Financial sanctions have emerged as a vital strategic weapon for the United States and a primary means of non-military confrontation with nations, companies, and individuals that threaten U.S. and international security.
At the national level, Iran was forced to the negotiating table after the U.S. and the international community levied comprehensive economic sanctions against the Islamic Republic for its attempted development of nuclear weapons. The U.S. has imposed unilateral sanctions on North Korea for its ballistic missile and nuclear weapons programs.
The U.S. Treasury Department regularly adds individuals and entities to the U.S. sanctions list for a host of reasons, including nuclear weapons proliferation, terrorist financing, narcotics trafficking, and human rights abuses. The U.S. financial system is so large and influential that international financial institutions normally won’t touch entities banned by the U.S.
But the term “sanctions” is quite broad, and many details about the sanctions implementation process become lost in translation. What does it mean when the U.S. sanctions a country such as Iran or an individual such as Qasem Souleimani, the leader of the Iranian Islamic Revolutionary Guard Corps? How do U.S. sanctions regimes really work?
“The basic legal framework for applying sanctions,” says David Cohen, former Deputy Director of the CIA and Under Secretary of the Treasury for Terrorism and Financial Intelligence, “begins with an overarching law enacted in 1977 called the International Emergency Economic Powers Act, also known as IEEPA, which gives the President the authority to devise a sanctions program to deal with any unusual and extraordinary threat to U.S. national security, our foreign policy, or the economy.”
Through executive orders, the President, pursuant to IEEPA, delegates authority to the Treasury Department’s Office of Foreign Asset Control (OFAC), which consults with the Intelligence Community and other parts of the executive branch to determine specific individuals or entities who should be sanctioned. The Treasury Department then adds the offending people or companies to the Specially Designated Nationals list. Assets and finances of those on the list are frozen, and they are prohibited from conducting business with any U.S. institution.
“If you are sanctioned for nuclear reasons, human rights reasons, or terrorist reasons, the consequences are the same,” says Adam Smith, a former sanctions official for the Obama Administration.
Congress can also enact legislation to impose new sanctions or modify already existing sanctions.
U.S. sanctions implemented against the Islamic Republic of Iran offer a good example of how the executive and legislative branches can simultaneously impose sanctions, based on both executive orders under IEEPA and acts of Congress. Among the substantial number of executive orders imposed against Iran, Executive Order 13438, enacted in July 2007, permits the executive branch to sanction persons who provide arms to Shia militias in Iraq, and thereby threaten stability in the country. U.S. military officials put forth a persuasive case that Iranian officials supplied Iraqi Shia militias with lethal weapons called explosively-formed penetrators, and are therefore subject to be sanctioned. Executive Order 13572, enacted in May 2011, enables the U.S. government to sanction individuals responsible for human rights abuses carried out against the Syrian people. Through this order, sanctions sere imposed on Qasem Soleimani, commander of the Quds Force, the external action arm of the Iranian Islamic Revolutionary Guard Corps, who has been linked to several deadly operations in Syria.
At the same time, the Iran Sanctions Act, passed by Congress in 1996, remains in effect and continues to play an integral role in codifying sanctions against Iran for its illicit nuclear activities, support for terrorism, and human rights abuses.
After the U.S. and its allies concluded the Iran nuclear deal in July 2015 and implemented it in January 2016, the Obama administration revoked several sanctions pertaining to Iran’s nuclear program. But the White House kept in place other sanctions on Iranian companies and individuals for human rights abuses, terrorist finance, and other egregious violations.
Sanctions against Iran and, more recently North Korea, are the most extensive sanctions regimes implemented by the U.S. to date.
“In the context of North Korea, we have effectively sanctioned the entire country of North Korea because we’ve imposed sanctions on essentially all exports to North Korea, meaning, we can’t engage in the provision of services or goods to North Korea,” Smith says. “There are also individual sanctions on North Korean citizens and on North Korean companies whose assets are blocked and that are unable to access global financial markets.”
In addition, the State Department can designate countries as State Sponsors of Terror, a label that carries additional policy implications, including sanctions.
U.S. companies must check the Treasury Department’s website frequently to learn about new individuals or companies that have been sanctioned. Companies that fail to abide by sanctions requirements may face hefty fines or criminal charges.
Ultimately, sanctions are meant as a tool designed to pressure an individual, company, or state to change its behavior. Treasury officials regularly de-list entities that comply with U.S. rules and agreements.
“The key thing to remember about sanctions is that they are not punitive,” Cohen told The Cipher Brief. “They are designed to encourage a change in behavior. Anybody who is designated can seek to be removed from the sanctions list by demonstrating that the behavior that got him or her sanctioned in the first place has changed.”
So far, the results of U.S. sanctions initiatives have been mixed. Iran agreed to a nuclear deal as its economy crumbled under the weight of a combination of U.S. and international sanctions, but Pyongyang appears unperturbed by the accumulation of U.S.- and UN –imposed sanctions against it due to its longstanding isolation from U.S. and international financial markets. Some individuals and organizations have modified their behavior and have been removed from the U.S. sanctions list, while others operate in the shadows under alternative aliases to circumvent accompanying financial restrictions.
Still, as the U.S. looks for different ways to execute its foreign policy, sanctions will remain one of America’s most effective non-military approaches.
Bennett Seftel is deputy director of analysis at The Cipher Brief. Follow him on Twitter @BennettSeftel.