Sanctions play an important role in U.S. foreign policy and national security, with the sitting president closely involved. With the presidential election only weeks away, what could sanctions policy look like under the country’s new leader, whoever he is?
It is an incontrovertible fact that U.S. sanctions since President Donald Trump was elected in 2016 have gotten more aggressive and extensive. They are used as an instrument of foreign and national security policy far more than they were under his predecessor President Obama.
Sanctions of course not only have a detrimental impact on the sanctioned countries, entities, and individuals. They also have an effect on those who normally do business with them. Companies, banks, and individuals must not transact with anyone on a sanctions list and face severe penalties if they do so.
The big question now is, how will the result of this November’s presidential election determine the future direction of sanctions policy?
If Republican nominee Trump wins, it is likely it will remain the same, albeit with tweaks here and twists there. You only need to read the Executive Order he issued on September 21 imposing new sanctions on entities and individuals that support Iran’s weapons activities to understand that sanctions are one of his favorite ways of conducting international affairs.
If Democrat nominee Joe Biden wins, his approach to sanctions is likely to be different, but how different? Some things will not change. For example, Biden supports the Hong Kong Human Rights and Democracy Act passed by Congress last year which imposes sanctions on Chinese and Hong Kong officials responsible for human rights abuses.
On the other hand, Biden has been clear that he would like the U.S. to rejoin the 2015 Iran nuclear deal, which the U.S. withdrew from in 2018, and end the sanctions that came with that withdrawal. If Biden lifted any sanctions – whether against Iran or anyone else – it is unlikely the lifting would be retrospective, which would mean that any bank, other entity or person who had violated those sanctions while they were still in place could, if found out, still face penalties from the US authorities.
At the time of writing in late September, national polls show Biden significantly ahead, with about 50% of the vote compared with Trump’s 43%. But a lot can happen before election day. So, what will sanctions policy look like under the new president, whoever he is?
An Overview of U.S. Sanctions Policy
First, some background. The US has used unilateral economic and trade sanctions to pursue its foreign policy and national security goals for decades. Multilateral sanctions imposed by the United Nations’ Security Council are the most diplomatically acceptable, and since 1966 the UN has established 30 sanctions regimes covering, for example, South Africa, Iraq, Iran, the Taliban, and Al-Qaida. However, getting the necessary consensus among council members is difficult, which is why the US often decides to go it alone.
US sanctions are imposed on countries, entities, and individuals whom the U.S. regards as a threat. The countries currently subjected to the most comprehensive sanctions include Iran, North Korea, Cuba, Venezuela, Syria, and Russia.
Sanctions work by freezing assets, placing trade embargoes, restricting financial transactions and other measures. They are mainly administered by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) and to a lesser extent the US Department of State. They are complex and can change with little or no warning. They can be difficult to understand and to comply with, and the penalties for non-compliance are high.
There are two broad types of sanctions, primary and secondary.
- Primary sanctions prohibit “U.S. persons” from transacting with certain countries, entities, and people. The definition of “U.S. persons” includes all people and entities within the U.S.; all U.S. citizens and permanent resident aliens wherever they are located; and all U.S. companies and their foreign branches (and sometimes their foreign subsidiaries). Breaking primary sanctions can lead to civil and criminal penalties.
- Secondary sanctions do not need a U.S. connection. They apply to “non-U.S. persons” (that is, foreign entities and people) directly or indirectly engaged in certain transactions that occur outside the U.S., relating to sanctioned countries. This makes the laws “extra-territorial”. Breaking secondary sanctions does not usually lead to civil and criminal penalties, but can lead to limits on access to, or exclusion from, the US financial system and markets.
Sanctions under President Trump
Law firm Gibson Dunn’s latest annual sanctions update shows that sanctions promulgated by OFAC during the Trump administration have become an increasingly prominent part of U.S. foreign policy. In 2019, for the third year in a row, OFAC blacklisted more entities than it had under any previous administration, adding an average of 1,000 names to its Specially Designated Nationals and Blocked Persons (“SDN”) List each year. This was more than twice the annual average increase seen under either President Barack Obama or President George W. Bush. In addition, OFAC’s enforcement penalties reached a record $1.2 billion.
Interestingly, not all of the clamour for action comes from Trump. In 2019, the U.S. Congress proposed dozens of bills to increase the use of sanctions, “eager to exert its own authority in what has traditionally been a solely presidential prerogative”, notes Gibson Dunn.
A Financial Times article describes sanctions on Iran as a reflection of “the extent to which economic sanctions have become the stick of choice in US foreign policy under Mr. Trump”. This is despite “doubts about their effectiveness” as they can reinforce regime hardliners, “concerns over their morality” as they often damage vulnerable citizens, and unintended consequences such as accelerating “moves away from the dollar as a reserve currency”.
The Finnish Institute of International Affairs (FIIA), in a report entitled Sanctions and US Foreign Policy in the Trump Era, concludes that Trump and his administration “have signalled a preference for the unilateral use of sanctions to excel in the competitive international geostrategic environment and confront rogue regimes”. The FIIA adds that while unilateral sanctions may work in the short term, in the long run, they may dissuade allies from cooperating and erode US economic and political power. This is especially true of the extraterritorial application of secondary sanctions which has “placed it at loggerheads with its allies and partners from time to time”.
Despite the arguments against the over-use of sanctions, like the ones voiced in the FT and the FIIA report, in our view, all the indications are that if Trump wins a second term his views on the matter are unlikely to change.
What sanctions could look like under a Biden Administration
What if Biden wins? How might U.S. sanctions policy change? It is instructive to look at the last Democratic president’s approach to the issue. President Obama used sanctions to promote US interests, though not as much as Trump. The FIIA points out there was “a substantial quantitative increase in the use of sanctions” under Obama when measured in terms of individuals and entities added to the Specially Designated Nationals and Blocked Persons (SDN) List. And his administration did not shy away from enforcement. “During Barack Obama’s tenure, OFAC imposed hundreds of millions of dollars in penalties on notable foreign banks for sanctions violations,” says the FIIA.
Does that mean if Biden becomes president he will adopt a similar posture, and use sanctions like Obama but on a small scale than Trump? Probably. There are two reasons why.
First, sanctions feature prominently in the 2020 Democratic Party platform. Corrupt foreign officials and business executives are one target. “We will combat bribery abroad by expanding on the Foreign Corrupt Practices Act, and we will deploy the full range of America’s diplomatic and economic tools to target kleptocrats—including targeted sanctions and visa bans,” it states.
China is another target. The party will fully enforce the US’s Hong Kong Human Rights and Democracy Act, “including by sanctioning officials, financial institutions, companies, and individuals responsible for undercutting Hong Kong’s autonomy”.
Yet the party says there is a limit to how far it will go. “Democrats will guard against the improper application of economic and financial sanctions that incentivise foreign businesses to bypass our financial system, corrode the power and potential of sanctions, undercut the potential of our diplomacy, hurt our economy, and threaten the key role of the US dollar as the world’s reserve currency,” it says.
The second reason Biden is likely to favour sanctions is that he has said so in interviews. “The forced detention of over a million Uighur Muslims in western China is unconscionable,” he told the Council on Foreign Relations last year. “America should speak out against the internment camps in Xinjiang and hold to account the people and companies complicit in this appalling oppression, including through sanctions and applying the Magnitsky Act.”
He added that the “the US should push for stronger multilateral sanctions” against President Maduro in Venezuela “so that supporters of the regime cannot live, study, shop, or hide their assets in the United States, Europe, or Latin America”.
And then there’s Russia. Biden warned Russia in September that it would pay “an economic price” for continuing to interfere in US elections if he becomes president. Referring to Russia’s meddling in the 2016 presidential election, Biden said he viewed Russia as an “opponent” of the US. He was speaking at a CNN presidential town hall meeting, and when asked to clarify what form this price would take he said “it wouldn’t be prudent for me to be more specific [but] the reason Putin doesn’t want me as president is that he knows me and he knows I mean it”.
Although he did not mention sanctions, they are clearly one of his options. The US currently imposes sanctions on Russia for various reasons including its annexation of Crimea, invasion of eastern Ukraine, cyber attacks, human rights abuses, use of chemical weapons, illicit trade with North Korea and support to Syria.
Some commentators are speculating that Biden might even use sanctions in areas Trump would never countenance, such as climate change. Peter Harrell, an adjunct senior fellow at the Center for a New American Security, a Washington DC policy research organisation, argues that Trump’s use of tariffs and sanctions “sets a precedent” and “has created a clear opening for a future Democratic president to impose wide-ranging tariffs and sanctions” on foreign companies and overseas projects with high greenhouse gas emissions.
Despite all the signs that Biden and his party favour sanctions, in other areas they are likely to be more dovish than Trump. One of those areas is Iran, as mentioned earlier. The US withdrew from the nuclear agreement with Tehran, the Joint Comprehensive Plan of Action (JCPCOA), in 2018 and imposed heavy economic sanctions. Biden and his aides have said that he would keep sanctions in place, but work to rejoin the nuclear deal as long as Iran moved back into compliance with it, and then remove sanctions.
To return to the key question we asked at the start of this article – What will US sanctions policy look like under the new president, whoever he is? – the answer to us seems clear. It will look very much the same, albeit the rate of introduction of new sanctions is likely to slow.
Despite their very big differences in personality and on domestic policy, when it comes to foreign policy and national security the gap between Trump and Biden is relatively small, and sanctions are regarded by both as an important tool.
Yes, they differ in their attitude to Russia. If Biden gets in, he is likely to be tougher on it than Trump has been, judging by what Biden said about Putin at the CNN town hall and the Democrats’ greater antipathy towards Russia than the Republicans’.
They also differ on their approach to sanctions on Iran. If Trump gets in, the pressure on Iran is likely to increase. The bottom line is that it would be bad news for Russia if Biden is elected, and bad news for Iran if Trump gets in, but generally there is not much space between the two candidates.
Anyone inconvenienced by sanctions under the current presidency, who hopes that if Biden gets in he will end the ones that affect them, is probably living in false hope. Even if some sanctions were eventually eased, like those against Iran, it may take a long time.
As for those who have violated sanctions and are at risk of, or are already, being investigated by OFAC, who pray that Biden gets in and revokes the sanctions they have breached, if their prayers are granted it probably will not get them out of trouble. Revocations are unlikely to be retroactive. Violators would continue to be investigated and punishment handed out for historical breaches of sanctions that were no longer in force. Look no further than the recent enforcement actions on Sudan sanctions, which were lifted in 2017. OFAC does not hesitate to enforce sanctions that have been changed or lifted.
In essence, then, anyone who has broken US sanctions does not have much to look forward to. The best they can do is to ensure they have a comprehensive and infallible sanctions compliance pprogramin place.
© Copyright 2020. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.