In a major shift in U.S. policy that even took U.S. Treasury officials by surprise, President Donald Trump ordered the lifting of the vast majority of sanctions on Syria. The move hopefully will help alleviate the suffering of millions of people in Syria, where 90 percent of the population lives below the poverty line, and can serve as an incentive for the country to re-integrate into the international community. Should enough of that come to pass, it could even become an example of what successful sanctions relief could look like elsewhere.
Sanctions have long been a favored, but often blunt, instrument of U.S. foreign policy. In Syria as in other cases, sweeping U.S. sanctions have contributed to economic hardship for ordinary civilians. Inflation is rampant, fuel and medicine are scarce, and infrastructure devastated by war remains in ruins. Without meaningful sanctions relief, foreign companies will be unable to invest and help the country get back on its feet, and Syrian leaders will see little benefit in moderating their policies to meet Western standards.
Actionable steps are needed to help Syria transition from isolation to reconstruction, to “give them a chance at greatness” in Trump’s words. This will require a clear roadmap for sanctions relief, using a structured approach and following best practices, to ensure a swift, coherent, and sustainable recovery to improve the prospects for political transition. This will require a holistic approach with a number of conditions met by all sides involved.
Clarity, Predictability, Coordination
First, it will require even greater clarity and predictability. As much precise information as possible is needed to articulate continued steps to easing the effect of sanctions on the ground. Investors, for example, will need to understand the likely trajectory over a longer time horizon so that they are comfortable committing to action and contributing to the country’s recovery, as U.S. Secretary of State Marco Rubio has acknowledged.
Second, U.S. action on sanctions relief must be synchronized within the federal government. As the spokesperson for the State Department recently noted, “to remove the sanctions, which involves departments like the Treasury Department […] will take some time.” Heeding Rubio’s urgent warning that Syria may “may be weeks, not months, away” from a full-scale civil war, Treasury and others have taken rapid action to lift sanctions in order to allow for much-needed delivery of aid and to give businesses the confidence they need to invest in economic development. We commend this speed and hope it continues.
Third, the United States must coordinate with others that have imposed sanctions on Syria in the past, such as the European Union and the U.K., to avoid discrepancies and confusion, which the skeptical market loathes. To date in the international arena, the Trump administration has favored unilateral and bilateral approaches, but here a multilateral approach would work better. For effective relief to be felt, all major sanctioning States will need to settle on agreed minimum standards for who and what they want off the lists. So far, this process has been smooth despite Europe moving ahead first, but as this process gains momentum, as it has in the past week, legal and compliance officers in global financial institutions will increasingly scrutinize EU, U.K., and U.S. steps for any inconsistencies or contradiction between names and aims, settling on the lowest common denominator for relief. Coordination with London and Brussels is key to establishing the highest-possible common denominator and would not take more than a handful of people communicating effectively among the three capitals.
Guidance for Banks and Investors
Fourth, continued guidance will be needed to clarify that anti-terrorism or human rights sanctions will remain, as they rightly should, on designated individuals connected with unrepentant terrorist groups and the leadership of the Assad regime. The Treasury Department will need to have documentable, feasible standards for ensuring which transactions are considered reasonable and safe. Western banks will need such guidelines to mitigate and successfully navigate such investment risks. The speedy issuance of General License (GL) 25 and accompanying new FAQs after Trump’s historic May 23 announcement shows that officials in Treasury are clearly working overtime to issue further updates as quickly as possible. We commend this effort and hope this pace is sustainable. Its noticeable vigor will send further positive signals to the market that Trump is serious about giving Syria a chance at greatness.
Fifth, we recommend the Treasury Department engage in extended and continuous market outreach to domestic and foreign financial institutions to encourage them to positively re-appraise their position on transactions with a Syria nexus. With a view to further improving the investment environment and addressing the element of time we mentioned earlier, Treasury should consider formalizing a position on the reversibility of relief and what timeframes for winding-down operations in and with Syria might look like in the event of a reversal in the situation that might prompt “snap-back sanctions,” i.e., a reversion to comprehensive sanctions prior to May 16. This idea is novel, and we acknowledge that, at first consideration, it may seem an unpleasant subject when the emphasis is on ensuring a positive trajectory. But we know, realistically, that some bankers and potential investors are already pondering that risk and it should be tackled head on to silence naysayers. This bothersome “if, if, if” subject can be cleared up as a confidence building-measure. This is, of course, a somewhat counterintuitive approach to silencing those with de-risking tendencies and excessive caution. Greater precision on the timeframes for a theoretical wind-down in the future would allow for improved drafting of so-called “grandfather” clauses, which would be immensely beneficial for investment decisions in the present. The political events that could cause this can remain usefully ambiguous, thereby giving Washington room for discretion, but knowing the hypothetical time period for any would-be wind-down today spurs investor confidence for tomorrow.
Sixth, readiness assessments should be undertaken in Syria to evaluate priority sectors – such as energy, construction, and finance — for early-stage re-engagement. These assessments and their findings should feed into U.S. and allied policymakers’ determinations on where to focus finite resources. Importantly, prolonged technical assistance in compliance and governance should accompany all these efforts, to help Syrian institutions meet international standards, build competencies, and reduce risks of backsliding in an undesirable direction. Technical appraisal of key Syrian financial institutions is essential, to take stock of the current posture in Damascus and build a viable path forward. It is imperative that Syria’s new friends establish a baseline of where things currently stand inside the critical institutions that will spur economic recovery. For now, institutions like the Central Bank and Commercial Bank of Syria are at best perceived abroad as mysterious, spurring fears of guilt by association in the event of interaction with them. Investors and foreign financial institutions, therefore, need more information, and they need Syrian institutions to quickly begin speaking the same technical language of financial crime compliance. Once everyone involved establishes where things currently stand, they can plan for future improvement.
Safe-Harbor Guarantees
Seventh, to build confidence among Western financial institutions, the U.S. and other governments should offer safe harbor guarantees for institutions that operate within pre-cleared channels and follow international protocols against financial crime. During the previous Trump term, similar entities were established in Switzerland and Iraq to sell humanitarian goods to Iran. Now, in Syria’s case, this could be scaled up and broadened to promote trade and investment in a far wider range of newly permitted goods and services. These approved financial corridors will enable secure transactions while broader relief comes into effect through the private sector. In time, this will end as the market increasingly engages, and businesses reap rewards. For early movers, willing to go in at the beginning, incentive packages could be made available. Turkey and Gulf States may be suitable gateway locations for these mechanisms to be based in and could work with Syrian institutions recently de-listed, providing a compliant link with the outside world in the medium term. Working capital for investment to re-start the Syrian economy could also be loaned by these regional institutions, to help the returning Syrian diaspora kick-start commercial activity and inject badly needed funding into a society that is chronically underbanked, and lacks hard-currency and liquidity. These gestures further signal official support, an understanding of what the market really needs, and above all, serious intentions to help Syria, reducing the chilling effects that have stalled other relief events in the past.
Eighth, the business ecosystem requires signals and matchmaking. Similarly, the regulatory environment inside Syria will need external support to modernize. Relief must be tied to offers of capacity-building in areas like anti-money laundering, anti-corruption, anti-terrorist financing, and public-sector governance. Vetting mechanisms should allow credible Syrian firms to apply for clean-slate certifications, affirming that they will not be penalized for breaches that occurred during the embargo period. These certifications, in turn, can unlock access to escrow systems and vetted transaction platforms. Building this infrastructure in parallel to political negotiations will ensure Syria is ready to engage the moment relief legally commences.
Finally, monitoring of progress in achieving sanctions relief, along with accountability by all parties, are necessary to sustain momentum and credibility. Key performance indicators should be developed to track Syria’s compliance with agreed political benchmarks and to make success definable and quantifiable. An economic recovery committee should be convened to track progress, assist if requested, and course correct as necessary.
The prospect of re-engagement and relief holds such promise for Syria and for the credibility of U.S. sanctions policy writ large. Follow up, attention to detail, and hard work are now needed to build a better future for all Syrians and ultimately provide conditions that will bolster U.S. and European national security, not the least for its broad array of assets and interests in the Middle East.
