Reaching Multinational Corporations: A New Model for Drafting Effective Economic Sanctions
45 Pages Posted: 2 Nov 2005
From a policy position, an economic sanction represents a sort of middle ground. Restricting certain types of trade between the United States and an adversary sends a more serious message than an envoy could deliver through diplomatic channels. At the same time, the costs of imposing an economic sanction fall short of military intervention - most likely, depending on the sanction in play - both in terms of capital and human life. Not surprising that the history of the United States' foreign policy in the twentieth century is peppered with the use of economic sanctions in order to achieve various policy objectives. While the policy objectives behind any one economic sanction could be legion, in a broad categorical sense the United States' decision to impose trade restrictions always reflects national security, foreign policy, or economic interests. Sometimes these objectives are embodied in the language of the legislation itself, or must be inferred from legislative history and historical context.
The legal mechanisms by which a sender determines the reach of trade restrictions over domestic and foreign businesses take the form of jurisdictional standards drafted into economic sanction legislation. Congress has utilized a number of standards, each reflecting varying policy considerations. The precise language Congress uses in drafting a jurisdictional standard is extremely important, as that language determines the extent of the sanction's application. As this Article will show, the congressionally blessed paradigmatic standards of today are costly. An economic sanction diminishes, if not stops, trade between certain entities or in designated areas, to the disadvantage of sender and target alike. And yet a sanction regime touches more than just the sender and target states. The jurisdictional standards embedded in a statute may implicate corporations in third, fourth, or any number of states. The reach of an economic sanction over foreign corporations is limited only by the degree of ownership/control which a particular entity possesses over other entities within a multinational enterprise. While policy congruence with regard to an economic sanction may exist between the sender and some states which host corporations subject to trade restrictions, that similarity of interests may not exist in a number of other host states neutral towards or hostile to the policy objectives of the sender.
This Article proposes a new model; one which eschews the need for the policy congruence frequently lacking between countries in many economic sanction regimes. Consider an economic sanction which prohibited only United States parents from engaging in trade with a target, and mentioned foreign subsidiaries only to the extent that parents would be held liable for any trading violation of the subsidiary. In other words, Congress allocates the burden of enforcement upon the foreign subsidiary's domestic parent - making enforcement a matter of business judgment, not state action. Indeed, a statute whose jurisdictional standard did not purport to regulate the actions of foreign subsidiaries would preclude the United States from directly enforcing foreign corporations in skittish countries from complying with trading prohibitions. This model minimizes or eliminates the foreign policy costs associated with international controversy because a host state is less likely to view the business decisions of a multinational enterprise as an affront to its sovereignty. At the same time, the alternative enforcement mechanism will likely result in the compliance of the foreign subsidiary with the sender's trading prohibition.
Keywords: Sanction, Economic Sanction, Boycott, Legislation, Cuba, License, Corporation, Parent, Subsidiary, Extraterritoriality, Meta-Legal, Tier, Control, Ownership, Foreign Policy, Effective, Efficacy, Effecient, Law
JEL Classification: K12, K20, K22, K23, K33, K42, L14, L51, L60, L70
Suggested Citation: Suggested Citation