"BNP Paribas sanctions case highlights US power over international deals"IBA Global Insight
Larry Christensen was quoted regarding U.S. economic sanctions in light of recent accusations of violations involving a large French bank. "When currency or funds of any denomination come through U.S. banks, if they are tainted, blocked or frozen funds, then U.S. banks have an obligation to hold them and report the attempted transfer to enforcement authorities," Christensen said. The banks report these transfers in what is called a "suspicious activity report," without informing the parties in question. This, combined with enforcement measures, which can be taken against money center banks outside of the United States for failing to maintain identification information about fund origins, equates to what Christensen calls "the goose that laid the golden egg."
He indicates that the Office of Foreign Assets Control (OFAC) takes the position that the blocking of funds is within U.S. territory and is required whether the currency is in U.S. dollars or in any other currency. For that reason, OFAC believes blocking is a territorial exercise of jurisdiction. "There will come a time when the U.S. currency has less of a dominant role than it does now, but no one really knows when that will be," he said. There have already been some large international transactions between countries other than the U.S. that are denominated in other currencies. "The euro would seem to be a fairly obvious choice, for banking and financial reasons. But it's not such an obvious choice if the transaction involves an embargoed destination like Iran, or even if it involves a U.S. unilaterally embargoed destination like Cuba," he said.
For the U.S., the most important consideration is that sanctions are enforced, however it is difficult to evaluate the U.S. dollar position as the reserve currency without considering the other foreign policy and national security tensions around the world. "Far and away the more relevant factor is whether a given sanction is multilateral and does not exceed the reach of U.S. constitutional law," Christensen said.