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Sanctions as a key tool of statecraft: striking the right balance

May 12, 2014

Originally published in Aspenia Online of the Aspen Institute Italia

With no end in sight for the Ukrainian crisis and with few tools at its disposal to push back against Russia’s aggressive posture, the United States is relying, along with the European Union, on increasingly far-reaching financial sanctions. These are being imposed on government officials, businessmen and companies close to Vladimir Putin, in the hope of scaring the Russian President into a more pliable negotiating position. So far, however, this strategy has been to little or no avail, as is often the case with sanctions.

After falling out of favor with global public opinion in the 1990s due to the widespread suffering they inflicted not only on foreign regimes gone rogue but on entire populations, sanctions made a comeback at the turn of the millennium thanks to technological and financial innovation and have since been frequently redeployed in a new, more sophisticated fashion. US President Barack Obama, who took office when his country was still ensnarled in the conflicts in Iraq and Afghanistan and immediately went to work to bring American troops home from the overseas adventures initiated by his predecessor, has shown to be a fan of sanctions as an alternative to the use of military force. “The Obama administration has been far more aggressive than any prior administration in the use of sanctions, including several penalties on the order of half a billion dollars each,” says Joy Gordon, Professor of Political Philosophy at Fairfield University in Connecticut and author of a book titled “Invisible War: The United States and the Iraq Sanctions.” At the end of April, the French bank BNP Paribas announced that the fines it expects to receive by the US government for doing business with designated countries such as Cuba, Iran and Sudan are likely to be in excess of the $1.1 billion already set aside in February.

In the case of Russia, the White House is, at least for now, moving with a much more gradual approach. “The latest listing of designated Russian individuals and companies [as of April 28th] adds another reiteration to the incremental sanctions that have been imposed for the past six weeks. It’s a targeted action and limited in scope,” says Jeffrey J. Schott, Senior Fellow at the Peterson Institute for International Economics. “Things are being handled in a cautious manner in hopes that the crisis in Ukraine can be defused and the situation resolved peacefully, allowing the restoration of good economic ties with Russia.”

Broad-based economic sanctions like those that were imposed against Saddam Hussein’s Iraq in the early 1990s became known for wreaking havoc on the lives of millions of innocent people, while not directly contributing to the dictator’s downfall. To the contrary, many experts believe they may have strengthened the regime.

That’s when “smart sanctions” came into play, initially as a mean to go after money laundering and terrorism financing. They were born during the Clinton presidency, then more fully developed under Bush, particularly in response to the 9/11 terrorist attacks. Such brand of sanctions is administered by officials in the Treasury Department – those self-styled “guerrillas in gray suits” described by Juan Zarate, who in 2001 became the first Assistant Secretary of the Treasury for Terrorist Financing and Financial Crimes, in his 2013 book “Treasury’s War”. Largely consisting of travel bans and asset freezes aimed at specific individuals, organizations and companies, this type of economic warfare is used to destabilize a foreign government from the top down, by choking off the access of its leadership and private sector elite to the international financial system, which is heavily reliant on the US dollar and US banks.

“The targeting of financial institutions and individuals is a relatively new way of doing sanction business that has developed over the past decade and has been done most extensively in the case of Iran,” says Jeffrey J. Schott of the Peterson Institute for International Economics. “Advances in technology have allowed sanctions to be very comprehensive. By affecting the financial system, they impose restrictions on the entire economy, that’s why in the case of Iran sanctions have been so effective in getting Iranian leaders to the negotiating table.” Today, according to a report by the Financial Times, Washington is carrying out 24 such sanctions programs across the world, from Russia to Syria, from Sudan to North Korea.

Though the tighter measures imposed on Iran in the last two years have been credited with a certain degree of success, the reality is that the new “smart sanctions” overall don’t have a much better record than the “dumb” old ones. According to one book, “Economic Sanctions Reconsidered”, which Schott co-authored together with Gary Clyde Hufbauer and Kimberly Ann Elliott, from 1914 to 2000 only 13 sanctions programs out of approximately 200 analyzed fully achieved its goals, with another 50 or so accomplishing at least some of the original objectives. Of the 20 cases since 2000, only one has been completely successful and six more have been partially so. After all, the leaderships of Syria, North Korea or Sudan haven’t changed their behavior much in response to the financial actions taken by the US and the international community.

Additionally, critics believe that even today’s more targeted measures result in excessive suffering for regular people. “Banks, shipping companies, and manufacturers are increasingly reluctant to do business with designated countries, such as Iran and Cuba, even for transactions that are legally permitted, like the sale of medicine, or family remittances,” says Professor Gordon. “In effect, the sanctions criminalize the basic functions of the economy itself, and the state and the population have to go to extraordinary lengths to engage in necessary economic activities, including imports, exports, investment, and routine commerce.”

Which brings us back to Russia. The Iranian sanctions of the past two years have been instrumental in forcing the country’s leadership back to the negotiating table precisely because, though targeted, they have caused great disruption to the Iranian economy. “But trying to do the same thing with regard to Russia will be a little harder both because of the nature of the Russian economy and because of the greater importance of Russia in geo-political affairs,” says Scholl. “You can put very forceful sanctions against Russia if you are willing to accept the consequences in terms of the economic harm to Russia, to neighboring states, and to US and European firms and workers. And if you are willing to accept the probable counter-response by Russia against the economic and political interests of the US and the European Union.”

Clearly, the exact combination of ingredients for “smart sanctions”, which inflict just the right amount of pain to individuals in the most key government and private sector positions without devastating entire national economies and hurting regular people, hasn’t been found yet. Especially because each situation is different. In other words, there is no real science behind the sanctions being currently imposed on Russia, no secret recipe. It is just a matter of some experimenting and tweaking, and a lot of hoping.

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