On October 18, 2021, the US Treasury Department published a report of its 2021 Sanctions Review of economic and financial sanctions implemented by the Office of Foreign Assets Control (OFAC) since September 11, 2001. The next day, Deputy Secretary of the Treasury Wally Adeyemo delivered a summary of the report in testimony before the US Senate Committee on Banking, Housing, and Urban Affairs.
The review, which incorporates feedback from public and private stakeholders, together with Adeyemo’s testimony underscores the Treasury Department’s concern that the effectiveness of US sanctions could erode over time as non-US actors seek alternatives to the US financial system, including digital currencies and alternative payment platforms outside of US jurisdiction. The report observes that not only adversaries but also “some allies” are reducing their use of the US dollar in cross-border transactions, implying that unilateral US actions are contributing to the risk that US sanctions could become less effective. To counter this trend, the report lays out a five-point plan to “modernize sanctions” by enhancing the Treasury Department’s policy framework and processes for imposing, enforcing, and revising US sanctions.
While the review was not intended to analyze each of OFAC’s 37 sanctions programs in detail, nor programs administered by other agencies such as the State Department, the report does illustrate the explosive growth of US sanctions over the past two decades. According to the report, the number of active OFAC sanctions designations has increased from a total of just 912 in 2000 to more than 9,400 today, while the number of sanctions authorities, including legislation and executive orders, increased from a total of 69 to 176 during the same period.
The five steps of sanctions modernization outlined in the report are:
- Updated policy framework: The Treasury Department’s policy framework should be updated to ensure that US sanctions “are deployed alongside other measures as part of a larger strategy in support of specific policy objectives” and that sanctions are the “right tool for the circumstances.” Within this framework, the anticipated effects of sanctions on their targets should be calibrated against unintended consequences on third parties. US sanctions should be formulated on a multilateral basis, where possible, with engagement with the private sector, civil society, the media, and other stakeholders. Communications should aim to make the sanctions understood by their targets and others, including “the circumstances under which they may be escalated or reversed in response to the target’s behavior.”
- Multilateral coordination: Where possible, US sanctions should be coordinated with foreign allies and partners to magnify their economic and political impact. The report recommends increasing coordination through sharing of policy frameworks and information, harmonizing sanctions regimes, and coordinating through multilateral platforms such as the United Nations.
- Mitigating unintended impacts: The Treasury Department should “calibrate” US sanctions to mitigate unintended impact on both the American public (including small businesses) and the populations of heavily sanctioned jurisdictions. This includes expanding authorizations and guidance aimed at encouraging humanitarian activities. In his testimony, Adeyemo called attention to the need for OFAC to issue general licenses and guidance for humanitarian activities alongside new executive orders and sanctions designations.
- Communication and engagement: According to the report, “Treasury needs to communicate and coordinate more effectively with stakeholders affected by the use of financial sanctions,” including financial institutions, allies, and constituencies in the digital assets sector, among others.
- Investing in Treasury capabilities: The report calls for making investments in the Treasury Department’s workforce and operational capabilities, including updating the agency’s technology and infrastructure and building on human resources, especially “in the evolving digital assets and services space.” In his testimony, Adeyemo highlighted the need for specialists in cryptocurrency as the Treasury Department increasingly targets sanctions evasion in the digital assets sector.
The review comes as the Senate continues to consider several administration nominees, including the US Treasury Under Secretary for Terrorism and Financial Crimes and the Assistant Secretary for Terrorist Financing, who will have responsibility for implementing the report’s recommendations. The President has also nominated a State Department Sanctions Coordinator, a position revived by Congress in the 2020 stimulus bill after the dissolution of the Office of the Coordinator for Sanctions Policy under the Trump administration in 2017.
The steps outlined in the report do not seem to portend a major shift in the implementation or enforcement of OFAC’s existing sanctions programs. The report does, however, commit the Treasury Department to continue reviewing its current sanctions regimes to consider and address any unintended consequences on humanitarian activity.
The more significant impact of the review’s findings might unfold in the future, if the United States is to employ sanctions (especially unilateral sanctions) less frequently. Media reports cite a statement from a Treasury Department official that the new sanctions policymaking process will be similar to the approval process for the use of military force, and the report observes that the new policy and operational framework “will require Treasury, and others in the US government, to make difficult decisions about where and when to recommend the use of sanctions.”
The review also signals the Biden administration’s intention to re-center and regularize US sanctions policy following the ad hoc and unilateral approach often taken by the Trump administration. At the same time, the White House appears to have committed itself to the core elements of some Trump-era sanctions policies—including those aimed at China. However, sanctions targets may have a better chance today at challenging designations made under the prior administration, as evidenced by recent de-listings under the Iran program. Arguments in favor of limiting humanitarian costs and losses for American businesses may also carry more sway. The recent issuance of humanitarian general licenses in the new Ethiopia-related sanctions program—concurrent with the Executive Order that established the new program, and prior to the designations of any targets under the new authority—could be a model for OFAC’s enhanced focus on mitigating sanctions’ adverse impact on humanitarian activities.
As for Congress, the Senate Banking Committee’s questions to Deputy Secretary Adeyemo reflect the members’ interests in strong sanctions with respect to China, Russia, and certain other national security topics, which may continue to limit the Biden administration’s options for rolling back existing sanctions regimes.