Market-Based Reforms to the UK Economic Sanctions Regime
The UK’s current sanctions regime is dysfunctional and is failing to place meaningful pressure on sanctioned regimes;
This is exemplified by the failure to compel Russia to abandon its invasion of Ukraine;
The intent of these sanctions was to damage the Russian economy by preventing funds from the West being used to finance their war efforts, but Russia’s economy is expected to grow at a much faster rate than the UK’s this year;
Under our current system, businesses are effectively being forced back to the sanctioned regime. Those that remain are still managing to evade sanctions via shell companies or by operating through third-party countries, such as China and India;
There are a host of other problems with our current sanctions regime, including a lack of coordination with the UK’s international partners; insufficient resources for enforcement; difficulty in identifying and freezing assets; insufficiently punitive sanctions violation penalties, a lack of transparency, and a failure to provide proper guidance and support to businesses to ensure compliance with sanctions regulations;
No policy-makers have yet figured out how to motivate sanctioned individuals and entities to keep their money within the West;
This paper proposes the UK’s sanction regime should be modified to compel entities which have violated sanctions to re-invest in productive areas of UK economy, such as in important infrastructure projects, or by expanding an investment they already have here, rather than freezing their assets in place;
Alternatively, his re-investment could take the form of loans to the UK Government, potentially with a small interest rate;
Any profits from a successful investment project could be calibrated to the culpability of the sanctioned entity, with a zero-interest, no-profit category available for the very worst offenders;
In order to prevent ‘a race to the bottom’ in which countries compete for the investment of those they have sanctioned, to the potential benefit of the sanctioned, the new investment arrangement could be agreed upon by all participating sanctioning states.