American Sanctions: Why Foreigners Obey
By Pierre Lemieux
Why are international sanctions decreed by the US government obeyed by the targeted “sanctioned persons,” who are foreign nationals generally out of reach of penalties from American authorities? The answer is simple but apparently unknown to many people. The sanctioned persons are not expected to do anything to obey. What the sanctions do is to prohibit Americans (as well as nationals of third countries) from dealing with the foreign sanctioned persons (which include individuals and entities), and the criminal penalties target Americans.
Sanctions are like tariffs or embargoes: they first hit the very subjects of the sanctioning government in order to affect the foreign targets. The embargo of 1808-1809 provided an advance example.
On September 25, the US government sanctioned a number of Chinese maritime shipping companies for allegedly delivering oil to Iran. The Wall Street Journal correctly explains what this means (“U.S. Sanctions Chinese Firms for Allegedly Shipping Iranian Oil,” Wall Street Journal, September 25, 2019):
U.S.-based companies and individuals are barred from conducting business with the newly blacklisted firms, and others who are found to be continuing transactions with them risk punitive action by the U.S. as well.
Oil traders and shipping brokers, many of them American or nationals of friendly countries, were soon struggling to replace the dozens of tankers hit by the blacklisting. Within a few days, oil shipping rates jumbed jumped–by 18%, to $45,000 a day, for very large crude carriers (“U.S. Ban of Cosco Tankers Rattles Oil Transport,” Wall Street Journal, September 27, 2019).
These new sanctions are allowed by Executive Order 13846 (“Reimposing Certain Sanctions with Respect to Iran”), signed by President Donald Trump on August 6, 2018 (after he had denounced the 2015 nuclear agreement between the US government, several allied governments, and the government of Iran). Other presidents have issued similar orders before, including Barack Obama. Not surprisingly, Executive Order 13846 confirms, in seven pages of tight legalese, that the threat of penalties for violating the sanctions targets Americans and other catchable businessmen in friendly countries—for example:
the Secretary of the Treasury, in consultation with the Secretary of State, shall … prohibit any United States financial institution from making loans or providing credits to the sanctioned person totaling more than $10,000,000 in any 12-month period …
prohibit any United States person from investing in or purchasing significant amounts of equity or debt instruments of a sanctioned person;
restrict or prohibit imports of goods, technology, or services, directly or indirectly, into the United States from the sanctioned person …
No entity owned or controlled by a United States person and established or maintained outside the United States may knowingly engage in any transaction, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of the Government of Iran …
Penalties assessed for violations of the prohibition … may be assessed against the United States person that owns or controls the entity that engaged in the prohibited transaction.
“Sanctions” are nominally imposed on foreigners, but the actual penalties target Americans.
Perhaps, in certain cases, international sanctions of this kind are justified, but the way they work implies that their justification requires two demonstrations. First, it must be demonstrated that the sanctions are desirable, perhaps as an alternative to a just war. Second, it must also be demonstrated that the sanctioning government is justified to conscript and coerce its own nationals (or nationals of third countries) for this task.