What if sanctions would be enacted against your country and you could not get access to vital medicine, because the supply company fears a high fine by the US? This is a daily problem for thalassemia patients in Iran. Even if sanctions are intended as targeted sanctions, their consequences often become unintentionally broad. This gets even more problematic as overcompliance has become a widespread practice. This article seeks to show the impact of overcompliance regarding the human right to health and discuss what instruments are available to hold actors responsible.
Overcompliance of Private Actors in the Context of Sanctions
Unilateral sanctions are often issued by states to influence another country’s policies. Overcompliance may look different depending on whether they are primary or secondary unilateral sanctions. Secondary sanctions allow the issuing authority to implement their interests beyond their jurisdiction on a more global scale, while primary sanctions are only targeted at domestic actors and not also third parties. This article will focus on overcompliance in the context of secondary sanctions.
When it comes to sanction regimes, for-profit actors are the ones that implement them as they are obliged to comply with domestic or international law. The practice of overcompliance is characterized by for-profit actors going beyond what is required by law to avoid repercussions for violating sanctions regulations in an attempt at risk minimization, similar to the so-called de-risking. The term de-risking was first coined in relation to financial institutions and the phenomenon of limiting or terminating relationships with entire categories of clients to circumvent further complications that may arise. So, what is the difference between de-risking and overcompliance? While de-risking is a broader approach to minimizing the risk, overcompliance is more specific.
In principle, any compliance by a private actor who is not bound to the jurisdiction of the sanction-issuing country can be viewed as overcompliance. Various blocking statutes have come into play to prohibit – or block – compliance with foreign states’ extraterritorial legislation. Why do for-profit actors then still engage in this practice today? The answer is simple: in this catch-22 situation, it may be a more profitable alternative as third-country private actors cannot afford to lose access to the market of the sanctioning country.
Specifically, companies with no personal or territorial link to the sanctions regime may still decide to limit or complicate business activities in certain countries or industries to avoid the potential risks associated with circumventing or breaking sanctions, such as financial restrictions, or to evade the complex due diligence required. Another reason is the complexity of sanctions regimes that can make it more attractive for private actors to resort to overcompliance, rather than to face the magnitudes of penalties that can come from breaching sanctions obligations.
A Difficult Time for Butterfly Children
The negative effect of overcompliance of private actors on the human rights of the citizens of the sanctioned state, particularly the right to health, is apparent. Generally, the right to health, as enshrined in Art. 12 of the International Covenant on Economic, Social and Cultural Rights (ICESCR), encompasses the „right of everyone to the enjoyment of the highest attainable standard of physical and mental health”. This includes inter alia the treatment of diseases [Art. 12 lit. c) ICESCR] and the creation of conditions that would assure all medical services and medical attention in the event of sickness [Art. 12 lit. d) ICESCR].
However, there have been several reports of a shortage of medicine and treatments due to the overcompliance of companies with secondary sanctions. Medicine and other treatments are usually considered humanitarian assistance and are either exempt or compliant with sanctions. In the case of Iran, the example of overcompliance and its consequences are particularly striking. The country faces a lack of vital medicine for thalassemia patients, as the supplier company Novartis stopped exporting them, due to the unclear US sanctions regime. Thalassemia is a serious hereditary disease that affects the production of haemoglobins. This specifically affects Iran as the country has a particularly high number of thalassemia patients. In 2018, the US reimposed sanctions against Iran, resulting in more overcompliance and trouble importing iron-regulating medicine, which also affects the rates of complications and mortality rates. The complex and unclear humanitarian exemptions in the US sanctions legislation on the one hand and the US practice of imposing high fines on companies on the other hand were given as reasons for the export stop.
Overcompliance in the financial sector further contributes to issues with supplying medical aid. In several cases, banks refused to transfer funds in an attempt to minimize the risks associated with secondary sanctions. For example, the Portuguese bank Novo Banco did not process payments for medicines and medical supplies ordered by the Bolivarian Republic of Venezuela due to US sanctions. There was a similar situation in Iran, where the company for medical supplies Mölnycke stopped exporting vital bandages for epidermolysis bullosa patients, i.e. patients of the so-called butterfly disease, which is a very painful and incurable genetic skin disease. This was because it was impossible to find a bank that would process the financial transaction after the reimposition of sanctions by the US in 2018. UNICEF had to procure the bandages as Mölnycke did not want to engage directly with the Iranian Government. Even then, the financing and shipping of the supplies was unnecessarily complicated, keeping in mind that the bandages only have a shelf life of three years. This lack of a steady supply of treatment did not only affect the physical health of patients but also their mental health, which is also protected by Art. 12 ICESCR.
After all, overcompliance by banks does not only affect states, but also NGOs, whose funds or donations for projects or employees are blocked in sanctioned states, e.g. funds for a COVID-19 vaccine development program in Cuba, or aid after destructive floods in Iran or implementation of United Nations projects in Syrian Arabic Republic or United Nations employees in Cuba, Iran, and Zimbabwe.
Overcompliance and Responsibility
This leads to the question, of how the consequences of de facto human rights violations can be linked to actions of states issuing secondary sanctions or how private actors can be held responsible. The problem arises especially as for-profit actors are not directly bound by any human rights regime. At this point, the only options available for linking the conduct of companies to human rights violations are treaty obligations and customary international law.
Particularly under the ICESCR, there is no territorial or jurisdictional restriction imposed (see also Art. 2 ICESCR), resulting in the obligations of state parties to protect, respect, and fulfill these human rights not only in their territory but also extraterritorially. This means that states cannot allow a company to actively violate Art. 12 ICESCR in their territory and/or in their jurisdiction and that they have to take precautions against such situations. Therefore, they also have the obligation to structure their sanctions legislation as clearly and transparently as possible, so that companies can exercise due diligence and do not have to fear collisions with sanctions.
Additionally, an obligation of states also arises under customary international law in the form of the “sic utere tuo ut alienam non laedas” principle, which generally describes the obligations of states to not let their territory be used in a way that causes unlawful damage to another state. Therefore, the above-mentioned obligations also hold true for states that are not parties to the ICESCR or any other human rights treaty protecting the right to health to the same extent.
Even the regime of WTO law, which generally deals with trade regulations, does not offer enough mechanisms that directly protect human rights. Although one could interpret the exception clauses in Art. XX GATT, Art. XIV GATS and Art. XXIII GPA as applicable to human rights concerns, this still does not provide a sufficient framework due to the lack of certainty and definiteness.
Another document that could hold for-profit actors responsible for possible human rights violations is a non-binding framework, “The Guiding Principles on Business and Human Rights”, developed by the UN Human Rights Office in 2011. To promote this development, there has been an open-ended intergovernmental working group established by the UN Human Rights Council, working on an international legally binding instrument on Transnational Corporations and Other Business Enterprises with respect to human rights, that has published a Third Revised Draft in 2021. This provides a set of rules for both states and companies that seek to regulate their handling of human rights. Its main points are: first the states’ duty to protect against human rights abuses by companies, secondly the corporate responsibility to respect human rights, and thirdly the access to an effective remedy for victims. If it were to become legally binding, this instrument could finally close the gap between ongoing human rights violations, for-profit actors and states and could provide a comprehensive protection.
Conclusion
This overview shows that overcompliance of for-profit actors has a relevant impact on the human right to health of people living in sanctioned countries. Of course, there is no easy solution to the problem of overcompliance. However, the need for clear responsibility of private actors for human rights violations on the one hand, and for awareness by states for the consequences of their sanctions on the other, is apparent. Too many loopholes remain for both states and private actors, as most regulations are either non-binding or are of a rather general nature. States should not use their complex sanctions legislation and the fear of fines as an instrument, especially when they are issuing targeted sanctions. With overcompliance, the risk is inherent that targeted sanctions become extensive too easily.
Maira Sophie Müller is a law student at Friedrich Schiller University Jena, focusing on public and criminal international law. She works as a student assistant at the Chair of International Law, where she coaches her university’s Philip C. Jessup International Law Moot Court team.
Katharina Luise Preller studies law at Friedrich Schiller University Jena and works at the Chair of International Law as a student assistant. She represented her university in the 2023 Philip C. Jessup International Law Moot Court.