Keeping up with US economic sanctions

A lever to change unwanted behavior

Economic sanctions are a tool used by governments to punish or curb a variety of unwanted behaviors such as human rights violations, terrorism, cybersecurity incursions, or illegal drug trade, perpetrated by another government or individual bad actors. Economic sanctions can be a controversial foreign policy tool and experts disagree over how effective they are in achieving their stated goals.

The United States has deployed sanctions more than any other country, especially since 9/11. The United States imposes sanctions in some form against at least 16 countries, although the US Treasury Department does not maintain a single country list due to the complexity of how sanctions are applied. The Trump administration has extended US use of economic sanctions, announcing sanctions against the Maduro regime in Venezuela in January of this year, further sanctions against Russia in March over continued aggression in Ukraine, and new sanctions on Iran in May targeting key industries like iron.

What forms Do economic sanctions take?

Sanctions have been historically viewed by governments and multinational bodies (such as the United Nations or European Union) as a key instrument of foreign policy to induce particular state or non-state actors to adhere to international norms and rules — or suffer economic consequences.

They are a more palatable alternative to a military response, allowing governments to intervene in areas where military intervention is either not feasible or where the threat to national security is not vital. They are also sometimes used as an immediate action while decisions on more severe action are deliberated, as was the case when the UN Security Council imposed sanctions four days after Saddam Hussein’s invasion of Kuwait.

As such, sanctions can run the gamut from common tariffs and quotas on the volume of imports from another country, to more serious economic embargoes in the form of complete or near complete bans on trade between two countries, which not only restrict access to the US market, for example, but prohibit US exporters from doing business in the embargoed country.

Financial sanctions might include the freezing or seizure of assets, impounding or preventing assets owned by a targeted country, individual, or group from being moved. Foreign aid may be reduced or blocked, affecting both government aid and private charity. Another frequently used sanction is travel bans that prohibit certain individuals, or sometimes even all citizens of a certain country, from traveling to the nation that issued the sanction.

The US sanctions process

Either the executive or legislative branch may initiate US sanctions. The president can issue an executive order (EO) declaring a national emergency in response to an “unusual and extraordinary” foreign threat. Previous EOs have been issued in response to threats such as “the proliferation of nuclear, biological, and chemical weapons” (EO 12938) or “the actions and policies of the Government of the Russian Federation with respect to Ukraine” (EO 13661). These EOs allow the President to regulate commerce through special powers not usually available to the executive.

Congress can enact sanctions by passing new legislation or making changes to existing legislated sanctions. The legislation may specify how the administration may impose, lift or modify sanctions.

The Office of Foreign Assets Control (OFAC) in the US Treasury Department administers US sanctions programs, though other departments may play key roles in their enforcement. In addition to country-wide sanctions, the OFAC maintains a blacklist of around 6,000 individuals, businesses, and groups, such as terrorists and drug traffickers known as “Specially Designated Nationals” with whom US persons are generally prohibited from dealing.

Do economic sanctions work?

The efficacy of economic sanctions has been debated for years in foreign policy circles. One major criticism of country-wide economic sanctions is the ability of corrupt elites in and around government to inoculate themselves against the impact of sanctions, foisting the consequences onto innocent and often impoverished citizens. Sanctions by the United Nations Security Council banning trade with North Korea include limits on humanitarian aid to that country. Though focused on curbing human rights abuses toward the citizens of North Korea, its dictator has readily abided the harmful impact of sanctions on his 11 million citizens who lack access to sufficient food, water and sanitation.

Often in the case of sanctions, the foreign policy goals are broad and expansive, such as to promote democracy or changes in political leadership. The desired economic effect may be achieved, but behavioral change is not guaranteed and results can be hard to attribute and quantify. Although the imposition of sanctions may coincide with a desired outcome, it can be hard to know if sanctions helped, hindered or had little effect given the myriad other factors at play at the same time such as the actions of a country’s own citizens.

Counterterrorism sanctions post 9/11

Sanctions formed a significant part of the counter-terrorism policies of the United States and its allies following 9/11. Several US officials claimed economic action would be just as important in the fight against terrorism as military campaigns. Following the attacks, President Bush signed EO 13224 giving the Treasury Department authority to freeze the assets of named terrorists, terrorist groups and terrorist fundraising organizations with the intention of weakening the financial power of the al Qaeda network.

The administration also enabled Treasury to designate foreign jurisdictions and financial institutions as “primary money laundering concerns,” based on reasonable suspicion rather than evidence in hand. Penalties for violations of sanctions were substantial. France’s largest lender, BNP Paribas, was fined nearly $9 billion for processing billions of dollars of Cuban, Iranian and Sudanese entities blacklisted by the United States.

Broadening the traditional focus of economic sanctions from government actions to encompass financial institutions was a significant and impactful expansion in scope. The financial clout of the United States significantly escalated the risk for any financial institution in the world involved in some way in aiding terrorist organizations.

Current US sanctions on Iran

The United States has maintained varying forms and degrees of economic sanctions against Iran for many years, yielding a substantial effect on Iran’s economy but debatable impact on the government regime. Between 2012 and 2015, Iran’s crude oil exports dropped by over 50 percent under crippling sanctions.

In 2015, the Obama administration, along with numerous international partners, signed the Joint Comprehensive Plan of Action, commonly known as the Iran Nuclear deal, which waived many sanctions against Iran. The Trump administration withdrew from the deal in 2018, re-imposing sanctions to apply “maximum pressure” to the regime to cease its development of ballistic missiles and support for militant groups in the region. Other countries, including in the European Union, are still part of the Iran Nuclear deal, diluting some of the effect intended by the Trump administration, though many European companies have pulled out of Iran taking a cautious approach to sanctions.

Current US sanctions cover Iran’s largest industries including oil, mineral, and auto production, as well as travel bans for Iranian citizens and sanctions against the Iranian financial and banking industry. On May 8, 2019, Trump issued a new Executive Order imposing sanctions on the iron, steel, aluminum and copper sectors of Iran.

For more detail, consult the Congressional Research Service Report available here.

Current US sanctions on Russia

US sanctions with regard to Russia are complex, covering individuals and groups in Russia in response to Russia’s 2014 invasion of Ukraine; abuses of democracy and human rights; use of chemical weapons; cyber warfare; illicit trade with North Korea; and support of Syria.

A series of EOs in response to Russia’s invasion of Ukraine impose sanctions against those who are deemed to have undermined Ukrainian stability, misappropriated Ukrainian assets or conducted business, trade, or investment in occupied Crimea. These sanctions contributed to financial crisis in Russia, prompting Russia to respond with its own sanctions against a number of countries, including a total ban on food imports from the European Union, United States, Norway, Canada and Australia.

The United States put more sanctions in place in 2018 in response to threats to national security and foreign policy interests. These included sanctions for the use of chemical weapons, when a former Russian military intelligence officer and his daughter were poisoned by a Russian nerve agent in the UK as well as for Russian dealings with key adversaries of the United States, supplying arms to Syria and North Korea. Russian cyber attacks have also triggered rounds of sanctions. The Department of Commerce imposes export-licensing restrictions on some three dozen Russian persons that engage in activities related to terrorism and transnational crime.

For more detail, consult the Congressional Research Service Report available here.

Current US sanctions on Venezuela

The United States has employed sanctions against the Venezuelan government and Venezuelan individuals for over a decade, citing terrorism, drug and human trafficking, anti democratic actions, human rights abuses and corruption.

Earlier sanctions focused on Venezuela’s failure to adhere to its obligations under international narcotics agreements. Various individuals, including government officials, and organizations have been designated as Specially Designated Narcotics Traffickers.

Sanctions against Venezuela were ramped up in 2019 by the Trump administration as Venezuela’s regime pushed the country into serious turmoil resulting in human rights abuses against citizens. In January, the Trump Administration announced sanctions on Venezuela’s state-run oil company, Petróleos de Venezuela, S.A (PdVSA) and ceased to recognize Nicolas Maduro as the president of Venezuela, supporting instead the head of Venezuela’s National Assembly. As the country is in the grips of a crippling financial crisis coupled with shortages of food and medicine, observers worry the sanctions against PdVSA will exacerbate the humanitarian crisis by limiting the country’s main source of revenue.

Congressional Research Service Report available here.

The future of sanctions

Economic sanctions can be controversial and their efficacy hard to evaluate. But governments are likely to continue using them in foreign policy as they lend additional force to diplomatic methods without having to resort to military intervention. Over time, economic sanctions have broadened their reach into key financial assets while getting more targeted to individuals and entities involved in sustaining unwanted activities.

They are arguably more effective when coordinated internationally, but have been used to desired effect by the United States given the weight of the US dollar and role of the US economy globally. That said, economic sanctions have had clear limitations when dealing with certain dictators in Cuba and North Korea and it will remain to be seen how effective they can be inducing regime change in Venezuela.

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