Sanctions against Russia: not effective, but they do set standards

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The sanctions against Russia are complex, several of our scientists tell the media. Peter van Bergeijk believes that the sanctions are naive and therefore ineffective. Michal Onderco, however, thinks that they send an important signal: the international standard. The fact that sanctions can be circumvented via the Netherlands is explained by Peter Kavelaars.

Circumventing sanctions through letterbox companies

Letterbox companies are companies that exist only on paper and have no office or employees. According to the Russian Central Bank, nearly $45.7 billion worth of Russian capital and goods went into our country in 2019, 80% of which can be attributed to financial assets. Peter Kavelaars, professor of fiscal economics, states in newspaper AD that this may indicate a high use of Russian letterbox firms in the Netherlands. It could well be that these letterbox firms are used to circumvent the sanctions against Russia.

"It remains difficult to assess. Nobody knows exactly how this has been set up. Often such constructions are also intended to prevent the source and origin of the money from becoming known. It is very difficult to prevent money being channelled through such constructions. Financial institutions have been running huge money laundering and criminal monitoring programmes for years. Russia will be a real spearhead after these sanctions. But even for the largest banks, it is almost impossible to trace money flows through letterbox companies. If there are five such companies between the letterbox company and the real owner, you will soon have lost track."

Ban on Russian money?

The Minister of Finance has hinted that she may want to impose a ban on Russian money for trust companies. Kavelaars is critical of this policy. The Russian money flows will not simply disappear if you impose a ban, because the money flows will find other routes. For example, China is not actively participating in the sanctions, which means that Russian individuals can channel money to the Netherlands via a Chinese company.

No leassons learned from 2014

Sanctions sometimes work, but the selective punitive measures against Russia do not help, warns Peter van Bergeijk, professor of international economics in an opinion article in Trouw. According to him, it seems inevitable to use the economic instrument more comprehensively, quickly and harshly than is currently the case. The sanctions previously issued against Iran and Iraq were more extensive than those against Russia now. Sanctions were also implemented in 2014, after Russia's annexation of Crimea. "Those did not work, because they were 'smart' and 'targeted' and therefore mainly symbolic."

Russians are now less dependent on foreign countries

"The current sanctions package is more extensive than at the time, but this time the West is trying to hit an economy that is much better prepared. The sanctions during the Crimean crisis were imposed when the Russian economy was much more vulnerable to foreign economic pressure, but unlike the West, the Russians did learn from the earlier sanctions. Russia increased its resistance by reducing dependencies on foreign countries. This is another reason why much more economic pressure is needed in the current circumstances - and across the full breadth of economic interaction with Russia."

The stakes for Ukraine are now higher

"Broad sanctions unfortunately hit the population, which is largely innocent. The unintended consequences are far-reaching and particularly affect the weak. This moral problem always arises with economic sanctions and is certainly one of the reasons why the use of especially selective punitive measures has soared in recent decades. There was still some understanding for this reticence in 2014, but the stakes for Ukraine are much higher now."

Setting international standards

Michal Onderco, associate professor of international relations, together with Wolfgang Wagner, professor of international security at the VU University Amsterdam, puts forward another important argument: the international standard. On they write: "The most important effect of sanctions, however, has little to do with the direct goal itself. Sanctions have always been an important signal to others, to show the state of a social norm."

They too see that the current sanctions against Russia may not be effective, but are necessary: "In principle, international sanctions are no different from punishing criminals. A change in behaviour is usually not to be expected. Despite the fact that punishments do not work that way, they are still necessary to show that violating some norms is not accepted."

Assistant professor
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