Trump Sanctions 2.0 will present new challenges, more confusion

Sanctions is not a level playing field. The only global, extra-territorial enforcer of any note is the United States – which can penalise heavily, exclude jurisdictions, market participants from the US dollar market – based on mere allegations of sanctions violations.

US – “007” of sanctions… – Expect more US enforcement under Trump

Unlike any other jurisdiction globally, the range of offence types covered under the US sanctions playbook incorporates all illicit activities, from illicit finance, to narcotics, to human rights and election interference offences. This power extends to secondary sanction on third country offenders. All of these powers will be ramped up under a Trump Administration. Biden eased off somewhat on targeting Iran oil & gas trade – this will be reversed under Trump with many non-US market participants caught in the sanctions crossfire. We can expect EU, G7, India, China, Russia, GCC, Singapore, Malaysia, Brazil, the usual US jurisdictional sanctions targets and the many registration venues for vessels and ship management entities to be targeted also. With the threat of tariffs, Trump holds a great deal of potential power in terms of international trade.

EU – “Winnie the Pooh & Eeyore” of sanctions… – EU27 do not have to enforce EU sanctions

As an example of how weak other sanctions regimes are: the EU cannot insist that its own EU27 Member States enforce its own agreed EU sanctions. In the case of G7/EU oil price sanctions on Russia, we have seen numerous occasions where sanctions have been ignored by the EU27. In terms of third country trade to Russia via Central Asia, EU27 and G7 countries have been complicit in undermining the supposed pressure on Russia Furthermore, the EU refuses point blank to carry out third country or secondary sanctions. The UK has not succeeded with a single conviction under its SAMLA 2018 legislation – which targets sanctions and money laundering offences. However, it should be noted that in recent years US OFAC and UK OFSI have developed a highly effective information sharing collaboration. (Increasingly, this is the case with EU27 countries.) Therefore, the US can always act on information provided by the UK, even if the UK is unable to do so. This is a powerful deterrent for would-be UK sanctions evaders – particularly as Tony Blair’s 2003 Extradition Act allows for extradition of parties from the UK for a wide range of suspected offences.

More global confusion means more US enforcement under Trump

The sanctions picture will change under the Republican (sanctions) playbook. Just as Biden repeated the Democrat playbook so well-worn under Obama – Trump will do exactly the same. This means – as usual with US (foreign) policy – some fundamental similarities amidst glaring contradictions. This is what makes this (sanctions & illicit finance) policy such a grey area – and so difficult for non-experts to read correctly. Simply put, global trade faces a whole new set of challenges. This is likely to be as confusing as the post Obama and Iran Nuclear Deal moment was when Trump took over in 2017. Multiple major non-US fines and penalties can be expected as a result as non-US firms get caught in the extra-territorial crossfire of US enforcement power.

Jan 2025 Iran-Russia trade deal spells trouble for Iran, Russia and their trade partners…

The recent Iran-Russia trade deal means that Russia will be on the receiving end of US sanctions whether Trump relaxes pressure on Russia or not. This is because the secondary sanctions enforcement that Biden somewhat moved away from has always been part of the US, and certainly Republican, sanctions playbook. The Democrats more “lenient” sanctions stance on Iran has always been in stark contrast to the Republicans. For example, Biden could have targeted Iran far more in terms of oil & gas sales than he did. Democrat reluctance to enforce Iran has led to them acquiring 80%+ uranium enrichment – close to nuclear weapon capability.

Trump Presidency is very bad news for Iran and its trade partners

A Trump Presidency is very bad news for Iran. Russia, UAE and Turkey plus other GCC or MidEast, EU, Latam, Asia colluding with Iran will face trouble. This means issues for companies operating out of third countries like the UAE, India, Singapore and Hong Kong – based on US sanctions targeting of late. More worryingly, this has been under a Biden Administration seemingly reluctant to use the full extra-territorial power of US sanctions – at least relative to the Republican playbook. A Republican Administration under Trump will ramp up pressure – there is already predictable talk of another round of “maximum pressure” on Iran. The last time this happened, the knock-on effects were devastating on the Iranian economy.

End to Ukraine, Gaza, conflicts under Trump?

Under Biden, there were a far greater number of conflicts than under the previous Trump Administration and, geopolitically, the status quo was fragile, to say the least. Trump’s team have already signalled a willingness to end the Gaza and Ukraine conflicts. New Treasury Secretary Scott Bessent has already indicated that sanctions could be used as a negotiating tool in any discussions to end the Ukraine conflict, for example. The new Trump team contains a number of key differences in terms of policy to the Biden Administration. US Secretary of State Rubio is a known hawk on Cuba and Venezuela. There has even been talk of closing US oil major Chevron’s OFAC General Licenses in Venezuela which are, ironically, funding the Maduro regime. Trump has selected Mike Waltz to serve as national security adviser. Waltz is a former Green Beret and active colonel in the U.S. Army National Guard who served multiple tours in Afghanistan. In terms of sanctions and foreign policy, Waltz is known as a foreign policy hawk on China and Iran which will have further sanctions implications for the Trump Administration in terms of priorities.

G7/EU oil price caps – Will they continue under Trump?

The G7 oil price cap measures targeting the export of Russia’s oil & gas have been very lacklustre in terms of impact. This is for the simple reason that the only jurisdiction with the ability to enforce such sanctions is the US. Time and again EU sanctions have been thwarted by EU27 (who are under no central enforcement power by the EU Commission) who have elected only to follow sanctions when it suits them. This has led to major breaches and EU Member State support to Russia’s “Shadow Fleeet” by EU Med countries in particular. Moreover, the EU remains the largest importer of non-sanctioned Russian LNG and is still one of the top 5 importers of Russia’s oil & gas after, at the time of writing, 15 EU sanctions packages on Russia amid the Ukraine conflict.

The G7 price caps have been set far too high – under pressure from seriously compromised EU27 Member States like Greece and other pro-Russia elements like Hungary. So seeking any practical, unified sanctions solutions to the Russia predicament has been, and will undoubtedly prove to be, extremely hard to achieve. It is unlikely that the Trump Administration will be happy with the outcome of G7 measures, and we may see a very different approach – with Trump likely to distance himself from EU efforts. Should Trump go ahead as indicated and manage to end the conflict with Ukraine, the G7 oil price caps would be rendered redundant anyway.

US tariffs on China and EU will happen

China and EU trade tariffs are going to happen. But how worried should one be about Trump’s tariff impact on China? China is far and away the second largest economy in the world and is, along with the US, an economic behemoth in global terms. Any hysteria regarding the US, US Dollar and China needs to be taken with a heavy dose of salt, therefore. US-China trade is huge (Apple et al) at a comfortable $500BN or so per year – the size of competitive, smaller developed EU27 Member States’ entire annual nominal GDP – or economic output.

US & China – Too big to fail..? US Dollar still reigns supreme…

US and China combined represent $29.3TRN plus $17.3TRN nominal GDP¹ respectively – so in global GDP terms where the next largest national economy is Japan at $4.5TRN – US and China are too big to fail. IMF data up to end-2023 indicates that the US Dollar still represents around 60% of all forex foreign currency reserves (versus Euro: 20%) – consistently over the past decade. The US dollar comprises close to 90% of 200% of pair currency (100% + 100%) trades (vs Euro: 31%) (Source: www.quantitativestrategies.com), and is the dominant global commodities currency and transactional currency of choice for everything from legitimate to criminal trade. The Euro does not come close. Crucially, these numbers have barely moved in the past 5 years or so since I wrote “CROSS-BORDER SANCTIONS & AML” in October 2019. In sanctions terms, with the US able to leverage its US Dollar access via Section 311 (USA PATRIOT ACT) US Dollar market exclusions applicable to entire jurisdictions, entities and transaction types, US Dollar hegemony is a major bargaining tool for the US Government. Particularly one willing to impose tariffs, such as the Trump Administration.

Will Trump continue the US attack on Crypto?

The SEC has been waging a war on digital under Biden – but this may not change as much as expected. Outgoing SEC Head Gensler was a clear Democrat pick, but many crypto platforms have been used to funnel illicit finance and sanctions busting schemes into the wrong hands from a US perspective. It is clear that Gensler has deliberately appointed 3 of the top SEC anti-crypto lawyers to continue in his stead after Trump takes over on January 20, 2025.

Binance – 2023 $4.3BN US fine…

It is widely held that Gensler’s anti-crypto crusade was over the top, but there has been a huge amount of inexperience and, frankly, naivety amongst many market participants seemingly oblivious to the strict regulatory controls placed on multi-million/billion US dollar plays in developed capital markets. Crypto probes focusing on these areas will undoubtedly continue – the sort that led to the huge November 2023 $4.3BN Binance fine – a massive US statement for a first-ever major fine in the industry. Crypto will clearly be under less attack under Trump.

US/UK Trade Deal under Trump versus EU/UK closer relations?

The UK’s trade surplus with the US ($20.8BN in 2022²) is in stark contrast to its trade deficit with the EU (£110BN in 2023³). The most obvious trade deal for the UK to strike post 2016 Brexit would have been with the US. In the past 16 years, whilst the EU economy has stagnated somewhat, the US economy has doubled in size. Although new UK PM Starmer may feel politically closer to the EU, he risks falling foul of US tariffs should he continue to provoke the Trump Administration. UK may get a tariff exemption as Farage wants to stick it to the UK’s new Labour and outgoing Conservative government – and get the credit. It would also force pro EU Remain Starmer into a more Brexit position. With Germany at sixes and sevens in economic terms, this would divide and conquer the UK from the EU, and allow Trump (and Farage) to “get Brexit done” via the back door. Elon Musk has already intervened in the Grooming/Rape Gangs scandal – forcing debate of a National Inquiry that Starmer initially tried to quash. Successive recent majority UK Governments under Truss, Sunak and now Starmer have failed to move along their legislative plans amid a distinct lack of electoral support and concerns about dire poll ratings.

UK’s Starmer Labour Government is very anti-Trump – this does not bode well…

The much-derided (by Left and Right) Starmer government looks in trouble. Allying with France and the wider EU on foreign policy will not endear Starmer to the Trump Administration. That said, there may be an attempt from the White House to “get Brexit done” via the back door and lighter UK tariffs. Security and foreign policy (particularly sanctions) should be pretty aligned from a US/UK perspective – one wonders how the Chagos Islands initiative will fare now that the Mauritius government incumbent when the £9BN UK giveaway deal was first floated was unceremoniously voted out of office in November 2024. The deal has already been described as “calamitous” by one Trump aide. Lammy and Starmer have been forced to wait for Trump’s final decision before moving forward. The new Mauritius government is not particularly interested in the £9 billion giveaway by the UK and is asking for far more. Under a Trump Administration, Reform UK’s Farage hovers – ready to extract political capital at every opportunity. Meanwhile, almost every front bench Labour Minister has been quoted as critical of Trump. From a sanctions perspective, however, US OFAC and UK OFSI have a strong working relationship with a strong information sharing culture which will simply add to US sanctions power under Trump.

EU27 likely to be targeted for secondary sanctions under Trump – US/EU relations…?

The EU27 and 23 country Eurozone look vulnerable to being targeted by the Trump Administration – many despair at the single currency construct absent fiscal union – and further tariff-laden attacks on the already (relatively) stagnant EU set of economies – particularly the largest – will not be welcome. Germany, France and Italy look like bearing the brunt of such US protectionist actions down the line. Already heavily criticised for their lack of budgetary contribution to NATO, it would not be a surprise to see EU27 countries, EU27-based entities and individuals targeted for US secondary sanctions under Trump far more so than under Biden, particularly if they continue to trade indirectly with US sanctions target countries via third countries (as we have seen with EU27 Russia trade via Central Asia). As US-EU sanctions information exchange increases, we are likely to see even more EU27 entities targeted – although the EU will not be happy about any increased adoption of US secondary sanctions under Trump – a practice which it does not adopt.

Conclusion: Expect more global confusion, more non-US penalties under Trump

We will undoubtedly see a repeat of the Obama-Trump handover in 2017, which caused all manner of confusion for non-US market participants not used to the severity and scope of the US sanctions enforcement regime. There is a very real danger that market participants in target jurisdictions will under-estimate the scope and reach of US extra-territorial sanctions, and inevitable penalties will result. The major difficulty lies in the fact that the US is able to act extra-territorially and on the basis of alleged sanctions violations. To the vast majority of jurisdictions, these two elements go against the very essence of public international law and basic, actionable burden of proof. As a result, market participants operating from a non-US perspective will need to ramp up their readiness for a more global approach to (US) sanctions threats. The divergence from Democrat to Republican Administrations in terms of sanctions policy is arguably the most challenging moment from a non-US perspective, with confusion and heavy penalties sadly the most common theme.

$1 Trillion-plus US fines on US and non-US companies since 2000

Since 2000, the scope of the US enforcement regime has been staggering – with over $1 trillion in fines levied on US and non-US entities (Source: GOODJOBSFIRST Violations Tracker). The reason for the eye-watering fines is simple: US companies are the biggest and its capital markets are currently way larger than anything else in the world.

US fines are huge – US companies’ market cap equivalent to half of world GDP…

So the penalties are proportionately higher than anywhere else in the world. World Bank data indicated in June 2024 that US companies were worth a staggering $54 trillion in market cap (this is conservative, as US markets have risen since then), over 4 times larger than the next largest China at a huge $12 trillion (Source: CEIC). The US number is roughly equivalent to half of global nominal GDP – or economic output – a colossal figure.

In sanctions terms, “America First” carries a simple but chilling message.