The Dangers of Fining Sanctions Violators

To be sure, the logic of punishing banks for violating sanctions is sound. Fines induce risk aversion—the idea that when faced with two investments of similar expected return but different risks, an investor will prefer the one with the lower risk. In the world of banking, this means that financial institutions will be prompted to avoid any questionable dealings remotely tied to sanctions-busting, which makes it that much harder for, say, a country to acquire the restricted materials and technologies for nuclear or weapons programs.