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When sanctions become weapons of mass disruption

A popular foreign policy tool can often have unintended consequences

Russian state energy firm Gazprom is leading work on the Nord Stream 2 pipeline, which is the target of a sanctions bill by Sens. Jeanne Shaheen and Ted Cruz. (Sean Gallup/Getty Images)
Russian state energy firm Gazprom is leading work on the Nord Stream 2 pipeline, which is the target of a sanctions bill by Sens. Jeanne Shaheen and Ted Cruz. (Sean Gallup/Getty Images)

These days, it seems lawmakers believe every foreign policy challenge can be resolved by imposing sanctions.

Worried that Russia will interfere in the 2020 presidential election? Concerned about the international community bringing Syria’s Bashar Assad in from the cold? Horrified by China’s mistreatment of its Uighur Muslim community? There are sanctions bills for all of them.

Sanctions policy on Capitol Hill is an increasingly creative and imaginative field as lawmakers and congressional staffers dream up more and more ways of flexing U.S. economic muscle to pressure foreign governments, companies and individuals into complying with U.S. demands.

The lure of sanctions is amplified because it is one of the few foreign policy areas in the current hyperpolarized climate in which there is bipartisan appetite for new efforts.

But independent experts are worried lawmakers may overplay that card with legislation that underestimates the potential harm to U.S. economic and diplomatic interests while overestimating the likelihood of success.

“Sanctions have always been an important foreign policy tool but it’s gotten to the point where it’s almost to the exclusion of other foreign policy tools like regular old diplomacy,” says Kerry Contini, a partner with the law firm Baker McKenzie. “It does feel like every day you’re hearing about new sanctions.”

Already in the 116th Congress, at least 67 measures that recommend, authorize or require new sanctions, or that revise existing sanctions, have been introduced.

The slew of legislative proposals offered against targets in Russia, Venezuela, China, North Korea and other countries could have long-term ramifications on the primacy of the U.S. dollar, the rivalry with China for global influence and the post-World War II alliance system.

Europeans are still chafing at the fallout for key industries from the blacklisting under a massive 2017 sanctions law of a major aluminum company owned by an ally of Russian President Vladimir Putin. And with more sanctions under consideration against new energy projects with Russia, Europeans are again worried about harm to their economies.

These developments come as public opinion polls in Germany, France and other major European allied countries have tracked a precipitous decline in U.S. standing.

“As the legislative body of the most powerful country in the world, we have a responsibility to ensure that sanctions are deployed effectively and efficiently,” Rep. Emanuel Cleaver II, a Missouri Democrat who leads the House Financial Services National Security Subcommittee, said at a May hearing on sanctions policy.

After the combined power of the U.S. and European Union sanctions forced Iran to agree to the 2015 nuclear deal, secondary sanctions, which essentially force foreign companies to choose between doing business with the United States or the sanctioned entity, became a more attractive policy tool for lawmakers.

Experts worry that overuse of secondary sanctions could backfire and motivate third parties, including ones as powerful as the Chinese government, to develop financial workarounds to skirt the U.S. financial system, which would reduce U.S. economic leverage.

“It is critically important that the United States maintain the ability to have sanctions as an effective tool,” former Treasury Secretary Jacob Lew said at a February event at the Atlantic Council, noting there were multiple times during the Obama administration when the option of using sanctions kept policy discussions from “a path toward ‘Do you or do you not use force?’”

Flashback: Pence condemns Maduro, announces new sanctions on Venezuelan regime

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Eye on Russia

At least four Russia sanctions bills are notable for their potential unpredictable consequences for U.S. diplomacy and the world economy.

One from Maryland Democratic Sen. Chris Van Hollen and Florida Republican Sen. Marco Rubio would establish a mechanism to impose automatic sanctions on significant chunks of the Russian economy, including on most of its largest banks, if the U.S. intelligence community determines Moscow has engaged in fresh election interference in the U.S.

Sens. Robert Menendez, a New Jersey Democrat, and Lindsey Graham, a South Carolina Republican, have a bill that would take a broader sanctions approach to combating a wider range of objectionable Russian behavior. Their legislation aims to punish Russia for past behavior as well as discourage future belligerent actions like cyberattacks, election interference and further attacks on Ukraine.

The legislation would freeze the assets of Russian oligarchs and family members associated with Putin. The measure would also sanction Russian banks involved in undermining the democratic institutions of other nations, and forbid investments in Russian gas projects outside of Russia and prohibit purchases of Russian sovereign debt.

A more narrowly targeted bill from New Hampshire Democratic Sen. Jeanne Shaheen and Texas Republican Sen. Ted Cruz is aimed at reducing Europe’s energy reliance on Russia. The bill would freeze the assets of any foreign individuals who facilitate the use of vessels for underwater construction of the Nord Stream 2 pipeline. Russian state energy firm Gazprom is leading work on the pipeline, which is cofinanced by European companies.

In the House, Financial Services Chairwoman Maxine Waters, a California Democrat, has a draft bill that would forbid new U.S. purchases of Russian sovereign debt, blacklist Russian banks determined to have engaged in previous U.S. election interference and sanction any major Russian energy development projects outside of Russian territory. To deter election interference, the House proposal has its own trigger mechanism for imposing automatic sanctions on Russia.

While there has been little rush by congressional leaders this year to schedule votes on any of these bills, if there is a major fresh outrage from Moscow, lawmakers are likely to feel they need to respond with the sanctions hammer, predicted Daniel Fried, the coordinator for sanctions policy at the State Department in the Obama administration.

“For any number of reasons, we could find ourselves in the place of immense pressure on the Congress to do something, at which point they will choose the legislative vehicle that seems the most likely to pass fast, and they could move it quickly,” he said at an April event of the Atlantic Council.

The private sector’s biggest concern, according to Contini, is uncertainty over what types of business activities could be sanctioned next by Congress, which makes it difficult to build long-term company compliance programs.

“One dramatic example is the sanctions against Russia that are quite complex,” she said. “Some companies … may look at this and think, ‘Do I really want to enter the Russian market?’”

By sanctioning more and more types of economic activities, Congress is increasing the cost of doing business with the American economy.

“The efficacy of this [sanctions] tool is on it not being used excessively, beyond what is reasonable. What is reasonable is what is up for debate,” said Farhad Alavi, a managing partner with Akrivis Law Group.

Leverage on human rights

Congress is missing an opportunity to effectively deploy the sanctions tool against foreign policy problems that are less intractable, according to Joshua White, a former senior official with the Treasury Department’s Office of Foreign Assets Control, where he led the sanctions division on human rights and corruption.

“There is an abundance of voices focused on Iran, Russia and North Korea, and rightly so, but let’s pay attention to areas where the United States has unique leverage,” said White, now with The Sentry, an organization focused on exposing corruption and war crimes in Africa.

With the 2016 passage of the Global Magnitsky sanctions law, Congress in theory turbocharged the ability of the U.S. government to selectively blacklist human rights abusers and corrupt actors abroad.

The Trump administration this year has pumped the brakes on new sanctions designations under the law, much to the frustration of human rights advocates like White.

“We see that the pace is slowing. Congress should be asking why, not just on Global Magnitsky,” he said.

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