Break-out group 4
Economic security, sanctions and regional stability
Saturday 8 December 2007, 3.30 pm
CHAIRMAN
Carl Bildt
Minister of Foreign Affairs, Sweden
OPENING REMARKS
Patrick M. O’Brien
Assistant Secretary for Terrorist Financing, Department of the Treasury, United States
Sheikh Mohammed Bin Essa Al Khalifa
Chief Executive Officer, Economic Development Board, Bahrain
Remarks made in break-out groups may not be attributed to the individuals who made them. This rule is designed to encourage free discussion.
The group’s discussion centred on how sanctions could most effectively be applied. There was general consensus that sanctions needed the widest possible application, hence the utility of adopting them through the United Nations, although comprehensiveness often came at the cost of effectiveness. It was noted that sanctions had evolved over the past decades from broad embargoes against entire economies, such as in the case of apartheid South Africa, to targeted ‘smart’ sanctions designed to prevent specific activities of concern, as in the case of action against terrorism-financing by non-state actors and nuclear and missile proliferation by Iran. The former broad sanctions against governments rarely worked and sometimes were counterproductive, it was argued. Black-market networks that were created to work around embargoes made rich those that the sanctions were meant to hurt, and hurt innocent parties who were meant to be helped. Once established, such smuggling networks took on a life of their own. Another pernicious unintended effect of sanctions was to unite the disunited. In sanctioned countries, it became very difficult for internal critics to find a voice; instead sanctions engendered an opposite ‘rally around the flag’ phenomenon.
Targeted sanctions were better able to win international consensus and to provide adequate warning to innocent third parties. They also had an important deterrent effect. But it was also noted that even targeted sanctions could be discriminatory, and so careful application was needed, as was clarity about objectives. For instance, in certain situations in which sanctions might be employed, the dual goals of peace and justice could be in mutual opposition, because parties whose participation was needed for a peace process might refuse to participate if they believed they would only be brought to trial afterwards.
Effective sanctions, it was observed, required cooperation between private and public sectors. Cooperation with financial institutions on the front-line was particularly important. As one participant noted, ’nobody wants to be associated with entities that are proliferating’. It was important for governments to have a dialogue with the private sector and to be aware of the challenges that companies faced in complying with sanctions provisions. The cost of sanctions to financial institutions was also noted, and the question was raised about striking the right balance in applying sanctions when, for example, only a small percentage of a bank’s business was with entities of concern. A speaker answered this question categorically: even if only 2% of a bank’s business was with terrorists, the bank should be ostracised.
It was emphasised that ‘smart’ sanctions must be clear as regards the targeted activity and entities. Transparency and predictability were vital to regional development, especially in the Middle East, where the private sector was the engine of growth and where, though the region had mostly overcome its post-11 September turbulence, problems remained. Clarity was not always easy to achieve in practice, however. The classic case was the difficulty of reaching international consensus on the definition of terrorism. It was argued that there was a particular need for more clarity on what was meant by ‘illicit trade’.
Hallmarks of effective implementation of sanctions included the presence of: 1) clear legal authority, such as UN Security Council (UNSC) resolutions and national law; 2) a mechanism for sharing information among affected agencies and governments; 3) compliance and enforcement provisions; and 4) means of addressing issues of fairness, such as a licensing system that could take into consideration humanitarian needs, judicial review, and a fair process by which entities could be de-designated. Not having such de-listing procedures could undermine the credibility of sanctions. Problems could also arise, it was noted, when governments applied unilateral sanctions without adequate notification to their partners. A European participant stressed the need to avoid extra-territorial application of national sanctions laws.
Examples of instances of sanctions being applied in the Gulf region included the development, in accordance with UNSC Resolution 1267, of international standards against terrorism-financing; Iraq-related sanctions, including UNSC Resolution 1483, concerning the assets of former regime members; two UNSC resolutions against Iran that applied specific sanctions to named entities and individuals as well as imposing general sanctions; and US unilateral sanctions against certain Iranian individuals, banks and other entities involved in supporting proliferation. This last was a concrete manifestation of how, as US Secretary of Defense Gates had said earlier in the day, the US was putting 100% effort into finding peaceful diplomatic ways of dissuading Iran from pursuing a nuclear-weapons capability.
It was suggested that the recent US National Intelligence Estimate had not changed the fundamental issue of Iran seeking a nuclear-weapons capability. Iran presented a difficult sanctions case, it was argued, because it had sufficient profits from oil sales and could find substitutes – for example from China – for any goods or access to capital markets that were denied to it. A contrary view was voiced, however, that the Iranian economy was not as flexible as this. From this point of view, sanctions against Iran could have a significant impact: both as punishment, and by preventing it from gaining access to goods that could further a nuclear-weapons capability. Iran in fact may be the easy case, this participant continued, because there was broad agreement about the problem and the target. There was thus a good reason to apply sanctions, for example against Iranian institutions that were involved with supporting proliferation.
The link between sanctions and export controls was elaborated by participants who noted that Iran was faced with the problem of not being able to supply all the parts for its centrifuge programme. It was thus important for supplier nations to continue to maintain effective export controls, even though this was made harder as globalisation enabled dual-use goods to be produced by more countries. Some participants argued that sanctions alone were not effective, and that a comprehensive solution was needed in the case of Iran. It was remarked that if sanctions were easy to effectively apply, they would have been utilised long ago. There was general agreement, however, that sanctions were a useful tool that needed continued improvement. It was also agreed that they often functioned as a fallback policy alternative when the international community could not agree on other, more robust, responses to states engaged in activities of concern.
The issue of the impact of oil disruption and oil prices was also raised, both in the context of sanctions and in terms of regional security. The most worrisome result of the Iranian situation would be a cut-off of its oil supply. But oil could also be an effective tool to be used against Iran, should its price fall to the $50 per barrel level of just a year ago.
