How the West gains by freezing assets

Paying the price Saddam Hussein deposited his petrodollars in western banks. Photo: AFP
Paying the price Saddam Hussein deposited his petrodollars in western banks. Photo: AFP

Follow the money. They say if you want to find out who benefits from a particular law, event or situation, then just follow the money. Take economic sanctions. The reason why the West is so trigger-happy in slapping sanctions on countries it labels hostile is that it translates into immediate pecuniary benefits.

Among the clutch of tools the West uses is the little understood “assets freeze”. It is a term used so often in recent years that it qualifies to enter the dictionary as a synonym of greed.

This is how it works. Let’s say the US wants to seize the bank accounts, term deposits or other properties of a foreign country on American soil. To do this, the US president simply signs a piece of paper known as an executive order, “freezing” the known assets of the targeted country. From that moment onwards, those assets become the property of the US.

Now, the chances that the assets will be unfrozen depend entirely on the targeted country’s relationship with the West thawing. Since that rarely happens, western governments can manage and enjoy stolen wealth virtually forever.

The recent attempt to freeze some Russian bank accounts — as part of the wide-ranging economic sanctions on Russia — is a reprise of wealth grabs stretching back to the Cuban revolution and, more recently, in Libya.

In 1963, the US passed the Cuba Assets Control Regulations to freeze all Cuban assets. But hundreds of millions of dollars idling in American banks proved to be too tempting. The Americans quickly discovered a neat way to distribute all that Cuban cash among themselves. Washington illegally tapped into those ‘frozen’ accounts and spent the money in lawsuits against Fidel Castro. According to the Cuban government, only $76 million of the original amount remains in American banks today.

A good example of American hypocrisy was president John F Kennedy’s hush-hush purchase of 1,200 Cuban cigars for his personal use — just minutes before he signed an order banning all Cuban products from the US.

However, it is the staggering scale of theft of Iraqi money that dwarfs everything else. Like other oil-rich countries, Iraq had deposited its petrodollars in western banks, and these assets were frozen after Iraq’s 1991 invasion of Kuwait. How much was stolen is still being debated by the bean counters, but the guesstimate is at least $38.7 billion by the US alone.

It was after the invasion of Iraq in 2003 that the Americans got the excuse they were looking for. The US flew in $20 billion in shrink-wrapped $100 bills into the war-torn country. The first shipments took place in the year after the invasion — nearly 281 million banknotes, weighing 363 tonnes, were sent from New York to Baghdad. Using Hercules C-130 planes, the deliveries took place once or twice a month with the biggest of $2.4 billion on 22 June 2004. Subsequently, the US deployed jumbo jets to ferry the rest of the cash.

To comprehend the quantity of cash stolen, here is a simple illustration. The height of a stack of 20 billion $1 bills would measure 2,185 km. A column of bills this high would be more than six times higher than the orbiting International Space Station.

American diplomat Paul Bremer, the administrator of the Coalition Provisional Authority, showed inexplicable — and suspicious — zeal in making sure the money was distributed as quickly as possible. The $20 billion spent under his watch was supposed to rebuild Iraqi infrastructure — destroyed in the first place by the US-led war coalition — but even today, Iraqi utilities and its once excellent hospitals are in a shambles.

Another $18.7 billion remains unaccounted for. According to an al Jazeera report dated 19 June 2011, “Piles and piles of shrink-wrapped US dollars came, but the cash coming in is not the important part — it is what happened to it after it got here. There are no documents to indicate who got it, where it was spent and what was ever built from it.”

An easy guess is American contractors, lawyers, soldiers, pilots, banks, corrupt US diplomats and Iraqi politicians working for the West got all the cash.

An even bigger stash waiting to be looted is Libya’s. The North African country’s nearly $32 billion deposit — held in a single American bank — and $19 billion worth of assets in the UK form the biggest sovereign wealth portfolio ever blocked.

The looting hasn’t started yet but that’s probably because the vultures are still circling. In an article dated 23 March 2011, The Washington Post practically salivates at how it took the US just 72 hours to locate and block Libyan assets. The western mouthpiece shamelessly boasts: “Instead of being a secondary measure, as in the past, economic sanctions have become a centerpiece of national security policy.”

No less sordid is the illegal transfer by the US of $8 billion in frozen Iranian assets to the Bank of England, and another $3.6 billion to the Federal Reserve. In 1981, Iran and the US signed an agreement known as the Algeria Declaration, which obliged Washington to remove the block on Iran’s assets. But not only did Washington not pay back a single cent, it in fact rented out part of Iran’s properties to Romania and Turkey, and built a parking lot after demolishing some Iranian-owned properties.

The US actually has an entire department devoted to such illegal cash grabs. The Office of Foreign Assets Control (OFAC) is probably one of the most powerful American government agencies no one’s ever heard of.

The OFAC’s targets are set by White House orders to use financial tools against a specific country, and it even has an eerily named Office of Global Targeting. According to StratRisks, “The 170-person sanctions unit within the US Treasury Department, comprising mainly lawyers and intelligence analysts known as ‘targeters’, has extraordinary powers — and the ability to interrupt dollar transactions worldwide.”


You must shake your head in disbelief at how easy it is for the US to grab foreign wealth. How could Muammar Gaddafi and Saddam Hussein, who ran two of the leading Arab republics for several decades, lack the basic common sense to keep their national funds in safer places? Why did they choose to keep their money in the very countries they knew were out to get them? This is not a matter of academic interest but of pressing concern for countries that might be targeted in the future.

Here are two options. One, keep your money in secrecy havens. The only problem is there’s no guarantee that the OFAC hounds won’t sniff it out. Plus, there’s the very real possibility that western governments could collaborate with each other during crises or conflicts.

The better option is to invest the money in banks in the BRICS countries, which are safer and a whole lot less greedy than their western counterparts. Back-of-the-envelope calculations suggest that if Saddam had invested his oil income in bonds and deposits in, say, India’s ICICI Bank, the $38.7 billion would have been worth approximately $116 billion today. Instead, the money is lining the pockets of Americans and Europeans while Iraqi children continue to die from lack of food, clean water and medicines.

With the BRICS’ New Development Bank opening in 2016, its directors should offer long and short-term bonds where smaller countries can park their funds.

Smaller nations also need to stop investing their trade surpluses in western treasury bonds. These bonds are often considered the safest of all investments. But in fact, they are neither safe nor lucrative. They just seem so because few investors know what really happens to their money.

Take US treasury bonds. With bond yields far below actual consumer price inflation, the US literally exports its inflation overseas, causing massive losses to bond holders. So, not only do foreign regimes get trapped in “sucker” investments and get locked in (usually 20 years for the ‘best’ yields) but they risk everything if the US freezes their holdings.

It is, of course, entirely natural for the West to grab wealth belonging to other nations. After four centuries of colonialism, the philosophy of loot-and-scoot seems to be ingrained in western thinking. With very little of the mechanism of this loot — the word comes very appropriately from India, which the British plundered for more than two centuries — known to the public, there is absolutely no pressure on the likes of Washington and London to mend their ways.


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