The Trump administration, pressuring Iraq to keep American troops, has issued this warning: If U.S. troops are booted out, as the Iraqi parliament voted last week, the U.S. will block Iraqi access to its central bank’s account at the New York Federal Reserve. This in turn, would wreak havoc with the Iraqi currency and financial system.
That’s hardball. The U.S., still the center of the global financial system, has many such weapons. But it uses them very selectively.
Consider the new movie The Laundromat, starring Meryl Streep. The film is a fictionalized account of the law firm exposed in the Panama Papers, Mossack Fonseca, based on the 2016 leak of over 11 million documents. The papers showed how the firm was at the center of a global web of some 13,000 very important people, who used shell companies to evade taxes, launder money, and defraud investors.
What did the U.S. government do after the exposure? Almost nothing. But since the money, nominally booked in tax and regulatory havens, eventually has to pass through U.S. and European banks and financial markets, the major Western governments could shut down these scams overnight, if they wanted to. Except they don’t want to, because big money calls the tune.
After the attacks of 9/11, the Bush administration ordered America’s banks to disclose information to the government on suspected money laundering that might be used to provide financing to terrorists. The government duly promised that this data would not be used to go after tax evasion. Indeed, the Bush administration weakened existing enforcement efforts against offshore tax evasion.
How the U.S. government plays financial hardball depends on who you are. Iraq, our supposed ally in the war against terrorism, gets hosed. Financial predators get the red-carpet treatment.