Sanctions jiu-jitsu

Countersanctions laws present a renewed challenge to the U.S.

Shorinji Kempo in the exercise room of I building, Washington, D.C., USA (1982) (edited, source: World Bank Archives)

Treasury Secretary Scott Bessent in recent months described the Trump Administration’s approach to sanctions on Iranian oil as “In essence, we are jiu-jitsu-ing the Iranians.” However the United States isn’t the only actor training in the dojo, and we can expect much more sanctions martial arts in the near future.

In late June, the Wall Street Journal reported that senior lawmakers in Beijing advanced a bill that would let Chinese state prosecutors bring civil “public-interest” suits against foreign organizations and individuals who allegedly damage China’s interests. The bill would add to the growing set of laws that Beijing and other countries have written to counter foreign sanctions.

Nobody likes being told what to do — least of all governments. When Washington imposes sanctions, it isn’t only barring American citizens from dealing with a target. It also warns foreign companies, in other countries, that they too must cut off the target or risk losing access to the U.S. market and financial system. Any sovereign state would reasonably bristle at that kind of reach into their domestic affairs. But when the meddling state controls the world’s dominant currency, the rest of the world typically chooses to tolerate the meddling albeit with protest and the occasional attempt to fight back. But historically those attempts to counter, which go back decades, were pure theater: professions of sovereignty that let policymakers feel that they’d taken a stand without ever really being enforced. That is starting to change.

Training montage

Western democracies were the first to take a shot at limiting the U.S.’s extraterritorial reach. Australia went first, with the Foreign Proceedings Act of 1984 — a response not to sanctions but to U.S. antitrust suits reaching across the Pacific to haul Australian uranium producers into American courts. Canada followed with the Foreign Extraterritorial Measures Act, a similar defensive crouch against the reach of U.S. antitrust and trade law. Although these were primarily about antitrust and not sanctions, they laid the groundwork for challenging the jurisdictional reach of the United States.

Then the U.S. Congress passed the Helms-Burton Act, also known as the 1996 Cuban Liberty and Democratic Solidarity Act, which let eligible U.S. nationals sue anyone, anywhere, who “trafficked” in American property nationalized by the Cuban government after 1959. The act, quickly followed by the Iran and Libya Sanctions Act that same year, enraged our allies and pivoted attempts to counter U.S. extraterritorial reach from antitrust to sanctions. Canada amended their Foreign Extraterritorial Measures Act to block Helms-Burton judgments outright; Mexico passed its “Antidote Law“; and the Europeans’ 1996 Blocking Statute barred EU persons from complying with U.S. sanctions, refused to recognize foreign judgments enforcing those sanctions, and let the damaged parties claw back losses by seizing the offending party’s EU assets.

All in all, a mighty show of force. But mostly on paper. The statutes were rarely invoked and rarely tested in court. Canada issued blocking orders under FEMA, but no prosecution was ever reported and its courts never interpreted the act. Mexico’s “Antidote Law” sat all but unused. The EU’s statute went a quarter-century without an authoritative ruling.

First blood

Iran landed a first strike in December 2018. Deutsche Telekom terminated its relationship with Bank Melli, a state-owned Iranian bank on OFAC’s Specially Designated Nationals (SDN) list. Bank Melli challenged the termination in German courts under the Blocking Statute, and the case climbed to the European Court of Justice (ECJ) in 2021. The court ruled that an EU firm could not terminate a contract to comply with U.S. sanctions, and where the evidence suggested that sanctions had motivated the termination, the terminating firm bore the burden of proving that its decision was based on grounds other than compliance with U.S. sanctions. However, the court also ruled that a termination could stand where a continuation of the contract would inflict disproportionate economic loss (like getting cut off from the U.S. market) on the terminating firm. So although this was a legal win for Bank Melli, in practice the size and strength of the U.S. financial system prevailed.

Full contact

The Bank Melli case set the stage for more assertive countersanctions efforts — and where Bank Melli had merely picked up a dormant 1996 tool, other actors picked up new tools and used them at scale.

Russia went furthest in the courts. Under the 2020 “Lugovoy Law,” named for the sanctioned Member of Parliament who sponsored it, Russian parties affected by sanctions were allowed to sue foreign companies in Russian courts for damages regardless of where a contract agreed to arbitration. In 2024 alone they invoked it more than 200 times, with one penalty reaching €14.3 billion. By June 2026, Russia’s Supreme Court had told every lower court to treat countersanctions as overriding law, even reopening settled cases to void deals that breached Russian countersanctions law. Russia’s extreme measures reflected their decision to sever commercial ties with the West.

China has taken a slightly different tack, likely because Beijing wants to deter the West without decoupling from it entirely. In 2021, China passed the Anti-Foreign Sanctions Law which created a private right of action and gave Chinese companies recourse to pursue damages in Chinese courts when their rights were infringed by foreign sanctions. Again, like most countersanctions laws, it remained dormant until 2024, when a Chinese offshore-engineering firm which had recently been inducted into the SDN club (sanctioned) invoked the 2021 law’s private-suit provision against a Swiss counterparty that had stopped paying the Chinese firm out of fear of U.S. sanctions. A Chinese court ignored the contract’s agreement to arbitrate in London, arguing it was subordinate to Chinese sovereignty, and seized the Swiss firm’s vessel until it paid. The Swiss firm eventually received an OFAC license to pay the damages. Beijing’s Supreme People’s Court has since paraded the case as a landmark ruling.

In 2021, in addition to the Anti-Foreign Sanctions Law, China passed its Blocking Rules. These rules authorize the Chinese government to declare specific foreign sanctions unenforceable in China and prohibit Chinese entities from complying with them. In May 2026, China activated the Blocking Rules for the first time. The Ministry of Commerce issued a blocking order declaring U.S. sanctions on five Chinese “teapot” oil refiners (which had been refining Iranian crude) unenforceable in China and prohibiting Chinese companies from complying with those sanctions.

Statecraft jiu-jitsu

So why, after decades of dormancy, are countersanctions laws suddenly being enforced? Part of the answer is that the use of sanctions has expanded. Secondary sanctions — Washington’s practice of forcing foreign firms to choose between doing business with a designated entity (even when there is no U.S. nexus) and the U.S. financial system — have proliferated. As the reach of American sanctions has grown, the pressure on other states to respond has also grown. Also, the power of an alternative cannot be underestimated. Russia and China have developed backup methods for conducting cross-border payments. Everyone is more confident taking risks with a parachute and a net.

But even when countersanctions laws are enforced, the results are messy. The laws can deliver a legal win on paper, yet actually shielding foreign companies from U.S. power is still incredibly difficult because nothing really challenges America’s control over the dollar. Bank Melli scored a principled victory at the ECJ, but the court quickly interpreted the law to include an escape hatch for firms with serious U.S. exposure. The Chinese offshore firm won in Nanjing, yet the Swiss counterparty only paid up after getting an OFAC license. In each case, the legal pushback ran straight into the reality of U.S. financial might.

None of this, though, will make the laws go away. If anything, they are proliferating, with India now studying an EU-style blocking statute of its own. These laws will raise the costs of enforcing U.S. financial sanctions and will certainly complicate commercial engagement with countries that are at a high risk of sanctions.

As other countries increasingly reach for countersanctions laws, foreign businesses will enter a devil-you-know-or-the-devil-you-don’t phase of international commerce. Complying with U.S. sanctions used to be the path of least resistance. Countersanctions laws complicate that calculus. Both Russian and Chinese rules now let sanctioned parties pull disputes into their home courts — disregarding the arbitration clauses and governing law that have underpinned cross-border contracts for decades.

In statecraft jiu-jitsu, Washington can strike first but should start to expect counterstrikes. Each invocation of countersanctions laws normalizes resistance and raises the price of extraterritorial enforcement for the U.S. It remains to be seen how Washington might adapt to a new world where every major designation carries legal risks and strategic trade-offs. A first test might come in how policymakers respond to the Chinese banks who will inevitably continue working with the designated “teapot refiners,” now the General License X (OFAC’s temporary permission to import Iranian crude) has been revoked. Will Washington hit the Chinese banks? Will they find a creative counter? Welcome to the dojo.