If U.S. rejects the Iran deal and continues sanctions unilaterally, it would compel development of alternatives to U.S.-led global financial system, critically undermining valuable counterterrorism tools and other sanctions
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Those consequences pale in comparison, though, to what would almost certainly happen to the U.S. position in the global financial system. The United States is so deeply integrated into that system that there are few international entities that U.S. law cannot touch. It was the United States, after all, that was able to attack years of bribery and corruption in the international soccer organization FIFA—not because bribes were offered on U.S. soil, but because they passed through entities connected to U.S. banks. Even far-flung networks of informal money transfer agents in South Asia, known as “hawalas,” are part of the web.
If the robust secondary sanctions contained in U.S. law were applied in defiance of international consensus, there would surely be a rush to develop financial instruments that would be beyond U.S. reach. Computer experts talk about creating an “air gap” to ensure that sensitive information is never put on a computer that can in turn be exposed to the public Internet. One could easily see a drive toward financial institutions that are protected from U.S. scrutiny, and from U.S. law enforcement. They would have no connections to U.S. banks or U.S. networks, and the U.S. Treasury Department would be unable to touch them. China’s new Asian Infrastructure Investment Bank (which has 50 founding members, including many U.S. allies) could be part of the architecture for this parallel organization, and even many Asian allies of the United States with keen energy interests in Iran would be tempted to sign up.
The establishment of a parallel banking system would be a blow to U.S. prestige, but that would be the least of it. Its establishment would destroy an apparatus that has been painstakingly built—in large measure during the Bush administration—to give the U.S. government unprecedented visibility into criminal transactions around the world and to sanction individuals and institutions who abet terrorism. Americans would be at much greater risk.