Can sanctions work?

Heavens to Murgatroyd! Is is possible that the sanctions that were put on Iran may work?

These new, targeted financial measures are to traditional sanctions what Super Glue is to Elmer’s Glue-All. That is, they really stick. Deputy Treasury Secretary Robert Kimmitt doesn’t even like to call them sanctions, preferring the term “law enforcement measures.” Explains Stuart Levey, Treasury’s undersecretary for terrorism and financial intelligence: “Sanctions are scoffed at. They have a bad history.”

Authority for the new sanctions, as with so many other policy weapons, comes from the USA Patriot Act, which in Section 311 authorizes Treasury to designate foreign financial institutions that are of “primary money laundering concern.” Once a foreign bank is so designated, it is effectively cut off from the U.S. financial system. It can’t clear dollars; it can’t have transactions with U.S. financial institutions; it can’t have correspondent relationships with American banks.

The new measures work thanks to the hidden power of globalization: Because all the circuits of the global financial system are inter-wired, the U.S. quarantine effectively extends to all major banks around the world. As Levey observed in a recent speech, the impact of this little-noticed provision of the Patriot Act “has been more powerful than many thought possible.”

It seems to me that it may also be possible that the lousier the domestic economic policy in the target country may be the more possible it is that the kind of economic pressure represented by these sanctions will be effective.

We’ll have to wait and see. Meanwhile, I think it would be great if ching-ching were better then either jaw-jaw or war-war.

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  • It should be noted that it is this same provision which has been so successful at bringing the N. Koreans to heel, as well as the Palestinians (who are still in threat mode, which the N. Koreans are just moving beyond out of desperation).

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