Panel Session 5: How will US Sanctions Affect Economic Growth?

Cliff Knuckey
Managing Director
RISC Management Limited, UK


May I start by thanking the British Syrian Society for inviting me to speak at the Syrian Banking and Financial Services Conference here in Damascus.  This is my first visit to Syria and I must say, I have found Damascus to be a vibrant city whose people are some of the most hospitable and friendly I have encountered in the Middle East.

Economic sanctions represent a tool of US Foreign Policy and there is considerable doubt about the overall effectiveness of such sanctions.

In my former role as Head of Scotland Yard’s Anti-Money Laundering Unit, I frequently encountered individuals involved in providing services representing Alternative Remittance Systems or Underground Banking, as it is more commonly known.

About 10% of those individuals were providing Underground Banking services to countries that were the subject of economic sanctions, principally Cuba, Iraq, Iran, Sudan and Zimbabwe.

Additionally, because of the Economic Sanctions against Colombian Narcotics Traffickers and the plethora of companies they used to launder their money, the US inadvertently created the Black Market Peso Exchange where the Traffickers sold their US based Narco Dollars to Peso Dealers in Colombia – who used the Narco Dollars to finance the purchase of US manufactured consumables, which were then exported to Colombia.

Similar Underground Banking systems exist in many developing and transition economies throughout the world and trade features heavily.
The whole object of Economic Sanctions is to coerce one Country to bend to the will of another Country, in which the latter is invariably more powerful.

According to research on the subject, economic sanctions can be broadly categorised as follows: -

Purposeful: where it is intended to inflict economic hardship upon a State;

Palliative: a way of registering public displeasure against a state - but recognised by the sponsoring State as largely ineffective;

Punitive: essentially economic but again recognised by the sponsoring state as unlikely to lead to change;

Partisan: intended to promote parochial or commercial interests, normally trade related involving quotas; subsidies; etc.

Ultimately, economic sanctions are counter-productive.

Sanctions all too often:

  • Inflict economic suffering on the average citizen rather than the leaders.  Iraq is a classic example of where the United Nations and the US applied sanctions.  Those sanctions resulted in weakening the lives of many Iraqi citizens, including the deaths of many young children and strengthening the regime of Saddam Hussain regime.
  • Stifle foreign investment because there are severe restrictions on exports relating to goods and services and acquiring the finance to undertake the same.
  • Creates missed opportunities – even after sanctions are lifted.
  • Create long term economic costs for the sanctioned Country and there will be costs for Country applying the Sanctions.

Rarely are economic sanctions focused – they always appear arbitrary and discriminatory.

Classic examples that economic sanctions do not work beside the Alternative Remittance systems existing in the UK and that I mentioned earlier are those targeted at Cuba and Iran.

I have worked in Miami many times, where there is a large Cuban expatriate community.  They consistently have the ability to send funds to dependants and relatives in Cuba and the systems are well known to the US Treasury, which has responsibility for applying Economic Sanctions, and the whole underground banking system largely goes on with their tacit approval.

Iran has similarly been the subject of Economic Sanctions for years and yet the Country is extremely wealthy.  Sanctions may have restricted its ability to acquire Western technology, but it has managed to overcome this by developing relationships and partnerships with other Countries capable of providing the same technology.  Additionally, many Iranian banks have correspondent banking relationships with major branded banks in third party Countries who do have correspondent banking relationships with the US, which enables the Iranians to access US Dollars.

In the United Nations Oil for Food Program, US Oil purchases accounted for between 40% and 50% of ‘kickbacks’ paid to the then Iraqi regime.

The US Treasury did nothing about a Texan Oil company named BAYOIL, which facilitated payments amounting to $37m in illegal surcharges.

OFAC Sanctions currently target – the Balkans, Belarus, Cuba, Iran, Ivory Coast, Liberia, Myanmar, North Korea, Sudan, Syria, and Zimbabwe, together with focusing on individuals or companies involved in trafficking Narcotics, non-proliferation and terrorism.

States sponsors of terrorism are Cuba; Iran; Libya; North Korea, Sudan and Syria.

Syria is targeted for economic sanctions because it is allegedly

  • A State Sponsor of Terrorism
  • In Pursuit of Weapons of Mass Destruction
  • undermining the Stabilisation and Reconstruction of Iraq.

It is my sincere hope that the US intelligence concerning Syria’s pursuit of Weapons of Mass Destruction is not provided by the same source or analysed by the same group of alleged intelligence experts who indicated that Saddam Hussein possessed could launch such weapons within 45 minutes of being attacked.

I myself had some involvement in the investigation of the bombing of Pan Am flight 103 over Lockerbie in Scotland, where it was alleged by the US that Syria was involved.  This was despite the fact that at that time, there was no evidence or intelligence to suggest Syrian involvement.  As we now all know, the bombing was carried out by Libyans.

In terms of Syria’s sponsorship of terrorism, Syria supports Hamas; Hezbollah, Palestine Islamic Jihad, the Popular Front for the Liberation of Palestine and others.  It has always been my understanding that this support has manifested itself in a political form in that Syria’s policy is - it does not support terrorism but does support resistance to foreign occupation.  The allies during the Second World War relied heavily upon the activities of resistance movements. 

In the case of HAMAS, let nobody forget it has been democratically elected to govern Palestine.  Promoting democracy in the Middle East represents a core feature of US foreign policy, together with promoting Peace and Regional Stability.  

  • On the same theme of Syria’s alleged support of terrorism, my company has amassed a considerable amount of terrorist related intelligence from around the world.  We have obtained considerable material about the funding of terrorism; support mechanisms; understanding Islamic fundamentalist ideals and visions; how different terrorist organisations work together and the identities of terrorists and their supporters.
  • It should be noted that:
  • In the late 1990’s Syria agreed to expel leaders of the PKK Terrorist Group to Turkey.
  • Syria had at one time in custody Mohammed Haydar ZAMMER – who is believed to have recruited some of the 9/11 hijackers.
  • Syria has long deployed a robust policy toward dealing with Saudi militants who are suspected of having extremist tendencies, who have arrived in Syria with the object of crossing the border into Iraq.  Indeed this policy has been regularly reported and criticised by the Saudi and Jordanian press.
  • President Assad himself has astutely observed that fighting terrorism must depend on analysing the causes. 

No Country has won a war against Terrorism.  In the UK we engaged in dialogue with the Provisional IRA; Spain with ETA; Colombia with the FARC and AUC.  In the current war against Terrorism, influential people are beginning to suggest that we should engage in dialogue.

One of the greatest Statesmen of the 20th Century – Nelson MANDELA - was a former terrorist.  Menachem BEGIN who became an Israeli Prime Minister was a former terrorist leader.  Yesterday’s Terrorists can often become today’s leaders.

With regard to the suggestion that Syria is “impeding the stabilisation and reconstruction of Iraq” – in relation to border control, my understanding is Syria has worked diligently to control its side of the border by significantly increasing the amount of troops controlling the border, by building sand barriers 12 feet high, installation of barbed wire fences and increasing military outposts. 

Syria itself has captured over 1500 individuals attempting to illegally enter Iraq and expelled them to their countries of origin.

According to The Centre for Strategic and International Studies estimates the current Iraq insurgency is estimated to number some 30,000 combatants of whom about 5% are foreign nationals, many of whom have lived in Iraq for some years.

You cannot completely seal any border, but there could be further improvements if the US and Iraq were to engage with Syria in dialogue.  A national border can only be effectively policed if both sovereign territories work in partnership together. 

Examples of poor border controls would certainly be the south west border of the United States, which is extremely porous, despite the investment of massive resources to combat illegal migration from Mexico.  The UK at one time had similar problems with France and illegal immigrants setting off for the UK from a Migrants camp named Sangatte in France.

A stabilised Iraq in the form of a peaceful and democratic country is in Syria’s own interests as a neighbour.  Syria has a religiously and culturally diverse citizenship.  A destabilised Iraq could result in Sectarian violence spreading across the border. 

Syria has always supported the political process in Iraq, particularly during elections, when I understand the country encouraged the large Iraqi expatriate community to vote.  Currently, Syria has very little political influence in Iraq.

Syria has consistently called upon the US and Iraq to engage with it.  Turmoil in Iraq poses a threat to Syrian interests.

The Commercial Bank of Syria and its subsidiary, the Syrian Lebanese Commercial Bank have been designated as financial institutions of ‘primary money laundering concern’ under Section 311 of the Patriot Act.

The Patriot Act was a response to the tragic events of 9/11 and enacted shortly after that atrocity.  Sadly, past experiences have clearly evidenced that ‘knee jerk’ legislation, which is essentially what the Patriot Act represents, is bad legislation

It is alleged the Syrian Bank and its subsidiary have allegedly provided financial services to terrorists and their sympathisers and helped to launder the proceeds from the illicit sale of Iraqi oil.  Well on the latter point, so did the United States.  There were also apparent numerous transactions that were indicative of terrorist financing and money laundering.

And yet, where is the evidence.  I can assure this audience that at no time during my tenure as Head of Scotland Yard’s Anti-Money Laundering Unit, did Syria ever appear on our ‘radar screen’ as being involved in money laundering.  I am not saying your close neighbour Lebanon did not come up on our ‘radar screen’, although that Country has made significant strides to combat money laundering – but Syria certainly did NOT.

A concern to everybody should be the fact that the OFAC Sanctions and Watch lists never support the entries regarding individuals, companies and countries with references to credible evidence.  In the case of individuals, the identifiers are very poor, which creates false positives.

Syria is not a likely centre for money laundering because of its largely underdeveloped financial services infrastructure.  One speaker said yesterday there was one Banking branch per 62,000 of the Syrian population. 

Syrians have long relied upon Alternative Remittance Systems in which informal systems of transferring money have flourished. 

Any threat of money laundering will manifest itself in the form of currency smuggling – which in many cases is not illegal - trade related activity and alternative remittance systems – which again are not illegal, although in Europe and the US the operator must be registered.  Culturally, Syrians will need to be persuaded to move from a system of keeping cash under the bed to banking.

To conclude: -

  • Syria supported the coalition during the First Gulf War;
  • Syria cooperated with the US post 9/11;
  • Syria has enacted Anti-Money Laundering and Counter Terrorist Financing laws and regulations to internationally recognised standards and principles;
  • Syria is member of the MENA FATF;
  • Syria has attempted embarked on various initiatives with the US to address their concerns, but they regularly fail;
  • Syria has done more than most to secure its borders to prevent the destabilisation of Iraq;
  • Syria does not support Terrorism, but supports legitimate resistance to foreign occupation.

Economic Sanctions do NOT work: -

  • They prevent Syria from significantly modernising its banking and financial services infrastructure;
  • They are counter-productive;
  • They lack focus and are therefore arbitrary;
  • They discriminate against the commercial interests of Syria;
  • They discriminate against the citizens of Syria.

The United States must adopt a policy of Engagement and Dialogue.  Only then can it expect to win the Hearts and Minds of the Syrian people.

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