In this article, former UK diplomat and political risk consultant Laurence Hunt examines the shifting landscape of sanctions policies. Laurence argues that understanding geopolitics now counts as much as understanding legal fine print in sanctions postures, as various actors’ policies diverge in complex and less-predictable ways.
If David Cameron’s return to the UK government was a surprise to many, one of his first acts as Foreign Secretary was not. On 14 November, the British Foreign Office announced a series of sanctions against Hamas in response to the group’s 7 October attack on Israel. Cameron’s statement championed its “work with the United States and other allies” in designating two Hamas leaders and four of its financiers with travel bans, asset freezes and arms embargoes. The influence of the US behind the new measures was clearly visible: towards the end of October, Deputy Secretary of the Treasury Wally Adeyemo had visited the UK to press for new sanctions against Hamas. Seen from Europe, however, Cameron’s reference to the US and UK’s “other allies” was more puzzling. Adeyemo’s next stop had been to Brussels, where similar discussions with the EU resulted in a rather more disappointing response.
Russia’s invasion of Ukraine in 2022 unleashed a tidal wave of sanctions and trade restrictions, all carefully coordinated between the UK, US, EU and G7 states for maximum effect. Sanctions architects know that multilateralism is vital to achieve maximum effect. Even in the US, which sits at the heart of the global financial system, policy makers understand that complex trade networks make policing the world an impossible task. However, whilst Western powers have shown an impressive unity regarding Russia, the cracks are beginning to show. Reports of an EU/US split over Hamas followed hot on the heels over divergences on how to deal with a coup in Niger; the UK’s exit from the EU has led to it pursuing its own swashbuckling new sanctions policies; and splits even within the European family have stymied further attempts to confront Putin’s aggression.
Sanctions are economic means to achieve geopolitical ends, and corporates must learn to navigate these waters just as they would security and supply chain shocks. Diverging rules have compliance teams reaching ever more for the aspirin and coffee, and board rooms need to maintain a wary eye on future developments when making investment decisions. A 2024 Trump presidency looms large, and renewed campaigns of “maximum pressure” on America’s rivals have the potential to trigger yet more sanctions and trade restrictions.
Coups and chaos, from one crisis to another
Like 2022, it hardly needs saying that this year will go down as a difficult time for international peace and security. Civil war in Sudan was quickly followed by a military coup at the other end of the Sahel. On 26 July, reports emerged that the President of Niger, Mohamed Bazoum, had been detained by the head of his own presidential guard, General Abdourahamane Tchiani. When Tchiani announced his seizure of power, hopes that the coup would fail were dashed when the rest of the Nigerien military rallied around him. The international response was swift and unanimous: the Economic Community of West African States (ECOWAS) imposed comprehensive sanctions, entirely cutting Niger off from its main trade routes with Nigeria and Benin. Niger’s Western allies – led by France and the US – cut aid funding and demanded Bazoum’s immediate return.
Outrage in France – caught unawares after similar events had driven them from Mali – was reflected in statements by President Macron that the coup was “completely illegitimate and […] deeply dangerous for Nigeriens, Niger and the entire region”. Ultimately, the French withdrew their ambassador from Niger and agreed to end their military presence. Macron’s statements were echoed by EU foreign policy chief Josep Borrell who called the coup an “unacceptable attack” on Niger’s institutions. Sure enough, discussions soon turned to economic sanctions – or “restrictive measures” in EU parlance – and, by the end of August, there were reports that the EU’s foreign ministers had agreed to prepare sanctions against the coup’s leaders. On 23 October, the EU published a new Council Regulation, creating a framework for designations against those deemed responsible for the coup. However, at the time of writing, the EU is yet to target any specific persons or entities as part of these measures.
The US’s immediate reaction to the coup was equally swift and condemnatory, suspending counter-terrorism cooperation and foreign assistance programmes. However, as the junta bedded in, the US took its finger off the trigger and holstered its big guns, opting instead for a diplomatic approach. Indeed, it struggled – ultimately in vain – to avoid referring to the event as a “coup” at all, lest this prompt legal restrictions on foreign aid to non-democratically elected regimes. Unlike France, the US continued to engage directly with the coup leaders, despatching senior diplomat Victoria Nuland to mediate with the new regime. The US also maintained its military presence, likely figuring that Niger could not be left to Mali’s fate, which has fallen further into the jaws of a spiralling jihadist insurgency and Russian mercenary influence. Thus, in a rare role reversal, the EU has been left to play the bad cop in Niger, with the US sidling back into the room with donuts and coffee.
When Hamas attacked Israel on 7 October, however, both Europe and the US reverted back to type. Riven by its own internal divisions on Israel and Palestine, the EU has struggled to present a united front regarding either side. Full-throated German support for Israel’s military action in Gaza contrasted sharply with Spanish calls for restraint. These positions translated into a confused picture on prospective sanctions: whilst the Portuguese foreign minister described them as “a diversionary tactic”, the governments of France, Germany and Italy circulated proposals on how to sanction Hamas and Iran. In fact, France has already unilaterally designated two Hamas members, without waiting for a wider EU agreement.
EU economic sanctions require the unanimous agreement of all member states. Despite their political weight, France, Germany and Italy still need to convince other European partners, such as Spain and Portugal, of the value of these measures against Hamas. This appears unlikely for the moment and, whist the EU struggles to reach a consensus, the UK and US have pressed ahead with new designations of their own. Once again, financial institutions find themselves having to adjust their compliance regimes according to separate jurisdictions. More unusually, France-based businesses also face the additional headache of complying with non-EU sanctions imposed by an EU member state.
It is true that Hamas was already designated as a terrorist group in all three jurisdictions, and the additional risk exposure by US, UK and EU-based institutions should, so far, be limited. However, the US and UK have now firmly signalled their intent to expand their sanctions regimes against Hamas. Any further sanctions that target Hamas’s financial networks throughout the Middle East could entail additional risk exposure in the region, such as in Qatar, Turkey or Saudi Arabia, where the group has financial interests. Equally, in Niger, one of the world’s major uranium exporters, it remains to be seen how far the EU will go in sanctioning the new political and military elite. Financial institutions will need to be alert to this risk, as well as the added complexity from already diverging rules.
Europe divided: Britannia unchained and the EU against itself
London’s pre-eminence as a global financial centre rests, in part, on its historical role as a bridge between European and North American markets. Brexit has changed this in more ways than one, and the UK’s new sanctions regime is no different. Sanctions policy was largely set by the EU whilst the UK was a member state, and EU sanctions were incorporated into UK law when it left in 2020. Since then, HMS Britannia has set sail to chart a wholly independent course under new legislation (the Sanctions and Money Laundering Act 2018 and the Economic Crime (Transparency and Enforcement) Act 2022). For London’s compliance professionals watching nervously from the shore, the direction of travel has been far from clear, and the UK’s position has so far zigzagged between Europe, the US and its own foreign policy priorities.
Some legal analysts have detected an overall shift towards a regime more closely aligned with the US, citing the UK’s Global Anti-Corruption Sanctions Regulations, which mirror the US’s Global Magnitsky Act. These regulations target foreign officials accused of corruption and have no equivalent regime in the EU. Such a position would be consistent with the much vaunted “special relationship” between the US and the UK, and long-standing security and defence relationships are likely to facilitate greater intelligence sharing on potential sanctions targets. However, pressure to present the image of a post-Brexit “global Britain” is also likely to drive new and unilateral initiatives. This includes, for example, a raft of Russian oil and gold related designations in November, many of which do not exist on either US or EU sanctions lists.
Whatever the driving force behind the UK’s sanctions policies, it is true that its new-found reactivity contrasts sharply with the EU, where new sanctions packages on Russia have become the fruit of long and tortuous negotiations. When not shaking hands with Putin, Hungary’s President Victor Orban has persistently opposed stronger EU measures against Russia and ensured specific carveouts for Hungary’s industries. Nor is Hungary alone in challenging the EU consensus: negotiations over the most recent 11th Russian sanctions package stumbled over Greek (and Hungarian) objections to allegations from Ukraine that their companies were involved in circumventing Russian sanctions.
Although Hungary and other states have ultimately tended to drop their objections to new sanctions, these issues continue to demonstrate the limits of the EU’s unanimity requirements. It is also easy to see future challenges in the context of the EU’s enlargement plans; although some way off, countries such as Serbia are more likely to align with Hungary’s positions on Russia than with other members states. The same risks also apply in the event of future European elections and the rise of the Eurosceptic parties: much ink has been already been spilled on the popular French far-right leader Marine Le Pen and her alleged links to Russia. In the Netherlands, as this article goes to press, another Eurosceptic and Russophile far-right leader – Gert Wilders – has emerged victorious in the Dutch general election.
The Security Council’s disunited nations
One actor has been conspicuously absent from the discussion so far: the UN Security Council. Regardless of their separate regimes, all countries are bound by Chapter VII of the UN Charter to implement UNSC sanctions. To that end, many countries have clauses in sanctions and anti-money laundering legislation that transplant UNSC sanctions into national law. However, the rapid expansion of the UNSC’s use of sanctions following the collapse of the Soviet Union risks a return to the deep freeze with the advent of the so-called “Cold War 2.0”. Recent analysis of P5 cooperation amidst the Ukraine conflict makes for foreboding reading, and Russia has signalled its intent to protect its allies by vetoing the extension of Mali-related sanctions, where the ruling junta is widely accused of serious human rights abuses. Whilst the effectiveness of UN sanctions is rightly up for debate, a diminished role for the UNSC in a more unstable world can only serve to encourage rogue actors in Africa and elsewhere. It is also likely to encourage a move towards more frequent sanctioning by regional bodies – such as ECOWAS’s measures against Niger – as well as the temptation to revert to unilateral measures by individual states.
Although divergences over sanctions policies are not new – as demonstrated by disagreements between the US and Europe regarding Iran in 2018 – Brexit, Russia and successive global security crises threaten to create additional sources of division. In this context, sanctions policy makers should remain alert to the dangers of unilateralism and always seek to bring international partners and allies along for the ride. Where this isn’t possible, the utility of such measures should be weighed against other alternatives or forms of diplomatic pressure.
For financial institutions and multinationals, sanctions compliance has tended to focus on the fine print of new legislation at the expense of understanding the geopolitical drivers behind these rules. Whilst this is understandable and sensible, integrating geopolitical analysis into sanctions risk assessments and horizon scanning would help companies anticipate future exposure and avoid the traps of over or under compliance. Indeed, the UK’s Financial Conduct Authority (FCA) recently highlighted the importance of exactly this sort of contingency planning in the context of rising tensions with Russia. Equally, geopolitical analysts should delve deeper into sanctions laws and legislation, in order to deliver truly actionable insight. If this year has been anything to go by, continuing to navigate the sanctions maze into 2024 will demand ever more from compliance and geopolitical professionals alike.
Suggested books for in-depth reading on this topic:
The Economic Weapon: The Rise of Sanctions as a Tool of Modern War (Nicholas Mulder)
Backfire: How Sanctions Reshape the World Against US Interests (Agathe Demarais)
The Art of Sanctions: A View from the Field (Richard Nephew)
Economic War: Ukraine and the Global Conflict between Russia and the West (Maximilian Hess)
Additional reading suggestions can be found on our 2024 geopolitical reading list
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Laurence Hunt is a political and business risk consultant based in Paris, where his work focusses on helping companies navigate geopolitical, sanctions and security risks to their operations. Prior to this, he served as a British diplomat with the UK Foreign Office, and has extensive experience living in and working on North Africa and the Middle East. Laurence is a graduate of the University of Leeds, where he completed a degree in Arabic and International Relations.
Photo: Wikimedia Commons
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