The Limits of Sanctions Relief for Syria's Reconstruction

The US and other Western governments moved fairly quickly to lift sanctions on Syria after the fall of the Bashar al-Assad regime to a UN-designated terrorist group in December 2024. As argued in these pages last year, sanctions relief is essential for nations struggling to recover from conflict and international isolation. It will not be sufficient, however, to support reconstruction and development. Syria needs help to tackle the terrorism, criminality, and corruption that made the country a hub of illicit activity and an unattractive place to do legitimate business.

The US government responded cautiously by gradually easing sanctions, beginning with a time-limited general license permitting certain transactions. Temporary sanctions relief is a prudent way to maintain leverage over interim authorities. But it does little to boost investor confidence and attract the level of financing required for long-term projects. The World Bank has estimated the cost of Syria’s reconstruction at $216 billion. The longer sanctions persisted, the more difficult the recovery.

Within six months, the US Treasury Department removed sanctions originally imposed under several executive orders while maintaining asset freezes and visa bans on former Assad regime officials and affiliates, including persons associated with Syria’s chemical weapons program, terrorism, and the production and trafficking of Captagon-an amphetamine-type synthetic stimulant. The European Commission removed sectoral sanctions while maintaining restrictive measures on Assad-linked individuals and entities and sanctions related to chemical weapons and drug trafficking.

The US also waived the Caesar Syria Civilian Protection Act of 2019 , which mandated secondary sanctions on foreign individuals and entities supporting the Assad regime or conducting services related to the Syrian petroleum, construction, and engineering sectors. The importance of such services to economic recovery, however, meant that suspending the sanctions in six month increments would do little to encourage foreign investment. Ongoing counterterrorism sanctions were another deterrent. Although the US State Department removed interim Syrian President Ahmed Al Sharaa’s militant organization, Hay’at Tahir al-Sham (HTS), from the Foreign Terrorist Organization list in July 2025, HTS retained its status as a Specially Designated Global Terrorist (SDGT), which barred US persons from transacting with it. Syria also remained designated as a State Sponsor of Terrorism (SST) and thus ineligible for US foreign assistance and defense sales and subject to export controls on dual-use items .

Sharaa lobbied the US and other states to remove sanctions that were hindering rebuilding. To demonstrate his commitment to reform, he launched a political transition process and tackled issues of international concern by combatting the captagon trade that had funded the Assad regime , cooperating with the Organization for the Prohibition of Chemical Weapons to identify Assad’s undeclared weapons, facilities, stockpiles, and materials, and conducting counterterrorism operations against the Islamic State and joining the Global Coalition Against Daesh .

The efforts paid off. In December 2025, President Trump signed a law repealing the Caesar Act . Last month, Secretary of State Rubio rescinded Syria’s SST and HTS’s SDGT designations, calling them the “the final major barriers for private sector investment in Syria.” In February, the UN Security Council removed sanctions on HTS .

Sanctions relief is supporting Syria’s re-integration with the international financial system, which will help attract more investment pledges for reconstruction and participation in a regional energy and trade transit route . Syria’s central bank has formed a relationship with the Federal Reserve Bank of New York , reconnected Syria’s banking sector to the Society for Worldwide Interbank Financial Telecommunication – the primary global messaging infrastructure for cross-border transactions – and secured agreement with Visa and Mastercard on modernizing Syria’s payment system. Both firms began processing transactions in Syria in September.

Sanctions, however, are not the only obstacle to investment. Like other fragile states transitioning from dictatorship and conflict, Syria remains a risky place to do business.

This is reflected in the poor standing of Syria’s national efforts to counter money laundering. The Financial Action Task Force (FATF) – the international standard setter for anti-money laundering (AML) and countering the financing of terrorism (CFT) – has kept Syria since 2010 on its “grey list” of jurisdictions with strategic deficiencies in their national legal and regulatory frameworks. The inability to evaluate Syria’s progress during the civil war accounts for the long duration, but Syria has work to do to get off the grey list, a status that adversely affects foreign investment .

As a grey-listed country, Syria remains on the United Kingdom’s High-Risk Third Countries list and the European Commission’s List of High-Risk Countries . Both lists advise financial institutions to exercise caution when doing business in those locations. The State Department’s 2025 International Narcotics Control Strategy Report identifies Syria as a “major money laundering jurisdiction,” and an investor guide on Syria’s banking sector that the US Embassy in Damascus published this year notes Syria’s grey-listing under “compliance and reputational considerations.” The Commercial Bank of Syria, the country’s largest public commercial bank , remains designated as an entity of “primary money laundering concern” under the USA PATRIOT Act. The bank’s 2004 listing cut its access to US correspondent banking services, and although the Treasury Department issued an exception in May 2025, it has not rescinded the designation.

Syria’s grey-listing also reflects longstanding concerns terrorist financing. Assad’s ouster severed Hezbollah’s smuggling corridor to Lebanon, but the group has continued using exchange houses in Lebanon and Syria to receive Iranian funds, according to the Treasury Department . The Islamic State still has thousands of fighters in Syria, and Al Qaeda also maintains a presence, according to a recent report of UN sanctions monitors. The monitoring team in early 2026 described Syria as “a strategic hub for key logisticians and financiers” of the Islamic State and reported that Al Qaeda’s Syrian affiliate had “strengthened its finances.”

Syria is also a hub for illicit activity. The UN Office on Drugs and Crime has noted the interim government’s progress against drug trafficking, including the dismantling of industrial Captagon production facilities and seizure of hundreds of millions of pills. But small-scale drug production and trafficking have filled the gap, according to New Lines Institute analysis , particularly in Sweida province , a traditional smuggling route that government forces do not control.

Corruption is another legacy of the Assad era. Syria ranks among the ten most corrupt countries in the world, according to Transparency International , and the worst in the Levant region, according to the World Bank . Al-Sharaa reportedly warned his officials and family against engaging in graft, and his government began work last year to recover the former regime’s ill-gotten gains by directing commercial banks to freeze associated accounts . The government also established a committee for combating illicit enrichment, which has reached settlements with Assad-linked tycoons (some still under US sanctions ), who self-disclosed proceeds of their prior business dealings. While the committee chair has insisted the settlements do not “exonerate suspects,” a Reuters investigation found that some individuals have received immunity from prosecution. The process has lacked transparency and raised questions the government’s approach to transitional justice.

Corruption, criminality, and AML/CFT risks add to the uncertainty that foreign investors face in a market with shortfalls in regulatory transparency, contract enforcement, and property rights. Central bank Governor Safwat Raslan, who also heads Syria’s AML/CFT Commission, is working to align Syria’s national framework with the FATF standards, a goal of the central bank’s five-year strategic plan . The International Monetary Fund has pledged technical assistance to support the strategy and announced a governance and anti-corruption scoping mission. The World Bank in August approved a $100 million grant to help modernize Syria’s largely informal financial sector and strengthen the AML/CFT framework.

In preparation for Syria’s FATF evaluation, which may occur in 2028 , the AML/CFT Commission has released a national strategy for combating money laundering and terrorist and proliferation financing, prepared with UN Development Program support. Syria is also receiving technical assistance from MENAFATF, the FATF regional organization to which Syria belongs.

These are positive steps, but since four other MENAFATF members are currently grey-listed , the US and other Western governments should supplement these efforts with capacity-building initiatives aimed at strengthening implementation and enforcement of AML/CFT and anti-corruption laws and regulations, building investigators’ expertise in financial intelligence, enhancing law enforcement capabilities against organized crime, and recovering stolen assets. The Treasury Department’s Office of Technical Assistance (OTA), which supports financial sector reform in developing countries, includes programming to enhance financial system integrity and AML/CFT compliance. OTA’s current project list does not include the Middle East/North Africa, but states in the region have previously received AML/CFT-related assistance . A recent proposal to use US International Development Finance Corporation financing to digitize government services in developing countries struggling to attract foreign investment would boost Syrian anti-corruption efforts.

The US has characterized sanctions relief as an incentive for American firms to invest in Syria’s recovery, but disincentives remain. Lifting sanctions should be part of a broader US strategy to provide the support that post-conflict societies need to build sound and transparent legal and regulatory frameworks and enforcement capabilities necessary to attract private sector engagement.

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