Peace through strength: US boosts sanctions prowess

August 2024  |  FEATURE | GLOBAL TRADE

Financier Worldwide Magazine

August 2024 Issue

Of all the instruments of statecraft, it is the global use of sanctions that has grown in prominence in recent years, largely in response to Russian aggression in Ukraine, among other seismic events.

The US, in particular, is certainly using sanctions with greater frequency than ever before. Indeed, in the last two years alone, the US has imposed over 2000 list-based sanctions on individuals and entities for acts of both foreign aggression and internal repression.

The 21st Century Peace through Strength Act

Adding to the US’ extensive repertoire of sanctions regimes, on 20 April 2024, following months of negotiations, the US House of Representatives passed the ‘21st Century Peace through Strength Act’ H.R.8038), which contains numerous sanctions and trade-related national security measures.

“The Act is the US House of Representatives’ strategic response to a range of global security challenges,” says Janice Mensah, senior vice president at AML RightSource. “It extends the US’s timeline in implementing sanctions and other measures against countries and organised crime groups involved in destabilising activities. It is one of the strongest tools the US can use to enhance both national and international security.”

The 21st Century Peace Through Strength Act comprises 15 bills which address a different threat. Each is under a separate division of the Act and requires US government actions to address a broad spectrum of threats to US national security that includes Iran, China, international terrorist organisations and narcotics traffickers.

“Each of the bills has a different reason behind them but in general Congress wanted to increase pressure on the executive branch to impose additional sanctions,” explains Amir Fadavi, a senior director at K2 Integrity. “Congress also wanted to empower the president to seize Russian sovereign assets, which is a major step in the sanctions landscape. The Act also requires the federal government to take action against TikTok to protect American users’ data and to limit China’s grip on one of the most spread social media platforms in the country.”

Key sanctions provisions

Containing the most comprehensive sanctions Congress has passed in years, the 21st Century Peace through Strength Act authorises the US president to impose certain sanctions-related provisions with respect to Russia, China and Iran, and for other purposes.

“The legislation bolsters anti-money laundering measures to combat the financial networks of sanctioned persons and transnational criminal organisations,” notes Ms Mensah. “Additionally, the Act includes steps to repurpose seized Russian assets to aid in Ukraine’s reconstruction and imposes restrictions on certain technologies from China and Russia that pose potential security threats.”

According to Mr Fadavi, the Act’s key provisions are those that: (i) authorise or require the imposition of blocking sanctions contingent on the executive branch’s determinations; (ii) extend the statute of limitations for civil and criminal sanctions violations from five to 10 years; (iii) confer legal authority to seize sovereign assets of the Russian Federation; (iv) order certain reports that may later be used as a basis for the imposition of sanctions; and (v) expand export controls, through the foreign product rule, related to Iran.

In addition, the Act seeks to synchronise US sanctions programmes with other countries. “There have been many discussions regarding the alignment of the US with the UK and European Union (EU),” affirms Ben Rayner, regional head for the UK, India, Middle East and Africa at Silent Eight. “The Act specifically requires the president to impose sanctions on parties already sanctioned by the UK and EU, with the aim that there is a more united front to the threats posed.”

Compliance challenges

The broad and complex nature of the Act poses significant challenges for the individuals and entities within its scope, its compliance aspect being particularly challenging due to the sophisticated measures it proposes.

“Sanctions increase compliance costs for businesses, and this Act even more so, particularly for smaller businesses and those with involvement in data brokerage and cyber security,” observes Mr Rayner. “There is also the impact on supply chains as well as unintended consequences for international banking and trade finance.”

For Ms Mensah, the effectiveness of the Act depends upon the ability of domestic and international bodies to effectively interpret and enforce its provisions, which requires coordinated efforts across multiple sectors and borders. “The dynamic nature of international finance and global commerce necessitates continuous updates and adjustments to enforcement mechanisms to address new methods of evasion and non-compliance,” adds Ms Mensah.

Vagaries of success

It is beyond question that the US needed to introduce fresh legislation to address current and predicted threats posed by perceived global troublemakers. That said, the 21st Century Peace through Strength Act is but one tool among many, and its success is by no means certain.

“While it establishes a solid framework for addressing these threats, its success is contingent upon consistent enforcement and the global community’s aligned commitment to these measures over time,” points out Ms Mensah. “Ensuring consistent compliance across international jurisdictions adds another layer of complexity, potentially limiting the effectiveness of the sanctions.”

Ultimately, if successful, the Act will allow the US, in the words of Michael McCaul, chair of the House Foreign Affairs Committee, “to truly confront the generational threat posed by the unholy alliance of Russia, China and Iran”.

© Financier Worldwide

BY

Fraser Tennant