Recognition Beyond Territory: The Functional Transformation of Sovereignty in International Law

Recognition Beyond Territory:

The Functional Transformation of Sovereignty in International Law

Abstract

This article examines the gradual transformation of sovereignty from a predominantly territorial concept into a more functional and relational form of authority within contemporary international law. Classical doctrines of statehood continue to treat defined territory as a core element of sovereign existence. Yet contemporary legal practice reveals forms of governance that operate effectively beyond territorial boundaries. Drawing on the extraterritorial reach of the EU General Data Protection Regulation, transnational sanctions regimes, and platform-based governance, and on historical exceptions including the Sovereign Order of Malta and governments in exile, the article advances the concept of functional sovereignty: a form of authority grounded in institutional continuity, normative coherence, and external recognition rather than exclusive territorial control. Its central doctrinal argument is that legal practice increasingly normalises functional authority before formal recognition: recognition is not a discrete formal act but an incremental process consolidated through sustained institutional practice, a pattern already visible in the historical treatment of the Sovereign Order of Malta and now intensified by digital governance systems. The article identifies the conditions under which non-territorial entities may gradually acquire forms of recognised authority, and engages critically with the declaratory theory of recognition as the principal doctrinal obstacle to that analysis. It does not argue that DAOs or digital platforms constitute subjects of international law, nor that the criteria of statehood should be extended or revised. Its claim is narrower and more structural: that the gap between functional governance and formal recognition may narrow through practice, as it has historically. The article further addresses the risks of fragmentation and unaccountable power that post-territorial governance entails.

Keywords: sovereignty; territory; functional authority; digital governance; recognition; GDPR; Sovereign Order of Malta; blockchain; international legal personality; post-territorial governance

1. Introduction

Territory has long occupied a central place in the legal imagination of sovereignty. From the Peace of Westphalia to the Montevideo Convention, the modern state has traditionally been understood as a political entity inseparably connected to a defined geographical space. Borders determined jurisdiction, physical presence defined authority, and sovereignty itself was generally conceived as a territorial condition.^[1]

Contemporary legal and technological developments raise searching questions about the adequacy of that framework. The extraterritorial operation of the General Data Protection Regulation (GDPR) offers one illustration: the Regulation applies to organisations located entirely outside EU territory where their activities affect individuals within the Union.^[2] A company may operate from California, process data in Singapore, and maintain no physical presence in Europe, yet remain fully subject to European legal authority. Classical territorial frameworks can no longer fully account for the jurisdictional reality that such arrangements produce.

New forms of digital governance have emerged outside classical state structures. Decentralised autonomous organisations, blockchain-based governance systems, and transnational digital platforms increasingly coordinate economic and social relations across multiple jurisdictions simultaneously.^[3]

Importantly, the tension between sovereignty and territory is not entirely novel. International law has long recognised entities whose legal personality survived the loss or fragmentation of territorial control. The Sovereign Order of Malta, despite losing sovereign territory in 1798, continues to maintain diplomatic relations with over one hundred states and to participate in international legal relations as a recognised subject of international law. Governments in exile have historically preserved varying forms of legal continuity without exercising effective territorial governance.^[4]

The article advances a specific doctrinal claim: that contemporary legal practice increasingly normalises functional authority before formal recognition. This is not a prediction about the future of the state, nor a normative argument for the desirability of non-territorial governance. It is an observation about the structural pattern that connects the historical treatment of the Sovereign Order of Malta, the practice of governments in exile, and the emerging regulatory accommodation of transnational digital systems.

The doctrinal stakes of this argument are not merely theoretical. If legal practice is already normalising functional authority before formal recognition, then international law faces a choice between two responses. The first is to treat the phenomenon as an exception: to acknowledge Malta-type sui generis cases as anomalies that leave the territorial model otherwise intact, and to resist extending their logic to contemporary digital governance actors. The second is to treat the phenomenon as structurally revealing: to recognise that the territorial model has always been more permeable than classical doctrine presented it, and that the conditions generating non-territorial legal personality are now recurring with greater frequency. The argument advanced here is that the second response is both more accurate as a description of historical practice and more analytically productive as a framework for understanding the governance landscape emerging in the digital age.

The timing of this inquiry matters. The conditions generating non-territorial governance capacity have existed, in attenuated form, for centuries. What has changed is their scale, their frequency, and their legal visibility. A DAO managing a billion-dollar treasury, a sanctions regime enforced through dollar-clearing dependency, a platform company making content moderation decisions that determine political speech in dozens of jurisdictions – these are not marginal phenomena awaiting doctrinal attention. They are the governance reality within which international law is already operating. The question is whether doctrine will develop the conceptual resources to describe that reality accurately, or continue to apply territorial categories to phenomena that territorial categories were not designed to address.

The article proceeds as follows. Section 2 surveys the existing scholarship and identifies the conceptual gap to which the article responds. Section 3 sets out the methodology. Section 4 examines the territorial paradigm of sovereignty and its internal tensions. Section 5 analyses the historical exceptions – the Sovereign Order of Malta, the Holy See, and governments in exile – that demonstrate the structural flexibility of the territorial model. Section 6 examines functional authority in contemporary international law, focusing on extraterritorial regulatory regimes and platform governance. Section 7 addresses blockchain-based governance systems and their institutional implications. Section 8 proposes the functional recognition framework, engages the declaratory objection, and identifies the criteria under which non-territorial authority may attract legal recognition. Section 9 considers post-territorial political communities as doctrinal stress tests. Section 10 addresses the risks and governance implications of the transformation described. Section 11 concludes.

2. Existing Scholarship and Conceptual Gap

The relationship between sovereignty and territory has generated a substantial body of scholarly literature across international legal theory, political sociology, and governance studies. The scholarship can be organised into four broad clusters, each of which illuminates a different dimension of the transformation examined in this article, and each of which also leaves a residual gap that the article addresses.

The first cluster concerns the classical doctrine of statehood and recognition. Within mainstream international law, the Montevideo criteria remain the canonical entry point for discussions of statehood.^[5]

Crawford's comprehensive treatment of state creation established the doctrinal baseline for the conditions of international legal personality.^[6] Lauterpacht's foundational analysis of recognition as a constitutive legal act and Talmon's empirical critique of its allegedly declaratory character remain indispensable reference points for any examination of how legal personality is produced.^[7] The recognition literature has, however, focused primarily on recognition between states and on the recognition of new states or governments. The question of how recognition operates in relation to entities that are neither states nor international organisations – entities that exercise governance functions without sovereign territory – has received comparatively little systematic attention.

The second cluster comprises classical sovereignty theory. Hinsley's analytical history^[8] established the conceptual foundations upon which later critiques have built. Krasner's influential account of sovereignty as organised hypocrisy^[9] demonstrated that territorial norms persist despite systematic violation. Schmitt's decisionist theory^[10] remains important for understanding sovereignty in exceptional conditions. Weber's monopoly-of-force definition^[11] continues to anchor sociological accounts of the territorial state. These frameworks illuminate the internal logic of territorial sovereignty but are less equipped to address the conditions under which that logic may be supplemented or partially displaced.

The third cluster addresses digital governance and the normativity of code. Lessig's constitutive theory of code as regulation and Cohen's institutional analysis of informational capitalism together identify the structural normativity embedded in digital infrastructure.^[12] De Filippi and Wright have examined blockchain-based legal orders as a new species of normative system in their own right.^[13]

The fourth cluster addresses extraterritorial jurisdiction and transnational regulatory authority. Ryngaert has provided the most systematic doctrinal account of extraterritorial jurisdiction^[14] and Bradford's analysis of the Brussels Effect demonstrates how regulatory authority extends de facto through market interdependence.^[15] Global administrative law scholarship, particularly Krisch's pluralist account of overlapping normative orders, has examined the emergence of transnational regulatory authority beyond classical sovereign structures.^[16] Sassen's broader sociological analysis of the disaggregation of territory, authority, and rights provides a macro-structural account of the same transformation, situating the legal changes within a longer history of how sovereignty has been assembled and can be disassembled. Taken together, these four clusters of scholarship provide substantial resources for understanding particular dimensions of the transformation examined in this article. What they do not provide is a unified analytical framework for understanding when and how non-territorial governance actors begin to attract the kind of sustained institutional engagement that, historically, has preceded the emergence of new forms of legal personality.

Against this background, a conceptual gap remains. The existing literature has documented the erosion of territorial jurisdiction and the rise of digital governance in considerable depth. Less attention has been paid, however, to the conditions under which non-territorial functional authority begins to attract legal recognition – not through formal declarations, but through the accumulated practice of states, international institutions, and regulatory systems. The recognition literature, from Lauterpacht through to contemporary debates, has focused primarily on states and the declaratory or constitutive character of recognition between them. The question of how recognition operates in relation to entities that are neither states nor international organisations – entities that exercise governance functions without sovereign territory – remains underexplored. This article addresses that gap by proposing a functional framework for analysing recognition beyond territory, grounded in historical precedent and contemporary legal practice, and by engaging critically with the doctrinal obstacles that the prevailing theory of recognition places in its path.

3. Methodology

The article adopts a doctrinal and conceptual methodology. Its primary analytical mode is internal legal analysis: the examination of doctrine, treaty instruments, institutional practice, and scholarly frameworks from within the discipline of international law, rather than through sociological, empirical, or policy-instrumental methods. This choice reflects the nature of the central question, which concerns the structural logic of legal recognition rather than the empirical frequency of any particular governance arrangement.

The comparative dimension of the argument proceeds by juxtaposing legally distinct contexts that share a common structural feature: the exercise of governance functions without conventional territorial sovereignty. The Sovereign Order of Malta, the Holy See, and governments in exile are examined not as historical curiosities but as doctrinal precedents that reveal the structural possibilities already latent within international law. Contemporary digital governance phenomena – GDPR extraterritoriality, platform governance, and blockchain-based institutional structures – are then examined against the same structural criteria. The methodological wager is that doctrinal comparison across time can reveal patterns in legal practice that synchronic analysis of contemporary phenomena alone cannot identify.

The article engages critically with competing theoretical frameworks – particularly the declaratory and constitutive theories of recognition – rather than adopting either as a premise. It treats these frameworks as objects of analysis rather than as tools of analysis, evaluating their explanatory adequacy against the evidence of historical and contemporary legal practice.

Two methodological limitations should be noted at the outset. First, the comparative method employed here identifies structural similarities across legally distinct contexts, but structural similarity is not legal equivalence. The fact that the Sovereign Order of Malta and a DAO both exercise governance functions without territorial sovereignty does not establish that they occupy the same legal category or that the doctrinal treatment accorded to one should be extended to the other. The comparison is used to identify the structural conditions under which non-territorial governance capacity has historically attracted legal recognition, not to argue by analogy that any particular digital governance system should be accorded similar treatment.

Second, the article does not attempt to measure the transition from functional authority to formal recognition, or to establish empirically that any particular digital governance system has crossed any threshold of practical recognition. The argument is structural and conditional: it identifies the criteria under which recognition may emerge through practice, not the point at which it has done so in any specific case. Empirical research mapping the actual diplomatic and regulatory engagement of states and international organisations with non-territorial digital governance systems would be a valuable complement to the doctrinal analysis developed here, but falls outside the scope of this article. The normative and doctrinal consequences of the structural analysis are left to be worked out through the institutional and judicial processes in which international law is developed. Sources are cited in accordance with OSCOLA conventions.

4. The Territorial Paradigm of Sovereignty

The modern concept of sovereignty emerged within a framework fundamentally structured around territory. Although the historical significance of the Peace of Westphalia is frequently simplified in contemporary scholarship – and Osiander has persuasively argued that the Westphalian myth owes more to twentieth-century international relations theory than to seventeenth-century legal practice – the settlement became symbolically associated with the consolidation of territorially bounded political authority. The state came to be understood as an entity exercising exclusive jurisdiction within clearly demarcated borders, insulated from external interference and formally equal to other sovereign units. Hinsley captures this legal-political settlement precisely: sovereignty in the modern sense entails not merely the existence of supreme authority, but its limitation to a defined territorial space within which no rival authority is recognised.

Weber's sociological conception reinforced this paradigm by defining the state as the entity claiming the monopoly of the legitimate use of physical force within a given territory.^[17] Territory was therefore not merely an administrative convenience but integral to the structure of political authority itself – the spatial precondition of legitimate coercion. Sassen's later analysis of territory, authority, and rights as historically assembled rather than naturally given adds a further dimension: the connection between sovereignty and territory was itself a historical construction, contingent on particular political and legal arrangements that took centuries to consolidate and may be equally susceptible to gradual disaggregation. Krasner's demonstration that sovereignty functions as organised hypocrisy – territorial norms proclaimed universally but violated routinely – confirmed that territorial doctrine and territorial practice have never fully coincided.^[18]

Territoriality also became deeply connected to the classical conception of jurisdiction. States governed persons, property, and conduct located within their territorial boundaries. The prescriptive, adjudicative, and enforcement dimensions of jurisdiction were all conceptually anchored in territorial presence, even where international law recognised limited exceptions – the nationality principle, the protective principle, universal jurisdiction over certain crimes – as derogations from a territorial baseline rather than as independent foundations of jurisdictional competence. Schmitt identified the deepest logic of this arrangement in his concept of the Nomos: the originary act of spatial appropriation through which law and political order are simultaneously constituted. The exception that reveals sovereign authority is always territorially located – it is in relation to a defined spatial order that the decision acquires its legal significance. Whatever one thinks of Schmitt's broader theoretical commitments, the territorial logic he identified is embedded in international legal doctrine in ways that transcend any single theoretical framework: statehood doctrine, jurisdiction doctrine, the law of occupation, the law of recognition – all presuppose territorial organisation as the structural baseline of the international legal order.

Even classical doctrine was never fully coherent in its treatment of territory. Historical practice consistently revealed entities whose legal personality exceeded strict territorial logic: empires exercised layered and overlapping forms of authority; protectorates and mandates complicated notions of exclusive jurisdiction; international organisations exercised functional authority without territorial claims; governments in exile preserved legal continuity without effective territorial control. The International Court of Justice acknowledged in the Reparation for Injuries advisory opinion that international legal personality is not confined to states, and that the subjects of international law need not all possess identical rights and obligations. Territory, in this longer view, functioned less as an absolute condition of sovereignty than as its dominant modern organising principle – a principle now under pressure from multiple directions simultaneously.

5. Historical Exceptions to Territorial Sovereignty

Although territoriality became the dominant organising principle of the modern state system, international legal practice has never entirely conformed to a rigid territorial model. Certain entities have retained varying forms of legal personality, diplomatic capacity, or institutional continuity despite the loss, fragmentation, or absence of effective territorial control. In each case, functional authority appears to have preceded, and in some instances substituted for, formal territorial recognition.

5.1 The Sovereign Order of Malta

The Sovereign Military Hospitaller Order of Saint John of Jerusalem, of Rhodes and of Malta represents the most legally significant example of sovereignty surviving territorial collapse. The Order was founded in Jerusalem in the eleventh century, acquired sovereignty over Rhodes in 1310, and ruled Malta from 1530 until Napoleon's conquest in 1798. The loss of Malta eliminated the Order's territorial sovereignty in the conventional sense, yet its international legal life continued without formal interruption. Today it maintains diplomatic relations with over one hundred states and the European Union, holds permanent observer status at the United Nations, issues internationally recognised travel documents, enters into international agreements, and operates humanitarian missions across more than one hundred and twenty countries. Its headquarters in Rome enjoys extraterritorial status under the Lateran-style arrangement with Italy, providing a territorial base that is symbolic rather than sovereign in character.^[19]

The Order's legal status is frequently described as sui generis: it does not satisfy the Montevideo criteria of statehood, yet it unambiguously possesses international legal personality.^[20] What the Malta precedent demonstrates is that recognition, institutional continuity, and functional participation within the international legal order can compensate for the absence of territorial sovereignty. This compensation occurs not through a formal legal decision but through the accumulation of diplomatic and institutional practice across several centuries – precisely the pattern this article identifies as structurally significant. The argument advanced here does not claim that the Malta precedent is directly transferable to digital governance systems. Its significance lies instead in demonstrating that international legal personality has historically survived independently of territorial sovereignty under conditions of sustained institutional recognition – a structural possibility that existing doctrine acknowledges but that recognition theory has not yet systematically explored.

5.2 The Holy See

Long before the creation of Vatican City State in 1929, the Holy See maintained diplomatic relations and participated in international affairs as an independent legal subject. Its international personality was grounded not primarily in territorial control, but in institutional continuity, spiritual authority, and consistent recognition by other states.^[21] The Vatican illustrates that legal identity can persist independently of any particular territorial configuration, provided that institutional coherence and external recognition are maintained.

5.3 Governments in Exile

Governments in exile provide a further example of sovereignty detached from effective territorial control. During the Second World War, the governments of Poland, Norway, the Netherlands, Belgium, Luxembourg, Greece, and Yugoslavia all operated from London without exercising any effective authority over their national territories, yet retained full diplomatic recognition and continued to participate in international legal relations as sovereign entities.^[22] The Allied powers did not treat occupation as terminating the legal personality of the displaced states, nor did they require those governments to demonstrate effective territorial control as a precondition of continued recognition. The operative criterion was constitutional continuity: the preservation of governmental institutions capable of claiming legitimate authority over the national territory once restored. Talmon's analysis confirms that recognition in these cases functioned as a deliberately maintained legal fiction, sustaining personality through institutional continuity in the absence of territorial effectiveness. The structural principle that emerges is legally significant: recognition may preserve international legal personality even where territorial sovereignty has wholly collapsed in practice, provided that institutional continuity and the will of other states to maintain engagement are present.

Taken together, these historical examples confirm that the relationship between sovereignty and territory has always been more flexible than classical doctrine formally acknowledged. The contemporary emergence of digital governance systems does not create an unprecedented phenomenon but rather intensifies structural tensions already embedded within international law.

6. Functional Authority in Contemporary International Law

Contemporary international law appears to be undergoing a gradual shift away from purely territorial conceptions of authority toward more functional and relational forms of jurisdiction. Territory formally remains central to state sovereignty, but modern regulatory practice reveals that legal authority is increasingly exercised beyond geographically bounded space – or, more precisely, that territorial presence is under growing doctrinal pressure as the sole basis for allocating jurisdictional competence.

The GDPR extraterritoriality regime exemplifies this tendency. Article 3(2) extends the Regulation's application to controllers and processors not established in the Union where their processing activities relate to the offering of goods or services to data subjects in the Union, or to the monitoring of their behaviour within it. The jurisdictional criterion is explicitly functional: it turns on market orientation and behavioural targeting, not on the physical presence of the data processor. The Court of Justice has extended this logic in decisions on removal obligations and data transfer restrictions, consistently treating functional connection to EU data subjects as sufficient basis for regulatory authority regardless of where processing infrastructure is located.^[23]

Bradford's analysis of the Brussels Effect demonstrates a further dimension. EU regulatory standards extend de facto across global markets not primarily through enforcement but through the market incentives that lead non-EU firms to comply voluntarily with EU standards in order to access EU consumers. Governance without territorial presence becomes governance through structural market dependency – a form of functional authority that produces legal consequences without requiring territorial control or formal treaty obligations.

Modern sanctions regimes illustrate a related reconfiguration. The effects doctrine – the principle that jurisdiction may arise from the effects produced within a legal order regardless of where the conduct originated – was initially developed in US antitrust law and has since been adopted, in modified forms, by the EU and other jurisdictions. Secondary sanctions represent its most aggressive contemporary application: measures that penalise third-country entities for conducting transactions with sanctioned parties, operating by conditioning access to dollar-clearing systems, correspondent banking networks, and technology supply chains rather than through direct territorial enforcement.^[24]

The structural logic is revealing. An entity incorporated in a third country, conducting transactions in its domestic currency, involving no US persons and no US-origin goods, may nonetheless find itself subject to US regulatory authority by virtue of its dependency on dollar-denominated clearing systems. Jurisdiction is not territorial here – it is infrastructural. Authority follows systemic integration rather than physical location.

The rise of platform governance intensifies these developments. Large digital platforms regulate speech, identity verification, commercial activity, and dispute resolution across multiple jurisdictions simultaneously.^[25] Content moderation decisions made by a platform company in California may determine what political speech is available to users in Kenya, Brazil, or Germany – jurisdictions whose domestic legal orders the platform formally neither invokes nor defers to. When platforms suspend national leaders or implement local law removal requests from governments with which they have no treaty relationship, they exercise a form of quasi-regulatory authority whose jurisdictional basis the classical territorial model cannot coherently explain.

Lessig identified the structural logic decades ago: code, like law, constitutes behaviour; but unlike law, it operates without the territorial anchor that gives legal jurisdiction its traditional legitimacy. That observation now describes not a theoretical possibility but a governance reality operating at global scale.

These developments do not signify the disappearance of the territorial state. Rather, they reveal that territorial control no longer functions adequately as the exclusive foundation of jurisdictional legitimacy. Functional participation within networks, systems, and institutional relationships increasingly generates forms of authority capable of producing legal consequences across borders – a pattern that global administrative law scholarship has begun to examine at the institutional level, though without fully addressing its implications for the theory of recognition.^[26]

7. Blockchain Governance and Digital Institutionalism

The emergence of blockchain-based governance systems introduces new institutional forms that further complicate the relationship between sovereignty, jurisdiction, and territory. The legal significance of these systems lies less in technological novelty than in their capacity to organise governance functions – coordination, rule formation, and procedural continuity – across distributed networks without territorial anchoring.^[27]

Decentralised Autonomous Organisations (DAOs) operate as digitally coordinated governance structures capable of managing collective resources, establishing procedural rules, and facilitating decision-making among geographically dispersed participants. Governance is exercised through protocol-based mechanisms, voting systems, and smart contract execution rather than through conventional hierarchical administration.^[28]

Smart contracts play a structurally distinctive role. Rather than relying exclusively upon discretionary institutional enforcement, blockchain-based governance structures embed certain procedural rules directly into executable code.^[29] This does not eliminate the role of legal interpretation, but it alters the mechanisms through which institutional continuity and rule application are maintained.

The significance of these systems should not be overstated. DAOs do not constitute sovereign states, nor do they presently possess recognised international legal personality. Most remain dependent upon existing legal systems for practical enforcement, dispute resolution, and regulatory legitimacy. Nothing in the analysis that follows should be read as arguing otherwise, or as suggesting that blockchain governance structures satisfy – or should be deemed to satisfy – the criteria of statehood. The point is more limited: that these systems demonstrate that forms of institutional coordination traditionally associated with territorial governance – membership definition, rule formation, procedural continuity – can operate within distributed digital environments. This observation matters for the theory of recognition: if functional governance capacity is analytically separable from territorial control, the question of when such capacity begins to attract legal recognition becomes a doctrinal question rather than a merely speculative one. The Wyoming Decentralized Autonomous Organization Supplement Act 2021 – the first domestic legislation to confer legal personality on a DAO – illustrates the dynamic. The Wyoming legislature extended LLC status to DAOs without requiring them to maintain a physical office or resident officers in the conventional sense. Governance, membership, and rule enforcement were treated as functions dischargeable through protocol-based digital infrastructure. That a state legislature was prepared to recognise this form of institutional organisation as legally sufficient suggests that the separation of governance capacity from territorial presence is already a live question within domestic law, independently of any developments in international legal doctrine.^[30]

The Wyoming legislation is not an isolated instance. The Marshall Islands in 2022 enacted legislation recognising DAOs as legal persons capable of entering contracts and holding property, explicitly accommodating their non-territorial character. Within the EU, the Markets in Crypto-Assets Regulation (MiCA) creates a regulatory framework that attributes legal obligations to decentralised governance systems without requiring them to be organised as conventional legal entities. These developments do not resolve the question of international legal personality, but they demonstrate a convergent pattern: domestic and regional legal systems are developing accommodation mechanisms for digitally constituted governance structures, and doing so by reference to functional criteria rather than territorial ones.

Specific DAO instances illustrate what governance capacity without territorial presence looks like in practice. MakerDAO, which governs the Dai stablecoin protocol, maintains a treasury of significant scale, issues binding governance decisions through token-weighted voting, and enforces those decisions through smart contract execution – all without a registered office, a board of directors, or a territorial jurisdiction of incorporation. Aragon has facilitated hundreds of organisations exercising collective governance over significant digital assets across multiple jurisdictions simultaneously. These entities are not analogous to states, and this article does not suggest they should be treated as such. What they demonstrate is that governance capacity – the ability to make binding collective decisions, manage common resources, and enforce procedural rules – can operate at scale without any of the territorial attributes that classical sovereignty doctrine treats as foundational.

8. Recognition Without Territory: A Functional Framework

Contemporary international law is confronted with a growing class of entities capable of exercising governance functions without possessing conventional territorial sovereignty. The existence of functional governance alone does not produce legal personality. The critical distinction remains that between operation and recognition.

Before turning to the framework, two clarifications are necessary. The first concerns scope. The analysis that follows does not argue that non-territorial digital governance systems are subjects of international law, quasi-subjects, or proto-sovereign entities. It does not propose extending, revising, or supplementing the Montevideo criteria. The question is more limited: under what conditions does functional authority, exercised by non-territorial institutional actors, begin to attract practical legal recognition through the accumulation of state and institutional practice? That question is doctrinal without being definitional. International law has answered it pragmatically before – most clearly in the case of the Sovereign Order of Malta.

The second clarification concerns terminology. The article uses several related but distinct concepts that require careful separation. Governance capacity refers to the practical ability to organise collective activity through institutional procedures – a factual condition that may exist without any legal recognition. Jurisdiction refers to a legal competence to prescribe, adjudicate, or enforce, which requires some recognised legal basis and cannot be self-created. Legal personality refers to the capacity to be a bearer of rights and obligations within a legal order – a status that in international law has historically been conferred on states, international organisations, and a small number of sui generis entities. Functional sovereignty, as used in this article, refers to something more specific and more limited than any of these: the condition in which an institutional actor exercises governance functions of a kind historically associated with sovereign authority – rule formation, membership definition, procedural continuity, external engagement – independently of territorial control. Whether functional sovereignty of this kind generates governance capacity, jurisdiction, or legal personality in any given case depends on the factors identified in the framework below, and ultimately on the response of other actors within the international legal order.

8.1 The Declaratory Objection

A strict declaratory approach to recognition – associated with the view that statehood exists independently of and prior to recognition – would resist the possibility that functional governance structures lacking territorial sovereignty could acquire international legal personality incrementally through practice. On this account, recognition is merely an acknowledgement of a pre-existing legal fact; it cannot itself be constitutive of personality where the underlying territorial conditions are absent. Crawford's rigorous application of the Montevideo criteria reflects a version of this position: the criteria of statehood are legal conditions, not aspirational benchmarks, and entities that fail to satisfy them are not states regardless of how extensively other actors engage with them.^[31]

This objection carries considerable weight, and the framework proposed here does not claim to resolve the constitutive/declaratory debate as a matter of positive international law. What it does claim is that the historical treatment of entities such as the Sovereign Order of Malta suggests that international law has in practice operated less formally and more pragmatically than strict declaratory models imply.^[32] The Order possesses international legal personality without satisfying the Montevideo criteria. That fact is not explained by a declaratory account; it is explained by the cumulative recognition of functional authority through diplomatic and institutional practice.

Lauterpacht himself acknowledged that recognition, whatever its theoretical character, operates in practice through political judgment rather than through the mechanical application of legal criteria – a concession that significantly qualifies the normative force of the declaratory position. The same structural pattern, this article argues, may apply to non-territorial digital governance systems – not because the law formally requires this outcome, but because practice may generate it regardless of what doctrine prescribes.

8.2 Criteria of Functional Recognition

The following framework identifies five factors that cumulatively influence the practical legitimacy and legal relevance of non-territorial institutional actors. These factors are not independent criteria of sovereignty – they do not reformulate the Montevideo conditions – but analytical markers of the conditions under which functional authority may attract legal recognition through the accumulation of practice.^[33]

Stable governance capacity. A system must demonstrate the ability to organise collective activity through identifiable institutional procedures: rule formation, decision-making mechanisms, internal coordination, and procedural continuity over time. The relevant question is not whether governance resembles a traditional state, but whether it performs sufficiently durable governance functions to sustain an organised legal or political community. The analogy with the effective control requirement in classical statehood doctrine is instructive but imperfect: where classical doctrine requires effective control over a territory and population, the functional framework proposed here requires effective institutional control over a defined normative domain – a domain constituted by membership, rules, and procedures rather than by geography.

Persistent institutional identity. Recognition depends upon the existence of a persistent institutional identity capable of surviving individual participation and organisational change. In digital and transnational governance systems, continuity may derive from stable membership frameworks, digital identity infrastructures, or persistent institutional architecture rather than from dynastic succession or constitutional permanence.

Normative coherence. Governance systems lacking normative consistency may coordinate activity temporarily, but struggle to generate the stable external recognition that follows from predictable institutional behaviour. The distinction between a normatively coherent governance system and a merely coercive or opportunistic one matters: it is the perception of principled institutional behaviour that has historically led states to engage with non-territorial entities as governance actors rather than as private associations. The Sovereign Order of Malta's extensive humanitarian mandate and its consistent adherence to the law of armed conflict have contributed materially to its sustained recognition – demonstrating that normative coherence and recognition are mutually reinforcing.

External legal interface. Historically, sovereignty emerged through participation within networks of diplomatic, legal, and economic relations. Contemporary non-territorial governance systems require mechanisms through which they can engage external institutions, enter agreements, and maintain legal accountability. Recognition is relational by nature: an entity becomes legally relevant not simply because it governs internally, but because other actors begin interacting with it as a structure capable of producing legal consequences.

Walker's analysis of late sovereignty in the European Union identifies a similar pattern: the legal significance of institutional actors is produced not by their internal characteristics alone but by the web of legal relationships within which they are embedded. An entity without external legal interface may govern, but it cannot be recognised; and without recognition, governance capacity generates no durable legal consequences.

Incremental practical recognition. Legal personality has historically emerged through accumulated acceptance: diplomatic engagement, recognition of documents, participation within international institutions, and routine legal interaction. This process is precisely what the Malta precedent illustrates across several centuries.^[34] For emerging post-territorial governance systems, recognition may arise not through explicit declarations of sovereignty, but through accumulated forms of practical engagement that progressively normalise institutional authority beyond territorial boundaries.

Taken together, these factors suggest that sovereignty may increasingly operate as a functional and relational status rather than as a purely territorial condition. Territory remains important – particularly as the foundation of coercive authority and democratic accountability – but it proves increasingly incomplete as the exclusive organising principle through which legitimacy and authority are recognised within the international legal order.

9. Post-Territorial Political Communities

The conceptual framework developed above becomes particularly relevant when applied to political communities that are dispersed, displaced, or structurally detached from effective territorial control. Such communities do not constitute states, nor should they be treated as sovereign merely because they claim political identity. They are better understood as conceptual stress tests for international law: cases that reveal whether existing doctrine is adequate to describe emerging forms of political organisation.

The idea of the network state – political communities organised through shared identity and digital coordination before seeking territorial or legal recognition – remains normatively and legally contested.^[35] Its analytical interest lies not in its prescriptive ambitions but in the structural observation it contains: that community formation may increasingly precede territorial anchoring rather than following from it. This inverts the classical sequence assumed by the Montevideo framework.

In the digital age, the functions historically performed by exile governments – representative institutions, media structures, diplomatic advocacy, and legal documentation – can be stabilised through persistent identity systems, secure communication platforms, and transnational institutional infrastructure. A community dispersed across many jurisdictions may develop elements of institutional life that resemble governance without territorial concentration, replicating in contemporary form the structural conditions observable in the Malta and governments-in-exile precedents.

The Ukrainian experience since 2022 offers one illustration of how digital infrastructure can sustain governance functions under conditions of partial territorial displacement. The Ukrainian government's rapid migration of critical administrative functions to cloud-based infrastructure – including civil registry, tax administration, and digital identity – demonstrates that core governance capacities need not be territorially fixed in the sense that classical doctrine assumed. Where governance infrastructure can be dispersed and reconstituted independently of physical territorial control, the relationship between effective governance and territorial presence becomes structurally more complex. This is not the disappearance of territorial sovereignty but its partial decoupling from the assumption that governance must be exclusively anchored to physical infrastructure located within national boundaries.^[36]

For diaspora communities whose relationship to a national territory is mediated primarily through digital networks – whether by choice, by exile, or by displacement – the classical connection between political membership, territorial presence, and legal standing becomes correspondingly attenuated. The Estonian e-Residency programme offers a partial illustration from the perspective of a territorial state: Estonia has deliberately extended digital access to its administrative and legal infrastructure to individuals with no territorial connection to Estonia, creating a class of institutional participants whose relationship to the state is entirely functional rather than territorial or demographic. The programme does not create citizenship or political membership, but it demonstrates that state-level governance systems can be deliberately detached from territorial presence as an organising criterion without losing their legal coherence.

Whether dispersed or digitally constituted communities acquire any form of institutional standing under international law will depend not on the elegance of theoretical arguments but on the practical willingness of states and international organisations to engage with them as governance actors – and on whether those communities can satisfy the functional criteria identified in the preceding section. The framework proposed in this article does not predict that they will. It provides the analytical vocabulary for understanding the process if and when they do – which is precisely what doctrinal scholarship is for.

These communities are not states. Without external legal interface, normative coherence, and practical recognition, they remain political associations rather than recognised legal subjects. Their significance for the purposes of this article lies not in their current legal status but in the doctrinal questions they generate: questions that existing territorial frameworks appear increasingly ill-equipped to answer.

10. Risks, Critiques, and Governance Implications

The prospect of post-territorial forms of governance raises substantial legal and political concerns that this article does not seek to minimise. The territorial state historically provided a relatively stable framework for allocating jurisdiction, enforcing accountability, and resolving conflicts of authority. The emergence of overlapping digital governance systems may weaken these coordinating structures without providing stable alternatives.^[37]

Regulatory arbitrage presents a significant risk. Non-territorial governance structures may enable actors to avoid legal obligations strategically by operating across jurisdictions without remaining fully accountable to any single regulatory system. This is not a speculative concern: it is already observable in the behaviour of large digital platforms that exploit inconsistencies between national frameworks in data governance, taxation, and content regulation.

The concentration of private technocratic power presents a related challenge. Many contemporary digital governance systems are not democratic public institutions but infrastructures controlled by platform operators, protocol developers, or technologically concentrated networks.^[38] Governance through code may obscure rather than eliminate relations of power. The absence of constitutional safeguards – judicial oversight, political representation, public accountability – that territorial states at least aspire to maintain means that the migration of governance functions to non-territorial digital systems carries significant legitimacy risks.

These risks suggest several governance implications. First, international organisations and regulatory bodies may need to develop frameworks capable of engaging non-territorial governance systems on questions of accountability and rights protection, rather than treating their legal status as a binary question of statehood. Second, the conditions of functional recognition proposed in this article – stable governance capacity, normative coherence, external legal interface – may themselves function as accountability criteria: entities that seek practical recognition must demonstrate the institutional structures that make accountability possible. Third, the analogy with historical non-territorial entities, including the Sovereign Order of Malta, suggests that engagement through existing international institutional frameworks may itself generate the recognition that digital governance systems currently lack.

The democratic legitimacy deficit of non-territorial governance systems deserves particular attention. Territorial states, for all their failures, are embedded within constitutional structures that at least formally require popular authorisation of public power: elections, parliamentary scrutiny, judicial review, and the right to participation in governance decisions that affect one's interests. Non-territorial governance systems generally lack equivalent mechanisms.

Token-weighted voting in a DAO concentrates governance power in proportion to financial holdings; platform governance decisions are made by corporate officers accountable to shareholders, not to users; transnational regulatory regimes are negotiated by technocratic bodies with limited democratic oversight. The functional recognition framework proposed in this article does not presuppose that these systems are democratically legitimate. It presupposes only that they exercise governance functions that the existing territorial framework cannot adequately describe or regulate.

The accountability gap is structurally related but analytically distinct. Where territorial states exercise authority extraterritorially, affected individuals may have limited recourse to administrative or judicial review in the regulating jurisdiction. Where non-territorial governance systems exercise authority without territorial anchoring, the deficit is more severe: there is no obvious forum in which governance decisions can be challenged, no jurisdiction whose courts are clearly competent, and no electorate to which the governing body is politically answerable.

The functional recognition criteria proposed in this article – normative coherence, external legal interface, stable governance capacity – may serve a dual purpose. They are not merely analytical markers of incipient recognition; they are potential accountability benchmarks that international law might require of non-territorial governance actors as a condition of engagement. Recognition and accountability, on this view, should develop in tandem rather than sequentially.

These critiques demonstrate that post-territorial governance is not inherently emancipatory, and the analysis developed in this article should not be read as a normative endorsement of non-territorial sovereignty. It is an attempt to describe a transformation already visible within contemporary international legal practice, and to develop the conceptual tools with which international law might understand and regulate that transformation as it develops.

11. Conclusion

The modern international legal order was constructed upon a predominantly territorial understanding of sovereignty. Territory functioned as the central organising principle through which authority, legitimacy, and political identity were structured. Contemporary legal and technological developments expose the limitations of that framework with increasing force.

The practical doctrinal consequences of this transformation are identifiable if not yet settled. Where legal authority is exercised through functional reach rather than territorial presence – as in the GDPR extraterritoriality regime or in transnational sanctions enforcement – existing jurisdictional doctrines face pressure to accommodate governance realities that territorial models cannot fully explain. Where non-territorial institutional actors attract sustained state engagement – as the Sovereign Order of Malta has over several centuries – the question of their legal status cannot be answered by reference to Montevideo criteria alone. And where domestic legislatures recognise digitally constituted governance structures – Wyoming in 2021, the Marshall Islands in 2022 – the separation of institutional authority from territorial presence becomes a question of positive law rather than speculative theory.

The international legal order has not yet developed a systematic response to these developments. It has, however, the doctrinal resources to do so: a long practice of recognising non-territorial entities, a flexible conception of legal personality that has never been confined to states alone, and a recognition theory whose constitutive strand already acknowledges the role of practice in generating legal personality.

These are not predictions. They are descriptions of a doctrinal situation already in motion. Legal practice increasingly normalises functional authority before formal recognition. International law possesses the conceptual resources to understand that process – provided it is prepared to look at what practice already reveals.

Extraterritorial regulatory systems such as the GDPR, transnational sanctions regimes, and digital governance infrastructures demonstrate that a purely territorial account of jurisdictional authority cannot fully account for the regulatory realities that have emerged. Historical exceptions – particularly the Sovereign Order of Malta, the Holy See, and governments in exile – confirm that international legal practice has never been entirely reducible to rigid territorial logic.

The central doctrinal contribution of this article is to identify the pattern that these diverse phenomena share: legal practice increasingly normalises functional authority before formal recognition. Recognition, as the Malta precedent illustrates across several centuries, is not a discrete moment but a process of institutional consolidation through sustained external engagement. A strict declaratory theory of recognition cannot satisfactorily explain that precedent; a functional and relational account can. Digital governance systems are beginning to generate the same structural dynamic in contemporary form.

This does not mean that territorial states are disappearing, nor that the criteria of statehood are dissolving. Territory remains deeply connected to coercive authority, constitutional order, democratic accountability, and the practical administration of political life. The relationship between sovereignty and territory is becoming, however, progressively less exclusive and less conceptually stable than classical doctrine assumed.^[39]

Territory may not disappear from the structure of sovereignty. But it is under growing pressure as its exclusive organising principle in the digital age. International law already possesses, in its historical treatment of non-territorial entities, the conceptual resources to accommodate this transformation – provided that those resources are applied with the doctrinal rigour and critical self-awareness that the question demands.

Three research questions follow from the analysis developed here, each of which this article has opened rather than resolved. First, what procedural mechanisms, if any, should international law develop for assessing the governance capacity, normative coherence, and accountability of non-territorial institutional actors that seek engagement with the international legal order? Second, how should the relationship between functional recognition and democratic legitimacy be understood – is democratic governance a necessary condition of legal recognition, or a separate normative standard that recognition should incentivise rather than presuppose? Third, does the structural pattern identified in this article – functional authority normalised before formal recognition – generate any obligations on the part of states and international organisations to develop frameworks for engagement, or does it merely describe a possibility that international law may elect to ignore? These questions define the research agenda that a functional account of sovereignty in the digital age makes necessary.

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[1] Peace of Westphalia (24 October 1648) 1 CTS 119. For a constructivist re-reading see Andreas Osiander, 'Sovereignty, International Relations, and the Westphalian Myth' (2001) 55 International Organization 251.

[2] Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data [2016] OJ L119/1, art 3. For CJEU development of the territorial scope see Case C-131/12 Google Spain SL v Agencia Espanola de Proteccion de Datos [2014] ECR I-317; Case C-311/18 Data Protection Commissioner v Facebook Ireland Ltd (Schrems II) EU:C:2020:559.

[3] Primavera De Filippi and Aaron Wright, Blockchain and the Law: The Rule of Code (Harvard University Press 2018) 39-72.

[4] Gabriel Moens, 'The Legal Status of the Sovereign Military Order of Malta in International Law' (2017) 43 Monash University Law Review 105; Stefan Talmon, Recognition of Governments in International Law (Clarendon Press 1998) 1-42.

[5] Montevideo Convention on the Rights and Duties of States (adopted 26 December 1933, entered into force 26 December 1934) 165 LNTS 19, art 1.

[6] James Crawford, The Creation of States in International Law (2nd edn, Oxford University Press 2006) 37-95; Reparation for Injuries Suffered in the Service of the United Nations (Advisory Opinion) [1949] ICJ Rep 174, 178-179 (confirming that the subjects of international law need not possess the same rights and duties).

[7] Hersch Lauterpacht, Recognition in International Law (Cambridge University Press 1947) 38-55; Stefan Talmon, 'The Constitutive versus the Declaratory Theory of Recognition' (2004) 75 BYIL 101.

[8] FH Hinsley, Sovereignty (2nd edn, Cambridge University Press 1986) 1.

[9] Stephen Krasner, Sovereignty: Organised Hypocrisy (Princeton University Press 1999).

[10] Carl Schmitt, Political Theology: Four Chapters on the Concept of Sovereignty (first published 1922, George Schwab tr, MIT Press 1985) 13.

[11] Max Weber, Politics as a Vocation (first published 1919, HH Gerth and C Wright Mills tr, Oxford University Press 1946) 78.

[12] Lawrence Lessig, Code: Version 2.0 (Basic Books 2006) 1-8; Julie Cohen, Between Truth and Power: The Legal Constructions of Informational Capitalism (Oxford University Press 2019) 1-22.

[13] De Filippi and Wright (n 3) 73-118.

[14] Cedric Ryngaert, Jurisdiction in International Law (2nd edn, Oxford University Press 2015) 85-120.

[15] Anu Bradford, The Brussels Effect: How the European Union Rules the World (Oxford University Press 2020) 1-28.

[16] Benedict Kingsbury, Nico Krisch and Richard Stewart, 'The Emergence of Global Administrative Law' (2005) 68 Law and Contemporary Problems 15; Nico Krisch, 'The Pluralism of Global Administrative Law' (2006) 17 EJIL 247.

[17] Max Weber (n 11) 78. For the connection between territorial monopoly and modern statehood see Saskia Sassen, Territory, Authority, Rights: From Medieval to Global Assemblages (Princeton University Press 2006) 1-30.

[18] Krasner (n 9) 3-25.

[19] Moens (n 4) 105-115; Crawford (n 6) 223-228; Malcolm Shaw, International Law (9th edn, Cambridge University Press 2021) 151.

[20] Crawford (n 6) 223-228; Shaw (n 19) 151.

[21] Antonio Cassese, International Law (2nd edn, Oxford University Press 2005) 71-72.

[22] Talmon, Recognition of Governments (n 4) 1-42; Yuen-li Liang, 'Recognition by the United Nations of the Representation of a Member State' (1952) 46 AJIL 68.

[23] Bradford (n 15) 13-26; Paul Schwartz and Karl-Nikolaus Peifer, 'Transatlantic Data Privacy Law' (2017) 106 Georgetown Law Journal 115, 119-126. On the broader effects doctrine see Ryngaert (n 14) 105-115.

[24] United States v Aluminium Co of America, 148 F 2d 416 (2d Cir 1945) (effects doctrine); Eyal Benvenisti, 'Sovereigns as Trustees of Humanity' (2013) 107 AJIL 295, 298-302; Matteo Giungi, 'Secondary Sanctions and the Extraterritorial Reach of US Financial Coercion' (2020) 51 Georgetown Journal of International Law 371.

[25] Julie Cohen (n 12) 91-124; Frank Pasquale, The Black Box Society (Harvard University Press 2015) 1-18; Saskia Sassen (n 17) 341-379 (on the 'denationalisation' of regulatory authority through digital infrastructure).

[26] Kingsbury, Krisch and Stewart (n 16) 15-37; Neil MacCormick, Questioning Sovereignty: Law, State, and Practical Reason (Oxford University Press 1999) 123-136 (on post-sovereign institutional ordering).

[27] De Filippi and Wright (n 3) 39-72.

[28] De Filippi and Wright (n 3) 73-118.

[29] Lessig (n 12) 121-141.

[30] Wyoming Decentralized Autonomous Organization Supplement Act 2021, Wyo Stat ss 17-31-101 to 17-31-116; Republic of the Marshall Islands Non-Profit Entities (Amendment) Act 2022 (recognising DAOs as legal persons). On the legal implications see Shawn Bayern, 'The Implications of Modern Business-Entity Law for the Regulation of Autonomous Systems' (2016) 19 Stanford Technology Law Review 93.

[31] Lauterpacht (n 7) 55-75; Talmon, 'Constitutive versus Declaratory Theory' (n 7) 101-125.

[32] Crawford (n 6) 37-95. Cf Krasner (n 9) 3-25.

[33] Lauterpacht (n 7) 38-55; Thomas Grant, The Recognition of States (Clarendon Press 1999) 1-18; Neil Walker, 'Late Sovereignty in the European Union' in Neil Walker (ed), Sovereignty in Transition (Hart 2003) 3, 11-15 (on recognition as an evolving relational process).

[34] Moens (n 4) 105-115.

[35] Balaji Srinivasan, The Network State: How to Start a New Country (1729 Press 2022) 1-30. For a critical legal perspective see Katharina Pistor, The Code of Capital (Princeton University Press 2019) 1-20.

[36] On the Ukrainian government's digital resilience strategy see Ministry of Digital Transformation of Ukraine, State in a Smartphone Programme (2021); OECD, Ukraine's Digital Transformation in Wartime (OECD Publishing 2023).

[37] Philip Alston, 'The Populist Challenge to Human Rights' (2017) 9 Journal of Human Rights Practice 1; Jan Aart Scholte, 'Reinventing Global Democracy' (2014) 20 European Journal of International Relations 3.

[38] Cohen (n 12) 91-124; Pasquale (n 25) 1-18.

[39] MacCormick (n 26) 123-136; Sassen (n 17) 1-30.