Sanctions in the Modern Structured Finance Market

Abstract

Structured finance can be defined as the strategic reorganization of financial assets and liabilities for a targeted optimal outcome, be it the cost of funds, taxes, or property disposition. For example, corporate entities raise working capital by monetizing their on-balance sheet receivables in bankruptcy-remote Special Purpose Entities (SPEs). This process and its elements constitute the core of mainstream “structured finance.” But SPEs have been used in other financial optimizations, such as tax avoidance, or to isolate intellectual property from corporate bankruptcy risk. In this article, we seek to classify the use of financial sanctions against Russia in 2022 as a kind of structured finance. From a mainstream structurer’s perspective, expanding the definition to include political outcomes may seem odd. Free-market is taken to mean “free of politics.” By construction, financial outcomes take place in a realm where prices are directed by economic forces of supply and demand, and isolated from direct political or policy interference. However, finance does not belong to capitalism or any other system of economic thought. The notion of finance as a pure economic construct is a capitalist artifact. The communist world does not think in this way. As a trained Cuban lawyer now studying finance and public policy at Columbia University’s School of International and Public Affairs, I do not think in this way. From my perspective, the model of Cuban and Russian economic interdependency can be described only as structured finance. And in practice, structuring and valuation are not ringfenced from political or policy factors, not even in capitalist economies. In this article, I frame the 2022 sanctions against Russia as a form of structured finance, designed by a senior US financial system engineer to target and inflict maximal pain on Russia for declaring war on the Ukraine.