Governments outsource sanctions enforcement to private industry to mixed results
DO SANCTIONS WORK?
I’m in the Bahamas this week (I know, I know, it’s a tough life, but I’ve learned to cope) to attend a conference on money laundering hosted by the Central Bank of the Bahamas and to chat to people about the good old bad old days when all you had to do to launder a plane-full of dollars was to fly it from Miami to Nassau. I’ve written a paper about a bugbear of mine, which is how Western countries print extravagant quantities of banknotes, without asking — in an era of supposedly declining cash usage — who exactly is using them all.
There are lots of other folks talking too, and I’ve been spending this morning reading their papers, and I want to pick out two that address the important issue of sanctions and what we can learn from the experience of the last year.
Regular readers of this newsletter may have noticed that I’m pretty agnostic about the modern enthusiasm for sanctions as the answer to geopolitical problems. After all, they were a favored tool of the League of Nations, and their success rate at reigning in aggressive governments during the 1930s was, let’s be honest, mixed. It seems to me that, by announcing sanctions against kleptocrats and then expecting private companies to enforce them, governments are getting credit for tough action without having to spend any money on actually being tough. It risks being the worst kind of government-by-press-release.
Just to be clear, I do think sanctions can be useful but only as the cherry on top of a cake of well-resourced investigative and prosecutorial work into financial crime, as a temporary holding solution while other resources are put in place. If we expect them to take the place of the whole cake, we’ll end up pretty under-nourished.