Say Anything Blog

I, along with many others, have been skeptical of sanctions as a tool for reining in tyranny.  After all, Cuba has survived for decades under sanctions as did Saddam’s Iraq.  But David Ignatius, writing in the Washington Post, points to an aspect of the Patriot Act, allowing the US treasury to essentially sever ties with the financial institutions of nations suspected of sponsoring terrorism or other sorts of international crime.  It’s apparently been used to some effect with North Korea and Iran.

Everybody knows that economic sanctions don’t work. Just look at the decades of fruitless pressure on Cuba. But guess what? In the recent cases of North Korea and Iran, a new variety of U.S. Treasury sanctions is having a potent effect, suggesting that the conventional wisdom may be wrong.

These new, targeted financial measures are to traditional sanctions what Super Glue is to Elmer’s Glue-All. That is, they really stick. Deputy Treasury Secretary Robert Kimmitt doesn’t even like to call them sanctions, preferring the term “law enforcement measures.” Explains Stuart Levey, Treasury’s undersecretary for terrorism and financial intelligence: “Sanctions are scoffed at. They have a bad history.”

Authority for the new sanctions, as with so many other policy weapons, comes from the USA Patriot Act, which in Section 311 authorizes Treasury to designate foreign financial institutions that are of “primary money laundering concern.” Once a foreign bank is so designated, it is effectively cut off from the U.S. financial system. It can’t clear dollars; it can’t have transactions with U.S. financial institutions; it can’t have correspondent relationships with American banks.

The new measures work thanks to the hidden power of globalization: Because all the circuits of the global financial system are inter-wired, the U.S. quarantine effectively extends to all major banks around the world. As Levey observed in a recent speech, the impact of this little-noticed provision of the Patriot Act “has been more powerful than many thought possible.”

Heartening news.  It’s nice to know that such a tool is available and effective, but I’d point out that this sort of thing is only ultimately successful if we have the courage of our convictions in carrying it out.  So often sanctions are unsuccessful not because they are inherently ineffective but rather because they are undermined by other diplomatic policy.  Look at Saddam Hussein, for instance.  Sanctions may have worked against him were he not able to pilfer billions from a UN aid program that was supposed to bring relief to the citizens in Iraq despite the sanctions.  He was using those billions to prop up his regime and bribe his way out from under sanctions when Iraq was invaded.

Look also at North Korea, which has been able to rattle it’s military saber loud enough in the past to get all sorts of concessions (read: a nuclear reactor) from the Clinton administration despite economic sanctions that has isolated the nation.  Now DPRK has nukes.

So yes, this economic lever is a hopeful sign for progress in diplomacy with rogue regimes like Iran and North Korea, but it’s not going to solve our problems by itself.