Sanctions: No trouble atoll
01 Aug 2018

On July 16th, the European Union instituted a sanctions program that targets members of the current government of the tropical nation of the Republic of Maldives, after President Abdulla Yameen declared a state of emergency and arrested prominent members of the judiciary and the opposition party earlier this year.

The program, as currently promulgated, will be used to impose asset freezes and/or travel restrictions on persons and organisations which contribute to serious human rights abuses or which undermine an inclusive political environment which obeys the rule of law.

A better understanding of the Indian Ocean nation, which consists of 26 ring-shaped atolls, would lead one to believe that such a program, in and of itself, will be ineffective at changing the Maldivian situation, while imposing compliance burdens on regulated firms which are unlikely to achieve the E.U.’s foreign policy goals.

Off target

Targeted programs, which preclude the use of export or import restrictions, are most effective when the targets have a need to transfer their assets internationally to achieve their goals.

In this case, the E.U. sanctions are expected to target specific government officials rather than the government, and the nation, as a whole.

Therefore, the government, which currently serves the needs of the expected targets, will be able to continue to acquire any goods not already restricted, and conduct the usual range of financial services activities required to run the government, and the country, effectively.

Since the undesirable behaviors being shown by the expected targets are domestic in nature, it is difficult to see how such efforts can be effective in the near term, unless the officials currently have or are trying to move their wealth offshore …

Bullseye!

Since the sanctions are anticipated to be levied on the highest Maldivian officials, a comprehensive approach which undermines any support for these individuals, and the government in which they serve, through sanctions on the underpinnings of the national economy is more likely to be effective.

Doing that effectively requires two specific changes, one of which is only partially in the E.U.’s control.

The Republic of Maldives is a small country, with a current population of less than five hundred thousand persons , and a Gross Domestic Product (GDP) on the order of $4.6 billion U.S. Dollars (as of 2017).

Its largest industry is tourism, of which Europeans represented a majority of the travelers (according to figures for January and February 2018).

Therefore, a ban on European tourism would affect the popular support of those currently in power by impacting the economic conditions of the citizenry significantly more than by freezing assets located overseas.

Secondly, what makes sanctions most effective is when countries apply them in concert so that the effect is more pronounced than unilateral action.

While other contributors to the Maldivian tourist trade would undoubtedly enhance the value of that sanctions restriction, targeting the second largest sector of the economy, which is the Maldives’ fishing trade, might be more impactful.

While Germany and the U.K. are considered main beneficiaries of the Maldivian fishing industry, none of the other E.U. countries are significant customers.

However, were the other countries who buy a significant portion of exported Maldivian fish (Singapore, Sri Lanka, Thailand, and Japan), which represents approximately half of the entire industry’s volume, to bar fish imports from the Maldives as well, it would have greater impact than just the effect of lost business from Europe.

Additionally, part of the Maldivian industrial sector directly supports the fishing industry, so targeting the sale of fish would have an added benefit of impacting the firms, such as canneries, which support that industry.

An apt example of another E.U. targeted sanctions program which has failed to show results (and which demonstrates the importance of economic leverage by those who can exert it) is that of Guinea-Bissau.

In that program, targeted asset freezes and travel bans have had no noticeable affect since their imposition in 2012. One noticeable difference from the Maldives program, however, was that the Guinea-Bissau program had no realistic chance of effecting changes in the targets’ behavior.

As the West African nation’s main export, cashew nuts, was not a significant factor in its trade with European Union nations, the E.U.had no leverage over the country’s rogue regime.

To make matters worse, the nation that could have applied the most acute economic pressure through a comprehensive sanctions program, India, did not impose any import bans or restrictions in order to influence the actions of Guinea-Bissau’s officials.

Pbbbt!

The creation of the E.U. restrictive measures on the Maldives is too new to accurately gauge its likely fate, especially in the absence of specific persons and organizations being targeted.

The reaction from Male, the Maldivian capital, however, does not bode well.

Jameel Usman, from the ruling party, was quoted in the Maldives Independent as saying, in reference to the European Union, “If they take steps against the Maldivian people and the country, the losses they will have to endure will not be small either.

“There are European investors in the Maldives, there will be losses for them too.”

And Dr. Mohamed Shainee, the country’s Fisheries Minister, boasted that the annex to the E.U. Decision was empty due to the lobbying efforts of government representatives to make the program toothless.

Dr. Shainee’s comments were, at best, disingenuous, as creating a sanctions program without designating specific targets is a method that the E.U. has used previously (most recently with respect to Myanmar).

The E.U. appears to do this, among other motivations, to provide fair warning to the targeted persons and groups that continuation of their current actions will have direct, significant repercussions.

Given the nature of the enacted sanctions program, however, it would not be surprising for Dr. Shainee’s bluster to win the day.

Gooooal?

When the first set of formal designations occur, however, the prospects for the Maldivian sanctions program to be effective in encouraging change in the country’s political situation will become clearer.

Given that the likely outcomes, at the current time, appear to mirror the lack of progress in the Guinea-Bissau program, it begs one set of final questions.

What is the purpose of imposing sanctions when they are not likely to have a real impact? Is the satisfaction of wagging one’s finger in disapproval, with nothing to show for it at the end of the day in terms of actual change by rogue actors or in actual damage inflicted upon them, worth the burdens and costs imposed on firms attempting to comply?

Not atoll. A losing effort is still a losing effort – points are not awarded purely for the effort invested, without actual results achieved.

Eric A. Sohn, CAMS, director of business product, Dow Jones Risk & Compliance, New York, NY, USA, eric.sohn@dowjones.com

Image: Maldvives government.

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