The Legal Accountability of Indian Multinationals Amid the West-Imposed Secondary Sanctions

Collateral Pressure: Understanding Secondary Sanctions

Sanctions are classified on two bases, one being the primary sanctions, while the other is secondary sanctions. The primary sanctions prohibit various entities from engaging with sanctioned countries; for instance, this can be portrayed by highlighting the relationship between US citizens being restricted from carrying out trade activities with North Korea. Secondary sanctions, holding a contrasting attribution, are considered extraterritorial; hence, they penalize third-party actors, including non-US citizens and entities, who carry out business with sanctioned targets. Such sanctions aim to isolate their target by taking an economic approach to the same by deterring their possibilities of global partnership, going beyond the bounds of those from the sanctioning country itself. For instance, if an Indian company attempts to carry out a trade with an Iranian entity that falls under US sanctions, the Indian company would be bound by penalties in the US, even though the trade carried out between the countries had no US nexus. Hence, the primary sanction plays the role of initial measures. In contrast, the secondary sanctions impose an additional burden on those who attempt to circumvent the primary ones.

Codifying Coercion: Legal Roots of Secondary Sanctions

1. CAATSA – Countering America’s Adversaries Through Sanctions Act, 2017
   1. Enacted by the US Congress to impose sanctions against Iran, North Korea and Russia.[1]
   2. Poses a direct threat to those countries that purchase Russian arms.
   3. Key sections 231 and 235 discuss sanctions on entities engaged in “significant transactions” with Russian defence and provide a list of the types of sanctions.
2. ISA and IFCA – Iran Sanctions Act; Iran Freedom and Counter-Proliferation Act
   2012. Originally passed as ISA[2] in 1966, then updated to IFCA[3] in 2012.
   2013. Allows the US to sanction foreign companies that trade with Iran.
3. Global Magnitsky Human Rights Accountability Act, 2016
   1. Allows the US government to impose secondary sanctions on non-US persons and entities.[4]

The Fragile Legitimacy of Cross-Border Sanctions

Secondary sanctions raise the quandary of international legality going against established legal frameworks such as the UN Charter, laws governing the WTO, and extraterritorial jurisdictional overreach. Under Article 2(7) of the UN Charter[5], it is provided that nothing contained in the present Charter shall authorize the United Nations to intervene in matters essentially within the domestic jurisdiction of any state. However, the imposition of unilateral sanctions by the US and the EU upon third countries compels foreign governments to align with their foreign policies, which may even go against national interests, hence, intervening with the state’s sovereign right to conduct international trade. The US has been found guilty of violating Nicaraguan sovereignty through indirect economic coercion, and the ICJ confirmed the prohibition on the use of such financial measures.[6] Similarly, when US sanctions through CAATSA or IFCA limit India’s ability to import oil from Iran or arms from Russia, it infringes upon the nation’s sovereignty.

Furthermore, such sanctions violate trade equality, provided under the WTO’s provisions, such as Article I, which refers to the most-favoured-nation clause, requiring all members to treat every trading partner as equal, unless authorized under an exemption.[7] Article XI prohibits quantitative restrictions unless narrowly justified[8], and Article XXI allows trade restrictions within the realm of “essential security interests,”[9] but secondary sanctions often do not qualify. Hence, such sanctions impose unjustified trade discrimination among the nations[10], for instance, by punishing Indian firms that conduct deals with Iran while allowing others under the guise of a waiver, creating a non-uniform trading standard.

Extraterritorial jurisdictional overreach essentially refers to the assertion of one state’s laws over the persons, property, or conduct of a region outside its territory, often leading to the contravention of the principles based on non-intervention. Secondary sanctions lead to the punishment of foreign entities for acts committed outside the US and the EU, even though the trade lacks a physical nexus with the territory of such nations. The principles that govern territoriality and nationality regarding their jurisdiction do not comply with the justification behind such expansive reach; hence, countries such as India become victims of such overreach due to their lack of regulatory mandates. The US Jurisprudence is also limited regarding its extraterritorial enforcement[11], and a principle cited even today reiterates how the state may not exercise its jurisdiction outside its territory unless a rule permits the same.[12] The UK has acknowledged the presence of conflict between jurisdictions when one complies with the US-based secondary sanctions.[13]

Corporate Caution: India’s MNCs and the Sanctions Maze

Those sanctions that do not have any endorsement or backing from the United Nations Security Council are often rejected based on a lack of legitimacy, which reflects India’s broader commitment towards attaining strategic autonomy regarding its freedom to define foreign policy independently. Although such integrity is vital, the secondary sanctions imposed by the US and the EU exert pressure on Indian foreign policy and its corporate sector, which aims towards global integration. This leads to a structural paradox wherein, even though Indian states are actively steering clear of such sanctions, Indian multinationals often have to comply, especially those driven by Western capital, technology, and resources. This predicament escalated post-2018, wherein the US reimposed the sanctions on Iran; hence, Indian companies such as Reliance Industries and Indian Oil Corporation had to cease their oil imports, although there was no domestic legal compulsion, but rather purely driven by the will to avoid being considered foul by US authorities.

The S-400 missile deal held with Russia is another instance of such a dilemma posing as another strategic test being examined under the CAATSA.[14] The US did grant a waiver on this matter; however, this incident accurately illustrated the imminent exposure India gains when carrying out strategic deals that fall outside the realm of Western approval. The absence of any domestic legal safeguard or a blocking statute creates an aura of vulnerability around the Indian entities regarding foreign lawfare and the denial of international financial services.

In the contemporary era, the economy of India is heavily dependent on the global supply chain of energy, pharmaceuticals, IT, defence, shipping, and finance, leading to cross-border transactions taking place with the assistance of the USD, Euro, or GBP. Such transactions pose an impending enforcement risk against foreign sanction regimes. For instance, in the energy sector, companies such as ONCG Videsh[15] and HPCL-Mittal Energy have conducted trade with sanctioned states such as Iran and Venezuela. Similarly, Indian public sector undertakings such as HAL, Bharat Dynamics, and BEL have cooperated with Rosoboronexport[16] and other Russian suppliers to conduct their business activities. This assists in substantiating the effect such sanctions have on a company’s operations, heeding the need for domestic legislative developments to ensure economic protection of the nation, since such global integration is inevitable.

The Lack of Legislative Guidance for MNCs

Presently, India lacks any uniform domestic law that can aid and guide corporations on how they must respond to such foreign secondary sanctions. Currently, compliance is determined based on FEMA, Companies Act 2013, and SEBI(LODR) Regulations, which govern cross-border financial flows[17], incorporate CSR in risk protocols[18], and regulate the need for material risk disclosure by listed companies[19]; however, none directly highlight sanctions. Due to such a lack in the legislative provision of guidance, many companies resort to self-regulation regarding risks of accessing global finance, legal interpretations of fiduciary laws to avoid sanctions, and the practical necessity to maintain correspondent banking relationships. The Indian judiciary has yet to provide any development regarding the jurisprudence on whether obeying a foreign sanction can be legally challenged domestically.

Some complexities that await Indian multinationals due to the lack of regulatory mandates are the restriction of access to the US financial system, freezing of assets, blacklisting under OFAC, contractual terminations, liability under foreign jurisdictions, and coercion from international business partners. Global trade settled in USD often requires clearance from US-based banks or banks that have tie-ups with the US. However, secondary sanctions empower the US to cut off sanctioned entities from financial aid. This leads to corporations facing frozen dollar transactions, denial of the letter of credit, or rejection of cross-border settlement through mechanisms such as SWIFT.[20] Such disruption of operations due to a lack of currency clearance, even though the trade is legal based on Indian laws, leads to legal complications.  Furthermore, the US Office of Foreign Assets Control(OFAC)[21] can mandate the inclusion of foreign firms in the Specially Designated National(SDN) list, which would lead to such companies being banned from the US financial markets and facing secondary boycotts, leading to sudden shutdowns of US-based operations.

Many Indian corporations would also face the risk of contractual termination and breach risk due to global deals, hence, if an Indian firm does come in conflict with a blacklisted party, they may terminate the contract unilaterally or refuse to make payments. Hence, the legal penalization firms may face in light of such actions would be breach or delayed performance, giving rise to contractual liability. Currently, India is in a precarious state due to the escalation of US sanctions on Russia, due to the economic ties between the two countries. India can deploy countermeasures to protect national interests, such as bilateral negotiations and conditional waivers, diversification away from the US dollar, and corporate structuring with regulatory planning.[22] However, all such actions are self-determined without legal backing, leading many corporations to take wrong and hasty decisions due to a lack of provisional guidance. Hence, India must step up to the changes in the financial space and create legislative provisions to assist Indian multinationals in taking prompt action against secondary sanctions.

[1] Countering America’s Adversaries Through Sanctions Act, Pub. L. No. 115-44, 131 Stat. 886 (2017).

[2] Iran Sanctions Act of 1996, Pub. L. No. 104-172, 110 Stat. 1541 (codified as amended at 50 U.S.C. §§ 1701–1706).

[3] Iran Freedom and Counter-Proliferation Act of 2012, Pub. L. No. 112-239, §§ 1241–1249, 126 Stat. 1632, 2004–14 (2013).

[4] Global Magnitsky Human Rights Accountability Act, Pub. L. No. 114-328, §§ 1261–1265, 130 Stat. 2000, 2549–53 (2016).

[5] U.N. Charter art. 2, para. 7.

[6] Military and Paramilitary Activities in and against Nicaragua (Nicar. v. U.S.), 1986 I.C.J. 14 (June 27).

[7] General Agreement on Tariffs and Trade art. I, Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194.

[8] General Agreement on Tariffs and Trade art. XI, Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194.

[9] General Agreement on Tariffs and Trade art. XXI, Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194.

[10] European Communities v. United States, Request for Consultations, WTO Doc. WT/DS38/1 (May 3, 1996).

[11] Restatement (Third) of the Foreign Relations Law of the United States  (Am. L. Inst. 1987).

[12] S.S. “Lotus” (Fr. v. Turk.), Judgment, 1927 P.C.I.J. (ser. A) No. 10 (Sept. 7).

[13] United States v. Citibank N.A., [2019] EWHC.

[14] Sushant Sareen & C. Uday Bhaskar, The Russian S‑400 Missile Defence and the American CAATSA: Case for an India Waiver (Apr. 2021), Observer Research Foundation, https://www.orfonline.org/expert‑speak/russian-s400-missile-defence-amercian-caatsa-case-india-waiver (accessed June 21, 2025).

[15] Sukalp Sharma, ONGC Videsh Seeks US Nod to Operate Projects in Sanction‑Hit Venezuela Under ‘Chevron Model’ (Aug. 30, 2024), The Indian Express, https://indianexpress.com/article/business/companies/ongc-videsh-us-projects-in-venezuela-chevron-model-9542048/ (accessed June 21, 2025).

[16] “BDL Signs MoU With Russia’s Rosoboronexport For Collaboration On Pantsir Air Defence Systems,” BusinessWorld (Nov. 11, 2024), https://www.businessworld.in/article/bdl-signs-mou-with-russias-rosoboronexport-for-collaboration-on-pantsir-air-defence-systems-538829 (accessed June 21, 2025).

[17] Foreign Exchange Management Act, No. 42 of 1999, INDIA CODE (1999).

[18] Companies Act, No. 18 of 2013, INDIA CODE (2013).

[19] Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, Gazette of India, (Sept. 2, 2015).

[20] Ellie Geranmayeh & Manuel Lafont Rapnouil, Meeting the Challenge of Secondary Sanctions, EUR. COUNCIL ON FOREIGN RELS. (2019).

[21] Jean De Ruyt, Secondary Sanctions and Multilateralism – The Way Ahead, EGMONT INST. (2021).

[22] Faraz Alam Sagar & Sara Sundaram, The Turning Tides of US Sanctions: India Caught in the Middle (Dec. 19, 2023), Cyril Amarchand Blogs Dispute Resolution.