Trump set record sanctions use that Biden is likely to maintain

(Bloomberg)—The Trump administration has imposed sanctions at a record-shattering pace of about three times a day during the president’s time in office: a slew of measures targeting companies, individuals and even oil tankers tied to Iran, North Korea, China, Venezuela and Russia.

President-elect Joe Biden’s team is promising a top-to-bottom review of sanctions operations, but don’t expect a significant slowdown on his watch.

About seven weeks before the inauguration, Biden’s picks for top administration slots are making clear that economic restrictions on countries will remain an essential tool, even if they don’t like everything about the way Trump used them.

Adewale “Wally” Adeyemo, chosen by Biden to be the No. 2 official at Treasury, plans to review how the Terrorism and Financial Intelligence unit, or TFI, at Treasury operates, people familiar with the matter said. That includes an evaluation of current programs, staffing and budgets, according to the people.

Yet the conviction that sanctions remain crucial underscores just how central they have become to the way the U.S. conducts foreign policy, using its economic might as much as its military power to get what it wants abroad, even when close allies disagree. And as much as Biden wants to distance himself from Trump’s policies, experts and observers say he is likely to keep up Trump’s aggressive approach.

Treasury Sanctions Programs Face Broad Review From Biden Team

In their determination to push through an “America First” approach to geopolitical crises, Trump’s team innovated new forms of economic coercion, melding run-of-the-mill sanctions designations with tariffs, export controls and secondary sanctions to punish friends and enemies alike.

“They’ve used these tools, tariffs, export controls as a one-two-three punch going after folks like China and others,” said Adam Smith, a former senior adviser in the Treasury Department’s sanctions unit and now a partner at Gibson, Dunn & Crutcher.

Trump went after NATO ally Turkey over its detention of an American pastor and threatened to punish Germany for the Nord Stream 2 gas pipeline.

Ignoring the warning that China’s economy was too big, and too closely intertwined with America’s, Trump repeatedly sanctioned Chinese officials and firms, including 14 top legislators on Dec. 7. He blew past warnings that unilateral sanctions against Iran would be ineffective, crippling that country’s economy, without the help of European partners.

“We had never seen an administration so creatively use these diverse tools in a seemingly coordinated way,” Smith said.

Iran Surge

Under Trump, the administration took more than 3,900 distinct sanctions actions, according to data collected by Gibson Dunn, with a surge in 2018, when the administration reintroduced many Iran penalties after it pulled out of the 2015 nuclear deal backed by allies including the U.K., France and Germany. No previous administration had exceeded 700 sanctions actions a year.

Biden’s team, wary of showing its cards before taking office, has been vague about which of Trump’s sanctions it will keep or lift, though the president-elect called for returning to the Iran nuclear deal, which would require easing sanctions in some fashion. In a CNN article in September, however, Biden said his administration would “continue the use of targeted sanctions against Iran’s human rights abuses, its support for terrorism and ballistic missile program.”

“We must also remain laser-focused on the Treasury Department’s critical role protecting our national security,” Adeyemo said when his nomination was announced Dec. 1. “This includes using our sanctions regime to hold bad actors accountable.”

One challenge Biden will face is that U.S. sanctions have now become so sprawling and complicated that they’re more difficult to enforce or manage without risking serious blowback on the American economy.

Industry Exposure

“What you’re seeing is multiple major economies targeted with sanctions,” said Justine Walker, head of global sanctions and risk at the Association of Certified Anti-Money Laundering Specialists. “The industry exposure is so much greater, and I think that’s where there’s a potential concern.”

Critics argue that the Trump administration has wielded sanctions too bluntly and indiscriminately, using them as a catch-all for any and every foreign policy problem.

In addition, Treasury’s sanctions unit has been depleted of key staff, starting at the top. The unit has had no undersecretary since Sigal Mandelker stepped down in October 2019.

A number of civil servants have also left the unit during Trump’s tenure, even as the use of the economic measures have increased in sheer volume and sophistication. Adeyemo plans to address staffing issues and consider increasing the unit’s budget, the people said, assuming he’s confirmed by the Senate.

Broadly, the incoming Biden team argues that if it uses sanctions, it will do so in concert with others, not against them. Two countries of focus will be Russia, where the new administration may target oligarchs allied with President Vladimir Putin, and China, where the U.S. under Trump has imposed sanctions on its own rather than working with other nations with similar interests.

Multilateral Alliances

“What I do expect to see is an overarching strategy that does look more toward multilateral alliances and partnerships,” Adam Szubin, a former acting under secretary for terrorism and financial intelligence, said at a National Security Institute conference on Dec 1. “Wherever possible, you’ll see an effort to stand on a united front and call China on its behavior where that’s necessary.”

The U.S. approach under Trump was more hostile, with the argument being that companies would fall into line whether they liked it or not because access to the U.S. financial system was too precious to them. Complaints that the overuse of financial sanctions would undermine the dollar’s primacy were quickly dismissed.

As Biden prepares to take office, there’s no bigger sanctions target than Iran. According to Secretary of State Michael Pompeo, the U.S. targeted 1,500 people and entities in Iran in 77 separate rounds of sanctions, accounting for almost half of the administration’s sanctions actions.

“We have deprived the regime, according to their own words, of some $70 billion for terror,” Pompeo said at a conference last week. “We know our campaign is working because now the Iranians are desperately signaling their willingness to return to the negotiating table to get sanctions relief.”

Sanctions experts argue that while the Trump administration’s sanctions were often effective, there were times when they seemed to serve as public relations more than sound economic policy, something they say they don’t expect to see from Biden’s administration.

“I don’t think they will be scaling back on sanctions, they will be scaling back on the misuse of sanctions,” said Daniel Fried, a former ambassador, assistant secretary and State Department sanctions coordinator under Democratic and Republican administrations. “Scaling back on use of sanctions as a purely messaging tool or a media-cycle management device—sanctions because you want to look like you’re being tough.”