Secondary Sanctions
How the US punishes foreign companies for doing business with US-sanctioned targets, and why allies call it economic imperialism.
How Secondary Sanctions Work
Primary sanctions prohibit American companies and individuals from dealing with sanctioned targets. Secondary sanctions go further: they threaten penalties against any company, anywhere in the world, that does significant business with a sanctioned entity. A Chinese bank that processes transactions for a sanctioned Iranian company can be cut off from the US financial system. A European manufacturer that sells equipment to Russia can face penalties from the US Treasury.
The mechanism works because of the dollar's centrality to global finance. Virtually every major bank and corporation in the world needs access to the US financial system and dollar-denominated transactions. When forced to choose between doing business with a sanctioned entity and maintaining access to the dollar system, companies almost universally choose the dollar. This gives the US extraordinary leverage -- but it also generates resentment and incentivizes efforts to reduce dollar dependence.
