April 18, 2016

CNAS Releases “The New Tools of Economic Warfare: Effects and Effectiveness of Contemporary U.S. Financial Sanctions”


Washington, April 18 – As targeted financial sanctions become an ever-larger piece of the U.S. national security tool kit, the Center for a New American Security has released a new report, “The New Tools of Economic Warfare: The Effects and Effectiveness of Contemporary U.S. Financial Sanctions.” The report lays out criteria for measuring the effectiveness of sanctions and recommends a series of adjustments to the architecture of financial sanctions. The report is by CNAS Energy, Economics, and Security ProgramDirector Elizabeth Rosenberg; CNAS Energy, Economics, and Security Program Adjunct Senior Fellow Zachary Goldman; Tuft’s Fletcher School of Law and Diplomacy ProfessorDaniel Drezner; and New York University School of Law Center on Law and Security Program Associate Julia Solomon-Strauss.

Please find the report below: 

Please find the executive summary of the report below:

In the post-9/11 era, targeted financial sanctions have moved to the center of our national security discussion in a range of contexts. From the fight against terrorism to the struggle against the proliferation of weapons of mass destruction and territorial aggression, sanctions are often the tool to which U.S. policymakers turn first in responding to crises and managing threats on an ongoing basis. But as rapidly as the tools themselves have evolved, the framework for determining their effects, for evaluating their effectiveness, and for minimizing unintended consequences has lagged behind. The result is that financial sanctions often have not been integrated into overall strategic approaches to foreign policy problems.

This paper begins to fill those gaps. It first presents new research and data evaluating the effects of U.S. sanctions imposed on states. We demonstrate that, contrary to popular wisdom, 21st century sanctions do not have a significant effect on the GDP of target countries. They do, however, have a powerful impact on foreign investment, corruption, ease of doing business, governance, and other measures of a country’s hospitability to engagement with the international financial community. It is substantially more difficult to measure the effects of sanctions on non-state actors such as narco-traffickers, terrorists, and cybercriminals because they operate clandestinely. Data on the balance sheets of terrorist groups or drug cartels generally isn’t available, making the kinds of analysis we present with respect to states impossible to perform for non-state actors. Nevertheless, anecdotal evidence and repeated initiatives at every level of the international community serve as evidence that sanctions are having an impact there too.

The data we present on the effects of sanctions on states lead us to a series of conclusions about their effectiveness, which can be considered using three general criteria: (1) the ability to meaningfully shape the political environment and balance of political leverage, including through changed economic circumstances; (2) catalyzing relevant communities (domestic or international) to concerted action, including by messaging with respect to sanctions targets; and (3) achieving discrete political objectives in support of overall U.S. policy goals. Not all of these will be relevant to each case, but as a general matter these criteria should shape the development and deployment of U.S. sanctions in the future.

Effective sanctions policy also must take into account the negative effects that have emerged from the policy and enforcement landscape in the last several years. Phenomena like de-risking and efforts by countries like Russia and China to develop alternatives to the U.S. dollar-denominated foundations of the international financial system remind us that the size, liquidity, and integrity of the U.S. financial system are among the United States’ most important strategic assets, including in the deployment of sanctions. As U.S. and allied policymakers develop sanctions policy, the structural features of the international financial system that have made sanctions such a potent weapon to this point should be front of mind.

We conclude by recommending a series of adjustments to the architecture of financial sanctions: greater coordination within the U.S. government, between federal, state, and local entities with jurisdiction over sanctions issues, and among America’s allies; an improved framework for communicating and collaborating with the private sector; and greater integration with overall strategic objectives. Only then will the next generation of development in financial sanctions policy and practice be as successful as the last.

The report’s authors are available for interviews. Please contact Neal Urwitz atnurwitz@cnas.org or 202-457-9409 if you would like to arrange one.