Secondary sanctions may imperil U.S. financial leadership

The United States is seeking to track and stop payments by non-U.S. banks worldwide, even those not carried out in U.S. dollars, that enable Russia to wage its war against Ukraine. © Getty Images
Published October 31, 2024

America’s unprecedented secondary sanctions are a high-stakes gamble that could reshape global trade and spell the end of U.S. financial dominance.

The United States’ efforts to contain Russia through sanctions may have unintended consequences. The most recent round of measures targets third parties doing business with entities that support Russia, namely banks worldwide, and it is countries in emerging markets that may be most affected. Washington’s restrictions may inadvertently push nations into uncharted territory, potentially threatening the global dominance of the U.S. dollar and its financial system.

U.S. sanctions explained
While politicians in Washington decide on introducing new sanctions, it is the U.S. Treasury’s Office of Foreign Assets Control (OFAC) that is the principal authority issuing and regulating both primary and secondary sanctions. Primary sanctions are economic restrictions by which Washington can target individuals, businesses and foreign governments through asset freezes and confiscations, travel bans against foreign persons, and trade embargoes of countries for acts which threaten U.S. national security or breach international law.

All individuals and entities connected to the U.S. legal jurisdiction through citizenship, incorporation or residence must comply with these sanctions. Additionally, transactions processed anywhere in the world through American financial institutions or in U.S. dollars thereby forming a financial link to Washington’s jurisdiction, are also required to comply with primary sanctions.

Transactions processed anywhere in the world through American financial institutions or in U.S. dollars are required to comply with primary sanctions.

Currently, some of the foreign governments subject to OFAC’s primary sanctions include Russia, Belarus, North Korea, Iran, Cuba, Syria and Venezuela, as well as others mostly in Africa and Asia. OFAC is also increasingly targeting business entities and individuals in China, Hong Kong, Turkey, the United Arab Emirates and Pakistan in a lengthening list focused mainly on developing economies.

Secondary sanctions, in contrast, have been created to deter non-U.S. persons (those not having any economic or legal links with the U.S. jurisdiction) from conducting business with foreign governments, individuals and businesses subject to primary sanctions.

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SOURCE: www.gisreportsonline.com

 

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