THE NEW COLD WAR: A NOVEL REGULATORY TAKINGS THEORY ON ECONOMIC SANCTIONS AGAINST EXPLORATION AND PRODUCTION IN RUSSIA.

• Author: Warren, Hannah Tucker

1. Introduction II. Economic Sanctions A. Historical Background B. Legal Procedure & Executive Authority III. Economic Sanctions on Russia IV. Takings Jurisprudence A. Economic Impact of Regulation B. Investment-Backed Expectations C. Character V. Conclusion I. INTRODUCTION

   "Western sanctions against Russia are costing America's most powerful company a few hundred million bucks. A billion to be exact." (1) Historically, sanctions have been considered one of the least effective methods for inciting change. (2) Why, then, have sanctions increasingly been an foreign policy tool of choice in the face of a slow American economy and an ever-competitive oil and gas market?

   This Comment will focus on the primary issues arising out of the use of targeted economic sanctions and how a novel regulatory takings claim would work to counteract the negative effects of sanctioning regimes. The first section provides background information on the purpose and process of economic sanctions. The second section discusses the most recent economic sanctions imposed against Russia in response to its illegal annexation of Crimea in 2014. The third section explains foundational regulatory takings jurisprudence and applies it to a novel regulatory takings claim. A case study on ExxonMobil is used to illustrate how national corporations with business in Russia could be justly compensated for regulatory takings as a result of economic sanctions.

2. ECONOMIC SANCTIONS

   Economic sanctions are "deliberate government-inspired withdrawal, or threat of withdrawal, of customary trade or financial relations." (3) They are imposed for reasons ranging from stopping nuclear proliferations to promoting peaceful and democratic change. (4) Currently, Western sanctions against Russia aim to punish the participants of a militarized dispute--that is, the hostile takeover of Crimea from the sovereign Ukraine. (5)

   1. Historical Background

      Sanctions are not a modern invention. As far back as the fifth century, the ancient Greeks enacted a variety of sanction-like activities on their enemies, using coercive government action in lieu of military force to facilitate favorable results. (6) While this sanctioning method typically involved taking hostages and other similar tactics, the idea of coercive diplomacy was already in place for a number of civilizations between the ancient Greeks and modern society. (7)

      By the end of the 19th century, coercive strategies were the norm in foreign policy, as "classic international law recognised the right of states to employ such coercive measures in certain circumstances." (8) The rise of coercive measures led to the creation of the League of Nations and the United Nations, although the League was the first international organization to set forth a true sanctions provision. (9) The Covenant of the League of Nations, drafted in 1919, provided for "sanctions against any state party resorting to aggressive war in violation of the Articles." (10) The United States, along with other nations, did not ratify the Covenant; thus, the dissolution of the League was inevitable. (11) The United Nations Charter, which followed in 1945, however, established a sounder foundation for international law. (12)

      The United States played a vital role in the development of international sanctions law. The earliest example of U.S. sanctions was against Great Britain during the Revolutionary War when the colonists imposed a boycott on English goods, ultimately leading to the Boston Tea Party. (13) Since then, sanctions have remained an important component of U.S. foreign policy, though the reasons for enacting sanctions have varied. (14) With the growth of media outlets leading to increased public knowledge of foreign policy, it has been argued that politicians have been forced to use sanctions as a public relations tool "to appease public demand for a U.S. response." (15) Sanctions, now more than ever, are "a highly politicized foreign policy instrument ... utilized through any international crisis." (16) Moreover, the use of sanctions by the United States has helped assert its leadership in world affairs, and countries often look to the United States' use of sanctions to demonstrate its international commitments. (17) Yet, due to the large number of sanctions implemented, the United States is seen as a "'bully' nation attempting to impose and enforce its own standards on weaker states with backgrounds perceived as aberrant or anomalous to U.S. interests." (18) Consequently, "[t]his type of collective community criticism has led to an overall distrust and ignorance of sanctioning protocol within the international community." (19)

   2. Legal Procedure & Executive Authority

      Sanctions, in theory, are simple: sanctioned countries ("targets") suffer costs from actions taken by sanctioning countries ("senders"). (20) Targets avoid the costs of sanctions by modifying their behavior in accordance with the sender's objectives. (21) The sanctions are then lifted when the goals of the sanctions have been met or when the countries come to a resolve. (22) Targeted sanctions, or "smart sanctions," have started holding individual leaders criminally culpable, rather than enacting general economic sanctions against the entire nation. (23) Targeted sanctions allow the sending country the opportunity to focus on specific individuals and financially cripple the regime itself, deferring unintended side effects from the general population towards the regime instead. (24)

      In the international community, the U.N. Security Council has long been in charge of determining when sanctions are necessary to maintain international peace and security, and requiring member states to adopt the resolutions it issues. (25) Although the U.N. Charter does not specifically define sanctioning, it does refer to coercive responses that act like sanctions, such as "complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations." (26) Articles 39 and 41 of the Charter require a threat to or a breach of the peace in order for sanctions to be implemented. (27) However, what is written in the Charter and what actions member countries take can differ vastly due to ambiguity in interpreting a "threat to the peace." (28)

      The U.S. legal structure governing economic sanctions is more muddled and arguably more ambiguous. The Office of Foreign Assets Control (OFAC), part of the Department of the Treasury, is responsible for administering and enforcing sanctions. (29) Sanctions, according to OFAC, are defined as the "blocking of assets and trade restriction to accomplish foreign policy and national security goals." (30) "The power of OFAC is based on presidential national emergency powers and special legislation authority, which impose controls on assets and the freezing of assets under U.S. jurisdiction," (31) namely through the Trading with the Enemy Act, the National Emergencies Act, and the International Emergency Economic Powers Act. (32)

      Since 1917, the Trading with the Enemy Act (TWEA) (33) has historically been the President's main source of power to "regulate commerce between enemy nations or their nationals and any person within the United States during wartime." (34) The statute was amended and expanded in 1933 by the Emergency Banking Act to allow the President to exercise power "[d]uring time of war or during any other period of national emergency declared by the President," which would include a national emergency during peacetime. (35) Decades later in the early 1970s, "[c]oncerned about the bloated power of the Executive under TWEA," the Senate appointed a committee to re-examine executive authority when declaring peacetime emergencies. (36) The working committee "sought to limit the President's power under Section 5(b) of TWEA for two reasons. First, the use of Section 5(b) did not provide for any congressional review of the President's actions under TWEA, including any peacetime declarations of national emergencies. Second, TWEA lacked any procedures to determine the expiration of a national emergency." (37)

      The National Emergencies Act (NEA) was created to address these problems. (38) NEA, enacted in 1976, serves as a formalized process that enables Congress to check the President's emergency declaration powers. (39) "Specifically, NEA require[s] the President to: (1) specify the provision of law under which he acts; (2) maintain a record of significant executive orders pursuant to the declared national emergency ... (3) report his actions and findings to Congress"; and (4) "renew future national emergencies every year" as each emergency declaration faces an annual expiration. (40)

      A year later, Congress passed the International Emergency Economic Powers Act (IEEPA) in 1977 to delineate the President's power to regulate commerce during a national emergency. (41) Both NEA and IEEPA have statutorily eliminated the applicability of TWEA to national emergencies, tailoring it back for use only in times of war. (42) Before exercising executive authority under IEEPA, the President must declare a national emergency under NEA. (43) The national emergency must pertain to "any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States." (44) After declaring a national emergency and following all procedures under NEA, the President is then legally authorized to, among other things, investigate, regulate, or prohibit any "acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property" ... subject to the jurisdiction of the United States." (45)

      IEEPA is commonly invoked to promote U.S...