Corporate Conversations: Diplomatic Perspectives on Sanctions for Lawyers

Allan:
Welcome everyone. Thank you for joining us. My name is Allan Cohen, I’m a research editor at The Legal 500. Today we’ll discuss international sanctions from a political, diplomatic and behavioural perspective. And for this I’m very pleased to be joined by Graham Cox, who is Programme Director at Boundaries Edge. Graham, welcome. Thank you very much for speaking with The Legal 500 today. I thought you’d be best rather than attempt to summarise your extensive and diverse experience for you to introduce yourself. So I’ll just say one thing. You’re not a lawyer, correct?

Graham:
Yes.

Allan:
So please can you tell us a little bit about your background, boundaries, edge, your role there and how you collaborate with lawyers?

Graham:
Yeah, no, thank you very much, Allan. According to this, to keep the introduction fairly short and pithy, my background was more involved in the political diplomatic arena. So, as you say, I’m not from a legal background, but for most of my career, I’ve interacted with law firms, lawyers, attorney generals, because there’s an intrinsic link between diplomacy and law firms and the legal frameworks that surround it. So, both have to operate together in terms of what I do within boundaries Edge.

Now normally we are supporting companies pulling together packages that look at relationships, that could be whether it be client relationships, whether it be relationships within their team, but more importantly how they liaise and influence stakeholders, lobby groups, things that might affect their operations, like global sanctions as well. So hopefully that gives you a little bit of an overview of my background, but certainly not from a purely legal perspective, but certainly an awareness and empathy with the legal profession.

Allan:
Well, excellent to the questions if that’s your results. All right so, according to you, Graham, what factors drive the decision to impose sanctions and how do diplomatic efforts align with legal frameworks in shaping these sanctions?

Graham:
I mean, the answer to that is fairly complex. It’s not complex in terms of cognitive complex. It’s hard to understand. It’s just a matter of the various factors. If I take one to keep a fairly pithy answer to it, the first thing is depends that it’s a multinational or bilateral sanction. So that’s the first thing that starts to affect it. So, if you’re a smaller nation and there is a multilateral sanction placed on a particular country, then you will tend to follow the rules and the guidance of the larger countries. However, at the same time is if you’re looking from a larger perspective, so say the United States of America, what factors start to impact on the sanctions?

You will choose generally three things. If you take 1 extreme of the spectrum, that’s military intervention. So the situation’s become so bad that you wish to create a behavioural change with military intervention. So, cue the Iraq war, for example, or Afghanistan as well. So that became sanctions weren’t able to work within that environment. The opposite side of the spectrum becomes a strongly worded statement. So we condone this action by this country in the middle of it is a very comfortable area for politicians at this moment time. And that’s sanctions because they don’t really cost anything to the country. The impact, there’s no loss of life, there’s no significant cost of military intervention. But it’s a little bit more than just making a statement. So it’s quite a popular thing for politicians now.

And they will generally Dr the idea of sanctions and then various foreign services will have to try and implement the sanctions in line and in agreement with the attorney generals

Allan:
So how effective are sanctions then in resolving conflicts for real and promoting peace? And how do country to country negotiations and cooperation influence their enforcement?

Graham:
It’s to be honest, mixed. Very, very mixed pictures. It’s probably easy. So I can give you a minute or so just to explain the different types of sanctions that countries are tend to consider. And we can start to look at the trends within there as well. So first of all you tended to get it came from the 1960s, it was Eisenhower and the Cuban embargo because they nationalised three oil refineries in Cuba which belong to America and that became the initial state of an embargo.

And that was when an embargo or a sanction inhibits a country from getting access to certain equipment, money, assets they need to support and develop their own economic or own military programmes. They tend to have a blunt instrument and it can have a lot of second order consequences that we can cover maybe some of the later questions.

The second thing that people can start to do is they will embargo on the financial transactions. So, a classic example of that was the Obama administration in Iran worked with SWIFT. So, the SWIFT sanction on the ability from Iran to use a SWIFT banking system similar to operated with North Korea as well. Again, the benefits from that is a significant impact. The behavioural impact there. They wanted a behavioural change, which was a regime change in in Iran and they got it. Two years later there was a regime change. So there was a new leader appointed in Iran and that was a very effective tool in terms of sanctions yourself.

But again, there are always risks and I’ll cover that maybe later on the third one, we’re starting to see a little bit more now as I started to go away from a more generic use of sanctions to more than individual and targeted use of sanctions. You start to see it now, particularly within the Russia, Ukraine, a lot of individuals being sanctioned this time as well. I get a little bit more laser focused than we’re starting to see in the past, but the effect of each sanction really depends on the accuracy of the sanction, the type of the sanction, and the length of the sanctions it’s applied to. And there are some things we can talk about later. As I said, the downsides you’ll start to see from sanctions.

Allan:
Right, and how so? How do sanctions effectively impact diplomatic relations? Are the diplomatic mechanisms in place to address disagreements and conflicts arising from deferring approaches to sanctions policy?

Graham:
Yeah. And again, this is a trend that’s changing and it’s a trend that’s probably going to affect a number of law firms as well. So in the past, diplomatic relationships used to have quite a fairly significant impact on the alteration of sanctions on a one to one bilateral basis. But now is the world impact, The effect of sanctions is becoming lesser. That’s mitigated against by more multilateral sanctions. You start to see the moment in the US and the EU.

There’s a lot of discussion in advance about these sanctions. Now that’s good because it makes the sanctions more effective. But the counter effect of that on a bilateral country to country basis is there’s very little room for manoeuvre because if the US and the EU have decided this is a sanction policy and then the UK wishes decide whatever country we’re negotiating with, we’d like to make exemptions.

Well, not only we’re trying to negotiate with that host nation of that country itself, but you’re having to negotiate with the EU and the US and that’s quite a long and convoluted process as well. So, and it’s very similar for law firms as well. So the ability to lobby or have agreements to try and find solutions to the problem that are in compliant with sanctions, it becomes harder because you can’t go to local embassy because the local embassy has lesser ability to try and influence that because of the multilateral nation of sanctions. But hopefully that gives you a bit of an overview of the trend as well affecting the impact of sanctions.

Allan:
Yeah, excellent. So, moving on to my next question, how do sanctions on a country affect the global economy and how can businesses adapt to their consequential uncertainties?

Graham:
Yeah, I’ll probably say the first part of that question, how does it affect the global economy? Generally not a lot, not in the short term anyway, because the impact is tends to be offset by trade in another area. The second part of the question is a lot more complex and it’s probably useful to provide a little bit of context. So again, if you look at it from a political or diplomatic perspective, their intelligence, and that can be open source intelligence, it can be classified intelligence, will monitor what’s happening in certain countries. So, to give you an example, prior to the Russian invasion of Ukraine, you could watch the currency assets being moved into different currencies away from the euro and away from the dollar. So, they’re divesting these assets.

If you look at China at this moment in time, a lot of its naval activity again. If you start looking at oil reserves, they’re starting to shore up within China again. They’re also a key indicators that countries are starting to prepare for something. They may be doing it, and they might be doing it for another reason. But the way intelligence and the architecture of intelligence works, that comes into one large funnel. The sources tend to be quite obfuscated in it, and it just becomes an intelligence product.

Now, you would think at this point it would make sense because we’re all one part of our national economy, to share it with those who need to know, particularly lawyers. But of course, there’s two elements at play there. Technically, it’s all intelligence. But secondly, diplomatically and politically, they’re trying to anticipate the implementation of sanctions. And when they want to do it, they want to make it quick. They want to make it fast. You don’t want your adversary to know you’re putting in sanctions. So. for law firms and lawyers that are representing other companies, it all comes as a bit of a shock because no one’s sharing that intelligence with you for that very reason. So how do you mitigate around that? What can you do? Probably 2 elements on it.

One is the process of horizon scanning. So there’s certain signatures and indications that you can pick up to suggest that maybe sanctions might be placed on country X, Y or Z. So therefore you can advise companies they might want to mitigate that risk by altering the supply chains. Second one I would never underestimate is just watching the behaviours of your own domestical political organisations, politicians themself, They are average people there to represent the average person within the country. They’re not the cream of the crop a government has to form from these average people. Their motivation is to be re-elected. You’ll want to be seen to do things and seen to do things quite quickly, mainly because the media will hound them into doing things. So, therefore, from a lawyer’s perspective, it is also worth watching the behaviour of domestic politicians because a lot of their behaviours, particularly at subconscious level may not appear logical. They might appear to be a rational actors because they feel the requirement to do things. So that second element there is really watching domestic political picture and understanding what they are trying to achieve both domestically and in terms of international relationships. But that’s why having that advice. And I would argue it’s not just what you do, it’s the knowledge of the system that’s behind it, because the knowledge of the system behind it is where you can advise companies how best to prepare and mitigate for the impact of sanctions.

Allan:
So really this begs the question, so how do you learn about this system?

Graham:
Yeah. And that’s challenging. No, shadow vote is, is tough because it’s a system that generally lawyers don’t have exposure to. The easiest option is, and it’s clearly I’ve got a bias to say it, but as an advisor. But again, what I would argue with an advisor is not just ask an advisor is what is likely to happen. Probably more important question, more important question to ask is how will it happen? Because if you understand the mechanisms and the processes and the timelines, it makes a little bit more easier and a little bit more predictable. But generally it’s hard. And the other example to do is study historical examples. So if you watch historically how sanctions and how quickly they’ve been implemented and there’s some research, there’s been a good research out there on it that will articulate and explain the process behind it.

But generally it’s advisors and a little bit of historical research, but be under no shadow of illusion. It is very, very difficult because as much as I personally will care about lawyers, personal care about law firms, generally politicians might see the care, but it is second place. They want to secure their vote. They want to be seen to do the right thing. And generally behind the scenes, foreign service are acting very, very quickly to implement a political decision. But hopefully that gives a little bit of context.

Allan:
Absolutely. One last question, perhaps diagram looking ahead, what are the challenges and opportunities for international cooperation in managing the impact of sanctions and conflicts on a global economy? And how can legal professionals and diplomats work together to promote stability and peace?

Graham:
Yeah, I’ll probably cover the challenges first and I alluded to earlier on in our conversation, the risks, and this is your dichotomy of sanctions. The more effective the sanction is, the higher the risk. And again, maybe go back to the example of Iran, the Obama administration, the SWIFT sanction, which was great because it did foster regime change. But then we start to look at the COVID pandemic because it was about a financial transaction. It wasn’t specific to any form of equipment. So therefore, there was a shortage of medical products, IV solutions, medical gowns.

So, when COVID hit Iran in 2019, the impacts were fairly catastrophic compared to other countries. And again, that gives you a challenge there. So, there’s two elements of it. The US could have turned round and said, well, we wish to change that by giving you medical equipment which would win the hearts or the minds of the Iranians. But then again, we’ve got a shortage of equipment in the US. No, yet no U.S. President is willing to give away medical equipment to support Iran at the expense of their own nation.

So, there’s a risk that sanctions start to have a negative effect, so the population turns against you as a country and therefore negates the impact of sanctions. And there are classic example on it as well. Is currently the sanctions placed in Russia. There are some reports, I don’t know if it’s confirmed or not, that that is driving a behavioural change in some Russians, inspiring them to sign up to fight for the Russian army because they feel the West hurting their country. So, when they feel hurt, they are now changing their behaviour and that’s also difficult. About sanctions, you’re sanctioning a country.
You’ve got to be very careful to delineate between a country and the people within the country who are generally good people and that’s the risk of sanctions. What’s likely to happen in the future trend as well with the opportunities might exist. The opportunities are on collaboration, but that comes on to a current political challenge. At the moment you start to see a lot of countries having a national first country first approach to the trade.

OK, but sanctions only work if there is multinational trade. So the more countries such as the US start to breakdown trade barriers with China of import tariffs, you start to see that lot with the US that will start to breakdown global trade. You’ll start to see more domestic national trade. But the more domestic national trade around, the less of the impact of sanctions.

Probably third element on it is sanctions. I said started with 1960s. It’s starting to get a little bit old. And if you’re not specific enough in each sanction, then countries will develop their own system. Classic example of that. China’s got CIPS, which is their ability to do international banking payments because they’re aware of what happened to Iran with the SWIFT codes. Countries therefore are now finding their own ways of doing it. So, it’s a delicate balance because if we’re looking at the West, it needs to form relations with countries that are fairly hostile to us and have trading relationships. Because if people become dependent upon us, then the impact of future sanctions becomes specific.

If it becomes a blunt weapon, people won’t rely on us with trades for trade and therefore as a result of that, sanctions become lesser. So where do you think we go in the long term and how do we collaborate together? There is a lot where diplomats could do a lot more with legal professionals. We’re both after the same outcome at the end of the day, to do the right thing by the international community, but to mitigate the impact on trade, economics and the well-being of countries. And what I probably advocate in that lobby groups are very, very useful ways of trying to get that, to articulate that to politicians.

And I think it takes that to reprocess of politicians just to start to understand that they’ve got to be very, very careful that if they implement sanctions, who are they hurting the most? It needs to make sure it’s our adversary, not taking our own people for granted, particularly law firms. But hopefully that helps give a little bit of an overview from a different perspective on diplomacy, the political angles and particularly the behavioural angles on what’s starting to affect global sanctions.

And if I summarised what I expect to happen over the next two or three years, I would actually expect the amount of sanctions globally to go up for the next two or three years. But after that expected to drop, I think we’ll probably reach the epoch of their effectiveness. And unless nations change from this nation first approach, the impact of sanctions is going to become lesser over time and our adversaries are now finding ways around it. So probably growth in sanctions for the next two or three years and then a bit more acute focus, laser focus accuracy on particularly individual sanctions as well. But then that hopefully gives you a little bit of an overview of where I expect things to go.

Allan:
Absolutely, it does. Great speaking with you today and thank you for being with us.

Graham:
Pleasure. Thanks, Allan.

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