Introduction Economic sanctions have been historically used as an alternative to war when coercive foreign policy tools are

required. Leaders feel domestic pressure to condemn regimes or shun certain individuals but the costs of warfare would be too great, so sanctions are utilized. Comprehensive economic sanctions are still in place against nations such as Cuba. The Cuban embargo has produced drastic humanitarian consequences and failed to create policy changes in the country. In theory comprehensive sanctions place costs on the economy as a whole so civilians pressure the government to change. Common arguments against comprehensive sanctions are that they treat innocent civilians as a means to an end and are very ineffective. Modern uses of economic sanctions, which are primarily instituted by the United States, have broadened from simply assuaging domestic pressure and creating broad economic harms. Targeted sanctions, often called smart sanctions, pinpoint specific individuals within a country or specific goods to prevent their use. Arms embargos and financial asset freezes are commonly used now because they cause less harm to innocent civilians and are believed to be more effective in forcing those committing atrocities to stop. This paper will focus on two uses of economic sanctions, sanctions targeting Iran and sanctions targeting terrorist groups based in the Middle-East. Each use of sanctions has its own unique circumstances. Historic intervention by Western powers makes leaders in the Middle-East more resistant to coercion by the United States than in other nations. A specific nation can be isolated from the international economy, as opposed to translational organizations, but nations also have access to domestic resources unaffected by international trade. Transnational organizations, like terrorists, have fewer resources than national governments but are more difficult to target with sanctions. A case-study approach to specific instances of the use of sanctions is the best method to answer the question of do economic sanctions produce domestic policy changes in targeted regimes and mitigate the magnitude of or decrease the probability of terrorist attacks. Problem Does the use of economic sanctions by the United States produce policy changes in Iran or inhibit terrorism? Literature Review The main scholarship evaluating efficacy of economic sanctions ability to produce policy changes comes from a study conducted by Hufbauer, Schott, and Elliot. They collected data on 103 uses of sanctions after WWI to empirically test if they work. They concluded sanctions could work if they are imposed quickly, have realistically

2 defined goals, and produce significant economic harms. Most scholarship uses their data for new tests or questions the validity of their selections of sanctions. The following table provided by William Diebold Jr. summarizes the resuts of the HSE Study, Hufbauer, Schott, and Elliotts data (1985).

Robert Pape is one of the most cited authors on economic sanctions. He contended the HSE Study, was over inclusive because they included trade wars and trade disputes that involved cessation of commercial relations, which are not economic sanctions according to him. Pape considers economic sanctions to be imposition of economic harm to produce political policy change, while trade disputes involving sanctions use economic harm to produce economic policy changes. Pape eliminates those uses of economic sanctions from the HSE Study and concludes sanctions actually only work about 5% of the time as opposed to the 34% success rate determined by the HSE Study. (Pape 1997) Others claim that the HSE Study failed to include the threat of imposition of economic sanctions. Threatening sanctions can produce positive policy change and avoids adverse humanitarian consequences of the imposition of sanctions. Empirical evaluation of sanctions, after including situations involving only threats of sanctions, casts them in a much more positive light. (Lacy and Emerson 2004 and Rogers 1996) General analysis of sanctions efficacy is helpful for evaluating them, but political leaders often need to evaluate specific instances of implementation that could be exceptions to the rule. For that reason specific objectives for sanctions have also been studied. Sanctions to prevent nuclear proliferation, stop terrorism, deter interstate war, and topple corrupt regimes are all discussed (Shen 2008, Levitt and Jacobson 2008 and 2009, Folch 2008, Folch and Wright 2008). Specific arguments for sanctions often avoid the more abstract debates that the HSE Study and Papes analysis have raised, but academic review of them risks being too particularized to the single instances and are unhelpful for making policy decisions in other scenarios.

3 Aside from evaluating the efficacy of sanctions, a large portion of the literature evaluates the moral and ethical ramifications of economic sanctions. Rarick and Duchatelet describe economic sanctions as applying a pain-gain formula that implies civilian pain leads to political gain (2008). They claim this is immoral because it treats citizens as a means to an end. Other moralistic criticisms portray sanctions as collective punishment that harms innocent civilians who deserve no harm (Gordon 1999 and Levine 2009). Proponents of sanctions also defend them on moral grounds mainly by claiming economic sanctions fulfill a moral obligation to shun those who violate human rights or serve to identify the sender state as moral by disassociating with evil (Beversluis 1989, and Addis 2003). Others support sanctions because they claim new smart sanctions avoid the rights violations of comprehensive sanctions by targeting only the elites orchestrating or complicit with human rights violations that provoke economic sanctions (Tostensen 2002 and Drezner 2003). Hypothesis Economic sanctions are effective in preventing terrorism but not in producing policy change in Iran. Definitions Comprehensive sanctions are economic sanctions that target a whole country. Economic sanctions are defined by Adeno Addis as restrictions on normal commercial relations with a target country, such as trade, investment, and other cross-border activities. Efficacy of sanctions refers to sanctions ability to coerce policy changes in the target. Inhibiting terrorism means mitigating the magnitude or decreasing the probability of terrorist attacks. IRGC is the Iranian Revolutionary Guard Corps. Policy changes refer to removal or positive change of the policies that provoked the use of economic sanctions. Positive change would be change of the policies that provoked sanctions to policies more acceptable to the sender nation, in this paper the United States. Preventing terrorism means decreasing the frequency and/or magnitude of terrorist attacks. The most important measure of success at preventing terrorism is saving lives of innocent civilians.

4 Producing policy change means pressure from sanctions causes leaders to institute policy changes. Smart sanctions are sanctions targeted against specific individuals or groups. They include financial asset freezes, arms embargoes, and travel bans. They are distinct from comprehensive sanctions and are often supported as an alternative to comprehensive sanctions. State sponsors of terrorism are governments who actively fund or provide safehavens for terrorist operatives. Targeted countries or groups refer to the nation or terrorist group that is being sanctioned. UN Resolution 1267 created a Security Council committee to enforce sanctions against the Taliban and Taliban supporters. It mandated the freezing of assets that could benefit the Taliban and travel bans on Taliban members. A blacklist was created of individuals to be targeted. To date 370 individuals have been placed on the list. (Bruno 2010) UN Resolution 1333 modified the committee created in Resolution 1267 by expanding its powers. Military technology, material, and advice cannot be sent to individuals listed by 1267 or the Taliban in general. No aircrafts are allowed to land, take off, or fly over nations if the aircrafts will fly over, land, or take off from areas controlled by the Taliban. The sale of acetic anhydride, used in the production of heroin, to the Taliban and blacklisted individuals is banned. US sanctions against Iran prevent any importation of goods produced in Iran with the exception of gifts valued at 100$ or less, information or informational materials, foodstuffs intended for human consumption or carpets and other textile floor coverings, (US Office of Foreign Assets Control 2010). No goods may be exported to Iran by the US or US citizens, directly or through third parties, except those licensed by the Office of Foreign Assets Control. This includes US citizens brokering deals that involve Iranian based companies or individuals. New investments in Iran or to Iranian citizens is not permitted, however current loans and credit given to persons in Iran are not removed, interest and payments may still be collected and made on them. US banks may not service the accounts of the Iranian Government, banks controlled by the Iranian government, or persons living in Iran. Trade in oil from Iran or petroleum products refined in Iran is prohibited as is the financing of Irans oil industry and providing goods or technology that would aid Irans oil industry. A complete and more detailed elaboration of US sanctions against Iran, including a list of banks and businesses the US considers owned by the Iranian government can be found on the website for the Office of Foreign Assets Control. (Office of Foreign Assets Control 2010)

5 Theoretical Assumptions Comprehensive economic sanctions against Cuba have failed to produce policy change. Some authors may dispute this, but for the purposes of comparing new uses of economic sanctions, I assume sanctions on Cuba failed. If the United States will impose economic sanctions, other nations will not increase illicit trading with the targeted country or group to undermine US influence. There will not be significant change in world-wide counterterrorism or Iranian relations in the coming months. Terrorist organizations in the Middle-East will not change their operating procedures, such as funding methods, types of attacks, and location of attacks. They will not start new businesses or begin new operations to raise funds. They will not change attacks to focus on capturing leaders or to try to minimize civilian causalities. They will not change the location of attacks to those beyond countries already attacked; they will not start attacking China for instance. Anticipated Findings Sanctions against Iran might produce minor policy changes, such as allowing civilians a few more rights. Perhaps Ahmadinejads reliance on oil revenue is great enough to motivate him to acquiesce to the United States demands. However, economic sanctions might aid the IRGC in portraying the United States as evil to create a rally around the flag effect and increase citizen support for his regime. Additionally, the IRGC is still in power and sanctions remain in effect so sanctions have clearly been unable to produce enough policy change for them to become unnecessary. Sanctions could hinder fighting terrorism by driving financial flows underground, preventing the US from predicting and preventing terrorist attacks. However, terrorists most likely already use as secretive of financial methods as they can, so there would be no significant change in the secrecy of their financial transactions. Also, even if the United States were unable to predict more terrorist attacks, the difficulty of funding such attacks also decreases the number of attacks terrorist could carry out. Significance of Study Economic sanctions have been increasingly used in recent years. The US currently has major economic sanctions on 12 countries and limited financial restrictions on many other countries (Rarick and Duchatelet 2008). While appearing to be a nonviolent alterative to war, sanctions can have devastating humanitarian impacts that necessitate significant study. Sanctions on Cuba make even legally acquiring medicine an arduous task because of complex licensing procedures. Lack of

6 medicinal supplies due to sanctions resulted in estimated 48% increase in death from tuberculosis, a 67% increases in death by parasitic or infections disease, and a 77% increase in influenza and pneumonia fatalities (Coll 2007). Defenders of socalled smart sanctions say that they avoid the harms of comprehensive sanctions, but anything with this destructive potential deserves a focused analysis of its efficacy. Sanctions against Iran and Middle Eastern terrorist groups also have significant impacts because of the risk of overreliance on an ineffective foreign policy tool. Many commentators worry that a nuclear Iran will provoke a military response from Israel, risking an all-out nuclear war in the Middle-East as other nations proliferate nuclear arms in reaction to perceived threats from Iran and Israel (Kittrie 2009). The terror attacks of 9/11 killed nearly 3,000 innocent civilians and the risk of another strike of this magnitude means all measures used to fight terrorism must be effective (CNN 2008). Also, since 9/11 a new breed of superterrorists have emerged, described as individuals characterized by a megalomaniacal desire to leave a historically unprecedented mark of mass devastation and death (Lipman 2003). In order to attract media attention each attack must exceed the previous strikes devastation. Therefore, it is of paramount importance that resources are being used effectively now to prevent attacks of increasing magnitude in the future. Limits and Restrictions Current national security issues, like terrorism and Iranian proliferation, may be classified and inaccessible to a high school student. Time is limited, so this paper assumes comprehensive sanctions fail to produce policy change. The University of Iowa does not have access to all the databases and journals of information about US economic sanctions, so certain information is unavailable for study. I have a $70 library fine at the University of Iowa so am unable to check out books on economic sanctions. Sanctions against terrorism come in many different forms, personal travel bans, financial asset freezes of charities suspected of funding terrorism, and sanctions against state-sponsors of terrorism. It is impossible to collect enough data on each type of anti-terrorism sanction for a full analysis. Many authors have a vested interest in writing sensationalist papers to attract attention to the issues they study because they might receive more grant money if their fields receives a higher focus.

7 Much of the data on black-market trading is unavailable because it is a hidden and underground system. The efficacy of economic sanctions on regimes involves a relationship between quantifiable economic harm and qualitative political changes. Targeted leaders have to weigh economic depravation with the benefits of existing domestic policies, but Iranian leaders and citizens each may perceive costs and benefits differently because they are subjective concepts. Predicting the actions of these individuals is very difficult. Causation is nearly impossible to determine for if sanctions produce policy change in Iran or inhibit terrorism because there are many different policies in place to influence the Iranian regime and inhibit terrorist activities. Isolating economic sanctions as the causal factor is very difficult. Methodology Case study of two uses of economic sanctions 1. Iran a. Acquire data on: i. Effects of sanctions on Irans economy ii. International cooperation on Iranian sanctions iii. Effects of sanctions on Irans non-economic policy 1. Domestic power of the IRGC 2. Nuclear proliferation b. Determine if: i. Sanctions produce economic pressure on Iran ii. Economic pressure on Iran produces policy change 2. Terrorism a. Acquire data on:

8 i. Past uses of comprehensive economic sanctions effect on terrorism ii. Financial sanctions used on suspected terrorist funding organizations 1. The effect of financial pressure on terrorist groups 2. Possibility of producing financial pressure a. Locating terrorist funds b. International cooperation on sanctions against terrorism c. Other factors b. Analyze data to determine if: i. Financial sanctions produce financial pressure on terrorists ii. Financial pressure will inhibit terrorism

Findings Iran
Effects of sanctions on Irans economy Orde Kittrie reported on the new financial sanctions placed on Iran. The new innovations are direct outreach to individual foreign private financial institutions, aggressive use of financial authorities to pursue political goals, and effective development and harnessing of intelligence about global financial transactions (2009). The assets of members of the IRGC and IRGC owned businesses are frozen and third party banks that processes financial transactions with Iran also face increased regulation. For several months Reliance Industries had to stop gasoline sales to Iran because it could not acquire letters of credit, the main form of payment in international trade, from French banks. Overall the costs of imports to Iran have increased by 20% - 30% due to financial sanctions alone. (Kittrie 2009) General sanctions also will likely place significant economic pressure on the IRGC. After the June elections and increases repression of civilian protests, it is likely the

9 Iranian people will blame the IRGC for the sanctions because they already resent the regimes control. The IRGC has also expanded its role in the economy, acquiring billions of dollars worth of more contracts in the past six months, which makes it a bigger and easier target to hit. (Peterson 2010) However, Prebel worries that by increasing sanctions the supply of oil will decrease, raising the price, and make black-market smuggling of oil out of Iran more profitable. This will enrich the IRGC who profit from the black-market sales (2007). Because the sanctions drive most of these trades underground it becomes increasingly difficult to track the funds of the IRGC, which is an important tool to discover how close Iran is to proliferating nuclear weapons and what terrorist organizations are receiving funding. Without Western banks to compete with, local banks in Pakistan and other Gulf States are providing financial services for the region, but those banks security measures are far less stringent and transparent than those the Western banks previously used. Imports to Iran from the UAE increased by 20% in 2006 and 25% in 2009, but because those trades were not processed through Western institutions the recipients of goods and funds is unknown (Fassihi and Cummins 2008). Although US sanctions only target Iranian companies, many foreign organizations have ceased business with innocent Iranian companies because of the difficulty of wiring money to accounts in Iran. This hurts small businesses that must pay significant costs to middlemen to exchange products and funds. Inflation in Iran has risen 18% due to sanctions, this price increase hurts all innocent citizens in Iran because they have less purchasing power. (Fassihi and Cummins 2008) A further implication of the difficulty of financial transactions to Iran is that businesses and individuals have to pay middlemen significant fees to transport funds and goods between neighboring countries like the UAE. The graphic displays the complicated process of getting goods into Iran. One businessman gives $12,300 to a man in Iran, who sends the money to his brother, who sends the money to a middleman in Dubai, who acquires the goods from a supplier and sends the goods back through the same path. The fees and commissions charged by the individuals in the chain raise the price of goods 23%, from $10,000 to $12,300.

10

Graphic from Fassihi and Cummins 2008 International Cooperation on Iranian Sanctions China has also started increasing trades with Iran to both undermine the efficacy of US sanctions and profit from an oil rich trading partner (Wall Street Journal 2008). American interests are weakened because our corporations have a limited supply of oil traders and Chinas corporations gain an advantage. Further, China and Russia have ties with Iran, so will veto any measure to place UN sanctions on Iran, preventing multilateral sanctions from being a policy option. Increasing US unilateral sanctions also backfires when both Russia and China started negotiating

11 with Tehran because they felt the US was ignoring their interests by strengthening sanctions. (National Security Network 2009) China is willing to support UN resolutions to strengthen sanctions, Resolution 1747 specifically, but the Chinese government stated that it requires the strengthened sanctions to neither harms the Iranian people nor affect normal economic, trade and financial exchanges between Iran and other countries (Hsiu 2007). The publicly stated reason is that diplomatic engagement with Iran is the only way to end its desire for nuclear weapons. However, China also has significant energy ties with Iran. Chinas oil corporation SINOPEC Group just made a $70 billion deal with Iran for oil and natural gas. Sanctions on Iran would disrupt these business interactions, worsening US-China relations (Hsiu 2007). In total, Iran and China have a $25 billion bilateral trade flow (Tucker and Bozorgmehr 2010). However, Congress has recently become disgruntled with the Obama Administrations Iran policy believing it to be too soft. New legislation proposed focuses on tougher sanctions than what will emerge from the U.N. Security Council because Russia and China will decrease the strength of U.N. sanctions. Congresss sanctions, however, also focus on Irans human rights abuses, but Obama fears focus on those will dissuade China from supporting sanctions because of its own human rights abuses. (LaFranchi 2010) Another concern is Israels perception of Irans proliferation status. Israel fears a nuclear Iran will launch its weapons against Israel, so Israel has planned military strikes on Iran to destroy its nuclear capabilities. Saudi Arabia also fears Iranian proliferation would threaten its power in the Middle-East, so might grant Israel flyover permission to attack Iran. If Israel attacks, even if Iran doesnt have nuclear weapons, there is a danger war could erupt in the Middle-East between the two nations. Sanctions would assuage Israels fears because they are assured the US is allied with them against Iran and that Iran will be unable to acquire nuclear weapons. (Follath 2009) An Israeli strike would likely miss secret nuclear storehouses and only provoke Iran to encourage Hezbollah in Lebanon and Hamas in Palestine to attack Israel and other allies of the West. The political power of the Green movement in Iran to depose Ahmadinejad would also suffer because Iranian citizens would likely support hardliners acquisition of nuclear arms more to defend against external threats. (Economist 2010)

Effect of Sanctions on Irans Non-Economic Policies

Domestic Power of the IRGC A World Public Opinion poll in 2009 found that 56% of the Iranian people were against stopping enrichment because of the cost of sanctions. Increasing sanctions

12 will likely create a rally around the flag effect where citizens increase support the support of their leaders in reaction to an external threat. (Sugrue 2009) Proliferation of Nuclear Technology Currently, Iran has advanced missile technology capable of hitting Israel and targets in Europe and has uranium enrichment capabilities that can produce 20% refined uranium (Cummings 2009). 80-90% enriched uranium is required for weaponsgrade material, and it is a simple technological process to go from 20% to weapons grade uranium (Sanger 2010). The IAEA has not confirmed Irans claim to 20% enrichment, but on the 8th of February, 2010 did confirm that Iran was in the process of producing uranium at less than 20% enrichment. (IAEA 2010) Iran relies on the international financial system to fund is nuclear proliferation program, so if sanctions are able to block its access to that system it will be unable to proliferate nuclear technology (Kittrie 2009). However, sanctions feed hardliners in the Iranian governments argument for proliferation as a defense against Western coercion. The hardliners perceive nuclear weapons as a tool of resistance because the US wouldnt anger a nuclear Iran. If the US imposes more sanctions that harm the Iranian people the citizens will likely agree more with the hardliners that Iran needs to proliferate to resist. Sanctions also provide an excuse for Ahmadinejad to delay negotiations about nonproliferation because he and the US would not be meeting on equal footing if US sanctions remain on Iran. Those who believe engagement with Iran will prevent proliferation believe sanctions must be lifted so Achmadinejad has to come to the negotiating table. (Olsen 2009 and Follath 2009) If sanctions fail due to black market trading or Russia and China undermining the economic isolation, Iran will still be able to proliferate nuclear weapons. The diplomatic isolation created by sanctions will make nuclear war more likely because US and Iranian leaders will more likely miscalculate the others capabilities and intentions. A first strike could give either side a significant advantage, so the miscalculations may lead to a nuclear war. Even if a nuclear war with Iran does not happen, the economic depravation caused by sanctions (assuming Russia, China, and the black market cannot completely destroy the economic burden of sanctions) may incentivize Iran to sell nuclear technology to others to alleviate the economic strain. Non-state actors, like terrorist organizations, may acquire nuclear weapons. They are not deterable because there is no nation for the US to threaten a retaliatory strike against. A nuclear war therefore could not erupt between terrorists and the US, but nuclear attacks become more likely. (Carpenter 2010 and Ferguson 2009)

Terrorists

13

Comprehensive sanctions
Comprehensive economic sanctions might increase terrorist recruits. Middle-East politics are historically driven by the Jewish experience in the Holocaust and the suffering of Palestinians in the state of Israel. Intervention by Western powers drives these fears that the past will be repeated, which only prolongs the cycle of violent resistance. Iraqis are likely to view the economic deprivation caused by sanctions as contradicting the Western goals of liberating the Iraqi people and as inspiring new recruits for Al-Qaeda. It is unclear, however, if targeted financial sanctions are perceived similarly. (Fierke 2005) Economic sanctions also exacerbate domestic poverty, which drives terrorism because the targeted nations citizens are more willing to accept radical measures. Regimes targeted by sanctions in the Middle-East are often funded by Islamic extremists, so after outside powers cripple the economy with sanctions there is very little incentive for the state to stop the preaching of fundamentalist beliefs or the recruiting of new members. Further, once persons lose their livelihoods they often feel radical solutions are necessary or are more willing to accept radicalism because they have nothing left to lose. Statistically, the majority of Taliban members are severely impoverished, while the leaders have significant wealth and take advantage of those without resources. Exact numbers are unknown, but generalizations can be made about the demographic composition of the Taliban. (Fandl 2004)

Financial sanctions
Effects of financial pressure
The benefits of financial sanctions are significant. Terrorists may not need significant funds to launch an attack, but they require extensive funds for setting up international networks, training camps, and command structures. When the Taliban was in power in Afghanistan, Al-Qaedas annual operating costs were $36 million on top of $50,000 fixed costs for infrastructure and equipment. Denying terrorists funds prevents them from launching highly coordinated attacks, mitigating the destruction. It also prevents international transfer of funds so terrorists become geographically isolated. (Rosen and Lucy 2001) Financial information is also one of the best ways of fighting terrorists. Much of the information on terrorists comes from bribes, double agents, and interrogation, all of which is of questionable reliability. A financial record, however, has accurate information on location and scope of terrorist activities. (Fitzgerald 2007) However, the US compensates for the difficulty of locating terrorist assets by freezing lots of individuals assets. Unfortunately, this damages many innocent

14 Islamic charities. Sakr Abu Hein runs an Islamic charity that had provided aid to 1,000 impoverished families, 1,000 students, 5,000 kindergarteners, and 3,000 orphans in the Gaza strip had its assets frozen and can no longer provide any relief. Unfreezing assets now is insufficient to solve the problem though because the charitys image has been significantly damaged. People are less willing to donate to an organization that might be funding terrorists. Hein reported that his charitys image was such that his revenue was significantly less after his asset freeze. (Ferrari 2005)

Possibility of creating financial pressure

Locating financial assets A problem with relying on financial asset freezes is that terrorists rely significantly on illicit financial flows that go through unregulated channels. Sometimes legitimate businesses, like taxicab companies and charities, fund terrorist enterprises, but terrorists also use difficult to trace commodities, like precious gems, or physically carry money across political borders, which are very difficult to sanction because there is no electronic money transaction. (Donohue 2006) The actual amount transferred to carry out a terrorist attack is also hard to detect. The attacks of 9/11 cost between $400,000 and $500,000, but the 1998 East African Embassy attack cost only $10,000. With globalization increasing the amount of international money transfers, individual transfers of this size are hard to identify as funding terrorists. (Donohue 2006) Another way Al-Qaeda has changed to overcome financial difficulties is by decentralizing its organization. Local terrorist cells have more authority, lowering monitoring and organizational costs on central leadership. Individual cells fund their own attacks. The July 2005 attacks in Londons subway system were selffunded, and an attack planned in Germany in 2006 was self-funded. Al-Qaeda provided only the instructions on how to build and use explosives from their website. (Bruno 2010) Long term reliance on financial sanctions is risky because terrorist organizations are able to establish financial relations outside of the regulated financial system that undermine the efficacy of sanctions and prevent the tracing of terrorist assets to track when and where future attacks are likely to occur. (Eckert 2008) International Cooperation Financial asset freezes also require significant international cooperation so terrorists cannot use banks in other countries. However, many nations are no longer enforcing UN resolutions 1267 and 1333, which mandate the freezing of terrorists assets. Many nations have ruled the current financial sanctions against terrorists illegal and hence unenforceable. The European Court of Justice in 2008

15 ruled that the freezing of the assets of Yassin Abdullah Kadi and the Al-Barakaat International Foundation illegal. Courts in the UK also ruled U.N. financial sanctions illegal because they bypassed Parliament. Nations are backing down from enforcing financial sanctions for these reasons. (Gurul 2010 and Eckert 2008) Political support for international cooperation to freeze assets is also failing. The European Unions parliament voted 378 to 196 against sharing information on financial flows collected by Society for Worldwide Interbank Financial Telecommunications, SWIFT, with the US. It cited privacy and human rights as key issues in rejecting the proposal. (Traynor 2010) The US Treasury Department has attempted to solve the problem of lack of international cooperation by cooperating more with the broader intelligence agencies outside the Treasury department and tasking individuals with the specific goal of isolating terrorists financial transactions. The US is the first government to implement such policies. (Fitzgerald 2007) Other The lack of attention to financial sanctions also has undermined their efficacy. As nations stop reporting new suspects to be blacklisted for asset freezing simple donations are able to generate significant funds for terrorists. The Taliban received $106 million in donations from Gulf States in 2007 because many intelligence operatives ceased monitoring its financial flows to focus on Iraqi insurgents. Either more analysis or a shift in focus is required to stop funding going to the Taliban. (Guo 2009) The prevalence of charities and donations in Muslim nations is explained by the Islamic belief in zakat, a required charitable donation to the poor or a just cause. Radical Muslims believe Al-Qaedas terrorist actions qualify as a just cause so funnel donations to charities or mosques to terrorists. Sanctions are therefore difficult to accurately target because it is hard to distinguish between which groups are funding terrorists due to the plethora of donations being made. Sanctions also become difficult to implement because individuals resist interference in religious practices. (Bruno 2010).

Analysis
In evaluating the efficacy of sanctions there are two questions that must be answered. First, do economic or financial sanctions succeed in producing economic or financial pressure? Second, does economic or financial pressure on the targets lead to achieving the policy goals of the sender nation?

Iran

16 Do economic sanctions produce economic pressure? The evidence indicates that there is significant pressure placed on Iran due to economic sanctions. Kittries analysis shows there is a definite increase in costs for Iranian companies and that Western financial institutions have left the region. The sanctions regime prevents US companies from doing business with Iranian ones, which means Iran loses trading partners, cannot access the international financial system readily, and cannot fund domestic projects with outside funds. The evidence suggesting the increase in costs is not a result of economic sanctions generally takes one of two stances. Either Iran will be able to use the black-market to import and export at a greater profit because of limited supply of its goods available through legal channels or that other companies will replace Western ones that do business with Iran, usually fellow countries in the Middle-East or China. Both counter-arguments will be addressed individually to show how they fail. Black-market sales If Iran is able to shift exports to the black-market there will still be significant economic pressure placed on Iran. There are fewer buyers in illicit trading because fewer companies are willing to take the risks of punishment for being caught. That counteracts the decrease in supply created by sanctions at least somewhat. Further, the increased profits from black-market trading would exist whether or not sanctions were imposed because the risks noted in the last paragraph and the secrecy required let sellers justify higher prices. Iran would use the black-market over legal transactions whenever the opportunity arose; sanctions would not significantly increase or decrease the use of it. Iran will still use licit trade markets because it must at least pretend to respect the rules of the global market place, but would most likely maximize its use of the black-market within that restraint already. Even if there is an increase in black-market trading, it is impossible to accurately judge the effect of those increased black-market transactions because they are done in secret. At best opponents of sanctions can argue there might be increase profits from illicit trading, but they cannot show that the profits completely undermine the economic hardship created by sanctions. Middle-East Replacement Companies Fassihi and Cummins reported that banks in the Middle-East are replacing Western ones for Iranian companies to transfer funds through. However, those banks would likely lack the connections that Western banks have to other financial institutions to send money through and the trust of buyers and sellers in the West who dont want to send significant amounts of funds through banks they have never had dealings with.

17 Even if Fassihi and Cummins fears that financial flows wont be traceable through other banks come to fruition, there will be far fewer transactions to trace due to economic sanctions. Middle-Eastern companies also wont be able to replace the funds frozen and contracts broken by the initial sanctions because the West will control the money and goods. Peterson indicates that Iran has significant funds invested in the economy right now that sanctions could seize to pressure the regime in the short term. China China is perhaps the biggest concern because its massive economy could significantly undermine sanctions ability to place economic pressure on Iran by trading with Iran once other nations cease due to sanctions. However, China cannot and will not prevent the sanctions from working. China has expressed that they do not wish to see Iran with nuclear weapons, so there remains the possibility that Obama will be able to convince China that sanctions are key to preventing Iranian proliferation. Also, Russia has recently hinted that it will support Iranian sanctions because of Irans continued defiance of diplomatic solutions to its proliferation ambitions by delaying the shipment of sophisticated missile defense systems. This may convince China to not veto sanctions from the U.N. Security Council and abstain instead. (Economist 2010) Iran may be able to trade goods with China, but it cannot transfer money through Chinese banks for the same reasons that it cannot use Middle-Eastern ones, lack of connections to and trust of the rest of the word. Will economic pressure help achieving the policy goals of the sender nation? Sanctions may be able to produce economic pressure, but are unlikely to produce policy change. Iran may lose business with other nations, but sanctions fail to address the root cause of its nuclear ambitions, a defense against perceived Western imperialism. Mohammad Nahavandian is the head of the Iranian chamber of commerce and said in Hong Kong that, the threatening language used by the west had made the issue [of Irans nuclear programme] one of national identity and independence, (Tucker and Bozorgmehr 2010). While not specifically about nuclear weapons, Iran does desire nuclear power to show its independence and ability to resist Western influence. Sanctions will at best be a delaying tactic to give other nations more time to prepare for an eventual nuclear Iran. However, the findings indicates that a military strike will not be effective and sanctions prevent a diplomatic solution from being reached because Irans leaders refuse to make significant concessions until sanctions are lifted.

18 Even the Green movement will be undermined by sanctions because Iranians will support proliferation more because sanctions create a rally around the flag effect and encourage proliferation as a means of checking back the influence of the West. Tense protests in Iran make it more unclear how the populace will react to sanctions because of the divisive conflict and rapidly changing situation in Iran. However, currently 56% do support proliferation according to Sugrue despite sanctions, so there is a greater chance the citizenry will still support proliferation and the IRGC by extension. Even if there is a chance sanctions fail, the risks of diplomatic isolation from and tensions with a fellow nuclear power are unacceptable. Iran has missile technology that can reach Europe and Israel. The Middle-East is rife with border disputes, ethnic hatreds, and unstable governments. Further, Irans leaders by virtue of their apocalyptic messianism and exaltation of martyrdom might invalidate the theory of deterrence (Kittrie 2009). Isolation from Iran will also make both sides, the West and Iran, misinterpret the others intentions more often and mistakes in relations between nuclear powers risk escalating into global nuclear exchanges.

Terrorism
Do financial sanctions produce financial pressure? Financial sanctions face too many implementation issues to be effective at producing financial pressure. The literature acknowledges that sanctions on terrorists did freeze their assets in the past, but no longer have the global cooperation necessary to implement them. The EU decision to not share intelligence with the US displaces a current trend away from freezing assets of terrorists. Provided in the Findings section are the specific data sets about the international cooperation on terrorist asset freezes, additionally international cooperation is key because the US does not have the global financial power to freeze all assets. After September 11th, the US only had the ability to freeze one third of Osama Bin Ladens assets; other nations must cooperate with the US for sanctions to produce financial pressure (Fitzgerald 2002). There are simply too many unregulated forms of transfer, from already illegal drug trafficking to simply carrying money across borders. The intelligence agencies the US uses to track the funds of terrorists are not successfully targeting them. The impact of financial freezes on innocent organizations is displays that terrorists are not the ones being hurt. If the US is just being over inclusive on its list, there are likely lax procedures for determining who goes on the list meaning actual terrorists could be unencumbered. Those intelligence agencies also rely on other countries sharing information with them, but many other countries legal systems have declared it illegal to share such information or have stopped sharing for other reasons. Even if the US has the ability to freeze funds it cannot determine who to target.

19 At the least, there are financial transactions that cannot be traced or prevented. Stoping those in the open market place will only push more into the covert means, which prevents sanctions form working in the future and denies valuable intelligence about possible locations and magnitudes of upcoming terrorist strikes. Will financial pressure help achieving the policy goals of the sender nation? If financial pressure were possible then the freezing of terrorists assets would significantly hinder their operations. They will not be able to plan large-scale attacks, train large numbers of recruits, or establish regional control because they lack financial resources to fund such ventures. Even if Fierke and Fandl are correct and there will be more terrorist recruits, those recruits will not add more assets to terrorists arsenals because new recruits come from impoverished families per Fandl and those recruits will not be able to launch devastating attacks due to lack of funds. The charity discussed by Ferrari could show sanctions do more harm than good. It is one of at least 60 charities similarly affected. While terrorist attacks may kill far more than those who will suffer because of lack of charity funds, the probably of innocents harmed by the asset freeze is far more likely than freezing assets stopping a terrorist attack. The risk, probability of the attack times the magnitude of the attack, therefore is likely to be closer between harm to innocents and preventing an attack. However, the long-term effects of a terrorist attack significantly alter the calculation. Lippman theorized that current terrorists have changed their ideology. He describes the new super-terrorists as are driven by an apocalyptic and millenarian religiously-based worldview which posits that the world must be destroyed in order to cleanse the globe of paganism and impurity. [They] are caught in a spiral of ever-more dramatic acts of violence to attract media and public attention. Allowing one terrorist attack to succeeded will motivate others to be even more destructive because the next attack must top the other in the magnitude of devastation to get media attention. Stopping attacks while they remain more small scale is thus a paramount concern and financial pressure, even if it harms innocents, is able to achieve policy goals. (Lippman 2003) Implications for Further Research The most important other research to be done is the efficacy of other types and uses of economic sanctions. The case study approach provides important data for sanctions against Iran and terrorist organizations, but how generalizable the data is to other uses of economic sanctions is unclear. Economic sanctions are currently used against North Korea, analysis of those sanctions is likely to be important in deciding how to interact with the new nuclear

20 power. Nuclear weapons pose massive threats to world-wide security because of their destructive potential. If sanctions encourage diplomatic negotiations or promote antagonism between nuclear powers is a central concern for global peace. The rise of China in global politics, an important ally of North Korea, also implicates the efficacy of sanctions because China could either help sanctions by controlling imports and exports or undermine sanctions by trading more with North Korea. Non-efficacy related goals of sanctions also merit further research. Some authors claim by using economic sanctions nations express moral disapproval with regimes and avoid being complicit with actions of the regime by denying funding for its actions. Addis calls this the identitarian function of sanctions, nations use them to define themselves through disassociation (2003). Whether modern smart sanctions still have this function because they involve limited restrictions on financial assets and travel bans is important in evaluation economic sanctions from a moral or ethical standpoint.

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