International sanctions have been an effective foreign policy tool for the United States government since the 1950s when the Office of Foreign Assets Control (OFAC) imposed restrictions on Chinese and North Korean trade as a response to the Korean War. Since then economic sanctions have been deployed for a variety of reasons in service of the political and diplomatic objectives of each successive US administration. Accordingly, recent US sanctions trends have reflected the political identities and inclinations of the Trump and Biden presidencies.
As the United States’ sanctions evolve to reflect leadership goals, firms must work to understand and anticipate emergent trends in order to adjust their compliance response to the new regulatory environment.
Under the Trump administration, economic sanctions became a prominent part of US foreign policy and were deployed in far greater volume than they were under the previous Obama administration. During his term, which ran from 2016 to 2020, President Trump took over 3,900 independent sanctions actions, with a peak in 2018 that saw the reintroduction of numerous sanctions against Iran (after the US pulled out of the Obama-era nuclear deal). For comparison, none of Trump’s predecessors had ever exceeded 700 sanctions actions in a single year.
Despite the increase in sanctions actions against foreign targets, OFAC engaged in only 62 enforcement actions as a result of sanctions violations during the Trump presidency: 61 of those actions were against entities and 1 was against an individual. The figures represented a 20% decline in enforcement actions compared to the second term of the Obama administration. Similarly, the average size of the fines issued for sanction breaches declined under President Trump: figures suggest a decrease of around 15% when compared to President Obama’s entire two terms – although the Covid-19 crisis likely played a significant part in limiting the amount of breaches and enforcement actions.
While the proportion of sanctions issued to enforcement actions taken was perceived by some Trump critics as an over-use of designations and under-penalization of violations, the Trump administration was responsible for a number of substantive changes to the US sanctions regime. These include:
President Trump shifted the US’ sanctions focus away from Russia and Iran – both of which had been top priorities under the Obama administration. Under Trump, the US government refocused its sanctions priorities as a trifecta, targeting Iran, Venezuela, and North Korea.
Trump also utilized the US’ Magnitsky sanctions, which enable the designation of individuals and entities, rather than nations and governments in response to serious human rights abuses or violence towards journalists, opposition politicians, and ethnic minority groups. Under President Trump, Magnitsky sanctions were deployed against a number of Russian officials.
The Trump administration reinforced its sanctions regime with the increased application of secondary sanctions, which require non-US third parties operating outside US jurisdiction to demonstrate compliance with sanctions that are issued by the US. While previously a tool of last-resort, President Trump used secondary sanctions primarily against third-parties trading with Iran as a way of exerting economic pressure.
While previous administrations took a subtle, behind-the-scenes approach to lifting sanctions in return for targets adjusting or correcting their behavior, the Trump administration made a point of publicly signaling their conditions and requirements for relief. Former Secretary of State, Mike Pompeo, for example, set out 12 demands that Iran was required to meet in order for sanctions against the country to be lifted.
Although still in the early months of his administration, President Biden has indicated an intention to perform a broad review of the US sanctions regime.
The increased use of sanctions designations under the Trump administration has emphasized the importance of enforcement as a means of promoting wider compliance and, with that in mind, President Biden will likely realign the US’ approach. Former OFAC chief counsel, Charlie Steele, has suggested that President Biden will not dramatically roll back the designations introduced under the Trump administration but take a more considered approach to the implementation of new designations. That approach will involve increased coordination between different departments within the US government’s sanctions infrastructure, and increased consultation with the United States’ international partners such as the UK and the EU.
Similarly, a new emphasis on OFAC enforcement actions may see the Biden administration work with Congress on the introduction of a penalty structure that better reflects the nature of sanctions violations and that issues penalties determined by industry type. In seeking to address violations, OFAC may adapt its investigation strategy to better capture offending institutions that operate within the US and those that breach secondary sanctions outside US jurisdiction.
President Biden’s anticipated recalibration of the US’ approach may affect the US’ sanctions regime in the following ways:
President Biden’s China policy will likely focus on human rights abuses relating to China’s treatment of Uyghur Muslims and to the autonomy of Hong Kong. Similarly, while the Biden administration may seek to maintain the existing sanctions climate against Russia, it will likely continue to pursue Magnitsky sanctions against Russian individuals in response to human rights violations.
After President Trump’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA) on Iran and his imposition of fresh sanctions, it is likely that President Biden will adjust the US position and rejoin the international agreement. If the US rejoins the JCPOA, the Biden administration will need to consider sanctions relief for Iran and verify that it is in compliance with the terms of the agreement.
The Biden administration will likely continue the trend of lifting sanctions against Sudan as relationships between the two countries normalize further. While President Biden has not indicated any forthcoming change to the US’ sanctions program in Venezuela, he has indicated that he would ease restrictions that were introduced against Cuba by executive action during the Trump administration.
The Biden administration will maintain the US’ robust sanctions program against North Korea. The North Korean leadership has a history of taking provocative steps against new US presidents which may lead to a new round of sanctions actions against the country or attempts by President Biden to secure multilateral action with international partners.
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