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Transatlantic (Mis)alignment: Challenges to US-EU Sanctions Design and ImplementationTom Keatinge, Emil Dall, Aniseh Bassiri Tabrizi and Sarah Lain
Occasional Papers, 10 July 2017
Centre for Financial Crime and Security Studies, Iran's Nuclear Programme, RUSI International, United States, European Union, Proliferation and Nuclear Policy, Sanctions, Proliferation and Nuclear Policy, Europe
The international community increasingly uses sanctions to respond to threats to peace and security around the world. While the use of UN sanctions is well documented, US and European policymakers also pursue their own sanctions agendas. However, these are not always effectively coordinated, especially in terms of their purpose, design, implementation and their ultimate withdrawal.
This paper examines these aspects of sanctions. It argues that more focus should be given to the design and implementation of sanctions, which are crucial in determining their effectiveness and thus the foreign policy objectives they are meant to support. Despite recent coordination on sanctions against Russia and Iran, there is still a misalignment over how the US and the EU approaches sanctions. The different policymaking processes on both sides of the Atlantic impact the design, implementation and eventual lifting of sanctions regimes. This paper finds that the EU maintains a surgical approach to sanctions design and implementation, making those sanctions less adaptable and flexible over time. In contrast, the US approach to sanctions design and implementation is broader, allows for adaptation over time, but also results in more complex sanctions frameworks to implement and eventually lift.
The paper argues that these challenges will become more pronounced as the UK seeks to establish a sanctions policy framework separate from the EU. The UK has traditionally been a leading contributor to EU sanctions policy, and has typically been closer to the US in terms of their common outlook on sanctions. Brexit therefore not only has the potential to change UK unilateral sanctions policy, but also alter wider European approaches to sanctions and complicate transatlantic coordination.
Crucially, the paper argues that the private sector plays an important role in the implementation of sanctions. It finds that the private sector can interpret and implement sanctions requirements contrary to the desires of governments. The paper recommends the promotion of public–private partnerships to – for example – review and adjust recent sanctions initiatives to ensure they are effective in terms of policy outcomes, while minimising unintended consequences for the private sector.
The paper examines three areas of sanctions policy where the misalignment between public and private sector approaches, and between EU and US priorities, risks compromising the overall objectives, validity and credibility of sanctions and consequently the success of desired foreign policy outcomes. It is vital that these challenges are identified and addressed, and that more effective and constructive partnerships between the EU and the US, and between public and private sectors, are promoted to enhance and facilitate the design, implementation and eventual lifting of sanctions. The recommendations contained in this paper seek to work towards that effect.
- Licensing should be anticipated in the design phase of sanctions regimes. Where possible, exemptions should be included to limit the need for licensing in areas such as humanitarian action and the supply of medical equipment. Alternatively, lists of approved actors that have demonstrated adequate controls and due diligence could be pre-approved as ‘fast-track’ licence applicants and government-sponsored projects should include pre-approved licences for those contracted for delivery.
- Licences need to reflect the complexity of business transactions. Often a mix of public and private sector actors operate in different jurisdictional environments, and this needs to be reflected in licensing policies via greater transatlantic coordination.
- If there are mutual sanctions objectives between countries (within the EU, or between the EU and the US), there should be mutual recognition of licences issued by those countries involved, supported by necessary information sharing. At a minimum, a ‘fast-track’ application for licences in additional jurisdictions should be implemented.
- While policymakers normally need to design sanctions out of public view, the lack of dialogue that currently exists between the private and public sectors in this area on both sides of the Atlantic needs to be addressed by, for example, the creation of industry advisory groups, on a national or regional basis, set up to deal specifically with licensing (in addition to other areas of the sanctions design and implementation process). These advisory group dialogues should also exist at a transatlantic level to reach a more homogenous approach to sanctions design and implementation.
- Alongside broader and more regular and consistent engagement with the private sector, policymakers should convene licensing forums where those seeking to secure licences can present their challenges and recommendations so that policymakers can make systemic improvements.
- Recognising that the sanctions target will react and adapt, there should be more public–private engagement on identifying and understanding the ways in which sanctions are avoided, circumvented or evaded. This can then ensure that better guidance is issued by the public sector. In the US, greater use should be made of mechanisms such as the Office of Foreign Assets Control (OFAC) advisories and Section 314(a) of the USA PATRIOT Act to facilitate relevant information sharing with financial institutions and other entities exposed to sanctions evasion activity. In the EU, where such mechanisms do not exist, they should be developed as a priority to react to the circumvention and evasion tactics employed by the targets of EU sanctions and to ensure effective sanctions maintenance. The current inability to adapt nimbly to the reaction of those subject to sanctions means that the effectiveness, both politically and economically, of sanctions agreed by the EU decays rapidly in the face of adaptation and avoidance measures.
- During the design phase for new sanctions regimes, evasion and circumvention approaches should be considered. If confidentiality precludes involvement of the private sector at this stage, private sector actors should be encouraged to work together to review newly published sanctions announcements, which involves assessing the techniques by which designated entities may seek to evade and avoid new sanctions to assist governments with the fine-tuning and adaption that will be needed to maintain effectiveness.
- Evasion and circumvention are facilitated by a lack of state level sanctions coordination and harmonisation. Therefore, the close coordination in design and implementation of sanctions regimes is critical if differences are not to be exploited by those targeted. This must extend beyond transatlantic coordination to include other key financial and industrial jurisdictions.
Lifting of Sanctions
- The US and the EU should consider sanctions policy as a full spectrum approach from design and implementation to the eventual lifting of sanctions. Policymakers should consider the procedure by which sanctions are lifted as a key part of the design and implementation process, for which public–private partnership is critical to success.
- Governments should provide clear guidance on the precise nature of the sanctions relief being provided, leaving little area for ambiguity or misinterpretation, to increase risk appetite of private sector actors to re-engage with once-sanctioned economies. In support of this effort, governments on both sides of the Atlantic should engage with the private sector to understand the information- and confidence-building measures they require to take decisions in support of re-engagement, and to ensure that it takes place in accordance with policy objectives.
- In cases where US sanctions relief is provided through temporary presidential waivers to suspend rather than terminate sanctions, communication on those waivers should be improved. The continued demonstrated commitment to issue such waivers in the absence of a full lifting of sanctions can provide private sectors (especially in the EU) with the necessary confidence to re-engage on a longer-term basis.
- In cases where either the US or the EU continues to maintain sanctions that the other does not, private sector actors need further guidance. This is particularly true when it comes to financial institutions that maintain operations in the US and rely on the ability to process US dollar transactions through New York, and so feel more exposed to any remaining US sanctions. Financial institutions are often the precursor to other sectors re-engaging with formerly isolated economies, and their commitment to sanctions relief is therefore crucial to securing this process.