The Question of Sanctions: South Africa and Palestine

David Swanson

Sanctions against apartheid South Africa are, in the opinion of the writer, the only instance when sanctions have achieved their objective. They were also driven by civil society rather than by governments.

By contrast, US sanctions since the 1950s against Cuba, Iraq, Iran, Venezuela, Zimbabwe, North Korea and numerous other countries have proved dismal failures. Even worse, they have inflicted unjustifiable misery upon the very people they were purportedly intended to assist.

The former US Secretary of State Madeleine Albright remains infamous for her notorious comment on television that the deaths of five hundred thousand Iraqi children was a price worth paying in pursuit of US sanctions against the Iraqi government and Saddam Hussein. The cost of reconstruction for the devastation inflicted on Iraq since 2003 is estimated at US$100 billion.

At question is whether US government sanctions are actually intended to achieve any objective, or are merely “feel-good” gestures intended to satisfy a domestic political audience? So-called “smart sanctions” — freezing assets and imposing travel bans on foreign government officials — have also proved completely ineffective.

South Africa’s Experience: Sports boycotts and fruit boycotts against apartheid South Africa over a twenty-five year period from 1960 until 1985 raised awareness about human rights abuses in South Africa, but most certainly did not bring down the apartheid government. Trade boycotts are inevitably riddled through with loopholes. There are invariably businessmen who, for a discount or premium, are prepared to take the risks of flouting trade boycotts, including mandatory arms embargoes.

The consequences however, for ordinary people in the boycotted country are that wages for workers are cut (or jobs lost) to reflect the discount on exported goods or, alternatively, that prices for imported goods are inflated by the premium paid to a foreign exporter prepared to break the boycott.

In the “national interest,” banks and/or chambers of commerce are always prepared to issue fraudulent letters of credit or certificates of origin to thwart the intentions of trade sanctions. As an example, Nedbank during the Rhodesian UDI days from 1965 until 1990 provided dummy accounts and front companies for its Rhodesian subsidiary, Rhobank.

Similarly, end user certificates in respect of the arms trade are not worth-the-paper- they-are-written-on because corrupt politicians are handsomely recompensed for flouting arms embargoes. As another example, the Togolese dictator, Gnassingbe Eyadema (1967-2005) profited immensely from the “blood diamonds” for weapons trade, and his son Faure has continued in power since his father died in 2005.

The United Nations Security Council in November 1977 determined that human rights abuses in South Africa posed a threat to international peace and security, and imposed a mandatory arms embargo. At the time, the decision was hailed as a major advance in 20th century diplomacy.

Yet as an article in the Daily Maverick on apartheid profits (including the linked 19 previous installments) published on December 15, 2017 highlights, the US, British, Chinese, Israeli, French and other governments, combined with a variety of rogues, were willing to flout international law to support the apartheid government and/or to profit from illegal transactions.

Massive expenditures on armaments, including nuclear weapons — plus a premium of more than US$25 billion spent to bypass oil sanctions — by 1985 led to a financial crisis, and South Africa defaulted on its relatively low foreign debt of US$25 billion in September that year. South Africa was self-sufficient except for oil, and assumed that, as the world’s main gold producer, it was impregnable. The country was however, also on a fast track to civil war and a prospective racial bloodbath.

Television coverage around the world of civil unrest stirred international revulsion with the system of apartheid, and amongst Americans resonated with the civil rights campaign. More than two-thirds of South Africa’s debt was short-term and thus repayable within one year, hence the foreign debt crisis was a cash-flow problem rather than actual bankruptcy.

All the military equipment, including those nuclear weapons, proved useless in defending the apartheid system

In response to public pressure, Chase Manhattan Bank in July precipitated the “debt standstill” by announcing that it would not renew the US$500 million in loans that it had outstanding to South Africa. Other US banks followed, but their combined loans amounting to just over US$2 billion were alone exceeded by that of Barclays Bank, the largest creditor. A rescheduling committee, chaired by Dr Fritz Leutwiler of Switzerland, was established to reschedule the debts.

Divestment is a peculiarly American response given the role of pension funds on the New York Stock Exchange, and shareholder activism. For instance, Mobil Oil, General Motors and IBM withdrew from South Africa under pressure from American shareholders, but sold their South African subsidiaries at “fire sale prices” to Anglo-American Corporation and other companies that were prime beneficiaries of the apartheid system.

The “debt standstill” provided the South African Council of Churches and other civil society activists with an opportunity to launch the international banking sanctions campaign at the United Nations in October 1985. It was an appeal to international bankers by [then] Bishop Desmond Tutu and Dr Beyers Naude to request the banks participating in the rescheduling process that:-

“rescheduling of South Africa’s debt should be made conditional upon the resignation of the present regime, and its replacement by a government responsive to the needs of all South Africa’s people.”

As a last nonviolent initiative to avert a civil war, the appeal, was circulated through the US Congress, and became incorporated into the terms of the Comprehensive Anti-Apartheid Act. President Ronald Reagan vetoed the bill, but his veto was then overturned by the US Senate in October 1986.

Rescheduling of South Africa debt became the conduit to access to the New York inter-bank payment system, a much more critical matter because of the role of the US dollar as settlement currency in foreign exchange transactions. Without access to the seven major New York banks, South Africa would have been unable to make payment for imports or receive payment for exports.

Given Archbishop Tutu’s influence, US churches pressured New York banks to choose between the banking business of apartheid South Africa or the pension fund business of their respective denominations. When David Dinkins became Mayor of New York City, the municipality added a choice between South Africa or the City’s payroll accounts.

The objective of the international banking sanctions campaign was repeatedly declared:

The end of the state of emergency
Release of political prisoners
Unbanning of political organizations
Repeal of apartheid legislation, and
Constitutional negotiations towards a non-racial, democratic and united South Africa.

There was therefore a measurable end game, and an exit strategy. The timing was fortuitous. The Cold War was coming to a close, and the apartheid government could no longer claim the “communist threat” in its appeals to the US government. President George Bush senior succeeded Reagan in 1989 and met the church leaders in May that year, during which he declared that he was appalled by what was happening in South Africa and offered his support.

Congressional leaders were already considering legislation during 1990 to close loopholes in the C-AAA and to prohibit all South African financial transactions in the US. Because of the role of the US dollar, this would have also impacted on third-country trade with countries such as Germany or Japan. In addition, the United Nations set June 1990 as the deadline to abolish the apartheid system.

The British government under Mrs Margaret Thatcher attempted – unsuccessfully — to thwart these initiatives by announcing in October 1989 that she in conjunction with the South African Reserve Bank had extended South Africa’s foreign debt until 1993.

Following the Cape Town March for Peace in September 1989 led by Archbishop Tutu, the US Under-Secretary of State for African Affairs, Henk Cohen issued an ultimatum demanding compliance by the South African government of the first three conditions of the banking sanctions campaign by February 1990.

Despite apartheid government protestations, that was the background to President FW de Klerk’s announcement on 2 February 1990, the release of Nelson Mandela nine days later, and the commencement of constitutional negotiations to end the apartheid system. Mandela himself acknowledged that the most effective boycott of apartheid came from American bankers, saying:

“they had previously helped to finance South Africa’s highly militarised state, but now abruptly withdrew their loans and investments.”

Mandela did not appreciate the distinction between loans and the New York inter-bank payment system, but the South African minister of finance acknowledged that “South Africa could not manufacture dollars.” Without access to the New York inter-bank payment system, the economy would have collapsed.

Following the apartheid government’s announcements on 2 February 1990, it was then not necessary for the US Congress to pursue the intended complete severance of South African access to the American financial system. That option remained open however, should negotiations between the apartheid government and the African National Congress fail.

The “writing was on the wall.” Rather than risk destruction of the economy and its infrastructure and a racial bloodbath, the apartheid government opted to negotiate a settlement and to move towards a constitutional democracy. This is expressed in the preamble to the Constitution that declares:

We, the people of South Africa.

Recognise the injustices of our past,

Honour those who suffered for justice and freedom in our land,

Respect those who have worked to build and develop our country, and

Believe that South Africa belongs to all who live in it, united in our diversity.”

With banking sanctions having “balanced the scales” between the two parties, constitutional negotiations proceeded between the apartheid government, the ANC and other political representatives. There were many setbacks, and it was only in late 1993 that Mandela decided that the transition to democracy was finally irreversible, and that financial sanctions could be revoked.

Given the success of sanctions in ending apartheid, there was considerable interest for some years in sanctions as a means of resolving other long-standing international conflicts. There has been blatant misuse, and consequent discrediting, of sanctions by US as an instrument to assert American military and financial hegemony in the world.

This is illustrated by US sanctions against Iraq, Venezuela, Libya and Iran, which sought payment for oil exports in other currencies and/or gold instead of US dollars, and then followed by “regime change.”

Banking technology has of course advanced dramatically in the subsequent three decades since the South African banking sanctions campaign. The place of leverage is no longer in New York, but in Brussels where Society for Worldwide Inter-bank Financial Telecommunications (SWIFT) is headquartered.

SWIFT is essentially a giant computer which authenticates the payment instructions of more than 11 000 banks in over 200 countries. Every bank has a SWIFT code, the fifth and sixth letters of which identify the country of domicile.

Palestine: The Boycott, Divestment and Sanctions (BDS) Movement was established in 2005, and is modeled after South Africa’s experience. Whilst it took more than 25 years for sanctions against apartheid South Africa to make significant impact, the Israeli government is increasingly frantic about BDS which, inter alia, has been nominated for the 2018 Nobel Peace Prize.

It is noteworthy that the award of the 1984 Nobel Peace Prize to Desmond Tutu gave huge momentum to international solidarity with the anti-apartheid movement. The Norwegian Pension Fund, which administers funds of over US$1 trillion, has blacklisted the major Israeli arms company, Elbit Systems.

Other Scandinavian and Dutch institutions have followed suit. Church pension funds in the US are also becoming engaged. Younger and progressive Jewish Americans increasingly distancing themselves from the right-wing Israeli government, and even sympathizing with Palestinians. European governments in 2014 warned their citizens of the reputational and financial risks of business transactions with Israeli settlements in the West Bank.

The UN Human Rights Council in January 2018 has collated a list of over 200 Israeli and American companies that are actively involved in facilitating and funding the Occupation of Palestinian Territories in defiance of the Geneva Conventions and other instruments of international law.

In response, the Israeli government has allocated substantial financial and other resources in legislative initiatives – both within Israel and internationally — to criminalise the BDS momentum, and to smear the movement as anti-Semitic. This is however, already proving counter-productive, as illustrated by controversies and court cases in the US.

The American Civil Liberties Union has successfully challenged such attempts, eg in Kansas, citing violations of the First Amendment dealing with free speech, as combined with long traditions in the US — including even the Boston Tea Party and the civil rights campaign — of boycotts to advance political developments.

The letters IL in the SWIFT code identify Israeli banks. Programmatically, it would be a simple matter to suspend transactions to and from IL accounts. This would block payment for imports and receipt of proceeds for Israeli exports. The difficulty is political will, and the influence of the Israeli lobby.

The precedent and efficacy of SWIFT sanctions has however, already been established in the case of Iran. Under pressure from the US and Israel, the European Union instructed to SWIFT to suspend transactions with Iranian banks in order to pressure the Iranian government to negotiate the 2015 Iranian nuclear weapons agreement.

It is now acknowledged that the so-called “peace process” mediated by the US government was simply a cover to extend the Occupation and further Israeli settlements “beyond the green line.” The prospect now of new negotiations under the auspices of the United Nations between Palestine and Israel challenges the international community to assist in ensuring that such negotiations are successful.

To the objective of assisting such negotiations by balancing the scales, it is suggested that SWIFT sanctions against Israeli banks would strike at the Israeli financial and political elites, who have the clout to influence the Israeli government to comply with four stipulated conditions, namely:

To release immediately all Palestinian political prisoners,

To end its occupation of the West Bank (including East Jerusalem) and Gaza, and that it will dismantle the “apartheid wall,”

To recognize the fundamental rights of Arab-Palestinians to full equality in Israel-Palestine, and

To acknowledge the right of return of Palestinians.