Overview: U.S. 2021 Sanctions Review

On 19 October, the U.S. Treasury Department released its long-anticipated 2021 Sanctions Review. The Review was ordered by the Biden administration as a cost/benefit analysis of current U.S. sanctions collectively to ensure their continued efficacy. The Review was not an assessment of the merits and humanitarian impacts of individual programs, nor did it investigate the effect of sanctions on business.  Instead, the Review had two main emphases, establishing:

1. A framework guiding imposition of economic and financial sanctions; and,
2. Potential operational, structural, and procedural changes to improve Treasury’s ability to use sanctions now and in the future.

Though the Review’s conclusions do not portend a significant short-term change in sanctions policy, it is nonetheless a useful look into the administration’s perceptions. The Review’s recommendations suggest sanctions will remain an indispensable tool of U.S. foreign policy for the foreseeable future.

The Role of U.S. Sanctions in 2021

After the attacks of 9/11, the U.S. government came to see economic and financial sanctions as a “tool of first resort.” Over twenty years later, U.S. national security and foreign policy decision-makers face “new, emerging challenges to the efficacy of sanctions as a national security tool.” Efforts to evade U.S. sanctions by forgoing the use of U.S. dollars for transactions and using digital currencies pose structural challenges to U.S. sanctions enforcement.  According to the authors of the Review, the rise of these new challenges, including “strategic economic competitors” (i.e., China), necessitates the modernization of U.S. sanctions.

Figure 1. Growth in Sanctions Designations 2000-2021

 

Sanctions by the Numbers

As of the Review’s writing, Treasury’s Office of Foreign Assets Control (OFAC) had 9,421 sanctions designations in effect: a 933% increase from the year 2000.

From 2000 to the present, OFAC listed over 12,000 legal persons and delisted 3000. There are thirty-seven active sanctions programs implemented by OFAC. Notably, the composition of U.S. sanctions programs has evolved over the period reviewed. “Other” sanctions not tied to a country-based regime account for the majority of designations, while Iran-related designations remain the highest proportion of country-based designations. Since 2000, new sanctions programs for North Korea, Russia, Syria, and Venezuela have contributed to the growth of designations.

Figure 2. Composition of Sanctions Designations (2000 & 2021)

 

Modernization Plan for the U.S. Sanctions

The Review produced a set of five recommendations for the modernization of U.S. sanctions. This modernization plan seeks to both address common criticisms of U.S. sanctions (e.g., that they are difficult to comply with, lack clear objectives, and impact civilian populations) and contend with the structural challenges that impede sanctions’ continued ability to achieve policy objectives. The five 2021 Sanctions Review recommendations are:

1. Adoption of a structured policy framework that links sanctions to a clear policy objective
2. Multilateral coordination wherever possible
3. Calibration of sanctions to mitigate unintended economic, political, and humanitarian impact
4. Ensuring sanctions are easily understood, enforceable, and where possible, reversible
5. Investment in modernizing Treasury’s sanctions technology, workforce, and infrastructure

Challenges for the Modernization of U.S. Sanctions

There are several challenges that the Biden and future administrations will face in acting on the policy recommendations of the Review.

1. Sanctions programs often have non-publicly stated or classified goals (e.g., regime change) that the Biden and subsequent administrations will hesitate to directly articulate.
2. Domestic political pressure may also restrict administrations from engaging in slower, more conciliatory solutions to national security and foreign policy problems like diplomacy and negotiation, or conversely, alternatives like large-scale military action.
3. The larger impacts of sanctions programs on target countries’ populations may also be viewed internally in the U.S. government as contributing to non-public objectives of sanctions programs (e.g., regime change).
4. The U.S. also faces a conundrum regarding multilateral support for sanctions. The European Union and other allied countries (e.g., Japan, South Korea, Canada, etc.) may judge their national interests best served by not aligning with certain U.S. proposals for sanctions and in certain cases may work explicitly to blunt them (e.g., E.U. blocking statute on Iran trade).
5. Many of the U.S. Government’s hopes of creating an easier-to-understand sanctions system will require time, funding, and the coordination of many different, competing bureaucracies and a Congress that often sees sanctions as tools easily deployed to show resolve.

Conclusions

The 2021 Sanctions Review produced a generalized set of “groundwork” recommendations for the modernization of U.S. sanctions. While outlining a plan for ensuring the continued efficacy of U.S. sanctions, the process of acting on the recommendations of the Review will not be easy

The Biden administration increasingly faces scrutiny from critics of U.S. sanctions policy on humanitarian grounds, who had hoped the Review would involve assessments of the humanitarian impacts of individual sanctions programs (see the proposed Amendment #152 to the National Defense Authorization Act (NDAA)). Likewise, there are other political factions within the U.S. Government that would prefer sanctions be applied more broadly and aggressively.

Internationally, multilateral coordination on sanctions has been an early focus of the Biden administration. Forums such as the U.S.-E.U. Trade and Technology Council (TTC) represent a first, albeit limited step, but the extension of multilateralism more broadly is not guaranteed.

The greatest question for the implementation of the Review’s recommendations is time. New outreach methods to the business community, foreign partners and the media, the training of new enforcement experts, and the implementation of advanced IT systems may take years.

The 2021 Sanctions Review will not result in significant changes to U.S. sanctions immediately. The continued desire to counter emerging challenges to U.S. national security and foreign policy may in fact lead to a more complex sanctions system in the short term. Regardless, the Biden administration acknowledges the importance and necessity of sanctions going forward. TradeSecure will continue to monitor the implementation of the Review’s recommendations.

NOTE: Figures 1 and 2 are captured from the 2021 Sanctions Review.

DISCLAIMER

The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information, content, and materials herein are for general informational purposes only.