12 - Secondary Sanctions under International Investment Law

Summary

This chapter addresses the issue of legality of ‘secondary sanctions’ from the viewpoint of international investment law. The theoretical situation considered is that of a foreign investor, having made an investment in the US, being subjected to penalties or restrictions under a US secondary sanctions regime, based on its conduct of certain transactions with a targeted country or entity, even though such business activities have no US jurisdictional ‘nexus’. The chapter first attempts at identifying the potentially relevant substantive standards of investment protection, including the prohibition of expropriation without compensation and the ‘fair and equitable treatment’ standard. The likelihood of a successful invocation of these standards by the claimant in an investor–State arbitration claim is discussed. In that process, it is considered inter alia whether the deterrent effect of secondary sanctions may per se amount to a violation of an investment protection instrument. The chapter then turns to the assessment of the possible defences that the respondent State may put forward in order to seek to escape its liability for the possible breach of a standard of bilateral investment treaties, notably defences relating to ‘security exceptions’ provisions in treaties and allegations as to the ‘illegality’ of the investment.