Revisiting Smart Sanctions

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In August 1990, in response to Iraq’s invasion of Kuwait, the United Nations Security Council imposed economic sanctions that were nearly comprehensive, prohibiting nearly all imports and exports.  Even food could not be imported without permission, and that permission was denied for months.  In the first Persian Gulf War of 1991, the US-led bombing strikes destroyed or crippled all of Iraq’s infrastructure.  An envoy of the UN Secretary General reported that the Iraq had been reduced to a pre-industrial state, and that the situation was “near apocalyptic.”  The sanctions then remained in place for over a decade; even with “humanitarian exemptions” and the Oil for Food Program, Iraq could never fully restore adequate electricity, water treatment, telecommunications, and transportation.  The education and health care systems were crippled.  Child malnutrition was rampant, and there were epidemics of cholera and typhoid. 

In the face of this humanitarian catastrophe, scholars, UN officials, and governments, in conjunction with the banking industry and others, formulated the notion of targeted “smart” sanctions.  Smart sanctions, in their vision, would impact the military and political leaders responsible for their government’s aggression or human rights violations.  Smart sanctions would also be directed at the weapons used in these practices.  But the civilian population would not be targeted.  In their view, the humanitarian tragedy that took place could not happen again once smart sanctions became the new norm.

Many people involved in the design and execution of sanctions regimes hold the view that, in the last two decades, the sanctions regimes put in place have been “smart,” sparing vulnerable populations such as women and children, while putting pressure on the individuals responsible for wrongful acts.  This seems to be particularly evident in the case of asset freezes, where individual persons, companies, and foundations are put on a list of “Specially Designated Nationals,” whose assets are then frozen by the financial institutions where their accounts are located.

In this narrative, the severe humanitarian impact of the sort that was seen in Iraq, and the resulting ethical crisis, are a thing of the past.  It is common to see such statements as: “With the end of the Cold War, the changing climate of world affairs has given way to a new type of sanctions practice. This new practice has been characterized by a move from comprehensive to targeted sanctions.”[1]  But in fact, the practices regarding economic sanctions have been quite different.  While sanctions are indeed “targeted,” the common practice is that sanctions regimes are targeted at critical economic sectors, or basic economic functions.  This has been particularly true of unilateral sanctions, imposed by national or regional governments, most notably the US and the European Union.  The sanctions regimes imposed by the UN Security Council work somewhat differently.  On their face, they often seem to be narrowly focused on, for example, nuclear weapons or ballistic missiles.  But in practice, they may work very differently.

The pattern that has evolved in recent years is that sanctions are targeted at crippling a country’s access to banking, energy, imports and exports, and the means to maintain their infrastructure, including electricity, transportation, telecommunications, and water treatment.  What we have seen is that this is accomplished by increasing sophisticated and precise measures.

Perhaps the best example of this is one of the measures imposed by the European Union against Iran.  In 2012, the EU imposed sanctions against Iran, which prohibited European financial institutions from doing business with Iran’s banks.  This affected SWIFT, the global financial messaging hub, which is based in Brussels.  SWIFT has been described as “the backbone of modern international banking,” facilitating more than 30 million international financial transactions each day, among 11,000 banks.   If a bank is expelled from SWIFT, there is no alternative network that is comparable.  Under pressure from the EU, SWIFT expelled Iran’s banks engaged in international trade and financial transfer, as well as its central bank.  The immediate effect was to cripple all of Iran’s imports and exports:  it could not send payment to its trade partners to purchase goods, even those that were ostensible permitted by the sanctions; and it could not receive payment for its exports.  Iran as relegated to using other avenues for its international transactions, such as barter arrangements with China and India.   But those were costly and cumbersome.  In the domain of banking, there really is no substitute for SWIFT.[2]

The case of Venezuela

In some cases, sanctions regimes are specifically designed to do damage to a country’s point of greatest vulnerability.  We can see this in the current US sanctions imposed on Venezuela.  The Obama and Trump administrations have imposed far-reaching sanctions damaging Venezuela’s economy at its core.  Both administrations have often said that their measures are designed only to impact the political and military leaders who are corrupt or repressive.  President Obama’s sanctions, according to the State Department did “not target the people or economy of Venezuela.”  The Trump administration has insisted that its sanctions are “carefully calibrated,”[3] and in the most recent round, the State Department has insisted that “These new sanctions do not target the innocent people of Venezuela.”[4]

But Venezuela’s economic crisis has triggered a massive humanitarian crisis as well, including severe scarcity of food and medicine.   Some estimate that as many as 2 million Venezuelans have left the country due to the desperate living conditions.[5]  Meanwhile, it seems that the sanctions are designed to paralyze the Venezuelan government and bankrupt the country, which will certainly worsen the conditions for the Venezuelan people, particularly those who are the most vulnerable.  The most recent sanctions, imposed in late January, will likely affect some $7 billion in assets and will block $11 billion in revenue to the Venezuelan government over the next year, according to US National Security Advisor John Bolton. 

Since 2017, US measures have also sought to undermine Venezuela’s national oil company, Petróleos de Venezuela, S.A (PdVSA), which generates 95% of the country’s export revenue.[6]  The US blacklisted Simon Alejandro Zerpa Delgado, PdVSA’s vice president for finance. This meant not only that his assets were frozen, but also that no “US person” –which the US considers to include much of the international business community—may transact any business with Zerpa in regard to PdVSA.  PdVSA is also the majority owner of the US company Citgo.  Last July, the US revoked the visa of Citgo president, the Venezuelan Asdrúbal Chávez.  In addition, last year the Trump administration prohibited the payment of dividends from subsidiaries of Venezuelan companies—including CITGO—eliminating that source of income to Venezuela.[7]  Most recently, the Trump administration directly sanctioned PdVSA. As a result, any US person who engages in any transaction with the company is subject to penalties in the US, which can be draconian.  In recent years, penalties for sanctions violations have sometimes been in the hundreds of millions of dollars; in some cases, the penalties were billions of dollars.

It seems the sanctions are also designed to paralyze Venezuela’s government overall.  The Obama administration blacklisted Venezuela’s president, Nicolás Maduro, and in 2018 the Trump administration blacklisted Venezuela’s former vice-president, Tareck El Aissami, and the current one, Delcy Rodriguez.  The US has blacklisted Rocco Albisinni Serrano, the president of CENCOEX, the government agency that sets the foreign exchange rate, on the grounds that a black market has emerged around the currency exchange, making the exchange rate an “engine of corruption.”  The US has blacklisted Bernal Rosales, the Minister for Agriculture; as well as Alejandro Antonio Fleming Cabrera, the former head of CENCOEX, and the vice minister for Europe of Venezuela’s Ministry of Foreign Affairs.[8]  The Trump administration blacklisted Carlos Alberto Rotondaro  Cova, the former head of Venezuela’s agency charged with providing medicines to patients with chronic conditions.

And the sanctions are also designed to destabilize the economy by interfering in Venezuela’s ability to obtain credit, or to refinance its debt.  They prohibit any “US person” from providing any loan or credit to Venezuela that would come due in more than thirty days.  This means, for example, that any goods or services Venezuela purchased from a “US person” must be paid for in full within thirty days[9]—a difficult standard to meet for a country facing a severe liquidity crisis.  And last year, as Venezuela scrambled to restructure its massive debt, “US persons”—including, among others, major European banks—were prohibited from transacting business with the two people appointed to renegotiate the debt: Vice-President El Aissami and Economy Minister Simon Zerpa, both of whom had been blacklisted by the US.[10]  

In the last several months, as Venezuela has been unable to make its debt payments, creditors have declared the country in default, demanding payment of billions of dollars in principal and interest,[11] and in some cases seeking to seize Venezuelan assets, including its refineries in the Caribbean and the CITGO corporation.

The case of Venezuela is not unusual, among sanctions regimes imposed by national governments, particularly the US: the standard practice that has emerged in the last decade or so is that sanctions are designed to paralyze the state and compromise critical sectors of the economy.

UN Security Council sanctions

By contrast, many would say, the sanctions imposed by the UN Security Council, at least since the late 1990s, have been narrowly framed to stop illicit weapons transfers, to freeze the assets of terrorists, and so forth.  However, this has not really been the case.  Occasionally, this is stated explicitly.  In the case of North Korea, for example, Samantha Power, then the US ambassador to the UN, touted UN Security Council measures in 2016 as "the toughest and most comprehensive sanctions ever imposed on North Korea ... There are measures in this package of sanctions that have never been done in the whole history of the UN. So, for starters, we have turned the dial up not just a notch, but many, many, many, many notches."[12] 

Quite obviously,  these measures were at least in part designed to compromise North Korea’s infrastructure—including transportation, electricity generation, and industrial production--as when the UNSC prohibited the “direct or indirect supply”  of iron, steel, and other metals, industrial machinery, electrical equipment, and transportation vehicles” to North Korea.[13]

In other situations, the UN resolutions ostensibly addresses only goods and services related to weapons or threats to international security.  The UNSC sanctions on North Korea include prohibitions on providing insurance or other support for any shipping, if this support could contribute to North Korea’s nuclear or ballistic missile program.  But these measures are then subject to the interpretation of the individual member states charged with their implementation; and some, including the US, EU, and UK, invoke the UN measures as mandating, or at least providing legitimacy, for their own measures that go well beyond North Korea’s nuclear or ballistic programs.  The EU and UK prohibit their companies from providing financial services, including insurance and reinsurance, to any North Korean entity, or for use in North Korea,[14]  as well as restricting transactions with Korea’s national insurance company.[15]  Similarly, the EU and UK broadly restricted access of North Korean vessels to EU ports.[16]

Conclusion

In the last two decades, scholars and practitioners involved with economic sanctions have constructed a narrative around economic sanctions that in large measure runs counter to the reality.  The notion of “smart sanctions” suggests measures that are carefully constructed to ensure that vulnerable populations are not subject to the broad, devastating damage that was seen in the case of Iraq.  In this narrative, any harm done to vulnerable populations is minimal, and certainly unintended.  But the reality is quite different.  The standard practice for the US, to some extent other nations, and even the UN Security Council, is to construct economic measures that target the systems that are critical for any modern economy and society to function:  access to international banking transactions, imports, exports, the energy sector, industrial production, and the nation’s infrastructure.  Regardless of the rhetoric, that is the reality.

 

 

Notes


[1] Mikael Eriksson, “Unintended Consequences of Targeted Sanctions” in Rethinking Security Governance: The Problem of Unintended Consequences, ed. Christopher Daase and Cornelius  Friesendorf  (New York: Routledge, 2010), p. 157. 

[8] Dept of Treasury, press statement, 7/26/2017, “Treasury sanctions 13 current and former senior officials of the government of Venezuela”;   https://www.gibsondunn.com/wp-content/uploads/2018/03/WebcastSlides-US-Economic-and-Trade-Sanctions-Against-Venezuela-2018-03-13.pdf,  p.10

[9] Executive order 13808, August 24, 2017

[12] Sue E. Eckert, “The Evolution and Effectiveness of UN Targeted Sanctions,” in Research Handbook on Sanctions and International Law, ed. Larissa van den Herik (Cheltenham, UK: Edward Elgar, 2017), p. 67.

[13] S/Res/2397 (2017), S/Res/2321 (2016)

[14] 2013/183/CFSP (April 2013). 

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