On October 18, 2021, the U.S. Department of the Treasury ("Treasury") released its 2021 Sanctions Review ("Sanctions Review" or the "Review"), which includes recommendations for preserving the effectiveness of sanctions amidst rising challenges in the geopolitical sphere. With emerging threats in the form of cybercriminals, the global economy's shifting away from the U.S. dollar, and the shortcomings of the existing workforce and technical infrastructure around U.S. sanctions, Treasury recognizes a growing disconnect between the current sanctions framework and the world in which it operates. While the Sanctions Review is primarily explanatory, does not alter U.S. sanctions laws, and contains few surprises, it highlights trends in the current U.S. sanctions landscape that may lead to concrete actions with impacts on the private sector.
I. Statistics on the Increasing Use of Sanctions
The Sanctions Review outlined a number of successes in the use of sanctions over the past few decades, namely, the sanctions campaign that resulted in Iran negotiating its nuclear program, narcotics trafficking sanctions that decimated the Cali Cartel, the freezing of tens of billions of dollars in assets from the former Qadafi regime in Libya, and the targeting of over 1,600 terrorist entities and individuals since the attacks of September 11, 2001. The Sanctions Review highlighted the following key statistics on Treasury's use of sanctions in recent decades:
- Sanctions designations net increased 933% over the last 20 years, increasing virtually every year for the past two decades, from a total of 912 sanctioned parties in 2000 to a whopping 9,421 on OFAC's lists as of this year;
- While OFAC issued over 12,000 designations during that same period, it also delisted nearly 3,000 persons – a quarter of the overall total;
- Since 2000, the number of underlying sanctions authorities grew from 69 to 176 in 2021; and
- The ratio of Executive versus Legislative Branch actions has remain relatively constant over the years; about 63% of sanctions authorities over the last 20 years have been executive orders while about 37% have been statutes, but the ratio has not changed much in the past two decades (64% executive orders/36% statutes in 2000 versus 61% executive orders/39% statutes in 2021).
II. Steps to Modernize Sanctions
Despite the encouraging statistics noted above, the Sanctions Review emphasized the need for Treasury to re-envision how it uses sanctions in the rapidly changing modern world. After having conferred with key interested parties, including government representatives, businesses, foreign governments, and nongovernmental organizations, Treasury determined that, in order to modernize sanctions and preserve their viability as a political and economic tool, Treasury should heed the following five key recommendations:
1. Link Sanctions to a Clear Policy Objective
Treasury plans to adopt a clear policy framework that, through its consistent application, is intended to establish criteria for the use of sanctions. Designing such a framework is part of Treasury's broader goal to develop a methodical process to evaluate its sanctions programs and actions. To that end, Treasury recommends that the decision to take a sanctions action should consider whether the sanctions:
- Support a key objective within an overarching U.S. policy strategy;
- Have been carefully determined to be the right tool for the policy objective;
- Are tailored to mitigate unintended economic, political, and humanitarian impacts;
- Incorporate a multilateral strategy; and
- Are easily understood, enforceable, and reversible, as necessary.
Rather than defaulting to sanctions as a tool for economic coercion, Treasury must be able to justify how sanctions support a larger policy objective. During an event held by the Center for a New American Security (CNAS) on October 21, 2021, former Treasury Secretary Jack Lew likened the use of sanctions to the use of force in the military. Like military power, sanctions should be treated as a scarce resource which, when implemented, must reflect the best of U.S. values. Going forward, sanctions should be intentional and used sparingly. It remains to be seen whether policy-makers, in their desire for forceful responses to world crises, will heed this advice.
2. Coordinate Sanctions with Allies and Partners
Treasury underscores that coordination among U.S. allies and partners increases the legitimacy of U.S. sanctions and limits their impact on non-targeted parties. Through harmonizing multilateral sanctions regimes, the United States amplifies its message and enhances the global applicability of its actions. As former Secretary Lew highlighted during the CNAS event, the use of U.S. sanctions after Russia invaded Ukraine in 2014 could only be as aggressive as its European allies would match. If the United States developed a significantly more aggressive sanctions policy than its European allies, those allies could undermine the United States in their dealings with Russia. A multilateral approach strengthens sanctions policy by limiting opportunities for noncompliance.
3. Tailor Sanctions to Limit Unintended Economic, Political, and Humanitarian Impacts
Treasury should calibrate sanctions to lessen their impact on non-targeted populations, which will help maintain confidence in U.S. sanctions policy. In particular, Treasury underscored that sanctions have the potential to negatively impact small, domestic businesses that cannot bear the costs of sanctions compliance while also competing with larger companies. In addition, sanctions can disrupt the supply chains that bring humanitarian relief to vulnerable populations. This was most recently demonstrated when the Taliban – a U.S. sanctioned terrorist group – took over Afghanistan in August 2021. It was not until weeks after Kabul fell that the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) issued general licenses to support the flow of humanitarian aid to the people of Afghanistan and provided the international community with clear guidance on what they could do to help. As a result, Treasury recommends in its Sanctions Review that it should assess the potential repercussions of sanctions on third parties and reevaluate how it implements the contemplated sanctions to limit these repercussions.
4. Enhance Communication Around Sanctions
Treasury recommends greater transparency through improving public understanding of the intent and effect of sanctions. As the Sanctions Review states, "sanctions are only as effective as their implementation." Accordingly, Treasury highlighted the need for enhanced communications around sanctions and ensuring that any sanctions are easily understood, enforceable, and flexible. Treasury also noted the importance of improving its public messaging, better targeting its communications to key audiences, and improving the contents of its website.
5. Invest in Sanctions Technology, Workforce, and Infrastructure
To keep sanctions effective in the modern era, Treasury recognizes that it is vital to invest in its staff, technology, and operational infrastructure, which should be deployed to face new and evolving challenges, such as the risks posed by cybercriminals and the increased use of digital assets. These investments should improve the dissemination of information about sanctions, via the Treasury's website or otherwise, and be coordinated with Treasury's interagency partners.
The Sanctions Review emphasizes Treasury's ongoing commitment to use sanctions to further U.S. foreign policy and national security goals. Today's political and economic challenges force Treasury to modernize its sanctions strategy or risk jeopardizing the United States' competitive position on the world stage and/or weakening the impact of U.S. sanctions. The global business community can expect to see changes in the U.S. sanctions landscape and should prepare to reevaluate the risks to their operations and adjust their sanctions compliance policies and programs accordingly. For example, companies should exercise greater caution in their crypto transactions as Treasury will likely devote more resources to monitoring the digital economy as part of its focus on cybercriminals and digital assets. In addition, if Treasury follows through on its recommendation to more effectively coordinate sanctions with its allies, companies will need to carefully consider not just U.S. sanctions, but also those of its allies around the world. Morrison & Foerster's National Security Practice Group will monitor any new developments and keep you apprised of any significant updates.
Julia Searby, a paralegal in Morrison & Foerster's National Security Practice Group, contributed to this alert.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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