With Julian Assange currently detained, his legacy and that of Wikileaks is still being realized. In a cable released on December 1, 2010 as part of the Wikileaks Cablegate controversy, U.S. officials stated that Russia was not swayed to curb their exportation of arms in the face of threats that the U.S. may impose economic sanctions on their former Cold War adversary.

According to the cable, which dates from 2007, Foreign Minister Lavrov’s was disinterested in establishing dialogue on arms sales and Russian officials generally were deeply cynical about U.S. motives in curtailing Russian arms exports to countries of concern. More telling, however, was the cable’s suggestion that, “the threatened imposition of U.S. sanctions has not proven successful so far in modifying Russian behavior.” U.S. officials stated that Russia attaches importance to the volume of the arms export trade for various reasons, for example, the diplomatic doors that such exports open, as well as, the leverage it provides the Russian government in countering American interests. In sum, Russian officials would reject extraterritorial application of American sanctions, suggesting that Russia, a major state player, does not fear the repercussions that such sanctions would have.

Russia is ranked second only to the United States in arms sales to the developing world. Russian arms totaled approximately $ 6.7 billion USD in 2006, which constituted a 12 percent increase over 2005, and a 56 percent increase since 2003. In 2007, it was believed that Russian arms sales would reach $ 8 billion. A large percentage of those sales are to countries which the United States alleges are engaged in behavior detrimental to U.S. interests. Although no sales were reported in 2006 to Iran, Syria, or Sudan, in 2007, Iran reportedly did pay Russia $ 700 million USD for TOR-M1 air defense missile systems. However, the thinking is that since the U.S. and its NATO allies do not trade with Iran, Syria, or Sudan, that those locations are prime markets for Russian arms exports due to a lack of competition.

However, the Russians are not just selling arms to anyone who has the money to buy them; they do consider the impact arms sales will have on the stability of the region where they are being sold to, as well as, the likelihood that those arms could fall into the hands of terrorists. This has lead Russia to install a defacto embargo on weapons transfers to Iraq, due to leakages to Iraqi insurgents and Al-Qaida; to a hands-off policy towards Pakistan, which is believed to be the biggest threat to stability in that region; and to a moratorium on “offensive” systems to Iran and Syria.

A major factor driving the Russian arms export policy is that exports to Syria and Iran are part of a broader strategy of distinguishing Russian policy from that of the United States, and strengthening Russian influence on an international level. With respect to Syria, Russian experts believe that the current regime is better than the perceived alternative of instability or an Islamist government, and argue against a U.S. policy of isolation. Likewise, arms sales to Iran are part of a deeper relationship between the two countries that provides Russian officials with a bargaining chip, both with the Ahmedinejad regime and its P5+1 partners.

What all this amounts to is that Russia had and still has serious incentives to continue its arms export policy. While U.S. sanctions have had a crippling effect on individuals, companies, and smaller states (Iran, Cuba, etc.), in 2007 Russia seemed to be unconcerned with the imposition of U.S. sanctions against them. This begs the question: what effect would U.S. sanctions have against a major country, for example, China or Russia? Would the rest of the world really cease to do businesses with these two global powerhouses, because of feared U.S. reprisal? Or would U.S. efforts to isolate a major state player like Russia create a backlash against the U.S., with markets gravitating towards Russia as opposed to the U.S.?

I think its a real possibility that by trying to isolate other through economic sanctions, that the U.S. could be isolating themselves. I have met with numerous individuals, who are U.S. persons, engaged in business with Iran (all pursuant to specific license). Their stance was that it was becoming so difficult to conduct business with Iran that they were seeking to renounce their U.S. citizenship. One individual told me directly, “What are my options? I can thrive in Iran and support my family or I can stand in the unemployment line in the U.S.” His point was that the U.S. sanctions were limiting his readily available opportunities to make a living. If you look at such a philosophy on a macro level, how many U.S. persons would lose money and business if U.S. sanctions against Russia were imposed? Or better yet, how many U.S. persons would stand to lose money and business in such a scenario? The answer is quite a few more than are now losing money and business as a result of the U.S. sanctions against Iran. Would they be willing to make the same sacrifice that the individual described above would? I’m willing to bet they would. As such, it seems that the U.S. might be limited in who they can effectively impose sanctions against. It works against the smaller countries in the world, but imposing against a larger target might have negative consequences for the U.S. in the long term.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC litigation. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.