Its rare that anyone can define the term “sanctions.” Its often seen as any attack on a nation (usually by the USA) short of military violence. Normally, its a vague reference to some federally mandated restraint of trade against a foreign government. This is as pithy as it gets. Sanctions, however, are a complex matter of law. Reading the actual law in this field, along with the guidelines for enforcement, will surprise almost everyone. It suggests they might not be enforceable at all.
The average citizen, ignorant on political economy, thinks that sanctions mean that the US is using its economic might to ban trade with a country, thereby strangling it. Now, apart from the extreme ethical problems with such a policy if it existed, such a thing can never become actual law. American law is based around private property and the Fourth and Fifth Amendments to the Constitution prohibit attacks on private property without a specific court order, and that for very good reason.
Normally, the term is used when the US cannot effectively defeat an enemy, so it tries to target its economy and, thereby, its own corporations doing business there. This last clause is the problem. Sanctions law and its executive-level instructions are problems because the list of exceptions and loopholes makes it more rhetorical than real. The problem is that the corporations that are supposed to benefit from sanctions can, over time, realize that its costing them money as competitors move in to take their place. American billionaires will not be told where or how they can make money by the very government they’ve paid for! Are they enforced? How often do you hear of an American firm being dragged into court for violating international sanctions?
Sanctions must be enforced and, of course, a court case is necessary. The problem with these cases is the risk that all the corruption of the government’s agenda might be laid bare. All documents behind these sanctions then might end up in the public domain, proving how powerful international conglomerates are over policy in black and white. What are the punishments for violating sanctions? Under the International Emergency Economic Powers Act, the punishment civilly is maxed out at $250,000 and criminally, the convict “shall, upon conviction, be fined not more than $1,000,000, or if a natural person, may be imprisoned for not more than 20 years, or both.”
Still, when was the last time you heard of an American firm having to pay such a fine? On the Treasury Department’s list of “evaders,” dated February of 2019, there’s not a single American firm listed. Companies can and do have these cases in court for decades and the government has to turn over all its documents. Much of this isn’t in anyone’s interest, so they remain dead letters.
In brief, the state cannot tell anyone who they can or can’t do business with except under very specific circumstances laid out in depth. The President can’t merely forbid entire countries, including his own, from trading anywhere since this is all private property. Sanctions must set out a reason, the nature of the trade itself described in detail and the affected objects connected with the stated purpose of the sanctions. Each object affected by the law has to be closely connected with the purpose of the sanctions. Since corporate America is legally more powerful than the Justice or Treasury Departments, companies usually can evade these without fear, though compliance costs might be absorbed as insurance.
The text of the Iraq-Libya Sanctions Act (PL 104-172, which includes Iran) states that the president can waive sanctions at will on a case by case basis. Therefore, selective enforcement is inherent to the law. It targets specific products in detail and it must be proven how these “directly and significantly contributed to the enhancement of Iran’s ability to develop petroleum resources,” among a few other things. The affected areas must be spelled out: usually a nuclear industry, oil or the military, all state owned. The law must also provide the names of persons and institutions that are affected by these laws and for how long, especially if they’re private actors.
Sanctions are grandfathered, so if a firm is already doing business there, they don’t have to clear out. Since almost all the affected firms are already there, sanctions are symbolic for this reason alone. It affects only new companies. If the products are important to American security, the law is waived. If the country has a resource that the US needs at a good price (such as oil, gold in South Africa or lithium in Venezuela), then the sanctions are automatically waived.
Given that there has to be a reason for sanctions, the laws all have to explain what happens if the affected state removes these reasons. If the target government has made “strides” to accommodate American demands, the sanctions must also be lifted, at least in part, but what does that mean? And isn’t this a giant loophole that makes enforcement impossible? The Hong-Kong sanctions are a humorous case in point. These hastily written laws are prefaced on the extradition law that’s been repealed due to the protests, so, while the law still exists, it has no legal force at any level. This doesn’t keep the US from claiming that sanctions are “in place” against China over “Hong Kong,” or something equally vague.
Anyone with even a TV-level understanding of the law can see colossal loopholes. This all means that the technicalities are such that the laws are meaningless. While a case is in court, the activity can continue with some exceptions. If it has to be suspended, then other companies move in from elsewhere, and the US has to compensate the owners. Divestment requires compensation at any level. What, will American conglomerates just move out, swallowing the lost profits without compensation? The lobbying power of these conglomerates means that sanctions are little more than rhetoric.
When the Executive Branch protocols are considered, a new layer of interpretation is added. For the Iran law, the Treasury Department states in its explanation:
In general, a person may not export from the U.S. any goods, technology or services, if that person knows or has reason to know such items are intended specifically for supply, transshipment or re-exportation to Iran. Further, such exportation is prohibited if the exporter knows or has reason to know the U.S. items are intended specifically for use in the production of, for commingling with, or for incorporation into goods, technology or services to be directly or indirectly supplied, transshipped or reexported exclusively or predominately to Iran or the Government of Iran.
This isn’t true. Its a scare tactic. The federal bureaucracy isn’t bound to tell the truth in these areas any more than a policeman in an investigation. The law in question is very specific and there can be no blanket ban on trade. Even with an executive order “banning all trade” with Iran, trade amounted to almost $100 million in 2019. This isn’t all that different from previous years. The US gets no oil from the Islamic Republic.
The law only refers to the government, since the Treasury Department notes: “These prohibitions apply to transactions by United States persons in locations outside the United States with respect to goods or services which are of Iranian origin or are owned or controlled by the Government of Iran” and the list of prohibited groups and persons are provided. Private sector elites mentioned are connected with the state. It does not apply to private sector actors without such connections except under very strict circumstances.
As of today, there are almost 150 American companies invested in Iran not affected by sanctions such as Cooperative Resources International, Bausch and Lomb, Boeing, Overseas Council International, Ohio Medical Corporation, Barclay’s Bank, Bunge, Global Markets, Microsoft Mobile, Intelsat Corporation, Standard Charter Bank and many others. Therefore, the sanctions don’t apply to “all” trade, only specific types that benefit the state and only new companies moving into the market. Thus, sanctions make market entry almost impossible, or at least, no new firm in a market is willing to test the enforcability of the law in a place that can be engulfed in war at any moment.
Even if trade might somehow benefit the nuclear industry, it still only affects certain areas, since so many items can be used in more than one industry. Sanctions can only apply to the private sector if that itself is connected to the state. Those affected have to be named. Therefore, there’s a list of banks and corporations in the Iran law. If its not on the list, then trade is permitted. All of this, along with other complexities, render sanctions a purely symbolic policy coming from weakness, not power.
Prof. Gary Hufbauer, well known in this field, states:
All the economic sanctions in the last four decades or five decades have had less than a two percent impact on the GDP of the target country. Two percent is not a very big figure. Now there are exceptions: the sanctions against Iraq prior to the Gulf Wars had a much bigger impact, probably (about) 15 percent. The sanctions against Iran probably have an impact prior to the JCPOA [the Iran nuclear deal] about five percent. So that’s the range of impact.
Now in terms of the political effect of sanctions, that depends a lot on the nature of the target country. If the target country is small or even mid-size, and has a fair amount of conflict within the country or political turmoil within the country, then, in those circumstances, the sanctions have often produced regime change and the existing government has been tossed out in coup or maybe even by elections or whatever. And the new government has come in.
How much of Iran’s nuclear or petroleum equipment comes from the US in the first place? Even if these laws were real, the US is an extremely minor trading partner for Iran. Latin America might be an exception only because they’re so dependent on the US and their economies are totally dollarized. Ecuador actually uses the US dollar. Even there, the law contains endless loopholes and exceptions.
The most famous American sanctions in history were against the Cuban Communists. These have been lifted under Obama but reimposed under Trump. Writing in USA Today in 2014, Alan Gomez states:
While the US touts the embargo as a way to starve the Castro government of funding it needs to survive, and the international community routinely criticizes America for it, US companies exported more than $350 million in goods to the island last year. Four years ago, it was more than $700 million. In past years, the US has been the main food supplier to Cuba. US companies send medicine, medical devices and agricultural products.
$700 million in goods? It might surprise the reader that the US has been regularly trading with Cuba under “sanctions” long before they were lifted. This is because the sanctions were written for maximum public effect, but vague enough to admit many exceptions. This is the archetype for sanctions laws. They’re great PR but don’t affect America’s investments there. In other words, Cuban “sanctions” seem to have a fairly minimal affect on American trade, but it made the presidency seem “tough.” As the years wore on, the list of exceptions and waivers grew. The embargo has been permitted to slowly fade away. When Obama lifted these sanctions, that too was a symbolic act and affected almost nothing.
If the target country is powerful with a very strong leader, sanctions are meaningless. This adds yet another layer of complexity. If anything, they’re gifts to the target country (if they’re enforced) since it compels them to build those affected sectors domestically. A nation with a popular government, such as Iran, won’t be affected by sanctions anyway, regardless of severity.
The Treasury Department has admitted how easy it is for capitalists to evade sanctions. In an advisory on Iran, they write:
As the international community [sic] has increasingly barred or restricted Iranian financial institutions from accessing the international financial system, Iran is relying more heavily on third-country exchange houses and trading companies to move funds. The Office of Foreign Assets Control (OFAC) is issuing this Advisory to highlight some of the practices used to circumvent U.S. and international economic sanctions concerning Iran. The practices involve the use of third-country exchange houses or trading companies that are acting as money transmitters to process funds transfers through the United States in support of business with Iran that is not exempt or otherwise authorized by OFAC.
Since the law has to spell out the specific means whereby the sanctions can be transgressed, these can’t be called “evasions.” There’s nothing illegal about it. This “advisory” is also a scare tactic and isn’t part of the legislation itself. The intended message is to give the impression that it’s risky to trade with Iran at all, so its best to avoid it. Many of those cited with infractions are foreigners that have some money in the US. With Iran, Turkish nationals have been arrested in this regard precisely at a time when the Turkish state has fallen out of NATO favor.
After the case against the Turkish bank began, and a conviction achieved, the Turkish government was hardly idle:
Although a Manhattan jury in 2018 convicted Halkbank’s deputy general manager, Mehmet Hakan Atilla, on charges of bank fraud, conspiracy to commit money laundering, and sanctions-evasion, the bank itself avoided indictment until late 2019. Erdogan and other Turkish officials have vehemently denounced the charges against both Zarrab and Atilla, likening the case to an international coup plot. The Turkish president has since rewarded leading culprits in the sanctions-evasion scheme with prestigious appointments. This included naming Atilla as CEO of the Istanbul stock exchange following his return to Turkey after serving a reduced 28-month jail sentence in the United States.
The Turkish state has compensated the firm for its penalties in the US, adding another layer of complexity to this already complex scheme. Of course, that the head of this bank in the US pleaded guilty to evading sanctions hardly helped his cause. Still, the penalties were as much for bribery as anything else. It turns out that Reza Zarrab was let out of jail the minute he confessed to bribery and then began “cooperating with American authorities” to implicate those higher up in the Turkish government. He quickly explained to the jury about how he assisted Mehmet Hakan Atilla, the main defendant, evade sanctions.
The author of the New York Times piece on the matter strongly suggests that the testimony wasn’t genuine:
Mr. Zarrab, 34, usually has a thick black beard but had shaved it for the trial. During the questioning, he appeared calm. He looked directly at the prosecutor, answering his questions through an interpreter in a polite tone and with an earnest manner. He became more animated when describing the methods he had used to get around the sanctions, gesturing and blinking rapidly as he explained how he had transferred gold and money.
When Mr. Kamaraju asked him to step down from the witness stand and draw diagrams on white poster board to show how his scheme worked, Mr. Zarrab almost resembled a business-school lecturer, sketching lines and boxes with colored markers and explaining as he went (emphasis mine).
First, “blinking rapidly” is a common body language tell for lying. Its included in this description to provide that sense. Second, those involved in such schemes rarely know how deep it goes. Claiming that he “resembled a business-school lecturer” implies that he’s being fed a line against the defendant by the US government. The point of this is to show that evading sanctions has more to do with getting someone in prison, springing them with a promise to talk, and then to provide all the details on the problematic behavior. Because Turkey certainly won’t provide records, this would be the only other way to get it. In other words, its far too convenient. Add to this that Turkey has angered the US with their purchase of Russian and Chinese military equipment, the chances that this is a phony case increases tremendously.
When negotiating the sanctions on gold trading with Iran (which only benefits American capitalists), many of the Central Asian states, allied with Iran, were left out of the enforcement mechanism. Therefore, Iran used these to compensate for sanctions, but this is hardly a “loophole,” only a part of the international system that mostly rejects these methods. The WTO rejects sanctions as a form of economic coercion. The (2013) “Iran’s Golden Loophole” article by Gary Clark, Rachel Ziemba and Mark Dubowitz, explains the rationale:
If Iran is able to maintain or even increase its gold reserves, this could significantly boost its access to hard currency and buttress its ability to control inflation, diminishing the impact of other financial and energy sanctions designed to halt its nuclear program. Should gold exports to Iran remain at the Q1 pace (i.e., assuming that supply-chain and purchasing agreements have adjusted to the current sanctions regime), gold could provide Iran with $5.3 billion in revenue in 2013 (at the current gold price of $1,450 per troy oz), representing 8% of Iran’s total projected 2013 energy revenue of $64 billion (if energy exports decline, then gold could constitute an even larger proportion of revenue).
Iran’s macroeconomic stability might affect her nuclear program indirectly, but that’s not the target. It’s an indirect link that proves the financial self-interest behind these policies. “Continuum Economics,” the institute putting out this paper, is a neoliberal organization with a cliche understanding of global political economy. They’re connected with the elite “Defense of Democracies” NGO, which itself is merely a corporate front group connecting the concept of liberal democracy with the self-interest of massive MNCs. The federal apparatus, NGOs, academia and corporate agents are becoming the same group of people and they tell each other what they want to hear.
“Continuum Economics” seem to take directly from elite media sources available to all and repackage this as “research” and put in vaguely academic terms. This is not what corporations pay for when they hire economic research companies, but more often than not, they just tell the billionaires whatever keeps the contract alive. So many of the papers corporations pay for to advise them on these issues are awful, cliche-ridden and pseudo-academic papers that say little that can’t be discerned from the Wall Street Journal.
This is essential to the point because sanctions are just a means to break a strong competitor. They’re meant to scare capital away. Its about international economics. As always, the state in liberal democracy is the “security guard” for the corporate elite seeking to gain a resource or a market that’s out of reach. The stated purpose in the American law has no relation to the research this company is using to advise corporations in this area. This is the problem: while the law has one agenda on paper, its true purpose, in the private sector, is quite another.
They even go so far as to say “India and China are also using gold to pay Iran for energy: India, for example, is said to be paying for Iranian oil in broken or scrap gold, which is then melted down in Iraqi Kurdistan and transported to Dubai, before making its way to Iran.” Again, this information is available to anyone. More importantly, the sanctions law on Iran has nothing to do with gold trading. They begin with the assumption that “sanctions” means a blanket trade ban, and then claim that any trade of any kind is an “evasion” or a “loophole.” Its neither. The Central Asian states will not tolerate any ban on this lucrative market anyway. Its poor research based on well known indicators anyone can find on Google and is so incompetently written that they make an unwarranted assumption that then drives the rest of the work. The problem is that the “well known” indicators are hopelessly biased and ideologically slanted.
It might also be noted that the PL 112–239—JAN. 2, 2013, or one of the Iranian Sanctions laws, was a part of the National Defense Authorization Act for Fiscal Year 2013, and as such, was never actually debated. It was likely that only a tiny handful of specialists knew it was even there.
In 2019, according to the State Department, famed scientist and entrepreneur Virgil Griffith traveled to North Korea to present at the “Pyongyang Blockchain and Cryptocurrency Conference,” despite the U.S. Department of State allegedly denying him permission to travel there. The problem is that the US cannot tell a citizen where they can go and certainly cannot single a specific citizen out except under extraordinary circumstances.
The Americans allege that at the conference, Griffith and other attendees “discussed how the DPRK [North Korea] could use blockchain and cryptocurrency technology to launder money and evade sanctions.” Of course, he said nothing of the kind, but the assumption is that it might be used that way. That’s not enough for a conviction. The Justice Department has to prove that the currency technology was being used in a very specific and direct way to further the DPRK’s nuclear program or some other explicitly proscribed sector and that this was Griffith’s intent. A clear trace of this technology or money has to be drawn from him, the technology, the Koreans and the affected sector. This is a very difficult process without access to Korean records. His prosecution is also symbolic.
While he was arrested on Thanksgiving in 2019, all he discussed was the use of some open sourced software that anyone can get. So far, he’s been indicted and will stand trial in the US. The outcome of this case will prove the point of this paper, unless, of course, corrupt tactics are used to get rid of him. He hasn’t tweeted since the conference, whose website is blocked by most ISPs. Presently, he’s released on bail and lives in Alabama awaiting the conclusion of the case. As this writer predicted, there is an “unnamed co-conspirator to be named later.” This is significant because there cannot be only one defendant. The second defendant will be encouraged to cut a deal with Washington and thus testify against Griffith.
After the conference, Griffith “began formulating plans to facilitate the exchange of cryptocurrency between the DPRK and South Korea, despite knowing that assisting with such an exchange would violate sanctions against the DPRK.” This is nonsense. There are no blanket “sanctions.” Like in Iran and elsewhere, there are specific laws targeting very specific aspects of the DPRK’s life. “Evading sanctions,” in itself, isn’t an actionable charge. That a method or technique might be used to build the Korean economy in the future has no relation to the law passed against the DPRK. The law is comprehensive, but all the designations are spelled out, and none fit the technology to transmit cryptocurrency.
Chances are, even the arrest warrant is legally invalid. “§9214. Designation of Persons” lays out precisely what’s forbidden to be traded with North Korea. Sections 6 and 7 state what comes the closest:
(6) knowingly, directly or indirectly, engages in money laundering, the counterfeiting of goods or currency, bulk cash smuggling, or narcotics trafficking that supports the Government of North Korea or any senior official or person acting for or on behalf of that Government;
(7) knowingly engages in significant activities undermining cybersecurity through the use of computer networks or systems against foreign persons, governments, or other entities on behalf of the Government of North Korea.
Open sourced methods of working with cryptocurrency don’t fall under any of this. His arrest was just to scare companies off. Section 9221(a) makes it clear too that one has to debit or credit an account in North Korea to fall under the law. Since all accounts would have to be in a state-owned bank, they can reasonably make the claim that this directly affects the DPRK government, but even this is shaky. The fact that the ROK is also involved suggest that this too is a scare tactic.
It might be noted that the Executive Order states,
to have sold, supplied, transferred, or purchased, directly or indirectly, to or from North Korea or any person acting for or on behalf of the Government of North Korea or the Workers’ Party of Korea, metal, graphite, coal, or software, where any revenue or goods received may benefit the Government of North Korea or the Workers’ Party of Korea, including North Korea’s nuclear or ballistic missile programs; (Sec 2(2)).
Now, the present law, the “North Korea Sanctions and Policy Enhancement,” states,
. . . software, for use by or in industrial processes directly related to weapons of mass destruction and delivery systems for such weapons, other proliferation activities, the Korean Workers’ Party, armed forces, internal security, or intelligence activities, or the operation and maintenance of political prison camps or forced labor camps, including outside of North Korea;
These are two very different things. The first one, which is from Obama’s EO, is a blanket ban. On the other hand, the law mentions a ban only in relation to weaponry or labor camps. The law would supersede an EO.
In Section 3 of Obama’s EO, it says: “Sec. 3. (a) The following are prohibited: (i) the exportation or reexportation, direct or indirect, from the United States, or by a United States person, wherever located, of any goods, services, or technology to North Korea.” No such language can be found in the existing law. Given that this is a blanket understanding, it won’t hold up in court. Even in Section 2914(b)1(I) where it says one prohibited act is to “knowingly, directly or indirectly, engaged in, facilitated, or was responsible for the online commercial activities of the Government of North Korea, including online gambling” still only refers to that which “knowingly” went to finance their nuclear program.
The New York Times in 2019 made this remarkably stupid statement: “Last year, Washington amended its sanctions to prohibit “a US person, wherever located” from giving technology to North Korea.” This is typical of American journalism. “Technology” isn’t a term one can use in law because its so vague, and the sentence uses only a piece of a quote. The object proscribed has to be a specific form of technology covered by the various acts passed against the country. If it doesn’t immediately and directly benefit the army or nuclear program, the case is over. Its unprovable regardless because no records from the DPRK are available to prove where or how the technology is being used. Since the DPRK certainly won’t turn anything over to the US, a case against Griffith is impossible.
In Busted Sanctions: Explaining Why Economic Sanctions Fail by Bryan R. Early (Stanford University Press, 2015), the complexity of the legal language is partly at fault for the failure of most sanctions programs. Countries under sanctions reach out to others and build alliances. They are often able to increase foreign aid from others to compensate. This is another reason why sanction fail and in fact, often assist the targeted country. The point is that, when imposing sanctions, the US has to worry about other countries and their response. In real world terms, sanctions on Venezuela or Iran empower China and Russia to fill the vacuum and take up the slack and totally negates the impact of the sanctions.
Early also notes that its American allies, not just opponents, that undercut American sanctions. Relative to the argument here, all this does is add yet another level of legal complexity. Trading with a “sanctions buster” requires yet another law to forbid this. The Trump administration did this relative to Venezuela, threatening any country that trades with Venezuela, though enforcing sanctions against France or Turkey isn’t easy.
Back in 2003, Michael Scherer wrote an article in Mother Jones called “Sidestepping Sanctions.” It was largely ignored on both sides of the aisle, but it shows the absurdity and purely symbolic nature of a “sanction.” Big firms will just set up an offshore subsidiary using foreign labor. Without any Americans to worry about, they need not follow American law. “Hewlett-Packard, Kodak, and Procter & Gamble — ship their products to Dubai, where third parties are known to “re-export” goods to Iran.”
General Electric is providing four hydroelectric generators to expand a dam on the Kurun River through a Canadian subsidiary called GE Hydro and is also supplying pipeline compressors and gas turbines for Iran’s burgeoning oil sector through an Italian unit called Nuovo Pignone. Not far from the Iraqi border, a subsidiary of Halliburton is helping to build a $228 million fertilizer plant, one of the world’s largest. Another Halliburton division based in Sweden is providing the Iranian National Oil Co. with a $226 million semi-submersible drilling rig, while other subsidiaries operate in Libya. A British subsidiary of Conoco-Phillips helped Iran survey its Azadegan oil field, and Exxon-Mobil only recently sold its Sudanese gas subsidiary based in Khartoum.
The federal government will not successfully outmaneuver billionaires who dominate the market in strategic areas. GE and Halliburton supply DC with much of its weaponry and electronics. Yet, these are some of the firms that actually write the sanctions law and they’ll enforce it as they please. In the “Iran Threat Reduction and Syria Human Rights Act of 2012,” we read the following, concerning the banning of any investment with an Iranian state oil firm in a project outside Iran if
Iran could, through a direct operational role in the joint venture or by other means, receive technological knowledge or equipment not previously available to Iran that could directly and significantly contribute to the enhancement of Iran’s ability to develop petroleum resources in Iran (Title II, Sec 201.5(b)II).
The Reagan administration talked third party subsidiaries of Conoco and Marathon out of their Libyan investments 40 years ago. Clinton did the same in 1995 with Conoco in Iran. There, a Dutch firm, largely a creation of the oil giant, did much of the business so to keep Conoco’s name out of the transactions. The US was helpless, so some corrupt deal was made to compensate the company. Yet, this isn’t how sanctions are meant to work. Other than this, Washington will not fight the very companies that staff its offices, donate to their campaigns and forward its cash. These corporations are more powerful than the state, so its obvious that the law won’t apply to them. They are the law.
The Bush administration has used its power behind the scenes to make it easier for American companies to do business with the very countries it has targeted in the war on terrorism. As CEO of Halliburton, Dick Cheney lobbied to lift U.S. sanctions against Iran and Libya, saying they hurt business and failed to stop terrorism. As vice president, Cheney has initiated a “comprehensive review of sanctions” as part of the National Energy Review, suggesting that sanctions against oil-producing nations should be relaxed to improve “energy security.” Last year the administration supported a bill that would have weakened trade restrictions on high-speed computers and other technology that can be used to develop nuclear weapons, and the Securities and Exchange Commission has delayed issuing rules that would require foreign companies to disclose their business deals in sanctioned countries.
This proves the point. Sanctions are purely symbolic acts rarely containing the teeth to actually matter. These sanctions are designed to eliminate competitors to the US both economically and ideologically. They also exist to support Israel regardless of consequences. However, in specific instances, when it doesn’t serve their interests, they’re ignored. At this level of power, “law” is fluid.
Sanctions are largely an impotent empire lashing out with rhetoric rather than reality. Sanctions imply that the US economic juggernaut is so powerful that its the worst of evils to be cut off from it. Yet, the globe’s economies are looking to Russia and China (the SCO or BRICS) precisely because of the instability and unpredictability of the US financial regime. Crowing about “sanctions” is proof of weakness, not hegemony. The US hardly has the capacity to project power in a world that hates it and, thanks to Putin in Moscow, now has the ideological and financial clout to ignore it.
Industry has been lobbying to further weaken these laws. They argue today that sanctions against America’s purported enemies vitiate the ability of capital to take over and force reform “from the inside.” Still, its not much of a threat: “When sanctions are proposed unilaterally, they almost never work — and they end up shooting our guys in the foot,” says William Reinsch of the National Foreign Trade Council, which spent $280,000 lobbying against sanctions.
Corporations have the power to ignore these laws that are both extremely vague and comically specific. Sanctions enjoy broad, bipartisan support because it makes good press and seems to be immediately cost-less. Most of the countries involved have minimal trading with the US anyway, Latin America excepted.
In April, Congressman Henry Waxman (D-CA) demanded that the Pentagon to investigate Halliburton’s business dealings with Iran and Libya. Most of their cash come from defense contracts and its tightly connected to the federal government. This again, is hot air, since the Pentagon cannot even be audited. He said “I think many people will be surprised to learn that a company receiving millions of taxpayer dollars to support the war on terrorism has had business deals with some of the leading state sponsors of terrorism. Congress should determine whether companies are complying with the spirit and the letter of U.S. Law.” Apparently, sanctions aren’t taken seriously even by the defense industry and the government isn’t powerful enough to say otherwise. That he differentiates between the spirit and the letter of the law again, strongly argue for the point this essay makes.
Numerous state-level laws in places like New York and Arizona have been introduced that require massive corporations to disclose any investments in countries deemed to be enemies of the US. This implies that state governments can have any power over these corporations that hold the economy in the palm of their hands. Activists helping to manage the pension fund for public employees for New York City recently demanded that the owners of General Electric, Halliburton, and Conocophillips disclose such contracts with them. Again, the resolution says such things “violate the spirit of the law.” Its odd how, yet again, its the “spirit” that’s violated not the “letter.”
Halliburton and Conocophillips are invested in specific parts of the Iranian economy and have been there for a long time. They’ve made some gestures of accommodation, but these are largely a matter of PR. Since globalization serves the interests of these firms, the interaction of huge corporations means that some of its operations will be in inconvenient countries. There’s nothing no single country can do about it. All of this is symbolic.
Cargill, Conocophillips, Hanover Trust, Bechtel, Halliburton and Siemens AG are just a few of the massive conglomerates that control much of the world’s economy. Hanover even filed suit against Iran for non-payment of a loan in 1993, as did First International Bank of California. The Iranians tended to lose, and the bank’s counterclaims usually failed. Divestment in Iran had more to do with this, and nothing to do with sanctions.
They’re also lobbying to have sanctions eased, though Russia is excepted here, as this writer predicted 15 years ago. This means that sanctions, if they ever meant anything, today are meaningless when the corporations that control Congress decide to fight these laws. The globalization of business means that sanctioning investments in Iran hurts investments in Central Asia, China and Korea, among other places. Given that Russia is a direct threat to the American oil industry, these sanctions might be actually enforced, but what company is doing business in this industry that’s not already a part of the oligarchy? Still, hundreds of American firms do business with Russia and will continue to do so. They’ll condemn Putin and Lukashenko in public, but enjoy great profits in private.
On February 15 2013, Hanover Insurance wrote the Department of Assets Control.
Prior to the acquisition of Chaucer on July 1, 2011, the Company notified the U.S. Office of Foreign Assets Control on June 29, 2011 that Syndicate 1084 was subject to certain pre-existing insurance obligations involving Iran. After the acquisition on July 1, 2011 and during 2012, neither Chaucer nor Syndicate 1084 entered into any new arrangement with Iran, paid any claims or received any premiums with respect to any interests in the Master Slip. Any payments or other transactions relating to the Master Slip would have been in any case subject to various laws and regulations of the United Kingdom and the European Union implemented pursuant to requirements under EU Counsel Regulation 961/2010 dated October 25, 2010. In addition, at no time in calendar years 2011 or 2012 did Chaucer and Syndicate 1084 enter into any new coverage, amendments, waivers, endorsements or other transactions affecting obligations under the Master Slip, other than issuing the notice of termination referenced above with respect to the only Contract Endorsement which was extant at the time that the Iran Threat Reduction and Syria Human Rights Act of 2012 was signed into law on August 10, 2012.
It might be noted that the company so insured was fully owned by the state. They then went on to state that they were terminating any coverage of the Iranian firms. However, this has nothing to do with sanctions despite them saying so clearly: what really matters is mentioned a paragraph down: “The gross revenues attributable to the four Contract Endorsements extant in 2012 equaled $131,768, or approximately 0.003% of the Company’s total revenues; we are unable to calculate the net profits attributable to such policies in 2012, but, if any, they would be de minimus.” Why would they mention what percentage of the company’s profits are represented by this acquisition unless they’d get an extension of license afterwards. Of course, the law mandates this, but it only begs the question.
Because they state that there are no great exposures to risk upon divestment, they’re voluntarily eliminating the coverage. This is another way of saying that, if it did present such a risk, it wouldn’t be done. In 2014, however, the company reversed its position, saying that
Under the foreign sanctions regimes established by the United States, Chaucer, as a non-U.S. subsidiary of THG, is permitted to engage in certain transactions which would be prohibited if engaged in by U.S. citizens or persons acting within the jurisdiction of the U.S., including our U.S. subsidiaries. For example, under the Joint Comprehensive Plan of Action Regarding Iran’s Nuclear Program (the “JCPOA”), the U.S. Treasury Department’s Office of Foreign Assets Control issued General License H (“GLH”), which permits foreign subsidiaries, such as Chaucer, to conduct business involving Iran and Iranian assets, subject to limitations and prescriptions.
Now, a year later, Trump sanctioned even these areas. This is legally iffy since Trump has no right to sanction a company staffed by non-US citizens. Still, these sanctions were said to only apply to specific firms in the petrochemical, financial and financial information sectors. Still, the executive branch says all the GLH licenses will be revoked. The lawfirm of Freehill, Logan and Mahar, LLC says under “New Iran Related Business:”
FAQ 2.2 addresses the issue of whether, after May 8, 2018, parties can engage in new Iran-related transactions if they will be concluded within the applicable wind-down periods. The response provided in FAQ 2.2 is less than clear, but in informal discussions OFAC has indicated that penalties could be imposed on sanctionable activities entered into after May 8, even if they are concluded within the applicable wind-down period. It is recommended that any party considering entering a new Iran-related transaction after May 8, which transaction would be contrary to the secondary sanctions, give careful consideration to the possibility that sanctions could be imposed by OFAC, and consider seeking guidance from OFAC before entering any such transaction.
Here again, the sense of the law has to do with its spirit, not its letter. The advice from the firm suggests that, to platy it safe, companies should avoid business if it may lead to sanctions down the road. This, to some extent, is mentioned in the law itself, the main Iranian sanctions law of 2012, which makes plain that
with respect to a person that provides underwriting services or insurance or reinsurance if the President determines that the person has exercised due diligence in establishing and enforcing official policies, procedures, and controls to ensure that the person does not provide underwriting services or insurance or reinsurance for the transportation of crude oil or refined petroleum products from Iran in a manner for which sanctions may be imposed under either such paragraph.
In other words, regardless of any subsequent Executive Orders, the law states that, after proper research, a firm can deal with Iran if they’ve come to the conclusion that the act isn’t covered by the law. On the term “knowingly,” the law states: “The term “knowingly,” with respect to conduct, a circumstance, or a result, means that a person has actual knowledge, or should have known, of the conduct, the circumstance, or the result” (Sec 14.13). Keep in mind that much of this hasn’t been legally tested.
Latin America is an exception to this because of their utter dependency on the USA. When Venezuela was hit with sanctions, they went to the WTO for assistance. Generally, the WTO is opposed to sanctions because its considered “economic coercion” and harms civilians that have no connection to government policy. They cite Article I;1 of (1994) GATT
Article I:1 of the GATT 1994, because they accord products of Venezuelan origin treatment less favorable than that accorded to products from WTO Member countries that are not subject to the coercive and trade-restrictive measures. More specifically, in comparison to goods from WTO Member countries not subject to the coercive trade-restrictive measures, Venezuelan goods face, as a result of these measures, a greater regulatory burden in terms of conditions governing importation, as well as restrictions on who can perform this import function, and unfair market opportunities once importation has taken place. All of this denies Venezuelan goods the equality of opportunities guaranteed by Article I:1 of the GATT.
The WTO, which the US supports, rejects economic sanctions as a violation of its charter going back to the GATT days. It represents a discrimination of one nation’s goods over another. Corporations aren’t inherently responsible for state policy, so there’s no good reason for the state to pass laws against them, dubious as they are. Since the WTO is a “free trade” body, they cannot accept a law that makes one country’s products artificially more expensive than another.
While the WTO is sympathetic to Venezuela, only American power matters there economically. In fact, Venezuela’s leaders make it clear that sanctions as such violate WTO statute, so today, another level of litigation and complexity is added to the sanctions regime. Conveniently, since the US refuses to recognize any nationalist government, it refuses to respond to anything Caracas says about the matter, as its not the “legitimate” government of Venezuela.
In response, the US seems to want to dismantle the WTO. As this is an unnecessary and ideologically motivated front group for the world’s conglomerate, this isn’t a terrible idea, but in this case, its for the wrong reason. The dispute resolution in the WTO only works if a greater power makes it work. The US, Russia and China can ignore the WTO without the slightest consequence. Venezuela can’t. Ultimately, its merely to add a “moral” argument against tariffs from smaller countries and to act as an ideological repository of free trade bureaucracy.
However, the OFAC stated the following as of January 17 2020:
Authorizing Transactions Involving Petroleos de Venezuela, S.A. (PdVSA) Necessary for Maintenance of Operations for Certain Entities in Venezuela (a) Except as provided in paragraph (b) of this general license, all transactions and activities ordinarily incident and necessary to the maintenance of operations, contracts, or other agreements in Venezuela involving PdVSA or any entity in which PdVSA owns, directly or indirectly, a 50 percent or greater interest prohibited by Executive Order (E.O.) 13850, as amended by E.O. 13857 of January 25, 2019, or E.O. 13884, and that were in effect prior to July 26, 2019, are authorized through 12:01 a.m. eastern daylight time, April 22, 2020 for the following entities and their subsidiaries:
• Chevron Corporation
• Schlumberger Limited
• Balcer-Hughes, a GE Company
• Weatherford International, Public Limited Company
So some companies are more equal than others. Part of the issue, of course, is that the US doesn’t want to pay compensation for losses suffered by these giant firms. While the companies in Iran are giving either an 180 or 90 day “draw down” before the reimposed sanctions bite, they won’t be able to sell assets for even remotely market price at such a short notice. Given the instability of the area, its impossible that the sale will even go thorough at all.
This essay is fairly unique in the literature on sanctions since it challenges their very legal existence. Sanctions are merely political rhetoric and have no real legal or practical application. Given that the federal government cannot restrain trade due to the Bill of Rights and basic security of private property, any attempt to do so must be extraordinary and only for very specific reasons. Sanctions must be on persons or institutions and involve actual products and their ingredients. It cannot be a blanket prohibition. Sanctions have to exist for a specific reason, and any trade restraint has to be immediately and directly connected to this reason. Only governments and those “connected” to them can be the targets of sanctions. Purely private entities are not sanctionable. Sanctions are accompanied by executive level protocols that list, in detail, the persons, institutions and products affected. If its not on the list, then no law applies, and the list has to be directly connected to the political issues that gave rise to them.
Enforcement is almost impossible. It would entail a lengthy court procedure where the definitions of all the above would be put to the test. The sheer umber of loopholes avail;able make such cases very undesirable for the Justice Department. Corporations have far larger legal departments with far more resources than the federal government in this area. They also have far more to lose than the lawyers at Treasury or Justice. As a result, such cases are rare, proving that sanctions don’t really exist legally.
Despite all this, the president can waive sanctions for any number of reasons. Medicine and food are always excepted. Corporations are grandfathered in, which means that, for most significant states, all of corporate America isn’t affected. Even more, if the affected government has begun to change its policies, this too can serve as a defense against any legal prosecution. Since most products have more than one use – an engine can power a tank and a car – sanctions affecting a military or a nuclear program are even weaker.
Nuclear power is based on an entirely different process and physical plant than nuclear weapons. A power plant can never be changed into a weapons factory. Its never been done. So even for something like North Korea’s nuclear program, the trade in nuclear technology can be defended in court. Nuclear power cannot be the basis of sanctions, only weapons. Since profits are insecure and the state is hardly considered a trustworthy business partner, most firms won’t do business in North Korea, but its not because of any sanctions law. However, this is already changing on numerous fronts.
Any teeth the law might have isn’t because there’s a clear legal prohibition, rather its that the company would rather not have to constantly worry about prosecution. Yet, this is hardly a basis for law. A law that’s ambiguous or unclear isn’t a law in the American system and for that reason alone the legislation is meaningless. The sheer number of variables for the application of sanctions: the target state, the product, the reason, the environment, target state policy changes, connections between product and purpose, third parties, the WTO, the power of capital and its very ambiguity makes enforcing sanctions against a powerful domestic corporation impossible. If millions are to be made, corporate capital will invest where it wants and the Justice Department will have nothing to say. Corporate America orders the state around, not the reverse.
In short, because of the status of private property and trade relations in the US Constitution and case law – not to mention the dominance of corporate capital in the west in general – sanctions are attempts for a dying empire to appear to be powerful. No one can tell American billionaires and conglomerates where to make their money. These conglomerates are more powerful than the state and Justice is hardly ready to do battle with them. A long court case will also see millions of pages of documents entered into evidence concerning how these laws and made and the forces that demanded them. This is something the ruling class would rather not risk.
In the 1990s, the antitrust case against Microsoft showed that these corporations will force federal lawyers to surrender in a war of attrition. Latin America, in certain respects, might be an exception due to the extreme levels of dependency on the American market, but most of the above problems still apply. Sanctions on Venezuela that come from the generalized fear of prosecution – rather than a clear mandate – are extremely unjust and illegal. Yet, as this paper has shown, that’s really the only force sanctions have.
Most of the countries sanctioned today are barely trading partners with the US and have no significant relations with it. Beyond that, they simply don’t work in a globalized economy. Globalization makes it impossible to single out one region. Even more WTO laws forbid it. Therefore, as legal entities, “sanctions” – this amorphous term daily used in news reports on foreign policy – don’t exist in any meaningful sense.