Sanctions have made plenty of headlines this summer and autumn with the war between Russia and Ukraine raging on and showing little signs of waning.
As a result, compliance officers across the globe have had to sharpen their knowledge on this foreign policy tool and find practical ways to comply with everything these might entail.
A few weeks back, we hosted a short webinar introducing our network to the major concepts behind international economic sanctions and looking at the overall effectiveness of this solution.
A special thank you to Mykhailo Koltsov, Head of Training and Development at YouControl in Ukraine, and Adonis Pegasiou, Academic Director of the European Institute of Management & Finance in Cyprus, for taking the time to discuss these issues with us.
The webinar’s full transcript is now available for your perusal, so feel free to check it out below as long as you’re a member.
When are international economic sanctions applied or used and by whom?
Adonis Pegasiou: You may have international organizations that decide on sanctions. So, for example, you have the United Nations but then you need the Security Council to agree on such a decision and then the Permanent Members of the Security Council, which are China, Russia, the UK, the U.S., and France have a right to veto any sort of decision. So it’s quite tough, it’s quite a challenge actually to have them agreeing on any sort of sanctions, especially these days. So you wouldn’t see the UN deciding anything on Russia, that’s for sure.
But then you have the EU and other international organizations that may decide on sanctions and they actually manage to do so. Then you also require unanimity, so it was quite a thing for 27 EU Member States to agree on sanctions, and then you have Member States deciding on their own, so you may have the U.S. or you may have Russia or you may have China or Australia or Canada, they decide sanctions on their own, although I would expect countries such as Canada, the UK, Australia to be aligned more or less. Especially, the G7 allows for a framework for these countries to coordinate their decisions more or less.
What are the main objectives sanctions look to achieve?
Mykhailo Koltsov: The main objective of any sanction is to correct the behaviour on a country level, so to stop them from violating human rights and international law but also the protection of the businesses and citizens. As one interesting parallel, we all remember the case of the poisoning of the Skripals in Britain. So one of the consequences of this poisoning was the death of a British citizen, so one woman died after this poisoning, so if you drove the parallels between this case and the current economic sanctions, you will see that the main purposes is not only to stop the violation of human rights and international law, but also to protect affected businesses and citizens from long-term risks. Because when you talk about the sanctions regime, it’s always long term, there’s not short-term goals in such kind of environments.
How effective are sanctions in delivering results? Can you present some case studies or some examples of cases in which sanctions actually delivered results? Are there any glaring disadvantages to the application of sanctions?
Mykhailo Koltsov: Sanctions have a long-term goal, so I think we just see some signs of the effectiveness but we still don’t see the full potential. What is more obvious today is a sanction against the aviation industry because from our look, from Ukraine, the aviation industry is heavily damaged by restrictions and, for such a big country as a Russia, this can have long-term results.
Adonis Pegasiou: It’s more likely that sanctions actually fail than succeed. Sometimes when we talk about comprehensive sanctions, for example, you inflict pain and damage on civilian populations, so that’s not good. I mean that’s the first failure of the policy. And also if you don’t have democratic states, you cannot easily change the policy approach or the behaviour of those that are in office if you have an authoritarian regime. So that’s why we went to smart sanctions then and we sort of need to sanction individuals or groups or industries, but then you need to take into account can this country that decides the sanction withstand the cost of imposing sanctions? Because there’s a huge cost that countries are incurring and then how many other routes the sanctioned country has in order to expand its trade network, all that stuff. We sometimes get stuck in the western world and we think that since the EU and the U.S. have decided, then they’re in a very difficult position, the sanctioned country, but there are other countries as well, you have Latin America, Africa, Asia, so Russia is trying to expand in these regions and find alternative ways to initiate trade and other business relations.
So there are a lot of challenges in actually implementing sanctions, and sometimes if you incur so much pain on the targeted country, Russia for example, then the local population there will start seeing you as the enemy. So at some point the Russians would think, okay, how many more sanctions are we going to take here? Who are the enemies? And even if they dislike their president, at some point they will also start to have adverse and negative sort of feelings about those that are implementing, that are deciding the sanctions, so you may lose the local population as well even if they initially tend to agree with you. So you have a very thin line that you are walking on when deciding about sanctions. You need to take all this into account before deciding and weight the advantages and disadvantages of deciding such a policy.