Type, Targets of Sanctions Shift in Bush Administration

Wade Boese

In September, the U.S. Department of the Treasury imposed proliferation sanctions on 25 Iranian entities. Enacted under Executive Order 13382, the sanctions freeze any U.S. assets of the accused and prohibit them from engaging in U.S. financial or commercial activities.

The sanctions are the latest installment in a series the Treasury Department has imposed during President George W. Bush’s second term on entities allegedly assisting or engaged in the acquisition or sale of unconventional weapons, related materials, or missiles. At the same time, the Department of State, which spearheaded the drive to reinvigorate sanctions during Bush’s first term, has increasingly taken a back seat. The changes parallel a shift in the target of sanctions: over the course of the administration, sanctions have decreased against Chinese entities and increased against Iranian entities.

Current and former U.S. government officials familiar with Bush administration sanctions offer various explanations for the shifting trends, including personnel changes, bureaucratic battles, modified Chinese behavior, and the introduction of Executive Order 13382. Some of the officials contend the trends do not reflect conscious policy choices, but some former officials say that as time passed, the administration has moderated its sanctions approach on Chinese entities in a bid to win China’s cooperation in dealing with Iran and North Korea.

The Bush Administration Sanctions Record

Since taking office, the Bush administration has imposed sanctions related to unconventional weapons and missile proliferation 278 times against 197 foreign entities and one U.S. entity, a subsidiary of a Chinese company. Many foreign entities have been sanctioned multiple times, such as North Korea’s Changgwang Sinyong Corp., which has been penalized on nine separate occasions.

The number of sanctions invoked annually by the Bush administration has oscillated but averages about 35 times per year. In comparison, the Clinton administration averaged eight sanctions annually, according to June 4, 2003, testimony to the House International Relations Committee by John Bolton, then undersecretary of state for arms control and international security.

The dramatic rise in sanctions under the Bush administration compared to its predecessor was no coincidence but stemmed from a concerted push by Bolton, who held his undersecretary post for Bush’s first term, and other administration officials, several of whom had been Republican congressional staffers who were strong proponents of sanctions. They saw sanctions as a useful tool to punish and stigmatize proliferators and criticized the Clinton administration for not utilizing them more. Top Clinton administration officials often saw sanctions as too confrontational, potentially damaging to bilateral relations, and not always constructive in getting undesirable behavior changed. Instead, the Clinton administration tended to rely more on demarches, which are formal diplomatic notes, to inform foreign governments of activities that it wanted ceased. (See ACT, September 2003.)

Bolton indicated soon after he became undersecretary in May 2001 that he wanted to “go after sellers and sanction harshly,” a former U.S. government official told Arms Control Today in a Sept. 19 interview. Another former official in an interview the same day said, “Bolton was big on sanctions.”

Bolton encouraged the bureaus reporting to him to scour intelligence information for activities that mandated sanctions. Christopher Ford, who left government in September after serving as the U.S. special representative for nuclear nonproliferation, e-mailed Arms Control Today Sept. 19 that Bolton’s hard-driving approach on sanctions stemmed from his interest in both curbing proliferation and fulfilling statutory requirements that he and others alleged the Clinton administration had shirked or had been too lax in implementing.

A Tale of Two Terms

Bolton’s eagerness to employ sanctions during the Bush administration’s first term produced a large jump in penalties, particularly on Chinese entities. Sixty-two of the 108 sanctions (57 percent) levied in that span by the State Department involved Chinese entities.

Although the sanctions did not identify who was receiving the goods, general speculation centered on Iranian importers, given that many of the sanctions stemmed from the Iran Nonproliferation Act of 2000 and the Iran-Iraq Nonproliferation Act of 1992. Those laws focused more on punishing exporters than importers. Only two Iranian entities were sanctioned during the administration’s first four years.

Bush in March 2005 nominated Bolton to serve as the U.S. permanent representative to the United Nations. After a grueling five-month process during which lawmakers refused to confirm him to the post, the president gave Bolton a recess appointment, which ended in 2006. (See ACT, January/February 2007; September 2005.)

During its second term, the Bush administration has sanctioned 170 entities, 62 more than during its first term. But 106 of the sanctions emanated from the Treasury Department, which was empowered in June 2005 to take a more active role in proliferation sanctions when the president issued Executive Order 13382. (See ACT, September 2005.) That order authorized the department, working with other government agencies, to block the U.S. assets of entities judged to be engaged in or assisting proliferation, as well as the U.S. assets of foreign banks that do not follow the U.S. lead.

The State Department levied the other 64 second-term sanctions, 44 less than during Bolton’s tenure as undersecretary. A U.S. official, however, told Arms Control Today Sept. 18 that the State Department was on the verge of imposing several more sanctions.

The administration’s sanctions also differed between the first and second terms in their targets. Iranian entities accounted for 96 of the 170 second-term sanctions, or 56 percent. On the other hand, Chinese entities in the same period were slapped with 16 sanctions, a quarter of the number in the administration’s first term.

Explaining the Shifts

All the current and past officials interviewed by Arms Control Today agreed that Bolton’s departure from the State Department in 2005 influenced to some degree the drop-off in sanctions it issued. Most also noted that his successors, Robert Joseph and John Rood, view sanctions as important but of lower priority than other goals.

Ford observed that Bolton seemed to have a “taste and flair for effective bureaucratic infighting,” helping ensure not only that the bureaus reporting to him followed his intent to rigorously apply sanctions laws, but also in outmaneuvering other State Department bureaus that worried such penalties might jeopardize relations with the government whose entities might be sanctioned. For instance, Lawrence Wilkerson, an aide to first-term Secretary of State Colin Powell and no fan of Bolton, told Senate Foreign Relations Committee staff on May 6, 2005, that the East Asia and Pacific Bureau “didn’t like” the many sanctions against China when the United States was “trying to negotiate with North Korea and have China be a very meaningful player in that negotiation.” Ford and Carolyn Leddy, who worked at the State Department before becoming director for counterproliferation strategy on the National Security Council (NSC) from July 2006 to November 2007, suggested that, with Bolton’s absence, the State Department bureaus skeptical of sanctions prevailed more frequently in intradepartmental struggles.

As the State Department’s focus on sanctions waned after Bolton, the Treasury Department’s proliferation sanction activities expanded through Executive Order 13382. The allure of “financial sanctions” received a boost in the eyes of many administration officials when the Treasury Department in September 2005 succeeded in getting a Macau-based bank, Banco Delta Asia, to freeze some North Korean accounts after designating the bank a “money laundering concern.” (See ACT, April 2006.)

Although North Korea eventually succeeded in getting the funds released, some foreign banking institutions in the interim had curtailed their activities with North Korea and Banco Delta Asia. That ripple effect pleasantly surprised Bush administration officials because the sanctions imposed through the State Department typically had not been replicated abroad. Sanctions triggered by the laws administered by the State Department generally prohibit the accused from U.S. trade or aid. Sanctions critics note that such penalties are often symbolic because most entities sanctioned generally do not trade with or receive aid from the United States in the first place.

Leddy stated in a Sept. 19 e-mail to Arms Control Today that “when I was at the NSC, Treasury certainly was the go-to department to get anything done.” She added that Stuart Levey, the undersecretary of treasury for terrorism and financial intelligence, and his staff have “a real dedication and belief in the power of these financial tools.”

Some of the current and past officials also speculated that the Treasury Department’s growing role in sanctions could reflect that Executive Order 13382 sanctions are procedurally and bureaucratically easier to invoke than the laws that the State Department implements. Sanctions under the executive order require a determination by the Treasury Department or other agencies that an entity is engaged in or assisting proliferation, while the State Department must be satisfied that its determinations meet the criteria and intent of laws passed by Congress. The current official interviewed Sept. 18 also said that executive order determinations appear less reliant on secret intelligence, making it more feasible to levy sanctions without alerting proliferators to possible U.S. intelligence sources or methods.

The executive order also enables the U.S. government to go after the buyers or recipients of alleged proliferation transactions more than previous laws, which were focused on punishing the sellers. Many of the individuals interviewed by Arms Control Today saw this as a factor in the rise of sanctions on Iranian entities, in addition to the greater international scrutiny on Iran after the exposure of its clandestine nuclear activities in 2002.
One former State Department official e-mailed Arms Control Today Sept. 22 that the rise in Iranian sanctions was “in essence a decision to begin sanctioning as a political signaling mechanism, both to tell Iran that we knew what was up…[and] to signal to third parties that [the sanctioned entities] were bad news and that [the third parties] were vulnerable if they traded with the Iranian front companies.”

Less agreement existed among the current and former officials on why sanctions on Chinese entities have decreased. Almost all said that China’s proliferation record improved, but some suggested that the Bush administration also has become more lenient in sanctioning Chinese entities.

In May 20 testimony before the U.S.-China Economic and Security Review Commission, Patricia McNerney, the principal deputy assistant secretary of state for international security and nonproliferation, gave a mixed assessment of Chinese proliferation. She charged that “a number of Chinese entities continue to supply items and technologies useful in weapons of mass destruction, their means of delivery, and advanced conventional weapons to regimes of concern.” At the same time, she said some oft-sanctioned Chinese entities, namely NORINCO and the China Great Wall Industry Co., have taken steps to prevent “inadvertent transactions” that could contribute to proliferation. A month later, the Treasury Department lifted Executive Order 13382 sanctions against the latter company, stating that it had “implemented a rigorous and thorough compliance program to prevent future dealings with Iran.”

Still, two of the former U.S. officials contend that Chinese behavior had not improved so much to justify a falloff in sanctions. Instead, one of them argued Sept. 19 that the administration in its latter years has sought to “make nice with the Chinese” and “avoid antagonizing the Chinese because of the desire for support on North Korea and Iran.” The other former official concurred, telling Arms Control Today Sept. 20 that there had been “some effort to soften [sanctions] to win Chinese support” in negotiations on North Korea’s nuclear programs. The first official condemned the perceived change in approach as “not only false, but foolish.”

Matthew Levitt, who served from 2005 to 2007 as the deputy assistant secretary of treasury for intelligence and analysis, cautioned against drawing too many conclusions from the numbers of sanctions imposed on the entities of one country or another. He e-mailed Arms Control Today Sept. 17 that “there are real world issues that drive these decisions and in many cases decisions are taken not to take [sanctions] but another kind of action.”

Do Sanctions Matter?

Almost all the officials interviewed by Arms Control Today positively assessed the consequences of the Bush administration’s increased use of sanctions compared with that of its predecessor. Ford recalled that although he saw a considerable amount of incoming information on “problematic transfers by Chinese entities” when he arrived in 2003 at the State Department, the flow of reporting on such matters diminished over time, suggesting the sanctions were working. He conceded that some of the change might have been due to Chinese entities getting better at “concealing” their activities, but he maintained that U.S. sanctions certainly played a role in the decrease.

Paula DeSutter, assistant secretary of state for verification, compliance, and implementation, said in June 26, 2007, remarks at a Washington conference that U.S. sanctions combined with various UN Security Council resolutions on Iran and North Korea “have prompted many businesses and institutions around the world to scale down or terminate completely their dealing with proliferators.” Similarly, in a Sept. 10 briefing on the imposition of additional sanctions under Executive Order 13382, Ambassador Jeffrey Feltman, the principal deputy assistant secretary of state for Near Eastern affairs, told reporters that the sanctions “are having an impact” but added that “much of what we know is based on intelligence that we can’t really discuss in an open briefing.” The Treasury Department has not released any totals for the amount of assets frozen under Executive Order 13382.

In a December 2007 report on sanctions against Iran, the Government Accountability Office (GAO), which conducts studies for Congress, concluded it was difficult to judge sanction results. The GAO noted that several big European banks had followed the U.S. sanctions lead in curbing business with certain Iranian entities, but the agency also stated “the extent of [sanctions] impacts is difficult to determine.” The agency added that the Treasury Department’s assessment that Iran continues to pursue nuclear and missile capabilities “reinforces our finding that the overall impact of sanctions is unclear.”

Corrected online November 4, 2008. See explanation.