The Return of the State in Global Finance: Banking Regulation and the Future of Economic Warfare"
Saeyoung Park
"Targeted" sanctions against non-sovereign actors constitute a central offensive strategy in the "Financial War on Terror" (2001-present). Currently, the US Department of the Treasury’s Office of Foreign Asset Control (OFAC) is the primary body responsible for administering sanctions programs. As part of its enforcement scheme, OFAC maintains a Specially Designated Nationals (SDN) list of foreign individuals and entities that are barred from the US financial system. US persons and entities fall under the scope of OFAC authority, and those that engage in transactions with a SDN can face civil or criminal prosecution. Previously, I have argued that that sanctions-driven “weaponization” of the financial system since 2006 has produced a quiet, destabilizing expansion of US extraterritoriality by analyzing OFAC civil enforcement actions (2003-2013). This paper builds on that earlier work in its exploration of how financial institutions are increasingly incorporated into state security apparatuses in ways that are reconfiguring traditional state-market divides. Through historical and socio-legal analysis of two case studies, this paper suggests that nation-state exploitation of global financial systems for security purposes can produce structural economic and legal externalities that may ultimately prove disadvantageous to all parties involved, including the US.
Why should average world citizens care about nation-state exploitation of global financial regimes via banking regulation? The path from US sanctions to their near-invisible yet powerful impact on economic lives in seemingly unrelated third countries is circuitous. Prior to 9/11, most OFAC enforcement cases against non-sovereign actors involved monetary penalties for engaging in a financial transaction with the specified sanctions “receiver.” Such enforcement actions usually produced a simple one-time fine for the offending party that may have taken an ill-advised vacation to Cuba or for a small wholesaler who sold and sent trinkets to an Iranian address. Transactions that involved the transfer of sums through financial institutions resulted in proportionally larger fines, but these settlements are distinct from the astronomical penalties and demands for systematic, institutional transformation that we can observe after 2006. From the 2006 ABN AMRO case, single settlements—particularly against financial institutions—producing multi-million, even billion dollar penalties have become a mainstay of OFAC enforcement, and it has become clear that the pre-2006 history of focused, narrower sanctions action can no longer be taken as an extant standard, especially in the world of finance. This shift towards mega penalties can be correlated with, but is not caused by the declaration of the “Financial War on Terror” in 2001. The Great Recession or the recent Financial Crisis has politically opened the door for a dramatic increase in OFAC enforcement focus on the banking sector, with the associated spectacular penalties (e.g. 132 million USD for Standard Chartered (2012), 176 million for Barclays (2010)) heralded as evincing policy success. The politics of post-recession, post-Occupy America have meant that news of banks in trouble invite little sympathy, occluding what a closer scrutiny of the sanctions plight of financial institutions might reveal about the changing borders of state power in the twenty-first century. What unsympathetic observers may miss is the fact that giant banks and individuals that fall under the scope of OFAC enforcement exhibit a common denominator in that they are both non-state, non-sovereign actors. As the norms of conflict that structure inter-state struggle contrast sharply with those that govern wars against non-sovereigns, this paper’s analysis of sanctions history and its associated regulatory practices finds a growing dislocation between territorially informed boundaries of state power and the limits of its legal authority in other arenas of aggression, such as the financial system. More to the point, the massive fines and the delegating of security responsibilities—the forced institution of US security financial protocols in banks located in non-US territories—has spectacularly broadened the reach of US financial surveillance worldwide. Geopolitical borders and alliances do not always mirror the structures of and boundaries within global financial regimes where “political” enemies may find themselves rather closely economically linked (e.g. Japan and South Korea). And in light of the financialization of everyday life in the 21st century and the post-2006 internationalization of US financial regulation, many of us inevitably find ourselves a combatant in the US ‘War on Terror’ regardless of where we are located, and regardless of the politics of our own states. The silent yet extraordinary broadening of the scope and impact of US financial regulation cannot help but transform the global landscape of economic inclusion—one’s economic rights, the freedom to transact, other nation-states’ policies of economic privacy.
The aims of this project intersect most powerfully with the third and fourth themes of the mini conference, “New Political and Moral Forms of Sovereignty.” In terms of better understanding the borders of national economies and their associated self-constituting processes, a conclusion one may draw from this paper is that a new analytical disaggregation of state typologies may be necessary in the study of nation-states within the context of global finance. Previously, globalization has reconfigured and produced a new market terrain that favors multinationals, and arguably, what we are seeing now are states learning how to manipulate the new structures of the globalized world in ways that were imagined in the past but were not quite feasible until recent technological advances. Through its banking regulation case studies, this paper discusses how states are learning to use new levers in global financial regimes in order to extend their power beyond borders.