U.S. Department of the Treasury

 

WASHINGTON - Thank you so much, Richard.  And thank you to CNAS for hosting me.  Whenever I see writing under the CNAS heading, I know it will be thoughtful, thorough, and creative – and will help me better understand the challenges we face at Treasury every day.  That’s certainly true of the new report from Liz, Zach, Dan, and Julia, and so I’m honored to be here, to share my own thoughts on some of the themes they’ve covered so well.

 

Many of you may have seen Secretary Lew speak on sanctions recently at the Carnegie Endowment.  If you missed his remarks, I urge you to read them.  And if you’ve already done so, you likely won’t be surprised to hear that I agree completely with the sanctions doctrine laid out by the Secretary. 

 

This is a particularly appropriate time to have this conversation.  The United States is using sanctions now, more than ever, to confront many of our most serious adversaries.

 

This morning, I’d like to take a brief look at this modern sanctions landscape.  And I’d like to do so with two questions in mind.  One, what lessons have we learned that transcend any one specific program?  And two, how can these lessons ensure the power of sanctions going forward?

 

Ultimately, we’ve learned three primary lessons.  One, the broader the international buy-in for a sanctions program, the more effective it will be.  Two, a sanctions program must have well-defined objectives, with clear criteria for removing sanctions when a target appropriately changes course.  And three, to ensure sanctions are more than just words on paper, proper implementation is vital.

 

We also know that sanctions are powerful, but not all powerful – and that they are not-risk free.  As Secretary Lew said last month, “the power of our sanctions is inextricably linked to our leadership role in the world” – to our status as the world’s largest economy and the center of global commerce.  We cannot take that role for granted – or ignore the risk that sanctions overuse could undermine it. 

 

To preserve the power of our sanctions, we must assess such risks honestly.  And we must impose sanctions strategically, and judiciously – recognizing that we should only impose sanctions when the threat is serious, and when the balance of costs and benefits is in our favor. 

 

 

Of course, every threat we face is different, and we must tailor our sanctions accordingly.  But the three lessons I’ve mentioned apply across the board.  And as we consider a sanctions strategy that can endure, we must take care to use sanctions wisely, always bearing the lessons we’ve learned in mind.  

 

 

First, we’ve learned that to achieve maximum impact, we must coordinate sanctions with the broadest possible coalition.

 

There’s no better example than our Iran program.

 

The multilateral nature of the sanctions on Iran was crucial.  Without global buy-in, Iran may have found more willing trading partners and work-arounds, softening the sanctions impact, and lowering Iran’s incentive to reverse its nuclear course.  Moreover, if the sanctions were merely unilateral, foreign companies may have been less likely to cooperate – especially if faced with a divergence in sanctions requirements across borders.

 

That’s why we traveled the world to garner widespread support for our diplomatic approach and our sanctions regime – and to coordinate implementation with our partners.  That’s why every time we pursued new Iran designations, we carefully explained our actions to foreign governments, ensuring each of our partners would remain on board.  And that’s why we only ratcheted up sanctions in a deliberate, incremental manner. 

 

There’s a reason we did not impose the most severe oil sanctions until 2012.  And even then, we did it in a calibrated way.  Expecting too much, too fast, would have risked rupturing our coalition.

 

Our emphasis on multilateralism goes beyond our Iran program.  For example, after North Korea conducted its most recent nuclear test and ballistic missile launch, the United States worked with members of the UN Security Council to adopt a unanimous resolution targeting the North Korean regime with the strongest sanctions to date.  

 

That unanimity was essential.  Without the support of North Korea’s closest trading partners, like China, our sanctions leverage would be ineffective.  But now North Korea faces the prospect of a united international community, with great economic leverage, working together to change Pyongyang’s strategic calculus. 

 

The contrast with our more unilateral programs is clear.  Take Cuba.  The truth is that we’ve never won international support for our embargo against Cuba, and have instead seen some of our closest foreign partners pass legislation expressly forbidding companies from complying with our sanctions.  This conflict of laws is as untenable as it is ineffective.

 

None of this is to say that we should never impose sanctions on our own.  There may be times when, to protect our national interests, we need to act alone.  But as Secretary Lew said, that “should be the exception, not the rule.”  We should always work to ensure maximum international alignment before imposing a new sanctions regime.

 

 

We’ve also learned that to be coercive, sanctions must be dynamic.  Because the primary purpose of a sanctions program is to promote a change in behavior, we must always have a clear sense as to what constitutes positive behavioral change, and we must be ready to remove sanctions when we see it happen. 

 

Again, our Iran experience is instructive.

 

Our partners around the world agreed to impose certain sanctions against Iran for one reason:  to help resolve the international community’s concern with Iran’s nuclear program by creating the incentives and space for diplomacy.  This clarity of purpose was essential.  Without it, Iran may not have understood what it needed to do to avoid nuclear sanctions, which would have undermined its incentive to do so.  And without it, our partners may not have stuck with us – especially those who sacrificed much more business with Iran than we did.

 

 

At the same time, we’ve kept in place all the sanctions authorities we need to continue to target Iran’s support for terrorism, its regional destabilization, its human rights abuses, and its ballistic missile program – just as we always told the Iranians we would. 

 

Our Burma program is another example.  We first imposed sanctions in Burma in 1997, as Burma’s military junta continued to repress the democratic opposition.  But in 2012, as Burma moved toward building a democratic and free society, we began to ease those sanctions. 

 

Like all of our sanctions, sanctions against Burma were never intended to dole out punishment or vent frustration.  They were intended to persuade Burma’s military leadership to change direction.  And when they began to do so, we responded in kind.

 

Now, we did not lift sanctions wholesale.  Instead, we started a measured easing.  This action allowed us to use sanctions – and their incremental easing – to encourage the Burmese government to remain on the road to democracy.

 

This principle applies just the same to sanctions targeting sub or non-state actors, like narcotics traffickers.  The dynamic nature of our sanctions list illustrates our approach:   when targets credibly show that they have ceased their bad behavior, we can and do remove them from the designations list. 

 

We did this just last week, de-listing 15 individuals and entities that demonstrated positive behavioral change.  In fact, every year for the last five, OFAC has removed at least 100 individuals and entities from the list.  And, in June 2014, we marked one of the largest delisting actions in our history, with the removal of 308 individuals and entities that had ended their association with the Cali drug cartel.  Those are 308 examples of sanctions success.

 

So that’s a key takeaway:  when we impose sanctions, we must clearly articulate our policy goals, and demonstrate that we are prepared to lift sanctions if those goals are met.  This reciprocity is a good thing, and demonstrates success on the part of our programs.  To do otherwise would undermine the coercive credibility of all our sanctions, whose power to persuade rests on the belief that they can ultimately end.

 

 

Last, but certainly not least, we’ve learned that implementation matters a great deal.  The most creative, well-designed, and multilateral sanctions will achieve little without vigorous implementation.

 

That means that we need to invest in the infrastructure required to implement and support our efforts. 

 

It starts with targeting.  We need to make sure that we continue to build up our financial intelligence capabilities, so that our analysts can track bad actors as they move and store illicit funds. 

 

This has proven especially important in our fight against terrorist financing.  Since the inception of our office, TFI, our analysts have relentlessly pursued al-Qaida, the Taliban, Hizballah, and other terrorist groups – including, of course, ISIL today.  With the help of the peerless work of our intelligence community, we have been able to identify and designate hundreds of terrorist supporters, disrupting the flow of funds to terrorist groups, weakening their support structures, and deterring would-be donors. 

 

We have, far and away, the most advanced financial intelligence capacity in the world.  But when it comes to tracking targets across borders, we cannot work alone. 

 

We are working with our foreign partners – including other governments, the Financial Action Task Force, the UN Security Council, the World Bank, and the International Monetary Fund – to build international capacity in this regard. 

 

We have a lot more work to do.  But there is no question that, as a result of the work we’ve done so far, international financial markets today are safer and more transparent.

 

Now, we know that as we implement sanctions to target bad actors, we also must guard against unintended effects.  So we use licenses:  to authorize the everyday export of food, medicine, and medical devices, and to allow for humanitarian relief when natural disasters strike.  Because, again, sanctions are not meant to punish – and certainly not meant to punish civilians. 

 

Finally, we know we could not succeed without the help of the private sector, which is often our first line of defense against illicit actors. 

 

A tremendous amount of effort is required to help the private sector play that role.  We know that sanctions compliance can be difficult or expensive.  And we believe it is our responsibility to help banks and businesses understand how sanctions apply to a wide range of transactions.  We try to always be clear about what we are doing, why we are doing it, and how it would affect business around the world.

 

 

Such conversations flow in both directions, because the private sector is often best positioned to observe the effects of our sanctions, and to tell us how they can be improved.  As we share guidance with private banks and businesses, we also get valuable feedback on the efficacy of our sanctions.  Clear communication with the private sector helps us calibrate those sanctions correctly, and helps us understand when and where to ratchet them up.

 

Unfortunately, there are times when, even with the clearest communication, businesses won’t comply.  When that happens – when a company or individual treats our sanctions as merely advisory – we don’t hesitate to hold them accountable.  Because implementation isn’t just about explaining the meaning of the sanctions we impose.  It’s also about enforcement – about signaling that non-compliance will not be tolerated.

 

The announcement of a new sanctions program is not the end of our work.  It’s more like the start.  All of this takes time, and money.  We need to invest our resources accordingly. 

 

The examples I’ve given – and there are of course many more – show how sanctions have helped to counter some of the most serious threats to our national security.  Sanctions can be smart.  They  can be powerful.  And, in the right circumstances, they can work.

 

The circumstances are not always right, though – and it’s important to recognize that.  Sanctions are not a silver bullet, or the solution to every foreign policy crisis.  And, even when sanctions do work, they can come with negative side effects for the United States or for the international financial system.

 

Just like other ways the United States projects power, imposing sanctions involves risk.  Sanctions can impose serious costs – not just on our adversaries, but sometimes on our allies.  They can strain diplomatic relations or dampen commercial activity.  And they carry a risk of retaliation from targets.

 

These risks can be higher when it comes to secondary sanctions.  Secondary sanctions primarily target foreign persons, and can apply to activity that does not touch the U.S. financial system directly.  As a result, even some of our closest allies view them with suspicion.  

 

There’s also a more systemic risk to consider.  Our capacity to impose effective sanctions derives in large part from the centrality of the United States to global trade.  In the near term, that won’t change.  But in the long term, if we insist on imposing sanctions without multilateral support – especially secondary sanctions – we could damage our standing internationally, weakening the primacy of the U.S. financial system.  And if we lose that, we lose the very economic leverage that has made our sanctions so effective in the first place.

 

I’ve spent my career building up our capacity to impose tough sanctions.  This is my life’s work.  But I am conscious of these long term risks – and recognize the need to have an open dialogue about them.  Because if ignored, these risks could undermine much of what we’ve worked so hard to achieve. 

 

In the past, there was a risk that sanctions would be overlooked.  Now I see more of a risk they’ll be overused.

 

This is not just my view, or just the view of this Administration.  As the CNAS report states, “Over time these externalities may undermine the availability and integrity of sanctions as a tool of American statecraft, and in so doing, also may undermine the ability of the United States to use sanctions as a way to exert pressure and shape the incentives of adversaries[.]”

 

This is a serious concern.  And one way to address it – as we’ve already tried to do – is to ensure that we use sanctions thoughtfully, always remembering that sanctions serve a policy – not the other way around.

 

When confronting threats to international stability, the United States must make use of all our available tools – especially our non-military tools – to respond.  It is of course not in our interest for aggression to go unchecked, or for criminals and terrorists to abuse our financial system. 

 

Today’s sanctions, when done right, are one of our most valuable policy tools on this front. 

 

How do we do sanctions right? 

 

We build a broad coalition.  We articulate our policy goals, and stand ready to lift sanctions when those goals are met.  And we make the necessary investments to ensure successful implementation. 

 

That means that we deploy multilateral, not unilateral, sanctions whenever possible.  That means that we use sanctions only in tandem with other tools, and only when the intended policy goal is important enough to justify sustaining the associated costs.  And that we work closely with our foreign partners, and with the private sector, to implement sanctions effectively. 

 

That also means that we always remember:  the proper measuring stick for our sanctions is not the amount of funds we have frozen, or the business we have barred.  It’s the behavior we’ve changed.

 

If we do all this – if we apply these lessons, and stick to these principles – I am confident that our sanctions programs will serve to protect our interests for many years to come.

 

Thank you again for hosting me this morning. 

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