Treasury 2021 Sanctions Review and Testimony

On October 18, 2021, the U.S. Treasury Department issued a “Sanctions Review,” its first overarching U.S. sanctions policy review in 20 years (the “Review”). Following its publication, Deputy Secretary of the Treasury Wally Adeyemo gave public testimony to Congress to address questions about the conclusions set out in the Review. Below we summarize the key issues discussed in the Review and during the testimony.

The Scope and Findings of the 2021 Sanctions Review

The objective of the Review was to “ensure that economic and financial sanctions remain an effective tool of U.S. national security and foreign policy.” It does not critically evaluate specific sanctions programs or designations, nor does it cover visa restrictions and export controls administered by the State or Commerce Departments. Rather, it recommends general steps to modernize sanctions so that they remain effective given the reduction in reliance on the dollar as the world’s reserve currency, the emergence of cybercriminals and economic competitors, and growing financial complexity, while emphasizing that sanctions continue to be an important U.S. foreign policy tool when properly calibrated.

To address these issues, the Review suggests five steps for the Treasury Department to take:

1. Connect sanctions to clear and discrete policy objectives. Treasury presents a framework for using sanctions, which includes assessing whether sanctions are the best tool to achieve a given policy objective, tailoring sanctions to the target while minimizing unintended impact, engaging in multilateral coordination, and making sanctions easier to understand and reversible. 
2. Greater multilateral coordination, particularly with the UN and other multilateral organizations. This would reduce the economic pressure felt by American firms and workers when they are the only ones prohibited from certain business transactions, while increasing the impact of sanctions by cutting off the sanctioned entities from more than just the U.S. economy. 
3. Tailoring sanctions programs to avoid harming U.S. and non-targeted populations. The review also recommends expanding sanctions exceptions systematically to allow for more humanitarian aid in heavily sanctioned jurisdictions and asserts that Treasury will review existing sanctions programs for unintended consequences to humanitarian activity. Notably, following the last Treasury sanctions review 20 years ago, Congress passed the Trade Sanctions Reform and Export Enhancement Act of 2000, which suspended unilateral agricultural and medical sanctions in light of humanitarian concerns raised in the last review. It is possible that the 2021 review will encourage similar action by Congress to more broadly exempt humanitarian activities from sanctions programs. 
4. Making sanctions more easily understood and adaptable. Treasury plans to do this by increasing and improving its communications with affected parties through additional outreach and through its website. 
5. Investing in expertise, technology, and staff to better carry out sanctions policy. This includes improving the Office of Foreign Assets Control’s website to offer clearer guidance to humanitarian groups, regulated entities, and sanctions targets. Treasury also acknowledges the need to invest in deepening its institutional knowledge and capabilities regarding digital assets and services. 

Deputy Secretary Adeyemo’s Testimony

Deputy Secretary Adeyemo’s testimony to the Senate Committee on Banking, Housing, and Urban Affairs highlighted Treasury’s intended focus for sanctions going forward. A primary focus is technology: Treasury plans to improve its capacity to deal with new technologies, including cryptocurrencies and ransomware. To address the ongoing shift away from dollar transactions through alternate payment methods, Treasury plans to increase its multilateral efforts; to this end, the deputy secretary specifically mentioned including the euro, the pound, and the yen in those efforts. Finally, to enable humanitarian assistance to flow more freely, Treasury plans to provide more clarity on what is and is not permitted under sanctions regimes.

Senators’ questions also shed some light on Congress’ focus and the pressure points that may be used to influence Treasury. A recurring theme throughout the testimony was China, and specifically its purchases of Iranian oil and its use of alternate payment systems to avoid transactions in dollars. Senators also emphasized the need for greater enforcement of existing sanctions laws, such as through designations related to the Nord Stream 2 gas pipeline and activities in North Korea. 

Conclusion

The Treasury Department’s 2021 Sanctions Review and the testimony by Deputy Secretary Adeyemo announced modest but important modifications to the department’s overarching approach to sanctions. While no critical evaluations or changes were announced to any sanctions programs or designations, Treasury plans to adhere to a defined policy framework when implementing and evaluating sanctions programs, engage in more multilateral coordination, tailor programs to ensure humanitarian aid can reach its intended destination, make sanctions easier to understand, and invest in technology and staff.

It remains to be seen how quickly and thoroughly these initiatives will be implemented and how significant of an impact they will have on current sanctions programs and designations as well as on future designations. Congress’ willingness to allow Treasury to have greater ability to link sanctions to foreign policy objectives is also unclear given the large role Congress has taken in mandating certain sanctions in the past. However, the Review is an important first step in recognizing that sanctions policy needs to be better targeted, clearer, and more effective.