Maxim Shemetov / Reuters A Russian convoy of trucks drives along a road as Russian servicemen look on, near Kamensk-Shakhtinsky, August 14, 2014.

Sensible Sanctions

Using Financial Penalties the Right Way

The United States has used economic sanctions to address a wide range of undesirable activities, from Russian aggression in Ukraine, to human rights abuses in Syria, to cyberattacks from China and North Korea. Recently, U.S. President Barack Obama is employing sanctions for a new purpose: to deter international aggression and uphold international norms. Such sanctions allow Obama to take nonmilitary action in cases where the costs of using force are too high but a strong response is required. Yet while these tools may deter aggressive actions in certain circumstances, they may actually encourage bad behavior by signaling to international aggressors that the United States is unwilling to use military force to prevent those countries from threatening U.S. interests. 

BOOTS ON THE RACK

The practice of using sanctions to disrupt malicious financial activity and target illicit actors goes back to U.S. President George W. Bush, who used key regulatory tools to cut off access to the U.S. financial system for terrorist organizations, their host countries, and the financial institutions helping them. Obama, along with Congress, picked up this practice and expanded it, using financial tools to pressure states such as Iran to give up illicit weapons programs. Over the past ten years, these financial tools have become increasingly popular among policymakers for dealing with an even wider range of issues, including human rights abuses, public corruption in foreign countries, and, most recently, cyberattacks and cybertheft.

During the past few months, however, the Obama administration has announced its intention to employ sanctions to achieve a new, broader objective: to deter aggressive actions toward the United States and its interests. In the case of Russia, now former Treasury Department Undersecretary for Terrorism and Financial Intelligence David Cohen noted late last year that while “these sanctions are intended to impede dangerous behavior and, above all, to influence Russian decision-making  . . . we may never know what additional Russian aggression the sanctions, and the threat of additional sanctions, may have deterred.” This language is mirrored by the 2015 National Security Strategy, which states that “we are enforcing tough sanctions on Russia to impose costs and deter future aggression.” Although sanctions have been used for deterrence purposes in the past, the Obama administration’s rhetoric suggests that they will increasingly do so moving forward. 

United States sanctions against Iran negotiation

Iranian Foreign Minister Javad Zarif, U.S. Secretary of State John Kerry, and European Union High Representative Federica Mogherini arrive to deliver statements after nuclear talks at the Swiss Federal Institute of Technology in Lausanne (Ecole Polytechnique Federale De Lausanne) April 2, 2015.

Governments can use sanctions as a deterrent in two ways: first, they can try to deter aggressive states from engaging in additional belligerent behavior; and second, they can try to signal to other countries that they too will face economic penalties for similar actions.

Yet while the use of sanctions to achieve these objectives is on the rise, there is good reason to believe that for the purposes of deterrence, they may be ineffective at best and self-defeating at worst. Sanctions can inadvertently signal that Washington does not care enough about its supposed interests to use military force, which could embolden unruly states to double down on their actions. Effective deterrence requires that the United States be willing to impose costs that outweigh the gains of noncompliance. And its willingness to impose costs must be credible: if a government does not believe that the United States cares deeply about the interests at stake, deterrence is unlikely to succeed. When it comes to deterrence through sanctions, there is little incentive for belligerents to heed the United States’ warnings if they can afford the financial costs and if they assume that these are the only costs that the United States will impose.

The use of sanctions for deterrence objectives is on the rise, but there is good reason to believe that they may be ineffective at best, and self-defeating at worst.

Two recent episodes illustrate the problem. U.S. and EU sanctions on Russia failed to deter Russian President Vladimir Putin from continuing—if not accelerating—his support for Crimean separatists. In fact, U.S. and EU sanctions against Russian oligarchs in late March 2014 after Russia’s annexation of Crimea were followed by increased activity from Moscow in eastern Ukraine, including the provision of troops and arms to bolster rebel forces. Indeed, throughout the spring of 2014, as the United States and the EU increasingly targeted Putin’s inner circle with economic penalties, Russia’s support for separatists in eastern Ukraine increased. The same holds true for the sanctions against Russia following the shooting down of Malaysia Airlines MH17 by Russian-backed forces in eastern Ukraine. And even with additional U.S. and EU sanctions that September, Putin continued supporting rebel activities both during and after the Minsk I cease-fire.

If anything, sanctions might have goaded Putin into increasing his involvement in the Ukraine crisis. Financial punishment against Moscow and its oligarchs signaled the West’s unwillingness to intervene militarily in the conflict and a lack of consensus on the pursuit of bolder military action.

Sudan provides another example of how sanctions can fail as a deterrent. The United Nations, along with the United States, has imposed a series of sanctions against the Sudanese government to discourage Sudan’s human rights violations in Darfur. These sanctions failed to dissuade the regime from engaging in further aggression; rather, they signaled the international community’s irresolution on the issue and led the Sudanese government to flout regulations openly. In 2008, for instance, Sudan appointed Musa Hilal—one of two individuals targeted specifically by sanctions because of his alleged role in Darfur atrocities—as special adviser on human rights to President Omar al-Bashir. Not fearing further escalatory measures, the Sudanese government continued to ignore the sanctions, launched deliberate attacks on civilians and peacekeepers, and allowed designated individuals to travel and access their finances freely.

In Syria, human rights–related sanctions appear to be suffering a similar fate. The Syrian government continues to commit egregious human rights abuses, undeterred by the imposition of increasingly punitive sanctions by the United States, EU, and United Nations. Just this month, the EU voted to extend its sanctions on Syria by another year, citing the deteriorating human rights situation as a key motivation. This continued resort to sanctions in conjunction with the U.S. decision not to employ military force in 2013 may have signaled an unwillingness on the part of the United States and the international community to stand up more strongly to Bashar al-Assad regime and impose greater costs to achieve their objectives.

GETTING SANCTIONS RIGHT

U.S. sanctions

A man walks past a branch of Rosselkhozbank in Moscow, January 23, 2015. Russia may have to spend more than $40 billion this year to avert a banking crisis. 

Sanctions may not be a cure for all aggressive behavior, but they can be used as an effective deterrent under the right circumstances. First, particular types of sanctions can be a strong warning to countries that have already engaged in international aggression. When the United States and its European allies considered cutting off Russia’s financial system from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) as punishment for its activities in eastern Ukraine, Russian officials cried that the move would constitute an unacceptable escalation of tensions. SWIFT facilitates transmitting more than five billion bank-to-bank messages annually; severing Russia’s financial sector from these services would cause huge economic damage to the country. Though it is unclear whether Russia changed its behavior in eastern Ukraine because of this threat, public statements suggest that Russian officials certainly feared the move. And while policymakers should be reluctant to impose so-called SWIFT sanctions for other reasons, extremely powerful tools of economic statecraft can likely have a significant deterrent effect.

Second, imposing punitive sanctions on aggressive countries may help deter other states from emulating their activities by highlighting the negative consequences of bad behavior. This is almost certainly the hope of the Obama administration. Russia’s economy might be able to weather an economic storm for its Crimean land grab and support of eastern Ukrainian separatists, but smaller nations may not enjoy the same luxury. Countries with smaller currency reserves or ones that are integrated into Western financial markets would be harder hit by U.S. and EU financial sanctions. These countries, recognizing the impact of such sanctions on their economies, might be unwilling to take aggressive actions in the first place.  

The use of sanctions to deter states from aggressive actions is also more likely to yield success when it is one part of a broader coercive strategy. Employing sanctions alongside other coercive levers—such as limited military strikes or cyberattacks—can signal a state’s willingness to combat an action it deems impermissible. This tactic proved fruitful in Iraq throughout the 1990s when a combination of military force and economic sanctions against Saddam Hussein deterred him from restarting the nation’s chemical weapons program. Similarly, policymakers can consider the threat of more powerful economic punishments if initial sanctions fail, especially in cases where using military power is not feasible but high costs must still be levied against aggressive regimes.

When used in conjunction with other coercive tools, sanctions may effectively deter adversaries. But governments should not expect too much from these tools of economic statecraft, especially in cases where deterrence has failed and aggressive actions have already occurred. If policymakers use these tools in isolation without considering the signals they send, they may actually make it more difficult for the United States to achieve important foreign policy objectives. In these cases, weak sanctions may be worse than no sanctions at all.

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