>The fact that the fraud was done relating to US dollars does not give the US government sovereignty over a foreign citizen.

The US government disagrees. And they control the banking sector because most FX transactions actually go Currency A->Dollars->Currency B. So their opinion is what matters. If you get caught selling to a sanctioned entity you'll be put on a blacklist and nearly every bank around the world will refuse to work with you. It's a financial death penalty.

This is why US sanctions are so nefarious.