This January, the US Treasury took an action aimed at a particular bank halfway around the world.
The move – putting Bank Sepah of Iran on a blacklist of institutions barred from access to America's financial system – bore immediate fruit, Treasury officials say.
"Banks in the United States were legally required to cut off relations.… But banks in Europe, Japan, and other financial centers also responded, limiting or cutting off entirely their ties to this bank of their own accord," Adam Szubin, who heads the growing Treasury effort called the Office of Foreign Assets Control, told a congressional hearing in April.
The goal of such actions, which have been expanding since the Sept. 11 terrorist attacks in 2001, is to put a financial squeeze on regimes, individuals, or institutions that threaten national security. And although the impact of such financial sanctions is limited, they are becoming an important tool of US policy in nations of concern, such as Iran and North Korea.
Blacklisting in Sudan
Now their efficacy will be tested in Sudan. The Bush administration this week added 30 companies and three individuals in Sudan to its blacklist, citing the goal of pressuring the Sudanese government to halt the violence that plagues the Darfur region.
By itself, the action isn't expected to force any policy shift in Khartoum. But financial experts say the move is more than mere symbolism. Financial sanctions, even if imposed by the US alone, can send a powerful signal.
"It is potentially a very strong tool," says Raymond Baker of the Center for International Policy in Washington. "An awful lot of foreign institutions will look at that list and say, well, we don't want to take the chance that we will end up violating US law."
The Treasury blacklist – officially a list of "Specially Designated Nationals" (SDNs) – operates in a very different manner from broader forms of economic sanctions that can be imposed on foreign regimes.
A trade embargo, for example, is intended to seal off the target nation from all flows of goods and services. But it often has only a marginal impact, unless most major trading nations form a united front.
The SDN list is not as sweeping, but that can work in its favor as a policy tool. It affects financial flows among banks and other institutions. By focusing on a carefully selected pool of targets, the SDN list has won a broad degree of international cooperation.
"A key, if possibly counterintuitive, lesson that we have learned is that less can be more," Mr. Szubin told the April hearing. "Narrow sanctions against specific individuals or entities that have violated international code, whether they be counterproliferation, counterterrorism, anti-money laundering norms, may have a bigger impact than traditional embargo-type sanctions."
The reason, he says, is simple: "Broad sanctions are often viewed by the private sector as obstacles to be worked around."
Another factor that explains the international acceptance of the SDN list is the central role that Wall Street institutions play in world financial markets. US banks are so large, and the world's financial grid is so interlinked electronically, that it is hard for banks in other nations to know which of its transactions are passing through American entities. Rather than run afoul of the US government, banks in Europe or elsewhere tend to adopt America's SDN list as their own.
"If that foreign institution handles a transaction for one of those barred parties, and the electrons of that transaction pass through New York City, then they have violated US law," says Mr. Baker, who studies the flow of money tied to drug cartels, terrorism, and corruption.
Sanctions to help bring peace
The Treasury doesn't necessarily track transactions down to each electron for all SDNs. But the system can apply significant leverage nonetheless. This doesn't mean it's a quick fix for the Darfur crisis. President Bush has labeled the violence there genocide, citing actions of government-backed janjaweed militias. The death toll is estimated at more than 200,000, with another 2.5 million people displaced in the region since 2003.
The Sudanese government is financed heavily by its oil industry, and the new sanctions aren't expected to cut off the nation's oil exports. China, a key customer for Sudanese oil production, has remained opposed to financial sanctions.
China's representative on African affairs, Liu Guijin, said Tuesday that "pressure and sanctions" do not help resolve problems, according to a Reuters report.
The 30 companies targeted by the US include several oil-related businesses, as well as a range of others – in industries from machinery to sugar. The sanctions also restrict financial dealings by three individuals, a rebel leader, and two government officials who the Treasury Department says have acted as liaisons with the janjaweed.
Matthew Levitt, an analyst at the Washington Institute for Near East Policy, says sanctions can work alside other measures, such as diplomacy. "They are one part of the tool kit," whether with Sudan or Iran, where the US is concerned about how to curb nuclear-weapons proliferation. The Treasury concluded that Bank Sepah had aided in missile-technology transactions.