Sanctions Top-5 for the week ending 2 March 2018

Here are five things that happened this week in the world of economic sanctions that I think you should know about.

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1. The Washington Post reported that the Trump administration has considered targeting large Chinese banks for violations of US sanctions against North Korea. According to Rep. Brad Sherman, some officials at the US Treasury Department already "have aggressive sanctions ready to go against major Chinese banks." However, some officials reportedly are worried that targeting Chinese banks could damage US-China trade or the global financial system.
2. 38 North published a piece by Andray Abrahamian comparing the effects of North Korea and Myanmar sanctions on the countries' local economies. There is evidence that sanctions against North Korea are benefiting large conglomerates at the expense of small and medium-sized enterprises, which could strengthen the resolve of the ruling elite, Abrahamian writes.
3. Exxon Mobil Corporation disclosed in its latest 10-K filing with the US Securities and Exchange Commission that it is withdrawing from research and exploration joint ventures with Rosneft due to US and EU sanctions. The deals, signed in 2013 and 2014, called for investments of upwards of USD 500 billion. In July 2017, the US Office of Foreign Assets Control (OFAC) fined Exxon USD 2 million in connection with Rosneft contracts signed by CEO Igor Sechin, an OFAC Specially Designated National (SDN). Exxon is currently challenging the fine in US federal court.
4. OFAC added 24 entities, 6 individuals, and 7 vessels to the SDN List pursuant to Executive Order 13726 for their roles in smuggling oil from Libya. The newly designated SDNs include persons in Egypt, Italy, Libya, and Malta.
5. Taiwan's Ministry of Foreign Affairs reportedly issued a statement once again affirming the government's commitment to upholding UN sanctions against North Korea. The statement followed OFAC's recent designation of a Taiwanese national for trading in prohibited North Korean coal. As noted in January, Taiwan adheres to UN sanctions, although it is not a UN member state.

Comments

Andray Abrahamian's 38 North article provides a refreshing level of detail about North Korea's economy that is rarely reported. As Abrahamian points out, sanctions can have the unintended effect of strengthening the targets' resolve through consolidation. John Park, director of the Korea Working Group at the Harvard Kennedy School, made a related point in his Senate testimony in September 2017. When it comes to embargoes, policymakers often speak about other states as monoliths that can be persuaded by economic pressure. However, in fact, every state, even North Korea, is made up of a multitude of decision makers, each with their own interests and perspectives, who support the ruling regime. It's important to understand who the individual decision makers are in order to design the best sanctions possible. (See also: The Logic of Political Survival.)

With that in mind, the Washington Post story validates what many in the legal and compliance community been saying: it's only a matter of time before a major Chinese bank faces an OFAC enforcement case. As shown by the long series of European bank settlements, not even US allies are immune from big OFAC penalties. And last week's announcement of potential trade tariffs shows the Trump administration is apparently unconcerned about punishing other nations economically to advance perceived US interests. BNP Paribas currently holds the record for largest ever US sanctions penalty at USD 8.9 billion. Will the Trump administration break that record to send a message about North Korea? Will more Chinese financial institutions find themselves on the Section 311 List? It may not be long before we find out.

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(The views expressed are my own and do not constitute legal advice. Photo from Vladislav Reshetnyak.)