Fadel Abdulghany
The repeal of secondary sanctions under the Caesar Act in December 2025, enacted as part of the National Defense Authorization Act for Fiscal Year 2026, represents a fundamental reshaping of the legal and compliance framework governing transactions related to Syria by non-U.S. entities. This legislative action is the culmination of intensive diplomatic efforts and reflects a shift away from the extraterritorial enforcement model that has characterized U.S. policy toward Syria since 2019.
The lifting of sanctions is particularly significant because it is unconditional and does not include mechanisms for the automatic reimposition of sanctions, indicating a structural shift in the sanctions architecture. Its practical implications extend to overlapping areas, including the clarity of jurisdiction under international law, correspondent banking relationships, foreign direct investment, and reconstruction financing. Therefore, understanding this development requires an analysis of how secondary sanctions function in restricting commercial behavior and how their lifting readjusts the compliance environment for international actors considering economic engagement with Syria.
Legal Shift: From Extraterritorial Enforcement to Restoring Jurisdiction Clarity
The repeal of Section 7412 of the Caesar Act dismantles the extraterritorial enforcement mechanism that the United States relied upon to extend its punitive authority beyond its traditional jurisdiction. Under the previous framework, foreign individuals and entities were subject to potential U.S. sanctions, including asset freezes and visa restrictions, simply for providing significant financial, material, or technological support to the Syrian government or for conducting significant transactions with sanctioned entities, even if those activities took place entirely outside U.S. jurisdiction and had no connection to U.S. persons, territory, or financial structures.
This system exemplified a model of secondary sanctions based on what international law scholars have termed the assertion of expanded external jurisdiction. The United States sought to regulate the commercial conduct of foreign entities based on the destination or counterparty of the transaction, rather than on a direct link to a specific U.S. interest. The legal debate centered on whether these measures violated the principle of non-intervention in the internal affairs of other states and exceeded the recognized grounds for the exercise of competitive jurisdiction under customary international law.
The repeal restores greater jurisdictional clarity to the compliance environment, as non-U.S. persons are no longer subject to U.S. sanctions simply for conducting legitimate business with Syria. This development also mitigates the structural uncertainty that characterized cross-border transactions, where foreign entities faced the prospect of being listed or sanctioned based on subjective assessments of what constituted “significant support.” I believe that leaving this term undefined was intentional to bolster executive discretion, resulting in a compliance environment where business actors could not reliably predict the regulatory consequences of their decisions.
Banking Impact: Unraveling Risk Reduction Dynamics and Raising the “Disruptive Effect”
Secondary sanctions under the Caesar Act have led to what compliance specialists describe as a “disruptive effect” that has, in practice, gone beyond the formal legal boundaries of the text, through interconnected dynamics that have distorted correspondent banking relationships and financial intermediation channels.
Under this system, correspondent banks faced asymmetric risks. Even when a particular transaction did not violate core U.S. sanctions, a bank could still be considered “complicit” in providing substantial support if it processed payments for other correspondent banks whose client networks included Syrian entities as the ultimate beneficiaries. This structure led to a clear compliance paradox: due to the interconnected nature of correspondent relationships, banks were unable to fully verify the beneficial owners and the ultimate use of funds, yet they could still face severe consequences if a breach occurred within those networks.
Faced with this structural uncertainty, many financial institutions adopted stringent risk mitigation strategies, manifested in the widespread termination of correspondent relationships with institutions operating in or dealing with high-risk environments. From an individual institution’s perspective, this behavior appeared economically sound, as the potential costs of exposure—including enforcement actions by the Office of Foreign Assets Control (OFAC), reputational risks, and the possible loss of access to US dollar clearing—far outweighed any expected returns from any activity related to Syria.
This resulted in what could be described as “hidden sanctions”—financial restrictions implemented in practice through private sector risk management decisions, rather than through explicit legal prohibitions. Syrian NGOs, remittance channels, and commercial importers found themselves effectively cut off from banking services, not because their transactions were illegal, but because simply mentioning Syria in transaction documents led to automatic account closures or payment rejections.
The lifting of secondary sanctions fundamentally alters these risk calculations, as non-US banks can now conduct transactions related to Syria without the risk of secondary US sanctions. This shifts the compliance framework from a binary model that treats Syria as a virtually off-limits area to a risk-based approach focused on scrutinizing sanctions lists, adhering to anti-money laundering and counter-terrorism financing requirements, and complying with regulatory standards in the country of origin. This shift does not mean that Syria becomes a low-risk environment, but it transforms risk from an immeasurable structural threat into a manageable compliance process based on customer due diligence, transaction monitoring, and beneficial ownership verification.
Trade, Investment and Reconstruction Financing: Moving from Deterrence to Financeable Due Diligence
Secondary sanctions, by their very nature, targeted sectors linked to reconstruction, including construction, engineering, energy and aviation, creating what economists call a “sanctions burden” that deterred foreign investment even in areas not explicitly prohibited under primary sanctions.
The legal language that allows for sanctions against those providing substantial support or engaging in significant transactions has created a high level of uncertainty for potential investors. Official guidelines state that the assessment of a transaction’s “significance” is based on a totality of facts and circumstances, including the transaction’s size, frequency, nature, and commercial context. This discretionary standard means that investors cannot accurately predict whether their projects might expose them to secondary sanctions, effectively adding a political risk premium that is difficult to price into any investment related to Syria.
These fluctuations have been particularly damaging to infrastructure and reconstruction projects that require multi-year financing, long-term supply contracts, and international contractor alliances. Financial institutions, by their very nature, cannot finance projects whose regulatory status may change mid-cycle due to foreign policy decisions by the executive branch unrelated to the investor’s own behavior. Consequently, even the most risk-tolerant capital remained hesitant, despite the enormous reconstruction needs estimated at around $216 billion.
With the lifting of secondary sanctions, the investment landscape shifts from a deterrent-driven framework to one based on due diligence. Foreign investors can now structure their projects around entity vetting, sectoral compliance verification, the establishment of contractual safeguards consistent with remaining targeted measures, and the application of due diligence to supply chains. This enables the development of project financing structures that are bankable with defined risk parameters, a prerequisite for mobilizing the capital needed for reconstruction and economic recovery.
Conclusion
The lifting of secondary sanctions under the Caesar Act represents a qualitative shift from structural sanctions to transaction-based compliance. Under the previous system, non-U.S. entities risked U.S. sanctions for any substantial involvement in the Syrian economy, creating a compliance environment where outright avoidance was the safest course. This resulted in widespread exposure reductions, the severing of correspondent banking relationships, and a freeze on investment.
The lifting of sanctions allows for a gradual restoration of correspondent banking relationships, trade finance, remittance flows, and reconstruction investment, provided that rigorous due diligence, thorough sanctions review, and effective and ongoing risk management are in place. Thus, the lifting of secondary sanctions can be seen as dismantling the most influential mechanism influencing private sector behavior—the mechanism that extended U.S. law enforcement to non-U.S. persons and created a widespread deterrent effect that hampered Syria’s integration into the global financial system.
