The First Hyperpower

America's Most Astounding Might is Non-Military

Note: Clicking on any of the screenshots below will take you to that website or document. I did this instead of a bunch of footnotes. But the one footnote that’s there, you should absolutely read.

Peter Zeihan has done a great job in educating a lot of people on the overwhelming power that the US has in military terms. He remarks in his book The Absent Superpower that one US Carrier Group has more force projection power than the rest of the world’s navies combined.

And the US has 11 carrier groups.

It is arguable that no country has ever enjoyed that level of military dominance.

But this is nothing compared to the financial power that the America wields every single day. This power is not only greater than any other power ever held by any organization or country…it is greater than anything imagined by hardly any of our ancestors. This article describes the extent of that power.

The Types of Sanctions

The Office of Foreign Asset Control is the arm of the US Executive Branch that enacts national, personal, and corporate sanctions. And they do so globally. Most people assume that sanctions basically exist against Iran, North Korea, Syria, Cuba, and sometimes Russia and China. While this is true, the vast majority of sanctions are levied against individuals and corporations. The OFAC Specially Designated Nationals and Blocked Persons List includes over 6,300 organizations (mostly companies) and is over 1,600 pages long. Most of these are companies are basically on a “do not bank, buy, or sell” list. Most of them are not American companies.

The OFAC also keeps another set of sanctions lists:

As for the countries that currently experience some level of direct US sanctions, I counted 25 countries directly listed here. So if you were wondering whether the US uses its power of sanctioning very much, the answer is a resounding yes. It is used extensively and globally and often.

But what are the reaches of these sanctions? Can they be avoided once levied? This is quite a journey, and it strongly illustrates the extent of the American financial power.

The Reach of Sanctions

Let’s assume that a hypothetical company has been sanctioned by the US government. Can they avoid the consequences of these sanctions?

To start with the most obvious category, almost anyone in the US falls under US law. Also, you would probably not be surprised to find that US sanctions can be applied to companies with headquarters or significant holdings in the US.

What if the company moves its registration outside the US, say to the Cayman Islands? Can it avoid the effects of sanctions? Well, definitely not if the headquarters of the company is still physically in the US.

So the company moves its headquarters out of the US. Does this help? No. If any part of the company or any subsidiary company is still physically in the US, then it is still under the purview of the sanctions.

But what if the company also physically moves its headquarters and all offices and subsidiaries outside the US? Well, there is an OFAC rule about that:

If any company moves money through US institutions, such as Bank of America, they are subject to the sanctions because they utilize US financial institutions.

So the company decides to not use any US financial institutions to do any financial transactions whatsoever. Is it out of the reach of US sanctions now?

No. If you are trading in goods that have been exported from the US or passed through the US at any point, even unfinished goods, then the US Treasure has determined you are still subject to US sanction rules and your funds can be frozen.

Ok, then the company decides to not do any work at all with any goods that have ever passed through the US. Are they free and clear?

No dice. If the bank that company uses is owned, even in part, by any US bank, then your company’s activities fall under sanction restrictions.

So the company stops using that bank and turns to a much sketchier bank, one that is not owned by a US institution. Well, their money got seized by the US anyway while that money was in transit. Why? Because the transaction occurred in US dollars. You see, for a bank to EVER work with US dollars, it pretty much has to have a Sanctions Compliance Program (SCP). Here is a memo from the US Treasury stating that if you want to do transactions in US dollars, then you have to have an SCP.

Okay…so any time the company uses US dollars, it might be flagged by its own bank that is not part of any US financial institution because it is on the US sanctions list, because the US Treasury told all banks dealing in dollars that they have to do this in order to be allowed to do US dollar transactions¹.

So. The company decides to do its transactions at that same bank, but not using US dollars in any transactions. Will this allow the company to avoid having its assets frozen due to US sanctions?

No. Part of the SCP any financial institution has requires the bank to flag and stop transactions that have the appearance of trying to avoid penalties associated with US sanctions. The company, by NOT using US dollars anymore, was taking a step designed to avoid sanctions, which is disallowed by the bank’s SCP.

So the sanctioned company decides to not do any wire transfers via the bank. It simply withdraws the large amounts of money and puts that money in a large paper bag to go buy things with. Surely now the company is free of sanctions.

No, the bank will note that this is “unusual activity” and flag the account, perhaps leading to it being frozen. There is actually a US Treasure rule about this:

Well, the company can simply lie about the purpose of withdrawing this money. If it’s not using it for an illegal transaction, then it cannot be stopped, right? Well, yes. The transaction finally goes through.

But the company is fined and perhaps people are jailed for lying to the bank, which is fraud. Further, if the bank regularly lets this happen, the US will put pressure on that bank and force it to stop doing business in that region because of sanctions compliance risk.

“AAAAARRGHH!” the sanctioned company collectively yells. Its officers decide that they will only do transactions with North Korea by walking money in a paper bag across the Chinese border.

Congratulations, sanctioned company, you have found a financial transaction that does not fall under the purview of US sanctions.

But Wait, There’s More

Well, hold on. What about transactions between non-sanctioned individuals that don’t use any US affiliated banks, and don’t use any American money transfer systems? Can the US Treasury grab money from non-sanctioned people doing transactions it doesn’t like?

There is the curious case of a Danish firm that bought $26,000 of Cuban cigars from a German export company. This transaction used the European money transfer system SWIFT. Here is a summary from Wikipedia:

“On 26 February 2012 the Danish newspaper Berlingske reported that US authorities have sufficient control over SWIFT to seize money being transferred between two European Union (EU) countries (Denmark and Germany), since they succeeded in seizing around US$26,000 that was being transferred from a Danish businessman to a German bank. The transaction was automatically routed through the US, possibly because of the USD currency used in the transaction, which is how the United States was able to seize the funds. The money was a payment for a batch of Cuban cigars previously (legally) imported to Germany by a German supplier. As justification for the seizure, the US Treasure stated that the Danish businessman had violated the United States embargo against Cuba.”

So even though the German-Danish transaction was legal by all their own laws, and used the EU money transfer system, and neither organization was under sanctions by the US, the US Treasury seized the funds because they were denominated in US dollars and the transaction electronically routed through the US.

The Greatest Power Ever Held

It should be very clear by now that this is the greatest power ever held by any organization in the history of humanity, with the possible exception of being able to nuke the entire planet unilaterally.

Now, I must say that I am extremely happy that if this power must exist, it resides in the hands of America instead of Russia or China or Saudi Arabia. The US generally wants the current trade system to continue, and that system lifts up and keeps up a lot of people globally out of poverty.

But imagine how dark this power could get. Imagine an American government completely given over to a hyper-authoritarian mindset, bent on overt and brutal control of the world. There would be no recourse.

Right now, if the US got extremely annoyed with a country even as powerful and significant as China, what could they do?

Using this financial power, the US could simply turn off 80-90% of all financial transactions that China does globally. And not only the transactions of the government itself. All transactions by any citizen or company in China could be stopped.

And on top of that, the funds could not only be stopped, but also largely confiscated. The US literally has the ability to seize a lot of the funds. Trillions of dollars could be grabbed literally in just a few hours, while most of the country slept.

Homer Simpson’s T-shirt while visiting Brazil

The US could, without raising a gun or moving a single troop, throw any country on Earth into instant starvation and blackouts, killing 80% of that population in months. And it could do so unilaterally, and no one could do anything about it.

I do not relish imagining such a tyrannical, evil America. I don’t think it is very likely such an America will ever happen. But using just currently deployed tools, it could perform these tyrannical things.

Which is why I wrote this article — to raise awareness. Only American citizens have the ability to prevent America from ever going down such a dark path. The most extreme and incredible power ever is essentially in our hands. It is our responsibility to keep watch over our government and quickly snuff out any tendencies toward authoritarianism, empire, and darkness. If there is censorship, we must cry out. If government institutions are co-opted to oppress political dissidents, we must cry out. If our country uses its immense financial power for overt international oppression, we must cry out. And we must keep watch.

With the greatest power comes the greatest responsibility.

1. In January of 2021, the US Treasury fined a paper products manufacturer in Indonesia over a million dollars for violating US sanctions. The Treasury, in the enforcement release, makes it clear that US sanctions enforcement is Global in scope.

"This case further highlights the risks to non-U.S. persons who involve the U.S. financial system in commercial activity with an OFAC-sanctioned country, region, or person."

This case involved an Indonesian company a non-US bank, using a non-US money transfer system (SWIFT), but happened to be doing the transaction in US dollars. The Treasury, in the enforcement action makes it clear that any involvement of US persons or US services by any entity including non-US persons and non-US companies violates US sanctions.

No US bank was identified, the Treasury deems any transaction that involves US currency to have involved US financial institutions.