Limits to the Scope and Enforceability of U.S.-Russia Sanctions

On February 22, 2022, the Office of Foreign Assets Control (OFAC)’s issuance of the related Directive 1A under the Executive Order on Blocking Property (EO 14024) pioneered a series of sanctions impacting various entities (notably commercial) under U.S. jurisdiction. In the spring of 2022, the Special Russian Sanctions Authority Act of 2022 was introduced in the Senate and ultimately signed into law, legalizing the expansion of the existing sanctions against the assets of Russian political elites since the onset of the Russia-Ukraine war. In September, these sanctions were complemented with “secondary sanctions” as a means of restricting business and economic exchanges in order to, according to the OFAC, “target such persons whose activities may constitute material assistance, sponsorship, financial, material, or technological support for, or goods or services to, or in support of (together ‘material support’), sanctioned persons or sanctionable activity,” notably within the realm of providing such support for Russian military and other presence in Ukraine. In analyzing the application of U.S. contract law, professional codes of conduct for U.S. attorneys, and the limits of U.S. jurisdiction as it concerns these government sanctions, one may discover limitations to the long list of sanctions against Russian entities and their enforceability.

In the U.S. common law system, Sections 261, 264, and 265 of the Restatement of Contracts lays out an existing basis for the breach of a contract with non-implied disruptions of negotiated terms of agreement, notably frustration and impracticability, as well as associated remedies for the temporary suspension of contractual obligations. Accordingly, wherever the impediment to a party’s performance is a governmental regulation (such as the Sanctions Authority Act), it must be considered a legitimate reason for the act to be regarded as impracticable. In MUR Shipping BV v. RTI Ltd (2022), a Court of Appeals in the United Kingdom delineated the extent to which U.S. sanctions on commercial transactions between Russian and non-Russian entities may alter the content of formal agreements between contracting parties. MUR invoked a force majeure, effectively barring itself from liability in performing contractual obligations, which it claimed were in violation of the U.S. sanctions. Although the contract itself called for payments to be made in dollars, the court’s judgment made clear that alternative means of circumventing the contract’s suspension should have been considered prior to invoking the force majeure. This arbitration case highlights the limits of the sanctions’ immediate application to all existing commercial transactions between multiple contracting parties, whether or not they may be directly represented by American and/or Russian entities.

Although alterations to legal representation of foreign citizens on behalf of U.S. attorneys constitute a direct impact of U.S. sanctions on both parties, the observation of such trends may not suggest that such consequences will inevitably come to permeate legal norms and practices in the U.S. The American Bar Association’s Model Rules of Professional Conduct delineate a series of codified norms regulating the activities and relationships between clients and their lawyers. Rule 1.2, Section (c) states that “A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances.” Constraining the scope of legal representation of Russian individuals or entities targeted by the respective sanctions in place does not allow for an undue limitation that is political in nature or motivated by a U.S. lawyer’s intent to claim applicability of the Federal Act on the relationship with the client. Accordingly, even despite the sanctions currently in place, client-lawyer relations may only be impacted where they constitute an act in direct violation of the sanctions in place.

Another implication of the sanctions is highlighted by the presence of enforceable charges against Russian individuals and entities indicted for violating the sanctions. U.S. federal district court judges may obtain sufficient flexibility in their interpretation of the legal framework establishing U.S. extraterritorial jurisdictional authority, namely with respect to EO 14024, which establishes any “permanent resident alien” and any “entity organized under the laws of the United States…(including foreign branches)” under its jurisdictional authority (Section 3e). In accordance with the International Emergency Economic Powers Act, EO 14024 may be interpreted to suggest that the Department of Justice and district courts will maintain expansive enforcement of the sanctions. Nonetheless, whether the Federal government can effectively enforce any sentences or punishable fines upon individuals and entities violating the sanctions constitutes a different affair, dependent upon the facts of each case and on the difficulty of enforcing its jurisdiction within the territory of another state.

Overall, the scope and enforceability of the U.S. sanctions against Russian individuals and entities varies from case to case. Still, the components of U.S. contract law, which are characteristic of its common law approach to commercial and business transactions, highlight some limitations on the scope of the sanctions’ immediate applicability in certain cases. Moreover, the presence of professional codes of conduct and longstanding practices limit the impact of the sanctions on U.S. legal domestic practices, at least in theory. Lastly, although extraterritorial jurisdiction constitutes a powerful doctrine symbolizing a seemingly expanded authority of U.S. federal courts on the matter of sanctions violations, it too may have its limits in, for instance, failing to prevent sanctions as countermeasures on behalf of Russian authorities. Thus, only time will tell as to where the scope and enforceability of U.S. sanctions ends, for neither will be without reasonable limits.

Edited by Eve Muratore