Enforcing Economic Sanctions by Tarnishing Corporate Reputations

What strategies work best for enforcing sanctions? Sanctions enforcement agencies like the United States’ Office of Foreign Assets Control (OFAC) face both resource limitations and political constraints in punishing domestic firms for violating sanctions. Beyond monetary fines, sanctions enforcement actions also serve a “naming and shaming” function that tarnishes violators’ reputations. Larger, higher-profile companies tend have much more at stake in terms of their reputations than smaller or less-well known firms. At the same time, punishing higher profile companies for sanctions violations is likely to generate more publicity about the risks and potential consequences of not complying with sanctions. We theorize that OFAC should impose larger fines against high-profile companies to draw attention to those cases, make the enforcement actions more memorable, and enhance the reputational costs they also inflict. We test our theory via a statistical analysis of OFAC enforcement actions from 2010-2021 and find support for our theory.