Economic Sanctions Are Arbitary and Lawless

To President Obama, two wrongs make a right. Also, might makes right.

Suppose a neighbor steals your cat. Would it even be morally just to punch another neighbor (or the neighbor’s kid) in the face to retaliate?

If you are president Obama, the answer is yes.

Please consider How Obama Crippled a Russian Bank with a Stroke of a Pen.

On Thursday, President Obama sent a message to Russian president Vladimir Putin about strength. Specifically, economic strength. The message was this: Whenever I decide to, I can pick up a pen, and kill a significant financial institution in your country.

Obama’s victim was the St. Petersburg-based Bank Rossiya.

Bank Rossiya is not the largest bank in Russia by a long shot, but its significance lies in its clientele rather than its size. In announcing the sanctions, the Treasury Department noted that Bank Rossiya “is the personal bank for senior officials of the Russian Federation” including members of the Ozero Dacha Cooperative, an exclusive community where members of Putin’s inner circle live. In addition, it provides financial services to the single largest segment of the Russian economy – the oil, gas, and energy sector.

Essentially, this is a credit union for oligarchs, with a side business in financing the Russian energy industry. Its customers include many more high-profile Russians than just those named in the Treasury statement. As of Thursday it is, for all intents and purposes, out of business.

“They’ve got to go to another bank,” said Lester M. Joseph, former principal deputy chief of the Department of Justice’s Asset Forfeiture and Money Laundering section. “That bank is pretty much a pariah.”

Currently the international investigations manager at Wells Fargo Bank, Joseph said when heard about the sanctions on Bank Rossiya, the first thing he did was check to see if it was a customer of his institution. “It is not, thankfully,” he said.

The impact doesn’t stop there, Joseph explained. His next step, which is ongoing, is to see if any banks that Wells Fargo has relationships with are also doing business with Bank Rossiya, and to make sure that none of those banks are routing transactions from the Russian bank through Wells Fargo’s system. “If a transaction from that bank is coming from another bank, we would have to block it,” he said.

As one U.S. official told Reuters, Bank Rossiya will be “frozen out of the dollar.”

“This is a new thing,” said Joseph. “It’s not a rogue bank. It’s a bank in a country where we do a lot of business. It’s not involved in a criminal case.” Compared to other actions by past administrations, he said, “It’s much more complex.”

Criminal Actions by Obama

Bank Rossiya is frozen out of the US dollar even though it is not a rogue bank, is not involved in any criminal investigation, and in fact has not done anything wrong.

I cannot predict the result of this, and also suspect the impact as assessed above is a bit trumped up. After all, how many US dollar transactions does Bank Rossiya conduct?

Regardless, the actions of Obama are disturbing. You do not (rather you should not), punch an innocent party in the face as a means to force a third party to do what you want.

The action by Obama is both criminal and hypocritical. And I bet it does not even work.

Mike “Mish” Shedlock