Sanctions & the Price of Coercion: When Economic Statecraft Turns Deadly

We often talk about sanctions as if they’re the civilised alternative to armed conflict. A diplomatic middle ground. Less blood, more brains. But this framing no longer holds. Not when the very tools designed to contain violence are, in practice, helping it along.

In a recent piece for the Financial Times, economist Francisco Rodríguez outlines the unvarnished reality. Take Amir Hossein Naroi, a ten-year-old Iranian boy who died from thalassaemia after US sanctions blocked access to life-saving medicine. Or the Venezuelan aid groups stripped of their banking channels after oil sanctions kicked in. Or the Syrian earthquake victims left waiting as banks refused to process donations, fearing they might inadvertently violate compliance rules.

These aren’t unfortunate side effects. They are systemic. Legal exemptions for humanitarian aid exist on paper, but in practice, banks won’t touch these transactions. Fear of penalties, not malice, drives their refusal. The end result is the same: critical aid doesn’t arrive. And people die.

Rodríguez and colleagues have now quantified this toll. According to their research in The Lancet Global Health, economic sanctions contribute to over half a million excess deaths each year, with a marked rise in child mortality. That’s not hyperbole. That’s the data, drawn from more than 150 countries. Sanctions are increasingly producing human casualties on par with conventional warfare. And that demands a serious rethink.

The Myth of Political Leverage

Sanctions are supposed to create leverage. Pressure the people, fracture the elites, and ultimately topple rogue regimes. But let’s be honest: this rarely happens. Iran, Venezuela, North Korea, Syria are all still firmly under the same leadership. In many cases, authoritarian rulers have used sanctions to galvanise support, redirect blame, and double down on repression.

Even so-called ‘smart sanctions’ which target central banks or state-owned enterprises, often operate like blanket embargoes. These institutions don’t just hold government funds; they keep national economies ticking. Block them and you interrupt fuel imports, food shipments, and medical supply chains. The theory of precision evaporates in practice.

And as for those humanitarian carve-outs? Toothless. Exemptions are no match for a compliance culture gripped by fear.

The De-risking Dilemma

Here’s where the financial sector enters the picture, and it’s not a comfortable place to be. Banks are expected to enforce sanctions with accuracy and nuance. But they’re given neither the legal certainty nor regulatory cover to do so. When the penalties for getting it wrong are massive and the rewards for good-faith effort are minimal, most institutions take the logical route: de-risk entirely.

This de-risking leads to the closure of correspondent banking relationships, the freezing of legitimate humanitarian transfers, and in some cases, the near-total exclusion of entire populations from the global financial system. It’s not over-compliance. It’s self-preservation.

FATF has tried to mitigate the problem. Recommendation 8 urges governments not to let counter-terrorism measures undermine Non-Profit Oganisations (NPOs). Recommendation 1 advocates a risk-based, proportionate approach. But here’s the rub: these principles are aspirational. In practice, humanitarian organisations still face the same barriers.

Policy says ‘apply discretion’. Enforcement says ‘don’t take the risk’.

From Guidance to Guarantee: Recasting FATF Principles into Legal Safe Harbours

FATF’s Recommendation 1 already requires that countries, financial institutions, and Designated Non-Financial Businesses and Professions DNFBPs) apply proportionate, risk-based measures, allowing simplified approaches where risks are demonstrably low. Recommendation 8 goes further, demanding that measures to protect NPOs from terrorist financing abuse be focused, proportionate, and risk-based, and not unduly disrupt or discourage legitimate activity.

The problem is that these are principles, not shields. They can be cited as justification, but they don’t insulate a bank from the consequences if a regulator later disagrees. In the current enforcement climate, 'apply discretion' is an instruction written in disappearing ink when the penalty for misjudgement runs into hundreds of millions.

Reinterpreting these recommendations into binding safe harbour provisions would give them teeth. Imagine domestic law stating:

Where a financial institution has applied documented, proportionate, and risk-based measures, consistent with national risk assessments and FATF Recommendations 1 and 8, it shall not be subject to sanction for processing a transaction later found to involve a designated party, provided the breach was not knowing or reckless.

This would hardwire two critical protections. First, that good-faith, well-documented compliance decisions aren’t punished simply because residual risk materialised. Second, that humanitarian flows under Recommendation 8 have a legally defined route through the system; one that compliance officers can follow without the sword of Damocles overhead.

Regulators could still hold banks to account, but through evidence of process rather than hindsight on outcomes. Safe harbour claims could be audited post-event to confirm that FATF-aligned methodology was followed.

In sanctions enforcement, this would mean that a bank facilitating a transfer to an earthquake relief agency in Syria, after enhanced due diligence, verification of the NPO’s legitimacy, and documented alignment with risk assessments, would be protected if a link to a sanctioned individual emerged later. The law would acknowledge that in a risk-based regime, zero risk is impossible, and that preventing humanitarian paralysis is as much a compliance objective as blocking terrorist finance.

Without legal reinforcement, FATF’s carve-outs remain polite suggestions, overridden by enforcement incentives that reward avoidance over access. Safe harbour provisions would invert that logic rewarding robust, documented decision-making, and letting sanctions policy hit its intended targets without strangling those trying to keep people alive.

When Compliance Costs Lives

This isn’t theoretical. It’s real, and it’s brutal. Children denied basic medicine. Chronic illnesses untreated. Disaster responses delayed or derailed. These are not edge cases. They are baked into the current system.

If financial crime compliance is to have moral legitimacy, it must confront this reality. It's not enough to say “we followed the rules” if the rules, or their interpretation, routinely result in avoidable death. The sector needs more than guidance. It needs protection. Clear legal channels. Enforceable safe harbours. Real-world support for making judgement calls under pressure.

Time for a Sanctions Reset

None of this is an argument to scrap sanctions entirely. When applied narrowly to individuals or entities involved in human rights abuses, terrorism, or war crimes, sanctions can serve a purpose. But we must start applying human impact assessments with the same rigour as financial risk assessments. And we must re-anchor these measures in a coherent theory of change. If there’s no viable path from sanction to outcome, why impose it?

This isn’t just about policy. It’s about ethics. Sanctions are not benign by default. Their harm is now well documented, their failures well known. The question is no longer whether sanctions kill. It’s whether we care enough to do something about it.

Financial institutions, regulators, and policymakers alike have a responsibility to act. That means recalibrating enforcement environments, supporting proportional risk decisions, and ensuring humanitarian channels remain open even when politics runs hot.

Because if the price of geopolitical posturing is measured in human lives, then we haven’t found a better alternative to war. We’ve just found a slower, quieter version of it.