The Architecture of Coercion and Its Collapse
For three decades after the Cold War, the United States exercised a form of global governance that rested on a simple but devastating mechanism: the extraterritorial application of American law, backed by the threat of exclusion from the dollar-denominated financial system. This mechanism allowed Washington to reach into the internal affairs of sovereign states, compel foreign banks to surrender client information, force multinational corporations to abandon lawful contracts, and impose criminal penalties on conduct that occurred entirely outside American territory. The system was not negotiated; it was imposed. And it functioned not because other nations consented to it, but because they had no alternative.
That era is ending. The enforcement gap—the growing distance between the legal claims the United States asserts and the coercive capacity it possesses to make those claims real—has become the defining feature of the contemporary international financial order. The United States continues to write extraterritorial rules, designate sanctions targets, and threaten secondary penalties. But the machinery through which those rules were once enforced—the dollar clearing system, the correspondent banking network, the intelligence-sharing arrangements that turned foreign institutions into de facto agents of American surveillance—is no longer capable of delivering compliance on the scale required.
This chapter argues that the extraterritorial application of American law has no meaning without preeminence in military force and/or dollar sanctions. The unipolar moment is over. What remains is a legal architecture without a foundation—a system of rules that grows more elaborate even as the power to enforce them drains away.
The Legal Architecture of Extraterritoriality
The legal framework through which the United States projects its jurisdiction beyond its borders is not a single statute but a coordinated system of laws, executive orders, enforcement actions, and surveillance mechanisms. As one recent study in the Fordham International Law Journal observed, “Law is presumed territorial. The United States has built an exception: a coordinated system of extraterritorial statutes, enforcement actions, financial sanctions, export controls, and surveillance that regulates allies’ economic choices”. High-profile enforcement actions—the prosecution of foreign banks, the designation of foreign officials, the seizure of foreign assets—are not aberrations but surface signals of a long-running regime.
The statutory foundation of this regime rests primarily on the International Emergency Economic Powers Act (IEEPA) of 1977, which authorizes the President to regulate international economic transactions during a declared national emergency. IEEPA allows the President to impose sanctions on “any property, subject to the jurisdiction of the United States” when the United States faces an “unusual and extraordinary threat” originating “in whole or substantial part outside the United States”. The Act has been used to justify sanctions programs against Iran, Russia, North Korea, Venezuela, and dozens of other countries, as well as the designation of thousands of individuals and entities as Specially Designated Nationals.
Beyond IEEPA, the extraterritorial apparatus includes the USA PATRIOT Act, which expanded surveillance and money laundering enforcement powers; the Foreign Corrupt Practices Act, which imposes criminal liability on foreign corporations for bribery of foreign officials; FATCA, which compels foreign financial institutions to report American account holders under threat of a 30 percent withholding tax; and the Countering America’s Adversaries Through Sanctions Act (CAATSA), which imposes secondary sanctions on foreign entities doing business with designated parties.
What unites these statutes is a common assumption: that the United States has both the right and the capacity to regulate the global financial system according to its own preferences. That assumption was valid when the dollar was supreme, when the American military guaranteed the security architecture within which the dollar operated, and when no alternative payment infrastructure existed at scale. It is becoming less valid with each passing quarter.
The Intelligence Backdoor: How Surveillance Became Enforcement
The extraterritorial enforcement regime has always depended on an intelligence dimension that is rarely acknowledged in the legal literature. The capacity to enforce American law abroad required not merely legal authority but information—knowledge of who was transacting, with whom, for what purpose, and in what amounts. The American intelligence community provided that information, using foreign financial institutions as unwitting collectors of data for American enforcement purposes.
The most significant mechanism of this intelligence backdoor was the program through which the Society for Worldwide Interbank Financial Telecommunication (SWIFT) granted the CIA and the Treasury Department access to its records of global financial transactions. SWIFT, a Belgium-based cooperative, operates the messaging system through which banks communicate about cross-border payments. It is, in effect, the nervous system of the global financial order. After the September 11 attacks, SWIFT agreed to cooperate with the US Treasury by creating a system where personal data was transferred to a “black box” owned by the US authorities. The program allowed analysts from the Treasury Department and the CIA to input a name into a vast database and determine whether that individual or group was moving money “pretty much anywhere in the world”.
The legal basis for this program was shaky. The CIA data mining program was “smuggled past all control bodies of the ‘Foreign Intelligence Surveillance Act’ (FISA)”. The program was conducted without the knowledge of European governments, and when it was revealed in 2006, it ignited a firestorm. As one Swiss media outlet reported, “The United States has confirmed it has been monitoring international financial transactions, including those in and out of Switzerland, for almost five years”. The Swiss financial center was particularly affected, as Swiss banks had believed that their transactions were protected by Swiss banking secrecy and European data protection law.
The SWIFT program was not an isolated case. The CIA has historically used banks as instruments of covert operations, moving money through shell companies, front organizations, and legal cover to influence wars and operate beyond public oversight. The agency has used both US and foreign banks to transfer funds, employing dummy companies to mask the agency’s role. In one documented case, the CIA asked bank officials to move money through a different Panamanian bank when the agency suspected that federal bank regulators would uncover the fund transfers.
The intelligence backdoor allowed the United States to convert foreign financial data into enforcement intelligence. Banks that believed they were serving clients in confidence were, in fact, feeding the American surveillance apparatus. The information collected through these programs was used to build cases against foreign banks, to identify targets for sanctions, and to pressure foreign governments into compliance with American demands. The revelation of these programs demonstrated that the extraterritorial enforcement regime rested not merely on legal authority but on the capacity to know what was happening in the global financial system—a capacity that the United States possessed because it controlled, or had penetrated, the infrastructure through which that system operated.
The Erosion of the Dollar Weapon
The enforcement of extraterritorial law has always depended on the dollar weapon—the ability to exclude individuals, institutions, and states from the dollar-denominated financial system. The mechanism was elegant in its simplicity: the United States controlled the clearing infrastructure through which all significant dollar transactions passed. Any institution that violated American sanctions or refused to comply with American demands could be cut off from that infrastructure. The threat was existential because the dollar was the only game in town.
That condition no longer holds. The dollar’s share of global foreign exchange reserves fell to approximately 56 percent in 2025, its lowest level in roughly three decades. The decline from 64 percent in 2015 represents a substantial erosion of the dollar’s position as the world’s dominant reserve currency. While some analysts argue that the decline is concentrated among a small group of large reserve holders—China, Russia, Mexico, and Morocco—rather than reflecting a broad-based movement away from the dollar, the direction of travel is unmistakable. The IMF data for the fourth quarter of 2025 showed the dollar accounting for about 56.8 percent of global foreign exchange reserves, the lowest figure since 1994.
The weaponization of the dollar has accelerated this decline. As Nobel laureate Paul Krugman observed, the dollar’s hegemony—the most important tool in America’s global financial arsenal—has been severely damaged because alternative payment systems are rising. The Iran war has accelerated this trend. The United States’ years of sanctions against Iran are the most obvious manifestation of this capability, but Iran’s ability to withstand American pressure demonstrates that US financial sanctions are far less effective than they once were.
The paradox of dollar weaponization is that each use of the weapon accelerates the development of alternatives. The exclusion of Iranian banks from SWIFT in 2012 and Russian banks in 2022 demonstrated the power of the tool, but it also demonstrated the risks of dollar dependence. States that observed these exclusions drew the logical conclusion: dependence on the dollar system was a vulnerability, not a convenience. The result has been a sustained and accelerating effort to build alternatives.
The Military Foundation of Financial Enforcement
The dollar weapon was never merely an economic instrument. It rested on a military foundation—the capacity of the United States to guarantee the security of the global order within which the dollar operated. The US Navy’s command of the maritime commons ensured that trade routes remained open, that energy supplies flowed freely, and that the infrastructure of dollar-denominated commerce remained secure. The American military presence in Europe, Asia, and the Middle East provided the security umbrella under which allies accepted dollar dominance and complied with American financial demands.
That military foundation is eroding. The 2025 National Security Strategy and the 2026 National Defense Strategy explicitly acknowledge the end of unipolar primacy. As one analysis from the Spanish defense establishment observed, “The adjustment begins from the recognition of the end of unipolar primacy. Although the United States remains the largest power in absolute terms, its relative advantage has eroded”. The rise of China and its penetration into the Global South, together with setbacks in the Middle East and internal social tensions, “have evidenced the limits of a strategy of global primacy and the risk of military overextension”.
The erosion of American military supremacy has direct implications for the enforcement of extraterritorial law. The threat of dollar exclusion was credible because the United States could guarantee the security of the system from which it was excluding targets. When the military guarantee weakens, the credibility of the financial threat weakens with it. States that might once have complied with American demands out of fear of the consequences now question whether the United States has the capacity to impose those consequences.
The Iranian victory in the Middle East and the Russian victory in Ukraine have demonstrated, with devastating clarity, that the American military is not invincible. The destruction of the Fifth Fleet complex, the loss of American aircraft, and the failure of missile defense systems have shattered the myth of American military omnipotence. The unipolar moment is over, and with it the foundation upon which the extraterritorial enforcement regime rested.
The Rise of Alternative Infrastructure
The enforcement gap is not merely a matter of eroding American capacity; it is also a matter of expanding alternatives. The infrastructure of a multipolar financial order now exists, processes transactions, and grows more sophisticated with each passing month.
The Cross-Border Interbank Payment System (CIPS), developed by the People’s Bank of China, processed approximately RMB 170–175 trillion annually by 2024–2025 and has become the primary channel for renminbi internationalization. CIPS processes 30 percent of Belt and Road Initiative trade and is becoming critical infrastructure for yuan-denominated transactions. Russia’s System for Transfer of Financial Messages (SPFS) has crossed roughly 600 members and, when integrated with CIPS, compresses cross-border payment times from two to three days to mere hours.
India’s Unified Payments Interface (UPI) is live in seven foreign jurisdictions and processes over 20 billion transactions monthly. The BRICS Pay platform, launched in September 2025, integrates these national systems—Brazil’s Pix, Russia’s SBP, India’s UPI, and China’s CIPS—into a single cross-border mechanism that operates entirely outside the dollar system. The platform is designed to link central bank digital currencies across BRICS members to make trade and tourism payments smoother, enabling direct operations in local currencies without passing through the dollar-based system.
The technological foundation for the most advanced cross-border payment systems is being built on blockchain-based platforms such as Project mBridge, which enables direct exchange of central bank digital currencies. Saudi Arabia has formally joined the mBridge system and completed multiple real-time cross-border settlements based on digital dirhams, digital Saudi riyals, and digital yuan, pushing hundreds of millions of dollars in daily crude oil procurement settlements into routine digital circulation.
These systems are not yet full substitutes for the dollar clearing infrastructure, but they do not need to be. The enforcement gap does not require that the dollar be replaced; it requires only that alternatives exist, that they are operational, and that they grow. The existence of alternatives diminishes the coercive power of dollar exclusion. A bank that is cut off from the dollar system can increasingly fall back on CIPS, SPFS, or BRICS Pay. The threat that once compelled compliance is losing its force.
Resistance and the Limits of Coercion
The erosion of American enforcement capacity is visible in the growing resistance of states that once complied with American demands. The European Union’s Blocking Statute, enacted in 1996, was designed to protect European economic operators from the extraterritorial application of third-country laws. It forbids EU entities from complying with listed foreign sanctions and has been invoked in response to American sanctions on Cuba, Iran, and the International Criminal Court. Spain has called for the activation of the Blocking Statute to protect ICC judges and prosecutors from American sanctions, arguing that it should serve as a broader shield to protect multilateralism and international justice.
The resistance extends beyond Europe. Iran and nine other countries have condemned unilateral sanctions and coercive measures imposed by Western nations in a statement signed by Russia, China, Belarus, Cuba, North Korea, Nicaragua, Palestine, Sudan, and Venezuela. Iran’s foreign minister has warned that Western sanctions are weakening international law and has urged countries to resist them.
The most significant demonstration of the limits of American coercion has been Iran’s ability to withstand sanctions and continue selling oil, even during active conflict with the United States. As one report observed, “Iran is one of the most sanctioned countries in the world, but this neither prevented it from continuing to sell oil during its war with the United States nor from charging ‘tolls’ to international commercial vessels seeking to pass through the Strait of Hormuz”. The report concluded that “the dollar weapon is effective mainly against open economies integrated into global supply chains, but these are rarely the ones worth threatening”.
The OFAC enforcement statistics tell a similar story. The agency issued noticeably fewer public enforcement actions in 2024 than in years past—12 public enforcement actions in 2024, compared to 17 in 2023 and 16 in 2022. Resource constraints, a lack of attention, and the prioritization of policy crises hamper the enforcement function. The enforcement gap is not merely a matter of capacity; it is also a matter of will. The United States has more targets than it can pursue, more sanctions than it can enforce, and more legal claims than it can make real.
The Unipolar Moment Is Over
The enforcement gap is the defining feature of the contemporary international financial order. The United States continues to assert extraterritorial jurisdiction, to designate sanctions targets, and to threaten secondary penalties. But the coercive foundation upon which those assertions rested has eroded. The dollar’s share of global reserves has fallen to a three-decade low. The military supremacy that guaranteed the dollar system is being challenged by peer competitors and regional powers. Alternative payment systems have emerged, are operational, and are expanding. Intelligence-sharing arrangements that once turned foreign banks into agents of American surveillance have been exposed and curtailed.
The unipolar moment is over. The legal architecture of extraterritoriality persists, but it is increasingly a paper tiger—a system of rules without the power to enforce them. The United States can still issue indictments, still impose sanctions, still demand compliance. However, the ability to make those demands real—to compel obedience through the threat of exclusion from the dollar system—is declining with each passing quarter.
For Switzerland and other states that have long chafed under the extraterritorial reach of American law, the implications are clear. The enforcement gap creates space for resistance, for autonomy, for the reclamation of sovereignty. The alternatives exist. The infrastructure is in place. The only question is whether states will have the courage to use them.