Regulations have their repercussions. The Eurobond market was created in the 1960s as a response to unfavourable US tax rules and securitisation is a way of getting around capital restrictions. What, then, will be the outcome of the US sanctions regime, which has left BNP Paribas on the receiving end of a likely fine of up to $9bn even though it did nothing illegal in France or Switzerland where the trade finance operation in question was based?
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The high penalties being levied for erring in the case of sanctions, tax avoidance and anti-money laundering mean that Know Your Customer and sanctions compliance toolkits are now at the heart of every major bank’s operations. It follows that a lot of customers and trades are being rejected, some for good reasons and others on the basis of 'if in doubt, throw it out'.
This means that banking rules are significantly impacting trade – the essential driver of economic growth. They are also driving business into the shadows to be conducted, not by international banks which fear for their reputations, but by smaller and less well regulated players. This is the law of unintended consequences in action.
And there is a further impact. The US has its issues with certain countries, such as Iran, Sudan and Cuba (with Cuba it is as much about winning elections in Miami as about anything that happens in Cuba). But, if all of the countries that failed to reach US standards on human rights were targeted, world trade would effectively grind to a halt. In fact, trade and commerce are the best form of diplomacy between countries that disagree.
There are now large swathes of the world that disagree with the US and whose economic power is ever rising – China and Russia being the prime examples. With American hegemony in jeopardy, the sanctions regime and the way it is applied to trades between non-US counterparties just because they are in dollars, may hasten the decline of US power.
Trade in the Chinese currency, the renminbi, is growing fast and may soon begin to provide a real alternative. International bond issuance structures and origins may also change due to recent US court rulings on the treatment of hold-outs from a restructuring that followed Argentina’s debt default in 2001. The shift East may have a push factor as much as a pull factor.
