Targeting major Russian energy firms may come to be seen as the turning point at which U.S. sanctions policy over-reached and spurred a major effort to re-route financial transactions away from the United States.
Prohibiting core Russian energy companies such as Rosneft, Gazprombank, Novatek and Vnesheconombank from arranging equity or long-term debt finance from or through “U.S. persons” marks a major escalation in the sanctions battle between the United States and its European allies on the one hand and the Russian Federation on the other.
But sanctions will remain useful only if they are employed sparingly. Their utility is in danger of being blunted through over-use.
Like any other weapon, if sanctions are used too often, opponents will develop countermeasures.
The calculus is simple: sanctions will remain effective only as long as the cost of complying with them is lower than the cost of developing ways to circumvent them.
Compliance and circumvention costs are directly related to the frequency with which sanctions are imposed.
If sanctions are used rarely, the cost of complying with them is low, and it is generally not worth expending significant resources to develop ways to circumvent them.
But as sanctions are used more frequently, compliance costs rise, and the incentive to spend time and effort to avoid them becomes greater.
To maximise the disruption and inconvenience associated with sanctions, their use must be occasional. Once sanctions become the norm, the financial system will adapt to work around them.
Over-use of sanctions threatens to spur a shift away from using financial institutions and networks that fall under the jurisdiction of the United States.
PENALTIES PROLIFERATE
Russia’s energy firms join a long list of foreign corporations, banks, individuals and even countries that have recently fallen afoul of U.S. policy and law.
In addition to sanctions imposed on individuals suspected of involvement in narcotics trafficking, terrorism and weapons of mass destruction, the United States is enforcing comprehensive financial sanctions on Syria, Iran, Cuba and North Korea.
Sanctions have also been imposed in relation to Belarus, the Central African Republic, Ivory Coast, Democratic Republic of Congo, Iraq, Lebanon, Myanmar, Somalia, Sudan, Yemen and Zimbabwe, according to the U.S. Treasury’s website.
The United States is also enforcing secondary sanctions
(penalties on firms accused of helping others evade sanctions) on entities in China, Cyprus, Georgia, Liechtenstein, Switzerland, Ukraine and the United Arab Emirates.
Even before the crisis over Ukraine, Russian entities had been targeted with sanctions over the death in custody of accountant Sergei Magnitsky.
There are now literally thousands of individuals and companies on the various sanctions lists drawn up and enforced by the U.S. Treasury’s Office of Foreign Assets Control (OFAC).
Other banks and corporations that have had cause to rue their financial involvement with the United States include Argentina (locked in a dispute with U.S. courts over defaulted debt), France (which has found BNP Paribas, one of its largest banks, fined $9 billion for sanctions-related transactions), and Switzerland (where some banks have been refusing to open accounts for U.S. citizens and anyone connected with the United States owing to concerns about tax evasion penalties).
Source: Reuters
Prohibiting core Russian energy companies such as Rosneft, Gazprombank, Novatek and Vnesheconombank from arranging equity or long-term debt finance from or through “U.S. persons” marks a major escalation in the sanctions battle between the United States and its European allies on the one hand and the Russian Federation on the other.
But sanctions will remain useful only if they are employed sparingly. Their utility is in danger of being blunted through over-use.
Like any other weapon, if sanctions are used too often, opponents will develop countermeasures.
The calculus is simple: sanctions will remain effective only as long as the cost of complying with them is lower than the cost of developing ways to circumvent them.
Compliance and circumvention costs are directly related to the frequency with which sanctions are imposed.
If sanctions are used rarely, the cost of complying with them is low, and it is generally not worth expending significant resources to develop ways to circumvent them.
But as sanctions are used more frequently, compliance costs rise, and the incentive to spend time and effort to avoid them becomes greater.
To maximise the disruption and inconvenience associated with sanctions, their use must be occasional. Once sanctions become the norm, the financial system will adapt to work around them.
Over-use of sanctions threatens to spur a shift away from using financial institutions and networks that fall under the jurisdiction of the United States.
PENALTIES PROLIFERATE
Russia’s energy firms join a long list of foreign corporations, banks, individuals and even countries that have recently fallen afoul of U.S. policy and law.
In addition to sanctions imposed on individuals suspected of involvement in narcotics trafficking, terrorism and weapons of mass destruction, the United States is enforcing comprehensive financial sanctions on Syria, Iran, Cuba and North Korea.
Sanctions have also been imposed in relation to Belarus, the Central African Republic, Ivory Coast, Democratic Republic of Congo, Iraq, Lebanon, Myanmar, Somalia, Sudan, Yemen and Zimbabwe, according to the U.S. Treasury’s website.
The United States is also enforcing secondary sanctions
(penalties on firms accused of helping others evade sanctions) on entities in China, Cyprus, Georgia, Liechtenstein, Switzerland, Ukraine and the United Arab Emirates.
Even before the crisis over Ukraine, Russian entities had been targeted with sanctions over the death in custody of accountant Sergei Magnitsky.
There are now literally thousands of individuals and companies on the various sanctions lists drawn up and enforced by the U.S. Treasury’s Office of Foreign Assets Control (OFAC).
Other banks and corporations that have had cause to rue their financial involvement with the United States include Argentina (locked in a dispute with U.S. courts over defaulted debt), France (which has found BNP Paribas, one of its largest banks, fined $9 billion for sanctions-related transactions), and Switzerland (where some banks have been refusing to open accounts for U.S. citizens and anyone connected with the United States owing to concerns about tax evasion penalties).
Source: Reuters
