June 09, 2017

Former Treasury official says sanctions an important element in national security toolbox

Sanctions are regulatory instruments that are implemented and enforced by the Department of Treasury, pursuant to executive orders issued by the president of the United States. The purpose of sanctions is to limit the target’s access to the U.S. financial sector. 

“Sanctions are a fascinating and important element in the national security toolbox,” said Adam Smith, former senior adviser to the director of the U.S. Treasury Department’s Office of Foreign Assets Control and now a partner at Gibson, Dunn & Crutcher, specializing in international trade compliance. Smith spoke on June 6 to a group of legal professionals at a luncheon sponsored by the ABA Standing Committee on Law and National Security.

Adam Smith

Former U.S. Treasury Senior Adviser Adam Smith

Economic sanctions are imposed to respond to and discourage bad behavior – such as human rights violations, waging war or endangering international peace and security. Smith said the use of sanctions continues to rise with each new presidential administration, adding that it has increased by more than 300 percent since 2000, and for good reason. Sanctions are uniquely painless for the president, because they are basically cost-free, especially when compared to other available tools, namely military options.

To illustrate, Smith compared the use of sanctions by President Donald Trump and former President Barack Obama. Trump has imposed 26 separate sanction actions since taking office in January  – on everyone from Iran to Syria and North Korea – over a range of issues. He has added 450 names to the “blacklist” – the list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted sanctioned countries. Obama, in his first 100 days or so, imposed sanctions on 19 entities, and added more than 100 names to the blacklist.

The power to impose sanctions is authorized by the 1977 International Emergency Economic Powers Act – known as IEEPA. It is “very flexible,” giving the president wide latitude, Smith said. It allows the president to impose sanctions by declaring a national emergency with respect to “unusual and extraordinary threat” to the “national security, foreign policy or economy of the United States.” Smith said such vague terminology offers the president freedom to impose sanctions at will.

Any individual or entity related to the target of sanctions is added to the blacklist, and is shut out of the U.S. economy. Their assets are frozen, and any U.S. property is frozen (though ownership is retained), until sanctions are lifted.

Smith said because sanctions are easy to impose and have no cost, presidents are using them more frequently. But how are they free?

“Because you’re not weaponizing warheads, you’re weaponizing the U.S. dollar,” Smith said. “You’re weaponizing U.S. banks, you’re weaponizing the U.S. economy. It’s almost too easy to use.”

More than 80 percent of global trade is done in the U.S. dollar, which means that all foreign transactions are funneled through the U.S. banking system. “If you’re on the list, you’re out of the system,” Smith said, adding that avoiding the blacklist is like having the “good housekeeping seal of approval.”

Looking ahead, Smith said there are signs that President Trump may withdraw sanction relief from Cuba, while the Iran nuclear deal – or Joint Comprehensive Plan of Action  – remains in effect and unchanged. Smith said it remains to be seen what will happen with Russia sanctions, pointing to next month’s meeting between President Trump and Russian President Vladimir Putin. “Putin wants sanctions lifted, so that meeting is likely to push the issue,” he said.