Today, the overall goal of sanctions is to coerce behavioural change from an entity or regime. Though this sounds relatively noble, the efficacy of sanctions is a lively topic of debate in academic circles, with some authors suggesting they achieve the exact opposite of their goal. Further, there is evidence that unilateral sanctions have detrimental impacts on women, children and other vulnerable groups, which is why more recent sanctions regimes have focused on individual people, entities or groups, rather than entire nations.
Given their long— albeit contested— use internationally, coupled with a generalised desire to avoid the awful wars of the past using other means, it’s unsurprising that sanctions continue to emerge as an option for generating change. When Donald Trump served as the 45th President of the United States, sanctions were a large proportion of his foreign policy efforts, with increased use against Iran, Venezuela and North Korea as well as expanding Magnitsky sanctions. Second time around, President Trump is reaching for the sanctions card again— but not in the same ways as before.
New US sanctions have been many and varied, starting immediately after the inauguration, when the President signed a series of Executive Orders. Some of them have limited initial impacts, but they’re a good crystal ball to see the future.
- Designating Cartels as Foreign Terrorist Organisations - A new Executive Order seeks to designate some cartels as Foreign Terrorist Organisations or Specially Designated Global Terrorists. Nobody specific was named, but this is likely to happen soon. This probably won’t end the 60 year long War on Drugs, but it could result in enhanced enforcement by the US in Mexico. Overall, this approach may prove hard for Mexicans who have found themselves drawn unwillingly into organised crime through protection payments. New designations mean new sanctions lists so it’s critical to get on top of updates as quickly as they arrive to limit exposure. DCM can provide support to cover high volume alerts as well as assuring that your sanctions processes are ready for an uptick in activity.
- International Criminal Court - If you didn’t know, the United States is not a member of the International Criminal Court. This goes back and forth every few years across different Presidents (Clinton liked it, Bush Jr was hostile about it, Obama sought more engagement)— but the current President is very clear on his opposition to the ICC, referring to it in 2018 as ‘an unelected, unaccountable, global bureaucracy’ in a speech to the UN. With the ICC attempting to investigate US war crimes in Afghanistan, the US authorised sanctions against the court in 2020. The Biden presidency undid them and President Trump has now undid that un-doing. Rescinding Biden’s work doesn’t mean that there are fresh ICC sanctions, so watch this space to see next steps about this topic (incidentally, flip-flopping has become a reason why sanctions is much more complex today than it was even ten years ago).
- The Houthis - The Houthis are likely a familiar reference to anyone following the situation in the Middle East. The US designated them as a Foreign Terrorist Organisation in 2021, but the Biden Presidency undid this because the humanitarian situation in Yemen was so poor. In January last year, the Houthis were re-designated under the Specially Designated Global Terrorist regime because of ongoing activities in the Red Sea. Chatham House heavily criticised the US for this, noting that it represented “the complete absence of a policy.” On January 22nd this year, the Houthis were re-designated as a Foreign Terrorist Organisation. This leads to a somewhat bleak view of sanctions, because it’s unlikely that the Houthis will care much— but the people of Yemen will suffer from impeded aid. This might seem removed from day-to-day payment services in the UK, but crowdfunding, crypto and charity payments could all become vulnerable to intervention by designated persons, and the original payee may not by complicit. If this is a concern for you, DCM can help you work out if your sanctions risk assessment are up to the challenge of fast-paced sanctions changes and help you formulate sustainable approaches that will work into the future.
- Security in the West Bank - In 2024, President Biden had signed an EO imposing sanctions on ‘activities that threaten the peace, security and stability in the West Bank’. The EO specifically mentioned ‘extremist settler violence’ and came just ten days before the UK announced sanctions on ‘extremist Israeli settlers’. This EO has now been rescinded. While the United States is a long term and firm ally for Israel, any suggesting of tempering that relationship due to humanitarian concerns will have been dampened by this action.
- Tariffs as Sanction - Tariffs general revenue, but they’re also a sort of regulation of international trade that offers some support for domestic industry. The strongman approach of the last few weeks has shown the President is keen on an aggressive approach to tariffs, effectively turning them into an economic sanction. This was first seen in the US-Colombia face-off at the end of January. The American administration deported Colombian nationals on military planes, which were turned back by Colombia. The White House threatened 25% tariffs, rising to 50% within a week. A travel ban and revocation of visas of government officials were also threatened. Colombia accepted the returned citizens.
Far from a ‘carrot and stick’ approach, the tariff threats are a ‘stick and stick’ approach, wielded in a heavy hand. The same diplomatic tactics are also touching Canada, Mexico and China. Whether they all come to pass or not, media reports are focusing on the potential for retaliation. One of the problems of the sanctions space is this tit-for-tat, which has the potential to become somewhat surreal— back in 2010, China unofficially sanctioned Norwegian salmon after the Nobel Peace Prize was awarded to a Chinese dissident.
What does this all mean for the FinCrime world?
Regardless of your views on global power struggles and sanctions, the fact is that more sanctions mean more complexity in the FinCrime space. The days of just screening a list of designated persons and asking companies to fill out OFAC questionnaires are gone. Heads of FinCrime in FI should be thinking about industry risk, jurisdictional proximity to areas with high sanctions and cross-border payment screening approaches. It’s becoming less and less common to see a designated person try to open a bank account in their own name, so banks should beware of:
- corporate structure misuse via offshoring or complex structures
- extended family and known associates opening accounts,
- signups from companies minority owned by designated persons
If you want to know if your sanctions regime will pass muster in the months and years to come, reach out to DCM to talk to us about assurance, policy advice, clearing a backlog of alerts or training needs in the sanctions space.
Written by
Aisling Twomey
Regulatory Advisor at DCM
