January 31st 2025 | Carla Abon
Edited by Jacqueline Rosenkranz
Introduction
International law intends to regulate relations between States. In the aftermath of World War II and decolonization movements, international law has placed self-determination as a fundamental principle. Article 1(1) of the International Covenant on Civic and Political Rights (ICCPR) clearly states that “all peoples have the right of self-determination. By virtue of that right they freely determine their political status and freely pursue their economic, social and cultural development” [1]. It affirms a people’s right to self-governance and to freely decide its political fate. Particularly, international law grants states exclusive privilege to engage in self-governance by allowing them to determine the laws and institutions that apply within their borders, coupled with a claim-right protecting the privilege from interference erga omnes [2]. This right is personified in the State, which has exclusive jurisdiction over matters within its territory. Extended to the international community, it implies that no other State can interfere with domestic matters without the consent of the State. This idea is grounded in one of the general principles of international law, which is the sovereign equality of States as defined by Article 2(1) of the United Nations Charter [3]. It entails that no member of the United Nations has superior authority to another, and that international law is a horizontal system of sovereign states which have a legitimate right of noninterference in their domestic affairs.
This fundamental principle of international law is currently questioned by some States’ practices. Extraterritorial applications of domestic law especially challenge its function. Extraterritorial jurisdiction refers to the competence of a State to make, apply, and enforce rules outside of its national territory. Several countries have adopted domestic laws, outside of the international process, which they enforce internationally. In this regard, the U.S. has increased its interventionism on foreign affairs over the past decades by new means, especially in the domain of international sanctions. Based on Congress laws, the Department of Justice enforces U.S. standards in terms of economic sanctions outside of America; this grants itself jurisdiction over foreign firms using the American dollar. Because of this new interpretation of U.S. sanctions, every transaction ‘flying the US dollar flag’ is now susceptible to fall under the radar of American authorities, involving a disregard for other States’ sovereignty in enforcing their own regulations as well as international sanctions set out by the United Nations Security Council (UNSC).
In this article, I will explore the issues raised by the extraterritorial application of U.S. laws in regard to international law, especially in the domain of economic sanctions, through the study of the Société Générale case. Société Générale is a French bank which was accused of using dollars in transactions that violated US sanctions against countries such as Iran, Cuba and Sudan. In settlement, the bank agreed to pay a total of $1.3 billion to resolve the matter. Through this case, I will examine the conflict between the interpretation made by the Department of Justice of U.S. laws and the core principles of international law; I ultimately argue that it violates the noninterference principle and the basic tenet of State sovereignty.
Interventionist Politics: Historical Roots of the ‘Responsibility to Protect’ and Modern Applications
American modern interventionist propensities over the world can be traced back to the age of humanitarian interventionism. In the post-Cold War years, a new form of the ‘responsibility to protect’ and of acceptable means to achieve it emerged in the U.S. The country had been viewed as the leader of the free world, rescuing European countries in World War I and in World War II. Consequently, a language of responsibility emerged in the American political discourse, which framed the need for the U.S. to protect other countries from their own governments. It was not until the 1990s that the age of humanitarian interventionism arose, urging military invasion to remake foreign societies. This discourse can be illustrated by the war in Iraq, where the U.S. military intervened in the name of human rights, interfering with domestic affairs [4]. It should be acknowledged that this intervention was authorized by the UNSC and was co-led with several other countries.
Acceptable international methods have changed, and direct intervention has been replaced by economic sanctions, starting in the early 2010s. In recent years, economic sanctions have increasingly become “the tool of choice” in response to international political challenges related to geo-political conflicts [5]. Empirically, the number of international sanctions has nearly doubled between 2006 and 2014, marking a net transition towards indirect intervention [6]. The UNSC has imposed several sanctions in the name of the international community. In the meantime, the U.S. has decided to complement them and to target some countries by adding unilateral sanctions, such as with Title 31 §560.204 of the Code of Federal Regulations, which is related to the prohibition of exportation of goods to Iran [7]. These sanctions have been used as a basis to convict foreign firms making trade on the U.S. territory or with U.S. firms.
But in 2017, the interpretation of this provision was expanded by the Department of Justice. On July 27, 2017, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the settlement of the Transtel and CSE Global case, which involved two firms accused of violations of the U.S. economic sanctions against Iran. For the first time, the OFAC penalized a non-U.S. institution outside of the United States on the sole basis of settling a transaction with a sanctioned country in U.S. dollars. It applied a new ‘theory of causation,’ in which the punishment is legitimated by the causation of a violation of U.S. sanctions by a financial institution [8]. This mechanism has since then been utilized in other landmark cases, such as the Société Générale.
Flying the Dollar Flag: the Société Générale Case
The Société Générale case is a notable example of how U.S. authorities enforce their sanctions against foreign banks. Société Générale was found to have processed transactions in U.S. dollars with countries subject to U.S. sanctions, including Iran, Cuba and Sudan. These transactions occurred over several years, starting in the early 2000s and continuing until 2013, totaling several billions of dollars. Investigations were conducted by multiple U.S. agencies, including the Department of Justice (DoJ), the Office of Foreign Assets Control (OFAC) and the New York Department of Financial Services (NYDFS). As part of the proceedings, U.S. authorities determined that Société Générale had weak internal controls and compliance systems that allowed the violations to continue over many years. The bank cooperated with authorities during the process, which likely helped to reduce the final penalties. In November 2018, Société Générale agreed to pay a total of $1.3 billion in fine to resolve the allegations. This settlement was one of the largest sanctions-related penalties imposed on a non-U.S. bank. As part of the agreement, Société Générale acknowledged its misconduct and committed to improving its compliance programs to prevent future violations [9].
In this case, the DoJ used U.S. financial powers and converted it into a judicial power. Indeed, if Société Générale were to refuse the settlement, it would have been banned from the United States market. As the U.S. is a key player in the global financial system, this result would not have been plausible for the French bank. Losing access to the U.S. financial system would mean being unable to clear transactions in U.S. dollar, which currently represents between 74% and 96% of trade invoicing in the world, depending on the region [10]. It would also damage the bank’s reputation worldwide, as such a ban is often seen as a sign of serious wrongdoing.
Faced with these risks, Société Générale had little choice but to accept the settlement. The financial penalties, though large, were seen as less damaging than an exclusion of the U.S. market. Furthermore, challenging the charges in court would have been a long, costly and uncertain process, which could have exposed the bank to even higher penalties. Société Générale’s decision to settle highlights how the U.S. translates its financial power into a judicial one. This case was not the first one to exemplify this translation, as four years prior in 2014, the French bank BNP-Paribas paid a $8.6 billion penalty in a case that used similar proceedings [11]. ‘Flying the dollar flag’ is used by the Department of Justice has a satisfactory method to grant U.S. authorities jurisdiction over international matters. This interpretation reveals several issues in regard to international law.
Dollar jurisdiction and nonintervention principle
The principle of non-intervention in domestic affairs is a fundamental norm of international law, embodied in the Charter of the United Nation and firmly established in States’ practice and customary international law [12]. This principle was first introduced into the 1793 French Constitution, providing that France would neither intervene in other States’ affairs nor allow other nations to intervene in its own affairs [13]. Contemporarily, a definition of non-intervention can be found in the United Nations General Assembly Resolution 36/103 of December 9, 1981. In this resolution, countries reaffirm that they shall “refrain from any threat or use of force, intervention, interference, aggression, foreign occupation or measures of political and economic coercion which violate the sovereignty, territorial integrity, independence and security of other States or their right freely to dispose of their natural resources” [14]. States therefore do not have the right to interfere through financial means in the internal matters of States.
In this case of ‘dollar jurisdiction,’ it is especially important to stress that sanctions violated by Société Générale were imposed unilaterally by the U.S. Indeed, international law compels all countries to abide by the sanctions taken under Chapter 7 of the United Nations Charter, which was not the case of the sanctions imposed on Iran, Cuba and Sudan. Société Générale was in compliance with French and European law, but the U.S. applied its laws extraterritorially by creating a ‘dollar jurisdiction’ under which the new criterion of competence is not territory or nationality, as traditionally accepted under international law, but the currency used in exchange. This exemplifies the use of the “exorbitant privilege of the dollar” to transform an economic privilege into a judicial one and infringe on the sovereignty of other States [15].
It is important to stress a point on how international law functions. International law does not have any central enforcer nor central authority. It is made by a society of States. Therefore, violations of international law are better apprehended by considering the reactions triggered by the move of a specific State. In the case of Société Générale, this high penalty linked to the use of the ‘dollar jurisdiction’ triggered numerous reactions in France and in Europe more broadly. In France, the Act Sapin II was enacted by Parliament to improve internal compliance and transparency of French firms with the goal to align with international standards in the fight against corruption and corporate misconduct [16]. Additionally, the 2021 Gauvin Report, which was made to assess the effectiveness of Sapin II, highlighted potential improvements such as a strengthening of legal protections. The idea was to create a French equivalent of legal privilege by ensuring that corporate data remain confidential and are not disclosed to other countries without authorities’ approval [17]. On the European level, the European Union (EU) decided to reinforce its existing framework by strengthening the 1968 Blocking Statute, which was enacted to prevent the transfer of sensitive economic, technical, scientific or industrial data to foreign countries without proper authorization. Following the Société Générale case, updates were made in 2018. EU firms are now required to notify the European Commission if their economic interests are directly or indirectly impacted by foreign laws, and they are explicitly barred from complying with foreign laws unless specifically authorized by the Commission [18]. These measures were designed to limit the extraterritorial application of foreign laws, especially U.S. ones. In an international law perspective, these efforts to counter U.S. measures can be interpreted as a refusal of American interference in European affairs by claiming a violation of international law. The European Commission explicitly states on its website that “the European Union does not recognize the extra-territorial application of laws adopted by third countries and considers such effects to be contrary to international law” [19]. In a society of States where the parties are both addressees and enforcers, this position demonstrates European opposition and therefore a violation of the noninterference principle.
Conclusion
In conclusion, the Société Générale case exemplifies the growing tension between the extraterritorial application of U.S. laws and the principles of international law, particularly the norm of non-intervention. By using its dominance in the global financial system through the dollar, the U.S. has asserted jurisdiction beyond its borders and imposed significant penalties on foreign entities. This approach has met with considerable resistance, particularly in France and in the EU, which have sought to strengthen their legal frameworks to counter such actions. Those efforts can be interpreted as a claim to the violation of international law through the extraterritorial application of U.S. laws. But they also highlight the challenges of balancing economic interdependence with legal and political autonomy in an increasingly globalized world.
Sources:
[1] United Nations. International Covenant on Civil and Political Rights (1966).
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[3] United Nations. United Nations Charter (1945).
[4] Wertheim, S. “A Solution from Hell: The United States and the Rise of Humanitarian Interventionism, 1991–2003”. Journal of Genocide Research 12, no 3-4 (December 2010): 149-72. https://doi.org/10.1080/14623528.2010.522053.
[5] CEPR. “The Global Sanctions Data Base.” 4 August 2020. https://cepr.org/voxeu/columns/global-sanctions-data-base.
[6] Drexel University. “The Global Sanction Database.” n. d. https://www.globalsanctionsdatabase.com/.
[7] 31 CFR 560.204 — Prohibited exportation, reexportation, sale, or supply of goods, technology, or services to Iran., Code of Federal Regulations § (s. d.). https://www.ecfr.gov/current/title-31/part-560/section-560.204.
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[9] Office of Public Affairs. “Société Générale S.A. Agrees to Pay $860 Million in Criminal Penalties for Bribing Gaddafi-Era Libyan Officials and Manipulating LIBOR Rate.” United States Department of Justice, 4 June 2018. https://www.justice.gov/opa/pr/soci-t-g-n-rale-sa-agrees-pay-860-million-criminal-penalties-bribing-gaddafi-era-libyan.
[10] Bertaut, C., von Beschwitz, B., Curcuru, S. “The International Role of the U.S. Dollar.” 6 October 2021. https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-20211006.html.
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[13] French Constitution, 1793.
[14] United Nations General Assembly. « Resolution 36/103 », 1981.
[15] Giscard d’Estaing, Valérie, 1964.
[16] Ambrosio, L. d’. “Private interests and the fight against corruption: The mixed results of the French Sapin II law.” Revue de science criminelle et de droit penal compare, no 1 (2019): 1-24.
[17] Gauvain, R., D’Urso, C., Damais, A. “Rapport Gauvain.” 2021. https://www.vie-publique.fr/files/rapport/pdf/194000532.pdf.
[18] European Union. Blocking Statute (1968). https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A01996R2271-20180807.
[19] European Commission. “Extraterritoriality (Blocking statute) Protecting EU operators, reinforcing European strategic autonomy.” Accessed 4 December 2024. https://finance.ec/eu-and-world/open-strategic-autonomy/extraterritoriality-blocking-statute_en.
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