Updated 27 May 2021.
Copyright: European Union Public License, version 1.2 (EUPL-1.2).
Work in progress. Published however this is an ongoing meta study and we will continue to update this article. This article will focus on the threat for manufacturers wishing to export to the US or using the US$ in for their transactions.
Follow us on Twitter to know exactly when there will be more updates.
What is this?
This is a “Research” article on the Weaponization of the USD and Extra-Jurisdiction.
Why do we need this?
Ubinodes being an international marketing agency, we need to help our clients understand when exporting and Importing products so they can be informed about the United States and their actions with the USD.
Contents for this Article.
- Weaponizing of the USD.
- Prism Program and the Weaponization of the USD.
- How Companies without U.S. Operation can still face U.S. Law and Regulatory Enforcement.
- History about the enforcement of Extra-Jurisdiction.
- Customs Clearance.
1- Weaponizing of the USD.
America is weaponizing the dollar to preserve its global economic and geopolitical position. The U.S. accounts for 20 percent of the world’s economic output. More than half of all global currency reserves and trade are in dollars. This a direct result of the Bretton Woods agreement. The Bretton Woods Agreement established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent states. The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained its external exchange rates within 1 percent by tying its currency to gold and the ability of the International Monetary Fund (IMF) to bridge temporary imbalances of payments. Also, there was a need to address the lack of cooperation among other countries and to prevent competitive devaluation of the currencies as well. This ultimately ended in 1971 paving the way for America to take control of the supply of the currency in the world. The weaponization of the USD comes from its relationship with sanctions programs. Legislation such as the International Emergency Economic Powers Act, the Trading With the Enemy Act, and the Patriot Act allow Washington to weaponize payment flows. When this is combined with the technology and access from SWIFT(Society for Worldwide Interbank Financial Telecommunications) the U.S can exert unprecedented control over global economic activity (Source 15).
2- Prism Program and the Weaponization of the USD.
The Prism program is a tool that is used by the US National Security Agency(NSA) to collect private electronic data from users of major internet services like Gmail, Facebook, Outlook, and others.
It affects the weaponization of the US dollar by extending its reach on anyone who uses these services. Because of the Prism program, the US government can reach places outside the US that could pose a threat to their currency.
3- How Companies without U.S. Operations can still face U.S. Law and Regulatory Enforcement.
America has become the world police. They have become the Judge, Jury, and Executioner for International Businesses. Because of the privileged role that the United States has in the world economy. Companies that do not listen to their global Jurisdiction can find themselves shut out of a huge domestic market or cut off from using a dollar payment system and by extension from using a mainstream bank.
First, the process is disturbingly improvised. Cases rarely go to court and, when they are settled, executives are hit with gagging orders. Facing little scrutiny, prosecutors have applied ever more expansive interpretations of what counts as the sort of link to America that makes an alleged crime punishable there; indirect contact with foreign banks with branches in America, or using Gmail, now seems to be enough. Imagine if China fined Amazon 5 billion dollars and jailed its executives for conducting business in Africa that did not break American law, but did offend Chinese rules and was discussed on WeChat.
America has gotten the nickname Judge Dread from the movie with Sylvester Stallone becoming the Judge, Jury, and Executioner.
3.1- Example of a Scenario.
Your company agrees with its main competitor to divide up certain markets. You agree to forego a planned expansion into the U.S., leaving that market to your competitor.
Being this as the scenario laws prohibiting anti-competitive behavior is another way that non-US companies find themselves subject to enforcement.
3.2- Another Example of a Scenario.
Your company agrees to sell products to a distributor in Iran. Your country does not prohibit trade with Iran, but the contract calls for products to be paid for in U.S. dollars.
The US Treasury Department’s Office of Foreign Assets Control has sweeping jurisdiction over commercial and financial transactions involving sanctioned countries.
4- History about the enforcement of Extra-Jurisdiction.
During the late 18th and early 19th centuries, the long reach of U.S. law mostly concerned torts and piracy. Starting in the early 20th century, U.S. law gradually began to be applied extraterritorially in the realms of environmental and economic regulation, with the latter including antitrust, banking, bankruptcy, securities, taxation, and labor. Since the 1970s, the extraterritorial reach of domestic law has increased significantly as U.S. policy-makers have pursued a wide range of foreign policy and national security objectives. Encroaching upon the sovereignty of other nations, the assertion of U.S. authority beyond borders has repeatedly sparked intense political conflicts with adversaries and allies alike. An acute contemporary conflict of U.S. and EU law is currently unfolding in the case of Iran. During the 21st century, the Extra-Jurisdiction has gotten somewhat out of hand because of the social media technologies and SWIFT tech as well.
U.S. dollar transactions facilitate the global reach of U.S. law. The main causes for the weaponization of the USD are as follows. The real power of the USD is its relationship with sanction programs. More than half of all global currency reserves and trade are in dollars. Legislation such a the Patriot Act, Enemy Act, and IEEP Act(International Emergency Economic Powers Act) allows the United States to weaponize payment flows throughout the world. That combined access gained from Swift (first mentioned in paragraph 1) through this global messaging system the US to keep control over the global economic activity.
Anyone that uses a payment flow through a US bank then could be prosecuted for offending the act against American assets. This allows the United States extraterritorial reach over non-Americans trading with or financing a sanctioned party. This can effectively disrupt and destabilize finances, trade, and currency markets, effectively disrupting activities for non-Americans. The amount of power that the US has with the dollars is terrifying for most because of its capabilities.
Economic Warfare has been America’s tool for waging war on other countries. It allows the weaponization of the US dollar; using it as both a carrot and a stick to lure and to fight. Furthermore this allows the U.S. to give aid to friends who need it like the UN and others can be on the other side of economic warfare and locked out of a big financial system that is controlled by the US dollar. The economy weaponizes through swift as I mentioned in the paragraph named Consequences. An example is the U.S. using swift as a stick is in 2014 when they blocked several Russian banks from SWIFT as the relations between the two countries started to fall apart. Think of SWIFT as a network for messaging but only for banks and other financial institutions. This service secures accurate information to then quickly send and receive information from such as money transfer instructions. The U.S. has been running its operations through SWIFT and has been able to control the world economy through it.
8- Customs Clearance.
The problems with clearing customs are that there can be unclear logistical business planning, inexperience with border control and distribution laws, understanding legalities for each market, financial risk and currency exchange rates, determining if your product will sell, and not having a diverse workforce. If you are exporting outside to the United States following all of these customs is very important to not getting extra jurisdiction by the USD. All of this cannot be completed without having secure communications which is another important tip to use when exporting because of the threat of the weaponization of the USD. Secure your communication so that it is not accessed by the United States so that you don’t get in to trouble for not obeying the laws of the extraterritorial is of the utmost importance. Ubinodes has many reviews on encrypted software and apps to protect yourself from the weaponization of the USD (Source 13).
- The Long Arm of American Enforcement: How Companies Without U.S. Operations Can Still Find Themselves Facing U.S. Law and Regulatory Enforcement. https://www.foley.com/en/insights/publications/2020/06/the-long-arm-of-american-enforcement Source 01
- The trouble with America’s extraterritorial campaign against business. https://www.economist.com/leaders/2019/01/19/the-trouble-with-americas-extraterritorial-campaign-against-business Source 02
- Extraterritorial U.S. Sanctions. https://www.swp-berlin.org/10.18449/2019C05/ Source 03
- How A Weaponized dollar Could Backfire. https://www.belfercenter.org/publication/how-weaponized-dollar-could-backfire Source 04
- FIFA, the U.S. Financial System, and U.S. Jurisdiction Over “Foreign” Parties and Events. https://masspointpllc.com/publications/sanctions-anticorruption-moneylaundering-legal-analysis/amlsanctionsanti-corruption-publications/fifa-the-u-s-dollar-and-financial-system-and-u-s-jurisdiction-over-foreign-parties-and-events/ Source 05
- Weaponizing the Economy. https://berlinpolicyjournal.com/weaponizing-the-economy/ Source 06
- SWIFT and the Weaponization of the U.S. Dollar. https://fee.org/articles/swift-and-the-weaponization-of-the-us-dollar/ Source 07
- How the U.S. Has Weaponized the Dollar. https://www.bloombergquint.com/global-economics/how-the-u-s-has-made-a-weapon-of-the-dollar Source 08
- U.S. Customs Clearance Process. https://usacustomsclearance.com/process/ Source 09
- How the SWIFT System Works. https://www.investopedia.com/articles/personal-finance/050515/how-swift-system-works.asp Source 10
- SWIFT and the Weaponization of the U.S. Dollar. https://tenthamendmentcenter.com/2018/10/12/swift-and-the-weaponization-of-the-u-s-dollar/ Source 11
- 6 Risks Of Exporting Manufactured Goods — And How To Avoid Them. https://blog.thomasnet.com/risks-in-exporting-manufactured-goods-and-how-to-avoid-them Source 12
- Secure communication. https://en.wikipedia.org/wiki/Secure_communication Source 13