28th October 2021

US Treasury Review: Sanctions Process ‘Needs to Evolve’

The US government needs to “adapt and modernize” its approach to sanctions in order to increase its efficacy against emerging threats including cybercriminals, economic competitors, and the pressure placed on technical infrastructure due to growing financial complexity, according to a new review from the Department of the Treasury.

The months-long audit of sanctions policy notes that reduced use of the US dollar globally will also erode the effectiveness of sanctions, with adversaries using digital currencies to bypass US financial controls.

“Technological innovations such as digital currencies, alternative payment platforms, and new ways of hiding cross-border transactions all potentially reduce the efficacy of American sanctions,” the report says.

“These technologies offer malign actors opportunities to hold and transfer funds outside the traditional dollar-based financial system. They also empower our adversaries seeking to build new financial and payment systems intended to diminish the dollar’s global role.”

The focus on the threat of digital currencies coincides with an administration-wide effort to regulate emerging non-fiat assets such as stablecoins. Earlier this month, the US Office of Foreign Assets Control (OFAC) issued key compliance guidance for the virtual currency industry.

Growing complexity of sanctions

The US has become increasingly reliant on the use of sanctions over the past 20 years, with the number of sanctions imposed rising tenfold, from 912 in 2000 to 9,421 in 2021. The report shows this has been driven by a number of factors.

There has been a shift in the location of the governments, businesses, and individuals that have been sanctioned. More countries – including Venezuela, Russia, North Korea, and Syria – have joined Iran and Iraq as key strategic focus areas of US sanctions programs. But today 47% of sanctions are imposed on jurisdictions outside of these hotspots.

This has coincided with a growth in the number of circumstances under which sanctions are justified. The report notes that sanctions became “a tool of first resort” after the September 11 attacks to address national security, foreign policy, and economic threats to the US. It later lists a much wider set of justifications for sanctions aligned with the growing use of Magnitsky measures, including “countering forces that fuel regional conflict, ending support to a specific violent organization or other malign and/or illicit activities, stopping the persecution of a minority group, curtailing nuclear proliferation activities, enhancing multilateral pressure, or ceasing specific instances of atrocities.”

Next steps for US sanctions programs

The objective of the sanctions review was to “ensure that economic and financial sanctions remain an effective tool of US national security and foreign policy now and in the future”.

To this end, the report offers five key recommendations for modernizing the sanctions process:

  1. Adopting a structured policy framework that links sanctions to a clear policy objective.
  2. Greater multilateral coordination.
  3. Calibrating sanctions to mitigate unintended economic, political, and humanitarian impacts.
  4. Ensuring sanctions are easily understood, enforceable, and adaptable.
  5. Investing in modernizing Treasury’s sanctions technology, workforce, and infrastructure.

The report adds that to encourage compliance, the Treasury needs to expand its use of technology to provide critical information to domestic and foreign audiences affected by sanctions actions. This includes improving the Treasury’s public website to offer clearer guidance.

For compliance teams, the report highlights the scale and speed at which the federal government imposes, removes, and revises sanctions around the world. It also provides useful insight into where and how the US government is likely to impose sanctions in the months and years ahead.

To find out more about how sanctions programs operated by the US government have evolved this year, read our report.

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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