Types of Economic Sanctions

Economic statecraft in practice_types of economic sanctionsTypes of Economic Sanctions 

Generally speaking, there are four types coercive measures which are imposed in an economic sanctions regime: 

  • Diplomatic & Political Measures
  • Cultural & Communications Measures
  • Economic Measures
  • Measures relating to status within International Organizations

The most relevant coercive measures to companies and exporters are the communication and economic measures, as these have the biggest impact to international trade. 

Diplomatic & Political Measures

  • protest, censure, condemnation
  • reduction of or cutting-off of all diplomatic relations
  • refusal to recognize a government

Cultural & Communications Measures

  • reduction, cancellation of cultural exchanges, educational or scientific links/co-operation
  • ban on tourism to/from sanctioned destinations
  • withdrawal of visas/ travel bans
  • restriction, cancellation, suspension of media communications, landing, overflight, transit or docking/port privileges

Economic Measures

  • Financial sanctions
    • restriction, cancellation, suspension of foreign aid – military, development, technical assistance
    • restriction, cancellation, suspension of access to markets, credit facilities (at concessionary rates)
    • freezing of economic resources, financial assets directly or indirectly owned by sanctioned governments, individuals, organizations
    • ban on interest payments/ transfers of payments, rescheduling of debt repayments, provision of insurance services
    • restrictions or ban on capital movements
  • Commercial sanctions
    • limited or comprehensive import/export restrictions or licensing regimes
    • targeted or comprehensive trade embargo’s
    • investment prohibitions
    • reduction, cancellation, suspension of technical assistance (training) program’s
    • discriminatory tariff policy (loss or denial of most favored nation status)
    • blacklisting of individuals (e.g. political leaders and their immediate families, cronies, governmental officials or individuals acting on behalf of blacklisted individuals), and/or entities  associated with, owned or controlled by blacklisted individuals (which can also be applied in conjunction with financial sanctions)

Measures relating to status within International Organizations

  • Membership and participation related issues
  • Suspension or cancellation of benefits, e.g. votes against loans, grants, assistance oriented benefits
 

Schools-out-for-summer-schools-out-forever-Abandoned-School-Classroom Photo by Brook WardWhy were Target Sanctions introduced?

During the 1990’s, in an attempt to limit the unintended collateral damage to the civilian populations of Targets, Senders have generally switched from imposing comprehensive sanctions regimes (e.g. boycotting a total country- U.S. Cuba boycott, United Nations sanctions against Iraq (1990-2003)) to so-called Smart Sanctions, i.e. Target Sanctions

Target sanctions emerged in the mid 1990’s as a result of:

  • Firstly, intense criticism regarding the collateral damage caused by comprehensive sanctions regimes, which was especially visible in Iraq.
  • Secondly, because economic sanctions were applied to new security threats, e.g. conflict-resolution arrangements, supporting the prosecution of suspects of war-crimes (Rwanda or former-Yugoslavia), anti-proliferation and counter terrorism. 
  • Thirdly, to new economic activities which facilitated, i.e. enabled, particularly nasty characters to further their repugnant activities. For example, the certification of rouge diamonds (e.g. Kimberly Process) or the trade in high value timber EU Action Plan for Forest Law Enforcement, Governance & Trade (FLEGT)). 

Economic Sanctions_False_Sense_of_SecurityIn order to minimize the collateral damage to local civilian populations, target sanctions are designed to only impact specific individuals and entities, which are held to be responsible for repugnant conduct or policies, e.g. dictatorial regimes (political leaders, their proxies, families), human rights violators, war lords or global terrorists.

Target sanctions can cover the freezing of financial assets or economic resources (both are usually interpreted very broadly), travel bans or the denial of specific goods which can facilitate, i.e. enable the continuing of noxious conduct (conventional weapons) or can benefit blacklisted, i.e. designated Targets. 

However noble the concept of target sanctions is, they are just as destructive as comprehensive sanctions regimes. This is because target sanctions are extremely effective. For instance, mature sanctions regimes, e.g. from the U.S. and EU countries, also apply wartime trading with enemy concepts whereby target sanctions extend to entities owned or controlled by targeted entities (so-called cloaks). This can have a crippling economic effect in countries where owned or controlled entities of targeted political elites or governmental agencies are the dominant economic actor. 

Economic statecraft in practice_comprehensive versus limited sanctions regimesFor example, a water-board authority, which is owned or controlled by a targeted political leader, may be unable to procure essential foreign-made equipment to purify water due to sanctions, although in theory Senders can and do license humanitarian related activities. Note that financial institutions can also refuse to facilitate such transactions, given their current total risk aversion policies regarding economic sanctions.

This example, illustrates that in some cases, the difference between target and comprehensive sanctions regimes is not always clear. Therefore, complying with the law is not always moral or ethical… 

The problem of unintended collateral damage is so sensitive, that governments have publicly stated that they will do their utmost to prevent the unintended suffering of innocent bystanders.

UN Flag - symbol for peaceFor instance in 1995, the Permanent Members of the United Nations Security Council issued a policy statement in which they declared “[that] further collective actions in the Security Council within the context of any future sanctions regime should be directed to minimize unintended adverse side-effects of sanctions on the most vulnerable segments of targeted countries. The structure and implementation of future sanctions regimes may vary according to the resource base of the targeted country.”

Economic sanctions and foreign policyIndividual & Collective Types of Economic Sanctions 

Senders implement their economic sanctions either individually or collectively (together with other countries).

Generally speaking, economic sanctions are implemented as follows:

  • individual countries (based on specific foreign policy or national security policies without the authorization of the United Nations Security Council, often referred to as unilateral sanctions),
  • collectively, together with other countries, e.g. ad hoc coalitions of the willing or through regional mechanisms with or without the authorization of the United Nations Security Council (often referred to as multilateral sanctions),
  • by the global community, i.e. with authorization of the United Nations Security Council (often referred to as universal supranational sanctions)   

NB The role of the United Nations Security Council regarding economic sanctions can be accessed here.

Note that in reality the above-listed distinctions are not fixed. Depending on the circumstances, the design of a sanctions regime can be a cocktail of different measures or the political goals can evolve over time to suit the needs of the countries imposing sanctions. For instance, the sanctions against Iran evolved over time; from a unilateral sanctions regime (imposed by the U.S. during the 1980’s) to a universal supranational sanctions regime once the United Nations Security Council also decided to impose sanctions against Iran.

Read More on the differences between unilateral and multilateral Economic Sanctions Regimes


The main difference between unilateral and multilateral sanctions is not only the number of countries initiating and enforcing a sanctions regime, but also the political and legal ramifications of the imposed coercive measures. 

  • US Mexico Border Crossing AP Photo Lenny IgnelzUnilateral sanctions are coercive measures initiated and enforced in the pursuit of specific domestic foreign policy and/or national security goals.

Unilateral sanctions regimes have proven to be controversial as they perceived to be counterproductive (can alienate allies or not enrich a dispute settlement process and are open to claims that they violate international law). 

  • Traditionally, unilateral sanctions are imposed and enforced by powerful countries, in the twenty-first century mostly by the U.S. The most prominent example hereof is the U.S. boycott against Cuba (which might be entering in its twilight years due to the current diplomatic developments between the U.S. and Cuba).
  • However, unilateral sanctions can also be imposed collectively, i.e. on a multilateral basis by a group of countries – usually on a regional basis. The most well-known are the unilateral sanctions regimes of the EU, i.e. autonomous sanctions regimes. 
  • UN Flag - symbol for peaceMultilateral sanctions are coercive measures initiated and enforced by a group of countries, with or without the authorization of the United Nations Security Council.

Note that collective enforcement means the political will to collectively enforce a sanctions regime, e.g. impose similar measures, cooperation is high among the Senders (exchange of information or not to authorize transactions that have been refused by another Sender).

Important to realize is that from an operational perspective, sanctions are always implemented by countries themselves – on the basis of national laws and regulations and by national authorities – including penalizing violations or granting exemptions. 

The strength of multilateral sanctions regimes is that a Target is not only confronted with various Senders, which increases the impact of the coercive measures, but are also more legitimate, especially if authorized by the United Nations Security Council. 

Whether multilateral sanctions regimes, not authorized by the  United Nations Security Council, conform to international law is subject to debate, as the numbers of countries supporting a sanctions regime does not automatically make the imposed coercive measures legal. Examples of multilateral sanctions are, sanctions imposed by the Organization of American States (OAS) against Haiti or sanctions imposed by the EU against the former Yugoslavia, Iran or Syria.

Economic SanctionsPrimary and Secondary Types of Economic Sanctions

Primary sanctions are restrictive measures which a Sender imposes on persons subject to its jurisdiction (citizens, permanent residents, individuals in their territory and companies and their foreign branches – registered under their laws) to do business with a Target, e.g. a rogue regime, terrorist group, or proliferators of weapons of mass destruction. 

In contrast, secondary sanctions, go a step further, namely they are designed to block or restrict persons subject to the jurisdiction of third-countries, outside the territory of the Sender, from engaging in business or investing with Targets of their primary sanctions (e.g. U.S. Iran and Cuba sanctions regimes). This is why secondary sanctions are often referred to as sanctions regimes with extra-territorial jurisdiction effect. In effect, secondary sanctions supplement primary sanctions.

Secondary sanctions, although rare, are imposed when primary sanctions are deemed to be ineffective or the adoption of multilateral (universal supranational) sanctions regimes can’t be imposed.  

Images of Battle of Waterloo_Scotland Forever_Elizabeth Lady ButlerThe origins of secondary sanctions are based on the wartime application (modern variant are both World Wars) of trading with enemy laws, which aim to restrict the ability of enemies (and persons under their control) access financial/economic resources and certain types of goods (vital for their wartime economy).

Wartime secondary sanctions were mainly applied against neutral countries, as belligerents wished to deny all types of economic benefits to their enemies. They were also applied extra-territorially against so-called cloaks, entities or individuals of third-countries acting on behalf of enemies (sometimes under the coercion of belligerents). In this context, similar to the twenty-first century, governments published lists of blacklisted entities or individuals whereby they prohibited their citizens or companies to engage in any business activities (directly or indirectly). These concepts are now applied during peacetime, as an enforcement tool, although under new names and concepts, e.g. U.S. concept of Specially Designated Nationals (SDN’s). 

In peacetime, secondary sanctions are extremely controversial and have proven to be politically counter productive (e.g. U.S. boycott against Cuba) because they are deemed to violate the sovereign rights of countries (e.g. the freedom to decide with whom their chose to trade with and the prohibition that countries interfere with the internal affairs of other countries).

In this context, secondary sanctions are most effective if they are imposed by powerful countries on targets, e.g. allies, which have close economic ties with the Sender. These Targets have potentially the most to lose, especially if they have significant economic ties to the Sender. For instance, if one looks closely at the U.S. Government’s sanctions enforcement actions, one will note that financial institutions of allies have been severely penalized. 

fish_justice_cartoon.From a political perspective, they are unpopular because secondary sanctions are usually only imposed by powerful countries, which frequently leads to the belief that secondary sanctions are a form of bullying small and weaker countries.

Senders of secondary sanctions argue that they are essential to respond to certain national security threats, e.g. global terrorism or nuclear weapons proliferation. Note that before the U.S. ascended to is super-power status, it also fiercely opposed secondary sanctions (especially before it entered the First World War as a belligerent).   Further, they often contend that third-countries have a choice not to comply with their secondary sanctions, although this argument is hollow if one takes into account the dominant position of powerful Senders in the modern global economy and financial markets. 

For industry, secondary sanctions are problematic as they can be confronted with trade restrictions which are perfectly legal in their own jurisdictions. 

Despite the legal and political objections, the concept of secondary sanctions are, from a law enforcement perspective, an essential tool to combat certain types of Targets, e.g. global terrorists as these are increasingly unaffiliated with established jurisdictions. They are also sometimes necessary when the United Nations Security Council is unable to adopt supranational sanctions. In this context, one can argue that they are an instrument to fill gaps of the imperfect United Nations collective security system. 

A basic example how Primary and Secondary Sanctions work

  • in a primary sanctions regime – State A imposes sanctions against State B, whereby citizens, companies of State A and any person or company in the territory of State A may not engage in trading activities (or invest in) with State B.
  • in a secondary trade boycott – State A says that if Y, a citizen of State C, engages in trade (invests in) with State B, the target of State A’s primary sanctions, then Y cannot trade with citizens or companies of State A or invest in State A.
  • a governmental sponsored secondary divestment sanction regime – [using the same examples as above] State A requires that its citizens/companies divest, reduce or not commit future investments in Y, as long as Y (continues) to trade with State B.

Read More - History of Secondary Sanctions Regimes

Although in the twenty-first century the U.S. is the country which applies secondary sanctions regimes the most, e.g. against Cuba, Iran, Sudan and Syria, the concept was not invented by the U.S.

A Dutch man-of-war firing a salute_The Cannon Shot_ painting by Willem van de Velde the Younger_1707The origins of secondary sanctions can be traced back to the wartime application by European powers, especially in regard to naval blockades during the eighteenth and nineteenth-centuries.

The first modern variants of secondary sanctions regimes can be traced back to Napoleon’s Continental System (1806 Berlin Decree) and the British (retaliatory) licensing program.

  • Both the French and British regimes were applied as economic warfare to destabilize their enemies. However, trade restrictions were extended to third-countries, mainly neutrals, as naval blockades were ineffective in the face of widespread circumvention through third-countries. In this context, the British were especially innovative in designing circumvention programs, e.g. smuggling routes and money-laundering schemes through third-countries which effectively by-passed French blockades.
  • Of particular note was that the British also succeeded in damaging Napoleon’s economy indirectly, when in 1807 it decided to enforce its abolition of the slave trade. During these years, France’s economy depended heavily on the slave trade, but once Britain commenced to enforce the illegal human traffic, it cut-off France’s ability to sustain economic activities in its colonial territories. In this context, the British blockade to enforce the traffic in slaves can be seen as the first human rights oriented embargo.
  • The British licensing program was also innovative as it allowed neutrals to continue trading in French-origin goods – the exception being that articles of contraband of war, i.e. modern-day strategic goods, would still be subject to capture and confiscation. Thus, the foundations of a licensing program with embargo exemptions was born.
  • A novelty of this approach was that the enforcement of the program would no longer consider the trade of neutrals as assisting the enemy, and thus be liable for confiscation, but allow neutrals to continue to trade with France as long as they ‘voluntarily’ participated in the licensing program, by paying duties to the British Crown, i.e. purchasing a license. The inducement for neutrals was evident, those which complied with the British policy benefited, alone in 1809 the British granted 15,000 licenses. Those which refused to purchase a license, ran the risk of their commercial activities being restricted.
  • Whether neutrals voluntarily participated in the British licensing scheme is open to debate, as this was clearly a form of coercion by Great Britain – given its powerful navy and willingness to use force, many weaker countries had no choice but to comply. A similar criticism of twenty-first century U.S. secondary sanctions regimes.

The enforcement of the sanctions regimes was a major problem for both the French and British. Similar to modern-day sanctions regimes, measures were needed to prevent circumvention, especially trade between third-countries and the target of the restrictive measures.

For instance, the British had huge problems containing trade between the U.S. and French territories in the West Indies. During the American Civil War, the Union Government also faced similar problems regarding the enforcement of its naval blockade of the Confederate States coastline (1861 Anaconda Plan).

Similar to modern-day sanctions regimes, enforcement measures had to distill which trans-shipments were legitimate trade and which trans-shipments were subject to sanctions, e.g. cargoes carrying contraband of war.

To solve this problem, the British, later adopted by the U.S., devised the doctrine of Continuous Voyage, whereby a voyage was deemed, in view of its purposes, as one single voyage even though the logistical route indicated otherwise.

The doctrine specifically refers to the stoppage and seizure of goods carried by third-country, i.e. neutral vessels either out of or heading toward a neutral port. If such goods were to be transshipped to another belligerent (the enemy) at some point in the voyage, the country invoking the doctrine could claim that, regardless of the period of neutral possession, the voyage was continuously geared toward trade with the enemy.

The aim of the doctrine was obvious, to deny an enemy of any benefits of neutral trade. This was practice was extensively applied during the First World War by the Allied imposition of quotas on European neutrals to prevent them from supplying the enemy from their own stocks, which they would then replace from foreign sources.

In essence, the British devised a doctrine to combat the intentional circumvention of its sanctions regimes. The doctrine, although amended to suit modern-day peacetime applications, forms the basis of, amongst others, modern-day re-export restrictions of goods subject to a sanctions regime. In particular, the U.S. adopts such an approach to extra-territorially enforce its sanctions regimes. Furthermore, the doctrine is also an example how export controls and economic sanctions then, and now, can be applied together.

WW I Poppy Fields in FlandersHowever, these types of secondary sanctions were feeble in comparison with the secondary sanctions regimes imposed during the First and Second World Wars. During these conflicts, the belligerents (especially Great Britain, Germany and the U.S.), imposed comprehensive trade restrictions – trading with the enemy (TWE) laws. Nationals and companies of these countries were prohibited from trading directly and indirectly with the enemy – nationals/companies of enemy countries, but also with persons/companies of third-countries under the control or acting on behalf of the enemy (so-called cloaks). For nationals of the belligerents it was a crime to violate TWE laws, although for foreigners these were subject to very broad seizure orders (confiscation of properties and freezing, i.e. blocking of financial assets).

The secondary sanctions regimes covered all types of goods, (re)exports, all types of financing which could benefit the enemy, and the extensive blacklisting of persons. In 1914, the British, supported by the French, and later by the U.S., reintroduced a licensing program (Navicerts) which licensed the trade with their territories and restricted trade with enemy (controlled) territories.

The blacklisting of persons was based not only on (dual)nationality (or place of incorporation for companies), but also on the concept of control (persons/companies controlled or owned by the enemy). In this context, persons from third-countries were blacklisted, i.e. designated as enemies – according to different lists. There were different interpretations of control, although all countries applied a de minimis rule which determined the controlling element of the enemy – e.g. 25-50% ownership by enemy nationals, appointment of directors, or the nature and volume of business with the enemy or persons acting on behalf of the enemy. By 1940, the Allies, especially the U.S., commenced with the imposition of an unprecedented sanctions regime against the Axis Powers. This was the foundation for the future U.S. SDN policy – Specially Designated Nationals, given the economic wartime policies of the Axis powers, e.g. plundering, money-laundering, extortion on the basis of race, and outright confiscation of financial assets of occupied territories.

After the Second World War, secondary sanctions regimes have been applied, mostly by the U.S., e.g. to isolate the Soviet Union (and Communist countries), China (1950-1971), North Korea (1950-present), Cuba (1963-present), North (1964-1994) and South Vietnam (1975- 1994), Cambodia (1975- 1992), Iran (1979-present), Nicaragua (1985-1990), Panama (1988-1990), South Africa (1985-1991), Sudan (1997-present), and Syria (2004-present).

 

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