In this article, you will learn the answer to ‘What are Sanctions?’, and we will discuss some key definitions and characteristics.
Essentially, economic sanctions are commercial and financial penalties applied by one or more countries against a targeted self-governing state, group, or individual. Economic sanctions are not necessarily imposed because of economic circumstances—they may also be imposed for a variety of political, military, and social issues. They can be used for achieving domestic and international purposes.
Sanctions can range from travel bans or export/import restrictions to asset seizures. These sanctions apply to organizations or firms not readily subject to law enforcement by the sanctioning jurisdiction. At times, sanctions can also be a blunt and ineffective policy tool, providing insufficient costs or drawback on the targeted governments.
Purpose of Sanctions
Economic sanctions aims to prevent escalation of or settle conflicts, to counter terrorism and human rights violations, and to prevent nuclear proliferation. To prevent such illicit activities, individuals or organizations must impose sanctions to targeted countries or individuals.
Activities that should end up with sanctions include:
- Money Laundering
- Terrorism or Terrorist Financing
- Drug Trafficking
- Human Rights Violations
- Arms Proliferation
- Violation of internal treaties
Is it effective?
Most of the time, sanctions are effective. The impacts that sanctions give on listed individuals or countries can be very severe. However, the general effectiveness of economic sanctions is uncertain because it is very difficult to measure what sanction should be imposed. A recent study about sanctions shows that economic sanctions result in meaningful behavioral change in the targeted individuals or countries about 40% of the time.
UN/EU implementing sanctions
In fact, multiple national governments and international bodies such as the United Nations and European Union have imposed economic sanctions to deter, punish, or shame countries or entities that endanger their interests or violate international norms of behavior. Sanctions have been used to advance a range of foreign policy goals, including counterterrorism, counter-narcotics, nonproliferation, democracy and human rights promotion, conflict resolution, and cybersecurity.
Varieties of sanctions
In practice, sanctions can take a variety of forms, including travel bans, asset freezes, arms embargoes, capital restraints, and foreign aid reductions. In addition, economic sanctions may also include various forms of trade barriers, tariffs, and restrictions on financial transactions. An embargo is similar but usually implies a more severe sanction, often with a direct no-fly zone or naval blockade.
Economic sanctions can be forced independently by a single country or multilaterally by international organizations. Sanction measures include:
- Trade sanctions – include import controls for specific countries, regions or industries.
- Travel restrictions – Officials, private citizens and immediate family members may be denied travel access due to sanctioning jurisdictions.
- Export controls – bar the supply of certain products, services and intellectual properties to targeted countries or governments. Most restrictions include the sales of weapons and technology with military purposes.
- Asset seizures – assets can be seized or frozen within sanctioning jurisdiction, this prevent sales or withdrawal.
- Embargoes – a broad ban on trading with a country, although it can sometime include exceptions for the supply of food and medicine.
- Capital controls – restriction of investments in targeted countries and industries, or broadly block access to international capital markets for country’s issuers.
Sanctions as response to crises
Sanctions, while a form of intervention, are generally viewed as a lower-cost, lower-risk course of action between diplomacy and war. Policymakers may consider sanctions as a response to foreign crises in which the national interest is less than vital or where military action is not feasible. Leaders have, on occasion, issued sanctions while they evaluated more punitive action.
For example, the UN Security Council imposed comprehensive sanctions against Iraq just four days after Saddam Hussein’s invasion of Kuwait in August 1990. The Security Council did not authorize the use of military force until months later. Since 9/11, there has been a pronounced shift toward targeted or so-called smart sanctions, which aim to minimize the suffering of innocent civilians.
The level of success that sanctions provide can be measured by the achievement of the desired policy goal, or simply the cost to the targeted parties, countries or individuals. If the main goal is to change the behavior of targeted individuals or countries, their incentives and options will mostly matter at least as much as the sanctioning power’s leverage.
The United States of America and the European Union pressed sanctions to Russian officials, industries and companies that follow Russia’s annexation of Crimea in 2014 and again in 2022 when a full-scale invasion of Ukraine was launched.
Export ban of dual-used goods items with both civilian and military purposes has also been imposed by the United Kingdom, United States of America and the European Union against Russia.
The United States of America, European Union and the United Kingdom have together sanctioned over one thousand Russian individuals and businesses, mostly including wealthy business leaders most commonly known as oligarchs, who are considered close to the Kremlin. One of the high profile oligarchs sanctioned by the United Kingdom is FC owner Roman Abramovich.
The assets that belong to both the Russian president Vladimir Putin and his foreign minister Sergei Lavrov are being frozen in the United Kingdom, European Union, United States of America and Canada. But the vast majority of the Russian oligarchs have put their properties and wealth under different names, which means they may be beyond the reach of the United Kingdom’s sanctions.
Another example is when the United States of America imposed restriction of imports from China ‘s Xinjiang region for human rights abuses committed against Uighurs.
Basically, sanctions are commercial and financial penalties applied by one or more countries against a targeted self-governing state, group, organization or individual. This article answers the question, ‘What are Sanctions?’ and how these are relevant to CDD and KYC procedures.