TIOL - COB( WEB) - 947
NOVEMBER 21, 2024

By Shailendra Kumar, Founder Editor

PICKING up the thread from the last week column, today, I intend to parse into the world of sanctions and exports control orders, cementing their positions as the lynchpin of the US foreign policy and how their spill-over effects result in an enormously lucrative new lobbying industry in Washington. A sort of magic pudding! What has given a zinger of shot to the fire-power of US foreign policy instruments is the new addition of exports control over American technology. When the geopolitical rivalry between the US and China intensified, the creative minds in the White House needed a new weapon beyond the conventional economic sanctions which are generally used against the proverbial 'bad guy', and that came in the form of Foreign Direct Product Rule (FDPR). Under this rule, America now weaponises the ubiquity of the US technology. As per this rule, restrictions are imposed not only on the American technology companies supplying semiconductors but also on exports undertaken by its allies like Japan and the Netherlands which manufacture chip-making equipment. It has indeed become the tip of the American foreign policy spear!

It was efficaciously used against the Chinese company Huawei which was cut off from the global supply chain of chips. The leading Taiwanese semiconductor company TSMC stopped doing business with it. Having tasted cloying success of this rule-machine, the US is now mulling over proposals to extend it to advanced electric batteries and bio-manufacturing sectors like the drugs and other components. This is in addition to some financial sanctions which weaponise the US dollar to fireball targets from using it. As per some study, the annual data of sanctions which sparsely used to be in hundreds two decades back, has swollen to more than 3000 in the past two years - a quantum leap! And, with geopolitical biles popping up in many parts of the geography, it would be preposterous to expect any let up in its rising curve in the near future! And this is without taking Mr Donald Trump's return to the reckoning! The soaring number of different variants of sanctions and export control over technology has created a very specialised domain of lobbying by the former members of the Congress, former FBI top honchos, and retired officials of the treasury and the Office of Foreign Assets Control. As per varied data, the highest number of sanctions has been imposed against Iran - about 2000; followed by Syria, Ukraine, North Korea, Russia, Venezuela, China and Cuba.

As per some guesstimates, though the lobbying industry's annual turnover has gone beyond USD 35 billion in Washington but a major slice is claimed by the firms specialising in lobbying to either get sanctions imposed or to get them revoked or partially amended. Yup! Lobbying is a legal activity in the US, and lobbying firms are required to register and report their activities to the federal agency. Though their numbers in the official register are less than 20,000 but industry insiders vouch that over 100,000 are in the billion-dollar race! Interestingly, all the three facets of lobbying are equally profitable but what has turned out to be more savoury is the one relating to withdrawal of sanctions. Before I talk about this aspect, let me first elaborate the one which a large number of MNCs use to tamp down the market share of their global competitors. And they spend huge sums on such lobbying. Depending on the market conditions and the prevailing geopolitical temperature, different domestic sectors top the tally at different points of time. For instance, energy and natural resources and communications and electronics have been seen to be more aggressive in bankrolling assignments to get their global competitors sanctioned.

A domestic fertiliser company Intrepid Potash had reportedly hired a former Senator to get sanctions imposed against Belarus President, an acolyte of Russian President Putin. And he was accused of human rights abuses. Since the real intent of representations was successfully deciphered by the officials, no action was immediately initiated. But after a year of successful lobbying and siloed data, an opportunity popped up when the Belarusian President ordered a crackdown on civilian protesters and the US felt geopolitically nudged to resort to its sanctions-bazooka. And the Belarusian potash firms were sanctioned in 2021 on the ground that they generated revenue for the repressive regime. This predictably ratcheted up the global prices to a 13-year high. Reportedly, the American potash firm paid over USD 1.5 mn to the law firm for getting the job done! The same law firm had represented a Chinese technology firm which had pleaded guilty of infraction of sanctions. The Chinese firm had reportedly paid over USD 6 million to the firm. After the Russian invasion of Ukraine, a leading aluminium manufacturer in the US bankrolled lobbyists to influence the White House to impose sanctions and it was finally done. With the US-China rivalry gathering intense fury, a large number of Western MNCs have been spending oodles of money on lobbying to eject Chinese firms out of Western markets. It indeed makes a good business logic! As per some estimates, the American domestic firms have spent over USD one billion in 2022 on lobbyists.

Let's go back to the most lucrative segment which yields whooping profits. Getting sanctions eased or withdrawn has become a major rubric of business in Washington. When the US sanctioned the Chinese surveillance firm, Hikvision, over alleged role in aiding Beijing, it hired a former Senator and a law firm and spent over USD 3.5 million on lobbying. Similarly, a Russian bank, Gazprom bank, also spent millions on a former Senator to ease sanctions which were imposed in 2014 after Russia had annexed Crimea. Since the US has increasingly been applying sanctions to dethrone dictators and satanic individuals in the Global South, it had sanctioned the Sudanese government of Omar al-Bashir, who later hired a Washington-based lobbying firm and remunerated it handsomely. Sanctions were finally rescinded after America's diplomatic relations improved with Sudan. Several Lebanese entities, including some banks, were imposed sanctions for allegedly working in connivance with Hezbollah, a terror outfit, funded by Iran. To get sanctions eased, the Lebanese banking association spent generously on lobbying in Washington.

With the number of sanctions imposed surging with each passing day, lobbying has become a multi-billion dollar industry in Washington. And law firms have been roping in all sorts of highly influential former officials and Senators to do the job. Though the lobbyists have a point that their representations help in doing justice if a particular firm has wrongly been sanctioned but allegations have also been flying thick about corruption. To stem the rot, the White House was earlier thinking of extending the cooling off period for the retired officials so that the alleged nexus could be broken. What is of greater import here is that though the moneyed entities may hire lobbyists, a large number of small entities from the Global South cannot afford such luxury. To aid them, the Global South countries like India need to construct a formal apparatus either under the SCO which recently voiced against the intensifying culture of sanctions by the West or even the BRICS to collectively hire a lobbying firm to get relief for wrongly sanctioned MSMEs whose business gets cripplingly impaired by such sanctions. Sanctions may be good for a few thousand law firms in Washington but they are largely seen as unfair arm-twisting of vulnerable Global South companies by the West. And it is often done on geopolitical grounds. One good example is the UAE which is largely seen as a hot market for money-laundering by global arms dealers, gold smuggling syndicates and the Russian oligarchs but the US has never sanctioned it as UAE is an important ally for Washington in the Middle East and has also offered an air base for the American forces in the hostile region. Notwithstanding such geopolitical advantages, the UAE is reported to have spent close to USD 200 million on lobbying between 2015 to 2023! Sacré bleu! The undercurrents of global geopolitics are warming up against unilateral sanctions and the days are hopefully numbered for this most coveted foreign policy instrument of the Western countries! Amen!