Source: this blog
Source: this blog

So two big-ticket news items from last week:

  • French bank BNP Paribas received a $9 billion fine, and had to fire some people, and stuff.
  • Argentina made some bond repayments to its New York bank, and the bank was ordered to return the funds to Argentina.

I’ve already written about Argentina’s bond story. The update is that they’re in a 30 day grace period before they officially go into default, but the money is sitting in New York waiting for permission to be paid (the current theory is that they’re going to claim that they didn’t default because they actually paid, and if anyone is really upset about it, they should go after that &#$%!-judge). Here’s the original post: “Cry For Yourselves – You Vultures,” says Argentina.

The BNP Paribas story:

  1. America decided that it wanted to impose economic sanctions on Sudan.
  2. It did this by banning any Sudanese banking transactions from the US financial system. To quote the statement of facts in the case: “Under these executive orders [from President Bush], virtually all trade and investment activities involving the US financial system, including the processing of US dollar transactions through the United States, were prohibited.”
  3. BNP Paribas is a French bank.
  4. BNP Paribas was serving its Sudanese clientele.
  5. So BNP issued an internal policy that stated “Do not list in any case the name of Sudanese entities on messages transmitted to American banks or to foreign banks installed in the US.”
  6. Which meant that the US banks doing the clearing could not tell that the funds should be frozen on their way through.
  7. The justification: “several BNPP employees who were involved in or had knowledge of BNPP’s business with Sudan claimed that they did not believe that US sanction laws applied or could be applied to foreign banks, particularly if transactions involving Sanctioned Entities were processed through an unaffiliated US bank.”
  8. And BNP Paribas went and did the same sort of workarounds for its Iranian and Cuban customers, who were under similar sanctions.

So to be clear:

  1. BNP Paribas was lying on its wire transfers, agreed.
  2. But it wasn’t breaking French or European law by processing transactions for Sudan, Iran or Cuba (however morally reprehensible that might seem).
  3. All that was happening was the US dollar transactions were clearing through US banks (the money would come in and the money would flow out almost immediately).
  4. But this was enough to violate sanctions.
  5. And US regulators said: “Fine. Yes, fine. We’re fining you. All of last year’s profits. And some of the previous year’s profits as well. And you have to fire your compliance staff, up and including some top management. And we’re banning your US branch from doing any dollar clearing.”

And it’s this attitude that is getting the French very riled, and leading to accusations of “economic warfare”. Because, well, “Pretty much any dollar transaction – even between two non-US entities – will go through New York City at some point, where it comes under the jurisdiction of US authorities”.

Using the Dollar as a tool for Foreign Policy

The US is using its dollar hegemony to force its foreign policies on the rest of the world.

It’s punishing the French for sanction-busting. It’s forcing Argentina to default. FATCA is being cursed across the board.

Which, you know, is a bit of an abuse of power.

It’s the type of abuse that eventually leads to the US dollar not having hegemony.

And then…

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at