Weaponizing Finance: U.S. and European Options, Tools, and Policies

48 Pages Posted: 19 Jun 2017

See all articles by Joanna Caytas

Joanna Caytas

University of Oxford, Nanotechnology for Medicine and Health Care

Date Written: March 13, 2017

Abstract

As the costs of outright, armed confrontation with major opponents such as Russia, China, or even Iran remove most the use of force from the roster of realistic options, economic—and particularly financial—sanctions and measures have gained ground since 9/11. While UN sanctions are veto-prone, the dollar’s unique position as a reserve and clearing currency in eighty-seven percent of all forex transactions in a globalized, financially interconnected world have turned denial of financial services and reputational sanctions into instruments of choice for powers that control major markets and reserve currencies. To date, this includes the U.S. and the EU. Controlling access to integrated Western financial markets has proved a highly potent political weapon and sometimes a decisive policy tool. This Note examines practical limits to unrestrained weaponization of financial infrastructure.

In classical mission creep, all “exceptional” tools and measures adopted under the justification of combating vital threats also quickly find dual use in far more pedestrian law and tax enforcement. Thus, legitimate weaponization of financial tools and platforms largely depends on limits, checks, and balances, and on courts that award actual damages. For even where access to judicial review is not blocked by exceptionally high burdens of proof, the standard of “prompt, adequate and effective compensation” has remained highly theoretical, as adequate damages have never yet been awarded where a plaintiff has prevailed. Impunity for abuse of power risks geopolitical blowback that threatens the very system these measures rely upon.

This Note proposes to halt the encroachment of intelligence methods upon due process and suggests policy adjustments capable of accommodating financial technology innovations that may preserve the functionality of the world’s financial system. The effectiveness of financial tools for policing common values central to world order faces increasing obstacles if they are viewed as political and merely ancillary to U.S.-led strategic interests, without also including strong, credible controls and impartial review.

Keywords: sanctions, financial sanctions, targeted sanctions, Section 311, SWIFT, surveillance, dollar clearing, weaponization, financial infrastructure, debt and asset dump, leveraged sanctions, sanction avoidance, international trade, international law, trade policy

Suggested Citation

Caytas, Joanna, Weaponizing Finance: U.S. and European Options, Tools, and Policies (March 13, 2017). Columbia Journal of European Law, Vol. 23, No. 2, 2017, 441-475, Available at SSRN: https://ssrn.com/abstract=2988373

Joanna Caytas (Contact Author)

University of Oxford, Nanotechnology for Medicine and Health Care ( email )

Oxford
United Kingdom

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