This Week in AML

Are Sanctions Really Effective?

There have been several recent articles about the effectiveness of US sanctions. John and Elliot examine this issue and discuss where the programs have succeeded or failed to achieve their stated goals.



Are Sanctions Really Effective? - TRANSCRIPT

Elliot Berman: Hi John. How are you today?

John Byrne: I'm good, Elliot. I'm not literally in your backyard, but I'm in downtown Milwaukee. I know we're gonna connect in person in a couple days. Beautiful weather here, so I'm not running outside with my gloves and hat and three layers, so that's nice.

Elliot Berman: Yes. You were able to leave those behind.

John Byrne: That's right. Exactly. Hey, before we get started obviously internally we've been looking at both measurements and figuring out who all is out there. We get a lot of really good anecdotal feedback from folks that listen to this and listen to our other podcasts and webinars. So we just ask that you send us a rating, go on Spotify or some of the other places where you get Apple podcasts and others.

And also send us notes of people that you wanna hear from, that we can interview. This is obviously a short snippet of what went on this particular week in AML but we want to find out who's all out there. We've gotten some excellent feedback from folks inside the government in the private sector, but we just ask if you like what we're doing, just rate us, send us a note. Or if you have some comments, it'd be great.

Elliot Berman: Yes, we'd appreciate that. Because we are continually trying to fine tune and improve our content and want to be sure that we're covering things that our various audiences are interested in hearing about or learning about.

John Byrne: That's right. So we've talked quite a bit and fairly recently, but it keeps coming up and that's the issue of sanctions. So there's a number of things I know we wanna highlight from late last week and early this week on sanctions. What struck you from some of the things that you've read?

Elliot Berman: There was an interesting op-ed in the Washington Post this week, the title was Washington is Sanctioning 12,000 entities. It's backfiring. And so the entire question of effectiveness comes up periodically. We've had an explosion in the number of active sanction programs certainly in the last year plus triggered by the Russian invasion of Ukraine. And I think what struck me here was a reminder that some of the best known sanction programs have actually been ineffective.

So this ineffectiveness issue isn't new. The historical example that caught my eye was the comprehensive sanctions that were put in place in 1960 and against Cuba, and then expanded, 1962 to a full trade embargo with sanctions. And the idea was as is quoted here to bring about hunger, desperation, and overthrow the Castro government.

And yet here we are many years later and that government or its successor government is still operating. We've had some changes in those programs during certain administrations in the last 15 years where access to Cuba increased and now has decreased again.

But it is interesting, they've been around a long time and they have not been effective. If effective means reaching your goal.

John Byrne: Yeah. And we talk about Cuba, North Korea, Iran, Syria, Venezuela and in some of those cases, and many of those cases, it's the people that take the brunt of of the sanctioned impact. And that means some of them will flee their countries. North Korea is obviously an awful place to live, but they have nuclear weapons. I'm not smart enough to figure out what you do instead, I think people that, that critique it, don't say get rid of them, they say be more not targeted because I think we have a lot of targeted and sectoral sanctions, that sort of thing. But to understand what your goals are.

That leads us to two other things. Something else I saw today, the Yale School of Management, their Chief Executive Leadership Institute updated a chart or a searchable system that they put together. There's a thousand companies that have curtailed operations in Russia but there's still some of, even of those thousand that are still doing limited work in Russia. So you can actually track, you go on that website, you can track the thousand companies and they grade them. So it used to be they would simply say whether the company had remained or withdrew from Russia.

But now, according to the note here, they say that now there's five categories and they grade from A to F about the completeness of the withdrawals. So I think that's also interesting for those that like to look at that research. This leads us to what you and I talked about before we jumped on here, is we'd like to do a couple additional either webinars or podcasts, drilling down with sanctions experts and get both their take on the value proposition but also, some operational suggestions on how to have a successful sanctions compliance program. So we'll continue to pay attention to that.

But that leads me to the last thing I wanted to highlight and have you weigh in. Of course. Ryan Wallerstein, as we mentioned before, we've interviewed who does the Illicit Edge. He lists 10 common critiques of the US financial sanctions regime. And these are flaws that are being identified.

And I'll mention a couple and get you to mention a several as well, but one we just alluded to, that's overuse. Are we using sanctions too often? Is there such a thing as sanctions fatigue? And again, as you mentioned second is lack of effectiveness, and you talked about Cuba. We mentioned North Korea. These regimes have not capitulated to US demands. There's a number of other ones. What other ones in Ryan's list jumped out at you?

Elliot Berman: Sanctions evasion, which has been a big topic related to the Russian sanctions post Ukraine invasion. There has been efforts and meetings and all sorts of things by the western allies, EU, U K, Canada, US and to some extent the UN.

Talking about sanctions evasion as it relates to how a lot of Russian goods are being are being sold through countries that don't have sanction programs in place and may not be directly impacted by any of the current sanctions regimes. And so they're acting as a conduit to evade the intent of the sanctions. So I think that evasion has become a much bigger problem, and it's probably coupled directly with overuse, given that there are so many programs now.

That there really is an effort to, for people to keep commerce going and and choose to do that. And that's coupled with another one on the list, and that is weak enforcement. The ability with as many programs as we have to really monitor and enforce them in a deep way is challenging.

OFAC here in the US has a limited amount of staff and resources, and it's important. We've done some things in a multilateral way with Russia. We've done a lot of unilateral things and that adds to the pile.

John Byrne: Yeah. We talked a few weeks ago about the lack of coordination and that's obviously another area of problems and then how the legal complexities of sanctions ties back to evasion, like you mentioned before. They also talk about harm to us businesses. Okay. But, in some of these situations, you wanna see these businesses step up and support the sanctions regime and figure things out.

So I'm not as enamored with that. But to be fair, all of these quote flaws definitely are considerations. And I think it all goes back to when you issue a sanction, explain why you're doing it and what the goal is to be as clear as possible. And even though I wouldn't suggest the Treasury doesn't do that, I think paying more attention, given there's been a lot more articles about the value proposition than ever before.

I think you, if you're at Treasury, I think you wanna make sure that you're spending a lot of time not just issuing the sanctions, but explaining them and maybe explain when they've been successful if that's appropriate.

Elliot Berman: Yes. My sense just, from watching the landscape for a long time as you have and being involved is it's not perfectly clear that when a program is put in place, that there is established an effectiveness measure.

So that not only are we enforcing it, but can we somehow score whether it's doing enough of what it was put in place to do, that it should remain in place or it has to have some kind of changes or more resources focused on a particular one to help with enforcement and reducing evasion and things like that.

John Byrne: So more to come on that. And as we set up front, if you have some folks that you'd like us to talk to about this, we want to keep this dialogue going.

Elliot Berman: So one other thing, John, that has been going on this week and it's worth a mention now, we'll keep an eye on it, and I'm guessing along the way, we will talk about it in some depth.

But this week the SEC has taken action against both Binance, the largest crypto exchange that's currently operating and against Coinbase, the largest crypto exchange operating in the US. And these actions have been variously described as an effort to put crypto on ice, at least in the US. And if they were successful, would make crypto in the US much less of an effective tool in commerce. And certainly would reduce its availability to retail users, retail investors.

John Byrne: Yeah. So we gotta stay on top of that as well.

I would also mention, this is not necessarily financial crime, although there is a connection, I would argue to 9/11. In the sports world, a major storyline is the the merger of LIV golf and the PGA. And obviously it has completely upset many of the 9/11 families because of the statements made by the PGA last year that they would never do business with the Saudis.

Now they're taking all the Saudi money. Others have suggested this is what they call sportswashing. I point out that, when you make statements, very shermanesque statements about what you plan to do and then change, people start to wonder what's true and what's not. So I feel for those families.

Obviously, who knows how long this story will continue. Probably not that long, but I just thought given, obviously both of us were involved in the ramifications from 9/11 and we've read all the reports and for these families have been living this since then, to be told we're gonna make sure that PGA does no business with Saudi funds and they turn around and get bought out. It's a sad day in the sports world, in my humble opinion.

Elliot Berman: I agree. It's not a done deal based on the reports that I've read. They have what I would call a letter of intent, essentially, where they've laid out a framework and there apparently is some dissatisfaction. I obviously didn't speak to any of these people, but there is some dissatisfaction among the PGA players about this. So I'm not saying it won't get done, but I think there's gonna be more to write about how the deal actually gets completed.

But I agree with you. First, don't make statements you're not willing to actually live with. But second this is this is a pretty dark day, I would say for for professional golf in the United States, given the connections to 9/11.

John Byrne: You wanna highlight the June webinar?

Elliot Berman: We're on June 22nd starting at 1:00 PM Eastern Time. We're going to be talking about models, identifying them and reviewing them. We've got three folks from our Financial Crime Advisory team who are experts in this space, who will be bringing their expertise. It'll be a very practical conversation. So we're we're looking forward to sharing that with you. And John, you wanna talk about anybody that you're gonna be talking to in the next few weeks?

John Byrne: I have three interviews in the next week to plan the podcasts, and they will be covering the world of cultural artifacts and art, which we've covered several other times with some additional experts.

And then a global sanctions expert to talk to her about that world and what's happening and the game plan now based on what we just finished talking about, is maybe have her weigh in on the value proposition. Arts and antiquities the sanctions world and some other things are coming up the next couple of weeks.

So look for those and we'll give you more detail as we get it.

Elliot Berman: Yes. And watch for a blog post that we're going to load up to the website in the next week or so, about ways to improve the efficiency of your financial crime compliance program.

John Byrne: Great. Elliot I will see you in a couple days. And we'll be joined by some other former Marquette folks. So we're looking forward to that. Looking forward to connect. We will catch up with you again next week.

Elliot Berman: Yes. And enjoy your runs and the beautiful weather here along Lake Michigan.

John Byrne: All right. Take care.

Elliot Berman: You too. Goodbye.