Claire DeLelle and Nicole Erb, White & Case
This is an extract from the first edition of GIR's The Guide to Sanctions. The whole publication is available here.
Economic sanctions issues can create added complexities for parties who wish to engage in litigation or arbitration or who find themselves defendants or respondents in such proceedings. This chapter explores the judicial challenges available to parties who become sanctioned, how economic sanctions can impact a party’s choice of counsel, how economic sanctions issues arise in litigation and arbitration, and issues that parties should be aware of to minimize their risks of becoming embroiled in sanctions-related adversarial proceedings.
While this chapter focuses primarily on the role of US economic sanctions in litigation and arbitration, the sanctions regimes of many other jurisdictions and international bodies, such as the European Union and its Member States, Australia, Canada and the United Nations, may also pose unique issues in disputes, and merit careful consideration where implicated.
Key sanctions issues in litigation
Can I represent a sanctioned party in a US litigation?
Authorisations for provision of legal services
All current US sanctions programmes authorise the legal representation of sanctioned parties as plaintiffs or defendants in US litigation (as well as US administrative proceedings) by ‘general licences’. General licences, published on the website of the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) or in sanctions regulations, authorise certain dealings that are otherwise prohibited under the applicable sanctions. General licences authorising legal representation of sanctioned parties in US litigation do not authorise all types of dealings that might arise in the course of authorised legal representation. For example, a specific licence is required to execute a settlement agreement or enforce any lien, judgment, arbitral award, decree or other order that would transfer or otherwise alter or affect blocked property or interests in property. Additionally, many general licences, particularly those involving payments for authorised legal services, require submission of initial and periodic reports to OFAC.
Legal services not expressly covered by a general licence can only proceed through a specific licence. OFAC has the discretion to issue specific licences authorising an otherwise prohibited dealing. Importantly, a specific licence should be secured before entering into any engagement or fee agreement for legal representation that is not otherwise authorised, as OFAC may deem agreements concluded prior to authorisation as sanctions violations. If there are arguments that the legal representation is covered by a general licence but there is doubt in that regard, the party wishing to engage in the representation can request an advisory opinion from OFAC that no specific licence is required or, if the representation is prohibited, that OFAC issue a specific licence.
Payment of legal fees by sanctioned parties
A separate licence may be required for payment of legal fees if the client is blocked or otherwise subject to sanctions affecting its assets and debt obligations. Many sanctions programmes offer general licences for payment of legal fees for authorised representation from non-blocked funds located outside the United States, whereas other programmes require the receipt of a specific licence for any payment relating to legal fees. A specific licence is generally required if the payment will originate from blocked funds and the payment involves a US person or other US nexus. OFAC will consider issuing a specific licence, case by case, for payment of fees from blocked funds if those fees relate to challenging the client’s designation. If OFAC authorises this use of blocked funds, it may nonetheless limit the amount of blocked funds that may be used for those fees.
Many general licences for payment of authorised legal services state that US persons receiving the payment do not need to obtain separate, specific authorisation to contract for services or receive payment for services that are ordinarily incidental to the authorised payment or services, such as contracts for expert witnesses and private investigators.
EU licensing requirements
EU sanctions do not impose a formal requirement for attorneys to obtain a licence or other authorisation to represent sanctioned parties. However, the receipt of payment requires a licence for clients subject to an EU asset freeze. EU asset freeze sanctions typically provide licensing grounds for Member State authorities to consider applications for exemption that would authorise payment for legal representation and other related fees. Moreover, Article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms guarantees the right to counsel and the right to a determination of one’s rights and obligations before a neutral tribunal to all legal and natural persons.
Can sanctions designations be challenged in US courts?
Challenging a party’s designation or sanctions law or regulations
Persons subject to sanctions restrictions and other interested parties can seek to overturn designations, asset freezes or sanctions provisions through litigation. Cases challenging OFAC actions, in particular, can be difficult to win because US courts are extremely deferential to OFAC given that OFAC operates ‘in an area at the intersection of national security, foreign policy, and administrative law’. Although they are rarely successful, plaintiffs can challenge OFAC action by asserting many claims, including that:
- designation to the List of Specially Designated Nationals and Blocked Persons (the SDN List) violates the Fifth Amendment Due Process Clause;
- comprehensive country sanctions violate the Fifth Amendment right to travel;
- asset freezes are unreasonable Fourth Amendment seizures or Fifth Amendment takings;
- the designation authority for provision of material support violates the First Amendment;
- OFAC’s authorising statute or rules and regulations are unconstitutionally vague; or
- designations or asset freezes are arbitrary and capricious.
Challenging OFAC blocking orders
In Al Haramain Islamic Foundation Inc v. United States Dep’t of the Treasury, an SDN US non-profit entity successfully argued that OFAC needed a warrant to block its assets pending investigation (pre-designation) under Executive Order 13224 and could not rely on the ‘special needs’ exception or ‘general reasonableness’ test of the Fourth Amendment. The Ninth Circuit reasoned that OFAC’s national security aims were not rendered impracticable by a warrant requirement prior to blocking the plaintiff’s assets, given the domestic plaintiff’s strong interest in freedom from a blocking order’s broad seizure. The Court carefully limited its opinion to clarify that it did ‘not address the requirements under the Fourth Amendment for other situations [beyond blocking a US person’s assets pending investigation] including, for example, designations of [non-US] entities or designations [of domestic entities] by executive order’ as opposed to pending investigation. Despite the favourable ruling, the plaintiff received no relief as the lower court ruled the violation was harmless on remand.
In Zarmach Oil Services v. United States Dep’t of the Treasury, the US District Court for the District of Columbia (the federal trial court in Washington, DC) dismissed the plaintiff’s claim that OFAC’s refusal to grant an unblocking licence to the plaintiff was arbitrary and capricious and in excess of its statutory jurisdiction. Even though the sanctioned party at issue in Zarmach only had an indirect future or contingent interest in the relevant funds – which the plaintiff argued was extinguished when a third party satisfied the contract under which the funds were originally owed to the sanctioned party – the Court deferred to OFAC’s determination that unblocking would be inconsistent with OFAC policy.
First Amendment challenges to provision of ‘material support’ to designated persons
Interested persons can raise free speech and association challenges regarding the prohibitions on non-designated party dealings with designated parties. US courts have examined these types of challenges in the context of dealings with persons designated as terrorists or terrorist organisations. A seminal US Supreme Court case on this topic is Holder v. Humanitarian Law Project (HLP). HLP involved a free speech and association challenge to the Anti-Terrorism Act’s criminal prohibition on the provision of material support to designated terrorists. The US Supreme Court examined whether the plaintiff’s proposed activities (i.e., providing legal training and assistance on international humanitarian law to the designated terrorist Kurdistan Workers’ Party) would further terrorism. The Court held that the prohibition, as applied to the plaintiff’s activities, did not violate the plaintiff’s First Amendment rights, because the government adequately substantiated its determination that prohibition of the plaintiff’s activities was necessary to serve the government’s urgent objective of preventing terrorism. The specific planned training and services bore a real risk of furthering terrorism, even though the supporters meant to promote only the group’s non-violent ends. While criticised as overly broad and unsupported, the Court did limit HLP, stating that (1) future targeting of speech or advocacy as material support may not survive First Amendment scrutiny, and (2) the holding does not suggest that ‘Congress could extend the same prohibition on material support at issue here to domestic organizations’.
Later cases that apply HLP’s standard highlight the limited nature of its holding. For example, in Al Haramain Islamic Foundation, Inc, a US non-profit entity, the Multicultural Association of Southern Oregon (MCASO) successfully argued that OFAC’s prohibition on providing services to AHIF-Oregon – an OFAC-designated terrorist organisation – violated MCASO’s First Amendment right as applied in MCASO’s case. MCASO’s proposed activities concerned a blocked domestic branch of an international organisation, rather than a non-US terrorist organisation as in HLP, and there was little evidence that the ‘pure-speech activities proposed by MCASO’ (activities such as co-sponsoring events in the United States) would aid the terrorist purposes of the international parent organisation.
EU challenges to designations
Much like US court challenges to OFAC action and regulations, the Court of Justice of the European Union (CJEU) has heard a number of cases challenging EU sanctions designations. In particular, the Kadi cases have proven instrumental in shaping the EU sanctions framework by increasing the judicial scrutiny on European Council decisions imposing asset freezes. Following the Kadi precedent, the Council must provide ‘individual, specific and concrete’ grounds to justify each asset freeze. However, actions for asset freeze annulment have not necessarily provided substantial assistance to sanctioned plaintiffs, as the Council regularly relists those plaintiffs, providing additional grounds for their relisting. This risk of redesignation, with the lengthy CJEU procedures, may have a chilling effect on sanctioned parties challenging EU designations.
What types of cases are filed in US courts against sanctioned parties or that involve sanctions issues?
Enforcement of arbitral awards
Sanctioned party defendants face many typical causes of action in US litigation, such as breach of contract claims. But one overarching claim is for the enforcement of awards or judgments against the assets of sanctioned parties. As seen in the 2019 decision Crystallex International Corp v. Bolivarian Republic of Venezuela, sanctioned governments and state-owned entities may still face attachment and execution litigation regarding their US assets, despite the imposition of sanctions affecting those assets, under the commercial activity exception of the Foreign Sovereign Immunity Act (FSIA).
In Crystallex, the Third Circuit held that because state-owned oil company Petróleos de Venezuela (PdVSA) was the alter ego of Venezuela, Crystallex could attach PdVSA’s shares in its Delaware subsidiary PDV Holding, Inc (PDVH) in Crystallex’s efforts to satisfy its unpaid arbitral award against Venezuela. In evidencing the shares’ continued use in commerce, the court cited the use of the shares by the state-owned alter ego to run PDVH ‘as an owner, to appoint directors, approve contracts, and to pledge PDVH’s debts for its own short-term debt’. The Third Circuit acknowledged, however, that Crystallex could not succeed in executing upon the shares unless and until Crystallex obtained a specific licence from OFAC, because OFAC regulations prohibited any dealing in PdVSA’s property.
Enforcement of terrorism-related judgments
Plaintiffs who obtain terrorism-related judgments against designated state sponsors of terrorism (typically default judgments where the state does not appear to defend) may seek to enforce their judgments against any assets of the state held in the United States by the state, its agencies or instrumentalities, or third parties. In addition to the exceptions to attachment and execution immunity in the FSIA, plaintiffs have the benefit of using the Terrorism Risk Insurance Act to try to obtain turnover of any assets of the state or its agencies or instrumentalities that have been blocked under US sanctions laws and are held by third parties (e.g., financial institutions). Iran has appeared in several such actions to defend its interests in assets that are the subject of this type of enforcement.
Challenges to OFAC’s enforcement authority
Parties subject to OFAC enforcement actions for alleged sanctions violations may choose to challenge that enforcement on US constitutional or Administrative Procedure Act grounds. One example from 2019 is Exxon Mobil Corp v. Mnuchin. Exxon sets important precedent for parties trying to navigate the many ambiguities in US sanctions programmes. The case involved Exxon’s challenge of OFAC’s imposition of a US$2 million civil penalty against Exxon and certain of its subsidiaries for allegedly violating sanctions. OFAC found that Exxon violated the Ukraine-Related Sanctions Regulations by dealing with SDN Igor Sechin when he signed a contract with Exxon in his capacity as president of Rosneft OAO, an unblocked entity. A federal court in Texas vacated the penalty, ruling that OFAC’s action violated the Fifth Amendment as OFAC had failed to provide fair notice in its regulations or guidance that it viewed this conduct as illegal.
The court concluded that OFAC failed to state ‘with ascertainable certainty what is meant by the standard it has promulgated’. The regulations and public guidance from OFAC and other government sources did not ‘fairly address’ that a US entity receives a prohibited service from an SDN when the SDN ‘enabl[es] the US person to contract with a non-blocked entity’. Notably, although the court considered Exxon’s failure to seek OFAC’s guidance a relevant factor, it found this was not dispositive because OFAC ultimately bears the burden of conveying its interpretation to the public. At the time of writing, the Exxon ruling remains subject to a possible appeal to the US Court of Appeals for the Fifth Circuit by OFAC.
Both sanctioned parties and interested parties (e.g., contractual counterparties) face breach of contract disputes when the United States or the European Union imposes sanctions that prevent contract completion. Contract defendants may invoke force majeure defences (which sometimes expressly cover the imposition of sanctions), contract illegality, compliance with contract representations and frustration, among other things. For example, a California State court held in Kashani v. Tsann Kuen China Enterprise Co that the defendants’ cessation of manufacturing under a contract requiring shipment of US-manufactured computers to Iran did not constitute a breach of contract, because the contract was unenforceable as it was illegal under sanctions and contrary to public policy. Additionally, the court rejected the plaintiffs’ assertion that the potential availability of specific licences gave the contract legal effect, because the regulations indicated that a specific licence was a prerequisite to entering into a contract that would otherwise violate sanctions. In Lamesa Investments Ltd v Cynergy Bank Ltd, the English High Court excused the defendant debtor from liability resulting from failure to pay its sanctioned party lender because its Facility Agreement contained a requirement that performance should comply with ‘mandatory provisions of law’, which the Court interpreted to include compliance with the applicable US sanctions.
The EU Blocking Regulation, which prohibits EU persons from complying with US sanctions on Iran and Cuba (akin to an anti-boycott rule), may pose challenges to successfully invoking US sanctions as a defence to breach of contract claims before courts in EU jurisdictions. The Blocking Regulation affords EU persons protection from enforcement of judgments relating to those sanctions in the European Union and provides the right to recover legal costs and damages caused by actions based on, or resulting from, the sanctions.
Disputes involving the Blocking Regulation have increased in EU national courts. In one EU contract case, a Dutch national court considered whether a Dutch company could invoke force majeure to terminate a software distribution contract with Cuban state-owned entities after a US investment firm purchased the Dutch company, thereby subjecting it to the prohibitions of US sanctions against Cuba. In the spirit of the Blocking Regulation, the court held that the termination was not fair and reasonable, and prevented the Dutch company from invoking a US sanctions claim of force majeure to avoid the contract, despite the risk of OFAC enforcement.
Notably, the CJEU received a request in 2020 to issue a preliminary ruling in a German case addressing the Blocking Regulation and the effect of US secondary sanctions on a contract between a German telecommunications provider and the EU branch of an Iranian bank. This ruling is expected to have a significant effect on both EU law arbitrations and cases pending before national EU courts, which are also considering how US secondary sanctions will be viewed under the Blocking Regulation.
US courts have yet to consider the conflict of law posed by the EU and US regulations. At the time of writing, the authors are aware of only one reported US case substantively dealing with the Blocking Regulation and US sanctions. In United States v. Brodie, the Eastern District of Pennsylvania rejected a motion by EU, UK and Canadian criminal defendants to dismiss their sanctions-related indictment on grounds of foreign sovereign compulsion and comity – namely, that the EU, UK and Canadian blocking regulations compelled defendants’ exports to Cuba in contravention of US Cuba sanctions.
Helms-Burton private right of action
Title III of the Helms-Burton Act provides a new private right of action in the sanctions realm. Although it was enacted in 1996, the Act was partially suspended until 2019, when the current US Administration lifted the suspension of the private right of action. Title III enables US nationals to file suit in a US federal court against any third party they allege is ‘trafficking’ in their property confiscated by the Cuban government after the Cuban Revolution. As Title III’s definition of ‘trafficking’ is quite broad – and the Act makes provision for treble damages in some cases – an initial wave of plaintiffs rushed to file soon after the right of action became available on 2 May 2019. However, Title III plaintiffs face a host of challenges, given the legislation’s complex and varied requirements for valid suits.
For example, in May 2020, the US District Court for the Southern District of Florida for a second time dismissed Gonzalez v. Amazon – this time with prejudice – for failure to allege an actionable ownership interest in the relevant property (namely agricultural real estate in Cuba owned by the plaintiff’s grandfather at the time of confiscation in 1959). Gonzalez failed to allege that he inherited the property before 1996, thereby falling into one of Title III’s many restrictions (specifically for property confiscated before 12 March 1996, the Helms-Burton Act’s enactment date), a plaintiff must have acquired ownership and have been a US national before that date). The Court initially dismissed Gonzalez’s claim in March 2020 for failure to allege an actionable ownership interest and failure to allege that defendants knowingly and intentionally trafficked in the agricultural property. As at the time of writing, the plaintiff’s appeal is pending before the Eleventh Circuit. Although Gonzalez sets persuasive precedent that ownership is dispositive, in the second dismissal order the court did not rule on the more contentious issue of whether the plaintiff alleged sufficient scienter for the trafficking claim.
Gonzalez may lead a trend in Title III cases, as Florida’s Southern District is currently reviewing amended complaints from several other cases it initially dismissed, albeit to reconsider errors of fact and law that ‘led the Court to incorrectly dismiss the instant action[s] with prejudice’. Current Title III defendants are pursuing motions to dismiss on various grounds, such as subject matter and personal jurisdiction, standing and failure to satisfy Title III requirements. The pending cases (approximately 30), mostly in Florida’s Southern District, largely feature claims regarding commercial activities of US and EU defendants that allegedly benefit in some way from the plaintiffs’ purported confiscated property. The defendants are principally travel and vacation industry players – cruise lines, hotel companies and airlines – plus financial institutions and entities in the petroleum, mining, shipping, renewable energy and alcohol industries. Most plaintiffs are individuals and families asserting claims relating to real estate such as the Port of Havana, José Martí International Airport and various resort properties.
Even if future Title III claims are successful, plaintiffs may face difficulty in enforcing awards outside the United States. The European Union, United Kingdom and Canada have all expressed opposition to Title III suits against their nationals, which they consider to be extraterritorial applications of unilateral Cuba-related measures that are contrary to international law. Both Canada’s and the EU’s blocking regulations target the Helms-Burton Act, and may protect defendants from Title III award enforcement in those jurisdictions.
Terrorism claims premised on allegations that defendants provided ‘material support’ to state sponsors of terrorism, designated terrorists or terrorist organisations
US sanctions can create US litigation risk under anti-terrorism statutes. Various US statutes provide private rights of action for claimants to bring terrorism-related claims in US courts. These claims are typically brought by victims of terrorism and their families against a wide variety of entities, including financial institutions, social media companies and pharmaceutical companies. These cases involve allegations that the private-entity defendants provided material support, often in the form of providing access to US-dollar transactions, to countries subject to sanctions and designated as state sponsors of terrorism (most commonly, Iran) or individuals and entities designated as terrorists, and that alleged material support caused the terrorist attack at issue and the plaintiffs’ injuries.
Courts have been reluctant, however, to embrace these attenuated theories of liability. In Rothstein v. UBS, for example, the US Court of Appeals for the Second Circuit affirmed dismissal of the plaintiffs’ claims against UBS, despite UBS having been fined for transferring US dollar banknotes to counterparties in Iran; the Court concluded that the plaintiffs’ allegations were insufficient to plausibly infer that funds transferred by UBS to Iran ‘were in fact sent to Hizbollah or Hamas or that Iran would have been unable to fund the attacks by Hizbollah and Hamas without the cash provided by UBS’.
Recent amendments to the US Anti-Terrorism Act have spurred a new wave of terrorism cases raising aiding-and-abetting and conspiracy claims against private entities. Courts have held that providing material support to a designated terrorist organisation is not sufficient alone to establish liability under an aiding-and-abetting theory; plaintiffs must show that the defendant in question knowingly played a part in the terrorist activities and provided substantial assistance to the designated terrorist organisation in perpetrating the terrorist acts at issue. Similarly, courts have declined to equate alleged conspiracy to violate sanctions with conspiracy to commit acts of terror.
Courts also have had the opportunity to consider the probative value of a defendant’s OFAC designation. Although given some deference, an OFAC designation is not sufficient in itself to establish that a designated entity purposefully engaged in misconduct for the purpose of furthering terrorist aims.
Criminal prosecution for violation of sanctions
The US government may pursue individuals and entities for alleged wilful sanctions violations, including individuals and entities not targeted by sanctions. These criminal proceedings typically involve charges such as violating one or more of OFAC’s authorising statutes, for example, the International Emergency Economic Powers Act (IEEPA), conspiracy to violate IEEPA, or additional financial crimes charges such as bank fraud and money laundering. One high-profile pending criminal case involving alleged sanctions violations is United States v. Huawei Technologies Co, Ltd. Huawei and its co-defendants, including Meng Wanzhou, Huawei’s chief financial officer, face numerous combined charges, including multiple sanctions-related charges for alleged violations of the US Iran-related sanctions in the early 2010s. The defendants potentially could face steep fines and incarceration on the sanctions charges alone.
Where does arbitration’s intersection with sanctions differ from litigation?
Can I represent a sanctioned party in arbitration?
In general, US sanctions programmes permit legal representation of a sanctioned party in a US arbitration, but typically not representation of a sanctioned party in an arbitration outside the United States. Under the EU sanctions regime, there is no formal requirement for legal counsel to obtain a licence to represent a sanctioned party in any arbitration, within or outside the European Union.
Unique among other legal services general licences, Section 560.525 of the Iranian Transactions and Sanctions Regulations authorises the initiation and conduct of arbitral proceedings and proceedings before international tribunals, within or outside the United States, that are otherwise prohibited by the sanctions. However, the arbitral proceedings must be either (1) to resolve disputes between the government of Iran or an Iranian national and the United States or a US national, or (2) ‘contemplated under an international agreement’, or (3) involve the enforcement of awards, decisions or orders resulting from point (1) or point (2). One area of ambiguity in this general licence is OFAC’s lack of formal guidance on the meaning of arbitral proceedings ‘contemplated under an international agreement’. The phrase could be construed in different ways. It might cover treaties that specifically contemplate the arbitration at issue (e.g., if two countries establish an arbitral venue for specific claims). It could also cover proceedings contemplated under multilateral treaties establishing arbitral bodies, such as the ICSID Convention, or disputes arising under bilateral investment treaties. Finally, there is also an argument that ‘international agreement’ extends to cover international commercial contracts with an arbitration clause.
May I serve as an arbitrator if arbitration participants are sanctioned parties?
Yes. However, US persons serving as arbitrators may need a specific licence, depending on the specific restrictions applicable to the sanctioned party. Although OFAC has not issued formal guidance on the subject, OFAC could reasonably view serving as an arbitrator as a prohibited provision of services to the sanctioned party, thereby requiring a licence. The general licences on the provision of legal services on their face do not extend to the provision of arbitrator services. Note that both the sanctioned party’s counsel and the arbitrators may need licences before agreeing to engage in arbitration involving a sanctioned party.
Under EU sanctions, serving as an arbitrator does not require a licence, but payment of arbitrators’ fees requires a licence when a paying party is subject to an EU asset freeze. If an arbitrator is a sanctioned party, depending on the sanctions restrictions applicable to them, a US specific licence may be needed to appear before them for the arbitration, and EU and US licences may be needed for the parties’ payment of the sanctioned arbitrator’s fees.
Can I participate in an arbitration with the arbitral seat in a sanctioned country?
Sanctions prohibitions may prevent participation in an arbitration that has a seat in a sanctioned country or region absent a licence to the extent that the participation requires travel to, or engagement with individuals in, the sanctioned country or region. As at the time of writing, the United States maintains comprehensive sanctions against Cuba, Iran, North Korea, Syria and the Crimea Region of Ukraine. Comprehensive sanctions generally prohibit US persons from engaging in any commercial activity with or within comprehensively sanctioned jurisdictions. These activities can include, but are not limited to, the key elements of an international trip: travelling to or from these jurisdictions, dealings with government agents at the border, carrying laptops or other technology into the country, and paying for essentially anything in country, such as accommodation, taxis and food.
Whereas the comprehensive sanctions in some countries and regions explicitly authorise (or do not prohibit) some of this activity, travel to a sanctioned country merits careful analysis to ensure that all intended activity would be exempted from or authorised under sanctions and would not implicate other legal restrictions. For example, although the North Korea Sanctions Regulations do not prohibit transactions ordinarily incident to travel to or from North Korea, the US Department of State restricts the use of US passports to travel into, in or through North Korea absent special validation, effectively prohibiting US persons from travelling to North Korea. Unlike the United States, the European Union does not apply comprehensive sanctions on countries (or territories) and, therefore, sanctions issues concerning the seat of arbitration are unlikely when there is only an EU nexus.
Do arbitral awards involving sanctioned parties face challenges in US court?
US efforts to enforce arbitral awards both paid to and paid by sanctioned parties may face challenges under treaties and the Federal Arbitration Act – for example, the defence that enforcement would be ‘contrary to [US] public policy’. Parties often successfully overcome the public policy defence given its exceedingly narrow scope: awards that ‘would violate the forum state’s most basic notions of morality and justice’. The scope of this public policy defence may be too narrow to encompass the US sanctions regime. For example, in Ministry of Defense & Support for Armed Forces of Islamic Republic of Iran v. Cubic Defense Systems Inc, an award in favour of the sanctioned creditor, Iranian Ministry of Defense, survived the public policy defence owing to the United States’ strong public policy interest in recognising arbitral awards and the availability of a general licence for payment of the award (e.g., where the award would not frustrate sanctions). Cubic built on National Oil Corp v. Libyan Sun Oil Co, reasoning that even if award payment to a sanctioned party would contravene US public policy, the mere confirmation of an award would not, as OFAC could act to prevent payment, thus preserving public policy. Similarly, in United Media Holdings NV v. Forbes Media LLC, a sanctioned party failed to overturn an unpaid award on multiple grounds, including failure to prove that the arbitrator engaged in ‘misbehavior’ in rendering an award involving blocked property and that enforcement would violate public policy, because OFAC issued specific licences for the award issuance and enforcement, and the award would actually ‘further the goal of the sanctions . . . by terminating the rights of a blocked person’ in a US trademark.
The intersection of economic sanctions laws and dispute resolution poses unique challenges for parties and their attorneys. These challenges in litigation and arbitration may include procedural hurdles and complex legal frameworks, and parties may face sanctions barriers in dispute resolution or award enforcement. With careful consideration of sanctions regulations and relevant precedent, parties and their counsel may zealously and creatively engage in sanctions-related dispute resolution proceedings.