The Cable

Top Treasury Official Warns Against Over-Reliance on Sanctions

Though the Obama administration has often resorted to financial sanctions to coerce foreign adversaries into better behavior, a top Treasury official warned Friday that overusing the measures risks damaging the long-term vitality of the U.S. economy and the economies of friendly nations.

US Secret Service Uniform Division officers walk in the door near the seal on the US Treasury building August 9, 2011, in Washington, DC.    AFP Photo/Paul J. Richards (Photo credit should read PAUL J. RICHARDS/AFP/Getty Images)
US Secret Service Uniform Division officers walk in the door near the seal on the US Treasury building August 9, 2011, in Washington, DC. AFP Photo/Paul J. Richards (Photo credit should read PAUL J. RICHARDS/AFP/Getty Images)

Though the Obama administration has often resorted to financial sanctions to coerce foreign adversaries into better behavior, a top Treasury official warned Friday that overusing the measures risks damaging the long-term vitality of the U.S. economy and the economies of friendly nations.

“Sanctions are not a silver bullet, or the solution to every foreign policy crisis,” Adam Szubin, the acting undersecretary of Treasury for terrorism and financial intelligence, said in an address at the Center for a New American Security. “Even when sanctions do work, they can come with negative side effects.”

Szubin, who has been deeply involved in U.S. sanctions efforts targeting Iran’s nuclear program and illicit funding for the Islamic State terror network, said many of the downsides of sanctions are obvious: They risk retaliation from foreign governments, they strain diplomatic relations, and they dampen commercial activity.

But other risks, he said, are not so obvious. In particular, the risk that overusing sanctions can cause the U.S. financial system, the bloodstream of the global economy, to become so complicated and unwieldy for foreign businesses that they eventually seek new methods of doing business outside U.S. markets.

“If we insist on imposing sanctions without multilateral support … we could damage our standing internationally, weakening the primacy of the U.S. financial system,” Szubin said. “And if we lose that, we lose the very economic leverage that has made our sanctions so effective in the first place.”

Szubin’s warning comes as Republicans in Congress seek to pass new legislative sanctions against Iran despite its compliance with the nuclear deal it signed last year. Sens. Marco Rubio of Florida and Mark Kirk of Illinois have introduced a bill blocking Tehran from access to the U.S. financial system and offshore U.S. dollar-clearinghouses following its ballistic missile tests last month, which violated a U.N. Security Council resolution. The Obama administration opposes the bill.

While many lawmakers remain critical of the nuclear deal, which unfroze as much as $100 billion of Iran’s assets in international banks, Iranian officials have complained that lifting international sanctions has had a minimal impact on Tehran’s economy. In some instances, European banks are still wary of granting lines of credit to Iran for fear of being hit with U.S. sanctions, which remain in effect on a number of areas of Iran’s economy. On Friday, the head of Iran’s central bank, Valiollah Seif, reiterated those grievances while in Washington attending spring meetings of the International Monetary Fund and the World Bank.

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