If sanctions did what they were supposed to, they’d hit their targets hard, produce intended results, and come to an end. But that’s not happening.
Instead, sanctions — now several dozens of them — are mostly ineffective and seemingly permanent, resulting in an ever-increasing compliance burden on companies and compliance professionals everywhere.
Days after Russia invaded Ukraine in February 2022, Western governments piled sanctions on Putin’s regime and its enablers. All things Russian — banks, hydrocarbons, and assets everywhere — were targeted. Western companies had to exit the country.
Did shock-and-awe sanctions bring the regime to its knees? Hardly. Putin is still in power, arguably stronger than ever, and Russia is still warring against Ukraine.
Cuba has been under U.S. sanctions for 60 years and little there has changed. The same faces are still running North Korea and Iran. How are sanctions working against Afghanistan, Belarus, Hong Kong (yes, some pro-Beijing Hong Kong leaders are targeted), Nicaragua, Libya, Syria, Turkey, Venezuela, and Yemen?
Don’t forget sanctions against China for its human rights abuses, and those targeting Burma, the Democratic Republic of the Congo, Ethiopia, and Zimbabwe.
That abbreviated list shows the growing inventory of older sanctions, while newer ones keep coming. The U.S. Treasury Department’s Office of Foreign Assets Control now lists 38 active sanctions programs on its website.
Other countries and organizations impose sanctions, too. The UN, EU, UK, Switzerland, Canada, Singapore, Australia — they all have sanctions programs that usually run alongside U.S. sanctions.
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Why don’t sanctions work?
They’re often intended to cause popular discontent or revolt. But the targets are almost always autocracies that hold power by intimidation and force, not fair elections. Even if sanctions sting the local populace, there’s usually no impact on the regime’s tenure.
Sanctions designed to interrupt trade are rarely effective. Target countries aren’t significant trade partners, so the downside to them is limited. Beyond that, sanctions force targets to find new trade partners — usually other sanctioned countries — resulting in alliances among “outlaw” states.
Some regimes retaliate against their sanctioning by ripping off former Western suppliers and investors. Their tactics include expropriation, wholesale patent infringement, and other intellectual property theft.
Sanctions also stimulate state-supported smuggling of everything from military hardware to luxury handbags.
Meanwhile, autocrats blame sanctions for what’s wrong in their country. In that way, sanctions become a potent scapegoat and unifier.
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Turning again to Russia and Putin, what has happened since the Ukraine invasion?
Sanctions solved Putin’s problem of capital flight. Russian-owned assets overseas, both public and private, whether in the hands of Putin supporters or not, are at constant risk of being frozen or seized. The risk has led to the flow of those assets back to the safety of Russia.
One commentator said recently, “Capital flight from Russia amounted to a staggering $239 billion last year. But thanks to the sanctions-driven isolation of the Russian banking system, that flood has dwindled to a trickle.”
Did sanctions trigger the expected brain drain that would cripple Russia’s economy? Just the opposite.
Because of blanket sanctions, ordinary Russians are finding it more difficult than ever to get visas for other countries or move money into bank accounts outside Russia. So, they’re either staying in Russia or, if they were among the million or so who left because they objected to the regime’s behavior, they’re returning home. Putin claims half of them have already come back.
Russia’s economic growth this year will be about 2.5 percent (a healthy rate when measured against Western economies). And — bad news for Ukraine — the Kremlin has already earmarked at least $110 billion for military spending next year.
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Sanctions rarely accomplish their stated objectives. But they allow Western leaders to react publicly against objectionable regimes and abhorrent policies. In most cases, sanctions satisfy demands for action from the electorate and political opponents. And, of course, in our nuclear-armed age, sanctions are a safer response to bad actors than military force.
For those reasons, sanctions will continue to be the West’s go-to response to rogue states, of which there’s an endless supply.
But because sanctions rarely create real change and therefore remain in place indefinitely, there will be more of them to contend with at any given time in the coming years.
Compliance leaders should plan accordingly.
