Time for a New Approach: Why Government Sanctions are Proving Ineffective as a Tool for Change

Government sanctions, often thought to be the pacifist response to motivating change in a sovereign state, are being reexamined both for their effectiveness and for their impact as a policy tool.

General or comprehensive sanctions have been shown to have an indiscriminate impact on a country and can cause severe negative humanitarian consequences for the civilian population and third countries without effectively altering the behavior of those in power in the sanctioned state.  Epidimiologist Richard Garfield estimates that 200,000 children have died in Iraq as a result of the comprehensive economic sanctions on that country.

“Targeted sanctions” developed as a means of addressing the collateral damage caused by general sanctions.  These sanctions are meant to focus their impact on leaders, political elites and segments of society believed responsible for objectionable behavior. An often related form of sanction, “selective” sanctions, involve restrictions on particular products or financial flows against a country.  These measures have been used more frequently in recent years, however, increasing evidence is showing that such economic sanctions are failing to achieve positive outcomes.  A New York Times report notes that nearly $15 billion has been paid to companies that defied American sanctions law by making large investments that helped Iran develop its vast oil and gas reserves, often tied to funding of the Revolutionary Guard.

Sanctions against Iran are by no means a new policy exercise.  In fact, the Iran Sanctions Act passed in 1996 and gives the president the power to levy substantial punishments against corporations doing business with the Iranian regime.  However, the Sanctions Act has received much criticism as an overreach of American policy, thus explaining its lacking enforcement which further undermined any effective deterrent effect.

As the Times report shows, there still exist considerable loopholes for corporations to profit in crucial areas of Iran’s economy without fear of reprisal or loss with United States business.  Auto companies doing business with Iran, for instance, received $7.3 billion in federal contracts over the past 10 years. Additionally, corporations are still able to work with repressive regimes through investment in foreign subsidiaries and, given the global nature of a corporations activities, the use of such foreign subsidiaries is a common practice.

With economic power shifting to countries like China, the US has lost much of its economic bargaining power.  Further, without a global and coordinating agreement toward enforcement of sanctions, they often prove futile as investment is shifted to other countries eager to gain access to the investment markets of these states.

This reality, coupled with the inherently political nature of exercising sanctions and the increasing power of the corporation as an agent of change, compels a new approach.  Efforts should be focused not on sanctions as a policy tool, but rather at influencing shareholder behavior away from investing in corporations doing business with regimes implicated in human rights abuses.  Governments, through mandating increased disclosure about corporate impacts on human rights, can force the necessary transparency to empower such shareholder decision making.

On February 5, 2010, the Right Respect commented on the SEC decision requiring public companies to consider and disclose effects of climate change on their business activities.  In a similar vein, the SEC could mandate more complete disclosure of a corporations involvement with repressive regimes, and the nature of the investment with these regimes.  As we indicated in the context of environmental disclosures, the power of such mandatory disclosure would benefit shareholders who may choose to invest in corporations that evidence the right respect for human rights in their business practices.