In December 2019, India obtained a written assurance from the U.S. government for the waiver from U.S. sanctions on Iran[1] for investment and the development of Chabahar port, a counter to Pakistan’s Gwadar port. In light of current regional tensions in West Asia, this is an achievement, especially given the monumental losses to business in and around Iran because of the U.S. sanctions.
Sanctions have evolved from being a tool used by multilaterals, such as the UN Security Council (UNSC), for the global public good, to a tool deployed unilaterally by countries for their own vested interest or to counter challenges in bilateral ties. This has created alarm in many parts of the world, and especially those sanctioned countries. “The greatest threat to the world is unilateralism, and the wave of unilateralism will pull down multilateralism,” warned M. Javad Zarif, the Foreign Minister of Iran during a visit to Mumbai this week.
Yet, the imposition of sanctions is on the rise. Sanctions, a form of imposing control and pressure, traditionally focused on countering nuclear proliferation and trade-related disputes. Over the last 30 years, with the rise in extremism and terrorism, it has extended to imposing financial, arms and travel embargoes on high-risk individuals/ terrorist outfits.
Sanctions takes the form of primary and/or secondary sanctions, the former being a sanction that has a direct bearing on a particular target while secondary sanctions bear obligations on third parties – nations or entities. The U.S. sanction on the Islamic Revolutionary Guard Corps-Quds Force[2] is an example of a direct and targeted sanction; an example of secondary sanctions is the broad Countering America’s Adversaries Through Sanctions Act (CAATSA)[3], which applies to countries such as India in its dealings with Iran, Russia and North Korea.
More recently though, the scope and impact of sanctions have expanded to their use by countries as potent tool of warfare. On 10 January 2020[4] the U.S. announced a new round of sanctions on Iran in response to missile attacks on its army base in Iraq. In May 2019, the U.S. imposed sanctions on Chinese giant Huawei, alleging violation of sanctions on Iran, which, in turn, was used as negotiation tactic in the 15 January 2020 U.S.-China trade deal.
The question which arises is this: are companies or countries obligated to follow sanctions? What are the powers of enforcement by the sanctioning authority in case of non-compliance?
The answers vary, depending on the type of sanction – unilateral or multilateral – and the extent of its application. Unilateral sanctions imposed by one country on another and/ or its citizens or entities do not have the clear force of law. The UNSC, United Nations Human Rights Commission (UNHRC) and the UN General Assembly (UNGA) have often designated unilateral sanctions to be in violation of international law.[5]
Nevertheless, companies and businesses take pains to abide by unilateral sanctions like the CAATSA. Those that have not complied have been severely penalised. Several multinational banks, including Standard Chartered Bank[6] and BNP Paribas,[7] have paid billions of dollars in fines for non-compliance of U.S. sanctions. An example of how powerful sanctions have become as a tool is the decelerated development of Chabahar port despite the waiver granted by the U.S. government in May 2019. A key reason for the success of such unilateral sanctions, even when introduced, but not enforced, is the adherence to them by business for fear of adverse commercial consequences.
What accounts for the increasing heft and success of sanctions? Sanctions remain protected by a safe harbour provision, which lies concealed in bilateral and multilateral agreements, such as the General Agreement on Trade and Tariffs (GATT), bilateral investment treaties and bilateral trade agreements. These contain broad national security exceptions, which allow parties to step away from obligations under these agreements in situations pertaining to national security.
These exceptions are lavishly leveraged by countries to establish unilateral sanction regimes under the cover of national security. For example, Article 21 of the GATT[8] provides for exceptions, including imposition of embargoes in time of war or other emergency in international relations. Article 20 of the U.S.-Iran Treaty of Amity 1955[9] and the 2012 U.S. Model Bilateral Investment Treaty contain national security exceptions that allow parties to these treaties to impose sanction measures that would otherwise defy their provisions.
However, not all countries have the power or leverage to enforce unilateral sanctions as does the U.S., which alone has the economic heft through its control over the global financial and trading system.
Conversely, sanctioning countries are not immune to the boomerang effect of the sanctions they have imposed. Sanctions affect in-bound foreign investment and deter foreign investors; they hit the price of global commodities such as oil; they promote innovation in domestic markets of the sanctioned country; and foster new alliances between countries other than the sanctioning country.
On the other hand, multilateral sanctions, imposed by the UN Security Council, have the force of law under the UN Charter, but the UN has limited power under the UN Charter to ensure implementation of a UNSC sanctions resolution. Pakistan is an example – it continues to harbour terrorists despite UNSC 1267 sanction resolutions[10] placing embargoes on terrorist individuals and entities. Pakistan has even managed to contain its position on the grey list of the Financial Action Task Force (FATF), an inter-governmental organisation, formed under the G7 in 1989. The upcoming review of Pakistan’s status in the FATF in February 2020 will determine if it should be placed on the black list, where it will finally pay the most severe price for its actions.
So, will the future of international relations be governed by sanctions and counter-sanctions?
An emphatic yes. This tool of economic statecraft, used as a counter-measure under international law, sets a dangerous precedent for countries and leads to global monopolisation of the economy.
It is, therefore, important for sanctioning countries to assess and analyse the long-term impact of using sanctions as a tool of warfare. Nations must together evolve a framework to set global standards on unilateral sanctions. India, which has been a victim of sanctions, can lead this effort as it is not directly in the cross-hairs of the on-going sanctions war, but is affected by secondary sanctions such as the CAATSA. Multilateral and bilateral agreements must now include a clear framework on the power to introduce sanctions under national security exceptions.
It is critical that countries understand the importance of establishing a mutually recognised regulatory environment to not nullify decades-long efforts towards cohesion and unity.
Ambika Khanna is Senior Researcher, International Law Studies Programme, Gateway House
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References
[1] Countering America’s Adversaries Through Sanctions Act, 2017
[2] U.S. Department of Treasury, ‘Fact Sheet: Designation of Iranian Entities and Individuals for Proliferation activities and SSupport for Terrorism’, United States Government, 25 Oct 2007, https://www.treasury.gov/press-center/press-releases/pages/hp644.aspx
[3] Countering America’s Adversaries Through Sanctions Act
[4] U.S. Department of Treasury, United States Government, https://www.treasury.gov/resource-center/sanctions/Programs/Documents/20200110_iran_eo.pdf
[5] UN General Assembly Resolution 57/5; UNHRC Resolution 6/7 – Sept 2007; UNSC resolution 2231
[6] Department of Justice, ‘Standard Chartered Bank Admits to Illegally Processing Transactions in Violation of Iranian Sanctions and Agrees to Pay More Than $1 Billion’, United Stated Government, 9 April 2019,
[7] Department of Justice, ‘BNP Paribas Sentenced for Conspiring to Violate the International Emergency Economic Powers Act and the Trading with the Enemy Act’, United States Government, 1 May 2015
[8] World Trade Organisation, ‘The General Agreement on Tariffs and Trade (GATT 1947)’,
https://www.wto.org/english/docs_e/legal_e/gatt47_02_e.htm#articleXXI
[9] Secretariat of United Nations, ‘Treaty Series’, United Nations, https://treaties.un.org/doc/Publication/UNTS/Volume%20284/v284.pdf
[10] United Nations Security Council, ‘Security Council Committee pursuant to resolutions 1267 (1999) 1989 (2011) and 2253 (2015) concerning ISIL (Da’esh) Al-Qaida and associated individuals groups undertakings and entities’, United Nations, https://www.un.org/securitycouncil/sanctions/1267