Treasury Official Outlines Effort to Modernize Sanctions Approach, Humanitarian Exemptions

The Treasury Department presented the results of its monthslong sanctions review (see 2107200024, 2107060012 and 2106220037) to the Senate Banking Committee Oct. 19, detailing how it hopes to better coordinate designations with trading partners and establish more modern, effective sanctions regimes. Although some senators applauded the agency’s commitment toward revising its sanctions approach, others questioned Deputy Secretary Wally Adeyemo about what they said have been several U.S. sanctions failings, including the administration's policies toward Nord Stream 2 and China’s reported purchases of Iranian oil.

Adeyemo mostly avoided directly answering those questions and instead highlighted the findings of the sanctions review the administration had been working on since President Joe Biden took office. The nine-page review doesn’t outline any major policy changes but lists steps the U.S. will take to make sanctions more effective, multilateral and modernized. The agency said it will adopt a “structured policy framework” that will seek to tie sanctions to “clear, discrete objectives,” expand humanitarian exemptions, regularly assess various programs, avoid unintended consequences and ensure sanctions are “easily understood, enforceable, and, where possible, reversible.”

Adeyemo, who led the review, said perhaps the agency’s most important finding is that the U.S. needs to do more to combat “adversaries that are attempting to bypass our sanctions.” He said that can be achieved by coordinating sanctions more closely with partners. “If a country attempts to subvert the U.S. financial system,” he said, “it will be harder for them to do that if we're taking sanctions actions with our partners and allies.”

But he also said the agency needs more resources to counter sanctions evasion. “Treasury must invest in changes to its workforce and technical capabilities to meet these evolving threats,” Adeyemo said, including “making workforce and infrastructure investments to take on growing threats like ransomware and other cybercrime.”

Adeyemo also outlined what could be a shift in the U.S. approach to humanitarian exemptions. He said the U.S. has “often” announced new sanctions programs before waiting to hear from aid groups about how the programs may obstruct humanitarian-related transactions and exports. The U.S. should instead tailor regimes to better help aid groups before those problems start, Adeyemo said. “Our goal now needs to be to ensure that we take the lessons we've learned from the last 20 years and ensure that humanitarian assistance can be provided alongside our sanctions programs,” especially during the COVID-19 pandemic, Adeyemo said.

Non-governmental organizations have repeatedly told the U.S. that its sanctions inadvertently interrupt the flow of aid because banks and other parties are hesitant to approve transactions involving heavily sanctioned regions, such as the Middle East, Russia, Venezuela and Cuba (see 2109020064, 2004100044 and 2004070028). “Clearly we need to work harder to avoid the collateral consequences of sanctions on humanitarian aid,” said Sen. Sherrod Brown, D-Ohio, chair of the committee.

During the hearing, Republican lawmakers criticized the administration for refusing to impose what they say are mandatory sanctions against the Nord Stream 2 gas pipeline under the Countering America’s Adversaries Through Sanctions Act (see 2107220008 and 2110010015). Sen. Pat Toomey, R-Pa., said the “administration has chosen to ignore the law” requiring sanctions. Sen. Kevin Cramer, R-N.D., said “it's hard for me to see much commitment when the president announces, out of the blue, the lifting of sanctions [against Nord Stream 2 AG], an authority he doesn't even have.”

Adeyemo said he “appreciates” concerns regarding Nord Stream 2 but didn’t say why the administration hasn’t issued the sanctions. Treasury has met with congressional staffers to review evidence for sanctioning the pipeline and discussed with Justice Department officials its sanctions obligations, Adeyemo said. “The Treasury Department is making sure that we're looking for any evidence that we can that will allow us to use the mandatory sanctions,” Adeyemo said.

Several senators also said they are concerned about reports that China is buying significant quantities of oil from Iran. Toomey said Iran has “doubled the amount of crude oil it's selling to China to 600,000 barrels each day” since Biden took office. “Even though these sales are illegal under sanctions laws,” Toomey said, “the administration has refused to impose congressionally required sanctions on the Chinese buyers.”

Adeyemo declined to comment on specific Treasury efforts regarding the oil purchases but said he can provide a classified briefing to the committee. “We're committed to complying with the law and to seeking intelligence on the companies and entities that are purchasing illegal oil and holding them accountable,” he said.

Adeyemo also declined to say when the administration plans to issue sanctions under the recent executive order on Ethiopia (see 2109170036), saying the U.S. is “committed to finding a peaceful resolution to the situation in Ethiopia” but will impose designations if necessary. “As the process continues,” Adeyemo said, “we will continue to evaluate sanctions targets and are committed to keeping you informed as we do.”

Adeyemo also said Treasury will continue “using our sanctions authorities to go after those that use crypto payments to violate our laws by committing crimes.” The agency recently designated a crypto exchange for facilitating ransomware payments (see 2109210031) and wants to increase its efforts to target those illegal payments (see 2110130038), including through more staffing. “We look forward to both looking for the authorities to hire the people we need” and to “make sure that we have the personnel needed to address the issues of cryptocurrency,” Adeyemo said.