Facebook’s stablecoin former CEO, who personally built the strongest financial weapon in the United States

Author: Byron Gilliam

Compiled by: Deep Tide TechFlow

Deep Tide Briefing: Stuart Levey changed the rules of financial sanctions with a simple insight—not by convincing the government, but by convincing the banks. This playbook turns the U.S. dollar system into a throat to choke rivals, but overuse is forcing out alternatives, including crypto. For investors, understanding the logic of this economic war is to understand why de-dollarization is not a slogan but an urgent necessity.

At a 2004 presidential debate, when John Kerry accused President Bush of not enforcing economic sanctions against Iran hard enough, Bush replied in an almost angry tone: “We’ve already sanctioned Iran! There’s no more room to sanction more.”

At the time, there was almost no trade between the two countries, and it really did seem there was nothing left to sanction.

Yet Iran’s shelves were still stocked with consumer goods made in the United States. The New York Times reported then: “Mattel refrigerators, Diesel clothing, and Victoria’s Secret underwear are quite popular here.”

Thousands of Iranian companies were able to bypass U.S. sanctions simply by setting up offices and bank accounts in Dubai. “The best place to do business in Iran,” one businessman told the New York Times, “is in Dubai.”

These arrangements had already rendered U.S. sanctions practically meaningless. But the line from Bush’s presidential debate sparked a Treasury official to reconsider how sanctions work.

“Stuart Levey turned this helplessness into a personal challenge,” Edward Fishman wrote in his book The Power in the Punch: America’s Force in the Age of Economic War.

Back then, Levey was the deputy secretary at the Treasury responsible for terrorism and financial intelligence, tasked with finding ways to cut off the sources of funding for sanctioned groups and countries.

He reinvented the mechanics of sanctions. Fishman called Levey “the founding father of America’s financial war.” Others called him “a sanctions technocratic bureaucrat.” Still others said he was “a guerrilla fighter in a gray suit.”

Levey earned these monikers during a decade in government service. But his lasting impact came from one simple insight: you could tell the banks directly who not to do business with.

Levey’s breakthrough

Levey’s breakthrough came in 2006, when he read a news report saying that a Swiss bank had proactively cut off all dealings with Iran.

“I suddenly figured it out,” he later said. “When we say ‘we’ve run out of sanctions,’ we mean that it’s illegal for U.S. companies to do business with Iran. But it doesn’t mean that the whole world stops doing business with Iran.”

The issue was that although Iranian banks had been banned from direct transactions with U.S. banks since the mid-1990s, they could still gain indirect access to the U.S. banking system through correspondent banks.

To pay in dollars, Iranian banks would send the money to banks in Europe or Asia, which would then route it to the recipient through U.S. correspondent banks—correspondent banks being those that settle dollar transactions on behalf of other banks.

This loophole now seems obvious, but before Levey, no one in the government paid much attention to this niche corner of the financial system. Even if they had, it seemed there was nothing they could do. Stopping these transactions appeared to require the laborious process of persuading other governments to instruct their own banks to stop doing business with Iran.

Levey’s insight was that he could lobby banks directly.

“From his experience practicing law in private firms,” Fishman wrote, “Levey was familiar with how corporate executives view regulatory risk and reputational risk. He believed he could convince them to proactively cut off dealings with Iran, regardless of whether their home government supported it.”

Persuasion came with a warning: the Treasury would pursue and crack down on U.S. sanctions violations carried out via correspondent banks.

“We never threaten,” Treasury Secretary Hank Paulson told Fishman. “We only talk about how important it is not to break the rules, not to engage in illegal transactions.”

The subtext was: your bank is pretty good, though…

The implied threat was that violating U.S. sanctions law could lead to huge fines, or even losing the right to access U.S. correspondent banks—thereby losing the ability to move dollars.

Not every bank was willing to receive the message.

Fishman quoted the response from the deputy chairman of Standard Chartered: “You damn Americans. By what right do you tell us—tell the whole world—that we can’t do business with Iranians?” A few years later they found the answer: U.S. law enforcement imposed a $359 million fine on Standard Chartered for violating sanctions.

Other banks didn’t need to be persuaded at all.

“Chinese banks didn’t tell me they wouldn’t do business with Iran,” Levey told Fishman. “They just stopped.”

“After 18 months of the campaign, almost all of the world’s largest banks stopped providing services for Iran transactions, even though neither their home governments nor the United Nations required it,” Fishman wrote.

One of the yardsticks for measuring the effectiveness of Levey’s campaign was that the governor of Iran’s central bank labeled it “financial terrorism.”

But one person’s financial terrorist is another person’s financial freedom fighter. Fishman referred to the campaign as an act of economic warfare.

Treasury Secretary Scott Bessent prefers to use the term “economic governance by force.”

Levey’s daily pay

In a speech last month, Minister Bessent defined economic governance by force as “the disciplined use of American economic power to defend sovereignty.”

This includes the kind of power Levey discovered. Accessing the dollar system, Bessent said, “is no longer unconditional.”

In fact, it has already been conditional for some time. Even before Levey, the U.S. punished opponents like Cuba and Libya by refusing them access to the banking system.

Levey’s discovery was about just how large a choke point the dollar system could become—and how the U.S. could use it to pursue geopolitical objectives.

Bessent emphasized economic governance by force, as if announcing that the U.S. intends to use this power more aggressively.

Fishman might applaud the idea—he believes economic warfare can be an effective substitute for hot war.

To that end, he suggested that the U.S. establish “a standing economic warfare committee” to propose policy advice faster and better during crises.

But he also warned that this tactic won’t work forever. Financial sanctions are like antibiotics: large doses are effective, but overuse causes them to lose potency.

The U.S. may already be overusing them, as shown by the steps taken by the opponents—and even friends—creating more and more alternatives to the dollar system.

Some of these alternatives involve crypto, including the tens of billions of dollars Iran has moved in recent years via stablecoins.

Stablecoins could be used to evade sanctions, which is why Stuart Levey joined Facebook’s stablecoin project Diem in 2020 as CEO—“because he wanted to ensure that digital currency doesn’t weaken America’s financial power,” Fishman wrote.

Unfortunately, Diem was shut down in less than two years.

But Levey—founding father of America’s financial war—still managed to find solid footing.

As Chief Legal Officer at Oracle, he earned $14.5 million last year.