Learn About Illicit Financial Flows
Key Terms

Do sanctions work?

October 20, 2010

By Ann Hollingshead

Ann Hollingshead is a Financial Transparency Coalition blog contributor, whose posts appear weekly. Formerly a Junior Economist at Global Financial Integrity, Ann is now pursuing a Master of Public Policy (MPP) from the University of California Berkeley. Follow her on Twitter: @AnnHollingshead.

Sanctions are penalties imposed by a single country—or a group of countries—on a state which has taken a troublesome economic or political action.  They can be economic, for example bans on exports, or they can be financial, which often bar banks from maintaining accounts in the offending country.  Trade sanctions, which are often rooted in economics and not politics, include import duties, tariffs, and import or export quotas.  The idea behind these restrictions is that a sanction will cause economic harm to the recipient, thereby pressuring that country into compiling with international or bilateral will.  It is one of the few non-violent alternatives countries can use to compel a sovereign nation to take (or refrain from) a certain action.

Examples include the U.S. fifty-year-old embargo on Cuba, which is so tight it includes travel restrictions and bans on almost any kind of import or export, and the escalating sanctions against Iran for its nuclear weapons program.  Countries that have received sanctions for human rights violations include Libya, Sudan and Burma.

Economic sanctions are usually only implemented when the underlying action is pretty abhorrent.  Many countries, in light of our increasingly globalized world, depend on trade and international financial markets for economic growth.  Furthermore many sanctions can lie at odds with rules under the World Trade Organization (WTO), which exists for the explicit purpose to liberalize trade, whereas sanctions are,  by nature, constricting.

The truth is, however, that sanctions seeking to conform political behavior frequently, indeed almost universally, don’t work.  There are a number of reasons for this.  First, the underlying principal assumes that the offending nation will be damaged economically–and therefore politically–from the sanction.  Often the leaders of the offending nation, a prime example is North Korea, which is already isolated and improvised, don’t really care.  The burden of most sanctions are borne by the poorest citizens and as many dictators prove through their economic policies and human rights violations, the poor members of their societies are not their priority.

Second, many economic sanctions imposed by the international community are violated by a single or a group of countries, either for economic or political reasons. This can be completely defeating as it alleviates much of the pressure felt by the regime or administration meant to bear the burden.  For example, Turkey recently declined to take part in the U.S.-EU sanctions imposed on Iran (although it will honor the much meeker UN sanctions) for Tehran’s nuclear weapon program, in large part because Turkey has significant “commercial and energy ties” with Iran.

Third, tax havens, secrecy jurisdictions, and banking secrecy enable many countries to circumvent financial sanctions.  In the case of Iran, former district attorney Robert Morgenthau has shown how Venezuela uses banking secrecy to help some Iranian banks gain access to financial markets in the U.S., though it is illegal. Other times individual banks will use secrecy to violate sanctions for financial gain.  For example, Barclays Plc violated trade laws by facilitating transactions with banks in Cuba, Iran, Libya, Sudan and Burma between 1995 and 2006.

While many economic sanction regimes leak like sieves for the reasons I listed above, it does not mean they cannot be useful tools in international cooperation and diplomacy when they are used appropriately and with international consensus.  For example,  specific and targeted sanctions are often successfully used to apply pressure to countries who have violated free trade agreements.  When used as an ideological weapon to push rogue states into compliance, however, they are more often then not of little use.

Share

Disclaimer: Unless specifically stated to be the views of the Financial Transparency Coalition, the opinions expressed on this blog are solely the opinions of the individual blogger and are not necessarily those of the Financial Transparency Coalition.

  • Emily Crowley

    Ann, a fantastic post.

    You make a powerful point that the collateral damage of sanctions, when enforced, is widely overlooked and may in fact undermine their purpose. I think that as an economic tool, trade sanctions can be used effectively, while minimizing collateral damage. However, such a tool can only be effective if there is a stable and transparent economic and financial system that has an enforcement mechanism limiting nations’ abilities to circumvent investment and trade restrictions.

Latest Press Releases

G20 Communiqué Acknowledges Broken Financial System, But Leaves Clear Solutions on the Table

Financial Transparency Coalition · November 16, 2014

BRISBANE—With the release of the Brisbane communiqué, G20 leaders have acknowledged the cracks in our financial system, yet they haven’t acted ...

This weekend, G20 leaders should roll up their sleeves and work on common sense measures to curb illicit cash

Financial Transparency Coalition · November 14, 2014

BRISBANE—While G20 leaders are poised to address many of the vehicles that are integral to allowing almost one trillion dollars to flow ...

Luxembourg Leaks Show that Corporate Secrecy is Alive and Well

Financial Transparency Coalition · November 6, 2014

WASHINGTON D.C. — Newly leaked documents detailed by the International ...