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What are the reasons, process and consequences of an US sanction?


What are the reasons, process and consequences of an US sanction?

Vijaya Laxmi Tripura

Most of us are unaware of the reasons, process and consequences of sanctions imposed by the United States. We even wrongly think, United States needs endorsement from the United Nations for imposing sanctions on any country or individual. But, in fact, Washington does not require any endorsement from the UN for imposing sanctions.

According to the US Department of Treasury, United States sanctions human rights abusers and corrupt actors across the globe. On December 21, 2017 building on the Global Magnitsky Human Rights Accountability Act passed by Congress in 2016, President Donald Trump signed an Executive Order (Order) declaring a national emergency with respect to serious human rights abuse and corruption around the world and providing for the imposition of sanctions on actors engaged in these malign activities.  In an Annex to the Order, the President imposed sanctions on 13 serious human rights abusers and corrupt actors.

The Global Magnitsky Act is an expansion of the 2012 Magnitsky bill named for Russian whistleblower Sergei Magnitsky, an accountant who died in a Moscow prison in 2009 under mysterious circumstances after exposing a tax fraud scheme allegedly involving high-level Russian officials. Unlike the traditional country-by-country sanction programs implemented by the Treasury Department’s Office of Foreign Assets Control (OFAC), the Magnitsky Act authorizes the President and OFAC to impose visa bans and strict sanctions on individuals anywhere in the world who have committed human rights violations or severe acts of corruption.

Secretary of the Treasury Steven T. Mnuchin said in a statement, “Today, the United States is taking a strong stand against human rights abuse and corruption globally by shutting these bad actors out of the U.S. financial system.  Treasury is freezing their assets and publicly denouncing the egregious acts they’ve committed, sending a message that there is a steep price to pay for their misdeeds. At the direction of President Trump, Treasury and our inter-agency partners will continue to take decisive and impactful actions to hold accountable those who abuse human rights, perpetrate corruption, and undermine American ideals.”

Sanctions imposed by the United States government include:

No arms-related exports,

Controls over duel-use technologyexports,

Restrictions on economic assistance, and

Financial restrictions include:

  1. Requiring the United States to oppose loans by the World Bank and other international financial institutions,
  2. Diplomatic immunity waived to allow families of terrorist victims to file for civil damages in U.S. courts,
  3. Tax credits for companies and individuals denied for income earned in listed countries,
  4. Duty-free goods exemption suspended for imports from those countries,
  5. Authority to prohibit a U.S. citizen from engaging in financial transactions with the government on the list without a license from the U.S. government,
  6. Prohibition of S. Defense Department contracts above $100,000 with companies controlled by countries on the list.

The implementing agencies for imposing sanctions are:

  1. Bureau of Industry and Security,
  2. Directorate of Defense Trade Controls,
  3. Office of Foreign Assets Control,
  4. U.S. Customs and Border Protection,
  5. United States Department of Commerce (Export Administration Regulations, EAR),
  6. United States Department of Defense,
  7. United States Department of Energy(nuclear technology),
  8. United States Department of Homeland Security(border crossings),
  9. United States Department of Justice (DOJ),
  10. Bureau of Alcohol, Tobacco, Firearms, and Explosives,
  11. Federal Bureau of Investigation (FBI),
  12. United States Department of State(International Traffic in Arms Regulations, ITAR), and
  13. United States Department of the Treasury.

The US President is authorized to sign any order of sanctions on any country under the following laws:

Trading with the Enemy Act of 1917, Foreign Assistance Act of 1961, International Emergency Economic Powers Act of 1977, and Export Administration Act of 1979.

Several laws specifically prohibit trade with certain countries:

Cuban Assets Control Regulations of 1963, Cuban Democracy Act of 1992

Helms–Burton Act of 1996 (Cuba), Iran and Libya Sanctions Act of 1996,

Trade Sanctions Reform and Export Enhancement Act of 2000 (Cuba), Iran Freedom and Support Act of 2006, and Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010.

In addition to it, United States can impose sanctions on various individuals, who are considered as threats to peace and stability as well as undermining democratic processes or institutions.

There are also list-based sanctions related to countering terrorism, rough  diamond trade controls, counter  narcotics, nuclear proliferation  and  transnational criminal organizations.

Economic sanctions:

Economic sanctions are commercial and financial penalties applied by one or more countries against a targeted self-governing state, group, or individual. Economic sanctions may include various forms of trade barriers, tariffs, and restrictions on financial transactions [which would greatly affect the transactions of the country with any other nations, especially when the transactions are done in US dollars. An embargo is similar, but usually implies a more severe sanction. Economic sanctions generally aim to change the behavior of elites in the target country. However, the efficacy of sanctions is debatable and sanctions can have unintended consequences.  Economic sanctions are not necessarily imposed because of economic circumstances—they may also be imposed for a variety of political, military, and social issues. Economic sanctions can be used for achieving domestic and international purposes.

An embargo (from the Spanish embargo, meaning hindrance, obstruction, etc. in a general sense, a trading ban in trade terminology and literally “distraint” in juridic parlance) is the partial or complete prohibition of commerce and trade with a particular country/state or a group of countries. Embargoes are considered strong diplomatic measures imposed in an effort, by the imposing country, to elicit a given national-interest result from the country on which it is imposed. Embargoes are generally considered legal barriers to trade, not to be confused with blockades, which are often considered to be acts of war.

Embargoes can mean limiting or banning export or import, creating quotas for quantity, imposing special tolls, taxes, banning freight or transport vehicles, freezing or seizing freights, assets, bank accounts, limiting the transport of particular technologies or products (high-tech) for example CoCom during the cold-war.

In response to embargoes, an independent economy or autarky often develops in an area subjected to heavy embargo. Effectiveness of embargoes is thus in proportion to the extent and degree of international participation.

Embargo can be an opportunity to some countries to develop faster towards self-sufficiency. This has been true in the case of Myanmar, for example.

Economic sanctions are used as a tool of foreign policy by many governments. Economic sanctions are usually imposed by a larger country upon a smaller country for one of two reasons – either the latter is a threat to the security of the former nation or that country treats its citizens unfairly. They can be used as a coercive measure for achieving particular policy goals related to trade or for humanitarian violations. Economic sanctions are used as an alternative weapon instead of going to war to achieve desired outcomes.

Implications on businesses:

Companies must be aware of embargoes that apply to the intended export destination. Embargo check is difficult for both importers and exporters to follow. Before exporting or importing to other countries, firstly, they must be aware of embargoes. Subsequently, they need to make sure that they are not dealing with embargoed countries by checking those related regulations, and finally they probably need a license in order to ensure a smooth export or import business. Sometimes the situation becomes even more complicated with the changing of politics of a country. Embargoes keep changing. In the past, many companies relied on spreadsheets and manual process to keep track of compliance issues related to incoming and outgoing shipments, which takes risks of these days help companies to be fully compliant on such regulations even if they are changing on a regular basis. If an embargo situation exists, the software blocks the transaction for further processing.

Why can the US impose economic sanctions on other countries?

The U.S Dollar used as the main foreign reserve currency by most of the countries in the World, and as a major international trade currency (especially for oil, which is still needed by every country for its functioning and development) in the post-WW2 order, perpetuated after the end of the Cold-War.

We need to remember, U.S dollar amounts for more than 60 percent of the foreign currency reserves in the World. It is used for the oil & gas international trade and a wide part of the Global trade, the importance of the Euro being based mainly of the very important intra-European Union trade, which gives it a global weight on the share of Global Payment despite its regionality.

That gives the United States “exorbitant [monetary] privileges” (the term has been coined in France, and we also use that concept for the French administration rights against private agents like citizens or companies) to sanction countries whose State or private companies use the dollar in their transactions.

In such respect, United States is the only Sovereign State in the world that can unilaterally enforce a sanction beyond its own sovereign borders.

A sanction is a penalty levied on another country, or on individual citizens of another country. It is an instrument of foreign policy and economic pressure.

A key point here to consider is, a sanction imposed by the US can cause devastation to any country, which is mostly dependent on exports and foreign exchange earnings from abroad.

Editorial Team

Blitz’s Editorial Board is responsible for the stories published under this byline. This includes editorials, news stories, letters to the editor, and multimedia features on BLiTZ

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