August 4, 2015
By Richard Nephew
The ongoing debate around the Iran nuclear deal has prompted a wave of articles and commentaries on sanctions relief in the agreement and how sanctions will work if it enters into force. Sadly, most of the comments that I have seen reflect fundamental misunderstandings about sanctions and how they work on a daily basis. The most damaging of these is that the delisting of a large number of Iranian individuals and entities from the current sanctions rolls means that sanctions have been defanged which, by extension, incorrectly implies that the only measure of success for sanctions is the number of targets penalized.
This post is intended to correct this misconception.
First, imposition of sanctions ≠ imposition of penalties and imposition of penalties ≠ successful sanctions enforcement
Many commentators engage in an unconscious but all too frequent conflation of two completely different concepts: that the imposition of sanctions is the same as the imposition of penalties, and that the imposition of penalties means your sanctions are working.
This argument is effectively the same as saying that a criminal justice system works because people who commit murder are in jail. Certainly, it is better that the murderer is behind bars than not. But, it is a suboptimal outcome with respect both to the victim as well as the societal interest in fewer murders.
Sanctions are most effective if the creation of the sanctions regime leads all those interested in doing what is now illicit business to decide that the benefits are outweighed by the risks of being caught. An ideal sanctions regime therefore has no individuals subject to its penalties because the underlying bad behavior is not taking place.
Now, no one would argue that the imposition of penalties does not itself have value within a sanctions regime. Deterrence of future bad behavior can be enhanced when illicit conduct is exposed and penalties are imposed. But, sanctions can still be working even absent the imposition of penalties and, in fact, this can be a sign that the sanctions are working better than expected.
Second, executive enforcement discretion is a good thing
Lack of specific targets being penalized can also be a sign that executive enforcement discretion is being used. Some may argue that this is a fancy way of saying that the executive branch -- out of weakness or a desire to grant preferential treatment to bad actors from particular countries -- is ignoring sanctions.
But, this reductionist argument ignores the fact that there are a host of foreign policy issues at stake in sanctions decisions which do tend to upset partner countries. While it may be easy to dismiss these issues from the outside, people inside the government need to be able to make decisions about the relative foreign policy value of taking a sanctions decision or not. The decision is easier if the case against a bad actor is stronger than if it is weaker, or if there is a long history of engagement between the government in question and the United States on the issue at hand. But, even more important than general foreign policy considerations, sometimes not imposing sanctions penalties can achieve better long-term results than the imposition of penalties.
I will illustrate this point with a simple case:
Let us suppose that a bank in a foreign country is doing business with Iran. Let us further suppose that the business is directly related to Iran’s support for terrorism and the bank knew it. The obvious course of action is to impose sanction on that bank.
But, let us further suppose that the bank in question has minimal U.S. exposure. So, imposing sanctions on the bank may theoretically isolate the bank from the United States, but with little practical consequence. The bank could keep doing its bad conduct, now perversely insulated from further U.S. sanctions. In this case, it might be more prudent to instead approach the bank, inform it of its violations of U.S. sanctions law and make it a deal: if it discontinues the support, sanctions will not be imposed, but could be imposed if future bad conduct is identified.
Let us suppose that the bank acquiesces to the U.S. demand, turning a weak amount of direct U.S. leverage into a far stronger practical consequence. Is this not a better outcome than the direct imposition of sanctions?
Making the case even starker, let us assume that the government responsible for that bank is also involved. It too can be brought into the conversation with the United States, provided that government is prepared to work with its other banks to prevent similar future behavior from other institutions. Trading the imposition of sanctions penalties in exchange for a systemic improvement in overall picture of terrorism facilitation from that country would almost certainly be more beneficial to the United States in the long term than a one-off designation of a particular bad bank.
The upshot of this line of thought is that, far from being a problem, the effective use of executive sanctions enforcement discretion can have very substantial benefits. Certainly, there should be oversight and monitoring of sanctions left to the control of the executive to prevent avoidance of the spirit of the law. But, in my experience, the Congress rarely needs to be encouraged to raise its voice if it believes sanctions are not being sufficiently enforced.
Third, sanctions are legal instruments. Enforcement of them must also be legally sound with proof of bad behavior substantiated.
One of the sharpest criticisms of sanctions is that they are not sufficiently enforced, even when press articles show clear instances of bad behavior or when websites seem to confirm that sanctionable conduct has occurred. But, a newspaper article is not sufficient proof to impose penalties on companies or individuals. To make a sanctions case stick, enforcement officers need to substantiate media reports with more authoritative (or, at a minimum, more plentiful) reports of similar bad conduct.
This is because sanctions penalty decisions can be challenged in a court of law by those affected by them. These challenges can cost governments money both in the defense and in any remediation of damages done in errant sanctions imposition. But, most important, they can cost governments credibility, which is far more dear to the U.S. Federal Government than many might otherwise suspect. The strength of the U.S. sanctions regime is that foreign governments and companies feel that they can trust the judgments reached when sanctions are imposed. It is on this basis that they take their own actions, potentially risking botched enforcement judgments of their own as well as their own credibility. Moreover, one failed defense of a sanctions decision in the United States could spawn hundreds of similar challenges from a variety of other claimants. Thus far, to my knowledge, the United States has not lost a sanctions challenge.
Witness what has been happening in Europe over the past four years: in court case after court case, the EU’s sanctions regime has been challenged and defeated. Bad actors have been taken off of lists simply because the evidence presented at the time of their sanctioning was insufficient to sustain the sanctions decision. While certainly there is also a difference in the degree to which classified information can be used to make a sanctions decision stick between Europe and the United States, the concept is clear: failure to build a solid case can cost you in the future.
For this reason, the United States government needs to continue to make sanctions penalty determinations on the basis of sound legal cases. This means that there will continue to be hundreds of newspaper articles alleging bad behavior without an immediate U.S. government response beyond “we are continuing our investigation.” Newspapers can make snap judgments (though they too should not) and think tanks can publish lists of alleged bad guys risking nothing more than libel suits. But, the U.S. government cannot take similar risks and should not. This is a good thing, not a sign of lethargy.
Finally, sanctions require a lot of work
It is also worth emphasizing that building a sanctions case is hard work. Intelligence must be gathered. Facts must be weighed. Legal sufficiency must be determined. And then judgments need to be made about whether the facts support a sanctions penalty decision, as well as what is merited.
Then, of course, there need to be decisions made about how to execute the penalty phase. Some may believe that it is prudent to simply roll out new names as soon as the cases are closed. But, this is a naïve and reckless approach, even taking aside the need for executive discretion described above. Sometimes, sanctions enforcement is as simple as arresting a person caught robbing a store. Other times, it is as complex as taking down a racketeering ring involving hundreds of individuals and entities. Imprudently moving against one or two individuals in that ring just to demonstrate “results” risks tipping off the really nefarious actors as to leaks in their security network or, more simply, leading to an incomplete action, with remnants free to continue their illicit work.
I can offer an example from my own experience at the National Security Council, where I was in charge of sanctions imposition against Iran for nearly two years. I had in mind the imposition of penalties against a particular bad actor starting in early 2012. The bad actor in question was almost certainly evading U.S. sanctions. The case seemed strong. But, only when I inquired with my Treasury Department and Intelligence Community colleagues did I learn that there was an ongoing, detailed and significant effort to gather enough information to take down not only this particular bad actor, but also an underlying network of bad actors. This work took another 18 months to complete. But, in the end, resulted in a sanctions action covering dozens of bad actors. Had haste and zeal prevailed in early 2012, our sanctions effort would have been incomplete and potentially nowhere near as powerful. Taking the time to do it right was worthwhile.
More can be said about the day-to-day working of a sanctions regime. But, the concepts laid out above should serve to underscore that sanctions are not a game and the side with the most points at the end does not win. Truly measuring the relative success of sanctions requires a far more nuanced analytic approach, centered on the degree to which it supports the policy objectives that led to the sanctions in the first point.
Richard Nephew is Director of the Economic Statecraft, Sanctions, and Energy Markets program at Columbia University’s Center on Global Energy Policy, and the former Deputy Coordinator for Sanctions Policy at the State Department. The views expressed are his own.