Global Governance
25 August 2020

The Global Sanctions Regime: a governance failure and how to remedy it

Why is the governance of sanctions and sanctions exemption at risk, and what can be done to fix the current problems? A recent article for Global Governance by Grégoire Mallard, Professor of Anthropology and Sociology at the Graduate Institute, former Postdoctoral Fellow Farzan Sabet and PhD Candidate Jin Sun – who were both members of the ERC project “Bombs, Banks and Sanctions” led by Prof. Mallard since 2017 – , use the example of Iran to identify the source of problems encountered by global banks in the trade of humanitarian and vital goods with sanctioned jurisdictions. In this interview, Professor Mallard compares Iran with other sanctioned countries, considers the aggravating factor of the sanitary crisis, and explains the solution proposed in the article: the creation of a multilateral organisation responsible for administering humanitarian-related payments in new digital currencies, which they call the Safecor coin (short for a coin ensuring a safe corridor for humanitarian payments).

On 11 July, after several failed attempts, the United Nations Security Council updated its resolution 2533 by authorising a one-year extension of the mechanism for cross-border humanitarian aid delivery into Syria. Do you think that we could witness the same approach for jurisdictions such as Iran, North Korea or Venezuela? 

UNSC resolution 2533 keeps one specific territorial access point for humanitarian aid to Syria, while closing other entry points. For that reason, it does not represent a satisfactory solution for all Syrian civilians. Many commentators have called it a “flawed compromise”, typical of UNSC resolutions, where consensus is brokered between veto-holding powers in the UNSC, who have very different interests. In the case of Syria, where Russian interests and Western military and political interests defended by the P3 (US, UK and France) at the UNSC are quite diametrically opposed, the result of a UNSC resolution, even on humanitarian aid, could only be limited. Of course, it does not mean that the humanitarian principles would be better implemented if the world didn’t have the UNSC machinery to produce such compromises, but we can’t expect too much of them.

Other political divisions are also crippling the UNSC in its efforts to look for a solution to the failure to fully implement UNSC resolution 2231, which turned the 2015 “Iran nuclear deal” into binding international law – this time, with divisions between the US and the rest of the world, rather than between the P3 and Russia and China, as we’ve seen last week with the UNSC vote against the US proposition to maintain UNSC sanctions against Iran on arms trade. Since the US government decided to “leave” the deal in 2018 and stop complying with UNSC 2231, the UNSC has failed to deal adequately with the Iranian situation, which is very different from the Syrian civil war. In Iran, we are not witnessing a breaking down of the state, nor a civil war, nor a proxy war. If the situation is dire for Iranian civilian populations, analysts cite the importance of the economic crisis and the free fall of oil prices, as well as the sanitary crisis (with COVID-19 and the floods that crippled the Iranian infrastructure, especially regarding the provision of drinkable water), as the main reasons, in addition to the reinstitution of US sanctions after 2018. So technically, humanitarian law, which is restricted to placing some limits to the conduct of war in order to protect civilian populations during military conflicts, does not apply to the situation in Iran, and UNSC resolution 2533 does not have any relevance in that context. The same could be said of Venezuela. It is important to distinguish between these different cases, even though some general lessons can be derived from observing what the UNSC can and can’t do to improve the life of civilian populations at risk either during civil wars, proxy wars, or pandemics.

What is the impact of the current global health crisis on the humanitarian consequences of economic sanctions and the situation of sanctioned jurisdictions?

In fact, the question you’re asking will be the focus of a new project titled “When Money Can’t Buy Food and Medicine”, which the Swiss Network for International Studies (SNIS) has selected for funding for the next two years, starting in October 2020, and which I will lead with Professor Zachary Douglas and Dr Erica Moret. We will investigate precisely the question of which obstacles private companies, IOs, or NGOs which export medical products, drugs, and food – products that are typically “non-sanctionable” – claim that they face when they seek authorisation from licensing authorities to export such products to sanctioned territories.

Together with my my coauthors Farzan Sabet and Jin Sun, we already started to answer that research question in the article for Global Governance, but there, we only investigated problems linked to companies that try to export vital goods to Iran in the pre-COVID situation. So, in that new SNIS project, we want to get a wider variety of empirical investigations into the mechanisms that may discourage either banks or companies, IOs or NGOs that deliver humanitarian aid to deeply sanctioned territories, to fulfil their humanitarian roles, assuming that, as is now widely observed, they run into all kind of difficulties whereas they should not. Of course, the claim that modern-day sanctions are now too broad and that they negatively and unduly affect the delivery of vital goods is too general, and a more precise understanding of the root causes for such problems as those created by unilateral or multilateral sanctions that affect the delivery of vital goods to civilian populations needs to be developed. But this is precisely what we want to do thanks to additional empirical investigations and carefully selected case studies. What we observed when writing this article and then putting together our SNIS application is that many IOs and NGOs definitely have an interest in better understanding the increasingly complex sanctioning and licensing environment in which they are moving in order to fulfil their humanitarian roles while respecting the law – not only humanitarian law, which only applies to conflicts, but also sanctions law, human rights law, banking law, either of domestic, transnational, or international origin.

Can you explain the phenomenon of the increasing “comprehensivisation” of targeted sanctions that you observe in your article? And what should be the role of multilateralism in mitigating that trend?

In this specific article, we put a lot of emphasis on the decentralised nature of the global sanctioning machinery, and the increasingly dominant role of the US sanctioning authorities in a context in which US sanctions have become comprehensive when they target all the banks located in sanctioned territories. Simply put, it is easy to understand that if a government like the US government targets all local banks in a sanctioned territory, and thus prevents global banks from having access to the financial sector of one country, no money can cross the border of that sanctioned territory, nor move from a foreign account of that government to a global bank. This kind of situation would prevent any sanctioned government from buying goods abroad – even vital goods –, as no outside bank will want to enter into a relationship with such sanctioned local banks. A simple measure, as in the case of US sanctions against Venezuela or Iran, is to target the central bank of the sanctioned country, as then all banks in the territory which have an account in their central bank – as most of them do – become sanctionable targets as well. So, many commentators continue to call current sanctions regimes “targeted” as they typically prohibit specific forms of trade in arms, diamonds, etc., although this is not even completely true when oil trade is being sanctioned in countries that mostly rely on oil to feed their population. But what they miss when they use notions like “targeted sanctions” or “smart sanctions” is that financial sanctions have become “comprehensivised” because banks have increasingly become targets of sanctions, and targeting banks has a different kind of impact than targeting other industries, as we claim in our paper. 

The problem we then identify is that while such financial sanctions have had potentially devastating consequences even for the trade in vital goods, no centralised, transparent, and effective global mechanism for issuing humanitarian licenses has been put in place. The case of North Korea may be a recent exception, with the UNSC moving into this role as a licensing authority, mostly because the global sanctions regime against North Korea is driven by the UNSC, and there exists some degree of consensus among its permanent members on that issue. But since other financial sanctions regimes have mostly been put in place in a decentralised manner, with the US and the EU taking the lead on their unilateral design and implementation, for instance against Iran, Syria or Venezuela, no common licensing authority has emerged at the UN level, nor at the G20 level. This produces a situation in which global banks cannot ask exporting companies to go to one central licensing authority to obtain enough guarantees that the transfer of funds related to vital trade is authorised under either US law, EU law, or any other kind of legal framework under which financial sanctions are established. This is why we call in our article for the creation of a centralised and multilateral mechanism, where representatives of the main countries in which global banks are operating could administer humanitarian licensing in common and decide which humanitarian exemption can be granted based on common and transparent principles, for all kinds of sanctions regimes (domestic, regional, and multilateral), so as to provide banks and their clients in the vital-trade business quick and clear answers. We propose a G20+ solution, comprised of representatives of the G20 and a few countries like Switzerland. In the present situation, such a central, transparent and effective global licensing mechanism does not exist, and the propositions that have been put forward are all mostly flawed, such as the US Treasury department proposing to serve in that capacity as a global licensing authority for the whole world as far as humanitarian licenses to export to Iran were concerned.

We recognise that a lot needs to change in the present political environment, in which unilateralism has become the rule, for our call to be heard. But at least, we felt it was our duty as academics to point to this new problem and discuss the comparative merits of various solutions, even if the one solution we think would work best is not yet acceptable today. But we’ll see how the US election affects the discussion on such issues – and maybe there is hope that some change will happen.

Could you describe more specifically the near impossibility of guaranteeing that a trade of vital goods with a sanctioned state will not violate some sanctions?

In our article, we point to some ambiguities in licensing rules, even for humanitarian licensing. What may appear at first to be a clear case of humanitarian licensing may in fact reveal much less clear when you look into the details of a transaction. Let’s take an example: the export of a scanning machine for a hospital or for some kind of medical treatment to a sanctioned territory. At first, common sense may tell us that such medical equipment is a non-sanctionable product, and that all countries will agree that it falls within that category because it is obviously a medical product. But in fact, it’s more complicated than that, and some countries may authorise such an export, while others won’t. For instance, if the sanctioned territory is Iran, different countries have different sanctions in place. The US government may have one of the most stringent sanctions regimes in place against Iran – together with Gulf states. In its case, it may not authorise such an export if it happens that some members of the Iran Revolutionary Guard Corps (IRGC) are controlling the hospital through presence on the board of trustees or in the private management of the hospital. Or the licensing authority may wonder what will be the end use of that medical devise. Will it be used by military troops that have fought for the regime and its associates outside of Iran, conducting operations that the US government deems to be “terrorist” activities in Syria for instance? The US Treasury department would then not authorise any export to the sanctioned jurisdiction if it falls under these categories, whereas another licensing authority in another country may see the situation differently. Some may think that exporting medicine to Syria should only be done if there is a process that ensures it is used to cure civilians harmed by the horrible acts of the Syrian regime, but not if it runs the risk of being diverted by al-Assad’s troops. The same applies to North Korea, whose terrible regime should not be helped with foreign aid in the medical field, according to many analysts and practitioners. But other experts and governments may think that to the extent that people are all humans, even soldiers who fought in defence of a reprehensible regime have a right to access medicine and medical treatment. The principles behind humanitarian law indeed include neutrality as a core value. When doctors take an oath before starting their practice, don’t they also pledge to cure anybody, however immoral their acts have been? Thus, licensing decisions not only involve complex legal questions, but also tough ethical and political questions. So far, it remains ambiguous or unclear how each country has answered these questions.

Creating a multilateral licensing body where UNSC permanent members and other G20+ and also G77 countries can deliberate on these complex issues and agree on common principles, which would then be transparently applied to specific licensing decisions in a speedy manner, would thus be a huge plus. Can we change this state of affairs? Unfortunately, it seems that great powers have played on such ambiguities to manipulate the contours of their sanctions regimes and institute harsher regimes than what they can publicly acknowledge, while continuing to claim that their sanctions are targeted and don’t negatively affect the trade in vital goods. This seems to be contradicted by facts. Their reluctance to create a common licensing mechanism is evidence of their willingness to keep the system of comprehensivised sanctions in place, so as to continue with “maximum pressure” policies.

Such reluctance can be seen in the case of INSTEX, which, you write, was originally “an ambitious attempt to address the humanitarian gap in sanctioned jurisdictions”. Is it then impossible for public instances to take over from private banks the decision-making and implementation process?

Before President Trump formally announced the US government left the Iranian nuclear deal, and when European oil companies like Total were still hoping to benefit from the opening of oil trade and investment in Iran after the deal, there were many analysts and government experts who started talking about the role that public institutions in the field of finance could play if the private global banks no longer wanted to move money associated with Iran’s economic recovery in the oil business. Some talked about the European Central Bank (ECB), opening an account designated for all payments related to non-sanctionable EU-Iran trade. This would have been technically possible and quite effective, as in that case, it would have been hard for the US to designate the ECB even if President Trump didn’t like the fact that Europeans continued to apply the Iran nuclear deal in full. But it was a step that European political leaders didn’t want to make, and they preferred to create much less ambitious and ineffective mechanisms like the new Special Purpose Vehicle (SPV) called INSTEX, which has only administered one transaction linked to the export of COVID-19-related equipment to Iran. So technically, it’s possible that public institutions take on the role left by private financial institutions, but it requires a lot of political support, which has largely failed to manifest itself so far in Europe. This situation shows that even with President Trump, the US remains Europe’s main friend, and Europeans believe his time will pass and a new administration will restore “normal” transatlantic relations, so what they have to do is to “buy time” until he’s gone. This is what INSTEX is doing: it’s buying time, putting the Iran deal under life support, until a new US President is elected.

You propose to create a type of nonbanking, digital currency–based, payment mechanism named Safecor coin. How would it differ from other digital currencies? Is it a move towards “de-dollarisation”?

In our paper, we do focus on the licensing problem that I’ve mentioned before. This is an important problem, and in another publication that we are preparing with Jin Sun and Erica Moret, we propose a different solution which may be more relevant after COVID-19, as we argue that the World Health Organization (WHO) could actually have legal grounds to take on the role of licensing authority as its rules prescribe that it should serve as facilitator of international cooperation in times of pandemics. Indeed, if international cooperation breaks down because of licensing issues such as the ones we discuss in our article, WHO could either participate in the establishment of an autonomous committee (backed by a G20+ membership for instance), or form one inside its organisation. There are multiple ideas of different licensing authorities floating around and each one has pros and cons. 

But in our article, we go indeed one step further than proposing a new centralised licensing authority. We also propose that, in the absence of immediate trust in the new authority from the banking world, the new organisation could also administer the recording system in which traces of all exchanges between traders of vital goods will be recorded. Blockchain technologies indeed do provide technical solutions to solve problems of value transfers in a world in which trading parties want to keep privacy over the commercial details of their financial transactions, and where no trust in a central authority to keep some parts of the transfers private exists. This is why we introduce this new dimension in our proposal. We do not believe that it is absolutely necessary to move to a non-USD-denominated economy in order for a central licensing authority to be created, but in fact, the threat of witnessing the end of the US dollar as the privileged currency for international trade may be the most convincing argument for the US, so that it finally accepts to sit down at the same table as other licensing authorities and discuss in earnest its methodologies and specific decisions.

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Full citation of the article:
Mallard, Grégoire, Farzan Sabet, and Jin Sun. “The Humanitarian Gap in the Global Sanctions Regime.” Global Governance 26, no. 1 (April 2020): 121–153.

Interview by Ana Beatriz Balcazar-Moreno, PhD candidate in International Law; editing by Nathalie Tanner, Research Office.
Banner image by futuristman/