The Need for a UN Sanctions Compensation Fund
By Uli Cremer
With the failure of economic sanctions against Iraq and Yugoslavia in the 1990’s and the prospect of new sanctions against Iran looming, the United Nations Security Council should alter the way it thinks about sanctions. The UN Sanctions Compensation Fund could make the difference now – and in the future.
“A nation boycotted is a nation in sight of surrender. Apply this remedy and there will be no need for force.” Woodrow Wilson.
Since the Iran case was handed over to the UN Security Counsel, international debate over sanctions has reawakened. The debate over sanctions against Iran calls for a look at the practice of economic sanctions in the past 15 years. After the disastrous effect
UN sanctions had on the Iraqi people, the concept of “smart sanctions” arose, but the economic mechanisms of sanctions should be analyzed as well The proposal to establish the UN Sanctions Compensation Funds (UNSCF) seems straightforward, but it must be accompanied by measures to humanize the effects on ordinary citizens. If the UN member states are prepared to fund such a program, economic sanctions might become a powerful and humane non-military instrument in the future. This would be a milestone toward Woodrow Wilson’s vision of establishing sanctions as an alternative to war.
Arguments against Sanctions
Since 1945 the UN has imposed sanctions against 14 states: Angola, Afghanistan, Cambodia, Haiti, Iraq, Liberia, Libya, Rhodesia, Rwanda, Sierra Leone, Somalia, South Africa, Sudan and Yugoslavia.
More states were targeted by unilateral sanctions in cases where the United States and /or the European Union were not able to convince the international community to impose sanctions.
But even cases of economic sanctions endorsed by the UN Security Council have remained controversial, contested by diverse political actors, as well as peace activists. Hans Graf Sponeck, former coordinator of the Iraq “Oil for Food” program (1998-2000), concluded that “the experience in Iraq definitely proved that comprehensive economic sanctions should be eliminated from the catalogue of forms of pressure within the international relations.” Arguments against sanctions go in three directions. First, economic sanctions are ineffective; only military means achieve real results. Second, sanctions cannot be justified and result in simply another kind of war. Finally, economic sanctions strike the wrong people. The weakest (children, women and the elderly) are affected instead of the government and economic or political elites who have brought on the measure. Sanctions can even mean genocide, as we saw in Iraq from 1991-2003.
Efficacy of Sanctions
In the Iraq conflict it is hard to judge the impact sanctions
had because they were not used as an alternative to war, but
in prelude and in combination with war. There is a difference
between the state not being allowed to sell oil and the state
being incapable of producing it because the refineries and infrastructure
have been repeatedly destroyed by military attacks. Other cases
In 1935 fascist Italy attacked Abyssinia. The League of Nations
had a long debate about imposing sanctions. In the end, the
most potent sanctions were not imposed. The delivery of food,
steel and oil continued. Even the British Suez canal was not
closed for Italian transport ships. “Mussolini is famously
reported to have chortled later to his German counterpart that
if the League had included oil among its sanctions, he would
have had to withdraw his forces from Ethiopia within a week” This
might be the first glimpse into how sanctions could have been
very powerful in history, if they had been implemented effectively.
UN embargo against Milosevic-ruled Yugoslavia from 1992-95
is another example. The objective was to stop the Bosnian-Serb
war machine by targeting its backer. The German newspaper
Frankfurter Allgemeine Zeitung commented: “Experts estimate that
Serbia would collapse within ten days in the event of an oil
without loop-holes” (16 Jan 1993). However, oil continued
to flow into Yugoslavia and even the Bosnian-Serb controlled
area. In 1998/99 when the Kosovo conflict unfolded, a comprehensive
oil embargo was again presented and alternative to military
attack. Interestingly enough, an embargo was placed by the
but three weeks after the military attack had started. To be
fair, however, everyone knew that Yugoslavia obtained its oil
from Russia, which rejected military measures and also saw
no reason to stop oil supply. There were problems from within
European Union as well. An earlier EU embargo decision from
April 1998 was not fully carried out: the Bundeswehr continued
their uniforms manufactured in Serbia. One year later the Bundeswehr
or their allies dropped bombs on their own textile factory!
Above all, political will is needed to make economic sanctions
work. The will has to extend not only to the decision but actual
implementation as well, symbolic action achieves no results.
Furthermore, embargos can only be effective if all relevant players
are on board. This is an important difference from waging war,
where coalitions of the willing might suffice. Arguments that
economic sanctions do not work at all ignore all of these extenuating
factors. Even ignoring these factors embargos are more successful
than people think: research shows that between 33% and 50% of
embargos are successful.
The unilateral US Sanctions
The fact that unilateral sanctions are ineffective has not been
accepted by US political leadership. The principle of “multilateral
if possible, unilateral if necessary” has been applied
not only to warfare, but also to economic sanctions. In the 90s
the United States celebrated a real sanctions orgy: Between 1992
and 1996, 60 sanction decisions were made. They were targeted
against 35 countries and 42% of the world’s population.
The hit to the US economy was estimated to be as much as $19
billion in 1995 alone. The measures led to job losses between
200,000 and 260,000, and including service jobs, as many as 300,000.
A Center for Strategic and International Studies (CSIS) study
concluded that “comprehensive unilateral economic sanctions
are almost always ineffective.” Furthermore, investment
losses occur and strategic market positions are eroded. When
the Cuban telecommunication net was modernized by European companies
in the 90s, US companies lost that market for the foreseeable
future. The burden of unilateral US sanctions resulted in IT&T’s
decision to sell real estate in Cuba to their European competitors.
The US’s original idea had, of course, been different;
The Helms-Burton-Act was meant to keep non-US-companies from
doing business with Cuba. Instead it resulted in EU-countries
taking the United States to the WTO dispute settlement panel.
Since 1993 the Iran-Libya-Sanctions Act (ILSA) has prevented
US companies from doing business with Iran. There is no doubt
that the impact on Iran’s economy has been significant
(ca. 10% GDP). But in spite of all US efforts against companies
from other countries that do business with Iran, even their NATO
allies have not observed the sanctions for years. US companies
suffered export losses and were driven out of the Iranian energy
business. French, Russian, Malaysian and Chinese companies stepped
in and happily to benefited from the US embargo. Although political
debate about the disastrous unilateral US sanctions began in
the 90s, legal consequences have not followed. In 1998 a coalition
of Democrats and Republicans put forward the “Sanctions
Reform Act.” Their intention was to establish additional
bureaucratic hurdles to imposing sanctions by involving other
institutions such as ministries for trade and agriculture In
the decision making process. The measure was defeated in the
Senate 52 to 47.
When the Bush government came to power in 2001, its unilateral
orientation led to a reduced focus on economic sanctions in favor
of military means. Unilateralism is more compatible with military
force than to economic sanctions, In 2003 France and Germany
rejected the US attack on Iraq politically, but despite being
willing to undermine economic sanctions by replacing US companies’ business,
they would do nothing material against the unilateral military
attack. Supplying weapons or their own troops to Iraq was clearly
not an option for NATO member states. Consequently, in the latest
US National Security Strategy comprehensive economic sanctions
are no longer taken into consideration.
The UN Sanctions Compensation Fund
When analyzing the multilateral sanctions policy within the
UN framework, planning capacity may turn up as main problem.
Normally sanction committees do not begin research and implementation
until UN decisions have been. Resolutions have often been vague
or immature. Imprecise objectives present another issue. During
the Iraq embargo 1990-2003 the benchmarks were adjusted frequently.
The Iraqi regime expected the embargo to be lifted when the war
ended in 1991, but the UNSC instead had new objectives for them.
In the following years as soon as the Iraqi regime could meet
a goal, the next would be immediately set. The sanctions would
have endured even without new benchmarks. The original embargo
decision was unlimited and only one veto would have been enough
to keep the sanctions in place indefinitely. This example shows
the need for a sanctions codex with two essential elements. First,
sanctions should always be limited in time. A new resolution
(plus a new or permanent consensus within the UN security counsel)
should be necessary to prolong sanctions (e.g. after 12 months).
And secondly, the countries embargoed should have the opportunity
to bring the issue before the International Court.
On the other hand, UN sanctions need to be effective. For many
politicians and scholars the solution is clear: effectiveness
is dependent on the number of soldiers dedicated to enforce the
embargo. Thus, they cry for (more) military troops to monitor
and enforce the embargo around the targeted country. Unfortunately,
this is a move in the wrong direction. As Bill Clinton famously
said, “It’s the economy, stupid.” The effectiveness
of embargos is primarily undermined by economic interests. The
country under embargo is not the only one to suffer; countries
that have been trading with that country are also hit. The embargo
cuts the trade lines and results in economic losses for importing
and exporting trade partners. Usually, the neighboring countries
are those with the closest trade connections. In the cases of
Yugoslavia and Iraq in the 90s, these were rather poor countries
that were not in a position to shoulder the burden themselves.
Economically strong countries like the U.S. or Germany are capable
of dealing with the embargo effects on their economies. For instance,
when sanctions were imposed on Yugoslavia in 1993, the direct
and indirect economic damage to its neighbor Romania after 18
months totaled $10 billion. Other neighboring countries encountered
similar losses. Had they completely complied with the embargo
the losses would have been even larger. But why should these
countries have complied? Political will is dependent of the economic
constraints. This example shows the need for compensation facilities
on an international level. Since the UN imposed the sanctions,
it should also have set up the necessary compensation fund. This
idea is not at all revolutionary; for it is included in Article
50 of the UN charter: “If preventive or enforcement measures
against any state are taken by the Security Council, any other
state… which finds itself confronted with special economic
problems arising from the carrying out of those measures shall
have the right to consult the Security Council with regard to
a solution of those problems.” When confronting the issue
of compensation, two aspects have to be considered: funding and
Funding is the most important task of the UN member states and
could be managed similarly to the peacekeeping operations payments.
The fund should not be filled up ad-hoc, when the crisis appears
on the UNSC’s agenda. This would damage the preventive
character of economic sanctions. Instead the UN members should
pay their share every year. Based on past experience, 20 billion
dollars may be a good starting point. For a country like Germany
that would mean the amount of $2 billion, which is less than
10% of the current military budget.
As soon as the fund is in place, economic sanctions will become
more effective. These workable sanctions would act as a deterrent,
and lead to quicker concessions–which is why the fund should
not be started ad-hoc. If compensation is only needed for some
days or weeks, big parts of the “strike fund” are
spared. Sanctions would take on a preventive character, which
would allow the fund to grow; only the permanent basic administration
costs would have to be paid. It is even feasible that the UN
assembly suspend the payments for one year.
The UN must determine who should have the right to file an application
to the UNSCF: Individuals? Companies? States? All of the above?
Perhaps lessons can be learned from the UN Compensation Committee
(UNCC), which was founded in 1992 to deal with the compensation
claims against Iraq. In this case, all three target groups could
ask for compensation. 150 employees in Geneva managed the workload.
They checked the applications which, until 2000, numbered 2.6
million and distributed $18.4 billion by 2000 –money gained
from Iraqi oil sales, which were under the UN’s control;
25% of the overall revenues were dedicated for compensation.
Evidently, the Romanian damage figures mentioned above had been
exaggerated. Thus the UNSCF cannot consist of distribution only
but must also include a validation process. The UNCC reduced
valid claims to less than 1% of the original amount. On the other
hand, “political approvals” led to final payments
that exceeded the original application figures! Therefore, unlike
the UNCC practice, transparency and openness are essential to
prevent corruption and politically motivated decisions. Finally
the UN’s Office of Internal Oversight Services must have
a say over the compensation activities .
With the UNSCF in place, the monitoring and enforcement of economic
sanctions would become tremendously easier. As no underlying
economic interests have to be balanced by force, military loses
their role. Sanctions can be enforced internationally by the
same institutions that are used nationally (e.g. when U.S. enforces
unilateral sanctions on its own territory): instead of armies,
customs officers and policemen are needed. The concept of the
UNSCF was originally proposed in the 90s and made its way into
important political documents. When in 1998 the Social Democrats
and Greens took control of the German government, their coalition
treaty included it. Unfortunately, during their 7 years in power
no committees were started to promote and realize it.
The Humanitarian Impact of Sanctions
Comprehensive sanctions logically have a comprehensive impact
on the target country. While the inclusiveness is key in ensuring
a sanctions’ effectiveness, it also implies that the entire
society suffers: the government, the economy and ordinary citizens.
The effect on ordinary citizens is hard to justify, despite historic
examples where brutal dictatorships were supported and enabled
by the citizens. The example of the Nazi regime in Germany may
suffice. However, in other cases the differentiation between
government and people is certainly correct. Therefore, mechanisms
are needed to ease the suffering of the weakest parts of the
population. The lessons learned from the Oil for Food Program
in Iraq demonstrate how to avoid and how and manage this issue.
The Iraq sanctions were continuously criticized for their cruelty
against the weakest and most innocent of the Iraqi people. In
1995, the media reports suggested that “the sanctions were
responsible for the deaths of 567,000 Iraqi children.” UN
reports did not confirm the number, but acknowledged that a humanitarian
tragedy was taking place. The Oil for Food Program was set up
as a response. The first important detail is that the whole program
was funded by Iraq itself, not by the UN. Even the many lucrative
jobs UN administration, were paid for by the Iraqis. This must
change–not only because in other cases the target country
might not have anything like oil to sell. Illustrated by a domestic
example the Iraq system would mean that criminals pay for prisons
and criminal prosecution. These costs are paid, for good reasons,
by the normal state budget. Thus, the UN must shoulder their
own expenses, as well. The UNSCF has to include both aspects
of humanitarian aid: administration costs and direct aid.
Another administrative lesson from the Iraq case it that humanitarian
aid and compensation activities should be in one hand. Otherwise
fruitless competition and quarreling between the different responsible
UN units is inevitable. Therefore, the UNSCF should also include
UN members have ignored the problems and consequences described.
They were not prepared to invest large amounts into strengthening
and humanizing economic sanctions. Instead, they found another
way around the issue: smart sanctions, nowadays relabeled as “targeted
sanctions.” The smartest aspect is the cost: “Because
smart sanctions do not normally disrupt non-military trade they
minimize costs to third-party states, reduce incentives to cheat
and thus make it easier to sustain sanctions in the long term. ” Accordingly,
they are easier to initiate than comprehensive sanctions. But
are they equally as effective?
When the League of Nations was founded, Woodrow Wilson characterized
sanctions as an alternative to war: “We shut their doors
and lock them in. They are absolutely boycotted by the rest of
mankind. I do not think that after that remedy it will be necessary
to do any fighting at all.” Today sanctions are regarded
as somewhere between condemnation and the direct use of violence.
The main rationale for smart sanctions is that they could overcome
the negative humanitarian effect of comprehensive sanctions: “Smart’ sanctions,
like ‘smart’ weapons systems, are supposedly precision-targeted
and designed to reduce ‘collateral damage;’ that
is they are designed to coerce regimes without imposing harm
on ordinary citizens.”
Smart sanctions are tailored to target the political, economic
and military elites. They are comprised of measures such as financial
sanctions, which entails the freezing of overseas financial assets
of government and regime members; the suspension of credits and
grant aid; the denial or limitation of access to overseas financial
markets; arms embargo; trade embargo, on luxury goods; flight
and travel bans; and the denial of overseas travel, visas and
educational opportunities to regime members and their families.
All these means have been used in the past, on a unilateral basis
or by UN mandate. From 1992-99 a flight ban was imposed on Libya.
Financial sanctions hit Iraq and Yugoslavia, not to mention the
many arms embargos against other states. So, what is new about
these sanctions? The measures are now targeted against individuals.
Since 1998 the details of how the UN practice of ‘smart
sanctions’ should be organized or improved have been discussed
in several conferences and seminars sponsored and held by the
Swiss, German and Swedish governments in cooperation with the
Executive Office of the UN Secretary General. As soon as the
first smart sanctions had been imposed and lists with names had
been agreed upon, people affected started to complain and tried
to get off the list. The principal objections consisted of arguments
such as why should the dictator’s son who is not guilty
of human rights violations be prevented from studying abroad?
Furthermore, as the Watson Institute at Brown University points
out, “If these sanctions are wrongly imposed on listed
individuals without granting these individuals the possibility
of being heard or of challenging measures taken against them,
there may also be a violation of the right of access to court,
the right to a fair trial and the right to an effective remedy.
Surprisingly intense discussions over how to correct such issues
are under way. As long as states were targeted by comprehensive
sanctions, debates over their validity garnered little attention.
But sanctions on states can also be unjustified; what about their
rights? Smart sanctions, based on UNSC resolutions, as well as
comprehensive sanctions against states, should fall under the
International Court of Justice jurisdiction, which should be
empowered to review their legality. Thus, smart sanctions alone
are not the easy path to moral cleanness.
In all debates over the improvement of UN sanctions practice
the crucial point remains: that the more comprehensive the sanctions
are, the more effective they will be. Those who seek effective
sanctions must deal with the economic fallout. These economic
factors and not monitoring and enforcement issues are primary.
Effective sanctions with short-term effects cannot be realized
without the UNSCF. However, funding is not likely to arrive as
long as states continue to invest the current amounts in military
means. So, in this way as well, the UNSCF is an alternative to
military. The “pocket money” for smart sanctions
can be paid additionally. All in all, the critique of “smart
sanctions” should not lead to the conclusion that the entire
debate is useless. The position in the overall picture should
be clear; the shortcomings of smart sanctions a secondary concern.
Uli Cremer, former spokesman for the Department of Foreign Policy
of the German Green Party, is the author of “Neue NATO – Neue
Kriege?” (New NATO – New Wars?), and currently works
as manager of a multinational foods company
Published in: Internationale Politik Transatlantic Edition, Summer
Issue 3/2006, p37-43