TRADE & FINANCIAL
SANCTIONS
AHMED ABDALLAH
MARI ETTE BURGESS
ROBERT BALZARI NI
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OUTLINE
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Background
Legislation
OFAC Enforcement
Classical cases of US Sanctions
Debate: Multilateral vs. Unilateral
Policy Suggestions
Conclusions
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BACKGROUND
• Definition of sanctions…
• “the actual or threatened withdrawal of economic
resources to effect a policy change by the target”
• (Steve Chan and A. Cooper Druray, in the book Sanctions as
Statecraft)
• “discouraging the proliferation of weapons and strategic
goods, as well as punishing countries for perceived
violations of human rights and religious freedoms, terrorism,
drug trafficking, and violations against the environment”
• (George E. Shambough, in the book States Firms and Power)
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BACKGROUND
• Trade Sanctions…
• Throughout history the United States have tried many tools,
from diplomacy to necessary force
• Attempts to bring about the growth of democracy and
challenge the wrongs we see across the world.
• Currently, our most used tool has become unilateral trade
sanctions
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TRADING WITH THE ENEMY ACT
(TWEA)
• Enacted in 1917
• Grants broad powers to the president to regulate foreign
currency transactions, transactions in gold or silver, and
transfers of credit or evidences of indebtedness or property
during a time of war…
• “between the United States and any foreign country, whether
enemy, ally of enemy or otherwise, or between residents of one or
more foreign countries.”
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TRADING WITH THE ENEMY ACT
(TWEA)
• Amended in1933 to apply not only during periods of
declared war but also “during any other period of
national emergency declared by the President.”
• Basis for pre-world war 2 sanctions on Japan and
Germany, and for post-war trade embargoes on
Cuba, North Korea and Vietnam.
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TRADING WITH THE ENEMY ACT
(TWEA)
• Amended in 1977 to apply only in wartime, but
existing programs permitted to continue if annual
presidential declaration of “emergency”.
• Cuba is the only country restricted under the act.
• North Korea is the most recent country to have the restrictions lifted.
• Current U.S. sanctions programs (like those against
Iran, Libya, terrorists, and, before the 2003 war, Iraq)
• Although authorized by more recent statutes, these programs follow an
approach to sanctions that has been in use under the TWEA from 1917
to 1975.
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INTERNATIONAL EMERGENCY
ECONOMICS POWERS ACT (IEEPA)
• IEEPA replaced TWEA in 1977 as the source of authority for the
President to issue economic sanctions during periods of declared
national emergency—as opposed to wartime.
• must declare a national emergency with respect to the threat
involved.
• consult with Congress, whenever possible, before declaring a
national emergency and regularly while the national emergency
remains in force.
• Congress may enact—and is required at a certain point to
consider—a joint resolution terminating a Declaration of National
Emergency
• President may "investigate, regulate, prevent, or prohibit" virtually
any foreign economic transaction, from import or export of goods
and currency to transfer of exchange or credit.
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INTERNATIONAL EMERGENCY
ECONOMICS POWERS ACT (IEEPA)
• The USA Patriot Act further augmented the President's IEEPA
authority by vesting him with the additional powers
• block property during the pendency of an investigation and
• confiscate and vest property of any foreign country or foreign
national that has planned, authorized, aided, or engaged in
armed hostilities with or attacks against the United States.
• IEEPA exempts very few international transactions from the
President's control.
• Basis for sanctions programs on Iran, Myanmar, Sudan, Russia,
Zimbabwe, Syria, Belarus, North Korea and Libya.
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ARMS EXPORT CONTROL ACT OF 1976
(AECA)
• Authorizes president to control import, export and
brokering of defense articles and defense services.
• Also requires registration of U.S. manufacturers,
exporters and brokers of defense articles.
• Basis for International Traffic in Arms Regulations
(ITAR).
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IRAN AND LIBYA SANCTIONS ACT OF 1996
(ILSA)
• Restricts U.S. and foreign business activity with Libya
and Iran, particularly targeting energy industries
and investment in general.
• Renamed Iran Sanctions Act in 2006, and amended
to impose trade restrictions on foreign firms
engaged in specified types of investments with or in
Iran.
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COMPREHENSIVE IRAN SANCTIONS,
ACCOUNTABILITY, AND DIVESTMENT ACT
OF 2010 (CISADA)
• Expands restrictions on non-U.S. firms that engage in
certain transactions with, investments in, or support
for Iran’s petrochemical industry.
• Also prohibits foreign exchange transactions subject
to U.S. jurisdiction, certain banking transactions, and
transactions involving property of Iran.
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OFAC
• Formally created in December 1950, after Truman
blocked all Chinese and North Korean assets
subject to U.S. jurisdiction.
• Acts under Presidential wartime and national
emergency powers, as well as authority granted by
specific legislation, to impose controls on
transactions and freeze foreign assets under US
jurisdiction.
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OFAC SANCTIONS FORMULATION AND
ENFORCEMENT
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OFAC
• Specially Designated Nationals (SDN) List
• "Specially designated nationals" are organizations
and individuals who are restricted from doing
business with the United States or American
companies, or Americans.
• Assets are blocked and U.S. persons are generally
prohibited from dealing with them.
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OFAC SANCTIONS
• Economic sanctions are designed to deprive the target of the
use of its assets and to deny it access to the U.S. financial
system and the benefits of trade, transactions, and services
involving U.S. markets, businesses, and individuals.
• Sanctions can be either comprehensive or selective, using the
blocking of assets and trade restrictions to accomplish foreign
policy and national security goals.
• Many of the sanctions are based on United Nations and other
international mandates, are multilateral in scope, and involve
close cooperation with allied governments.
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OFAC SANCTIONS
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Balkans
• Libya
• Non-Proliferation
Belarus
• North Korea
Burma
• Rough Diamond Trade
Cote d’Ivorie
• Somalia
Counter Narcotics
• Sudan
Cuba
• Transnational Criminal
Organizations
Democratic Republic of Congo
• Zimbabwe
Iran
Iraq
Lebanon
Former Liberian Regime of Charles Taylor
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OFAC - IRAN
• Iranian Transactions Regulations, 31 C.F.R. Part 560, and the
Iranian Assets Control Regulations, 31 C.F.R. Part 535.
• Embargo applies to financial transactions, exports and imports
to Iran, Iranian government and government-owned
enterprises, wherever located. 31 C.F.R. 560.204
• Nearly all financial transactions prohibited.
a) Trade-related transactions – 31 C.F.R 560.206
b) Investments or property – 31 C.F.R. 560.207
c) Development of Iranaian petroleum resources 031
C.F.R. 560.207
• Travel permitted by U.S. persons. 31 C.F.R. 560.201
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OFAC - CUBA
• OFAC regulations 31 C.F.R. Part 515.
• OFAC regulates activities of U.S. persons, BIS controls licensing
of exports and reexports.
• No direct exports to or imports from Cuba. 31 C.F.R.
515.201(b)(1), 15 C.F.R. 746.2(a)
• OFAC embargo applies to “persons subject to U.S. jurisdiction”.
31 C.F.R. 515.329, 515.330
• Travel prohibited except journalists, government officials,
educational, religious, and family visits. 31 C.F.R. 515.560,
515.563
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PRESIDENTIAL AUTHORITY
• Over the past few decades, IEEPA has become the primary source of
authority for country-specific sanctions regimes.
• It was first used by President Carter in response to the Iranian hostage
crisis.
• Similarly, after 9/11, President George W. Bush relied on IEEPA to
block property and property interests of foreign persons who committed
acts of terrorism against U.S. nationals or the U.S. economy.
• Among the sanctions programs currently based, at least in part, on the
President's IEEPA authority are the U.S. sanctions against Myanmar
(Burma), Cote d'Ivoire, Iran, North Korea, Sudan, and Syria.
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EFFECTIVENESS
• Legislators and other policy makers, as well as scholars,
have frequently questioned whether economic sanctions
are effective in achieving their various goals.
• Despite the Cuban sanctions, the Communist regime of
Fidel Castro remains in power.
• Unilateral U.S. sanctions imposed on Iran during the hostage
crisis of 1979 - 1981 appear to have been significant in
obtaining the release of U.S. embassy personnel held
hostage in Teheran by the Islamic Republic of Iran.
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PROBLEMS: TWEA & IEEPA
• Assessing the effectiveness of U.S. and international sanctions depends
upon which goals are being examined.
• There is a consensus that U.S. and U.N. sanctions have not, to date,
accomplished their core strategic objective of compelling Iran to agree
to verifiably limit Iran's nuclear development to purely peaceful
purposes.
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APARTHEID SOUTH AFRICA
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Multilateral
Reason: To end the Apartheid system.
Internal pressure
Was heavily reliant on U.S technology to administer
the Apartheid system
• “ sanctions have not worked by persuading the South
African government to change its mind. Rather, they
disadvantaged the material situation of the government
and its allies visa-a-vies their opponents, until they had no
choice but to back off destabilization,” (Orkin, Mark p.22).
• Results: Success
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IRAQ
• Multilateral
• To bring Iraq’s nuclear program into conformity with
international law
• Sporadic and incoherent internal pressure
• Contributed to humanitarian crisis
• Controversial Oil-for-Food program
• Result: Failure
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IRAN
• Unilateral: intended to be multilateral
• Reason:
• Initially in response to U.S Embassy hostage crisis
• Currently they are regarding Iran's nuclear program
• Japan and India continue to purchase Iranian oil at
inflated prices
• Iranian companies have moved operations to
neighboring UAE
• Result: On-going
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CUBA
Unilateral
Reason: Change or reform of the Castro regime
Longest in U.S history
Pentagon declaration 1998: Since the absence of
the USSR Cuba poses no threat
• Canada Mexico & Europe have filled in for U.S
capital flight
• Result: Failure
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COMPETITIVENESS
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U.S. Capital flight provides markets for others:
China in Sudan
Italy in Libya
Switzerland in Iran
Sanctioned countries colluding:
• North Korea, Iran and Syria
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MULTILATERAL VS. UNILATERAL
• Multilateral: Hard to come by:
• Iran case provides for a case of perceived cooperation
• Colluding of sanctioned countries
• Veto power of permanent security council members
• Unilateral: Do not work
• Capital is generated elsewhere
• Provide markets for other countries that otherwise would not
compete
• Reduce global competitiveness of U.S firms
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POLICY SUGGESTIONS
• Sanctions should be intended to be a short-term
solution
• unilateral sanctions should be used only as the foreign
policy tool of last resort
• Sanctions in most cases should be applied to
governments and not individuals especially if would
create a humanitarian situation or curtail internal
pressure
• opening an economy to the outside world vastly expands
the flow of information. spreading ideas like democracy,
human rights, and the rule of law.
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POLICY SUGGESTIONS
• Provide assistance for those applying internal
pressure:
• Good examples are the ANC in South Africa, and the
SPLA/SPLM in Sudan.
• Military option should never be off the table: With
Cuba, Sudan, and Iran it became clear, U.S would
not exercise military option.
• Historic Problems: USSR backing Cuba and China backing
Sudan made it difficult for the U.S to act militarily.
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POLICY SUGGESTIONS
• If sanctions are deemed unavoidable, more should
be done to win support from other nations so that
sanctions can be multilateral, rather than unilateral.
• Compelled to act alone…
• periodically analyze the direct and indirect cost of unilateral
sanctions to American citizens and to build in renewal provisions
that require regular assessment.
• Set achievable goals
• Examine foreign policy goals without putting
American industry at a disadvantage in the world
trade
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COSTS OF ECONOMIC SANCTIONS
• Trade sanctions deprive the United States of the gains from trade
• Penalize exporting firms in the US economy.
• As sanctions have expanded they have also led to increasing
tensions between the United States and its allies and trading
partners around the world.
• Effects of even limited unilateral US sanctions go well beyond
targeted sectors and the effects linger long after they are lifted
because US firms come to be regarded as “unreliable suppliers.”
• Sanctioned countries may avoid buying from US exporters even
when sanctions are not in place, thus giving firms in other
countries a competitive advantage in those markets
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CONCLUSIONS
• Kaempfer and Lowenberg, in the book International
Economic Sanctions, points out that economic
sanctions are not necessarily a zero-sum game
where one side wins and the other loses, but that
there are usually concessions on both sides
(Kaempfer and Lowenberg, p.19).
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CONCLUSIONS
• Unilateral economic sanctions are decreasingly
useful yet increasingly costly.
• If sanctions are to have any chance at all of
producing favorable outcomes, they must be
multilateral, they must be carefully formulated, and
they must be vigorously enforced.
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WORKS CITED
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WORKS CITED:
Chan, Steven and A. Cooper Drury Ed. Sanctions as Economic Statecraft, Macmillan Press LTD, London, 2000.
Cortright, David, A Hard Look At Iraq Sanctions, The Nation, November 15, 2001: http://www.thenation.com/article/hard-look-iraq-sanctions?page=full.
Visited on March 3rd , 20111.
Drezner, Daniel W. The Sanctions Paradox, the University Press, Cambridge, UK, 1999.
Edgar, Robert E. Sanctioning Apartheid, Africa World Press Inc. Trenton, NJ, 1990.
Kaempfer, William H, and Anton D. Lowenberg, International Economic Sanctions: A Public Choice Perspective, Westview Press Inc. Boulder, CO, 1992.
Martin, Lisa L. Coercive Cooperation: Explaining Multilateral Economic Sanctions, Princeton University Press, Princeton, NJ, 1992.
Orkan, Mark ed. Sanctions Against Apartheid, St. Martin’s Press, New York, NY, 1990.
Preeg, Ernest H. Feeling Good or Doing Good with Economic Sanctions: Unilateral Economic Sanctions and the U.S National Interest, The CSIS Press,
Washington D.C, 1999.
Schwab, Peter, Cuba: Confronting the U.S Embargo, St. Martin’s Press, New York, NY, 1999.
Shambaugh, George E. States, Firms and Power, State University of New York Press, Albany, NY, 1999.
Spandoni, Paolo, Failed Sanctions: Why the U.S Embargo against Cuba Could Never Work, University Press of Florida, Gainesville, FL, 2010.
Taylor, Brendan, Sanctions as a Grand Strategy, The International Institute for Strategic Studies, London, UK, 2010.
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