Sanctions by the Numbers: U.S. Secondary Sanctions

Trends in Secondary Sanctions Targeting

Specially Designated Nationals (SDNs) Subject to Secondary Sanctions by Affiliation

While several country-specific sanctions programs include secondary sanctions, Iran-related SDNs account for more than 68 percent of total secondary designations. This is due to the unilateral approach to sanctions the United States took following its withdrawal from the Joint Comprehensive Plan of Action (JCPOA). North Korean entities make up the next largest portion—22 percent—because of the implementation of the North Korea Sanctions and Policy Enhancement Act (NKSPEA) and subsequent amendments through Countering America’s Adversaries Through Sanctions Act (CAATSA) and the National Defense Authorization Act (NDAA) in 2020. While Russian and Chinese entities are frequently sanctioned for violating secondary sanctions programs on other countries, U.S. secondary sanctions imposed on China and Russia themselves remain limited. U.S. sanctions that target those countries are currently tied to specific activities, such as China’s involvement in undermining the Basic Law of Hong Kong and Russia’s participation in activities restricted by CAATSA and Protecting Europe’s Energy Security Act (PEESA). Unlike with Iran and North Korea, the sheer size and international integration of the Chinese and Russian economies may deter the United States from over sanctioning them, especially with regards to secondary sanctions.

Secondary Sanctions Enforcement from 2010–2021

Iran, the JCPOA, and Friction with Europe

While secondary sanctions have existed for over two decades, the U.S. government implemented them on a relatively infrequent basis (25 in total) prior to former President Donald Trump’s administration. The 1996 Iran and Libya Sanctions Act, later retitled the Iran Sanctions Act (ISA), was an early example of a secondary sanctions authority that imposed secondary sanctions on investments in Iran’s energy sector. But the U.S. government waived enforcement against these violations until the implementation of the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) in 2010, which marked the start of secondary sanctions as a tool in active use.

Secondary Sanctions Enforcement by Sector from 2010–2021

CISADA was a major milestone in the secondary sanctions regime on Iran since it expanded the range of energy-related activities subject to ISA secondary sanctions—most importantly to refined petroleum imports—and prohibited U.S. banks from opening new correspondent accounts for foreign financial institutions that facilitated transactions with the Iranian Revolutionary Guard. It also authorized secondary sanctions on designated Iranian banks and other entities implicated in weapon of mass destruction proliferation and terrorism, demonstrating the breadth of this new legislation and leading to an uptick in secondary sanctions enforcement. In response to growing concern over Iran’s nuclear program, the State Department under former President Barack Obama’s administration first enforced ISA/CISADA secondary sanctions in 2010 on the Naftiran Intertrade Company, a Swiss-based subsidiary of the National Iranian Oil Company, and on Belarus-based Belarusneft in 2011. However, these European companies were already subject to primary sanctions due to their relationships with the Iranian and Belarusian governments. The first use of secondary sanctions on entities not already designated under primary sanctions authorities occurred in 2011 on seven companies, including Venezuela’s Petróleos de Venezuela, S.A. (PdVSA), for prohibited activities within Iran’s energy sector. Additionally, the Obama administration enforced secondary sanctions on 25 entities involved in transactions with sanctioned Iranian energy and petrochemicals, shipping, and banking entities. However, following the adoption of the JCPOA in 2015, the United States lifted most secondary sanctions on Iran and did not enforce any additional secondary sanctions on Tehran for the remainder of the Obama administration, which allowed non-U.S. persons to resume certain economic activities with their Iranian partners without fear of U.S. sanctions.

U.S. government posture on Iran changed significantly after the Trump administration unilaterally withdrew from the JCPOA in 2018 and failed to garner international support for its “maximum pressure” campaign against Tehran. Under the Trump administration, the U.S. government deployed unilateral secondary sanctions on Iran as a substitute for coordinating multilateral sanctions with the international community, a necessary approach due to objections from Europe and the United Nations to the U.S. withdrawal from the JCPOA. Secondary sanctions on foreign businesses increased exponentially, rising from two in 2018 to 13 in 2019 and peaking at 78 in 2020. By the end of the Trump administration, the total was 104. The initial executive order implementing the withdrawal from the JCPOA reimposed secondary sanctions on the Iranian energy, oil, petrochemicals, shipping, and banking sectors and was followed by further executive orders throughout 2019 and 2020 that expanded secondary sanctions to transactions with the Iranian metals sector and later the construction, mining, manufacturing, and textiles sectors. As a result, secondary sanctions became a major economic coercive tool for Washington against Tehran during the Trump administration.

The extraterritorial nature of secondary sanctions has sparked criticism from European allies, which became pronounced after the U.S. withdrawal from the JCPOA when EU and U.S. sanctions policies on Iran diverged drastically. Despite this difference, very few secondary sanctions have been enforced on European companies due to the high level of compliance by European firms. This is because access to the U.S. correspondent banking and dollar clearing systems is critical for their operations. Additionally, many European banks maintain American operations, such as branches in New York City, that fall directly under U.S. jurisdiction and therefore are subject to U.S. law enforcement. Together, these factors lead European financial institutions to comply with U.S. sanctions, regardless of their governments’ policies. The high level of compliance by European financial institutions means it would be difficult for non-financial European firms interested in doing business with Iran to find a bank to process their transactions, and if subjected to U.S. sanctions, would be swiftly cut off from banking services in their own countries. While enforcement action against European firms has become more rare as the secondary sanctions have had their intended effect of disincentivizing transactions with entities designated under primary sanctions, the extraterritorial nature of the U.S. secondary sanctions program remains controversial in Europe.

North Korea

Congress has been active in passing legislation to bolster expanding executive branch secondary sanctions on adversarial countries including North Korea. For example, following Pyongyang’s hydrogen bomb test in February 2016, Congress passed the NKSPEA, which allows the U.S. president to impose secondary sanctions on any financial institution, transaction, or person involved in certain trade activities with a designated North Korean individual or entity. Most notably, Congress has incorporated mandatory secondary sanctions within its foreign policy objectives against rogue states through CAATSA, which contains provisions strengthening secondary sanctions on North Korea and Iran.

While North Korea-related SDNs comprise the second largest number of entities subject to secondary sanctions, the actual enforcement of these sanctions on North Korean entities and third parties transacting with them is relatively low. Support from European allies and the United Nations on sanctions targeting North Korea has reduced the need for the United States to respond unilaterally to North Korean provocations. For example, while there have been significant numbers of “material support” sanctions on third parties involved in illicit sanctions evasion on behalf of North Korea, the U.S. government has enforced relatively few secondary sanctions related to North Korea despite having the legal authority to do so. Because it is subject to heavy U.N. sanctions implemented by much of the world, Pyongyang engages in relatively little ordinary international commercial trade compared to other heavily sanctioned countries, lessening the potential coercive effect of U.S. secondary sanctions.

Russia

CAATSA marked the start of secondary sanctions on Russian targets. For the first time, it expanded Russia-related sanctions programs to include mandatory secondary sanctions on investments in certain Russian oil projects and transactions with the Russian intelligence and defense sectors, as well as created discretionary secondary sanctions on investments in Russian energy pipelines. Passed in the aftermath of Russian interference in the 2016 U.S. presidential election, Congress intended for CAATSA to enforce a harder line against Russia, sparking frequent clashes between Congress and the executive branch over the pace of sanctions implementation.

Congress has also demonstrated interest in using secondary sanctions to address concerns over Russia’s increasing leverage over European energy supply. PEESA, which expanded mandatory secondary sanctions on activities involving Russian pipelines in response to the ongoing construction of the Nord Stream 2 and Turkstream pipelines, has highlighted the potential for secondary sanctions legislation to spark conflict between the legislative and executive branches. In May 2021, the Biden administration sanctioned 16 Russian entities and individuals involved in the construction of the Nord Stream 2 pipeline to Germany, but chose to waive sanctions on the main company involved and its German chief executive. Congress strongly criticized this decision and certain members of the Senate threatened to block two Treasury Department nominations in response, but Secretary of State Antony Blinken deemed it necessary to shore up U.S. alliances with its European allies.

Syria

The 2019 Caesar Syria Civilian Protection Act restricted transactions with the Syrian government due to concerns over human rights atrocities. Under the provisions of the act, the United States imposed secondary sanctions on Syrian businessmen for entering into otherwise legal contracts with the Syrian government that do not touch on any U.S. nexus. In total, 15 designations have been made enforcing this authority.

Hezbollah

In recent years, Congress has also included counterterrorism within its secondary sanctions authorities, such as the 2018 Hizballah International Financing Prevention Amendments Act (HIFPAA), which intensifies restrictions on financial institutions transacting with Hezbollah. However, the effect of these measures is limited given that Hezbollah engages in little legitimate banking or commerce not already covered in other anti-terrorism or Iran-related sanctions authorities.

Enforcement of U.S. Secondary Sanctions from 2010–2021

China

The Trump administration applied secondary sanctions programs to China, which, as a leading global economy, poses challenges for further expansion of sanctions. Secondary sanctions were authorized in the 2020 Hong Kong Autonomy Act, indicating increased congressional interest in using this tool for foreign policy objectives related to human rights. No sanctions, primary or secondary, were announced as part of the U.S. response to China’s hacking of Microsoft detected in March 2021, potentially signaling a view that sanctions may have more limited applicability in the context of China. Given the potential negative impacts on the global economy and ability of the Chinese government to retaliate, the U.S. government is likely hesitant to significantly expand secondary sanctions on Chinese targets.

While the use of secondary sanctions to target Chinese entities has been relatively low, enforcement against Chinese entities that violate secondary sanctions on non-Chinese targets is the highest of all countries. For example, the Treasury has enforced secondary sanctions against Chinese (including Hong Kong) entities—some of which are shell companies created to engage in illicit trade—for transactions with the Russian defense industry or for providing manufactured goods and investment to Iran in exchange for oil. In the midst of the Trump administration’s “maximum pressure” campaign, China emerged as one of the Iranian regime’s key economic lifelines and a main target for U.S. secondary sanctions as the Treasury sanctioned 45 Chinese entities for violating secondary sanctions on Iran.

Future Outlook

While the Biden administration concludes its review of U.S. sanctions policy and programs, the U.S. government will likely continue to implement secondary sanctions to bolster the objectives of primary sanctions programs. Secondary sanctions may be an attractive tool when multilateral sanctions with allies are not possible, or when the United States seeks to deter coordination amongst adversary states to evade sanctions. Secondary sanctions will likely continue to expand beyond Iran as Congress expresses increased support for their broad application. However, the future effectiveness of secondary sanctions could be partly challenged by the emergence of new blocking statutes—legal countermeasures that restrict companies from following foreign sanctions—by other countries. While the EU’s blocking statute has not been effective due to enforcement and implementation issues, Russia and China have started to create their own sanctioning authorities and new legal statutes to counter U.S. economic coercion and weaken the effectiveness of U.S. secondary sanctions. For example, Beijing’s new “Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures” (阻断外国法律与措施不当域外适用办法) crafted a novel Chinese legal framework to mitigate the impact of foreign legal measures, including U.S. economic sanctions and information requests on Chinese legal persons and companies. Meanwhile, Moscow has drafted its own blocking statute proposing criminal penalties on firms that comply with U.S. sanctions law, though it has not yet been enacted. Although these blocking statutes warrant further consideration on proper implementation and enforcement policies for U.S. secondary sanctions, the effectiveness of secondary sanctions will continue to depend on the strength and attractiveness of the U.S. economy. As long as the United States remains a leading economic power and epicenter of the global financial system, secondary sanctions will remain a potent tool in U.S. economic statecraft.

Methodology

Designations were drawn from the following sanctions programs: DPRK-NKPSEA, PEESA, CAATSA-RUSSIA, ISA, NS-ISA IFCA, IRAN-TRA, IRAN-EO13622, IRAN-EO13846, IRAN-EO18371, and SYRIA-CEASAR 561-LIST, as well as the CAATSA Section 231 list maintained by the U.S. Department of State.

For the purposes of this SBTN, sanctions for “material support” or “acting on behalf of SDNs” were not classified as the enforcement of secondary sanctions. Additionally, designations included in each graphic featured both Treasury Department designations and State Department determinations.

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The CNAS Sanctions by the Numbers series offers comprehensive analysis and graphical visualization of major patterns, changes, and developments in U.S. sanctions policy and economic statecraft. Members of the CNAS Energy, Economics, and Security Program collect and analyze data from publicly available government sources, such as the Treasury Department’s Office of Foreign Assets Control.