of specialists¹⁰⁴ that had been assembled by the FSF with the aim of developing a ‘strategy’ to strengthen ‘international consensus on key standards’ for financial stability. To shape the form and content of the Compendium, the Task-Force drew upon ‘prior work’ by the IMF, World Bank and standard-setting bodies in ‘promulgating and assessing observance of standards’.¹⁰⁵ Given the plurality of ‘economic and financial standards’ recognized as relevant for ‘sound financial systems’, the Task-Force highlighted a ‘subset’ of twelve standards that were ‘likely to make the greatest contribution to reducing vulnerabilities and strengthening the resilience of financial systems’.¹⁰⁶ This group of experts recommended that ‘policy-makers’ should focus on a ‘list of standards’ with ‘priority implementation depending on countries’ circumstances’.

In a footnote of its report, the Task-Force articulated the rationale of its decision-making by claiming that ‘while a broad range of political, social, legal, and institutional factors impinge on financial stability, the focus of the FSF is on economic and financial standards which are generally accepted by the international community as being objective and relatively free of national biases’.¹⁰⁷ It is worth analysing how the Task-Force simultaneously distanced a group of norms from the list and brought other bodies of norms together. Indeed, it seems that the Task-Force had recourse to a ‘knowledge practice’¹⁰⁸ when it distinguished between, on the one hand ‘political’, ‘social’, ‘legal’ and ‘institutional’ norms, and on the other hand ‘economic and financial standards for sound financial systems’. This practice of boundary-drawing enabled the Task-Force to carve out what it termed ‘internationally accepted standards for economic, financial and market activities’, creating distance from norms that did not fit in that category.¹⁰⁹ This technique contrasts with straddling practices, that is, ‘practices that straddle different bodies of norms without being seen to belong to either, thus blurring the boundaries between them’.¹¹⁰ However, straddling practices were also at play in the making of the Compendium. After distancing ‘political’, ‘social’, ‘legal’ and ‘institutional’ norms from the scope of its work, the Task-Force assembled ‘the set of standards it considers the most relevant to strengthening financial systems’. By ‘drawing on prior work’¹¹¹ the Task-Force connected twelve standards to create something new out of this assemblage, namely a consolidated list of ‘key standards for sound financial systems’¹¹² around which ‘international consensus’ had to be forged. This list of ‘twelve key standards’ then was the effect of a straddling practice, blurring the boundaries between the bodies of norms that were assembled in it. From the perspective of the Task-Force, the definition of this select group of bodies of norms as ‘key international standards’ was crucial to achieve international consensus. In this assessment, the Task-Force placed emphasis on those standards that were ‘endorsed’ by the ‘international community’, by which the Task-Force meant in particular national regulators, the IMF, the World Bank and international standard-setting bodies. In this way, the Task-Force brought into a mutual relation the standards that had been recognized as authoritative by the official sector of which the Task-Force itself was a part. As a creation of the FSF, the Task-Force included representatives of national governments, the IMF, the World Bank and the Basel Committee on Banking Supervision. By bringing together and giving weight to the standards that had been recognized by FSF members, international financial institutions and international standard-setting organizations, the Task-Force manifested a certain degree of self-referentiality.¹¹³

The choice of focusing on standards produced and used by the ‘official sector’ (i.e. public actors)¹¹⁴ created distance from norms of private origin, with the exception of standards developed by the IASC and the International Federation of Accountants. The Task-Force framed the Compendium as a ‘one-stop reference’ to forge international consensus on ‘key standards’, limiting disagreement on their definition and with the aim of accommodating ‘a large number of standards’ that users could easily refer to.¹¹⁵ For the internal organization of the Compendium, the Task-Force preferred a ‘web-based’ structure to a hierarchical form to create linkages with a corpus of other ‘relevant standards’ that were ‘not less important than the 12 key standards […] but [were] complementary’ to them.¹¹⁶ These complementary standards ought to be ‘organized separately’ under three different categories.¹¹⁷ The Task-Force also envisaged that additional standards could be added to the Compendium as long as they were approved by relevant standard-setting bodies and FSF members.¹¹⁸

After the financial crisis of 2008, the creation by the G20 of the FSB as the successor of the FSF confirmed the forms of enmeshment construed when the Compendium was still in the making. The number of standards included in the Compendium grew considerably after the institutionalization of the FSB. As FSB members recognized new standards for ‘sound financial systems’, the boundaries of the Compendium expanded akin to the pages of a rule book, positing a distance between standards included in the Compendium and other bodies of norms that were kept outside. The incremental growth of the Compendium also strengthened the position of the FSB as an actor in the organization of standards recognized by the ‘official sector’.

At the FSB, structures and dynamics of entanglement may depend on the actors involved in its decision-making.¹¹⁹ Here, the forms and content of interface norms may reflect the composition of the FSB but also the set of relations that the FSB has with other actors and institutions in the social and political environment in which it operates. With respect to membership, existing analyses have placed emphasis on the interactions between FSB members as central factors driving the activities of the FSB. Characterized by a broader membership than the FSF, the FSB has been portrayed as ‘a nexus point’ enabling interaction and communication between ‘communities of private actors’ and ‘communities of states’.¹²⁰ Stavros Gadinis has described it as ‘an umbrella organization that brings together […] networks of ministry executives, national regulators, and private professionals’,¹²¹ placing emphasis on its strong ministry component. As such analyses have shown, state officials from the G20 and experts from standard-setting organizations have been the dominant players shaping the agenda of the FSB. This dominance is reflected for example in the fact that there is a higher number of members from countries which are a part of the European Union than from other economies.¹²²

On the other hand, participation from market actors and public–private collaboration appear to be limited. According to the FSB’s self-representation, the degree of recognition of actors and norms of private origin seems rather limited. For example, the International Accounting Standards Board, formally a private organization, is a member of the FSB, and the International Financial Reporting Standards that they produce have been included in the Compendium of Standards. However, according to Annelise Riles, the FSB ‘fails to recognize the practical authority of organizations such as the International Swaps and Derivatives Association in constructing their own forms of international financial governance beyond the state’.¹²³ Thus, the interface norms construed within the Compendium are likely to be shaped by the convergence or competition of interests of the dominant public actors that have access to the FSB and by the wider institutional environment (i.e. the ‘international financial architecture’) in which the FSB itself is situated. For example, interactions between the FSB and the G20 may have consequences for the types of norms that are brought in relation in this context.

In the FSB context, straddling practices were not the only form of entanglement. Rather, conditional recognition practices originally performed by the Task-Force were also instrumental in organizing relations between ‘key standards’, the ‘complementary standards’ included in the Compendium and those yet to be included. Over time, FSB members have relied on a set of ‘criteria for inclusion’ to give weight only to standards deemed to be ‘relevant’, ‘implementable’, ‘internationally recognized’ and ‘widely applicable’.¹²⁴ However, the combined application of these criteria also consolidated a distinction between standards perceived to meet these criteria and standards which failed to do so. The interpretation of these requirements then had a rejection effect because it distanced laws of private origin, which many actors use in their practices. For example, norms produced by the financial industry do not seem to be considered as relevant by FSB members, hence their absence from the Compendium. From this perspective, the ‘criteria for inclusion of standards in the Compendium’ may be seen as the content of an interface norm governing interactions between internal and external bodies of norms. In particular, the reproduction of this inside/outside distinction was performed by a reception norm whose content was a specific set of requirements defining ‘the ways in which outside norms enter a given body of norms’.¹²⁵ In sum, it seems that straddling practices and reception norms played a more prominent role than overarching norms in the institutional site in which the Compendium took shape. The Compendium was the outcome of a work of composition that consisted of selecting, assembling and distancing bodies of norms. As the Compendium was still in the making, the Task-Force relied less on overarching norms than on straddling practices to perform this task. Such a form of entanglement makes sense because the task at hand was the creation of a new regulatory arrangement, in a context relatively free from pre-existing systemic constraints. Indeed, the project of a Compendium was in the first place the key innovation of the Task-Force and therefore its boundaries were still in flux. The effect of using this type of interface norm was closer to an assemblage type of order than to a system with clear institutional boundaries. However, the Task-Force also generated rules for the inclusion of ‘international standards’ and these criteria of recognition form the content of the reception norm that continues to order relations between the Compendium and external bodies of norms.

11.3.3 Connecting International Financial Standards

Financial regulators have also written reports containing recommendations that draw on previous reports or on documents written by other actors. The practice of drawing on other actors’ bodies of norms have often had the effect of blurring their boundaries to create something new. Forms of entanglement have also been shaped in the context of institutional interactions between the FSB and international financial institutions. For example, FSB member jurisdictions have decided ‘to undergo FSAP assessments every five years’.¹²⁶ FSB members have practised thematic and country-based peer reviews to assess compliance with international financial standards through a ‘holistic approach’.¹²⁷ These practices have followed the FSB Handbook for Peer Review and taken the FSAP’s and Reports on the Observance of Standards and Codes’ recommendations into account.¹²⁸ In the context of these monitoring practices and ‘peer reviews’, acts of referring to the prescriptions of ‘the other’ have also blurred the boundaries between bodies of norms and enabled a mutual strengthening of their relations.

The straddling practice of compiling lists of international standards was not unique to the FSF/FSB as other actors and institutions beyond the FSB had recourse to similar techniques.¹²⁹ Indeed, global governance practices through the creation of lists have also been common in other issue areas of global administration, for example international security.¹³⁰ The Basel Committee on Banking Supervision issued a ‘Compendium of Basel Committee documents’, which was subsequently updated in 2001.¹³¹ In December 2019, the Committee published its ‘Consolidated Framework’ (referred to as ‘Basel Framework’) which embodies all fourteen standards it produced since its creation.¹³² Beyond its own norms, the chapter on ‘Core Principles for Effective Banking Supervision’ refers to other standards and practices, such as the recommendations by the IMF formulated in its FSAPs.¹³³ These practices have allowed shaping an entanglement between international financial standards and between these bodies of norms and domestic legal orders.

Basel Committee members encouraged taking account of anti-money laundering recommendations by the Financial Action Task Force (FATF).¹³⁴ IOSCO, the Basel Committee and IAIS have blurred boundaries between their recommendations on combating money laundering and the financing of terrorism. In a joint statement, the three institutions claimed that the FATF 40 Recommendations provided a basis that would allow them to ‘take account’ of their respective standards in future work.¹³⁵ The FATF, on the other hand, also took account of Basel Committee recommendations when it linked the ‘customer due diligence’ norm for banks originally crafted in 2001 by the Committee¹³⁶ to its recommendations to combat money laundering.¹³⁷ The language of ‘taking into account’ other standards reappeared in another statement, but this time the norms referred to were those of the FATF itself.¹³⁸ Similarly, the interconnected structure of international standards has been emphasized by private norm addressees in financial markets.¹³⁹ These statements have been subtle conduits in the discursive enmeshment of financial standards. Financial regulators and producers of those standards have often construed standards in connection with other standards, which suggests that these norms have become entangled in an interconnected ‘web’ of norms.¹⁴⁰ As we have seen, the web-like shape of the Compendium equipped with hyperlinks to enable users to connect to the webpages of the different standard producers (and their standards) was indeed foreseen by the Task-Force on Implementation of Standards. This particular feature enabled users of the Compendium to create loose, ad hoc connections between standards through their statements and practices. It may be that this particular way of constructing relations between bodies of norms was done for strategic reasons, perhaps to strengthen the authority of the technical bodies that make those standards, including standard-setting organizations that are members of the FSB itself.¹⁴¹

11.4 Conclusion

This chapter has focused on forms, locations and practices in which relations between bodies of norms in global financial governance have been defined in the aftermath of the Asian financial crisis and the global financial crisis. Drawing on official pronouncements connected to the IMF, the UN and the BIS, it has observed the different contexts in which these relations have come about. The institutional memory examined has provided traces of ad hoc but not uncontroversial construction of entanglements and the participants and factors behind them. In many of the sites of governance examined, different forms were articulated through dynamic and informal interactions of a multiplicity of regulators, international institutions and international standard-setting organizations involved in the global governance of financial stability.

Competing ordering projects have emerged in different contexts in the theory and practice of global financial governance over time. These projects were also sites in which actors imagined different ways of shaping ‘international standards’ and their relations, with implications for the forms of entanglement that came about through their claims. Since the second half of 1990s, the multiplication of standards deemed to be relevant by financial regulators has triggered efforts to define their relations, and regulators have relied on different interface norms at different sites of governance to create order. International lawyers have often imagined the global financial order from an intra-systemic perspective and sought to organize institutional pluralism through overarching norms such as the rule of law.

Although many of the actors analysed imagine a global financial system, there is a lack of general agreement on the implications for the relations between different bodies of norms. Differently situated actors defined their relative weight in different ways by placing emphasis on different norms and sites of authority. For example, in their respective ordering projects in response to multiplicity, officials at the UN, the IMF and at the BIS have come up with conflicting views on the position of the relevant sites of authority. From this perspective, the emerging overall order remains pluralistic.

Drawing on the history of the Compendium of Standards, differences between forms of entanglement connected with the Financial Stability Forum and those linked to the IMF and UN contexts could be observed. Standards included in the Compendium were ordered through an interplay of straddling practices and reception norms. When the Compendium was still in the making, the former type of interface norm appeared in the work of the Task-Force on Implementation of Standards. In this context, boundary-drawing practices, too, were used to create distance from norms that actors assembled at the FSF did not identify as relevant. By contrast, other bodies of norms were connected to form an official list of international financial standards, around which an international consensus had to be built. The making of a list of ‘twelve key standards’ was the outcome of a straddling practice by the Task-Force, which had the effect of blurring the boundaries between the bodies of norms that were brought within this new list. However, the increasing institutionalization of the FSB has been coupled with a greater emphasis on practices of regulatory uniformity and centralization. Through the Compendium of Standards, regulators assembled at the FSB sought to provide a common frame to respond to the dilemmas of proximity and difference of bodies of norms in global financial governance. Over time, the FSB has sought to bring together multiple monitoring practices and their bodies of norms within a single overarching ‘framework’.¹⁴² From this perspective, it seems that a hierarchical ambition has also been at play.

However, institutional pluralism provoked similar responses in other settings, too, which triggered further forms of entanglement through the production of further compendia, lists, and rule books to order relations between bodies of norms for global financial stability. The emerging picture is heterogeneous, as evidenced by the absence of a single global decision-maker, the coexistence of different plans for reform and different visions of the relevant sites of decision-making and forms of authority.

12 Hidden in the Shades Patterns of Entanglement within the Web of Corporate Social Responsibility Law

Tomáš Morochovič and Lucy Lu Reimers

12.1 Introduction

The field of corporate social responsibility (CSR) is a rapidly growing area of transnational regulation that is characterized by a multiplicity of norm-making processes in a variety of institutions and different forums. These processes are reflexive, engaging in mutual interaction through mirroring, distancing or complementing existing normative frameworks. The resulting landscape of CSR is defined by contestation and entanglement as CSR instruments of different origin coexist side by side, sometimes with competing claims to compliance. As a result, CSR is a particularly fertile ground for studying how the relations between different bodies of norms are construed.

This chapter sets out to understand how actors entangle CSR norms and, in doing so, create an interlinked web of normative systems, both formal and informal, operating within the state as well as without it. Section 12.2 serves as a brief orientation within the complex world of CSR, identifying the main discourses and categorizations. Out of the multitude of collections of norms which come under the umbrella of CSR, the chapter draws focus to meta-regulatory CSR norms, and in particular the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises (the Guidelines).¹ Being positioned at the intersection of traditional international law, soft law initiatives developed within international organizations, and private standards and codes, the Guidelines provide a focal point for CSR entanglement. Section 12.3 looks at how the structural features of the Guidelines have contributed to the coordinated legal entanglement between various bodies of norms, which should be understood as the creation of stable, systemic and lasting connections and points of interaction. Coordinated legal entanglement can also create space for ad hoc entanglement, which is analysed in Section 12.4. The idea of ad hoc entanglement refers to more fluid and contingent interactions which might deepen the ties between bodies of norms but also sever them. The turn to ad hoc entanglement also involves a change of the subject of enquiry, moving from the systemic features of the OECD Guidelines to focus on actual instances of disputes around CSR, crystallized in the case law arising out of OECD National Contact Points (NCPs) – the Guidelines’ implementation mechanism. As indicated, the picture here is more diverse, and interactions between various frameworks are analysed on a scale ranging from distancing to proximity.

By exploring forms of legal entanglement in the field of CSR, the aim is to glean more insight into the evolving shape of this global legal order, which has expanded to include a range of new subjects, norm-making institutions and regulatory tools. To this end, Section 12.5 draws attention to some of the dynamics which appear to be emerging through the interaction of the Guidelines with other bodies of norms. These types of structuring disrupt the traditional notion of a horizontal international legal order. What we see instead is something more akin to a three-dimensional and polycentric web created through new and irreverent forms of linkage and accommodation over time.

12.2 The Contours of Corporate Social Responsibility

There is no single, accepted definition of CSR or its scope. Many definitions exist, each highlighting different aspects of CSR according to the interests of the defining actor. Business groups, for example, tend to adopt definitions of CSR that highlight voluntariness, reinforcing the distinction often made between law and CSR.² Capital-exporting states similarly emphasize the voluntary aspect of CSR. The EU, for instance, defines CSR as ‘a concept whereby companies integrate social and environmental concerns in their business operations […] on a voluntary basis’.³ On the opposite end of the spectrum, non-governmental organizations (NGOs) – confronted with the reality of human rights abuses and environmental harms associated with the activities of global corporations – often prefer not to use the term CSR at all, rejecting the way it has been framed and operationalized by businesses. For example, the Amnesty International homepage on ‘corporations’ does not mention the term ‘corporate social responsibility’ once. Instead, Amnesty International calls for corporate accountability, thus bringing it closer to the notion of accountability under law.⁴

The dichotomy about CSR being either intrinsically voluntary or binding is somewhat misleading, however. As Zerk notes, the regulatory impact of CSR provisions does not necessarily correlate to their formal binding power.⁵ More neutral definitions of CSR thus avoid references to the mandatory/voluntary distinction, emphasizing instead the social and environmental embeddedness of corporate activities and focusing on the corporate responsibility to address negative impacts while maximizing positive contributions. In this vein, Aguinis and Glavas define CSR as ‘context-specific organizational actions and policies that take into account stakeholders’ expectations and the triple bottom line of economic, social, and environmental performance’.⁶ Similarly, Zerk defines CSR as ‘the notion, that each business enterprise, as a member of society, has a responsibility to operate ethically and in accordance with its legal obligations and to strive to minimise any adverse effects of its operations and activities on the environment, society, and human health’.⁷

In sum, CSR can encompass adherence to both voluntary commitments and legal obligations with regard to corporations’ impacts on society in the broad sense of the term. CSR norms can be codified in many different forms and may be produced by a host of different actors. Individual companies produce ‘codes of conduct’ containing general principles for ‘ethical business conduct’, often applicable in relation to suppliers/subcontractors, and occasionally linked to specific monitoring (and even complaints) mechanisms, and with sanctions in case of non-compliance. Codes of conduct are also produced at the sectoral level by industry associations, or in the context of multi-stakeholder groups (e.g. the Fair Labour Organization). NGOs and civil society actors have also produced a wide-ranging set of CSR norms, including labelling initiatives (e.g. Fairtrade), sectoral principles or certification schemes (e.g. the Fairmined Standard for Gold from Artisanal and Small-Scale Mining), multi-stakeholder initiatives (e.g. the Ethical Trading Initiative) and guidelines (e.g. the Voluntary Principles on Security and Human Rights). In many instances, governments have organized, facilitated, funded or participated in the drafting of CSR codes, sometimes even establishing their own labelling schemes (such as the EU’s Ecolabel).

A category of CSR norms which is of particular interest to this chapter is the so-called ‘meta-regulatory’ instruments. These can be broadly described as CSR norms produced by international organizations and standard-setting organizations which are directed at multinational corporations (e.g. the International Labour Organization (ILO) Tripartite Declaration containing minimum labour standards). Some of these instruments cover a broad range of areas (e.g. the OECD Guidelines) and are linked to non-judicial complaints mechanisms, while others are directed at specific sectors (e.g. the OECD-Food and Agriculture Organization Guidance for Responsible Agricultural Supply Chains) or cover only specific areas of impact (e.g. the UN Guiding Principles on Business and Human Rights). Positioning themselves above other CSR norms, they often attract entanglement and serve as focal points for interaction.

12.3 Coordinated Interaction at the Meta-regulatory Level: CSR Systems and Their Linkages

The uninhibited increase in the number of CSR systems and their ensuing plurality makes them an excellent target for the study of legal entanglement. The proliferation of CSR initiatives creates a veritable ‘market’ in which regulatory systems mutually interact, with cooperation and competition representing merely the pinnacle of their diverse interactions.⁸ This section focuses on meta-regulatory instruments which inherently ‘regulate regulation’⁹ and, as a result of this, have a higher propensity for coordinated entanglement – that is, creating lasting and relatively stable regime interactions which contribute to an interlinked web of normative bodies of norms. Among these CSR frameworks, the OECD Guidelines stand out in particular due to their comprehensive coverage of corporate behaviour and structural openness towards other frameworks. As Backer notes, the Guidelines ‘are beginning to serve as the focal point for the construction of an autonomous transnational governance system that is meant to serve as the touchstone for corporate behaviour in multinational economic relationships’.¹⁰

The history of the Guidelines dates back to 1976 when the document was born as an annex to the OECD’s Ministerial Declaration on International Investment and Multinational Enterprises. Other authors have written comprehensively about the development of the Guidelines;¹¹ here it suffices to say that they are a soft law document containing recommendations to multinational enterprises in relation to the adverse impacts which arise as part of their business activities. While the recommendations themselves are not binding on corporations, adhering countries (including some non-OECD countries) have an obligation to promote the Guidelines.¹² Over the years, the Guidelines have undergone multiple revisions which have significantly expanded both their subject scope and geographical reach, with the major revisions happening in 2000 and 2011. From a legal entanglement perspective, the earlier versions of the Guidelines were uninspiring as they ‘made no reference to standards other than those created in the national sphere’.¹³ Despite the existence of reservations about the merits of ‘cross-pollination’ with other bodies of norms,¹⁴ however, the 2000 revision of the Guidelines embraced coordinated entanglement through a number of provisions in the updated text. First, the scope of regulation applicable to corporate behaviour was extended beyond domestic norms to include all ‘applicable law’,¹⁵ clarified through the OECD’s commentary to the Guidelines’ chapter on labour standards as referring to the idea that enterprises can be subject to ‘national, sub-national, as well as supranational levels of regulation’.¹⁶ A similarly broad wording was adopted in relation to the chapter on environment, which refers to ‘relevant international agreements, principles, objectives, and standards’.¹⁷ The wording created an opening through which the Guidelines could be entangled with other bodies of norms, at first being mainly restricted to more traditional international law norms, but this continuously expanded. Second, the 2000 version of the Guidelines explicitly identified a number of instruments which were considered as a relevant resource to determine the scope of obligations, or which the Guidelines were aligned with. Out of those, the various ILO documents cited¹⁸ and the International Organization for Standardization (ISO) Standard on Environmental Management Systems stand out, as they can be seen as directly competing with the Guidelines in the ‘market’ of transnational regulation of corporate conduct. By including such references in the text, and predominantly in the Commentary which forms an integral part of the Guidelines, the OECD began to create the sort of lasting, systemic connections between bodies of norms which characterize coordinated entanglement and enmeshment, and realize the benefits resulting from cooperation between systems.¹⁹

The 2011 revision of the Guidelines further developed this trend. ‘Applicable law’ became ‘applicable laws and internationally recognized standards’,²⁰ providing a basis for entanglement with bodies of norms which might not be considered law under doctrinal interpretations. The collection of explicitly entangled frameworks grew as well. The undeniably biggest contribution came from the inclusion of a new, standalone chapter on human rights, inspired by the UN Guiding Principles on Business and Human Rights (UNGPs).²¹ The alignment of the Guidelines with the UNGPs significantly expanded the normative CSR web, creating direct and indirect linkages with a multitude of bodies of norms. The UNGPs are framed as a ‘conceptual and policy framework’ for business and human rights, elaborated through extensive multi-stakeholder consultations led by Special Representative (SR) John Ruggie. Having been adopted by the UN Human Rights Council,²² they operationalize the three-pillar ‘Protect, Respect and Remedy’ Framework²³ developed by SR Ruggie. While they perform a number of complex roles vis-à-vis a multitude of actors, for the purposes of this chapter we can classify them as a global soft law CSR framework, albeit acknowledging their multifaceted nature. An important element of the UNGPs is that their implementation takes place through ‘influence on or integration into other transnational business governance instruments’.²⁴ Among these, the Guidelines take pride of place, evidenced by SR Ruggie’s assertions that in parallel to preparing the UNGPs he worked closely with the OECD to ensure consistency between the two bodies of norms.²⁵ Beyond the Guidelines, the most recent amendment of the ILO MNE Declaration²⁶ takes into account normative developments within the UNGPs, directly transposing some parts of the UNGPs with only minor clarificatory changes in their wording; and both the International Finance Corporation (IFC) Performance Standards and ISO 26000 Sustainability Standard have been coordinated so as to ensure compliance of their respective human rights provisions with the UNGPs.²⁷ Buhmann describes this as ‘mutual piggybacking’ between corporate governance schemes, providing implementation mechanisms for the UNGPs, and the UNGPs in turn imbuing other bodies with legitimacy.²⁸ Using the categorization suggested by Krisch in Chapter 1, the UNGPs are performing the role of ‘overarching norms’, characterized by the intra-systemic and overarching nature which they display in regard to the regulation of multiple bodies of norms within a single system.²⁹ Thus, the UNGPs enable the weaving together of international human rights law provisions across different normative bodies and, in doing so, indirectly entangling the Guidelines in an intricate normative web.

A further major feature of the 2000 and 2011 revisions of the Guidelines is the development of straddling practices – ‘norms and practices that straddle different bodies of norms without being seen to belong to either’³⁰ – and again, the UNGPs are prominent in this regard, with their introduction of the concept of human rights due diligence. Although the notion of due diligence is not uncommon within international law, particularly in international environmental law,³¹ the decision by SR Ruggie to reconceptualize it in the context of human rights obligations of corporations, that is non-state actors, was novel. Yet, when the human rights due diligence principle was incorporated into the Guidelines, it was not restricted to the human rights chapter – the OECD took the decision to make it applicable to all areas covered by the Guidelines. A similar thing happened to the concept of Environmental Impact Assessments (EIAs), introduced in the earlier versions of the Guidelines. The fundamentals of the concept, which originated within international environmental law, found application also in relation to non-environmental impacts of corporate behaviour, morphing into Environmental and Social Impact Assessments (ESIAs) and Social Impact Assessments. As will become clear from Section 12.4, the implementation mechanisms of the Guidelines have steadily portrayed these concepts as true straddling practices, being irreverent about their origins and treating them as inherent to the Guidelines.

12.4 Focal Points for CSR Interaction: NCPs as Sites of Ad Hoc Legal Entanglement

One of the distinguishing features of the OECD Guidelines is their implementation framework, based primarily on the practice of mediating complaints (called ‘specific instances’) by NCPs established domestically in countries adhering to the Guidelines. The geographic spread of NCPs, significant differences in their inner organization and the flexible and open-ended nature of the specific instance procedure create an inherently diverse system which has proved to be a suitable breeding ground for ad hoc legal entanglement. At present, there are forty-eight NCPs, distributed both in the home and host countries of multinational enterprises. The Guidelines provide adhering countries with significant leeway when it comes to setting up NCPs, with different organizational forms being envisaged and with room for the involvement of a variety of stakeholders.³² As the most recent annual report on the Guidelines shows, NCPs appear to be operating with four decision-making structures with varying degrees of interministerial integration and stakeholder engagement.³³ The diversity of actors already involved at the organizational level creates space for a variety of perspectives, and bodies of norms, to be brought to the table. The inclusion of external CSR norms is further facilitated by the open-endedness of the provisions on specific instances. The mandate for specific instances is defined vaguely – essentially, it ‘is intended to provide a consensual, non-adversarial, “forum for discussion”’.³⁴ What this means in practice, however, is open to interpretation by NCPs, and as this section shows, NCPs do diverge significantly in the way they understand this mandate.

At its simplest, the procedure is supposed to bring together interested parties to discuss issues arising in relation to activities of multinational enterprises which potentially impact on the implementation of the Guidelines. The term ‘interested parties’ is important, as it denotes the open-ended definition of who can trigger a specific instance. Complaints are generally brought by NGOs supporting the claims of affected communities but can also be initiated by trade unions, directly by concerned individuals, multi-stakeholder initiatives, local communities, businesses and even the NCPs themselves, showing that the potential range of actors who can initiate procedures is extensive.³⁵ There is similar flexibility when it comes to the determination of relevant CSR norms, with the Guidelines simply stating that specific instance proceedings should be carried out ‘in accordance with applicable law’.³⁶ In interpreting the rather vaguely formulated provisions of the Guidelines, parties to the NCP process can thus refer to external bodies of norms, including international soft law. As neither the Guidelines nor the Procedural Guidance set out how external norms should be brought to bear on the Guidelines, normative relationing between bodies of norms in the NCP process often has an ad hoc, even haphazard quality to it, relying on the discursive contributions of the various actors involved in specific instances. NCP case law thus provides a window into the still fuzzy, emerging structures of the postnational world of law in which actors irreverently weave loose ties between non-hierarchically situated bodies of norms in new governance spaces.

The case studies in Sections 12.4.1–12.4.3 allow us to look through the window and see whether patterns and common dynamics can be identified. The study provides an overview of over 130 concluded NCP cases dating back to 2011 when the second revision of the Guidelines took place. The study also includes a number of pre-2011 cases which provide perspective on how the NCP system dealt with entanglement before the revision. It is important to note that the majority of submitted complaints are not resolved (a small number are withdrawn, many are rejected and a significant number of cases are concluded without a mediated agreement due to withdrawal by one of the parties).³⁷ Moreover, only in rare cases are NCPs willing to make assessments of non-compliance with the Guidelines in the absence of a joint/mediated agreement. The present study only focuses on those specific instances concluded by the NCPs (whether with or without a mediated agreement), thus excluding cases which were not accepted or are still pending.

The picture which emerges shows a nuanced approach to normative entanglement. While most complaints are concluded without references to external norms, interaction with other bodies of norms is not uncommon – some form of relationing was identified in around a quarter of the cases studied. A dominant feature apparent from the cases is the notion of different ‘shades of entanglement’, with NCP-specific instances which demonstrate distancing and proximity occupying opposite ends of the spectrum. Some of the examples cannot be clearly categorized as either but nevertheless prove informative regarding how participants in the NCP process construct the responsibilities of corporations under the Guidelines by reference to other bodies of norms and thus fall into a grey area somewhere in-between. However, even specific instances falling into a single category show different intensities of each dynamic and variation as to the ‘commitment’ by an NCP to distancing or proximity between bodies of norms. Thus, while the three main categories are useful from an analytical perspective, entanglement within the system of the OECD Guidelines is best understood as operating on a spectrum with different shades being present both between and within the two opposite ends of the distancing–proximity dichotomy.

12.4.1 Distancing

While distancing can be understood as a dynamic of interaction between bodies of norms and thus as a category of entanglement, it is a mechanism of relationing which is closest to the notion of separation. However, it does not solely perform the role of division. As Krisch notes in Chapter 1, distancing creates space between bodies of norms but it can also be strategically deployed to horizontalize the relationship between them and prevent the emergence of hierarchies.³⁸ It is necessary to keep this in mind when analysing distancing within the NCP system, as the overall approach adopted by NCPs is very subtle and indicates only limited attempts to distance other CSR frameworks. Notably, none of the cases studied here featured what could be classified as a clear effort at separation, that is, an explicit rejection by an NCP of another normative system as manifestly inapplicable or irrelevant in certain circumstances. This indicates straight away that the Guidelines are a relatively open system. However, it also means that we need to rely on implicit or hidden forms of distancing which can create ambiguous interpretations of the intentions behind them.

Arguably the strongest example of distancing is silence by an NCP in the face of claims by another party in a specific instance as to the applicability of a normative system.³⁹ Such a situation occurred in the Salini Impregilo S.p.A. (2016)⁴⁰ specific instance handled by the Italian NCP, in which the NGO Survival International Italia complained about the alleged human rights violations caused by the Gibe III dam construction, carried out by Salini in Ethiopia. The complaint, brought on behalf of affected Indigenous communities in Ethiopia and Kenya, relied on provisions of the African Charter on Human and People’s Rights (ACHPR)⁴¹ in apportioning blame on Salini for its failure to respect human rights. In response to this, the company highlighted its membership of the UN Global Compact and adherence to a number of ISO standards and sustainability policies. However, none of these found its way into the examination carried out by the NCP nor into its final recommendations. By remaining silent on their relevance to the specific instance, the NCP can be seen as engaging in distancing and asserting the dominance of the Guidelines. Another example of distancing through silence occurred in Triumph International (2009).⁴² In this specific instance, a coalition of labour unions and NGOs alleged that Triumph, a Swiss company, had not complied with the Guidelines’ provisions concerning employment. Unable to successfully initiate mediation between the complainants and the company, the Swiss NCP concluded the specific instance. Although the complaint referred to various bodies of norms beyond the Guidelines, including the company’s own CSR code of conduct and ILO documents, the NCP limited its analysis to the Guidelines in the final statement. The silence of the Swiss NCP with regard to assessing compliance with the OECD Guidelines in relation to external bodies of norms can thus be interpreted as a form of distancing.

Interestingly, both of these specific instances related to conduct which happened before 2011 and thus were decided on the basis of the pre-2011 Guidelines which contained only rudimentary human rights provisions. The NCPs’ hesitant approach towards analysing compliance with regard to human rights – as evidenced by the Italian NCP’s reluctance to engage with external norms, including the ACHPR, in Salini – was indicative of the uncertainty surrounding business and human rights at the time. Sticking to the status quo position might have represented the conservative choice for NCPs unsure of where and how to position the 2000 version of the Guidelines within the emerging business and human rights ‘galaxy of norms’.⁴³

12.4.2 The Grey Area

With the next category of cases, the approach taken by NCPs is even more ambiguous and moves away from efforts at distancing. The analysed cases can be seen as straddling a grey area between distancing and proximity. Silence still plays a role here, but it has both an integrative and exclusionary function. The dynamic in these cases can be described as ‘silent entanglement’ – NCPs rely on particular norms (as opposed to bodies of norms) which are not clearly featured within the OECD Guidelines without referring to the framework in which the norm originated. This has been the approach adopted by the German NCP in the NORDEX SE (2014)⁴⁴ specific instance, which concerned a complaint by an individual against a German wind turbine supplier involved in a wind park energy project in Izmir, Turkey. The complainant pointed to general failures in the respondent’s risk management, including insufficient due diligence and failure to carry out an environmental impact assessment – both concepts which can be found in the Guidelines. However, the measures recommended by the NCP and accepted by the respondent through the mediation procedure were more extensive. They included, among other things, the carrying out of environmental and social impact assessments which are distinct from EIAs and external to the Guidelines.⁴⁵ Despite recommending the use of a measure external to the OECD system, the NCP did not provide any indication as to its origin or contents, at least not publicly.

A similar process has occurred in relation to the concept of free, prior and informed consent (FPIC) under the auspices of the Swiss NCP, which utilized it on a couple of occasions without giving due consideration to its integration into the Guidelines. FPIC is not mentioned within the Guidelines, yet it was utilized in the World Wildlife Fund for Nature International (WWF) (2016)⁴⁶ specific instance. In 2016, Survival International filed a landmark complaint against WWF for adverse human rights impacts, including the establishment of protected areas without the free, prior and informed consent of the Baka, an Indigenous tribe in Cameroon. While mediation efforts failed, with the complainant withdrawing from the process, the NCP nevertheless issued a final statement and recommended to WWF ‘to help ensure open and transparent FPIC processes in Cameroon’.⁴⁷ As with ESIAs in NORDEX SE, the NCP did not give any consideration to the pedigree of FPIC, again engaging in silent entanglement. The Swiss NCP repeated this in the Credit Suisse (2017)⁴⁸ specific instance, brought in respect of the respondent’s business relations with companies involved in the construction of the Dakota Access Pipeline. The mediation ended successfully, with a joint statement in which the respondent committed to incorporating FPIC within its sector-specific policies. While the NCP simply welcomed the respondent’s adoption of FPIC, it is notable that there was not complete silence – Credit Suisse, quoting its modified internal policies, traced FPIC to the IFC Performance Standards and the UN Declaration on the Rights of Indigenous Peoples (UNDRIP).⁴⁹ If anything, however, this creates further confusion, as the silence by the NCP stands in contrast with the acknowledgement by the corporation. There are other plausible sources for the norm, notably ILO Convention 169⁵⁰ which, in contrast to the UNDRIP, is legally binding. Moreover, there is considerable disagreement as to whether FPIC represents a standalone right or should be treated more as an overarching principle, with differences in interpretation existing depending on the norm-system within which FPIC is being deployed.⁵¹ In such circumstances, the potential problems caused by silent entanglement are further accentuated.

There is one more group of cases falling within the grey zone category, representing instances where an NCP acknowledged the relevance of other bodies of norms but does not say which ones it is referring to. In the Atradius Dutch State Business (2015)⁵² specific instance, the NCP noted that the respondent had a duty to ‘comply not only with national and regional laws and regulations, but also with relevant international norms and standards, including – but not limited to – the Guidelines’, without specifying which norms and standards it considers as relevant.⁵³ Similarly, the UK NCP in the ENRC (2013)⁵⁴ specific instance noted that, in preparing its assessment, it ‘consulted open sources for information on relevant international standards (including IFC performance standards and UN conventions and reports on human rights)’. Yet, when assessing the behaviour of the company, it only vaguely notes that ‘[i]nternational standards (including the OECD Guidelines) oblige companies to consider environmental and social aspects of projects throughout their life cycle’.⁵⁵ What standards other than the Guidelines the NCP is referring to remains unclear. The most sensible interpretation of what NCPs are doing here is interpreting the Guidelines as a system inherently open to entanglement, which is in line with the analysis of the development of the instrument in relation to other CSR norms in Section 12.3. This links us back again to the idea of resonance, with NCPs situating the Guidelines into a more extensive project of human rights protection which in turn can be understood as providing legitimacy.

12.4.3 Proximity

The specific instances just covered show that the analysis is steadily moving towards proximity between bodies of norms. Here, the existence of varying shades of entanglement is particularly pronounced. It can range from paying mere lip service to another framework by mentioning it in passing, all the way to a thorough analysis of another system’s approach to an issue and the intricate weaving together of norms. The starting point here is those instances where entanglement is arguably unsurprising because the external body of norms referred to is ‘integrated’ or ‘enmeshed’ with the OECD Guidelines. The research then turns towards the arguably most interesting examples of entanglement: bodies of norms which are wholly external to the Guidelines.

12.4.3.1 Integrated Normative Systems

As noted earlier, some normative systems enjoy a privileged position in terms of their relationship with the Guidelines as they are explicitly mentioned in the text. The UN Guiding Principles as well as the ILO Tripartite Declaration on Multinational Enterprises stand out in this regard. However, just as with distancing and the intermediate category, proximity also appears in shades. In some specific instances, NCPs simply note the alignment between the Guidelines and the other body of norms, as the French NCP did in Michelin Group (2012) where the UNGPs were mentioned as inspiration for the 2011 revision of the Guidelines.⁵⁶ On other occasions, alignment between the two standards is noted in the context of applying a particular rule. This can be seen in relation to the due diligence requirement of the UNGPs in the Danish PWT Group (2014).⁵⁷ Moreover, NCPs are not always the main drivers behind proximity and the relevance of other bodies of norms is raised by the parties to the complaint. This occurred in the Dutch NCP Bralima and Heineken (2015)⁵⁸ specific instance. Bralima, Heineken’s Congolese subsidiary, was accused of labour misconduct in relation to the departure of a group of employees from its Bukavu brewery in the period between 1999–2003, when an open conflict was ongoing in the Democratic Republic of Congo. Given the historic nature of the complaint, the NCP only played a restricted role and facilitated discussions between the parties. With Heineken already having a human rights policy in place by the time of the specific instance, the NCP encouraged ‘Heineken’s commitment to continue working on an internal analysis of Heineken’s existing policies and processes in the light of the Guidelines and the [UNGPs]’.⁵⁹ Another example is the Norconsult AS (2015) specific instance, which was resolved through mediation and via a joint statement between the complainants and respondent, endorsed by the Norwegian NCP. In the statement, the respondent committed to respect Indigenous peoples’ rights in accordance with ILO Convention 169 and acknowledged the relevance of UNDRIP and the Universal Declaration of Human Rights (UDHR) for its internal human rights policies. It is interesting to see that parties to proceedings also push for proximity through the specific instance procedure – it highlights that the intertwined nature of CSR norms is not only something imposed from above.

Efforts at creating proximity can also take a much stronger form, such as an NCP extensively engaging with the substantive content of other bodies of norms. One example is the Dutch specific instance VEON (2016),⁶⁰ which focused on a labour dispute between VEON, its Bangladeshi subsidiary, and a trade union established at the Bangladeshi operations. The complainants claimed that VEON tried to suppress the employees’ attempts to unionize. However, the respondents challenged this by stating that the trade union was illegitimate as it lacked registration with the Bangladeshi authorities – a mandatory requirement under the laws of Bangladesh, but in direct violation of the OECD Guidelines and ILO regulations. The NCP recognized the ILO’s competence in this area, noting that ‘the ILO has stated on many occasions that the stringent procedural conditions for the registration of trade unions in Bangladesh are not in line with international legislation and necessitate amendment of local legislation’.⁶¹ It suggested to VEON ‘to comply with international labour law standards to the fullest extent possible’.⁶² In essence, entanglement was utilized here strategically by the NCP in order to assert the authority of a desirable outcome which might be seen as contrary to the requirements of domestic law. Another example of reliance on the substantive provisions is the Dutch Bresser (2017)⁶³ specific instance. The company, a specialist in object relocation, was responsible for the relocation of a fifteenth-century tomb as part of the construction of the Ilisu Dam in Turkey. The complainants claimed that Bresser failed to adequately consult the local population before moving the tomb, violating their right to culture. With the NCP noting that this was the first instance in which the right to culture has been the subject of an NCP procedure, it had to decide whether the matter comes under the scope of the Guidelines. It affirmatively did so, but only through reliance on Principle 12 of the UNGPs and its commentary, as well as Art. 15 of the International Covenant on Economic, Social and Cultural Rights and the UNESCO Declaration concerning the Intentional Destruction of Cultural Heritage.⁶⁴ The unexpected reliance on other bodies of norms in determining whether an issue comes within the ambit of the Guidelines underlines the strong proximity between the Guidelines and the integrated normative systems, in particular the UNGPs.

Moreover, the case also shows the tendency of NCPs to reach for norms depending on their suitability to the subject matter of the specific instance. This dynamic of ‘specialization’ is particularly common in instances of entanglement with more traditional normative systems, such as environmental or human rights law.⁶⁵ It also stands somewhat in contrast to how proximity is construed between the Guidelines and the UNGPs, with those interactions occurring pretty much universally regardless of the content of the proceedings. The UNGPs are usually utilized to provide detail to norms of a more procedural nature, such as due diligence or the concept of leverage, which find applicability regardless of the subject matter of a specific instance. In contrast, more traditional international law documents (but also ILO standards and, as will be seen, other external bodies of norms) are used more as precision tools to provide details on substantive issues which may relate to a particular right or a particular norm. For example, in the Danish Greenpeas Enterprise ApS (2013)⁶⁶ specific instance, Art. 8 of the International Covenant on Civil and Political Rights (ICCPR) (prohibition on forced and compulsory labour) was invoked by the NCP in a case addressing the retention of workers’ passports against their will, creating ‘conditions that can be associated with slavery’.⁶⁷ Similarly, in Mercer PR (2016),⁶⁸ the Australian NCP identified the right to privacy, as contained in Art. 12 of the UDHR and Art. 17 of the ICCPR, as relevant in a specific instance in which a small Australian company distributed personal information concerning an alleged sexual assault.

12.4.3.2 Wholly External Bodies of Norms

Instances of creating proximity between bodies of norms are not only restricted to those standards which are explicitly featured within the OECD Guidelines – entanglement between the Guidelines and wholly external bodies of norms is common. As the following cases show, NCPs adopt a very flexible interpretation of relevant frameworks, treating as ‘applicable law’ not only international soft law, but also private agreements and regulatory initiatives of a completely private nature. In addition to having the consequence of ‘lumping together’ typologically different bodies of norms with little nuance as to their bindingness, such entanglement can have a major legitimizing effect for the external systems due to the meta-regulatory stature of the Guidelines. In some ways, this category of specific instances most closely demonstrates the notion of entanglement as the cases often work with multiple bodies of norms and create linkages between them in an unexpected, even irreverent manner, weaving together a multidimensional web of CSR regulation.

Arguably a more doctrinally conservative collection of cases is represented by those specific instances displaying proximity between the Guidelines and international normative systems developed within international organizations or as a result of agreement between states, and such a dynamic predates the 2011 revision of the Guidelines. In Vedanta Resources PLC (2008), Survival International submitted a complaint with the UK NCP concerning Vedanta’s planned construction of a bauxite mine in Orissa, India.⁶⁹ Survival alleged that Vedanta’s operations were inconsistent with the Guidelines and drew on international environmental law and human rights law to substantiate the claims. In coming to its conclusions that the company had indeed breached the Guidelines, the NCP emphasized the rights of Indigenous peoples under international law, ‘including the [ICCPR], the UN Convention on the Elimination of All Forms of Racial Discrimination, the Convention on Biological Diversity and the UN Declaration on the Rights of Indigenous People’.⁷⁰ The NCP also found that Vedanta had not engaged in adequate community consultation, interpreting the provision in light of the 2004 Akwé Kon Guidelines produced by the Secretariat of the Convention on Biological Diversity.⁷¹ Thus, the NCP found that the company had breached the Guidelines by reference to an international soft law produced by the secretariat of a multilateral environmental agreement with no formal linkage to them. A post-2011 example is the Dutch ING (2017)⁷² specific instance, which represented a broad challenge to the respondent’s overall climate policy. The claimants specifically required ING to report its indirect carbon emissions, accrued through its loans and investments. Despite the broadly framed complaint, the NCP managed to secure cooperation from the respondent and, in doing so, entangled the freshly negotiated Paris international climate agreement into the Guidelines.⁷³ Not only was the Paris Agreement identified as relevant, but ING agreed to utilize the methodologies of the Paris Agreement in ‘measuring, target setting and steering the bank’s climate impact’.⁷⁴ This indicates another layer to the ‘specialization’ dynamic, as the international norm might have been chosen not only because of its closeness to the subject matter, but also because it provides effective and appropriate methodologies and solutions which the respondent could incorporate within its CSR policies.

However, coupling also happens with bodies of norms which are not normally considered law or which might originate outside of a state-centric environment, and again this is not limited only to the post-2011 version of the Guidelines. In Intex Resources ASA and the Mindoro Nickel Project (2009),⁷⁵ the complaint concerned alleged violations of the human and environmental rights of Indigenous peoples that would be affected by Intex Resources’ planned nickel mine and factory in the Philippines. The Norwegian NCP concluded that the company had, inter alia, failed to properly consult the affected groups, thus breaching the Guidelines. As Intex had previously declared its adherence to the IFC Social and Environmental Performance standards and the Equator Principles, the Norwegian NCP repeatedly drew on the content of those standards when determining whether the company had complied with the Guidelines’ recommendation ‘to consider the views of other stakeholders’. In addition, the NCP referred to the UNDRIP, ILO Convention 169 in order to interpret and ‘flesh out’ the recommendations of the Guidelines.⁷⁶ In this instance, the NCP made full use of the in-text references to other bodies of norms in the Guidelines, as well as the fact that the company itself had proclaimed adherence to the IFC Performance standards.

In the KiK Textilien und Non-Food GmbH, C&A Mode GmbH & Co., and Karl Rieker GmbH & Co. KG (2013)⁷⁷ specific instance, the German NCP provided an illustration of how private agreements can be entangled. The case concerned a fire at the Tazreen Fashion factory in Dhaka, Bangladesh, in November 2012. The complainant asserted that the respondent companies were jointly responsible for the fire because they continued to produce clothing at the site, even though an independent safety assessment carried out in 2011 found that safety measures were inadequate. All three enterprises were producing clothes in the factory indirectly through subcontractors. While the complaint against C&A was forwarded to the Brazilian NCP,⁷⁸ the German NCP did investigate the allegations against KiK and Karl Rieker. It did not consider the two respondents’ direct liability for the fire to be substantiated, however, as both companies proved that they discontinued production at Tazreen Fashion over six months before the fire.⁷⁹ The NCP did initiate mediation proceedings for the part of the claim which concerned breaches of the duty of care in relation to the safety measures within the factory. As part of the mediation, the NCP and the parties relied upon the Bangladesh Safety Accord to which KiK and Karl Rieker were both signatories. While all parties were supportive of the measures taken as part of the Accord, it is interesting that these were not deemed to be sufficient and the NCP recommended other supplementary measures.⁸⁰ The dialectic deployed in the mediation shows that entanglement in a single case can be nuanced, with efforts to increase proximity but also to distance norms and create hierarchy. Entanglement can thus be used to further both legitimization and delegitimization. The parties and the NCP embraced the measures of the Accord, recognizing it as relevant. Yet, at the same time, the NCP limited its legitimacy by stating that the Guidelines require supplementary measures to be taken. In doing so, it reinforced the meta-regulatory status of the Guidelines and provided a hint as to the emergence of a hierarchy between the two bodies of norms.

A very similar dynamic can be seen in the Rabobank (2014)⁸¹ specific instance, in which the Dutch NCP considered the respondent’s provision of loans to the Indonesian palm oil company Bumitama. Interestingly, a central part of the complaint became obsolete during the proceedings, as Bumitama terminated the contract for the plantation which formed the primary subject of the complaint. Nevertheless, the Dutch NCP considered that some parts of the complaint still merited further consideration, allowing it to analyse more generally Rabobank’s policy in relation to palm oil supply chains. A core part of this assessment was devoted to Rabobank’s membership of the Roundtable for Sustainable Palm Oil (RSPO), which is a global multi-stakeholder sustainability initiative. A company wishing to become a member of the RSPO (and thus be able to use the RSPO trademark ecolabel) has to undergo a certification process, which itself is based on another set of private principles for sustainability standards – the International Social and Environmental Accreditation and Labelling (ISEAL) Alliance Credibility Principles, which perform a meta-regulatory role within the sustainability standards sector. By engaging the RSPO, the Dutch NCP is, possibly unknowingly, entangling the Guidelines with two layers of normative systems. Proximity within this specific instance takes the form of the NCP’s cautious optimism about the RSPO in stating that its grievance mechanism and commitment to a multi-stakeholder approach can be seen as good practice within the palm oil production sector.⁸² However, the NCP also notes the need for the respondent to develop its own practices beyond the RSPO, even suggesting disengagement as an option of last resort.

Thus, just as in the previous specific instance, we can identify a dual dynamic of both proximity and distancing with an external standard. On one hand, the NCP legitimizes the body of norms as a good practice, on the other, it delegitimizes it by encouraging the respondent to look beyond. The sense of hierarchy emerging between the Guidelines and the RSPO is further reinforced by the fact that in RSPO (2018),⁸³ a complaint was brought directly against the Roundtable before the Swiss NCP for the alleged failures of its complaint mechanism in dealing with a land dispute between local communities in Indonesia and one of its member companies. While the NCP was limited to the role of a mediator and did not directly draw upon an external standard, the specific instance is notable for the way in which it interacts with the RSPO as an external system. The NCP carries out a somewhat supervisory role, relying on its own leverage over the RSPO to push the sustainability standard itself towards compatibility with the Guidelines. Thus, proximity and distancing both seem to be present, drawing the bodies of norms closer but also alluding to a hierarchy between them and, in doing so, demonstrating another shade of the complexity of entanglement.

The Bresser specific instance and a number of others have already shown NCPs drawing on multiple bodies of norms in one proceeding. The final part of this section focuses on three specific instances featuring this dynamic which were brought within the UK NCP system. These arguably represent the strongest examples of proximity, invoking multiple normative systems and showing extensive interaction by the NCP. The first specific instance is GCM Resources plc (2012),⁸⁴ concerning plans by the respondent to develop a mine in Bangladesh. The complaint dates back to 2004 when GCM Resources began the planning and consultation process for the mine. However, the company’s activities were still effectively incomplete and on hold at the time of the complaint. Thus, parts of the specific instance were handled under the 2000 version as well as the 2011 version of the Guidelines. The respondent had undertaken an ESIA as part of its planning and consultation process which the NCP considered in light of the standards applied by the World Bank and the IFC. While the NCP acknowledged that the self-regulatory practices adopted by GCM Resources and based on the IFC standards were sufficient, it pointed out inadequacies in relation to the respondent’s communication of its plans to affected communities.⁸⁵ In relation to adverse human rights impacts before September 2011, the NCP noted that the UNGPs were available to businesses from 2010 and also that human rights concerns were incorporated in the IFC standards. The NCP also noted the ‘company’s plans recognise the ILO standard on Indigenous Peoples’.⁸⁶ When considering activities happening after September 2011, the NCP reiterated the relevance of the UNGPs and highlighted the applicability a new set of IFC Performance Standards, issued in 2012. The NCP also noted that the respondent’s updated plans will have to consider the right to FPIC, as contained within UNDRIP.⁸⁷ The GCM Resources plc specific instance underscores that engagement with human rights norms intensified in the post-2011 Guidelines, but also shows that human rights considerations were clearly present even before. Interestingly, the NCP indicated that the IFC Performance Standards played a major role in this regard. The way in which the concepts of ESIA and FPIC were treated is also notable – in contrast to the examples of silent entanglement in NORDEX SE, WWF or Credit Suisse, the UK NCP in GCM Resources plc was very explicit about connecting ESIA with the IFC Performance standards and FPIC with UNDRIP. This again shows that entanglement is nuanced, with proximity being a more dominant dynamic in the UK context.

The second UK-specific instance to consider is G4S plc (2013),⁸⁸ which also concerned actions spanning both the 2000 and 2011 versions of the Guidelines. The complaint was addressed against the respondent’s provision and maintenance of security equipment (CCTV, baggage scanners) at Israeli checkpoints within the Palestinian occupied territory and within Israeli prisons. At the outset of its fact-finding, the NCP noted the relevance of the 2004 International Court of Justice (ICJ) Israeli Wall Advisory Opinion⁸⁹ and the UK’s acceptance of the advisory opinion.⁹⁰ In contrast to GCM Resources plc, the NCP predominantly focused on the respondent’s human rights obligations after 2011, putting the UNGPs under the spotlight and drawing extensively on their provisions, especially those in regard to the termination of a business relationship.⁹¹ Private standards were also engaged – the NCP recognized the relevance of the International Code of Conduct for Private Security Providers, ‘of which G4S was a founder signatory in 2010’.⁹² However, the NCP also explicitly dismissed another private initiative suggested by G4S (Voluntary Principles on Security and Human rights) as it was principally relevant to the sectors of mining and energy.⁹³ Showcasing both proximity and distancing, the approach in G4S plc is another good example of the specialization dynamic mentioned earlier.

Finally, the KPO Consortium (2013)⁹⁴ instance involved a consortium of companies from three OECD member countries (Italy, the UK and the USA) operating an oil and gas production facility in Kazakhstan. After mutual agreement between the relevant NCPs, the UK NCP took care of handling the complaint and engaged KPO as a single entity. The adverse human rights impacts arose in relation to two households located within a protective zone around KPO’s facility and who were consequently entitled to resettlement and compensation. Just as before, the issues were of a long-term nature, dating back to the 1990s and potentially involving three different versions of the Guidelines. The UK NCP changed tack from the previous specific instances by ingeniously applying the extensive human rights provisions of the 2011 Guidelines even to situations where the adverse impact arose before 1 September 2011 but was still ongoing.⁹⁵ This enabled the UK NCP to draw on the UNGPs and their predecessor, the UN Protect, Respect and Remedy Framework.⁹⁶ The IFC Performance Standards were also considered relevant, as KPO received a loan from the IFC, making their provisions directly applicable to the project.⁹⁷ The UK NCP went into some detail in considering how the IFC’s standard for involuntary resettlement applied to the situation, noting that the situation wasn’t a typical case for the IFC standard but that KPO should have nevertheless applied it as good practice.⁹⁸

The three specific instances show that the UK NCP’s approach is closest in resemblance to a more traditional, adversarial method of adjudication.⁹⁹ Maheandiran suggests that the nature of the approach adopted by an NPC can have an impact on the objectives and structure of the specific instance procedure.¹⁰⁰ It can be argued that this is also true for the dynamics of entanglement, with the UK approach showing the most extensive entanglement with multiple bodies of norms. As a consequence of establishing liability within its approach, the UK NCP necessarily considers the applicability of particular norms and systems in detailed fashion. This can seem counterintuitive, as a more traditional adjudication mechanism would probably draw clear lines between bodies of norms in an effort to determine the applicable law, thus moving closer towards distancing and possibly separation of systems. Yet the same dynamic within the open system of the Guidelines appears to go in the opposite direction and increase proximity between bodies of norms.

12.5 Implications and Observations

The open formulation of the OECD Guidelines gives ample room for NCPs to resort to external bodies of norms and to position themselves in the context of a broader and evolving discourse around CSR. As shown in Sections 12.3 and 12.4, the openness of the Guidelines has increased over time, creating structural opportunities for entanglement. However, as demonstrated by the specific instances covered, the NCP procedures are incredibly varied and have the effect of producing a web of entanglement. An NCP’s understanding of its own role or its organizational structure and available resources can affect the degree to which it is willing to promote entanglement with external norms. The more restricted an NCP’s understanding of the scope of the Guidelines and its role in the complaints process, the more reluctant it will be to make a compliance assessment. In contrast, as has been demonstrated in the last three UK-specific instances, an NCP that perceives its role as more than being a simple mediator will be more inclined to take a proactive approach in assessing the validity of a complaint which can increase the likelihood of entanglement.

Variety is not limited to NCPs only, as the parties to the proceedings have also been shown to drive entanglement. The broad formulation of who can initiate a specific instance procedure and the diverse range of entities which have found themselves in the position of respondents¹⁰¹ means that an extensive group of actors can bring their perspective (and the bodies of norms to which they adhere) to the table. And, as the specific instances of Bralima and Heineken or Norconsult AS highlight, NCPs are often willing to endorse entanglement driven by the parties. Additionally, the form and substance of (external) norms also affect the likelihood of entanglement. For example, the World Heritage Convention as a ‘list-based treaty’ invites entanglement more readily than framework conventions such as the Convention on Biological Diversity, which does not have a clearly defined scope and contains only general provisions.¹⁰²

Indeed, the categorization of specific instances adopted within this chapter can be deceptive, as it simplifies a very nuanced picture of entanglement in which multiple dynamics can be present in a single case. Even examples of the same dynamic can take various forms and can be framed in different terms, with different language corresponding to the different shades of entanglement. The UK-specific instances are again informative in this regard. In GCM Resources and G4S, when the NCP considered a particular norm or standard as applicable, it would often (but not exclusively) use the phrase ‘the NCP notes’ and then refer to the relevant provision in question, possibly engaging with it in more detail. The KPO instance stands in contrast to this, with the wording of ‘notes’ and a particular norm being much less used, and has been largely replaced by two separate subsections within the specific instance (‘Applicable Standards’ and ‘Guidance Available on Human Rights’) which include the majority (but, again, not all) of the standards referred to. Given that KPO represents a more recent instance, the change might indicate a move towards more systematization in engagement with norms external to the Guidelines. Another NCP to draw upon is the Dutch one, which has also utilized the combination ‘note’/‘notice’ and a particular norm on occasions,¹⁰³ but has also relied on other formulations such as ‘in light of’¹⁰⁴ a particular system, especially when it makes recommendations as to the conduct expected of a respondent. In general, some formulations are becoming standardized but the shades of entanglement are really characterized by diversity, mirroring the Guidelines’ system, and maybe some indifference by the NCPs as to the language they use.

This indifference is also visible in the way in which NCPs treat bodies of norms with different legal status. Across the specific instances, one can see a strong tendency to ‘lump together’ systems and standards with little consideration for their legal authority or the manner in which they apply to a respondent in NCP proceedings. The issue seems to be partly structural. While the Guidelines in their chapter on concepts and principles differentiate between ‘applicable laws’ on the one hand and ‘internationally recognised standards’ on the other,¹⁰⁵ thus prima facie recognizing the distinction between law in the strict sense of the word and other bodies of norms, in other parts of the Guidelines the distinction is much more fluid. For example, the chapter on human rights lumps together binding treaties and non-binding declarations without differentiating between them. It is thus unsurprising to see NCPs being indifferent in this regard, such as in Norconsult AS or Vedanta Resources PLC, where the NCPs drew on the non-binding UNDRIP and Akwé Kon Guidelines. This is particularly problematic when the NCP works with a number of bodies of norms with different levels of bindingness. A similar concern is the application of norms which are not addressed to corporations in the first place, but rather to states. Of course, the Guidelines do provide a sort of transpositionary function in this regard, yet it is still surprising to see that NCPs pay very little consideration as to how normative systems developed for application in a state-centric (and thus very different) context can be applied to corporations. Thus, while instances of entanglement between transnational CSR norms and international law may strengthen the coherence of global law through active coordination by the Guidelines, this may also lead to adverse effects as to the integrity and normative force of international law. In this regard, Affolder has drawn attention to how ‘corporate adoption and translation of treaty norms’ may ‘ultimately undermine a treaty’s goals’ as companies ‘cherry-pick among treaty provisions, interpret treaty commitments in their least onerous forms, and obscure the ways in which corporate activities impede treaty implementation by selectively reporting on instances where corporate policies and actions advance treaty norms’.¹⁰⁶ From the evidence, it seems that NCPs might be complicit in allowing corporations to do so through a mere lack of diligence within the specific instance procedure.

The laxness in the NCPs’ approach might be partially attributed to the perceived lack of enforceability and compliance with the specific instance procedure.¹⁰⁷ As the Guidelines are soft law and the specific instances do not create legal obligations or benefit from formalized enforceability, NCPs can feel induced to be ‘generous’ with the application of bodies of norms to a particular context. However, they would be well advised to exercise caution in this regard as the decisions reached within a specific instance are hardly inconsequential. As Nieuwenkamp highlights, the exercise of pressure by civil society, making diplomatic protection conditional upon compliance, or the consideration of specific instances in decisions on the availability of export credits are only some of the ways in which the Guidelines can have a major impact on corporate behaviour.¹⁰⁸ In fact, some elements of the Guidelines are already undergoing a process of ‘hardening’ by being transposed into domestic legislation, such as in the case of the due diligence obligation within the US Dodd–Frank Act which uses the Guidelines’ provisions as a reference point.¹⁰⁹

Finally, it is notable what a prominent role has been assumed by straddling practices within NCP proceedings, and in particular the concept of due diligence. In the post-2011 specific instances analysed in this chapter, the due diligence obligation of the respondent has been invoked in the vast majority of cases. In the NCP system, due diligence has outgrown the image of an import from the UNGPs and it is being construed as inherent to the Guidelines. Such blurring of the origins of the norm, coupled with its application in non-human rights-specific contexts, provides attestation to its quality as a straddling practice which distorts the boundaries of individual normative systems. The OECD system doesn’t only apply the due diligence principle, it also develops it further, going as far as producing a number of guiding documents for the carrying out of due diligence.¹¹⁰ A similar dynamic can be identified in relation to ESIAs and the concept of FPIC, with the examples of silent entanglement identified showing that the norms are being interpreted as cross-cutting norms and not necessarily ‘belonging’ to a single normative system. Thus, straddling practices are emerging as one of the tools of entanglement within the system of the Guidelines.

12.6 Conclusion

At the outset of this chapter, the inherent pluralism within the regime of CSR regulation of business conduct was noted as a dominant feature. Even though the analysis zoomed in on one particular focal point for entanglement, the OECD Guidelines, multiplicity and variation did not leave the picture. Instead, the system of the Guidelines can be still characterized by a plurality of bodies of norms which are the target of engagement and a plurality of shades of entanglement. Thus, in a sense the OECD Guidelines are reflective of the dynamic which exists in the wider world of CSR normativity. As the section dealing with coordinated legal entanglement has shown, the openness of the Guidelines can be attributed to the structural features of the system which provide the necessary flexibility for the interaction with other bodies of norms. Moreover, the manner in which the UNGPs were integrated into the Guidelines shows that these structural features are not accidental – rather, they represent deliberate decisions to create linkages between CSR systems, arguably motivated by the potential benefits which accrue from cooperation between bodies of norms within the field of CSR.

If the provisions of the Guidelines lay the groundwork for extensive entanglement, the implementation mechanism of NCPs does a very good job in building up the rest of the structure. It is in Section 12.4 where the true scope of entanglement within the system of the Guidelines is demonstrated. Although the dialectic of distancing and proximity is utilized in order to frame the discussion, Section 12.4 illustrates that the identified shades of entanglement are often not easily subsumed within either of the main categories mentioned. This is exacerbated by the fact that entanglement often happens with multiple bodies of norms at once. Overall, NCPs appear to be more likely to engage other bodies of norms in ways which enhance proximity between them, often creating irreverent linkages with both public and private frameworks. While some bodies of norms are relied upon in general contexts, other external norms are used as specialized precision tools when their provisions are closely related to the subject matter of a specific instance. The use of certain norms is characterized by silence as to the normative system in which they originate, underlining their status as straddling practices which can span across multiple bodies of norms. On the distancing end of the spectrum, we saw only limited efforts at drawing borders between systems – instead, efforts at distancing were utilized to hierarchically position the Guidelines against other bodies of norms or as instances of the specialization dynamic. Despite such efforts, however, the picture of CSR which emerges is certainly not of a top-down, integrated system, but rather one which is best defined as a polycentric and multilayered web of bodies of norms.