The regrettable rise of a world of prohibitions

Items

• Introduction

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  For over six decades different types of economic sanctions have been imposed on a range of countries from Latin America and the Caribbean (LAC) to force, persuade, influence, or cajole their governments into doing some things and not doing others. Sanctions have been designed to force governments and others to defend business interests, seek the restoration or support of democracy, respect human rights, protect the environment, fight corruption, or tackle international crime. By a very large margin the greatest number of sanctions have been applied by the United States, which appears to be using them much more frequently than before, and increasingly as a central instrument of its foreign policy. The United Nations (UN) and the European Union (EU) have also used sanctions. With a few exceptions, LAC countries have been mainly at the receiving, rather than at the originating and imposing end of the sanctions business.

  Many aspects of sanctions remain deeply controversial. Some political leaders reject the entire idea of sanctions as an unacceptable form of international intervention carried out by strong and rich countries against the weak and poor ones. Others question whether sanctions work at all, holding that within each country they often adversely impact the poor and the population at large, not the intended targets - governments or decision-making elites. Academic debate is also in some ways inconclusive since with so many factors at work it is hard to reliably isolate the specific impact of sanctions, particularly in rapidly evolving political situations.  

• Overview: sanctions as a foreign policy tool

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  Sanctions have been described as “the withdrawal of customary trade and financial relations for foreign and security policy purposes”. An alternative definition describes them as “commercial and financial penalties applied by states or institutions against states, groups, or individuals”. They are thought of as a form of limited coercion. Some analysts have described them as part of a spectrum which ranges from outright war at one extreme, through to normal, peaceful diplomacy at the other. Located somewhere in between, they can involve cessation of trade, travel bans, asset freezes, military embargoes, capital controls, and foreign aid reductions.

  There are various different types of sanctions. Comprehensive sanctions ban trade and other activities that cover an entire country. A classic example might be the long-standing US embargo of Cuba, which has been in place for no less than 62 years (it was first imposed in 1962 in the early days of the Cuban revolution, by President John Fitzgerald Kennedy). More recently, governments have favoured the use of more targeted sanctions which seek to block transactions with specific individuals, companies, or groups. Sanctions may also be grouped according to types of activity that the sanctioning power seeks to prevent or reduce, examples being narcotics trafficking, corruption, or human rights violations.  

  Most recent international crises have involved what could be called a sanctions dimension. For example, in August 1990, only days after Saddam Hussein invaded Kuwait, the United Nations imposed comprehensive economic sanctions against Iraq – it was, however, to take a further four months of debate before the UN authorised the use of military force.

  After the attack on the Twin Towers in New York (11 September 2001) the US began to focus on using sanctions against members and supporters of Al Qaeda as well as targeting their financial activities. Only days after the attacks, President George W Bush signed Executive Order 13224, giving the Treasury Department wide powers to freeze the assets and financial transactions of all individuals suspected of supporting terrorism. Extra powers were also taken to tackle money laundering. In addition, President Bush gave the Treasury powers under Section 311 of the USA Patriot Act to designate foreign jurisdictions and financial institutions as “primary money-laundering concerns”. An important detail is that the Treasury needs only to have a “reasonable suspicion” to act – and is not required to present concrete evidence of wrongdoing.

  Western countries responded quickly to Vladimir Putin’s invasion of Ukraine on 22 February 2022 with a barrage of economic sanctions. The Joe Biden administration in the US announced sanctions against thousands of individuals and firms connected to the invasion. Similar restrictions were imposed by the EU, with a particular focus on winding down dependence on Russian gas and energy supplies. Working with the EU, Washington led international efforts to freeze more than US$330bn in Russian central bank assets. In both the US and EU there are ongoing debates over whether interest payments on sequestered Russian assets could or should be used to finance Ukraine’s economic recovery or even its ongoing war effort. The Ukraine case has meanwhile fuelled debate on the effectiveness of sanctions. While sanctions have clearly had a negative effect on Russia, the country has proved highly resilient and able, for the moment at least, to continue to wage a highly expensive war against its neighbour.

  US sanctions programmes

  

  Note: The graphic represents the total number of US sanctions as of August 2023.

  Source: International Crisis Group using U.S. Treasury Office data. Further detail here.

• United Nations sanctions

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  Within the UN, sanctions decisions are taken by the Security Council where its five permanent members (the US, China, France, Russia, and the UK) each have a right of veto. A decision also requires a majority vote of all of the Council’s 15 members. Once agreed by the Security Council, applying the sanctions becomes mandatory for all UN member states. Typically, UN sanctions include asset freezes, travel bans, and arms embargoes. Implementation is monitored by specially set-up sanctions committees. However, the UN lacks an independent enforcement capacity of its own and must rely on the cooperation of member states or other bodies. For example, the UN has worked with Interpol to apply sanctions to members of Islamic State (IS). There is a general perception that the enforcement of UN sanctions is relatively weak because of limited resources and the low priority sometimes assigned to the task by many countries.

  Still, the number of UN sanctions has increased significantly. Before 1990 the UN was involved in only two major sanctions cases, against Southern Rhodesia (the present-day Zimbabwe) in 1966 and South Africa in 1977. Both cases involved punishing what were seen as the two government’s racist and apartheid domestic policies. After the end of the Cold War in 1989, the UN has applied sanctions in more than 30 cases, including against Somalia, Liberia, and the former Yugoslavia.

• European Union sanctions

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  The European Union (EU), with its current 27 members, has also increasingly used sanctions. In EU jargon they are known as “restrictive measures”. To be approved they require unanimous support from the bloc’s key decision-making body, the Council of the European Union. Since 1992 the EU has applied sanctions more than 30 times. Sanctions imposed on Iran in 2012 – and later lifted in 2015 after an agreement was reached on that country’s nuclear development - have been regarded as a turning point since they were the first time a country had been targeted (previous EU sanctions were mainly focused only on individuals and companies).

  The package of sanctions applied against Iran was also important because it demonstrated the legal complexity of the process including significant points of disagreement between the EU and the US, which in 2018 during Donald Trump’s presidency withdrew from the nuclear agreement, re-imposing sanctions including so called secondary or extraterritorial sanctions which applied to European companies doing business with Iran. The EU responded by creating a ‘special purpose vehicle’ – a company which in theory could trade with Iran and circumvent US sanctions, but it does not seem to have been particularly active.

• US sanctions

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  The United States has applied more economic sanctions than any other country or trading bloc in the world. This year, 2024, it has comprehensive sanctions in force targeting Cuba, North Korea, Iran, Russia, and Syria, alongside more than a dozen programmes targeting individuals and other entitles, including some targeting criminal behaviour such as drugs trafficking.

  A decision to create a new set of economic sanctions can be taken by the president or by congress. A president can start the process by issuing an executive order (EO) declaring an emergency in response to an “unusual and extraordinary threat”, such as in one example, “the actions and policies of the Government of the Russian Federation with respect to Ukraine” (EO13661). This gives the president powers to regulate commerce for one year (unless extended or terminated by a joint resolution of congress). Over 50 such states of emergency have been declared since 1976 with over 30 currently in place.  Congress in turn can pass legislation imposing new sanctions or modifying or terminating existing ones.

  Country-Based and Country-Related U.S. Sanctions Programs as of July 2019

  

  Source: GAO presentation of Department of the Treasury and Department of State

  There have been some conflicts over sanctions in the US between the executive and legislative powers. For example, in 2017 congress imposed sanctions on Russia for its alleged interference in the 2016 US presidential election. President Trump (who was arguably favoured by such intervention) ended up reluctantly signing the bill because congress had sufficient legislative backing to override any presidential veto.

  US sanctions are administered by the Office of Foreign Assets Control (OFAC), which is part of the Treasury Department. OFAC regularly adds or deletes individuals, companies, and groups to its blacklist of around 12,000 “specially designated nationals” (SDNs). Other US government departments are often involved, such as those of State, Commerce, Homeland Security, and Justice. The Secretary of State has powers to designate a group as a “foreign terrorist organisation” or to designate a country a “state sponsor of terrorism”, and such designations also have implications for sanctions. State and local authorities can be involved: the state and city of New York plays an important role in these procedures largely because of its role as a global financial centre.

  US legislation also includes what can be called subject-matter sanctions. One example is the Foreign Narcotics Kingpin Designation Act, approved by congress in 1999. It aims to prevent access to the US financial system and bans all trade and transactions between traffickers and US companies or individuals. The bill includes a mechanism by which individuals or groups can be designated as “significant foreign narcotics traffickers”. Its origins go back to the mid-1990s when President Bill Clinton (1993-2001) was primarily seeking to target the activities of the Colombia-based Cali Cartel.

  Significantly, every US president since Clinton, whether Democratic or Republican, has invoked the Kingpin Act on various occasions. During the presidency of Barack Obama (2009-2017), in June 2016, for example, OFAC issued a “finding of violation” against BBVA USA, the subsidiary of Spanish bank BBVA, for maintaining the accounts of two individuals on the SDN list, accused of being money-launderers for Mexican drug cartel leader Rafael Caro Quintero. In early 2020 the US authorities arrested Jessica Johanna Oseguerra, a dual nationality Mexican-US citizen who is also the daughter of Nemesio Oseguerra Cervantes, leader of Mexico’s powerful Cartel Jalisco Nueva Generación (CJNG). She faced criminal charges under the Kingpin Act, as the owner of six businesses designated for providing support to narcotics trafficking operations by the CJNG. Jessica pleaded guilty and in March 2021 was sentenced to 30 months in prison.

  Also significant in this context is the Global Magnitsky Human Rights Accountability Act, approved by congress is 2012. This legislation is named after Russian tax lawyer Sergei Magnitsky, who died in a Moscow prison in 2009 after being persecuted and maltreated for his role in investigating a reported US$230m fraud involving Russian tax officials. The act allows the US government to sanction foreign government officials worldwide who are human rights offenders, including powers to freeze any assets they may have under US jurisdiction and ban them from visiting the US.

  An example of the operation of the Magnitsky Act in practice came in January 2023 when OFAC invoked it to sanction Horacio Manuel Cartes, the former president of Paraguay (2013-2018), and Hugo Adalberto Velasquez Moreno who served as vice-president in a subsequent administration (2018-2023). OFAC said both men had been designated for “their involvement in the rampant corruption that undermines democratic institutions in Paraguay”. Also listed were companies owned or controlled by Cartes, including Tabacos USA Inc, Bebidas USA Inc, Dominicana Acquisition SA, and Frigorífico Chajha SAE. The sanctions were under the authority of Executive Order 13818 which implements the Global Magnitsky Act. Cartes remains active in Paraguayan politics.

• Is Latin America disproportionately sanctioned?

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  According to Castellum.AI, a security risk and compliance data company, Latin America and the Caribbean is one of the most-sanctioned regions of the world. Using official lists of designees (persons, companies, or groups targeted by sanctions) as of October 2021, it found there were 1,990 sanctions in place against entities in Latin America and the Caribbean, of which 1,897 or 95% were put in place by the United States. This put the LAC region ahead of Iran in the most-sanctioned ranking (1,672 global designations) and also ahead of North Korea (899 global designations).

  Politically the three most prominent country targets for US sanctions within LAC are Cuba, Venezuela, and Nicaragua. However, looking at the weight of numbers Castellum says that the top US sanctions priority in the LAC region is represented by narcotics traffickers who are the targets of 85% of total US sanction actions. This explains the large numbers of designees in countries like Mexico and Colombia. In Cuba, Venezuela, and Nicaragua comprehensive sanctions are imposed largely due to those country’s authoritarian governments which remain locked in political conflict with the US. The comparatively high number of sanctions directed against entities in Panama and the British Virgin Islands (BVI) reflects the use of those jurisdictions as tax havens and money-laundering centres.

  Global Sanctions Against Latin-America-located Designees (95% US actions)

  

  Source: Castellum.AI

  Castellum AI raises two further interesting points. The first is that only three out of the 35 countries in North and South America publish sanctions lists: they are the United States, Canada, and Argentina. This is in line with the fact that only about one-fifth of counties worldwide utilise autonomous sanctions lists geared to country specific national security concerns independent of global or regional lists maintained by the likes of the UN and EU.

  The US lists, published by OFAC, contain by far the largest number of entries and are seen as the most comprehensive. Canada’s list, set up by the Special Economic Measures Act (SEMA), is said to be constrained somewhat by poor data quality. Argentina’s Registry of Persons and Entities Linked to Acts of Terrorism (RePET) is deemed to be well-structured and of good quality but in some respects difficult to access. Most Latin American governments do not actively impose sanctions and hence do not maintain lists of designated entities or persons. Argentina is the exception because of the 1994 bombing of AMIA, the Jewish community centre in Buenos Aires, which killed 85 people and led the government to set up the dedicated watch list. In fact, Argentina was the first country in Latin America to designate Hezbollah as a terrorist organisation.

  The second point is that despite the OFAC list’s size and sophistication it lacks some important functionalities. While it contains press releases and FAQs issued by the sanctioning office, it does not link them directly to sanctions. As a result, it can be difficult to understand why some entity or person is being listed in the database. This is important since the Washington government relies on US companies and citizens not to trade with sanctioned entities. If information on them is hard to access, corporate due diligence becomes more costly and less effective.

  In April 2024 Theodore Khan, a director at political risk company Control Risks, assessed the impact of Ukraine war-related growth in sanctions and export controls on the LAC region. He noted a two-year surge in sanctions against Russia, particularly affecting government and military officials, financial institutions, and specific companies in the energy, technology, and manufacturing sectors. With the US also targeting Iran, OFAC had added nearly 5,000 new designees to its lists in 2022-2023. In Kahn’s view the knock-on impact in the LAC region was relatively limited. With the exception of Costa Rica, most LAC countries chose not to enforce US sanction rules.

  Latin American trade with Russia meanwhile averaged US$1.8bn a month in the year to October 2023, slightly higher than in the 12 months preceding the invasion. Trade included vehicle and nuclear components that could be deemed to have dual use capabilities (in other words to have both military and civilian use). Kahn warned that Latin American companies doing business with Russia “thus face reputational damage and potential enforcement actions if their commercial partners are linked to sanctioned entities”.

  In recent years sanctions enforcement has clearly become a growth industry. Kahn says that over the past two years “targeted entities have used an ever-growing ecosystem of shell companies, transhipment routes, and complex transactions to evade sanctions and maintain access to restricted goods and financial assets”. While he acknowledges that much of this evasive activity occurs in sanctioned countries like Nicaragua and Venezuela which have close political ties with Russia, he says large economies like Brazil and Mexico will be scrutinised by OFAC and other US agencies, because they are used as transhipment hubs for trade with Russia. More generally, the presence in those countries of weak anti-money laundering (AML) controls, strong organised crime groups, and illicit gold mining are all factors that assist sanctions-busting efforts.

  In recent times there has been significant expansion of US export controls restricting the shipment of sensitive products to both Russia and China. Among others they affect electrical equipment, nuclear reactors, plastics, and chemicals. In March this year the US Bureau of Industry and Security (BIS) tightened restrictions on exports with potential military use to Nicaragua, citing concerns over the Managua government’s security cooperation with Russia. At first glance, and since they are a third party, Latin American companies should not be affected by such controls. But the detailed text of the relevant regulation establishes that the export controls imposed by the US also apply to foreign companies that use inputs, software, or technology that originates in the US.

  US Sanctions Designations and Delistings, 2009–2022

  

  Source: Centre for Economic and Policy Research (CEPR)

• The Cuban embargo

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  The US embargo on Cuba is one of the world’s broadest and longest lasting trade disputes. It was triggered by a deep ideological fault line that emerged after the Cuban revolution, dividing US capitalism on the one hand, from Cuban communism on the other. Technically the embargo’s background stretches back to 1917, when, during the First World War, the Washington government adopted the Trading With the Enemy Act (TWEA), which was used to restrict trade between the US and hostile powers. Decades later TWEA was applied against Cuba. The Foreign Assistance Act of 1961 barred the Washington government from providing foreign aid to Cuba, authorising the president to maintain a total trade embargo. The US also piloted an early version of secondary sanctions through the Cuban Democracy Act (CDA) of 1992 which restricted US foreign aid to other governments if they, in turn, were aiding Cuba. There have been other laws tightening the trade ban, many of which are codified under the title Cuban Assets Control Regulations (CACR). The Cuban Liberty and Democratic Solidarity Act (LIBERTAD) of 1996 introduced further measures, for example authorising private legal action against persons who are deemed to traffic in property confiscated by the Cuban government on or after 1 January 1959 (the day Fidel Castro’s revolutionary government seized power). Broadly speaking, for political reasons bilateral relations have ebbed and flowed: following those pendular movements, so too has the embargo been tightened and relaxed.

• Cuban embargo – recent timeline

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  • 2000: Approval of The US Trade Sanction Reform and Export Enhancement Act during the Bill Clinton presidency (1993-2001) is part of a limited thaw in bilateral relations, since it authorises certain exports of medical and agricultural goods to Cuba, as well as easing travel and financial transactions.
  • October 2003: President George W Bush (2001-2009) announces a series of measures designed to hasten the end of communist rule in Cuba, including tightening the travel embargo and cracking down on illegal cash transfers.
  • February 2008: Raul Castro formally sworn in as president of Cuba, replacing his brother, Fidel Castro, due to the latter’s ill health.
  • April 2009: President Barack Obama announces plans to lift restrictions on family travel to Cuba and on the sending of remittances.
  • December 2014: the administration of Obama says it intends to re-establish diplomatic relations with Cuba. A diplomatic thaw begins. The two sides release prisoners, ease travel restrictions, and allow certain kinds of previously blocked financial remittances.
  • April 2015: the US government rescinds Cuba’s designation as a state sponsor or terrorism.
  • September 2015: US Commerce Department relaxes rules on licence exceptions allowing limited trade in certain goods such as those relating to aviation safety.
  • January 2017: Donald Trump of the Republican Party takes office in the US at the beginning of a four-year term, having campaigned on a nativist Make America Great Again (MAGA) platform. He opposes relaxing the Cuban embargo.
  • November 2017: The new Trump administration reverses and limits the thaw that had been initiated by Obama. A regulation known as the “U-turn exception” which allows US financial institutions to process Cuba-related dollar payments between third parties is removed. Restrictions on dealing with entities deemed to be linked to Cuban military or security services are tightened. The scope to mount legal challenges to Cuban government asset seizures is widened.
  • January 2021: Just days before the end of his term, Trump redesignates Cuba as a state sponsor of terrorism. On 20 January, Joe Biden of the Democratic Party takes over as the new US president.
  • June 2022: Biden opts not to fully reinstate the Obama presidency’s thaw in relations with Cuba. However, a series of regulatory amendments to the CACR are introduced following a US foreign policy review which recommends facilitating family reunification, expanding travel, easing restrictions on remittances, and supporting the private sector.
  • July 2022: Anti-government, pro-democracy protests break out across various cities in Cuba which are also motivated by the economic crisis and the government’s handling of the Covid-19 pandemic. The US government responds by sanctioning various individuals, the Cuban police, and the Cuban interior ministry, under the terms of the Global Magnitsky Act.
  • April 2023: Cuban and US government officials meet in Havana to discuss bilateral issues, reportedly including the possibility of taking Cuba off the state sponsors of terrorism list.
  • November 2023: The UN General Assembly passes a resolution condemning the US embargo of Cuba, for the 32^nd time. In this case the resolution is approved by 187 of the general assembly’s 193 members, with two opposing it (Israel and the United States) and one abstaining (Ukraine).

  According to an estimate made by the United Nations in 2018, since it began the US financial and trade embargo has cost Cuba over US$130bn in lost revenue. By mid 2024, six decades-plus after the initial imposition of sanctions by the United States, three very basic things seemed to be true. First, sanctions have deeply and adversely affected the Cuban economy. Second, they have not demonstrably eased the repressive political climate on the island or assisted any moves towards a more democratic system. Third, sanctions seem to have become ossified and politically self-sustaining. Amid the 2024 US election campaign, for example, none of the frontline candidates is proposing a review of their effectiveness or any kind of fundamental reset.

• Sanctions-busting: paying the price

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  Knowingly or unknowingly, many companies have broken sanctions rules and faced significant fines and penalties for doing so. In a case in the Southern District of New York, in 2014, French bank BNP Paribas pleaded guilty to processing billions of dollars’ worth of payments for blacklisted Cuban, Iranian, and Sudanese individuals. The illicit transactions reportedly totalled “in excess of US$8.8bn” and BNP Paribas agreed to pay a fine of US$8.9bn, one of the world’s largest such settlements to date. Commenting on the case Attorney General Eric H Holder said “BNP Paribas went to elaborate lengths to conceal prohibited transactions, cover its tracks, and deceive US authorities. These actions represent a serious breach of US law. Sanctions are a key tool in protecting US national security interests, but they only work if they are strictly enforced…Banks thinking about conducting business in violation of US sanctions should think twice because the Justice Department will not look the other way.” . Holder

  An earlier incident, in 2005, showed that sanctions-busting activity can seriously imperil some financial institutions. US Treasury officials designated Macau-based Banco Delta Asia (BDA) as a “primary money laundering concern” and a “willing pawn for the North Korean government” ordering all US banks to sever ties with it. This triggered a run on the bank’s deposits with US$133m, or one third of its total deposits, withdrawn in a week. The bank was intervened by the Macau Monetary Authority but was eventually returned to its owner. In 2020, during the Donald Trump administration, the US Treasury revoked all sanctions and restrictions.

• Secondary sanctions and the sovereignty debate

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  Comprehensive, country-based sanctions can be seen as a two-party affair, involving Country A, which originates the sanctions, and Country B, which is the target of those restrictions. However in recent years the process has widened substantially with the imposition of extraterritorial or secondary sanctions which affect third parties (countries C, D, E, F, G…and so on). Some analysts argue that secondary sanctions imposed by the US are an unacceptable restriction of the national sovereignty of third-party states. The US counter argument is that it has a right to apply sanctions on transactions outside US territory when the third parties involved are in some manner relying on US services, such as transacting their business through the bank accounts or payment systems of US financial institutions.

• Venezuelan embargo – recent timeline

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  As in the case of Cuba, US sanctions against Venezuela have a deeply ideological background. Venezuelan political leader (and army lieutenant-colonel) Hugo Chávez (1999-2013) who had previously led military rebellions but was ultimately put in office by democratic elections, proclaimed a “Bolivarian revolution” which rejected what he described as US imperialism and followed a radical programme based on redistributing oil revenues to favour the poor while nationalising and expropriating leading private sector companies, including many from the US. Despite its democratic mandate the new government rapidly did away with checks and balances, modified the constitution, and consolidated tight and dictatorial political control of the country.

  • March 2015: The US imposes broad economic sanctions against Venezuela, citing human rights violations, civil unrest, and regime instability.
  • August 2017: US bans transactions relating to newly issued debt by state oil company Petróleos de Venezuela (PdVSA), as well as other new debt or equity issued by the government. US individuals and/or companies face a ban on facilitating profit distribution from, or to, entities controlled by the Venezuelan government.
  • March 2018: US prohibits all transactions involving digital currency, coins or tokens issued by the Venezuelan government.
  • May 2018: US prohibits its nationals and companies from dealing in debts owed the Venezuelan government, portraying the move as partly motivated by anti-corruption policy.
  • January 2019: Washington supports new anti-government strategy of proclaiming opposition leader Juan Guaidó as interim president. As part of Donald Trump’s programme of maximum pressure the administration recognises Guaidó as the legitimate leader of the country and re-writes existing sanctions so that they apply not to him and his parallel administration, but to the de-facto regime led by President Nicolás Maduro.
  • March 2019. OFAC and the Treasury Department sanction Evrofinance Mosnarbank, a Russian and Venezuelan state-owned owned bank that has “materially assisted” PdVSA. Treasury Secretary Steven T Mnuchin says: “This action demonstrates that the United States will take action against foreign financial institutions that sustain the illegitimate Maduro regime and contribute to the economic collapse and humanitarian crisis plaguing the people of Venezuela.”
  • August 2019. US government designates the entire Maduro administration as a Specially Designated National (SDN). It defines the Venezuelan government to include PdVSA, the Central Bank, and subsidiaries and administrative sub-divisions. All PdVSA property and income subject to US jurisdiction is blocked and US persons are prohibited from engaging in transactions with them.
  • November 2022. In a change of approach signalling the end of the Trump administration’s maximum pressure policy, the Joe Biden administration grants a waiver allowing US oil company Chevron to resume some financial transactions relating to its joint ventures in Venezuela. In separate political negotiations Washington is reportedly offering sanctions relief in exchange for a political opening, a prisoner exchange, and undertakings that Venezuela’s 2024 elections will be fair and free.  
  • May 2023: Washington now issues a general licence authorising a wider range of activities including debt renegotiations involving the National Assembly and government and PdVSA debt, subject to certain limitations and conditions
  • October 2023: Following an agreement between the ruling party and the opposition alliance (Plataforma Unitaria Democrática – PUD) concerning the conduct of the 2024 presidential elections (reached after talks in Barbados), the Biden administration issues several general licences, further easing sanctions. They include a six-month general licence allowing oil and gas companies to produce, pump, sell, and export oil and gas from Venezuela, as well as to provide related goods and services. There is also a licence providing sanctions relief for the gold-mining sector and for the national airline, Conviasa. Secondary sanctions banning trade in certain Venezuelan sovereign bonds were also partially relaxed although primary sanctions banning trade in these debt papers remained in place.
  • January 2024: The US warns that sanctions relief could be reversed if the Maduro government backtracks on the Barbados agreement. US officials are particularly concerned over a decision by the government-controlled Supreme Court to disqualify the main opposition candidate, María Corina Machado, from standing in the elections. She is banned from holding public office for 15 years.
  • April 2024: After the Maduro regime began to backslide on the political agreement (at least in the eyes of Washington and the PUD) the sanctions regime began to be re-tightened. The six-month general licence was withdrawn and replaced by a one-month “wind down” licence allowing companies that had re-entered the Venezuelan market to prepare to exit again in an orderly fashion. The gold sector licence had also been restricted, although the relaxation of bond trading remained in place.  
  • July 2024: The general elections are held on 28 July with the Maduro government ignoring key points of the Barbados agreement. The PUD says it has polling booth evidence that its candidate, Edmundo González Urrutia, who is supported by opposition leader Machado, won a landslide victory with around 73% support. Without presenting any detailed polling booth returns the government-controlled national electoral council claims Maduro has been re-elected with 51.2% of the vote against 44.2% for González Urrutia. A new period of political unrest and government repression appears to be beginning

  Since they started in 2015 the mainly US-imposed sanctions against Venezuela have had very high economic costs. According to an estimate by economist Francisco Rodríguez the first wave of comprehensive sanctions triggered a loss of nearly US$15bn in reduced oil revenues, with subsequent additional sanctions costing a further US$7.5bn. A 2019 study by Mark Weisbrot and Jeffery Sachs suggested that by drastically reducing food and medicine imports into Venezuela, sanctions have resulted in at least 40,000 deaths above normal mortality rates. The state of play in mid-2024, with the government having conducted fraudulent elections to remain in power, suggests that Washington’s experiment with calibrated sanctions, seeking to tighten and ease them as a way of gradually coaxing measured political concessions along a road map that leads to democratic restoration, has failed.

• Unintended sanctions violations

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  As we have seen, sanctions are expanding, becoming increasingly diverse, covering not only countries but also individual persons or entities, and in some cases are very tightly targeted to prevent particular activities such as drug trafficking or human rights violations. Governments such as the US and others have also sought to calibrate the way sanctions are applied, periodically tightening and loosening them as part of cyclical movements in political and diplomatic negotiations. This has highly significant implications for corporates. It means companies operating in, or trading with Latin America, need to do a lot more due diligence and compliance work than in the past, particularly in areas such as KYC (know your customer). A few examples will illustrate the nature of this challenge.

  In January 2022 OFAC revealed it had reached a settlement totalling US$91,172 with Airbnb Payments, part of the US-based online accommodation and rental platform. OFAC stated that Airbnb had violated CACR regulations by processing payments for non-approved categories of travel to Cuba and had failed to keep records of transactions as required under the Obama administration’s travel rules introduced in 2015. Those rules permitted 12 types of travel such as that connected with family visits, journalistic activity, support for the Cuban people, and educational activity. However, they did not allow tourism as a specific stand-alone category.

  After conducting an internal review of its compliance programme Airbnb said it had unwittingly facilitated thousands of transactions in violation of the CACR, including those relating to individuals travelling for non-approved purposes. It admitted failing to keep effective records of these trips. The company said this was partly because of the pressures created by its attempt to scale up its booming Cuba business at speed. Significantly, the management also discovered that newer and older versions of its mobile app had been allowed to function side-by-side. The older version of the app allowed customers to book Cuba travel without requiring them to confirm the purpose and official travel category for the trip. Corporate analysts suggest Airbnb’s prompt investigation and cooperation with OFAC led to a comparatively modest settlement (the maximum statutory penalty was US$600m).

  In April 2022 OFAC also reached a settlement with US based mining group Newmont Corporation. This time the value of the payment was US$141,442. This case also involved the company admitting to having violated economic sanctions against Cuba as listed in the CACR. The background was that in 2016, operating through its Suriname subsidiary, Newmont had entered an agreement with a third-party distributor to supply explosives for use in a local gold mining project. The distributor in turn had contracted with a Cuban company, Unión Latinoamericana de Explosivos, to supply the explosives: consignments were imported into Suriname on at least four separate occasions. This was a clear violation of the CACR which states that wholly owned subsidiaries of US corporations are subject to the same trade bans as their US parent company.

  According to OFAC, Newmont said the illicit transactions had been processed by an employee who had not participated in the company’s export and trade sanctions training programme, and who did not realise the significance of the transaction. Making matters worse, Newmont Suriname’s purchase orders did not include sanctions-related representations and warranties, nor did it require the subsidiary to provide country-of-origin information on goods shipped.

  Sometimes corporate risk management systems simply do not work as intended. US-based TD Bank NA (TDBNA) admitted a failure to comply with aspects of the Foreign Narcotics Kingpin Sanctions. It said that over a four-year period it had processed 145 transactions, worth just over US$35,000 for an account holder, Esperanza Caridad Maradiaga López, a Honduran citizen who had been designated by OFAC in 2013 for alleged membership of the Los Cachiros drug trafficking organisation. While opening two accounts in a Miami branch of the bank, an on-screen automatic alert appeared. However, because a sanctions screening databank match was only partial, a bank employee reportedly dismissed it. Four further alerts were generated by the screening system over the next four years but were all over-ridden, until a fifth alert was fully investigated, and the account was finally closed. Highlighting system weakness, after closure TDBNA’s fraud team accidentally credited and re-opened one of the suspect accounts, apparently unaware of the history behind it.

• Intended sanctions violations

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  While a number of companies and individuals may be in violation of sanctions unknowingly – often because they are unaware of the connections and business dealings of their commercial partners – a separate group of actors is well informed and knowingly involved in the business of sanctions busting. In effect some of the major target countries on the OFAC list, including Russia and Iran or, in Latin America, Cuba, Venezuela, and Nicaragua, have supported a semi-clandestine network of intermediaries, traders, freight shipment companies, accountants, and others who are used to evade sanction regulations on a daily basis.

  One example of how these agents operate came to light in February 2024 when a large and damaged tanker barge appeared capsized near an idyllic beach in the island of Tobago (part of the two-island state of Trinidad and Tobago). It had run aground carrying an estimated 35,000 barrels of fuel, spilling a large oil slick which threatened the marine environment, not only in Tobago but also in a number of other neighbouring islands. The first problem facing local officials was that they had no information on where the barge had come from, exactly what it had been carrying, and who ultimately owned it. The discovery of a washed-up plastic bag containing a kilogramme worth of cocaine valued at US$75,000 suggested this was possibly a criminal venture of some type.

  

  Source: BBC

  The Trinidad and Tobago security ministry established that the barge had been towed by a tugboat, the Solo Creed, which was reportedly on its way from Guyana to Panama. After the barge ran aground, the tug had disappeared. Based on satellite images and marine registries Bellingcat, the Netherlands-based open-source security analysis group, said the stranded barge was probably a 60,000-barrel capacity double-hulled vessel known as the Gulfstream, with an opaque ownership structure involving a Panama-registered offshore company and an individual with business operations in Panama, Guyana, Dubai, Bahamas, and Nigeria. Satellite pictures showed the Gulfstream had been moored at various points some years earlier in the Venezuelan ports of Maracaibo, Puerto La Cruz, and Pozuelos. According to Bellingcat during some of its trips the ship had ‘gone dark’ by switching off its Automatic Identification System (AIS).

  What really happened to the Gulfstream may never be known. But a reasonable hypothesis is that the barge was carrying Venezuelan oil or fuel to avoid US sanctions against Venezuela. Ships that go dark during their passage are often described as being part of a sanctions-busting ghost fleet. The London based Financial Times reported in 2022 that the number of ships going dark had tripled since 2019. Many of these ships are old, and in a poor state of repair. According to Reuters news agency more than half Venezuela’s tankers do not meet minimum safety standards. Iran also has a significant ghost fleet estimated at around 16 ships. Since Russia invaded Ukraine and faced increased sanctions against its oil and gas sector it too is reported to have developed its own ghost fleet.

• Message to corporates: it is getting more complicated

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  The reality for companies operating in Latin America and the Caribbean is that due diligence and compliance with sanctions is getting much more complicated than it was in the past. There are many more sanctions, longer lists of specially designated entities, and greater number of secondary sanctions with potentially overlapping jurisdictions. An example is the already-mentioned US announcement of sanctions against Russia immediately after the Russian invasion of Ukraine. In close cooperation with the EU, G7 countries, and Australia, Washington designated over 400 individuals and entities including Russian elites, 300 members of the Duma (Russian parliament), and defence companies. The targeting countries also formed what has been called the ‘price cap coalition’ to limit the price of Russian crude oil exports to no more than US$60 a barrel.

  There were also spin-off sanctions targeting persons evading US sanctions on Iranian oil, Iranians engaged in cyber-attacks, and members of Iran’s ballistic missiles programme. In the crypto-currency world there were sanctions targeting Hydra, a darknet company, Garantex, a virtual currency market, and currency mixers Blender.io and Tornado Cash.

• Nicaragua embargo: recent timeline

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  In contrast to the comprehensive, country-focused approach that the US has taken in applying sanctions against Cuba and Venezuela, in the case of Nicaragua, ruled by left-wing autocrat Daniel Ortega (1979-1990 and 2007 to the present), the Washington administration has largely focused on sanctioning individuals and entities.

  • April 2018: Nationwide anti-government protests force the government to withdraw changes in tax and social security legislation. Protests spread in spite of violent government attempts to quell them. As a result of the violence, it is claimed that over 500 protestors lost their lives. The UN accuses the government of committing extrajudicial killings, torture, and arbitrary detentions.
  • December 2017-July 2018: The US imposes sanctions against four senior officials in the Nicaraguan government for human rights violations under the terms of the Global Magnitsky Act. They include the national police commissioner, the secretary of the mayor’s office in Managua, and the president of oil company Petronic, all accused of human rights violations and corruption.
  • November 2018. President Donald Trump signs Executive Order (EO) 13851, creating an independent pathway to sanction Nicaragua-specific human rights violations.
  • December 2018. A new law, the Nicaragua Human Rights and Anticorruption Act (2018), is approved in the US Congress, imposing targeted sanctions for human rights violations by designated government officials, as well as seeking to restrict lending to Nicaragua by international financial institutions.
  • January 2020: The InterAmerican Commission on Human Rights (IACHR) estimates that 88,000 Nicaraguans have fled the country because of the violence and political unrest.
  • November 2021: US Congress approves a new law, the Reinforcing Nicaragua’s Adherence to Conditions for Electoral Reform Act (known as the RENACER Act). The stated objective of the law is to give the US the necessary tools “towards the realisation of free, fair and transparent elections in Nicaragua” and to re-affirm “the commitment of the United States to protect the fundamental freedoms and human rights of the people of Nicaragua”.
  • Among other things RENACER gives the US president power to exclude Nicaragua from the Dominican Republic–Central American Free Trade Agreement (DR-CAFTA).
  • January 2022: As Daniel Ortega and his wife, Vice President Rosario Murillo, start a new term in office after what OFAC describes as another round of “fraudulent national elections”, the US sanctioning agency says it is designating a further six officials for individual sanctions. The six include the minister of defence, the head of the telecommunications agency, and the head of the state-owned mining company.

  Washington’s focus on targeted, rather than comprehensive sanctions against Nicaragua may give it some further flexibility and limit the economic hardship encountered by the bulk of the population. But the existing sanctions provisions have an important adverse impact on the overall economy. Regulations instruct US Treasury officials to block loans to Nicaragua from the World Bank, the Inter-American Development Bank (IADB), the International Monetary Fund (IMF), and other financial institutions. Largely because of government repression of the protests, and political uncertainty, GDP fell by 3.4% in 2018, not returning to positive growth until 2021 (+10.3%), the year after the Covid-19 pandemic. Difficulties in accessing external finance are likely to constrain future growth. Meanwhile the Ortega-Murillo dictatorship shows no sign of easing its tight political grip on the country.

• Keeping up with the changes

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  One important conclusion about the way sanctions are working in the LAC region is that companies need to keep abreast of what can often be fast-moving changes to sanction coverage, definition, and enforcement. One example of what can be at stake came in May 2022 when Banco Popular de Puerto Rico (BPPR) said it had paid US$255,938 to OFAC to settle a sanctions violation case. OFAC said BPPR failed to adequately implement the new Venezuela-related sanctions introduced in August 2019 (see Venezuela timeline). As a result, the bank provided account services to two relatively low-level Venezuelan government employees. It supported 337 transactions over a 14-month period, moving a total of US$852,126. This was done despite the bank having earlier acknowledged the changes, which were contained in EO13884 and which among other things seek to block all Venezuelan government property and related assets under US jurisdiction.

  U.S. Treasury Sanctions Designations Shot Up After the Year 2000

  

  Source: International Crisis Group using U.S. Treasury Office data. Further detail here.

  OFAC itself has recommended that companies should adopt a “risk-based approach to sanctions compliance”. It says such an approach should be based on five key components: first, management commitment; second, risk assessment; third, internal controls; fourth, testing and auditing; and fifth, staff training. Other advisers also warn of OFAC’s relatively aggressive approach to secondary sanctions. Essentially all transactions between third parties may be seen as a violation of US sanctions if they involve a touchpoint or nexus connecting them in some way to entities under US jurisdiction. Typically, this might be the use of US bank accounts or other payments systems.

• Do sanctions work?

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  Academic experts, as well as politicians and policymakers, have been involved in a long and inconclusive debate on how effective sanctions really are in achieving their stated aims. The debate is unresolved, partly because there are so many different types of sanctions being applied in pursuit of different objectives and amid different political and economic contexts. In a 2020 paper the US Government Accountability Office (GAO) cited claims by government agencies that “it is nearly impossible to assess the overall effectiveness of sanctions in lowering the amount of narcotics entering the United States” partly because of the difficulty of isolating the impact of sanctions from other US and international counter-narcotics programmes or actions. Other studies found that sanctions are more effective when implemented though international organisations such as the UN or when the targeted country has a pre-existing dependency on, or relationship with, the United States (such as a trade deal or military cooperation programme). Other studies said sanctions impact has been higher when more comprehensive in scope or severity or imposed through an international organisation.

  In an article published by the New York Times in October 2021, Christopher Sabatini, a research fellow at Chatham House in London, was sceptical, arguing that “sanctions can be an important diplomatic tool when applied in a calibrated fashion…but they are rarely accompanied by clear measures of their failure or success, and criteria for their possible lifting”. Like many analysts, Sabatini is particularly critical of the long-standing sanctions against Cuba that in his view “have failed to achieve anything”. As he puts it “almost 60 years later not only does Cuba remain one of the most repressive societies in the world, but in 2018 President Raúl Castro passed the torch to the next generation, with the appointment of Communist Party apparatchik Miguel Diaz-Canel.”

  Sabatini also questioned the effectiveness of sanctions against Venezuela and Nicaragua, noting that in the latter case the Trump and Biden administrations had sanctioned over 100 individuals and officials, but this had not stopped the imprisonment of seven opposition candidates in Nicaragua’s 2021 presidential elections, or the continued incarceration of over 100 political prisoners. He also cites Daniel Drezner, a Tufts professor, who says the negative economic impact of financial sanctions “are likely to trigger repression, corruption, and backsliding on human development indicators”. Some suggest that sanctions help meet the demands of electorally significant local lobbies for a sense of action – such as members of the expatriate Cuban community in Florida. Dictatorships that have catastrophically mis-managed a country’s economy may also deflect blame and attribute the shortcoming to the actions of the sanctioning power.

  A paper by Cristiane de Andrade of the University of São Paulo (USP) reviews the extensive existing literature on sanctions, including analysts who have sought to assess sanctions on the basis of probabilities. Hufbauer, Schott and Elliott et al found in 2007 that sanctions are a policy instrument of limited success, reaching stated goals in only about 34% of cases. In 2005 Nikolay Marinov found that leaders that were targeted by economic sanctions were 28% more likely to be removed from power during the following year. Others have argued that sanctions have unintended and negative consequences for human rights protections because distressed leaders tend to engage in more repression.

  In a 2008 paper Reed Wood found that a severe violator of human rights is 25% more likely to increase the level of repression after the imposition of sanctions by the UN. De Andrade cites the thesis that sanctions-targeted leaders tighten their repressive apparatus in order to control protests against economic hardships imposed by sanctions; the same strategy helps them secure their position in power, when faced with growing threats to their political survival. Others have examined sanctions in the context of game theory, where the most effective sanction is deemed to be the one that changes behaviour purely by being threatened but is never in fact imposed.

• Conclusion: here to stay?

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  The discussion of sanctions in this paper does not lend itself to sweeping conclusions. A key emerging point is that Latin America and the Caribbean is experiencing an upturn in the number and complexity of sanctions imposed, and this is likely to continue in coming years, requiring a sharp increase in corporate risk management and due diligence. Comprehensive US sanctions against Cuba and Venezuela, and more targeted action against Nicaragua, have caused significant economic pain and difficulty for those country’s governments and populations, but they have failed either to expand democracy or dislodge entrenched dictatorial regimes. Arguably sanctions can still play a role but only when coupled with other factors that are driving change. Meanwhile many of the more targeted sanctions, particularly those against narcotics trafficking, human rights violations, and corruption, can make a smaller but valuable contribution.