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The legal crisis management revolution: Some thoughts from the sanctions revolution 

Latest PostThe legal crisis management revolution: Some thoughts from the sanctions revolution 

By Prof. Dr. Viktor Winkler, LL.M. (Harvard), Attorney at German and EU law and professor of law, Frankfurt/Germany

I advise clients in the most sudden and the most dramatic legal crisis clients can find themselves in.

No. I am not a defense attorney.

Criminal penalties emerge after an organic and long-winded process for which the client will, or, at least, can, prepare quite thoroughly. In my line of work companies cannot prepare. They have no time to prepare. No time to wait, no time to adjust to what is, by far, the most dramatic intrusion the law has to offer: (International) sanctions. They come as quickly as a summer storm and are, regularly, as aggressive as a hurricane. What makes sanctions measures, by any government, so dramatic is not merely that they are never announced to the person or company affected by them, be it directly or indirectly, or that they usually affect core businesses in the most sweeping prohibitive way with a very short history of sanctions unable to inform them what to do exactly. What makes sanctions so dramatic is that, unlike criminal penalties, the grave and deep infringements into the rights of those subject to these legal measures are inflicted without the constitutional safeguards we call criminal procedure. No right to be heard, no right to an attorney, no time to send those armies of lawyers drafting up a storm, not even the right to know their charges—actually, not even the right to know you are sanctioned. This does not make sanctions outright unlawful. But from a constitutional law perspective this makes them the deepest, the most severe basic rights intrusions known to our democratic Western legal systems.

Working in and advising in sanctions, and, in my case, mostly in Russia-related sanctions, thereby shoved my nose onto a phenomenon I played no role in helping create but one I cannot stop to marvel at ever since I have founded the (probably) first law firm in Germany devoted solely to sanctions: The phenomenon of legal crisis management.

“Oh, please”, you will say, “not that crisis shtik again.” And you would be right, too. I myself cannot hear it anymore. As a former legal history scholar I had many years ago in one of my researches found to my astonishment that every scholarly generation, and I literally mean every, in the history of jurisprudence since the 1850s was actually über-convinced that it was experiencing a profound and miraculously special state of aggregated crisis. Crisis is not just everywhere, it was always everywhere.

But, luckily, I am not referring to this type of crisis. I am not talking about crises, whether imagined or not, coming from the outside, the real world, and so I am not talking about the hordes of low-browed and low-priced “legal consultant”-type legal consultants who went to bed before Covid and the Ukraine war only to, in an act of self-infused reincarnation, wake up the next day as high-powered crisis management lawyers (and, more often than not, even as sanctions lawyers, I might add).

I am instead talking about a very specific type of crisis: the legal crisis. This type of crisis is not created by lab-sneaking viruses, hacking, or wars, but by the law, or, to be more precise, by governmental measures in various legal forms. You may say that there is absolutely nothing new about that and I would agree. But something has changed recently, and, I argue, very significantly. And that is the volume and the quality of such legally-created crises. The number of regulatory interventions by governments alone, from Brussel and Berlin to London and New York, has increased at such a breathtaking pace since, roughly, the year 2000 that the sheer volume of these legal requirements alone has created an ongoing legal crisis in its own right. A brooding, largely unspectacular kind, but still.

The change in quality is more interesting: The legal crises of today, very much unlike the ones in the 1990s, and even in the early 2000s, are marked by an intricate entanglement of legal and reputational aspects. This is true for the new field of sanctions more than for any other: When I advise my clients to adhere to sanctions in the strictest of ways I am making a legal argument about the threat of enforcement as much as I am making one about the devastating effect on the company’s reputation should it even remotely create the suspicion its businesses could perhaps be supporting Russia more than the Russia sanctions.

But sanctions, here too, are only pars pro toto. In almost all areas of regulatory laws, clients today in the Western world face a reputational risk by breaking laws that is so high that – and this is the most important aspect perhaps – the lines get blurred between law and reputation, between regulatory and political pressures. And governments start to increasingly take advantage. In an upcoming scholarly article I call this phenomenon “Regulation By Reputation”—the states’ attempt to achieve political goals by a hybrid of law and reputational threats intended to go well beyond the limits – and the reach – of  ordinary regulatory intervention.

We experience this in various areas, but most strongly probably in the area of human rights and in the area of climate change. Here, the Western governments have long switched from pure law to a new set of rules which, increasingly by seeking to transform private companies into activist policers of certain goals, combine legal, political and reputational dimensions.

This creates the true legal crisis of the 2020s, and probably the 2030s, for companies: The inability to achieve compliance in the deeper sense of the word with a regulatory onslaught which cannot be handled with the old toolbox. Indeed companies, whether in the UK or Germany or elsewhere, have so far been remarkably inattentive in accepting and discussing this new legal crisis management in the age of the never-ending regulatory tsunami. And companies proved that lack in the most recent covid and war crises, of all things: Response teams were created, task forces implemented, if any, and then vanished; some sooner and some later, but vanish they did.

And that is exactly the problem. Companies have not drawn the most essential conclusion from “the new normal”: That they need to transform all of their internal organization and processes (both!) into permanent crisis organizations – not just ones that can, if necessary, act as such. That is what I mean by legal crisis management. And it would mean we as lawyers have yet to create and (re-)invent this discipline for our clients. Because such legal crisis management would not only capture every part of the in-house governance of legal and compliance risks, but would actually lead to the disappearance of the distinctions between legal and non-legal functions (risk, communications, compliance) altogether. To all those who say that this is too extreme of an outlook and or that this will simply never happen I say: Look at the regulatory landscape today across the UK, Europe, America, Australia, or Canada, and tell me you can clearly draw the distinction between a legal and a non-legal issue.

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Prof. Dr. Viktor Winkler, LL.M. (Harvard), Attorney at German and EU law and professor of law, Frankfurt/Germany 

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