Buy-In from allies critical for effective sanctions, says former US Treasury Secretary Lew

Former US Treasury Secretary Jacob J. Lew speaks at the Atlantic Council on February 19, 2019.

While the Trump administration’s decision to reimpose sanctions on Iran will be ineffective because the United States does not “have the support of our allies,” its approach to Venezuela—working in concert with friends—“represents more the way things ought to be done,” former US Treasury Secretary Jacob J. Lew said at the Atlantic Council in Washington on February 19.

As the Trump administration and the US Congress increasingly view sanctions as effective means to achieve the United States’ foreign policy objectives, Lew, who also served as White House chief of staff to then President Barack Obama, had some advice: “Sanctions are most effective when there is broad buy-in around the world amongst our allies.”

US President Donald J. Trump pulled the United States out of the Iran nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA), in May 2018. The United States has since reimposed sanctions on Iran that were lifted as a consequence of the deal, which secured an agreement from Iran to abandon its nuclear weapons program but did not address the Islamic Republic’s other malign activities.

Lew maintained that sanctions are only useful when they are targeted to specifically “compel policies to change.” While Washington can rightfully complain about Iran’s other actions in its neighborhood, Lew said, US backtracking on the nuclear deal diminishes the usefulness of sanctions.

Sanctions can only be effective, Lew argued, if the sanctioned country believes there will be “meaningful and lasting relief” once it changes its behavior. Despite the US decision to pull out of the JCPOA, Iran continues to abide by the terms of the deal, according to the International Atomic Energy Agency, the United Nations’ nuclear watchdog.  The US withdrawal from the JCPOA has effectively left Tehran in a “damned-if-they-do, damned-if-they-don’t scenario,” according to Lew, potentially undermining the sanctions tool in future talks.

The effects are already being seen, Lew said, as European allies are testing out an alternative payment mechanism—called the special purpose vehicle (SPV)—to continue JCPOA-approved trade with Iran while avoiding US sanctions. Although he doubted that the SPV could actually evade sanctions, Lew said that Washington must recognize that “the plumbing is being built and tested to work around the United States. Over time as those tools are perfected, if the United States stays on a path where it is seen as going it alone…there will increasingly be alternatives that will chip away at the centrality of the United States.”

Europe’s pursuit of an SPV has sparked concern that unilateral US sanctions policy could threaten the position of the US dollar as the leading global currency. While Kerri-Ann Bent, Americas head of sanctions at Barclays, conceded that she doesn’t see the dollar losing its global position at the moment, she noted that there is already growing “comfort with processing certain types of transactions” in other forms of currency to avoid the risk of sanctions.

Heleen Bakker, deputy chief of mission for the Kingdom of the Netherlands, highlighted the risk that a departure from the dollar could entail as “if transactions start circumventing the US dollar or the international financial system…starts happening we also [could] lose track of those transactions and we might not have a good oversight of what is going on outside of our purview.”

Atlantic Council Nonresident Senior Fellow David Mortlock pushed back that the SPV “is not circumvention of the dollar” as most dollar transactions with Iran were already outlawed before the JCPOA withdrawal, but cautioned that the European effort was a “pretty bold political statement” of opposition to US policy.

Atlantic Council Visiting Senior Fellow Samantha Sultoon argued that this all could have been avoided with more coordination with US allies. Simply, she argued, “multilateral sanctions are far more effective than unilateral sanctions.”

One of the areas where multilateral sanctions coordination has been most effective, Atlantic Council Distinguished Fellow Daniel Fried said, has been in Venezuela, where the “United States has acted at least in the same direction, although ahead, of the European Union and with support of the Organization of American States.”

Lew agreed. He argued that the Trump administration’s Venezuela actions have closely mirrored what the Obama administration achieved in bringing Iran to the negotiating table before the 2015 nuclear deal. “We learned through a series of incrementally ratcheted up sanctions that you could keep a very disparate global community together if you listen to the concerns of your allies, and even some not-so-allies, when you need them to be a united front,” Lew said.

Effective coordination was also vital in sanctions against Russia in response to Moscow’s aggression against Ukraine, Lew said. “A sanctions regime could not have been effective without European buy-in,” he explained, noting that the United States “did not have enough contact with Russia to do it unilaterally and to create the amount of pressure that would potentially change Russia’s behavior.”

At the beginning of the crisis, Lew said, Europeans “were very worried about taking steps that were going to cause another recession in Europe,” but stayed the course because they shared the goals of the United States in curbing Moscow’s activities.

Fried noted that today the Trump administration has a similar level of international buy-in on the issue of North Korea, but Lew warned that the sanctions seem disconnected from overall administration policy. The aim of these sanctions, Lew argued, was the end of the North Korean nuclear program, and should only be removed if that achievement is met. Lew worries that Trump will eventually reach a deal with North Korean leader Kim Jong-un, but that the agreement “will not meet the standards of the JCPOA” in actually achieving denuclearization.

Lew also cautioned the Trump administration against conflating sanctions with other areas of policy, as he said is currently happening with regards to China. He specifically called out the potential for sanctions-related charges against Huawei Chief Financial Officer Meng Wanzhou to be dropped in return for trade concessions by Beijing as detrimental for US sanctions policy. “I think when you mix up sanctions efforts and policy or political decisions, it tends to undermine the efficacy of the sanctions themselves,” he said. Rather, he argued, “there ought to be a legal proceeding that stands on its own and there ought to be trade negotiations that stand on their own and the two ought not to be confused.”

Damaging the effectiveness of sanctions is dangerous, Lew said, as “it is critically important that the United States maintain the ability to have sanctions as an effective tool.” He recounted that he couldn’t “count the number of times when I was in a room where if we didn’t have sanctions as a meaningful way to respond, the conversation almost immediately would have gone down a path towards do you or do you not use force.” Sanctions can be a key tool to respond to aggression or misbehavior without restoring to violence, Lew said, but must be used effectively and responsibly whenever enacted.

David A. Wemer is assistant director, editorial, at the Atlantic Council. Follow him on Twitter @DavidAWemer.