Dollar Architecture: How U.S. Sanctions Freeze Assets Abroad

The question of how sanctions are connected with frozen dollar assets abroad often causes confusion. How can the United States block funds located, for example, in a Swiss, Chinese, or Dubai bank? The answer lies not in physical control over these banks but in the absolute control of the U.S. over the global infrastructure of dollar settlements.

The fundamental answer to how the US freezes assets is not by physically seizing cash abroad, but by cutting off a sanctioned party’s access to the dollar payment system. Sanctions are not just a political statement; they are a deliberate use of financial infrastructure as a tool of state power. Asset freezing is a direct consequence of how the modern dollar-based world is structured. Understanding this mechanism is critically important for assessing risks in international trade and finance.

To understand how assets are frozen, you first need to understand what the dollar is outside the United States. Dollars held in an account at a non-American bank are essentially not physical banknotes in a safe but digital records. These records represent an obligation (IOU) of that foreign bank to its client.

The value of this obligation entirely depends on the foreign bank’s ability to conduct operations in dollars itself. For this, almost every bank in the world working with dollars must have a so-called correspondent account in an American bank (or in a large international bank with direct access to the U.S. system).

The main agent for enforcing sanctions is the Office of Foreign Assets Control (OFAC), a division of the U.S. Department of the Treasury. OFAC administers and enforces economic and trade sanctions in support of U.S. national security and foreign policy objectives.

The main tool of OFAC is the Specially Designated Nationals and Blocked Persons List (SDN List). This list includes individuals, companies, organizations, economic sectors, and even maritime vessels that, in the opinion of the U.S. government, pose a threat (terrorists, drug traffickers, persons associated with the proliferation of WMDs, or entities from countries under broad sanctions).

When the USA imposes sanctions, the following happens:

This action at the correspondent bank is precisely how the U.S. freezes foreign assets.

The American correspondent bank cuts off the foreign SDN bank’s access to its gateway. All the millions or billions of dollars that this foreign bank held in the US to serve all its clients become immobile.

From this moment, a foreign bank can no longer process any dollar transactions. If it tries to send a payment, the American correspondent bank will reject or block it. If it is supposed to receive a payment, the funds will be frozen as soon as they enter the American system.

For the end client in this foreign bank, this means that their dollars in the account, which were the bank’s obligation, have become unenforceable. The bank can no longer fulfill its obligation to transfer these funds. The client’s assets abroad are effectively frozen, even though the client themselves may not be under sanctions.

There is often confusion between OFAC sanctions and disconnection from SWIFT (Society for Worldwide Interbank Financial Telecommunication). These are not the same, although these tools are often used in tandem to enhance the effect.

SWIFT is not a payment system. It does not move money. SWIFT is a secure messaging system based in Belgium that banks use to send each other payment instructions (similar to encrypted email or a messenger for finance).

OFAC Block (Asset Freeze): This is a halt of transactions. Money cannot physically move through American correspondent accounts.

Disconnection from SWIFT (Communication Isolation): This is the deprivation of a bank’s ability to send or receive payment orders through the standard international channel.

Disconnection from SWIFT in itself does not freeze assets but turns conducting international operations into a logistical nightmare. The bank has to use outdated or insecure methods to communicate with correspondent banks, which are most likely to refuse to process the transaction anyway due to OFAC sanctions.

When the USA wants to maximally isolate a country (like Iran or some banks in Russia), they use both levers: OFAC blocks correspondent accounts in the USA, and political pressure (through the EU, where SWIFT is based) leads to disconnecting banks from the messaging system.

The practice of freezing assets through control over the financial system has many real examples, differing in scale and mechanics.

Russia (Sovereign assets): The most large-scale example is the immobilization of the sovereign assets of the Central Bank of the Russian Federation (CB RF) in 2022. After the start of the conflict in Ukraine, a coalition of G7 countries, including the USA, EU, United Kingdom, and Japan, made an unprecedented decision.

They did not just add the Central Bank of Russia to the SDN list (although the USA did this), they prohibited their central banks and financial institutions from conducting any operations with the Central Bank of Russia.

Approximately $300 billion of Russia’s gold and foreign exchange reserves, which were held in the form of securities and deposits in dollars, euros, pounds, and yen in foreign jurisdictions (in accounts at foreign central banks or in Euroclear), have been immobilized. The Russian Central Bank cannot access them, sell them, or use them to support the ruble because Western financial institutions where these assets are accounted for are obligated to block any transactions with them. This is a classic freezing of assets abroad on a sovereign scale.

Iran (Oil revenues): Iran has been living under strict US sanctions for decades. The mechanism of freezing its assets is often linked to secondary sanctions. The US threatens to cut off any non-American bank from the American financial system if it conducts significant transactions with Iranian banks from the SDN list.

As a result, billions of dollars that Iran earned from the legal (from the buyers’ perspective) sale of oil to countries like South Korea, Japan, or India became stuck. Banks in these countries received payments for the oil but could not transfer the dollars to Iran, fearing U.S. sanctions. These funds ended up frozen in special escrow accounts in these countries. Iran could only use them to purchase humanitarian goods or non-sanctioned products from the same country where the money was stuck but could not freely manage them or transfer them to another jurisdiction.

Venezuela (Corporate assets): In the case of Venezuela, U.S. sanctions were aimed at Nicolás Maduro’s government and, most importantly, at the state oil company PDVSA.

OFAC included PDVSA in the SDN list. This led to two main consequences:

Moreover, the political aspect led to the control over some of Venezuela’s foreign assets (for example, gold in the Bank of England) being contested and ultimately frozen until the resolution of the political crisis.

Geopolitical tension has turned jurisdictional risk from a theoretical threat into an everyday operational reality. Assessing where your assets are stored and through which correspondent banks your transactions pass is no longer a secondary task.