Treasury secretary-designate can significantly influence foreign policy
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At the heart of President-elect Donald TrumpDonald John TrumpThe Hill's Morning Report - Sponsored by AdvaMed - House panel expected to approve impeachment articles Thursday Democrats worried by Jeremy Corbyn's UK rise amid anti-Semitism Warren, Buttigieg duke it out in sprint to 2020 MORE’s “repeal and replace” agenda is a plan to unwind the policies put into place by the Obama administration that affect Iran, Cuba, North Korea and Russia, among other places. The appointment of Steven Mnuchin as Treasury secretary-designate garnered much attention for the role he will play, once confirmed, in financial and tax policy.

But key to U.S. foreign policy is the Treasury’s Office of Foreign Assets Control (OFAC) that regulates extensive economic sanctions regimes against foreign governments. Barack ObamaBarack Hussein ObamaTrump's intervention on military justice system was lawful and proper The mullahs seek to control uncontrolled chaos Poll: Majority of Democrats thinks Obama was better president than Washington MORE has wielded these actions cleverly to carry out U.S. foreign policy in these key countries without much need for Congressional action, making repeal and replace much easier than it looks.

Does Mnuchin know that? One assumes so, but little attention has been paid to what he can do to effectuate Trump’s campaign platforms swiftly.   

Sanctions on Russia, Iran, North Korea, Cuba and Libya can be increased or diminished at the stroke of a pen — Treasury can make those changes.

Economic sanctions begin with a law passed by Congress, or, in other cases, an Executive order, but everyone who works on the Hill knows that the devil is in the detail — the regulations. For example, the OFAC regulations regime adopted against Russia for meddling in Ukraine was based on an Obama Executive order.

Link: https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine.pdf 

Economic sanctions are enacted by the Executive Branch alone and are essentially a tool of foreign policy. They can be tightened to become more punitive or loosened to become more accommodating.

Typically, the National Security Council initiates sanctions before they are promulgated through publication in the Federal Register or the Office of Foreign Assets Control (OFAC) website. There are often interagency consultations between the Treasury, the Commerce and State Departments, and Intelligence agencies.

Most important, as a former senior OFAC official told The Hill, “there is no formal or informal public notice or comment period for regulations changes, under the foreign affairs function of the Constitution.”

In the case of Russia/Ukraine, North Korea, and Cuba, regulatory changes can occur through the issuance of licenses — either general or specific.

This month, Russian oil giant Rosneft agreed to sell $11.3 billion worth of the company to Glencore, a Qatari sovereign fund.

Sanctions were imposed on Russia after its annexation of Crimea and its assistance to pro-Russian separatists in eastern Ukraine two years ago. Those sanctions named Rosneft as a Russian-owned entity; a point emphasized at a recent Obama Administration press briefing, when press secretary Josh Earnest said Treasury is looking into it.

Link: https://www.treasury.gov/press-center/press-releases/Pages/jl0133.aspx

Trump’s Russia reset may have an impact on the sanctions in this kind of a deal. Eleventh-hour maneuvers sometimes occur in regulations because they often go unnoticed.

With regard to Iran, sanctions are either primary or secondary. Secondary sanctions impact non-U.S. persons. Most were lifted as a result of the agreement known as P5 + 1 with Iran, which included China, Russia, the United Kingdom, France and Germany. It was later incorporated into the Joint Comprehensive Plan of Action (JCPOA) and a U.N. Resolution.

Primary U.S. sanctions against Iran — those affecting U.S. persons and U.S.-nexus entities — remain in place, except for some provisions that allowed for exports of U.S.-origin civilian aircraft.

Links: https://www.treasury.gov/resource-center/sanctions/Programs/Pages/iran.aspx

http://www.state.gov/e/eb/tfs/spi/iran/jcpoa/

Unless Iran violates the agreement, the European partners, China, Russia and Iran may view an expansion of either type of sanction against Iran as a violation of the agreement.  

In a widely reported rush to make agreements before the deal goes south, Iran is sealing sales deals with countries around the world — contracts that will complicate new regulations.

U.S.’ Cuba sanctions involve more complexity. The president-elect said he wants a better deal, but what that would involve can only be gleaned from his and his surrogates’ statements.

"All of the concessions that Barack Obama has granted the Castro regime were done through executive order, which means the next president can reverse them and that I will do unless the Castro regime meets our demands…. Those demands will include religious and political freedom for the Cuban people and the freeing of political prisoners," the president-elect said during the campaign.

If Trump wants to add pressure for human rights reforms and increased democracy in Cuba, the Treasury has the option of revising the sanctions. For example, it can reduce the amount of money that goes to the Cuban government through U.S. travel and the amount Americans may spend in Cuba in government-run businesses.

The OFAC Cuba regulations have expanded “people to people” programs, including the recent agreement with Google to increase internet speed. Trump will have to decide if he wants to stop the recent commercial flights made by American airlines to the island nation.

Link: https://www.treasury.gov/resource-center/sanctions/Programs/Pages/cuba.aspx

Changes in regulations can be made that do not cut off U.S. visitors but gives money to individuals. Those changes require a keen understanding of the complex web of regulations, however.  

In addition, if Trump would like to encourage Cuba’s communist regime to open up property markets, or deliver compensation to individuals who lost property, he may have to wait a longer time. A former Treasury official, familiar with the regulations, pointed out that existing U.S. law, including the Helms Burton Act, provides for the imposition of sanctions for, inter alia, trafficking in confiscated property.

Despite all of Obama’s undertakings the past two years, the embargo against Cuba is still U.S. law. Tightening or loosening of the laws may be promulgated through the president-elect’s new Treasury secretary. Just as Obama loosened the regulations, Trump may tighten them.

Finally, other sanctions programs, such as those against North Korea, will become trickier, if relations with China become tense.

Hal Eren, a former senior Treasury Department OFAC official and regulations expert, wrote that U.S. sanctions “target North Korea’s financial, energy, labor, exportation, and transportation sectors.”

But those wishing to step on the tail of the tiger should take a look at the history of Chinese reluctance to impose biting sanctions on North Korea. The Chinese finally did so this month by a U.N. Resolution, with the restriction of over 60 percent of coal sales by the government of Kim Jong Un to China.

If China decides, because of tension with the U.S., to not enforce the billion-dollar export ban, Pyongyang has more money to advance its nuclear program.

Although there is no legal requirement to consult with Congress, intelligence agencies, the public, or NGOs, the president-elect’s economic team would be well advised to bring seasoned foreign policy analysts into the tent to take a pulse of the sensitivities on these issues, particularly with Russia, and to avoid political blowback.

 

Pamela S. Falk, former staff director of the Western Hemisphere Subcommittee and Professional Staff Member, of the House of Representatives International Relations Committee, is a U.N. Resident Correspondent & Foreign Affairs Analyst. She holds a J.D. from Columbia School of Law and Ph.D. from New York University. She can be reached at @PamelaFalk.


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