By: Christine Abely
This Article examines a recent phenomenon: the use, since 2017, of certain statutory and regulatory provisions by the Office of Foreign Assets Control (OFAC) within the US Department of the Treasury to pursue enforcement action against sanctions violations by non-US parties which involve only the use of the US dollar as the basis for US jurisdiction. The statutory language used as the basis for such enforcement was first enacted in the 2007 amendments to the International Emergency Economic Powers Act (IEEPA). This language, which now appears in the regulatory provisions of most US sanctions programs, penalizes conduct by non-US parties that cause US parties to violate US sanctions regulations. This can occur, for example, when non-US parties transact in US dollars and thereby involve US financial institutions in the dollar clearing and settlement process.
Prior to 2017, similar enforcement actions based on US dollar-based sanctions violations were pursued on technically different legal grounds, such as the indirect supply or export of financial services. More significantly, they primarily targeted foreign financial institutions processing dollar-denominated transactions rather than non-banks choosing to transact using the dollar. The novel theory of liability, involving the use of the US dollar to cause sanctions violations through dollar processing and clearing activities, and as the sole basis for US jurisdiction, was first employed against a foreign nonfinancial institution by OFAC in 2017. Since that time, this causation tool has been used in multiple enforcement actions by OFAC as the jurisdictional basis for pursuing sanctions enforcement. This Article argues that the use of the causation language in this way represents a novel expansion of the application of US sanctions.
This Article analyzes this phenomenon and certain issues that arise through the use of this legal theory when the dollar clearing and settlement process becomes more complex. And technical legal issues aside, the US government’s use of its legal authorities in this way raises a broader policy question of whether the US dollar should be weaponized to transmit US sanctions policy to govern the actions of non-US parties, now reaching to influence the actions of non-US parties who are not themselves financial institutions. The use of the causation tool as a basis of liability also poses important questions around maximizing transparency in sanctions compliance and enforcement and raises policy considerations inherent to the use of the causation mechanism as the sole basis for US jurisdiction.