Hi there,
So i was going through our industry and company course, and today I learnt that the US state can fine companies (as it did to commerzbank) for carrying out activities, deals and projects in sanctioned countries? How can a state fine a companion from another country for its business dealings?
In: Economics
Well, it doesn’t work on your average mom and dads shop. But large companies like a bank usually operate globally, even if their origins an global HQ isn’t in the US, they will have business there.
So their options are to either pay the fine or get out of the US market. Most opt for the first option, but you will see companies threatening to leave if legislators for example want to introduce more regulation.
edit: found the subsidiary. They’re called Commerz Markets LLC, based in NYC. https://www.worldwide.commerzbank.com/en/home/inhalte/niederlassungsseite_5555.jsp
The Commerzbank has branches in the US and is therefore partially in US juristication.
They can fine pretty much any company that does business in the US for whatever reason, and the options that company has is either paying the fine or retreating completely from the US.
Even if a company does not have any assets in the US they might have some customers or suppliers with some assets in the US. And it is possible to argue in court that since the customer owes your company money then the assets they have in the US is actually your companies assets and can be seised when you do not pay your fine. The US also have deals with other countries to make them collect the fine if it goes unpaid. There are also cases where such a deal have not been in place and the debt collector have been successfull in arguing in court that since the conty does not allow them to collect debt then they should be able to seise any asset in the US connected to any citizen of that country.
One of the biggest issues with any form of international trade is the lack of trust. The simplest issue will be around the delivery of goods and the delivery of payment. Very often sellers will not find it practical to conduct face to face transactions with the buyer for obvious reasons. This is resolved typically by using an intermediary. For physical goods, this can be in the form of trading companies, shipping companies, insurance firms etc. For financial goods, it almost always involves a bank and interbank transactions.
This is where all government have controls and regulations. If they can block the financial transaction, then trade is very difficult. For the US, this power is immense as virtually no bank can afford not to do business in USD and with other banks that have to operate in the US. Hence all banks would rather pay a fine than to be essentially cutoff from interbank transactions (ie essentially, they will not be able to do business)
Even if a company does not do any business in the US they still need to use banking services, and pretty much all large banks do business in the US so they will not work with that company for fear of fines which will make it significantly more difficult for that company to do business even if they can’t get fined. Commerzbank was fined for exactly this case as they facilitated other companies working in sanctioned countries.
Because the US is so large and powerful that it can do basically whatever it wants.
Lets say you own a bakery in Canada. You bank with a Canadian Bank and sell to other Canadians in your local area. No American connections right?
Well, not quite. Lets say the US wants to sanction your bakery. The very first thing they do is they send a notice to all the American banks that says, no one can do business with anyone that does business with my bakery.
Initially this does not bother me, I don’t really do much business with Americans. But then my oven breaks and I need a new Oven. But my Oven is manufactured in the US, so I can’t buy one.
I need flower. I buy flower from my local flower mill, but they buy wheat from the US. They refuse to sell me flower because they are scared that the US wheat dealers won’t sell to them in the future.
Then Visa calls and says I can’t take VISA cards anymore. The next day MasterCard and Amex both do the same. I now can’t take any credit cards, but at least I can take debit (much more popular in Canada).
My Bank is CIBC the Canadian Imperial Bank of Commerce one of the largest banks in Canada. They call me and say they are closing my business accounts. The reason, they do a lot of business with American companies and other american banks and the American sanctions against me will interfere with that business. That business is much larger than my business so they are saying goodbye to me as a customer.
There are a number of other large banks in Canada, all of them refuse me service. I manage to get a local credit union to take my business but they don’t do merchant processing so I now can’t take debit at all.
So now I have a bakery with no oven, no flower and can only take cash payments. My customers are all angry because who the fuck uses cash during COVID and all of my baked goods are nasty without flower. I go out of business.
If you want to clear USD which most global companies do then you better not trade with sensitive sanctioned countries, entities, individuals or vessels.
The reality is counties like China couldn’t give a shit about list based US Sanctions.
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