Author:Byron Gilliam
Compiled by: Deep Tide TechFlow
Deep Tide Insight: Stuart Levey changed the rules of the financial sanctions game with a simple insight—don't try to persuade governments, persuade the banks directly. This playbook turned the dollar system into a chokehold against adversaries, but its overuse is now forcing the emergence of alternatives, including cryptocurrencies. For investors, understanding this logic of economic warfare means understanding why de-dollarization is not just a slogan but an urgent necessity.
During the 2004 presidential debate, when John Kerry accused President Bush of insufficient economic sanctions against Iran, Bush responded with an almost exasperated tone: "We've sanctioned Iran! There's nothing left to sanction."
There was virtually no direct trade between the two countries at the time, making it seem like there was indeed nothing more to sanction.
Yet, Iranian shelves were still stocked with American-made consumer goods. The New York Times reported at the time: "Maytag refrigerators, Diesel clothing, and Victoria's Secret underwear are quite popular here."
Thousands of Iranian businesses circumvented U.S. sanctions simply by setting up offices and bank accounts in Dubai. "The best place to do business in Iran," one merchant told the New York Times, "is in Dubai."
Such arrangements had rendered American sanctions almost meaningless. But Bush's statement during the debate inspired a Treasury official to rethink the sanctions mechanism.
"Stuart Levey took that frustration as a personal challenge," writes Edward Fishman in his book *Chokepoints: American Power in an Era of Economic Warfare*.
At the time, Levey was the Under Secretary of the Treasury for Terrorism and Financial Intelligence, tasked with finding ways to cut off funding sources for sanctioned organizations and nations.
He reinvented the playbook for sanctions. Fishman calls Levey the "founding father of American financial warfare." Others call him the "sanctions technocrat." Some say he is a "guerrilla in a gray suit."
Levey earned these titles during his decade in government. But his lasting impact stems from a simple insight: you can tell banks directly whom not to do business with.
Levey's Moment of Insight
Levey's moment of insight came in 2006 when he read a news report about a Swiss bank voluntarily cutting off all dealings with Iran.
"It suddenly clicked," he later said. "When we said 'there's nothing left to sanction,' we meant it was illegal for U.S. companies to do business with Iran. But that didn't mean the whole world had stopped doing business with Iran."
The problem was that while Iranian banks had been prohibited from transacting directly with U.S. banks since the mid-1990s, they could still access the U.S. banking system indirectly through correspondent banks.
To make a dollar payment, an Iranian bank would send money to a bank in Europe or Asia, which would then route it through a U.S. correspondent bank to the recipient—a correspondent bank being one that settles dollar transactions on behalf of other banks.
This loophole seems obvious in retrospect, but before Levey, no one in the government paid much attention to this niche corner of the financial system. Even if they did, it seemed powerless. Stopping these transactions appeared to require the arduous task of convincing other governments to instruct their banks to stop dealing with Iran.
Levey's insight was: he could lobby the banks directly.
"From his experience in private law practice," Fishman writes, "Levey was familiar with how corporate executives viewed regulatory and reputational risk. He believed he could convince them to voluntarily cut ties with Iran, regardless of whether their home governments supported it."
The persuasion was laced with a warning: the Treasury would pursue U.S. sanctions violations achieved through correspondent banking.
"We never threatened," Treasury Secretary Hank Paulson told Fishman. "We just talked about how important it was not to break the rules, not to be involved in illegal transactions."
The subtext: That's a nice bank you have there...
The implied threat was that violating U.S. sanctions laws could lead to massive fines or even losing access to U.S. correspondent banks, thus losing the ability to move dollars.
Not every bank was happy to receive this message.
Fishman quotes the response from Standard Chartered's number two: "You bloody Americans. Who are you to tell us, to tell the world, who they can do business with?" They found out the answer a few years later—U.S. enforcement agencies fined Standard Chartered $359 million for sanctions violations.
Other banks needed no persuasion at all.
"Chinese banks didn't tell me they weren't doing business with Iran," Levey told Fishman. "They just stopped."
"Eighteen months into the campaign, almost every major global bank had stopped servicing Iranian transactions, even though their home governments and the United Nations had not required them to do so," Fishman writes.
One measure of the effectiveness of Levey's campaign is that Iran's central bank governor labeled it "financial terrorism."
But one person's financial terrorist is another's financial freedom fighter. Fishman calls the campaign an act of economic warfare.
Treasury Secretary Scott Bessent prefers the term "economic statecraft."
Levey's Daily Rate
In a speech last month, Secretary Bessent defined economic statecraft as "the disciplined use of American economic power in defense of sovereignty."
This includes the kind of power Levey uncovered. Access to the dollar system, Bessent said, "is no longer unconditional."
In fact, it has been conditional for a while. Even before Levey, the U.S. punished adversaries like Cuba and Libya by denying them access to the banking system.
Levey's discovery was just how much of a chokepoint the dollar system could be, and how the U.S. could use it to pursue geopolitical goals.
Bessent's emphasis on economic statecraft is a declaration that America intends to use this power more aggressively.
Fishman might applaud the idea—he believes economic warfare can be an effective alternative to hot war.
To that end, he suggests the U.S. establish "a permanent economic warfare committee" to propose policies faster and better during crises.
But he also warns that this trick won't work forever. Financial sanctions are like antibiotics: effective in high doses, but lose potency with overuse.
The U.S. may already be overusing them, evidenced by adversaries—and even friends—taking increasing measures to create alternatives to the dollar system.
Some of these alternatives involve cryptocurrencies, including the billions of dollars Iran has moved in recent years via stablecoins.
Stablecoins could be used to evade sanctions, which is why Stuart Levey joined Facebook's stablecoin project Diem as CEO in 2020—"because he wanted to ensure that digital currencies would not undermine American financial power," Fishman writes.
Unfortunately, Diem shut down in less than two years.
But Levey—the founding father of American financial warfare—landed on his feet.
As Chief Legal Officer at Oracle, he earned $14.5 million last year.
