How to Make Targeted Sanctions Work

Targeted financial sanctions are among the few impactful tools available to democratic governments for holding authoritarian regimes accountable for their abuses. By blocking access to markets and financial services, sanctions constrain the ability of kleptocratic elites to insulate themselves from the international consequences of their domestic repression. They have produced tangible results—such as the release of political prisoners in Belarus, where the threat of sustained financial isolation altered the cost-benefit calculations of President Alyaksandr Lukashenka’s repressive regime.

Freedom House has a long history of working toward effective implementation of this important and powerful foreign policy tool. We made key contributions to the passage of the Russia Magnitsky Act and the Global Magnitsky Act, and analyzed how improved sanctions against the Iranian regime could weaken its ability to suppress democratic actors and increase incentives to make diplomatic concessions. We continue supporting our partners in building sanctions submissions, and briefing policymakers on sanctions implementation to combat abuses ranging from violations of religious freedom to transnational repression. Across this work, one pattern has been consistent: sanctions are only as good as their enforcement.

Sanctions evasion in practice

Authoritarian governments have developed sophisticated architectures for circumventing sanctions, including layered shell companies, correspondent banking relationships routed through third-country financial systems, and the removal of beneficiary owners from public registries, muddying any attempts at tracing. That these governments go to such lengths to evade sanctions indicates their possible impact if duly enforced.

The financial channels used by kleptocrats and oligarchs to move assets and buy luxury goods are also the same channels used to procure dual-use components—goods and technologies that have civilian, but also military, purposes. This means that gaps in sanctions enforcement raise national security concerns. A recent investigation by investigative outlet The Insider identified more than 300 companies making purchases from democratic states on behalf of Russia’s military-industrial complex. The companies, the outlet found, are part of a broader network in which roughly 10,000 firms imported more than $22 billion in sanctioned goods in 2024.

A report by iStories, another investigative outlet, found that in 2023 roughly $5 billion worth of sanctioned goods from the European Union disappeared during transit through Russia while en route to buyers in Central Asia and the Caucasus. The goods, according to iStories, were addressed to intermediary companies in third countries such as China that re-register cargo to obscure its true destination. By exploiting loopholes in sanctions regimes, Russian military procurement networks are able to obtain dual-use technologies and components that replenish stocks of precision weapons, enabling ongoing weapons production and continued attacks on civilian infrastructure in Ukraine.

Tools such as RuPEP, a network-based open-source database mapping beneficial ownership across tens of thousands of individuals and legal entities, have made it possible to trace these connections and generate concrete enforcement outcomes. However, there is often a delay between what open-source researchers and journalists uncover and how quickly financial institutions integrate new information and enforcement parameters into their procedures.

Financial institutions have also responded to complex sanctions regimes by working to further narrow their exposure to clients and jurisdictions they perceive to carry elevated risk. Many have defaulted to blanket derisking: terminating relationships with entire categories of clients based on broad criteria like country of origin. Whether this approach meaningfully constrains sanctioned actors is unclear, given that these generally wealthy or powerful individuals tend to have both access to capital and the ability to move easily across jurisdictions. Meanwhile, human rights defenders, independent journalists, and civil society organizations from heavily sanctioned countries frequently cannot open accounts, receive international transfers, monetize content, or maintain basic operations. Derisking as currently practiced places the greatest burden on those whom sanctions are intended to support, while sanctioned actors are better positioned to navigate or circumvent restrictions.

What needs to change

The effort authoritarian governments like the Chinese and Russian regimes take to evade targeted sanctions reflects the degree to which the sanctions would otherwise inflict significant costs. Addressing sanctions evasion requires changes in how governments and financial institutions share and act on new information and research. In order to increase efficacy and improve enforcement, Freedom House offers the following recommendations for financial institutions, regulators, governments, and multilateral bodies:

1. Shorten the feedback loop between investigations and enforcement. Financial institutions should build processes to incorporate new information into risk assessments and transaction monitoring as it emerges, rather than waiting for formal sanctions designations. Reducing the delay between discovery and application would increase the cost of evasion and limit the ability of networks to reconstitute under new entities.

2. Move beyond list-based screening toward network mapping. Compliance remains dependent on screening against static lists of names and entities, but evasion networks are constantly evolving. Regulators should require and support the use of tools that go beyond list-based screening, including identifying who ultimately owns or controls a company, mapping relationships between entities, and recognizing patterns of activity that point to sanctioned actors operating through affiliated firms.

3. Address blanket derisking to protect human rights defenders. Financial institutions have often responded to sanctions risk by eliminating entire categories of clients based on geography or perceived exposure. Regulators should provide clearer guidance that enables institutions to distinguish between prohibited and permissible activity, and financial institutions should adopt more targeted, risk-based approaches that allow legitimate actors to maintain access to the financial system.

4. Improve cross-jurisdictional coordination, data standardization, and cooperation. Sanctions enforcement is weakened when jurisdictions apply different standards for identifiers (such as birth dates), transliteration, and beneficial ownership. Governments and multilateral coordination platforms like the Financial Action Task Force (FATF) and the G7 Enforcement Coordination Mechanism should align data standards and strengthen information sharing across financial intelligence units and regulatory agencies. Greater consistency in how data is collected and shared would reduce gaps that evasion networks exploit when moving assets across borders.

5. Recognize the importance of civil society as a source for sanctions intelligence. Investigative journalists and civil society researchers have developed the capacity to trace ownership structures and document evasion pathways across jurisdictions. Governments should establish structured mechanisms to intake credible open-source reporting and civil society submissions. Financial institutions should treat credible investigative findings as relevant inputs into due diligence and risk assessment processes, particularly where those findings identify intermediary entities not yet reflected in sanctions lists.

6. Treat sanctions enforcement as a national security priority. Evasion networks support military procurement and access to restricted technologies that sustain adversary weapons production and development, enable operations against US and allied interests, undercut the United States’ strategic advantage, and undermine national security goals. Governments should resource enforcement accordingly and strengthen coordination across agencies, as is the case for other national security issues.