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A Door Half Open: Transparency, Secrecy, and the Future of EU Targeted Sanctions

Zachary K. Goldman
Monday, June 16, 2014, 3:51 PM
In recent months, targeted sanctions on Russian and Ukrainian companies and individuals have formed the core of American and European Union (EU) efforts to deter Russia from escalating the conflict in Ukraine. But the ability of the EU to do so moving forward may be threatened as a result of lawsuits that have been filed by individuals on whom sanctions have been imposed.

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In recent months, targeted sanctions on Russian and Ukrainian companies and individuals have formed the core of American and European Union (EU) efforts to deter Russia from escalating the conflict in Ukraine. But the ability of the EU to do so moving forward may be threatened as a result of lawsuits that have been filed by individuals on whom sanctions have been imposed. These suits add to the woes of EU sanctions officials, who recently have been on the losing end of court cases challenging financial sanctions programs designed to address Iran’s proliferation of weapons of mass destruction (WMD) and counterterrorism. European Court of Justice (ECJ) decisions invalidating WMD and counterterrorism sanctions represent a fundamental challenge to the EU’s financial restrictions system, and have come about in part because the European judiciary lacks the ability to review the kinds of classified national security information that often underlies the imposition of financial sanctions. Courts, in these instances, are limited to reviewing only unclassified statements when deciding cases that the subjects of sanctions bring against the Council of the European Union, the body that decides whom to designate for sanctions. Limited by the fact that they often do not have complete information about the reasons a claimant was designated, the EU courts in March proposed amendments to their rules that would permit them to review and consider classified information when they hear challenges to financial sanctions. While devising such a system would be a welcome change, it may not be sufficient to ensure that the EU has a stable mechanism for imposing financial sanctions over the long term.  Achieving stability in this realm is particularly important because financial sanctions are a valuable national security tool that adds leverage to diplomatic negotiations and safeguards the international financial system against abuse. In order to strengthen the system for imposing sanctions, reforms also should be considered by the Council itself, so that the process of imposing sanctions on individuals and companies takes place with greater transparency, even if the information that forms the basis for sanctions in specific cases remains secret. Should it do so, the Council stands a much better chance of putting its sanctions programs on stable footing and ensuring their availability to help manage future crises. By increasing transparency about the general rules, processes, and procedures for imposing sanctions, the use of secret material in specific instances may be regarded as much more acceptable. System Limits The EU’s difficulties in sustaining financial sanctions measures has posed diplomatic problems, in addition to legal concerns, because of the importance that sanctions have played in the political strategy for curtailing Iran’s WMD program.  Indeed, many of the sanctions imposed on persons providing support to Iran’s nuclear program had been coordinated with the international community and imposed over time to pressure Iran to return to the negotiating table.  This strategy successfully culminated in the Joint Plan of Action, which was agreed to between Iran and the “P5+1” in November 2013, and which lays out a roadmap for permanent negotiations between the two sides. Yet, as the sanctions against Iran expanded, many of the individuals and companies on whom restrictions had been imposed challenged those decisions in the EU court system.  Because the information that is publicly released explaining the rationale for placing someone on a sanctions list is often sparse, many designated persons sued to have their names removed from the list.  Their suits generally alleged that, by providing minimal information about the reasons for which the entities were sanctioned, the Council violated the due process rights of the designated persons and prevented them from refuting the allegations that landed them on a sanctions list.  Because the consequences of sanctions are serious (the assets of persons on whom sanctions are imposed are frozen, and they are unable to engage in financial transactions, among other restrictions), the courts were inclined favorably to review their petitions in the absence of countervailing evidence indicating that the sanctions should be maintained. The core problem is that EU member states -- and, by extension, the Council -- often rely on classified information in order to support a decision to impose sanctions, yet that information is not always made directly available to the Council.  Instead, it often resides with one of the 28 EU member states and, exacerbating this problem, sometimes originates from a third-party, non-EU country.  The information, therefore, generally cannot be released to the EU courts or to the sanctioned individual in the course of litigation.  Consequently, when the EU courts review the sanctions decisions in the course of litigation, they do not have access to the most valuable evidence in possession of the member states or their allies to support the designation.  And while member states often endeavor to declassify information to be released at the time sanctions are imposed, they are not always able to release enough information to satisfy the courts that the designation is appropriate.  The result has been a series of setbacks for EU sanctions programs that may potentially challenge their future viability. The View from Across the Pond There are, however, ways to reconcile the due process rights of persons targeted for sanctions with the need of governments to safeguard the international financial system against illicit conduct and to use sanctions to achieve foreign policy objectives.  In the United States, courts have a well-established record of engaging in effective judicial review of sanctions decisions, and over time, have developed a (more-or-less) clear and stable set of legal rules regarding the requirements for the imposition of financial sanctions.  While there are important open questions and due process concerns surrounding the designation process in the U.S. (particularly when one is considering the designation of U.S. citizens), these rules give executive branch agencies a large measure of predictability about the legal standards that they need to meet, and the process they need to follow, when imposing sanctions.  Notably, the statute that establishes some of the most important U.S. sanctions programs permits reviewing courts to consider the classified administrative record underlying designations in reaching their decisions. But the ability to consider classified information in the course of judicial review is not the only reason that U.S. courts generally are able to reconcile the rights of designated persons with the needs of national security.  A key factor in their ability to do so is the robust intra-executive legal and policy review that precedes any designation decision, and to which the courts largely defer.  In addition to the pre-designation process, sanctioned persons can and do engage in detailed exchanges of information with the government after they have been designated in which they are able directly to challenge the basis for the government’s decision before lodging a suit in court. Because the decision to impose sanctions is made by an administrative agency (the Treasury or State Department), and because that agency employs robust pre-and post-designation review processes, the courts are highly deferential to the conclusions reached by those agencies.  This is primarily because they are confident in the quality of the process that produced the sanctions decisions in the first place.  Moreover, because the rules governing the process and the legal standards employed are transparent, the American people can have confidence in the integrity of the system used to generate designations, even if the details and evidence of each particular case remains classified, and even despite the fact that certain questions remain about the impact of sanctions and whether improvements to the process can be made. Clearing the Waters In this context, the proposed rules that will enable the European courts to receive and consider classified information during judicial review of sanctions decisions are important.  Even under the current EU proposal, however, member states are not obligated to disclose confidential material to the courts reviewing designation decisions.  States may determine either that the material is still too sensitive for the procedures created by the court, or that third-party countries from whom EU member states received some of the evidence underlying the designations have not consented to disclosing the classified material to European judicial institutions.  In those instances, member states will have to declassify as much information as possible or risk losing in court. Instead of focusing exclusively on the circumstances in which the court can review classified information, the member states that comprise the Council of the EU also should focus inward, on increasing the degree of transparency surrounding the rules, processes, and procedures they employ to decide when to impose sanctions.  Transparency should be increased at two levels. First member states should be more transparent about the manner in which each of them decides to suggest names to the Council for designation.  While designation criteria can be found in publicly-available EU common positions and regulations, member states should describe more fulsomely the evidentiary thresholds, burdens of proof, levels of internal review, and legal bases for proposing the imposition of sanctions.  This is important not only because of the inherent benefits of doing so, but also because each of the 28 member states may employ different procedures, and increasing the degree of transparency involved might help to harmonize the process throughout the EU. Second, there should be greater transparency surrounding the relationship between the Council’s decision to impose sanctions and the process that each member state conducts.  This would include greater transparency surrounding the kind of review undertaken by the Council and Commission of member-state listing nominations and the standards of review and burdens of proof they employ.  Revealing the nature of the dialogue between the member states and EU institutions will help to increase the confidence of the courts and the general public that the due process rights of individuals subject to sanctions are protected. Sanctions are an effective tool of foreign and security policy. But without greater openness regarding the rules, policies, and procedures that form the foundations of the sanctions regime, it is a tool whose effectiveness may be undermined.  Greater transparency about the programs, coupled with a viable mechanism for the courts to consider classified information when necessary, will assist in the creation of a secure, stable, and legitimate sanctions regime that can be deployed in future crises. Zachary K. Goldman is the Executive Director of the Center on Law and Security at NYU School of Law.  He has served as a policy advisor in the U.S. Department of the Treasury's Office of Terrorism and Financial Intelligence, and as a special assistant to the chairman of the Joint Chiefs of Staff, and also has worked in the litigation department of Sullivan & Cromwell.  He has published widely on U.S. foreign policy, sanctions, counterterrorism, the Middle East, and national security law.

Zachary K. Goldman, JD, is the Executive Director of the Center on Law and Security and an Adjunct Professor of Law at NYU School of Law.

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