Read on Twitter
Global financial infrastructures like SWIFT have been allies of US foreign policy. But what if they stop cooperating when the US goes after kleptocracy and tax evasion? I consider this scenario in a new piece in @aminterest 1/ https://www.the-american-interest.com/2020/09/04/getting-a-grip-on-global-financial-infrastructure/
Ever since SWIFT cut off Iranian banks (especially when it cut them off while the EU was opposed) the global facilitators of finance have helped teh US achieve its FP goals 2/ https://www.mitpressjournals.org/doi/abs/10.1162/isec_a_00351?mobileUi=0
SWIFT is the most famous example, but other key infrastructures have played a part too. Securities-services providers like ClearStream have isolated Iran/Russia. 3/
https://www.ft.com/content/110aee8c-3cac-11e8-b9f9-de94fa33a81e
https://www.reuters.com/article/us-usa-deutscheboerse/deutsche-boerse-to-pay-152-million-in-u-s-sanctions-probe-idUSBREA0M1V720140123
https://www.ft.com/content/110aee8c-3cac-11e8-b9f9-de94fa33a81e
https://www.reuters.com/article/us-usa-deutscheboerse/deutsche-boerse-to-pay-152-million-in-u-s-sanctions-probe-idUSBREA0M1V720140123
EM bond index providers have zeroed out VZ in their influential indices (see this great paper on indices' influence in a world of passive investing) 4/
https://www.ft.com/content/736f2320-a251-11e9-974c-ad1c6ab5efd1
https://journals.sagepub.com/doi/abs/10.1177/1369148117737263
https://www.ft.com/content/736f2320-a251-11e9-974c-ad1c6ab5efd1
https://journals.sagepub.com/doi/abs/10.1177/1369148117737263
And the London Metals Exchange cut off a top global aluminum producers in response to Russia sanctions 5/ https://www.ft.com/content/3f92475e-3f1e-11e8-b9f9-de94fa33a81e
These infrastructures started as ways to make commerce easier, now they are key nodes in the global economy and key enablers of US FP (even China has expressed concern over SWIFT) 6/ https://www.reuters.com/article/us-china-banks-usa-sanctions/chinese-banks-urged-to-switch-away-from-swift-as-u-s-sanctions-loom-idUSKCN24U0SN
Still, this partnership has been based on a limited vision of FP: not VP Biden's "foreign policy for the middle class" that would tackle transnational problems like tax evasion and kleptocracy (see Jake Sullivan's articulation) 7/
https://www.foreignaffairs.com/articles/united-states/2020-01-23/why-america-must-lead-again
https://www.theatlantic.com/magazine/archive/2019/01/yes-america-can-still-lead-the-world/576427/
https://www.foreignaffairs.com/articles/united-states/2020-01-23/why-america-must-lead-again
https://www.theatlantic.com/magazine/archive/2019/01/yes-america-can-still-lead-the-world/576427/
Infrastructures are ideal partners in this expansive FP vision. They make all global economic networks possible (for good and ill) so they unify the global economy and limit the problem of exit. 8/ https://twitter.com/toddntucker/status/1302013007170592768
. @TaxJusticeNet has called for "SWIFT statistics for all" to solve tax evasion and @stefeich in @thenation has highlighted the “untapped utopian promise” of “global monetary and financial regulation” 9/
https://www.thenation.com/article/archive/swift-a-modest-proposal/
https://www.taxjustice.net/wp-content/uploads/2019/07/Swift-proposal-2019-Tax-Justice-Network.pdf
https://www.thenation.com/article/archive/swift-a-modest-proposal/
https://www.taxjustice.net/wp-content/uploads/2019/07/Swift-proposal-2019-Tax-Justice-Network.pdf
This might not happen. The cooperation on US FP w/ infrastructures was the produce of specific conditions that might not repeat themselves. 10/
First, the US had to impose major fines/enforcement to make this happen. This time, it would be far harder because these networks are more rooted in global finance. US regulators would need more effort to change private sector's risk calculus. 11/
Second, these private infrastructures have been fickle friends. Today, even as they cooperate with US, UK banks are also cutting off pro-democracy activists in HK 12/ https://www.reuters.com/article/us-hongkong-security-usa-hsbc/u-s-says-china-bullying-uk-cites-hsbc-hong-kong-related-accounts-idUSKBN25M1DT
These infrastructures even helped US hedge funds get repaid by Argentina. Buenos Aires could no longer pay bondholders through traditional infrastructures under pressure from private sector.(see the great "Global Banks on Trial" by @PierreHVerdier) https://global.oup.com/academic/product/global-banks-on-trial-9780190675776?cc=us&lang=en&
Third, even if they were steady partners these infrastructures are open to individual corruption (as the LIBOR scandal suggests). It would not make sense to place such an important US anti-evasion/anti-kleptocracy effort on such a shaky foundation.
For this reason, I speculatively argue that the US should push for these infrastructures to become public, supranational organizations
Short-term losses in unilateral US power would be made up by long-term stability for US priorities and hedging against unreliable partners 15/
Short-term losses in unilateral US power would be made up by long-term stability for US priorities and hedging against unreliable partners 15/
The US can take on kleptocracy and tax evasion (as @b_judah @BuddyYakov and I argue). But these are global problems. So it requires rethinking global systems, including financial plumbing. 16/
https://www.the-american-interest.com/2020/09/04/getting-a-grip-on-global-financial-infrastructure/
https://foreignpolicy.com/2020/06/03/biden-united-states-kleptocracy-power-sanctions/
https://www.the-american-interest.com/2020/09/04/getting-a-grip-on-global-financial-infrastructure/
https://foreignpolicy.com/2020/06/03/biden-united-states-kleptocracy-power-sanctions/
Many thanks to @dmarusic for the opportunity to write about this issue.
