Sanctions Imposed on Private Investors by the US and the UK in the Russian-Ukrainian Conflict: Justifiable as Countermeasures in the Law of International Responsibility?

Scenario and Problems

The conflict between Russia and Ukraine continued to elicit international reactions from States beyond the pair at the epicentre of concern. Just a few months ago, the Secretary of State of the United States issued a press statement, announcing sanctions on USM Holdings owned by the Russian oligarch Alisher Usmanov and his other companies, in cooperation with the UK. The actions involve blocking all property and interests in property of the designated companies. USM Holdings criticised the financial measures for being ‘unfair and unreasonable’, citing Usmanov’s holdings of less than 50% and his lack of involvement in the company’s management for a significant period.

There could of course be debates about the characteristics of these sanctions on a conceptual level. For instance, one might believe that they constitute retorsion, namely unfriendly yet legal responses under international law. The assumption in this piece is that these sanctions are prima facie wrongful, as they are likely to breach the US and UK’s international obligations. For instance, they may constitute expropriation without prompt, adequate, and effective compensation which is generally prohibited by international investment agreements (IIAs) or by customary international law. To justify sanctions as such, some States and scholars have proposed another intriguing reasoning: they can be a form of countermeasures (see e.g. here, here, and here), as outlined in the International Law Commission (ILC)’s Articles of Responsibility of States for Internationally Wrongful Acts 2001. According to the Articles on State Responsibility, countermeasures may be used to preclude the wrongfulness of a State’s potential breach of some international obligation owed to another State, provided, inter alia, that the conduct is carried out in response to an internationally wrongful act committed by the other State and is meant to encourage the other State to comply with its international obligations. To apply this to the scenario above, the sanctions directed at Russian companies may be deemed as lawful countermeasures taken in response to Russia’s breach of the prohibition on the use of force and aggression (see e.g. here) along with other obligations under international human rights law and international humanitarian law (see e.g. here).

Under the rules of state responsibility, two possible theoretical objections, nonetheless, may be raised. First, how can the US and the UK, which are not the injured State in the Russian-Ukrainian conflict, resort to countermeasures against Russia? Second, how can countermeasures target private investors from Russia, instead of Russia or its state assets? It is argued here that these doubts can be dismissed.

States Other than an Injured State as Initiators of Countermeasures

There appear to be two paths open to States to establish their standing for enforcing countermeasures under the ILC Articles on State Responsibility, contingent upon the nature of the obligations breached by the initial wrongdoer. According to Article 42, if the obligation at stake is seen as owed to them either individually or as parties to interdependent obligations, then States are the injured States in relation with the initial wrongdoer and thus entitled to react with countermeasures against it by virtue of Article 49. On the other hand, if the obligation breached is one stipulated in Article 48, namely obligations erga omnes partes or erga omnes, it might be contended that even States that are not the injured state are entitled to take countermeasures against the initial wrongdoer, though it is worth noting that the wording of Article 54 is neutral on this issue as it merely allows states other than the injured state to take ‘lawful measures’.

What has been violated by Russia’s invasion of Ukraine are, as mentioned previously, the obligations to outlaw aggression and not to use force, along with other obligations under international human rights law and international humanitarian law. These obligations are believed to be obligations erga omnes as stated in a series of decisions from the International Court of Justice (ICJ) (see e.g. the Barcelona Traction Case at paras. 33-34) and suggested by a myriad of academic works (see e.g. here). Some might say that the US and the UK can be the injured States in the sense of Article 42. While the breaches of these obligations can be deemed to have ‘injured’ them in some degree, such a broad and generic definition of injury is rejected by members of the International Law Commission as extra-legal and misleading and therefore should be avoided. The US and the UK, in this connection, should be more appropriately considered as the States which are not legally injured but have a legal interest in ensuring Russia’s compliance with its obligations.

It is noteworthy, though, that the right of these States to adopt countermeasures has been a subject of controversy, especially when it comes to the exposition of Article 54. Indeed, that provision is worded only as a without-prejudice clause, drafted in a tone of compromise. It leaves open the possibility of exercising the right by non-injured States and yet refrains from explicit affirmation. The ILC commentary also considers practice on this matter as ‘limited and rather embryonic’. The ICJ has stayed silent about this matter as well. Confronting the hesitation and obscurity, some opine that since the adoption of the ILC Articles on State Responsibility, the concept of countermeasures by non-injured States has been tacitly approved, if not actively embraced, by state practice and opinio juris, and is now rooted in customary international law (see e.g. here, here, here, here). If this is accepted, the US and the UK should have the right to take countermeasures against Russia. In fact, allowing them to implement non-forcible measures will also be logical, in the face of Russia violating the prohibition of use of force to the level of launching armed attacks. After all, States other than an injured State are conferred the right to collective self-defence, meaning that they are permitted to take forcible measures in this situation at the request of the victim state. Therefore, it seems reasonable that a less severe form, namely one that does not involve the use of force, is allowed as an option for States other than an injured State like the US and the UK here.

Private Investors as Targets of Countermeasures

Another question remains: Under general international law, can the actions carried out against private investors be justified on the ground of countermeasures, thus absolving the international responsibility of the US and the UK? To be sure, there may also be doubts about relying on countermeasures to rationalise sanctions carried out against the Russian government and their sovereign assets. They are distinct from those associated with sanctions against private investors from Russia, on which this analysis focuses. The measures taken by the host State against private investors, for instance freezing assets or disallowing transactions with them will in many cases breach obligations of the host state. For example, the host State may fail to meet market access or other commitments in international trade law, which are undertaken towards the home State of private investors. The provisions pertinent to countermeasures arguably uphold the lawfulness of the host State’s exercise of countermeasures. This can be inferred from Article 50 numerating obligations that shall stay intact in the host State’s exercise of countermeasures, as the list does not include obligations under international trade law. In this respect, the behaviour might fall within the scope of valid countermeasures, and its wrongfulness, as Article 22 prescribes, is thus precluded if the home State is responsible for an internationally wrongful act. In other words, the host State can temporarily suspend its compliance with the foregoing obligations owed to the home State that committed an internationally wrongful act without being held liable.

However, as mentioned earlier, the measures may be rendered unlawful, not only towards the home State, but may also to breaches of obligations towards private investors undertaken under bilateral or multilateral investment agreements. These prima facie violations of international investment law may give rise to legal claims from private investors against the host State. And this is where things become more uncertain. The ILC Articles on State Responsibility envisages an inter-state regime of international responsibility. In the commentary, it is acknowledged that countermeasures may ‘incidentally affect the position of third States or indeed other third parties’, and that if these parties ‘have no individual rights in the matter they cannot complain’. Accordingly, the issue appears to come down to whether private investors are the ‘third parties’ who have their individual rights that the host State’s countermeasures cannot encroach upon.

To assert that private investors enjoy certain individual rights is not ground-breaking when individual rights like human rights are solidly established in international law (see e.g. the discussion by Paparinskis here at pp. 622-624). It has been correctly observed that private investors’ rights are not akin to human rights from the perspective of home and host states’ obligations. The obligations under the IIAs are reciprocal since the home State’s performance of them is dependent on the host State’s and vice versa, which is not the case for ‘integral’ human rights. While this nature of reciprocity is pertaining to the inter-State relationship in the IIAs, some writers maintain that subject to treaty interpretation rules and ultimately the intention from State parties, the rights of investors in its legal relationship with the host State should be deemed derivative from that inter-State legal relationship. Notwithstanding the plausibility, it is not entirely clear if holding ‘derivative rights’ is equivalent to not enjoying ‘individual rights’ opposable to the host State’s countermeasures. After all, the origin of the rights should not be confused with the holders of those rights (see here at para. 426). It might also be artificial to distinguish private investors’ procedural rights from substantive rights to say the latter are retained by the home State alone as some arbitral awards declare (see e.g. here at para. 163), when the home State neither controls the conduct of the case nor receives compensation afterwards (see e.g. here at paras. 167-176). As some scholars suggest, private investors here could easily fit into the third-party beneficiaries model in contract law, owing to the fact that they benefit from an agreement between the State parties. While having individual rights, private investors’ legal relationship with the host State is, by analogy to the principles of contract law, restricted by the inter-state relationship where they derive and are susceptible to countermeasures.

Concluding Remarks

A year into the Russian invasion of Ukraine has witnessed a phalanx of sanctions from States other than the injured State, including the US and the UK, on Russia and its private investors. Unfortunate as that event is, these measures undeniably feed valuable data into the laboratory of international lawyers for evaluating the current international legal system. It is interesting to examine how the justification of countermeasures in the law of international responsibility pans out in the context of sanctioning private investors from a wrongdoing State. As we have explored in the foregoing sections, there are two potential theoretical challenges to invoke this justification, but they are not insurmountable.

Photo: ‘Harry S. Truman Building, headquarters of the U.S. State Department’ (Wikimedia).