The Cost of Dollar Compliance is Not Just Financial; It is Strategic

An article in the Business Times, authored by Dr Ramkishen Sundara Rajan, Yong Pung How Professor of Public Policy at the Lee Kuan Yew School of Public Policy, National University of Singapore, makes a technically competent argument about how banks in Singapore and Hong Kong manage the costs of US sanctions compliance.  The analysis of correspondent banking withdrawal, compliance costs, and de-risking cascades is sound as far as it goes.  It does not go far enough.

This is nothing more than an obsequious homage to Pax Americana.  The author’s foundational assumption is that US sanctions represent a legitimate international legal framework to which Singapore banks must adapt.  This assumption is wrong — not because sanctions are ineffective, but because it treats a unilateral political instrument as if it were a neutral regulatory requirement.  US secondary sanctions have no basis in international law.  They are not endorsed by the United Nations Security Council.  They are not binding on sovereign states that have not enacted equivalent domestic legislation.  They are the extraterritorial projection of US domestic law onto the financial systems of other sovereign nations, enforced through the threat of cutting off access to the US dollar clearing system.  Singapore has chosen to comply.  This is a rational short-term calculation.  It is an increasingly costly long-term one.

The Instrument Being Weaponised

The US dollar’s role as the world’s reserve currency —58 per cent of global foreign exchange reserves as of 2026, down from 71 per cent in 2000 — gives Washington a structural advantage that it has exercised with increasing frequency and decreasing restraint.  The United States has imposed sanctions on Iran, Russia, Venezuela, Cuba, North Korea, Myanmar, and an expanding list of entities, individuals, and networks across the globe.  The number of US Treasury Office of Foreign Assets Control designations has grown from 912 in 2000 to over 15,000 by 2026.  This is not a targeted instrument.  It is a blunt object applied to an expanding range of policy objectives — from national security concerns to trade competition dressed in national security language.

The weaponisation of the dollar is documented not by America’s adversaries but by its allies.  European Union foreign policy chief Josep Borrell Fontelles stated in 2019 that Europe needed to protect itself from US extraterritorial sanctions.  French Finance Minister Bruno Le Maire described the dollar as an instrument of economic warfare in 2018, following the US withdrawal from the Iran nuclear deal and the subsequent threatened sanctions against European companies doing legitimate business with Iran.  Germany, France, and the United Kingdom jointly established INSTEX — the Instrument in Support of Trade Exchanges — in 2019, specifically to route trade with Iran outside the dollar system, precisely because US secondary sanctions were threatening European companies that had committed no violation of EU law, UN Security Council resolutions, or international treaty obligations.

INSTEX failed in practice due to the scale limitations of the instrument and the unwillingness of European financial institutions to test Washington’s tolerance.  But its creation confirms the point: America’s closest allies have formally acknowledged that US sanctions constitute a threat to their own sovereign economic relationships.  If this is how Washington treats London, Paris, and Berlin, Singapore should not be under the illusion that its interests receive more careful consideration.

The Singapore Calculation — and Its Cost

Singapore’s compliance with US secondary sanctions is not legally required.  Singapore is not a US territory.  The Monetary Authority of Singapore has not enacted legislation that makes US OFAC designations automatically binding under Singapore law.  Singapore banks comply because non-compliance risks losing access to US dollar correspondent banking relationships — and US dollar clearing is, at present, functionally indispensable for international trade finance, commodity transactions, and cross-border payments.  This is rational.  It is also a form of structural dependency that Washington exploits precisely because it is rational.

The cost of compliance is documented in the article itself: Standard Chartered and DBS both closed accounts and restricted relationships based on A7-linked connections — not because either bank had violated Singapore law, not because either bank had violated UN Security Council sanctions, but because the US Treasury designated A7 as a sanctions target and the downstream compliance risk was sufficient to trigger account closures affecting customers with no direct sanctions exposure.  This is the de-risking cascade.  Legitimate businesses — including firms engaged in legal trade with Russia, China, Iran, or any other designated jurisdiction — find themselves unable to access banking services in Singapore not because they have done anything wrong under Singapore law, but because Singapore banks have decided that the compliance cost of serving them exceeds the revenue they generate.

Singapore has, in effect, outsourced a portion of its financial regulatory sovereignty to the US Treasury.  Washington did not ask for this.  Singapore banks offered it, because the alternative — testing the limits of US secondary sanctions enforcement — carries risks that no individual institution will absorb voluntarily.

The Precedent

The most relevant precedent is not European.  It is ASEAN.  Malaysia’s Maybank and CIMB have expanded correspondent banking relationships with Chinese RMB clearing banks, reducing dollar dependency for intra-ASEAN transactions.  The ASEAN+3 Macroeconomic Research Office has been developing regional financial architecture specifically to reduce dependence on dollar-denominated clearing.  The mBridge project — the Bank for International Settlements innovation hub initiative involving the central banks of China, Hong Kong, Thailand, and the UAE — has successfully piloted cross-border payments in central bank digital currencies outside the dollar clearing system.  As of 2026, mBridge has processed over US$22 billion in transactions.

Indonesia, under whatever government occupies Jakarta at any given moment, has been conducting bilateral trade settlement in local currencies with China, India, and several ASEAN partners — reducing dollar exposure in transactions that have no natural dollar leg.  India settled 25 per cent of its Russian oil imports in Indian rupees and UAE dirhams following the 2022 sanctions on Russia — transactions that would have been impossible through dollar-clearing systems but were entirely legal under Indian law, UN Security Council resolutions, and international trade law.

Singapore’s financial system is more sophisticated, more internationally integrated, and more dependent on dollar clearing than any of these examples.  But the direction of travel across the region is clear: the structural dependency on dollar clearing is being systematically reduced by every major economy in Asia, not because they are sanctions violators, but because they have concluded that the dependency is a strategic liability.

Three Propositions for Singapore

Proposition One: Establish a Sovereign Compliance Framework

Singapore should formally articulate which sanctions regimes it recognises as binding and why — and publish that framework publicly.  UN Security Council sanctions, enacted through the legally binding mechanism of Chapter VII of the UN Charter, are binding on Singapore as a UN member state.  US unilateral secondary sanctions are not.  EU autonomous sanctions are not.  UK autonomous sanctions post-Brexit are not.  Singapore has historically complied with all of these — not because it is legally required to do so, but because the compliance cost of differentiation has seemed prohibitive.  A sovereign compliance framework — one that distinguishes between multilateral sanctions with UN Security Council backing and unilateral extraterritorial measures — gives Singapore’s financial institutions a principled basis for differentiated compliance decisions.

This does not require Singapore to defy Washington.  It requires Singapore to articulate, clearly and publicly, the legal basis on which it acts — and to defend that articulation in bilateral and multilateral forums.  Switzerland has done this for decades.  Switzerland is not regarded as a sanctions-violating jurisdiction.  It is regarded as a neutral financial centre with a principled position on international law.  Singapore’s founding generation built this country on exactly this kind of principled independence.  The current generation appears to have misplaced the document.

Proposition Two: Accelerate RMB and Multi-Currency Clearing Infrastructure

Singapore is already the largest offshore renminbi clearing centre outside Greater China, with CN¥1.8 trillion in daily transactions as of 2025.  The Infrastructure Commission should accelerate the development of multi-currency clearing capabilities — specifically for ASEAN trade flows that have no natural dollar leg.  Palm oil traded between Indonesia and China does not need to be settled in US dollars.  Semiconductor components traded between Malaysia and South Korea do not need to be settled in US dollars.  LNG traded between Australia and Japan does not need to be settled in US dollars.  Each of these transactions currently passes through dollar clearing by convention, not by necessity — and each creates a compliance exposure to US secondary sanctions that is structurally unnecessary.  Reducing this unnecessary dollar exposure does not damage Singapore’s relationship with Washington.  It damages Washington’s ability to project extraterritorial jurisdiction over transactions that have nothing to do with the United States.  These are not the same thing.

Proposition Three: Build the Legal Infrastructure for Sanctions Challenges

Singapore should invest in developing the legal infrastructure — through the Singapore International Commercial Court, through bilateral investment treaty provisions, and through ASEAN dispute resolution mechanisms — to challenge extraterritorial sanctions designations that affect Singapore-domiciled entities.  The A7 case described in the article illustrates the problem.  Standard Chartered and DBS closed accounts based on A7-linked connections — without any finding by a Singapore court, without any violation of Singapore law, and without any determination by a Singapore regulatory authority that the account holders had engaged in sanctionable conduct.  The US Treasury’s designation was accepted as sufficient.

This is not the rule of law.  It is the rule of one country’s administrative decision-making, applied extraterritorially to Singapore’s financial system.  Singapore has invested decades in building the Singapore International Commercial Court and its international arbitration infrastructure precisely because it believes in the rule of law as the foundation of commercial trust.  Applying that principle to sanctions compliance — requiring that sanctions designations be tested against Singapore law before Singapore banks act on them — is not defiance of Washington.  It is the consistent application of Singapore’s own stated values.

The Verdict

The article by Professor Rajan identifies the compliance cost problem.  It is less forthcoming about what drives it: the systematic weaponisation of dollar-clearing access by a US administration that has demonstrated, repeatedly and publicly, that sanctions are a tool of trade competition and geopolitical coercion as much as they are a tool of national security.  Singapore cannot afford to pretend that this is a technical compliance problem with a technical compliance solution.  It is a strategic problem.  The cost of complete compliance is not merely financial — it is the gradual erosion of Singapore’s ability to serve as a genuinely neutral financial centre in a multipolar world.

The clients who cannot get served in Singapore because US secondary sanctions compliance has made them commercially unattractive to Singapore banks do not disappear.  They find financial centres in Dubai, in Riyadh, in Hong Kong under Chinese sovereign protection, or in the offshore renminbi clearing infrastructure that Beijing is methodically constructing.  Singapore loses the business, loses the relationships, and loses the strategic position of being the financial hub of a region whose most important trading relationships increasingly run through Beijing rather than Washington.

Lee Kuan Yew built Singapore on the principle of sovereign pragmatism — engaging every major power from a position of principled independence, never becoming the satellite of any single patron.  The current approach to US sanctions compliance is not pragmatism.  It is deference dressed up as pragmatism.  The distinction matters, because deference has a cost that compound interest eventually makes unpayable.  The dollar will not be weaponised forever.  The infrastructure that replaces it is being built now, across Asia, in every jurisdiction that has concluded that the cost of dollar dependency exceeds the cost of diversification.  Singapore should be building that infrastructure.  Instead, it is writing compliance manuals.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code