David Cohen, former Deputy Director of the CIA and Under Secretary of the Treasury for Terrorism and Financial Intelligence, says the U.S. sanctions program is not punitive, but rather designed to encourage a change in behavior. The Cipher Brief’s Bennett Seftel asked Cohen to explain how the U.S. determines when to impose sanctions and how sanctions affect individuals and companies seeking to conduct business in the U.S.
The Cipher Brief: How and when does the U.S. government levy sanctions against another state or certain individuals?
David Cohen: The basic legal framework for applying sanctions 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. Over the years, a number of different sanctions programs have been created by executive order under this statute, including counterterrorism sanctions, counter-proliferation sanctions, country-based sanctions such as the Iran sanctions, and more recently, the sanctions imposed against Russia for its incursion into Ukraine and annexation of Crimea in 2014.
Some of the Iran sanctions, for instance, came out of legislation passed by Congress. But that’s the exception to the general rule, which is that sanctions are imposed by executive order under IEEPA.
TCB: What information is required when the government decides to impose sanctions on particular individuals or entities?
Cohen: The executive orders establishing a sanctions program typically grant the authority to the U.S. Treasury Department to make an administrative determination that a person or an entity fits certain specified criteria that will justify the imposition of sanctions. For instance, if the Office of Foreign Assets Control (OFAC), which is a part of the Treasury's Office of Terrorism and Financial Intelligence, determines that a person has attempted to provide financial support to someone who is engaged in the proliferation of weapons of mass destruction, then sanctions can be applied against that person.
The evidence that the Treasury Department relies upon in making that administrative determination is usually a mix of both open source information and intelligence information. Oftentimes, a very heavy component of the administrative record comes from the intelligence collected by the U.S. Intelligence Community. That forms the evidentiary foundation for making the determination that someone fits the criteria for sanctions to be imposed.
But the decision to impose sanctions is not so mechanical. Sanctions programs are designed to help achieve specific national security and foreign policy objectives, so oftentimes the decision of whom to target with sanctions is driven by policy considerations that are discussed in the interagency process. Traditionally the Under Secretary for Terrorism and Financial Intelligence represents the Treasury Department in those discussions.
TCB: Are there any practical differences whether sanctions are imposed for nuclear proliferation activities, human rights violations or financing terrorists)? How do sanctions affect foreign entities doing business in the U.S.?
Cohen: Generally, regardless of the specific sanctions program, the sanction imposed is the same, which is that the assets in the U.S. of the person or the entity designated are frozen or "blocked," and any U.S. person, which generally means anybody in the U.S. or any entity that is formed in the U.S., is forbidden from engaging in any transactions with the designated person. The sanction freezes the designated person out of the U.S. financial system and prohibits that person from doing business with anybody in the U.S.
In some of the sanctions programs, there are unique differences in how the sanctions work. Sanctions imposed on Russian financial institutions in the aftermath of the annexation of Crimea didn’t freeze all of their assets and didn’t prevent them from transacting with any U.S. business, but they did make it much more difficult for those institutions to access U.S. capital markets. Those were special sanctions imposed in that circumstance. But typically, sanctions prevent anyone who’s designated from accessing their assets in the U.S. or from engaging in any kind of financial or business transaction with anybody in the U.S.
TCB: How are sanctions imposed on a nation designated a State Sponsor of Terror by the U.S. State Department?
Cohen: State sponsor of terrorism designations are different from sanctions programs imposed under IEEPA by the Treasury Department. These designations are done by the State Department and don’t carry the same type of financial and economic sanctions that we've been discussing. Instead, a state sponsor of terrorism designation typically involves restrictions on U.S. foreign assistance, a ban on defense exports, and sales and limitations on exports of dual-use items.
TCB: After the Treasury Department imposes sanctions on individuals or entities, how are the sanctions implemented?
Cohen: When individuals or entities are put on the sanctions list, that designation is publicized in a Treasury Department press release. We expect U.S. businesses and U.S. persons to be aware of what’s on that list and to take action to freeze assets that they may have in their possession, block those assets, and refuse to conduct business with anybody who is designated. The government doesn’t identify particular assets that designated people may have. The private sector is asked to look through records and accounts to identify any assets that belong to the designated person and to block those assets.
TCB: How closely does the U.S. cooperate with foreign countries and the European Union when implementing sanctions?
Cohen: Certainly in those situations where the U.S. and the EU have similar sanctions programs, such as counterterrorism, we will work very closely to try to have as much parity as possible between the people that we’re designating and the people who are on the EU list. They are separate processes, and sometimes we will act at different times than the EU. But sanctions are much more effective the more broadly they are applied, so the U.S. government works quite hard to try to have as much similarity between what’s on the U.S. list and the EU list.
The UN also has sanctions programs. If you look at the North Korea sanctions, for instance, we are constantly trying to ensure that the sanctions the UN is imposing are similar to the sanctions that the U.S. is imposing, because that will have a much broader and worldwide impact if similar sanctions are imposed.
TCB: What happens when a business the U.S. plans to sanction is state-owned?
Cohen: As a legal matter, there is no difference in our ability to impose sanctions on a privately-owned versus a state-owned business. But as a practical matter, a whole host of diplomatic and relationship issues may come up if the entity that we’re looking to designate is state-owned. That’s one of the reasons that in these sanctions programs there is typically the requirement that the Treasury Department consult with the State Department before imposing sanctions.
TCB: How can an individual or company get off the sanctions list?
Cohen: The key thing to remember about sanctions is that they are not punitive. 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, for instance, if you’re designated because you are a terrorist financier, if you come forth with evidence that demonstrates that you are no longer engaged in the financing of terrorism, then you can be removed from the sanctions list. That’s true across all the sanctions programs. If there is a demonstration of a change in behavior, sanctions can be lifted.
In fact, there are hundreds of people and entities who are removed from the sanctions list every year because they’ve demonstrated that they no longer meet the criteria that got them designated in the first place.
TCB: How effective are sanctions imposed against certain individuals who have a variety of aliases and who do not necessarily have significant financial assets in the U.S.?
Cohen: It varies. One of the requirements before anyone is designated is that OFAC has sufficient biographical identifiers on the person so that it’s clear who is being designated. That can include both their true name as well as a variety of aliases a person may use. But Treasury will only designate if it knows both a person’s true name and some other information that makes clear who exactly it is being designated, whether it’s a date of birth, a place of birth, passport number, etc.
In terms of effectiveness, the more precise Treasury can be in identifying who is being designated makes a difference. It also matters that Treasury has counterparts around the world who recognize that the Treasury Department takes care in the process, so that sanctions are imposed only on those who are deserving of them. We have seen, whether it’s North Korea, Iran, or Russia, that other jurisdictions will adopt sanctions programs that are similar to ours and will impose sanctions that parallel what we are doing. They will go through their own process, which may vary depending on the jurisdiction involved.
One of the ways we have been successful in having our sanctions respected around the world is by being very deliberate and careful, both in how sanctions are imposed initially as well as by offering a real opportunity for people to get off the sanctions list if their behavior changes.
TCB: What is the penalty if a U.S. company is found to be conducting business with a person or entity on a sanctions list?
Cohen: The penalties can range from relatively minor administrative fines to very substantial financial penalties and ultimately can constitute a criminal violation if the violations are willful. There is a whole range of penalties depending on the gravity of the violation.
