Sanctions the new norm: IIL - FREE

Sanctions the new norm: IIL - FREE

Deployed as an alternative diplomatic tool for governments – between stalled efforts at cooperation and the unpopular use of military force – international sanctions are going to play an increasing role in geopolitics, warns an Insurance Institute of London (IIL) lecture.

That was the message from Miriam Gonzalez Durantez, a partner at Dechert and co-chair of the law firm’s international trade and government regulation practice, speaking to a packed house at the Old Library at Lloyd’s of London today.

The tentative “success story” of using sanctions to bring Iran to the negotiating table, over the Islamic Republic’s disputed nuclear programme, is encouraging use of sanctions as a geopolitical option, she suggested.

“We don’t know yet if it will work, but it’s bringing them to the table,” said Gonzalez Durantez.

Political enthusiasm for sanctions is particularly relevant in the European Union, she suggested, which is presently in the process of removing its sanctions against Iran in response to recent talks between leaders.

“The lifting of sanctions on the EU side is going to be very comprehensive,” Gonzalez Durantez said. “There is a question mark remaining on the side of the US.”

The banking and insurance sectors are likely to see sanctions used as a weapon against other countries, she suggested, adding: “The main candidate is Russia.”

Policymakers and technocrats are looking to financial services – particularly the banking and insurance sectors – to lead this effort, she warned, although Russo-European economic connectivity means policymakers are aware of limitations.

“Sanctions are about the only tool the EU has that it is able to use in an integrated way,” she added said, noting the bloc’s ability to use the diplomatic tool, while lacking unified military forces or other aspects of joined up foreign policy across its 28 members.

Many EU countries are busily gold plating their own national implementation of EU sanctions, creating “slight nuances” between member states’ approaches, such as the UK and Germany, she suggested.

Politicians are also enthusiastically using sanctions as a revenues-raising mechanism for treasuries, and as populist device via “Robin Hood” policies, such as taking money levied through fines and then pledging it to vote-winning “good causes”.

The UK Government is mulling the creation of an Office of Sanctions, noted Gonzalez Durantez.

The popularity of sanctions among politicians has been diametrically linked to the declining willingness by US and European governments to undertake military interventions, since launching long, costly and unpopular wars in Iraq and Afghanistan.

“9/11 changed the whole picture on sanctions”, she noted, with added emphasis on counter terrorist financing (CTF), although corporate culture has in some ways failed to keep up with geopolitics, she suggested.

“When you get an anti-bribery investigation, people are shocked or horrified, and they know what they have to do,” she said, adding that some firms were still “slightly more blasé” about sanctions “imposed by governments”.

Part of the problem is difficulty in “understanding the logic” behind sanctions, she suggested, as they are an instrument of foreign policy, as opposed to trade policy, lack transparency, rely on intelligence, defence and other non-economic factors which can be anathema to corporate decision-makers.

She warned against firms becoming complacent in managing sanctions risk too infrequently due to the “constantly changing” blacklists against individuals, corporate entities and jurisdictions, while the sanctions regimes also vary greatly across US, EU, UN and other sanctions-making bodies.

There was another warning about attempts to get around sanctions through “circumvention” (the European term) or “facilitation” (in the US), such as trying to gain Iranian or Syrian business through subsidiaries and banks based in neighbouring Middle East jurisdictions.

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