OFAC’s use of the broad causation provisions as an enforcement tool, along with the theory of export of financial services, means that sanctions policy will effectively follow the U.S. dollar outside of U.S. borders. Thus, U.S. sanctions policy can have a broad reach and affect a huge volume of international transactions. “The strength of American sanctions, after all, comes from the centrality of the United States financial system in the global economy, and the dollar’s status as the world’s dominant reserve currency.”207
U.S. dollars are widely held abroad; U.S. dollar liabilities of non-U.S. banks totaled $12.8 trillion at the end of June 2018.208 As of the first quarter of 2019, the dollar constituted almost 62% of all known central bank foreign exchange reserves.209 Nations using the U.S. dollar as their official currency
203 Zarrab, 2016 U.S. Dist. LEXIS 153533, at *27.
204 Id. at *28. 205 Id. 206 Id. at *8.
207 Kathy Gilsinan, A Boom Time for U.S. Sanctions, ATLANTIC (May 3, 2019), https://w
ww.theatlantic.com/politics/archive/2019/05/why-united-states-uses-sanctions-so-much/5 88625/.
208 Iñaki Aldasoro & Torsten Ehlers, The Geography of Funding of Non-US Banks, BIS
Q.REV. (Dec. 16, 2018), https://www.bis.org/publ/qtrpdf/r_qt1812b.htm.
209 Kimberly Amadeo, Why the U.S. Dollar is the Global Currency, BALANCE (Apr. 18,
include Panama, Ecuador, El Salvador, East Timor, and Zimbabwe.210 The U.S. dollar is the most dominant vehicle currency211, as it was on one side of 88% of all trades in April 2016.212
OFAC’s far-reaching enforcement stance with respect to U.S. dollar-de- nominated transactions, however, might possibly discourage foreign parties from using the U.S. dollar to avoid the application of U.S. sanctions. Indeed, it has been suggested that “[e]xceedingly punitive penalties may foster the development of payment systems that avoid the US dollar or the United States.”213 Moreover, foreign banks may become more reluctant to become involved in transactions touching the U.S. dollar due to the sanctions implica- tions of such activity. For example, the European Union has created the INSTEX payment system for use in trade with Iran, avoiding cash payments by banks by way of a virtual ledger, in order to avoid the application of U.S. sanctions with respect to Iran.214 The extended reach of U.S. sanctions could be a factor in making the U.S. dollar less attractive as a currency in which to complete international business transactions.
The application of U.S. sanctions might be one factor, but not a determi- native factor, in causing non-U.S. entities to choose to make their global busi- ness transactions in a currency other than the U.S dollar. Indeed, “[b]ecause of increasingly tightening regulatory requirements (AML [anti-money laun- dering] and CTF [combatting terrorism financing] as well as regulatory sanc- tions requirements . . .) by key jurisdictions, such as the US and Europe, sev- enty-five per cent of global bank providers in this space have reduced their correspondent banking relationships . . . or withdrawn from this business al- together.”215 The issue of regulatory burden as a whole, rather than the partic- ular application of U.S. sanctions, might diminish the use of U.S. dollars glob- ally. The breadth and depth of the U.S. sanctions regulations, however, does certainly pose a unique burden to compliance at the present time. “The use of
210 Troy Adkins, Countries That Use the U.S. Dollar, INVESTOPEDIA (Apr. 9, 2015), http
s://www.investopedia.com/articles/forex/040915/countries-use-us-dollar.asp.
211 “[I].e., medium of exchange between currencies.” Amadeo, supra note 209 (“The dol-
lar acts as a ‘vehicle currency’ in the sense that agents in non-dollar economies will gener- ally engage in currency trade indirectly using the US dollar rather than using direct bilateral trade among their own currencies.”)
212 BANK FOR INT’L SETTLEMENTS, TRIENNIAL CENTRAL BANK SURVEY (2016), https://w
ww.bis.org/publ/rpfx16fx.pdf.
213 Ernest T. Patrikis, Will Enforcement of US Sanctions Reshape How US-Dollar Trans-
actions Are Cleared?, FINANCIER WORLDWIDE (Sept. 2014), https://www.financierworl- wide.com/will-enforcement-of-us-sanctions-reshapehow-us-dollar-transactions-are- cleared#.VBp7EJR_tic.
214 EU Mechanism for Trade with Iran ‘Now Operational’, DW.COM (June 28, 2019), htt
ps://www.dw.com/en/eu-mechanism-for-trade-with-iran-now-operational/a-49407662.
215 Ruth Wandhöfer & Barbara Casu, The Future of Correspondent Banking Cross Bor-
der Payments, SWIFT INST. (Oct. 10, 2018), https://swiftinstitute.org/research/the-future- of-correspondent-banking/.
sanctions has exploded in the 21st century”; as of May 2019, the United States had “7,967 sanctions in place.”216 OFAC’s application of U.S. sanctions reg- ulations to certain transactions made outside of the United States and by non- U.S. parties through the broad causation provisions and the export of financial services prohibitions therefore necessarily entails the application of a large number of regulatory rules and prohibitions.
Despite the potential regulatory burden posed by requiring foreign parties to comply with U.S. sanctions regulations in connection with all transactions involving U.S. dollars, it does not currently appear likely that another cur- rency will soon become the global reserve currency. “[W]hile the euro ac- counted for the second-largest share of global central bank reserves by mid- 2018, its share was only around one-third that of the dollar,” and likewise, “[t]he renminbi accounted for . . . 1.84 per cent of global central bank reserves in mid-2018.”217 Indeed, as the enforcement actions described above demon- strate, OFAC’s reach to transactions and parties largely outside of the United States but involving the U.S. dollar is not new, and yet the U.S. dollar contin- ues to be widely used abroad. Given the present advantages and universality of the U.S. dollar, OFAC can most likely effectively attach its sanctions policy to the U.S. dollar without risking the wholesale abandonment of the U.S. dol- lar by foreign entities in order to avoid U.S. sanctions.