 My name is Lise Grande, and I am the President of the United States Institute of Peace, which was established by the U.S. Congress in 1984 as a national nonpartisan public institution dedicated to helping prevent, mitigate, and resolve violent conflict abroad. We are very pleased to welcome Mr. Stephen Rademaker and Mr. Stephen Hadley for a special discussion today on the history and future of U.S. sanctions. Sanctions have and continue to play a central role in U.S. foreign policy. This is because sanctions have proven to be a powerful tool for preventing hostilities, holding violent actors accountable, and unifying allies and partners. As the United States joins with nations around the world in sanctioning Russia for its unprovoked war of aggression against Ukraine, understanding how sanctions work is essential for strengthening U.S. efforts to build peace. To explore the history and use of sanctions, we are honored to welcome Mr. Stephen Rademaker, who has wide-ranging distinguished experience working on national security issues in the White House, the State Department, the U.S. Senate, and the U.S. House of Representatives. From 2002 through 2006, Mr. Rademaker headed three bureaus in the State Department, including the Bureau of Arms Control and the Bureau of International Security and Non-Proliferation. Mr. Rademaker directed the Proliferation Security Initiative, Non-Proliferation Policy Towards Iran and North Korea, Strategic Dialogues with Russia, China, India, and Pakistan, and led the U.S. delegation to the 2005 Review Conference of the Parties to the Treaty on the Non-Proliferation of Nuclear Weapons. Mr. Rademaker is currently Senior Counsel at Covington in Burling and is a member of USIP's International Advisory Council. Our moderator for today's conversation is Mr. Stephen Hadley. Mr. Hadley served as the U.S.'s 20th National Security Advisor to President George W. Bush from 2009 to 2013, having previously served as Deputy National Security Advisor during President Bush's first term in office. Mr. Hadley is a distinguished attorney, having served as the administrative partner at Shea & Gardner, a principal at the ScoreCraft Group and Assistant Secretary of Defense for International Security Policy. Mr. Hadley is a member of USIP's Board of Directors and has the distinction of being one of our former board chairs. Mr. Rademaker, Mr. Hadley, thank you for today's discussion. Steve Rademaker, thank you very much for being with us for this conversation. The subject today is sanctions policy. This is something you've been involved in in the government and now in the private sector in the law firm of Covington in Burling. Let's start off with sort of the broader principle here. Sanctions seems to have become the weapon of first resort for the United States in a confrontation or when it's trying to influence the behavior of another party. And we seem to sanctions not only our potential adversaries, but also our friends and some of our closest allies. So what's going on here? And what are the objectives of our sanctions? And in your view, how effective has been our sanctions policy in order to achieve those objectives? Well, thank you, Steve. It's a pleasure to be here and I appreciate you asking me these questions. The question you've just asked is incredibly broad when I think I could spend the rest of our time answering it. But let me just make a few top-line points. First of all, you often hear expressed the view that sanctions are a new tool and that America is much more aggressive in the use of sanctions today than in the past. It's certainly true that in recent years we've discovered new ways to apply sanctions. But truthfully, the use of sanctions as a central tool of US foreign policy is as old as the Republic. In fact, it's older than the Republic because we don't usually think of it this way. But the Boston Tea Park was basically a sanctions enforcement exercise. The colonists were boycotting British tea over a tax issue and they dumped the tea in the harbor because the British were trying to force them to pay the tax on it. Thomas Jefferson in 1807 in response to the Napoleonic Wars imposed a total embargo on the United Kingdom and on France. And he forbade Americans to engage in commerce with either country. It was one of the central policies of the Thomas Jefferson administration. And it was a controversial policy. And there's a quote that I think speaks volumes about this issue that came from Jefferson in 1808 when he was called upon to defend this policy, which was very harmful to America's merchants. And he said that when our national interests are threatened, and this is the quote, three alternatives alone are to be chosen from. One embargo, two war, three submission and tribute. That was true in 1808 when he said that, and it's true today. When we face a foreign threat, the basic alternatives are to go to war, use military force of some type. And that's often not an attractive alternative. Second possibility is simply to accept someone, acquiesce, appease, whatever the problem is. Or third, to adopt some measure in between that tries to change the situation. And that's what sanctions are. Jefferson called it embargo, but today we use the term sanctions. World War I, very aggressive use of sanctions against the central powers by the United States and Britain working together. World War II, the U.S. oil embargo on Japan is often cited as one of the reasons why the Japanese attacked Pearl Harbor because they calculated they were about to run out of oil and so they needed to strike while they still had oil. The U.S., an interesting question that people forget to ask, why did Spain, which was basically a fascist dictatorship installed by the Axis powers, why didn't it enter World War II on the side of the Axis? Answer, Roosevelt threatened to impose an oil embargo on Spain. If they did that and Franco decided all of his oil was coming from America, he couldn't risk it. Hitler said he couldn't replace the American oil. So Franco stayed out of World War II because of the threat of U.S. sanctions. So there's a long history of America doing this. And it is important to understand the objective of sanctions. It's not always to overthrow the government that's causing us a problem. Sometimes it's simply to complicate life for them, deny them resources so that they have a more difficult time threatening us. Other times it's more just to express distaste or dissatisfaction, signaling. So there are multiple purposes served by sanctions, but there's no end to the situations that arise where, given those alternatives that Jefferson talked about, war, acquiescence, or something in between, something in between looks best, and something in between often includes an element of sanctions. Steve, thank you. That's very helpful because there is a notion that somehow we stumbled on the sanctions tool a decade or so ago and brought at center stage, and that historical context is useful. Let me just ask about the last 20 years. Has the way America uses sanctions changed in the period of time you've been dealing with these issues? And if so, how has that, how have they changed? Steve, there's been a considerable evolution in the way the U.S. applies sanctions. Basically, in the last 20, 25 years, we've become much more creative in the way we go about it. There have been innovations that I think have upset some other countries because they are so innovative, but they have proven highly effective, and that's why in recent years we've made increasing use of some of these tools. I'd say the most important innovation was one that really came to the fore in 1996, when the United States began applying what today we call secondary sanctions. So traditionally, the way sanctions work was they were prohibitions on things that persons subject to U.S. jurisdiction could do. So embargo, Jefferson said American ships can't trade with Europe. That was a directive that applied to Americans. With secondary sanctions, we go a little bit further and we basically impose penalties on non-Americans, on persons who are not subject to our legal jurisdiction. So where we first saw this applied was with respect to Iran and petroleum development in Iran. And some foreign companies were getting ready to develop oil fields in Iran. President Clinton had forbidden American firms to do this, and then the question arose, is there some way we can stop foreign companies from developing these fields? And Congress passed a law that provided for that. And so we were not able, legally the United States didn't have authority to prohibit foreign companies from doing this, but we could oppose penalties on foreign companies. We could deny them access to the U.S. market. We could deny them credit from U.S. financial institutions. We could prohibit their business executives from traveling to the United States. And so a series of measures like this were declared to be in effect as a deterrent to foreign investment in Iran's petroleum development. A number of our allies were upset about that, because they wanted to proceed with investment in Iran. They were very upset, in fact, and the Clinton administration spent years trying to mend fences diplomatically. But what I will say is that in the years since 1996, the use of secondary sanctions by the United States has become much more widespread. We see it applied to all kinds of situations, including Russia today. And I would not say the Europeans support the idea, but they've kind of become accustomed to it and they've adapted to it. And so today, secondary sanctions are a key element of the U.S. sanctions toolbox. Another major innovation came in 2011 and 2012, when Congress enacted two laws that were designed to reduce oil exports from Iran in order to reduce the revenue to Iran. And instead of penalizing the importers of Iranian oil, what these sanctions did was they used the power of the U.S. financial system and the threat that foreign financial institutions would feel if they were threatened with denial of access to the U.S. financial system. And essentially, the policy that was implemented was that if foreign banks transferred money to Iran in payment for Iranian oil exports, we might cut them out of the U.S. financial system, which would, for any large foreign bank, that would effectively put them out of business if they could conduct transactions in U.S. dollars through the U.S. financial system. And the policy required foreign governments to reduce the volume of their oil imports from Iran in order for their banks not to be sanctioned in that matter. That policy was adopted in 2011. It worked so well that less than a year later, Congress refined it. And they imposed on top of that a requirement that the foreign banks, when money is to be paid to Iran for Iranian oil export, the foreign banks are to put the money in an account in their central bank and hold on to the money, not return it to Iran. They were threatened with sanctions if they returned the money to Iran. And instead, the money was available in the central bank only for Iran to buy food, sort of non-lethal, non-threatening items in the economy of the country that was holding on to the money. And amazingly, this policy worked very, very well because for countries like India, well, take India, for example, it was actually an attractive policy for them because what America was saying was we're going to sanction your banks unless you hold on to the money that you owe Iran for the oil that Iran is exporting to you. And then you can allow Iran to buy goods in your country. They can buy cars, manufactured equipment as long as it is not a lethal item. And so this will increase your exports to Iran. But what you can't do is transfer cash to Iran. The incentives were attractive. And you can imagine the conversations that took place between governments, you know, I guess I shouldn't sing about the Indians, but a government saying to the Iranians, hey, we want to keep importing oil from you. We'd love to pay you for the oil, but unfortunately, the Americans will sanction us if we transfer the money. So I guess we're just going to have to hold on to it. And of course, we'll let you spend it here for anything you want to buy in our country, you can use that money and we'll export it to you. We're really sorry about this. We wish it were otherwise, but that's just the way it's going to be. Well, that actually worked, and it's still working. That is the policy that's in place today. And there are negotiations going on with Iran today. And one of the major inducements that the Biden administration has to offer Iran to come back to the JCPOA is the fact that billions and billions of dollars are tied up in foreign banks as a result of this U.S. policy. And the U.S. can release that money. It can tell the foreign banks, OK, we will not sanction you if you transfer the money to Iran. But so far, the Biden administration has not sent that signal because they're holding that back as an inducement to the Iranians to reach agreement on returning to the JCPOA. So that's been a phenomenally successful tool. And again, it's something that was without precedent it works only because of the central role of the American economy and the global economy and the central role of the U.S. dollar and the U.S. financial system. You cannot be a successful bank in a foreign country and not have access to the U.S. financial system. And in that regime, I just described rests on the threat that we might cut off access to our financial system if foreign banks transfer money to Iran. Thanks, Steve. I want to ask you two questions about the potential downsides of particularly the approach of secondary sanctions. The first one has to do with the fact that in principle, what we're doing is in order to try to hurt the bad guys, we're actually, through secondary sanctions, putting pressure on our friends and allies. And as you point out, particularly in the 1990s when this got started, our allies and your particular are furious about it because it was extraterritorial. It was imposing our policies on them without their consent and in some sense without consultations. That has a downside. And it seemed to me, I'd like you to talk about those. And particularly in the context of Iran, because what you described with respect to Iran sounded to me in a little bit like the best of all possible worlds, structuring our secondary sanctions in a way perhaps in consultations with our allies in a way that the allied governments can actually support the secondary sanctions because at some level, as in the case of India with respect to Iran, it works for them. Can you talk a little bit about that? And if we actually gotten a little bit smarter here about using secondary sanctions in a way that actually perhaps brings the allies on board first and avoid some of the downside and strains in our alliances because of our use of secondary sanctions. This is a critically important question you're asking. And you're right. If there's consensus between us and our allies, there's often no need to even talk about secondary sanctions because if they adopt the same sanctions we adopt, then we don't have to worry about their companies doing things that we don't want them to do because they're forbidden by their own governments to do those things. And that's the ideal situation. What happened with Iran in 1996 was there was a divergence and the US Congress and then the Clinton administration were trying to impose US policy on foreign nationals over the objections of the governments of those countries. And that certainly gives rise to friction. What do you do in a situation like that? Well, what the Clinton administration did was a lot of diplomacy to try and smooth over the issues. They worked with some success. A major thing they did frankly was they didn't enforce the sanctions. I mean, the sanctions were threatened but in the vast majority of cases not opposed. And that was one way to damp down the anger. Had they been aggressive in opposing the sanctions, there would have been a lot more anger. But of course, that leads others to suspect that we're merely bluffing with the secondary sanctions. And everyone concludes that we're bluffing then they won't work either. So at some point you do have to be willing to apply the sanctions in order for the threat to be taken seriously. I guess my main advice to US policy makers is we need to be careful. We need to be restrained in when we do this because as I said, we're only likely to do it when we don't have fundamental agreement. Today with respect to Russia, there's fundamental agreement between the United States and the Europeans and our other G7 allies. So there's no need to use secondary sanctions at least with respect to them and their nationals because they have precisely the same sanctions policies that apply to their nationals that the US has. The hard cases are the ones where there's disagreement. And this is a tool that if overused will first of all, it will strain alliance relationships. Second, it will lead, and this is the bigger problem, frankly, it will lead other countries to look for workarounds so that the threat of US sanctions has less bite. The biggest bite of US sanctions is the threat that a sanctioned person will lose access to the US financial system. So I've been talking about foreign banks and their need to use the US financial system. But when the United States targets a foreign national, either a corporation or an individual for sanctions, one of the sanctions that's most frequently applied is called asset blocking. That means that we freeze their bank accounts in the US, but more importantly, they can't transfer money through the US financial system. If they write a check in US dollars and it's presented such a check in US dollars will clear through the US financial system in New York. And when that money passes through New York, it's frozen. So in both directions, somebody wanting to pay them money or them wanting to pay someone else money, if it's denominated in US dollars, they just can't do it, they're frozen out. And that's a powerful tool to use against foreign oligarchs who have a lot of money that they're transferring around or foreign corporations that are just trying to do business in the global economy. If they're unable to transact business in US dollars, very, very difficult for them to remain in business. And that works beautifully so long as the rest of the world needs to transact business in US dollars. But it's not written in the global constitution that the US dollar is the world reserve currency. If we overuse our secondary sanctions threat to the point that even our allies decide is too much, there's too much risk, too much downside to them in continuing to rely on the US dollar as the world's reserve currency. This magic power that we have today will rapidly evaporate. As you point out, the strength of the sanctions at bottom is the US dollar as the global reserve currency and the international financial system, which we dominate in our crucial part of. And as you point out, there's a risk. If we overuse this sanctions tool, people will try to get out and find a workaround from that system so as to free themselves from the coursing power of US sanctions. I wanna ask you about that because we know that China today is pushing to have transactions denominated increasingly in their currency, the Yuan or the renminbi, rather than the US dollar, and that they are working and are very far along on a mobile payment system where you can do financial transactions on your mobile phone. Does this offer the prospect of freeing countries like China, Russia, and Iran from the threat of US sanctions by freeing them from the US dollar, from the international financial system as it now exists and really gives them an alternative? How close are we to that? And in some sense, our sanctions policy gonna inevitably drive them to that result. And if so, how far away is that point in time? So there's no question that one of the lessons that countries like China and Russia and Iran have taken away from the success of US sanctions toward countries like Iran and Russia is that it would be very much in their interest to transform the global economy into one that did not rely on the US dollar. The Chinese are ambitious enough to sort of dream of a day where their currency is the global reserve currency and where they would be able to do to the rest of the world what America is able to do today. We're very far from that point, although I'm quite convinced the Chinese in the back of their mind, I mean, they're studying what America does and trying to figure out how they can one day do it themselves. But for the time being, they would be happy for any system other than the current one where the US dollar is the dominant currency for global financial transactions. They would like to move in that direction, but the center of gravity is on this issue is really with the other major global economies, the Europeans, the Japanese, the Koreans, the Indians to a lesser extent. And so far, they have not wanted to abandon the US dollar. When President Trump came in and reversed the Obama administration's policy on Iran and unilaterally reinstituted US sanctions on Iran, including the ones I just described, those sanctions that the United States imposed through the global financial system on financial transfers to Iran for oil exports, they went into effect in about 2012, but they were lifted as part of the Iran nuclear deal. Trump reimposed them and he reimposed them unilaterally. And there was a great deal of concern at the time that maybe the rest of the world wouldn't go along with this. Well, in fact, the rest of the world did go along with it. And most everybody stopped importing Iranian oil as a result of the threat of the US financial sanctions. And that remains the policy today. Biden has not reversed Trump's policy. And in fact, just last week, new sanctions were imposed on some variety of entities that were evading US oil-related sanctions on Iran. The European countries thought at that time when Trump reversed his policy about trying to move away from the US dollar, they decided it would be too disruptive to their economies, not worth doing. They even tried at one point to set up a parallel currency clearing function. And it did one or two transactions, but it was just too unwieldy. And so they basically have set it aside. So for now, the global financial dominance of the US dollar prevails. But again, the United States needs to be judicious and inflexing its muscles. If we overplay our hand, we could drive our allies to the basically the same perspective that Beijing and Moscow have. That this control, this chokehold that the US dollar has on the global economy is too high a price to pay. Maybe there are benefits from it, but the loss to them in terms of their economic sovereignty is too great. We need to be restrained and not overuse the tool. I'll give you an example that struck me. There was a big disagreement between the United States and the Europeans about the Nord Stream 2 pipeline. And I will say the reason the Nord Stream 2 pipeline was not committed or not completed prior to the Russian invasion of Ukraine was because of US sanctions. And most of those sanctions were imposed at the direction of the US Congress. And so that policy succeeded. And I imagine today, even the Europeans are glad they didn't bring the Nord Stream 2 pipeline online. But at one point in the debate about this with the Europeans disagreeing with the American government about whether that pipeline should go forward, several senators wrote to a city in Germany where the construction of the pipeline was centered and basically said, we are going to have your city sanctioned unless you stop this construction that's taking place from your port. That kind of threats a little bit over the top. The idea that we are going to sanction, basically when we impose asset blocking sanctions we're trying to put the target out of business. I mean, that is the goal. I mean, not just trying to inflict pain we're trying to put them out of business. And to say we're gonna put a city in Germany unless they close their port to certain operators. It's a little bit extreme. And too much of that kind of conduct and maybe the German government decides we need to work with the Russians and Chinese to set up some alternative to the US dollar because we just can't have Washington DC dictating to our cities how the reports are gonna operate. You've rightly suggested some caution and care and using secondary sanctions against friends and allies. That seems good advice. You also made the point that where we have an agreement on policy with friends and allies, the secondary sanctions issue does not arise because we can all provide and adopt the same set of sanctions directed against the target. There seems to be consensus within between the United States and its European friends and allies with respect to Russia. As you pointed out, the sanctions have been imposed by both the Europeans and the Americans. One thing that is being talked about now which is sort of analogous to what you were talking about with respect to Iran is this notion of imposing some kind of price cap on the export of Russian oil so that the oil would continue to move into the international market but the Russians would not reap the benefits of the heightened price of oil that they've essentially created by their invasion of Ukraine. Could you tell us how exactly that would work in application and how close is it to being adopted at this point in time? From everything I see, the pieces are in place to actually impose this price cap. Now, whether the policies that are going to be used will work remains to be seen. The, when it was first announced that we and our G7 allies were going to work to impose a price cap, I thought immediately of the policies I just described about Iranian oil exports because it's a very similar issue. It's about limited, with Iran we were trying to suppress the volume and then we were trying to stop transfer of the profits or the proceeds to Iran. Here, it seems that the objective isn't to so much to reduce the volume as to reduce the price at which the oil is sold. So it's slightly different, but the same sort of policy that the U.S. employed with respect to Iran could be employed to achieve or try to achieve this Russian price cap. But that's not actually the direction that the U.S. and Europe are going right now. In the case of both the United States and Europe, all indications are that we will not be using secondary sanctions to enforce the price cap, but rather we're going to be using primary sanctions in parallel. Primary sanctions are the ones that apply to our own citizens. And so in the case of both Europe and the United States and I think Japan and Canada and the UK, what we will be doing is prohibiting our nationals from providing services for the export, the seaborne export or transportation of Russian oil, unless the price at which that oil is sold is below the cap that we declare. And I don't think they've announced what the price cap is going to be, but it'll be something substantially below the global market price. And the way that will work is that tanker companies that are subject to U.S. or European jurisdiction, insurance companies, basically you can't operate a tanker without insurance because of the liability issues that you face. And then banks that might finance the oil exports, all of them would be forbidden to provide these services unless it was established that the oil being transported had been sold below the price cap level. That's the direction we're going. Like I said, it may or may not work. We are in full concert with the Europeans on this. So that's part of the reason I think the U.S. is not threatening secondary sanctions because if you think about the insurance issue, Lloyds of London is the critical player. So the British are actually in a much better position to limit the availability of insurance than the United States. And if they're fully on board, we maybe don't need to deploy secondary sanctions. That said, legislation has been introduced in Congress to apply basically the Iran model to Russian oil exports above the price cap. So I would say for now, the policy looks like it will be implemented through parallel primary sanctions imposed by the U.S., Europe and other key allies. But if that doesn't work, I think Congress is going to encourage the use of secondary sanctions as are currently being employed with respect to Iran. Steve, I want to thank you for your time today. You've given us a wonderful primer on the role of sanctions, both historically and today in the National Security Toolkit. And I think it's been very instructive for all of us. I just want to thank you for your time and appreciate you joining us today. It must be my pleasure, Steve. It's always great to talk to you and I'm very happy to discuss this subject. It's what I do for a living. And I spend a lot of time thinking about these issues. It's great to be able to talk about them. Terrific, thanks so much.