A branch of Agrosoyuz Bank in Moscow.
Vladimir Gerdo | TASS | Getty Images
For years, the Agrosoyuz Commercial Bank made a great deal of money by facilitating illicit trade to advance North Korea’s weapons of mass destruction program.
Then, on February 4, 2019, the Russian bank collapsed—not because of a run on its assets, but in large part because of targeted sanctions imposed by the United States six months earlier to cut off illicit revenue streams funding North Korea’s unlawful weapons programs.
That’s the power of sanctions.
The United States’ financial markets are the largest and most liquid in the world, and the U.S. dollar and American financial institutions underpin global commerce and finance. For financial institutions around the world, access to the U.S. financial system is essential for their business. Conversely, being cut off from it can be devastating.
That’s what makes U.S. and multilateral economic and financial sanctions a critical tool for disrupting criminal and terrorist activities, imposing crippling costs on those who threaten our national security, and creating clear incentives for bad actors to change course.
Today, though, growing disruptions to the global financial and payments system threaten to reduce the effectiveness of U.S. and multilateral sanctions alike.
Strategic competitors, including the People’s Republic of China and Russia, are developing alternative payments systems to avoid dollar-based finance—both as an attempt to counter American leadership and as a tactical effort to evade our economic power and legal enforcement.
Cryptocurrency threat
At the same time, new financial technologies like cryptocurrency create opportunities to hold and transfer value outside of traditional financial and payments systems. This, in turn, makes it easier for criminal and terrorist syndicates to escape detection and risks diminishing the ability of the U.S. and our allies and partners to use sanctions to protect our national security.
Recognizing the important role sanctions play in protecting our national interests, earlier this year Secretary Janet Yellen initiated a comprehensive review, in consultation with the Department of State and other interagency partners, of how Treasury’s sanction authorities have evolved and how we can strengthen them for the future.
One of the review’s primary conclusions is that coordinating our efforts with our allies and partners, as the United States already does in many cases, can help ensure sanctions remain a highly effective tool in the face of these new challenges.
Powerful rebuke
A multilateral approach to sanctions enhances their efficacy for several reasons. First, when other countries and multilateral institutions stand together with the United States in imposing sanctions, it helps close gaps that could otherwise be exploited by the targets of those sanctions by shutting down their access to financial centers around the world. Ultimately, this makes it harder for our adversaries to find ways to finance illicit activities and for our competitors to take advantage of sanctions at the expense of U.S. companies.
Second, it gives our allies and partners a greater stake in the continued resiliency and evolution of the U.S.-led international financial system. It offers them greater reason to work with the United States to monitor and regulate new technologies, like cryptocurrencies, and adapt this system to accommodate these critical changes.
Third, and crucially, working with allies and partners—including through multilateral forums like the United Nations and the G7—heightens sanctions’ diplomatic and political impact by demonstrating both a broad condemnation and commitment to shared values.
In 2011, for instance, the United States, the European Union, and others acting through the UN Security Council took complementary actions to impose targeted sanctions on the repressive regime of Moammar Gadhafi in Libya. These sanctions protected tens of billions of dollars from misappropriation and helped halt the regime’s violent actions.
It was a powerful, multilateral rebuke that underscored the international community’s commitment to democratic values and protecting human rights. Importantly, as we took this forceful action, we also worked with our partners to continue the flow of humanitarian assistance and are committed to that principle when sanctions are levied around the world.
Not every country has the capacity to impose sanctions on their own. That’s one reason why it’s so important for the United States to maintain a leading presence in the United Nations. With partners on the UN Security Council, we have worked to designate ISIS affiliates in the Middle East, Africa, and Asia—imposing global consequences, including an arms embargo, travel ban, and asset freezes on listed groups and individuals. These UN designations require all countries without their own sanctions authorities to stop terrorist travel and prevent illicit financial transactions.
As President Joe Biden says, America’s alliances and partnerships around the world are a source of strength. As the global economy becomes more interconnected—through overlapping and intertwined financial systems, new payments technologies, trading patterns, and supply chains—we are committed to working closely with our partners to modernize our sanctions policy and operations to preserve and strengthen this vital tool for protecting our national security.
Wally Adeyemo is Deputy Secretary of the Treasury and Wendy Sherman is Deputy Secretary of State.
