Sanctions Update: is the US 'maximum pressure' approach to sanctions (including against Iran) set to thaw?

Sanctions Update: is the US 'maximum pressure' approach to sanctions (including against Iran) set to thaw?

Overview

In recent weeks, rumours have started to circulate that President Biden's administration is set to depart from the US government's current approach to the use of sanctions. While the administration's review of US sanctions policy remains ongoing, details of a new softer approach, which is expected to be formally outlined when the review is published at the end of the summer, were described by a number of current and former administration officials in a series of high-level meetings held in the US Congress. It is anticipated that the review will outline a future approach based on greater international collaboration and avoiding unnecessary collateral damage to local communities.

Applying the pressure

Following former President Trump's administration entering the White House, the US chose to revert to a more direct policy of containment and isolation towards the regimes in control of countries such as Iran, North Korea and Venezuela. This 'maximum pressure' approach was most noticeable as part of US international relations during the Cold War. The idea behind the strategy is to coerce perceived bad actors to change their behaviour by imposing widespread economic sanctions, maximising diplomatic pressure and maintaining a significant military deterrence; ultimately intending to lead to regime change where behaviour does not alter significantly.

While the short-term goals of pushing Iran and Venezuela into economic difficulties and removing North Korea's links to international trade and financial networks were broadly achieved by the Trump administration, this level of pressure did not produce significant changes in the conduct of the regimes in charge of these countries and had the unintended consequence of causing significant hardship to ordinary people and businesses based in these countries.

For instance, North Korea continued to develop its missile programme and, following the US leaving the Joint Comprehensive Plan of Action ("JCPOA") (also known as the Iran nuclear deal), Iran started to enrich uranium again. The maximum pressure approach also led to divisions between the US and its traditional allies in Europe (including the UK), where a view was taken that bringing Iran to the table was a better way of curbing its growing nuclear ambitions.

A more nuanced approach?

Over the course of recent months the Biden administration has signalled its clear desire to adopt a different approach to international sanctions. Negotiations, which have faced a number of setbacks, still remain ongoing between the US and Iran over the US re-joining the JCPOA and acts such as the US Treasury Department reducing restrictions on the Venezuelan port authority, to permit additional shipments of food, medicines and other supplies to be brought into the country, suggest that the US is starting to take a different approach.

While there has been no suggestion that sanctions will be completely abandoned as a tool in the US's international relations arsenal, the strong indication has been that their use will increasingly be as part of wider diplomatic efforts to bring about collaborative foreign policy goals. While some have criticised the intended approach as potentially undermining international security, a more coordinated approach, which is not based on unilateral actions and perceived 'bullying', has been welcome by some who consider this a better way of creating change.

Evidence of more collaboration has been seen in the case of the imposition of targeted sanctions against Russian officials for attacks on political opponents and more recently in the case of political repression in Belarus. The review that is currently ongoing has taken into account representatives from international businesses and nongovernmental organisations with the aim of finding a way to impose sanctions in a targeted, warranted and judicious way; which is ultimately more clearly aligned to how sanctions are intended to be imposed under international law in the first place.  

What might this mean for business?

The ever-changing international sanctions regime has caused significant issues for both individuals and commercial entities trying to carry out business in countries subject to sanctions in recent years. With many financial institutions opting to take a very risk adverse approach to the use of banking facilities in connection with activity that might be caught by sanctions, opportunities have been restricted significantly in certain jurisdictions, in many cases beyond the actual sanctions which have been imposed.  

While there is no suggestion that international sanctions will not be used by the US going forward, what this may mean is that a softer approach might enable increased amounts of business to be conducted where previously the risks were considered to be too high (aligning the US more closely with the EU and UK's current approach).

Although it is an obvious observation to make, the political climate could shift significantly. For instance, there is no guarantee that the US and Iran will reach an agreement over the JCPOA. Screening, monitoring and ensuring that appropriate policies and procedures remain in place will therefore all continue to be important, however there may well be a sigh of relief in some compliance departments if the results of the review are as expected.

That said, we are currently in a period where many human rights groups and political parties are calling for increased pressure on regimes considered to be authoritarian. Striking the right balance will, as always, be difficult to maintain. The UK, which has traditionally followed the US's lead on sanctions, may well forge its own path, however as a key ally taking a harder line than the US in connection with certain activity might not be considered sustainable in the long term, particularly when the opportunity for a future free trade agreement remains on the table.

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