From Deripaska to Gertler, sanctions show that they’re working

When Israeli billionaire and mining magnate Dan Gertler was placed on the OFAC sanctions list under the Global Magnitsky Act in 2017 – for alleged corruption in the mining sector of the Democratic Republic of the Congo (DRC) – his businesses swiftly took a hit. Now, however, Gertler is back in the game, albeit under strict supervision: in late January, the US Treasury issued Gertler a special one-year license authorizing him to engage in “all transactions and activities” previously forbidden by the imposed sanctions.

Human rights and anti-corruption groups lost no time calling on new US-President Joe Biden to revoke the license. While the reaction may be understandable on the surface, the outrage misses a wider and rather important point: not only are the sanctions working, but providing a way out for those affected encourages compliance and works towards achieving stated objectives.

Probation, not freedom

Critics of the Treasury’s move allege that easing Gertler’s sanctions amounts to giving the Israeli a “free pass to deal in the US economy” and warn that doing so is the first step towards his complete exoneration. Yet a closer look at the license itself shows that it effectively places Gertler on probation, rather than dismissing the reasons for which he was originally targeted. As a matter of fact, Gertler remains on the US government’s Specially Designated National list, all the while the American authorities retain the right to revoke the special license at any moment.

What this means is that the license is a sign of goodwill towards those placed under OFAC sanctions, be it Dan Gertler or anyone else, to demonstrate progress in compliance with international laws. More concretely, it puts the ball in the court of those under sanctions by offering an opportunity to demonstrate to the US government that the extended goodwill is not being squandered – and that those who comply will be rewarded.

Oleg Deripaska and the price of compliance

A case in point is that of notorious Russian aluminium tycoon Oleg Deripaska, whom OFAC sanctioned in 2018 for “having acted or purported to act for or on behalf of, directly or indirectly a senior official of the Government of the Russian Federation”. There’s no doubt that the sanctions hit Deripaska where it hurt: effectively cut from the global market, shares in aluminium business Rusal and its holding company En+ plummeted, wiping more than $1 billion from the Russian’s net worth in a day. Facing effects of such magnitude, Deripaska eventually resigned as Rusal director and reduced his stake in Rusal and En+ to below 50 percent.

With direct control over these firms severed, the US lifted the sanctions against Deripaska in January 2019 – at once a clear demonstration of the success that sanctions can have when rigorously applied, and that complying is worth the price. In the words of scholars at the Atlantic Council at the time, the delisting of Deripaska “is a positive outcome for the policy that sanctions are intended to advance. It is among the most robust and verifiable delisting processes that Treasury has achieved.”

Actions speak louder than words

For his part, Gertler has removed himself from many of his biggest projects in the DRC since being placed under sanctions in what has been indicative of an attempt to take steps designed to get them lifted. The special license implies that the attempts have been duly noted, with Gertler following up in a statement that “we will be adopting and implementing the most stringent anti-bribery and anti-corruption policies and measures across all our global practices”, along with establishing sanctions compliance program in all of his operations.

This also means that all of Gertler’s business activities are subject to strict supervision by American authorities, exacerbated by the requirement to submit detailed financial reports to OFAC every 90 days until January 31, 2022 when the license expires. These measures are not merely restrictive for the sake of it, but serve as a constant reminder for Gertler to heed his own words at the risk of having the full extent of punitive measures reinstated in case of non-compliance.

The carrot and the stick

The track record of the US sanctions regime suggests that punishing is as important as incentivizing a lasting change in behavior and conduct. The latter can only be achieved if it’s clear that a way out exists, a particularly important factor considering how important of a foreign policy tool sanctions have become under the Trump administration, and the extensive reach OFAC sanctions have as a result of their extraterritorial nature.

At the end of the day, it’s up to the sanctioned entities whether they want to take the steps required to re-join the global financial system and business world or pay the consequences of continuous flouting of global rules. But for what they are worth, sanctions – as real-life representation of the carrot and stick analogy – are proving their effectiveness time and again.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes