Have Financial Sanctions Lost Their Bite Due to Emerging Alternative Financial Practices in Global Trade?

Restoring Coercive Power: Policy Responses to Non‑Dollar Sanctions Evasion

Sanctions as a coercive tool have long relied on the U.S. dollar as their most reliable chokepoint. The argument is simple: most international transactions – especially high-value commodity and arms payments – clear in U.S. dollars, which pass through U.S.-regulated settlement and correspondent banking systems and become visible to U.S. enforcement. That visibility enables intervention, asset freezes, and criminal prosecutions against banks and intermediaries that enable sanctioned trade. But recent experience challenges this core assumption. Emerging practices – bilateral currency swaps, lender-controlled commodity revenue accounts, barter and in-kind exchanges, expanding non-dollar development finance, and the growth of cryptocurrencies and opaque crypto off-ramps – have hollowed out the dollar chokehold and created practical routes for embargoed states and proliferators to acquire weapons, dual-use technologies, and revenue despite intense sanctions regimes.

Why the dollar chokehold looked strong

For decades, sanctions enforcement focused on interrupting the flow of dollars. Major enforcement actions against global banks for “wire-stripping” and cover payments were intended to deter banks from routing dollar-denominated transactions that concealed sanctioned beneficiaries. High-profile penalties showed the U.S. enforcement apparatus could impose enormous costs when dollar channels were abused. Investigations around countries like Sudan and North Korea relied heavily on tracing dollar flows, and the assumption that interdicted dollar transactions would reveal the networks behind illicit procurement remained central to policy and practice.

Yet the empirical record is sobering. Despite years of UN and unilateral sanctions, Sudan remained saturated with arms and ammunition through the 2000s and 2010s; North Korea expanded its WMD and missile programs despite severe and sustained sanctions; and Russia obtained crucial dual-use components and weaponry after 2014 and especially after 2022, despite multilateral restrictions. Crucially, investigators and major enforcement cases rarely produced clear dollar-denominated transactional evidence linking supplier payments directly to those embargoed military acquisitions. That gap points to deeper structural shifts in how cross-border trade and value transfers are arranged.

How alternative financial practices circumvent dollar-based enforcement

Several interlocking mechanisms are enabling sanctioned actors and their facilitators to avoid U.S. dollar surveillance:

Bilateral currency swaps and de-dollarized settlement

China and Russia have dramatically expanded bilateral swap lines and local-currency settlement arrangements with a broad set of partners. Where swaps and local-currency invoicing are routine, the need for dollar clearing disappears. In Russo-Chinese trade, for example, the share of trade settled in national currencies rose sharply after 2018; by some reports, over 90 percent of Russia–China trade is settled in local currencies. Outside the China–Russia pair, China’s swap network, the BRICS-related instruments, and the New Development Bank’s local currency lending all provide structural alternatives to dollar clearing.

Lender-controlled, commodity-backed financing

Loans and credit lines tied to commodity production – often structured with confidentiality clauses, lender-controlled revenue accounts, and repayment in physical commodities rather than fungible hard currency – create payment flows that never need to transit the international dollar-clearing system. The China model of commodity-for-credit arrangements (the “Angola mode” and variants) meant for many sanctioned or politically sensitive borrowers that repayments and procurement payments could be handled internally within Chinese banking and corporate networks in yuan or in-kind transfers.

Barter, in-kind, and swap arrangements for military procurement

When goods are exchanged directly for commodities, services, or future production flows, there is no conventional financial trace to follow through correspondent banking. This is especially attractive for arms suppliers and borrowers willing to accept oil, gold, or other resources as payment.

Cryptocurrencies and opaque off-ramps

Cryptocurrency theft, laundering via mixers, and the use of lesser-regulated crypto exchanges offer another escape hatch. Though documented cases still represent a subset of illicit funding, incidents implicating state-linked intermediaries, crypto exchanges, and ruble- or yuan-backed tokens suggest crypto rails are being used to move value across borders, sometimes converting into local currencies off-exchange or via opaque OTC desks. The crypto layer complicates tracing and can be combined with traditional non-dollar mechanisms to obscure transaction end-points.

State-led and institutional mechanisms that resist transparency

Sovereign-level confidentiality clauses, lender-controlled escrow accounts, and strategic use of state-owned enterprises produce payment and contractual arrangements that sit outside international transparency norms. These structures often include strict non-disclosure obligations and cross-default clauses, making public scrutiny and investigative tracing extremely difficult.

Bastian Schwind-Wagner _Follow

"Sanctions remain a vital tool for signaling international norms and increasing the costs of illicit activity, but their effectiveness depends on adapting to new payment and trade practices that bypass traditional dollar-based oversight. Without coordinated reforms that target non-dollar settlement systems, lender-controlled commodity financing, and crypto off-ramps, sanctions risk becoming increasingly symbolic rather than coercive.

Policymakers must combine multilateral diplomacy, enhanced supply-chain forensics, and stricter oversight of virtual-asset intermediaries to close the gaps exploited by sanctioned actors. Rapid investment in cross-jurisdictional information sharing and targeted measures against institutional enablers can restore much of the coercive power that financial sanctions once reliably held."

Case studies that expose the limits of dollar-centric enforcement

Sudan

Despite decades of sanctions from the UN, U.S., and EU, Sudan’s armed forces and their partners continued to receive substantial military materiel. Investigations and human rights reporting long assumed oil revenues converted into dollars financed purchases from Chinese, Russian, and Belarusian suppliers. Yet no definitive evidence of U.S.-dollar-cleared arms payments emerged. The explanatory picture that surfaces instead is one of Chinese project finance, CNPC involvement in oil infrastructure with lender-controlled revenue accounts, and payments and procurement channeled in non-dollar forms or in-kind. Loans from Chinese policy banks and escrowed revenues, combined with barter-like procurement, provided Sudan with purchasing power without passing through dollar settlement systems.

North Korea

For North Korea’s WMD and ballistic missile programs, sanctions have constrained many formal financial conduits, but proliferation continued through a patchwork of mechanisms: covert fronts, illicit commodity trades, smuggling, cyber-enabled theft of virtual assets, and pockets of foreign correspondent business. While a few enforcement actions (e.g., seizures related to crypto theft) yielded asset freezes and sanctions leverage, the amounts were small compared to the estimated yearly costs of DPRK’s programs. The DPRK model highlights how diversified revenue streams and non-dollar settlement routes can sustain prohibited military programs while remaining largely invisible to dollar-focused monitors.

Russia–China nexus and Russia’s sanctions-era procurement

Russia’s post-2014 and post-2022 experience shows how sophisticated substitution strategies can work. Large-scale yuan settlement, targeted lender financing in local currencies, commodity-backed repayment mechanisms, and covert transshipment have all contributed to keeping critical components flowing to Russia despite export controls. Reports of Chinese intermediaries supplying semiconductors and components illustrate how supply chain and financing arrangements – not traceable dollar wires – sustained military production.

Why enforcement still matters – and where to adapt

The erosion of dollar dominance does not mean sanctions are irrelevant. Dollar-based enforcement still disrupts a range of illicit actors and raises the cost and risk of facilitating sanctionable trade. Major penalties against global banks and public naming and shaming have demonstrable effects. But the changing finance architecture means sanctions policy must adapt along multiple dimensions:

Move beyond single-rail reliance on dollar tracing

Enforcement should combine financial intelligence across multiple currencies, including targeted cooperation with central banks and supervisory authorities in non-dollar jurisdictions to track settlement in local currencies and bilateral swap flows.

Strengthen supply-chain and trade investigative capacity

Where financial traces are absent or opaque, forensic tracing of the physical movement of goods – component spotting, end-use auditing, and cross-border shipment analysis – becomes central. This requires investment in customs cooperation, satellite imagery, commercial data acquisition, and on-the-ground inspectors.

Target structural enablers and institutions

Rather than only focusing on individual transactions or intermediary banks, policymakers should identify and constrain mechanisms that facilitate non-dollar sanction evasion: lender-controlled resource accounts, opaque loan contracts with confidentiality clauses, and development finance channels that lack conditionality and transparency.

Build multilateral pressure on alternative rails

Expand coordinated measures to impose costs on providers of illicit services in non-dollar domains – from crypto exchanges that enable laundering to third-country firms and state-owned enterprises that facilitate end-use diversion. Greater global coordination is needed, including with jurisdictions that currently host lender-controlled accounts or permit lax crypto onboarding.

Improve regulation and cooperation on virtual assets

Implementing FATF-style measures globally to ensure VASPs apply strong KYC, AML, and travel-rule compliance reduces illicit off-ramps. Where jurisdictions fail to do so, targeted countermeasures against non-compliant platforms should be pursued.

Leverage transparency initiatives and commercial data

Track trade and payment patterns via customs declarations, port call data, corporate registries, and satellite monitoring to triangulate non-dollar financial flows and hidden supply chains. Public-private partnerships with analytics firms can help reveal patterns that banks alone cannot.

Policy trade-offs and geopolitical limits

Adapting sanctions enforcement to these realities faces political and legal constraints. Deepening financial cooperation with non-U.S. systems or pressuring large sovereign creditors such as China requires delicate diplomacy and may be constrained by broader strategic considerations. Targeting lender-financed development projects or state-owned enterprises in major powers risks escalation and trade-offs. Moreover, enforcement actions that rely on cutting off non-dollar channels could push disfavored states to accelerate autarkic or illicit arrangements, increasing the complexity of enforcement.

Conclusion

The U.S. dollar is no longer the universal chokepoint it once was. A suite of alternative financial practices – local-currency settlement, lender-controlled commodity financing, barter-style procurement, and cryptocurrency-enabled laundering – have significantly weakened the automatic reach of dollar-based sanctions enforcement. Empirical examples from Sudan, North Korea, and Russia show how these alternatives can sustain arms procurement and proliferation despite intense sanctions pressure.

That does not mean sanctions are obsolete, but it does mean that policymakers and enforcement agencies must broaden their toolkit. Effective sanctions in the current environment require a multi-pronged approach: combining financial measures across currencies, enhancing physical supply-chain investigations, targeting institutional enablers, tightening crypto oversight, and securing multilateral cooperation that addresses both the financial and commercial dimensions of illicit trade. Without such adaptation, sanctions risk becoming increasingly symbolic rather than coercive – and the global effort to prevent arms flows, WMD proliferation, and the financing of brutal conflicts will be significantly weakened.

Dive deeper

• Research ¦ Carisch E. Have financial sanctions lost their bite due to emerging alternative financial practices in global trade?. Journal of Illicit Trade, Financial Crime, and Compliance 2025; 1: 1-16. ¦ Link ¦ licensed under the following terms, with no changes made: CC BY-NC 4.0