How do Economic Sanctions Shape Global Politics?

“In 1963, the U.N. Security Council declared a voluntary arms embargo on South Africa. That was extended to a mandatory embargo in 1977. And that was followed by economic sanctions and other measures – sometimes officials, countries, cities, towns – some organized by popular movements.”

Noam Chomsky

In 2022, many countries put sanctions on Russia due to Russia’s invasion of Ukraine. Approximately 419 entities and 1718 Russian individuals were sanctioned by the European Union(EU) to threaten and undermine Ukraine’s geographical integrity.

In February 2023, the number of  single entities sanctioned by the EU dramatically increased, when, in the state Duma, 351 Russian lawmakers were sanctioned because they tried to identify the independence of Luhansk and Donetsk. In February 2024, when Russia invaded Ukraine, further measures were taken.

Economic sanctions have different purposes and tend to take various forms.

Let’s explore from scratch what a sanction is, economic sanctions, how the government imposes them, the role of regulatory bodies like OFAC, and how AML Watcher helps.

What is Sanction?

Sanctions are penalties related to trade and finances that are imposed by one region, country, organization, or regulatory body on any person or country.

Read More: Understanding Sanction Screening: A Simple Guide

Here’s how sanctions have evolved over time.

What are Economic Sanctions?

Economic sanctions are punitive measures imposed by a multilateral body, a national government of one country, or a group of countries for a targeted country, organization, or any individual that violates cultural norms or regulations.

This aims to compel or prevent different actions and policies on behalf of any individual and targeted entity, usually restricting travel and access to any financial asset.

Economic sanction is an essential foreign policy tool specifically used by multilateral bodies or governments to limit a targeted country’s economic activities.

However, the effectiveness of accomplishing targeted policy objectives remains ambiguous. Economic sanctions have different names, including embargoes, boycotts, blockades, economic coercion, and quarantine.

Types of Economic Sanctions

Economic sanctions are divided into two types:

1. Primary sanctions
2. Secondary sanctions

1. Primary Sanctions

International trade restrictions (such as limits on import or export of the targeted country and trade embargoes), prohibitions on financial transactions with the targeted country, and financial sanctions (such as denial of investments, loans, and foreign assistance or blocking of foreign assets).

2. Secondary Sanctions

Secondary sanctions manage or put additional pressure on the countries because they change the primary goal of sanctions by punishing third parties directly involved with the targeted countries.

Economic Sanctions Over History

Starting in 1966, the UN Security Council has implemented 31 sanction regimes and targeted measures in different countries such as South Africa, Libya, Mali, Sudan, Yemen, the Central African Republic, Haiti, Liberia, and Ethiopia. Government uses economic sanctions to deter nuclear proliferation and protect human rights.

Economic Sanction in Different Countries

Let’s explore famous examples of economic sanctions in different countries.

1. North Korea Sanction

Since 2016, The US, the UN Security Council, and other countries have imposed unilateral sanctions on North Korea and implemented different unilateral sanctions on their nuclear weapons programs.

North Korea did a Cyberattack on Sony Pictures Entertainment and destroyed their computer system just to gain sensitive information in 2014

2. Cuba Sanction

In February 1962, President John F. Kennedy imposed an embargo on trade between Cuba and the US and forced the US Department of Commerce to implement this clause.

This process occurred after the Cuban government took specific actions, such as nationalizing American-owned real estate properties and making strategies to increase trade with the Soviet Union.

3. Russia Sanction

The US imposed different sanctions on Russia to cut off all technology and to reduce the strength of its military power after February 2022, when Russia tried to invade Ukraine.

Afterward, Russia tried to give counter-sanctions in response like Putin signed decree no. 252, which states:

• Prohibit the export of commodities and raw materials from Russia to the sanctioned countries or to third parties.
• Russian individuals, governments, organizations, and other multilateral bodies can’t conduct financial transactions with the sanctioned countries.

Why does the Government put Economic Sanctions?

Economic sanction is a government response to different challenges such as drug smuggling, terrorism, armed conflicts, objectionable activities, and human rights violations.

It’s usually the first term that comes to mind when military operations are undesirable and impossible to do because it’s less drastic than any military action and more efficient than diplomatic protest.

Sanctions have an influential political message and significantly impact targeted regions by raising economic overheads.

“Military action is never the first thing that you jump to. You always look at other possibilities, including economic sanctions, tightening the screws.” 

Benjamin Carson

The most significant impact usually happens within the first year of any sanction, as it’s a period when financial flows are negative, trade is disturbed, and administrations have to deal with dislocations in the economy. In most scenarios, the countries already subjected to economic issues are more vulnerable to sanctions.

Role of OFAC in Economic Sanctions

Some US agencies and their treasury department implement different sanction programs for national security. Office of Foreign Assets Control (OFAC) oversees and implements different US sanction programs against targeted individuals and countries because these measures rely on the situation.

OFAC doesn’t list targeted countries or individuals but announces “Active Sanctions Programs” that usually comprise 39 standard programs such as North Korea, Belarus, Central African Republic, Iran, Syria, and Russia or Ukraine war.

OFAC also made a list of “Specifically Designated Nationals” that involves organizations and individuals controlled by or act on behalf of target countries that aren’t country-specific.  US individuals can’t use SDN assets and are blocked from using certain factors. After the 9/11 attack, the use of economic sanctions has increased by approximately 933%.

FAQ’s

What are Economic Sanctions?

Economic sanctions are just like economic restrictions that are imposed by one region, country, or individual on a targeted group of countries or individuals.

What does Economic Sanctions mean?

Economic sanctions mean restricting targeted countries’ ability to grow their economy and are imposed by one country to another. It typically involves financial transactions, investment, and trade.

What is the purpose of establishing economic sanctions?

The aim of establishing economic sanctions is to affect the behavior of a targeted entity or country. By imposing sanctions on investment, trade, and financial transactions, countries alter the actions and policies of the targeted country.

What is the purpose of UNSC economic and trade sanctions?

The United Nations Security Council (UNSC) implements trade and economic sanctions to gain specific political goals.