New Paper on Currency-Based Jurisdiction in U.S. Sanctions Enforcement

 

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Customary international law limits the authority of nations to regulate extraterritorially. As described in TLB’s Primer on Extraterritoriality, a nation may exercise jurisdiction to prescribe if there is a “genuine connection” between that nation and what it wants to regulate.

Customary international law limits on jurisdiction to prescribe apply to sanctions programs no less than other laws. In a prior post, I explained that U.S. sanctions based solely on the clearing of dollar transactions electronically through New York are not consistent with customary international law. The most plausible basis for jurisdiction to prescribe in such cases is effects jurisdiction. By arranging transactions in dollars outside the United States, so the argument goes, foreign companies cause the clearing to occur inside the United States, thereby producing domestic effects. As I noted in that post:

The problem with this argument is that to establish a genuine connection under customary international law, the effects must be substantial. It is difficult to see how merely clearing a transaction between foreign nationals that begins and ends outside the United States rises to the level of a substantial effect. The clearing does not in any way disrupt the U.S. financial system. The clearing does make U.S. sanctions less effective outside the United States, but that is not a domestic effect.

That violation of customary international law matters because the International Emergency Economic Powers Act(IEEPA), on which most U.S. sanctions are based, authorizes the President to prohibit financial transactions only “by any person, or with respect to any property, subject to the jurisdiction of the United States.” Even without this express limit on the President’s authority, it is a longstanding canon of statutory construction that acts of Congress should be read not to violate international law. If sanctions based solely on clearing dollar transactions violate international law, the President has no authority to impose them.

Christine Abely and Haley Anderson refer to jurisdiction of this sort as “currency-based jurisdiction.” In a new paper just posted on SSRN, Hiding in Plain Sight: Currency-Based Jurisdiction in U.S. Sanctions Enforcement, they examine how important currency-based jurisdiction is to U.S. sanctions policy. Examining 127 enforcement actions from the beginning of the first Trump administration to the end of the Biden administration, they find that 20% relied on currency-based jurisdiction in some form, but that those cases accounted for approximately 60% of the penalties and settlements. “[R]ecent U.S. sanctions practice,” they note, “may be more at odds with international law than previously recognized.”

The paper is worth reading in its entirety. Here is the abstract:

That the United States government exerts pressure on parties around the world through its use of economic sanctions is widely known. Less noticed, but no less significant, is a particular jurisdictional move in U.S. sanctions practice: attaching sanctions to transactions that never touch U.S. territory and involve no U.S. persons, yet are denominated in U.S. dollars. This “currency-based jurisdiction” occupies a liminal space between the traditional categories of “primary” and “secondary” sanctions, and it has a questionable relationship to international law rules on jurisdiction. It involves a U.S. nexus, but only a thin one, raising acute questions about the relationship between jurisdiction, regulation, and legality in modern sanctions enforcement.

Drawing on a novel dataset of sanctions enforcement actions across two presidential administrations, this work quantifies the scale of currency-based jurisdiction in practice. Of 127 enforcement actions comprising over $3 billion in penalties and settlements, roughly one in five relied on currency-based jurisdiction in some form. Yet those cases account for approximately sixty percent of the penalties and settlements during the period, making currency-based jurisdiction a cornerstone of U.S. sanctions enforcement. This finding matters for at least three reasons: first, it means that any serious engagement with U.S. sanctions practice must reckon with currency-based jurisdiction, if for no other reason than by virtue of its scale; second, the comparative size of the potential penalties at stake in such cases may have an outsized deterrent effect impacting parties that the U.S. otherwise would not be able to reach; and, third, it highlights that recent U.S. sanctions practice may be more at odds with international law than previously recognized.