Even as Prime Minister Benjamin Netanyahu was praising the United States in a speech on Tuesday for imposing tougher sanctions on Iran for its nuclear activities, the State Department announced that it was imposing sanctions on a leading Israeli company, Ofer Brothers Group, for activities supporting Iran’s energy sector.

"We talked a great deal about stopping oil smuggling, but there was never any concerted attempt by the UK or US on the ground to prevent breaches of sanctions.

At the economic level, the most profound criminalizing result of sanctions can be to push economic activity underground and
dramatically inflate the profitability of illicit commerce. Aboveground trading relationships can be supplanted by underground trading relationships, creating clandestine region-wide sanctions-evading networks that reshape the political economy of the region and that may endure beyond the sanctions. Sanctions can create an economic opportunity structure that privileges those best positioned in the underground economy, enhancing the value of their smuggling skills and connections.
This, in turn, can redistribute wealth and favor, helping to propel the emergence of a nouveau riche elite. Unable or unwilling to shift to legal trading after sanctions are
TABLE 1. Potential Criminalizing Consequences of Sanctions


State apparatus State sponsors organize crime to generate funds and secure supplies; foster alliances with clandestine transnational economic
actors; subcontract out sanctions busting tasks and provide privileged access in exchange for loyalty and support Persistence of symbiosis between
state and organized crime; high levels of corruption and entrenched resistance to reform and establishment of rule of law
Economy Underground economy expands through sanctions evasion while above ground economy contracts and goes into crisis; emergence of new elite as power and wealth of smuggling entrepreneurs grows while those in the aboveground economy are marginalized
Continued high levels of underground economic activity as sanctions-busting networks adapt and diversify while the aboveground economy struggles to recover from sanctions; new elite selectively move into other sectors of the economy
Civil society Broad societal tolerance of smuggling;smuggling perceived as‘‘normal;’’ ‘‘uncivil society’’ empowered Continued high societal acceptance
of smuggling; engagement in smuggling economy broadly viewed
as a legitimate avenue of upward social mobility
Regional repercussions Regional sanctions-busting networks
develop with official complicity of neighbors; aboveground trade relations
with targeted country collapse while underground trade relations expand
(clandestine side of economic interdependence becomes dominant);cross-border crime linkages grow
Lifting sanctions generates shock wave through regional sanctions
evading trade routes; sanctionsbusting networks persist and are adapted for other smuggling activities

Modifies and extends the framework in Crawford and Klotz (1999:30).
1
There is no consensus in the literature on the use and definition of the term ‘‘underground economy,’’ but for my purposes here I am mostly interested in those underground economic activities related to the evasion of
sanctions, which largely involves some form of smuggling. 336 Criminalizing Consequences of Sanctionslifted, sanctions evaders may simply engage in substitution strategies, turning to other illegal trading activities. Incentives to enter or continue operating in the underground economy can be reinforced by the devastated condition of the aboveground economy after sanctions. At the societal level, the most significant criminalizing consequence of sanctions is the potential of fostering ‘‘uncivil society,’’reflected in a higher level of public tolerance for lawbreaking and an undermined respect for the rule of law. Smuggling may not only become perceived as ‘‘normal’’ rather than deviant, but it may even be celebrated as patriotic. Even in countries with extreme levels of corruption, there tends to be official disapproval of smuggling, but this may be eroded under sanctions. The result can be a general legal
demoralization as society becomes accustomed to practices that do not conform to modern legal standards. Reestablishing societal acceptance of legal norms can be one of the most challenging tasks after sanctions are lifted, as old habits can be difficult to break. Table 1 summarizes these potential political, economic, and societal criminalizing consequences of sanctions