Erica Moret
Senior Researcher, Global Governance Centre, Graduate Institute
erica.moret@graduateinstitute.ch
Synopsis: On 18 October 2021, the US Treasury Department released its sanctions review, concluding sanctions remain an important policy tool but face important challenges. As part of ongoing feedback supplied by Dr. Erica Moret to the US Government on the topic, this article outlines concrete recommendations about how and when US sanctions should be used.
Keywords: sanctions, foreign and security policy, humanitarian crises, Covid-19
Introduction
This article asks whether hard-hitting sectoral sanctions, including those of a financial nature, can be effective in helping the United States (US) Government reach its stated policy aims and at what point such measures risk undermining the legitimacy of what has become a favored tool of foreign and security policy.
US sanctions practice
The US represents the world’s most prolific and sophisticated sanctions user by a considerable degree, with recent years seeing a dramatic increase in hard-hitting financial sanctions (among other types of broad sectoral measures). Also on the rise have been secondary sanctions, whose extraterritorial nature allows the US Treasury to target non-US persons and entities operating outside the confines of its jurisdiction. Cumulatively, this signals a return to de-facto comprehensive measures, intensified under the ‘Maximum Pressure’ campaign of the Trump Presidency, marking a move away from the targeted (or ‘smart’) sanctions of earlier decades. This has led to a new crisis point in global sanctions practice, not least in light of the aggregate impact that the US’ sanctions may have when combined with restrictive measures employed by other autonomous (or unilateral) and multilateral actors.
What role for hard-hitting US sanctions?
Understanding the impacts of sanctions on any given target is a complicated task as they do not operate in a vacuum. As such, proving cause and effect remains a major challenge. Nevertheless, studies suggest that sanctions are only modestly effective in meeting their stated policy aims and that their success rates depend on a host of factors, including the way in which they are combined with other policy instruments. This can include diplomacy, mediation, peace talks, trade, covert and military action and referrals to legal tribunals. Sectoral sanctions can be effective in certain contexts – be it through coercing a change of behavior in the target, constraining access to vital resources or signaling support for international norms (as well as stigmatization of the target). On the other hand, they risk a raft of damaging, unintended consequences if used injudiciously and indiscriminately. This can include detrimental effects on domestic firms; negative humanitarian consequences; strengthening the popularity of the target; antagonism of relations with allies; rise in corruption and criminality; strengthening of authoritarian rule, and diversion of resources.
A shifting global sanctions landscape
In an era where the United Nations (UN) Security Council has failed to coordinate appropriate responses to many of the world’s most pressing security challenges, the world has seen a dramatic rise in the use of autonomous measures (used in addition to, or in the absence of, UN sanctions). Not only are they growing in terms of numbers of individual sanctions regimes and their geographical reach, but so too are the objectives which they are designed to tackle, and the variety of targets they seek to influence. Contemporary compliance landscapes are now characterized by complex webs of overlapping sanctions regimes, alongside export controls, terrorism listings and measures for countering the financing of terrorism (CFT) and anti-money laundering (AML). In spite of this, no formal, common mechanisms currently exist to allow the US to strategically-coordinate its work with allies in areas such as sanctions monitoring or lifting, neither in terms of assessing unintended consequences, including those of a humanitarian nature. This can serve serves to accentuate the US’ broad sectoral measures in unexpected ways.
Understanding the impacts of sanctions on any given target is a complicated task as they do not operate in a vacuum.
Targeted vs comprehensive sanctions
Most contemporary sanctions regimes remain targeted in large part, characterized by travel bans, asset freezes and arms embargos against select individuals or entities. Nevertheless, some selective sectoral sanctions and trade bans employed by the US (and, at times, by its key sanctioning ally, the EU) are now so broad that their impacts can be considered akin to the comprehensive sanctions (or embargos) employed in the 1980s and 90s against Cuba, Iraq, the former Yugoslavia and Haiti. These types of sanctions regimes had widely-documented humanitarian consequences, especially in relation to the sharp economic decline and drop in available capital that they caused. In spite of the turn to targeted sanctions in the 2000s by the international community in response to these concerns, recent years have seen the US returning to far less discriminating measures, whereby sweeping sectoral sanctions have been imposed and broadened by the US against targets that include Iran, Syria, Venezuela and DPRK/ North Korea. In such contexts, the provision of licensing exemptions and exceptions on humanitarian grounds, or the allocation of supplementary aid, is not enough to ensure citizens’ basic access to healthcare and other essential goods, nor allow the effective working of healthcare providers and humanitarian workers. In jurisdictions already suffering from marked humanitarian crises and fragile (or collapsed) public healthcare systems, the application of sweeping sectoral measures is particularly controversial as such measures hurt vulnerable populations and cause long-term hurdles to economic recovery.
More pain for more gain?
In 1967, Norwegian sociologist Johan Galtung described the ‘naïve theory’ on sanctions, which criticized the view that the more significant the economic pain caused on a country through sanctions (and related civilian suffering) the greater the chance of political gain achieved through compliance of the target. Later works went on to corroborate that no clear causal link exists between the economic damage inflicted by a sanctions regime and any resulting change in the behavior of its targets. The US’ Maximum Pressure campaign has its roots in a ‘more pain for more gain’ logic, based on the idea that devastating a target country’s economy, with consequent damage to its civilian population, will lead to concessions on the part of the target, particularly in relation to regime change. In the case of US sanctions against Venezuela, for example, broadened sectoral sanctions imposed since 2017 include sweeping measures against the state-run petroleum company PDVSA; significant given that the country’s oil sales formerly accounted for some 98% of export earnings and almost 50% of GDP. The US’ current approach can thus be described as a ‘naïve’ sanctions policy, in large part, and one that can minimize chances for a return to meaningful and constructive diplomatic negotiations.
An optimal level of pressure?
Research by the Targeted Sanctions Consortium into UN targeted sanctions suggests decreasing returns in efficacy when a sanctions regime goes over and above a certain threshold of measures. The optimal combination appears to be one that targets key export commodities in the sanctioned economy (apart from oil), or sizeable companies that affect entire sectors of a targeted economy. Sanctions that are composed of only one measure (such as an asset freeze or a travel ban that is not combined with other types of sanctions) are never effective. In the UN context, for example, arms embargoes are among the least useful type of sanction when applied alone and not complemented by other types of sanctions. Similarly, financial sanctions that aimed to curb access to monetary and military resources of rebel groups, are thought to have been useful in the cases of Rhodesia, Liberia, Cambodia and Angola. At the other end of the spectrum, full-blown embargos also result in a lower level of effectiveness. The US’ sanctions against Cuba – representing the longest (and arguably least effective) sanctions regime in history; spanning six decades – is a case in point. A carefully combined package of sanctions of a more targeted nature are thus likely to be more effective over more crippling sectoral measures that cause serious long-term harm to a country’s economy. They should also be evaluated and reassessed strategically on a rolling basis. The latter approach can be counterproductive on several levels and lessens the chances of the US Government achieving its stated policy objectives.
Sanctions that are composed of only one measure (such as an asset freeze or a travel ban that is not combined with other types of sanctions) are never effective.
De-risking: a mounting global crisis
One of the most notable outcomes of the US government’s recent return to broader, harder-hitting sectoral sanctions is the growing phenomenon of ‘de-risking’ (also known as ‘overcompliance’ or the ‘chilling effect’). This refers to the withdrawal of banks and the wider private and not-for-profit sectors from ‘high-risk’ jurisdictions in light of the ever-more demanding compliance environment and risks of penalties (sometimes entering into the billions of dollars). It has also led to a steep reduction in corresponding banking relationships (CBRs) to heavily sanctioned countries, frustrating even the work of the UN and other major aid providers. In the case of DPRK/ North Korea, the country found itself isolated from the global banking system for a number of years, with Syria seemingly on track to meet the same fate in the near future. The humanitarian impacts of overcompliance with US financial sanctions can also be felt across supply chains of essential goods, including those in the food, medicine and vaccine sectors. Also heavily impacted are sectors such as shipping, insurance, money transfer operators (MTOs, as well as wider services required for the sending of personal remittances), logistics, courier delivery services and technology producers. The global reach of US sanctions is further reinforced in light of the dominance of the dollar as a global reserve currency and the high level of integration of US financial institutions (and wider private sector) in the world economy.
Over-compliance with US financial sanctions in the time of COVID-19
Studies have shown that over-compliance with US sanctions presents obstacles to financial inclusion and integration, poverty reduction and economic growth, with vulnerable populations (such as women, children, the elderly, refugees, those on fixed incomes and those with chronic health problems) affected most. It has been recognized as such a fast-growing and global crisis that organizations like the International Monetary Fund (IMF), the World Bank, the G20, the Financial Action Task Force (FATF), and the Financial Stability Board (FSB), have put out urgent calls for a new approach to deal with the challenge. Such concerns will only continue to grow until new global processes and agreements can be forged to mitigate these unintended consequences associated, in large part, with hard-hitting US financial sanctions. The global Covid-19 pandemic has cast these mounting concerns into even sharper relief, prompting an array of world leaders to call on the US Government to embark on a new, less destructive, sanctions strategy. Indeed, countries under the world’s strictest sanctions face unique challenges (with global implications) in tackling the spread of the virus, such as obstacles to scientific collaboration, crippled healthcare systems, and political barriers preventing effective cooperation across borders.
Conclusion
The US, as the world’s most assertive sanctioning actor, has a central role to play in ensuring that its sanctions impart as little harm as possible to vulnerable populations around the world. Aside from catastrophic negative humanitarian consequences already underway, risks to US interests include increased costs to domestic firms, stepped up global instability and conflict, heightened refugee flows, and strained relations with allies. They also raise a host of complex legal and ethical questions, including those relating to Human Rights law and International Humanitarian Law. A more judicious strategy that could safeguard the future legitimacy and efficacy of US sanctions could involve a return to more strictly targeted measures and a more proactive adoption of steps to minimize over-compliance with US financial sanctions. This also means that hard-hitting sectoral sanctions should be used in a more limited array of contexts, where they can be more closely tied to wider policy tools; more strategically aligned, evaluated and lifted along with allied sanctions, and only employed following an exhaustive assessment of likely unintended consequences. Their use in contexts of humanitarian crises and protracted armed conflicts should be avoided.
Dr Erica Moret is a Senior Researcher at the Global Governance Centre & the Geneva Centre of Humanitarian Studies. She is also a Visiting Professor at the Paris School of International Affairs (PSIA), Sciences-Po, Coordinator & co-founder of the Geneva International Sanctions Network (GISN) and Associate Editor for the Journal of Global Security Studies (JoGSS). One of Dr. Moret’s 2021 publications is “Unilateral and Extraterritorial Sanctions in Crisis: Implications of their Rising use and Misuse in Contemporary World Politics” in Beaucillon, Charlotte (ed.) The Research Handbook on Unilateral and Extraterritorial Sanctions.
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