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    The Jordan Harbinger Show

    863: Juan Zarate | Waging Financial War on Rogue Regimes

    Tue Jul 18 2023
    SanctionsInternational RelationsFinancial InstitutionsGeopoliticsBlockchainCryptocurrency

    Description

    The episode explores the power of sanctions in international relations, their nuances, types, implications, and challenges. It highlights the role of financial institutions and the geopolitical implications of sanctions. The use of blockchain technology and the rise of cryptocurrencies are also discussed. The episode emphasizes the importance of resilience, alliances, and effective targeting of rogue behavior in maintaining US interests.

    Insights

    Sanctions as a Middle Ground

    Sanctions provide a middle ground between diplomacy and military action, allowing for influence through financial measures and economic tools.

    The Impact of Sanctions on Russia

    The Russian economy has been negatively impacted by sanctions with contraction in GDP numbers, loss of foreign direct investment, difficulties for oligarchs, etc.

    The Role of Financial Institutions

    Financial institutions play a crucial role in considering the risk of doing business with entities involved in illicit activities or terrorism financing.

    Challenges in De-risking

    De-risking poses challenges for populations unable to access banking services, leading to concerns about last mile risks and potential negative externalities.

    Geopolitical Implications of Sanctions

    China and Russia leverage blockchain technology to weaken US interests, while Chinese sanctions demonstrate their intent to use their economy as a tool of influence.

    Chapters

    1. The Power of Sanctions in International Relations
    2. Understanding the Nuances of Sanctions
    3. Types and Implications of Sanctions
    4. The Role of Financial Institutions in Sanctions
    5. Challenges and Considerations in Sanctions
    6. The Geopolitical Implications of Sanctions
    Summary
    Transcript

    The Power of Sanctions in International Relations

    00:00 - 06:30

    • Sanctions are a form of economic coercion or statecraft used to affect national security interests.
    • Energy resources, companies, and currency can be deliberate strategies to achieve national security goals.
    • Sanctions go beyond restricting purchases; they have broader implications for economies and societies.
    • Sanctions provide a middle ground between diplomacy and military action, allowing for influence through financial measures and economic tools.
    • The goal is to make it harder, costlier, and riskier for America's enemies to raise and move money globally.
    • Sanctions are effective tools that give teeth to diplomacy, aid law enforcement and intelligence efforts, and have been refined over time.

    Understanding the Nuances of Sanctions

    06:02 - 12:29

    • Sanctions work by denying access to resources, systems, and technology, impacting the bottom line of those targeted.
    • The attractiveness of US markets, the power of the economy, and the role of the dollar make the US a powerful player in imposing sanctions.
    • While adversaries may try to find ways around sanctions, they still face challenges in accessing capital and resources.
    • The Russian economy has been negatively impacted by sanctions with contraction in GDP numbers, loss of foreign direct investment, difficulties for oligarchs, etc.
    • Applying crippling sanctions against a major G20 economy like Russia is challenging due to complications related to oil and energy revenue.

    Types and Implications of Sanctions

    12:15 - 19:02

    • Sanctions can target specific actors or countries, preventing them from accessing the international financial system.
    • Different types of sanctions include export controls, bans on certain investments, and restrictions on specific banks.
    • Multilateral harmony in applying sanctions is considered the most effective approach.
    • The US has been criticized for being too unilateral in its use of sanctions.
    • Major international currencies like the Swiss Franc, Euro, Sterling, Yen, and Dollar are part of the bloc sanctioning Russia.
    • Chinese banks have voluntarily complied with sanctions despite their government's lack of enforcement.
    • Legitimate actors in the international financial system avoid doing business with rogue regimes or actors.
    • Post-9/11, market discipline around the risk of doing business with rogue capital became a part of the calculus for financial institutions.

    The Role of Financial Institutions in Sanctions

    25:08 - 31:59

    • Financial institutions need to consider the risk of doing business with entities like al-Qaeda, the Iranian Revolutionary Guard Corps, and North Koreans operating through China.
    • Access to the global financial system requires legitimacy and compliance with regulations.
    • Crypto platforms are now subject to stricter regulations, including anti-money laundering measures.
    • Regulators view crypto through the lens of consumer fraud risk, money laundering risk, and potential systemic risk.
    • Legitimate actors in the crypto space recognize the need for systems like know-your-customer (KYC) and sanction screening.
    • Misuse of the banking system by criminals is a national security issue.
    • There are dark corners in the financial system that enable illicit activities, but authorities target them eventually.

    Challenges and Considerations in Sanctions

    1:10:43 - 1:17:06

    • De-risking is a challenge for segments of populations that aren't able to bank, such as the Somali diaspora.
    • Chase and other banks avoid banking services for fear of last mile risk, involving pirates, terrorists, or corrupt warlords.
    • China is cracking down on American Western Japanese companies engaged in business due diligence and compliance work.
    • Westerners are reconsidering their exposure to China due to these crackdowns.
    • There are concerns about being arrested in China for speaking negatively about the CCP or violating national security laws.
    • Cryptocurrency presents both risks and opportunities in terms of access to resources and illicit finance control.
    • North Korea has turned to cyber heists and crypto schemes to gain access to capital worth billions of dollars.
    • Crypto may not be relevant in the US but can be attractive for individuals in countries with devalued currencies or political instability.
    • Transacting peer-to-peer with transparency can be part of an international financial system focused on access and transparency.

    The Geopolitical Implications of Sanctions

    1:16:50 - 1:23:16

    • China and Russia are leveraging blockchain technology to weaken the interests of the United States.
    • China's Belt and Road initiative poses a challenge to the United States' financial warfare advantage.
    • Chinese sanctions against US companies and individuals demonstrate their intent to use their economy as a tool of influence.
    • State actors aim to undermine the credibility of US institutions, financial system, and political system.
    • The US needs to strengthen its resilience, alliances, define rules of the road, and target rogue behavior effectively.
    • Stable coins backed by the US dollar indicate trust and confidence in the dollar even in the crypto domain.
    • Chinese people face capital flow restrictions but still seek opportunities to invest outside China.
    • People worldwide prefer holding dollars due to its perceived safety and effectiveness as a currency.
    • Money, power, and economic influence play a significant role in global competition and warfare.
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