{"id":14914,"date":"2015-03-09T08:21:20","date_gmt":"2015-03-09T13:21:20","guid":{"rendered":"http:\/\/www.bu.edu\/law\/?p=14914"},"modified":"2020-01-30T16:54:10","modified_gmt":"2020-01-30T21:54:10","slug":"fighting-terrorism-with-financial-artillery","status":"publish","type":"bu-article","link":"https:\/\/www.bu.edu\/law\/record\/articles\/2015\/fighting-terrorism-with-financial-artillery\/","title":{"rendered":"Fighting Terrorism with Financial Artillery"},"content":{"rendered":"

Former Deputy National Security Advisor for Combating Terrorism Juan Zarate<\/em> discussed his new book,<\/em> Treasury’s War: The Unleashing of a New Era of Financial Warfare<\/h2>\n
\"Juan
Juan Zarate previously served as the deputy assistant to the president and deputy national security advisor for combating terrorism, and as the first assistant secretary of the Treasury Department for terrorist financing and financial crimes.<\/figcaption><\/figure>\n

Boston University School of Law welcomed Hon. Juan Zarate on Monday, March 2, 2015, to discuss his book, Treasury\u2019s War: The Unleashing of a New Era of Financial Warfare<\/a><\/em>. Zarate, a senior adviser at the Center for Strategic and International Studies (CSIS), the senior national security analyst for CBS News, and a visiting lecturer at Harvard Law School, explained how financial warfare grew out of the post-Sept. 11, 2001, efforts to confront terrorism.<\/p>\n

BU Law Associate Dean for Student Affairs Geraldine Muir introduced Zarate, who previously served as the deputy assistant to the president and deputy national security advisor for combating terrorism, and as the first assistant secretary of the Treasury Department for terrorist financing and financial crimes. Muir praised Zarate\u2019s narrative inTreasury\u2019s War<\/em> for how it \u201ctalked about how war has changed since 9\/11,\u201d especially President George W. Bush\u2019s\u00a0Executive Order 13224<\/a>, which authorized Treasury to target financial backers of terrorism.<\/p>\n

\u201cThis book details different success, opportunities and challenges that arose\u201d out of that order, Muir said.<\/p>\n

Zarate told students, faculty, and staff in attendance that his lecture would address the \u201cconvergence of financial power, economic influence, and national security,\u201d and how that impacts \u201cthe law and lawyers.\u201d<\/p>\n

This is especially important for law students, he said, because it\u2019s a \u201cfield of law that\u2019s still in formation\u201d and in the news practically every day, even 13 years later. For example debates around Iran\u2019s nuclear program \u201crevolve around the financial restriction program\u201d\u2014assessing its effectiveness, and how to unwind it. Relations with Russia and the Islamic State, among others, are also are shaped by these financial tools.<\/p>\n

\u201cIt\u2019s a real question of if we can restrict the resources that these organizations have,\u201d Zarate said. Central to that debate is whether we can use financial power and influence to shape subsequent interactions, he said.<\/p>\n

\u201cWe often think in binary terms, in terms of policy choices,\u201d he said. Do we use \u201ccarrots and sticks\u201d or \u201cboots on the ground” Or do we look for another option?<\/p>\n

\u201cWhat lies in between is this open area of economic influence\u201d and power, Zarate said.<\/p>\n

He cited North Korea, Al Qaeda, and Russia as examples of effective use of financial pressure by the United States. Even Vladimir Putin admitted, Zarate said, that these measures put \u201creal and dramatic impact on the ruble, on Russian growth, and on the Russian economy.\u201d<\/p>\n

A history of economic warfare<\/h3>\n

Stepping back, Zarate said that coercive diplomacy or economic warfare is not new\u2014since the Peloponnesian War, factions have blocked ports, taken over shipping lanes, and otherwise affected each other\u2019s economies. Fast forward a few hundred years, and in the founding of the League of Nations, economic measures were seen as \u201can alternative to war.\u201d<\/p>\n

However, \u201ceconomic sanctions without question,\u201d Zarate cautioned, can \u201cbring us to the brink of war.\u201d For instance, after the bombing of Pearl Harbor, he said, a Japanese official said his country was \u201cforced to attack because of restrictions on their economy.\u201d<\/p>\n

Post-9\/11, something different happened: \u201cWhat emerged \u2026 was this new financial ecosystem,\u201d he said. We saw \u201cthe use of all elements of national power\u201d to prevent \u201canother attack on the scale of 9\/11,\u201d Zarate said, and undermine terror groups\u2019 \u201cability to raise and move money around the world.\u201d<\/p>\n

Financial intelligence, as a field, emerged \u201cas a central way of understanding not just threats\u201d but also opportunities around the world, he said. It helped us \u201cto understand their relationships, but also to understand where they had vulnerabilities,\u201d Zarate said.<\/p>\n

Treasury began tracking suspected \u201cterrorist transactions\u201d to help identify where suspect individuals lived, he said. \u201cNumerous plots \u2026 were pieced together because of that kind of data,\u201d Zarate said. \u201cAll of that now is critical to understanding relationships, vulnerabilities, and threats.\u201d<\/p>\n

The executive order authorizing this tracking was the \u201ccornerstone\u201d of a shift at the Treasury, Zarate said, which expanded the tools used today to \u201clock individuals and entities out of the United States\u2019 system.\u201d Broadened tools led to broadened targets, he said. The Treasury looked, he said, \u201cnot just to the terrorists of the world \u2026 but also to the financial entities that supported these groups.\u201d<\/p>\n

Thus began the \u201copening of an aperture, a new set of tools targeted at a whole new set of actors,\u201d who could be implicated \u201cin terrorist support or terrorist financing,\u201d Zarate said.<\/p>\n

The sweeping review \u201calso included new sectors of the financial system,\u201d he said. \u201cIt\u2019s not just banks that have to worry about these issues,\u201d but also money systems like Western Union, insurance companies, and \u201cbrokers in precious metals and stones, even pawn brokers.\u201d<\/p>\n

The Secretary of the Treasury gained the authority to designate entities \u201cas primary money laundering concerns,\u201d effectively saying, \u201cYou cannot do business with them, or if you do business with them,\u201d you have to be very careful and do due diligence, Zarate said. These actions had ripple effects into other countries, which have had to pass new regulations to comply with US standards.<\/p>\n

A new form of financial diplomacy<\/h3>\n

\u201cIn this period,\u201d Zarate said, \u201cyou also had a deepened and more sensitive, and frankly more acute, enforcement environment,\u201d which put pressure on banks to make sure they were doing what was required under the law. The private sector had to step up to comply with Treasury rules.<\/p>\n

The regulatory environment and investigations were \u201cbeginning to affect the bottom line risk calculus of these institutions,\u201d Zarate said.<\/p>\n

\u201cYou had a new form of financial diplomacy emerge\u201d at the same time, he said, with new actors arising internationally, not just governments but also banks.<\/p>\n

In addition to governments, \u201cit was often more important \u2026 for these conversations to be had with the private sector,\u201d Zarate said, because their decisions \u201chad the impact of isolating rogue financial behavior \u2026 at its start.\u201d<\/p>\n

Ultimately, a new financial ecosystem was born, he said, and \u201cthere was an opportunity for a different strategy.\u201d Sanctions \u201chad always been with us,\u201d but they had been aligned with diplomatic measures, he said. The new opportunity that arose post-9\/11 \u201cwas subtle, but it was important,\u201d Zarate said.<\/p>\n

\u201cAny of America\u2019s enemies \u2026 that want to have existential impact on US security interests \u2026. need to move money,\u201d he said. The United States realized that \u201cif you could unplug actors from the global financial order \u2026 you could then begin to strategically isolate the rogues and the enemies that you were trying to impact,\u201d Zarate said.<\/p>\n

This new approach focused on the \u201cintersection between\u201d our financial system and our security system, he said, and targeted underlying activities that were \u201cillegal \u2026 or, per se, suspect.\u201d<\/p>\n

Actions were taken, not necessarily because we didn\u2019t like a country, but because we were targeting an activity that was itself illicit, he said. \u201cThis was a more conduct-based approach to thinking about these tools,\u201d Zarate said.<\/p>\n

The shift helped us get around the \u201corthodoxies that have calcified around the use of sanctions,\u201d he said. Those \u201corthodoxies,\u201d he said, let Cuba \u201cblame the American boogeyman\u201d and did not keep Iraq\u2019s Saddam Hussein from benefitting off the American oil for food program.\u201d<\/p>\n

During a difficult period for the Treasury, the financial downturn, it sought a way to demonstrate the department\u2019s reach and abilities, as well as the importance of the dollar internationally. \u201cCan we use that as a way of driving and building leverage?\u201d Zarate said the Treasury asked.<\/p>\n

The “bad bank” initiative<\/h3>\n

From there came the \u201cbad bank initiative,\u201d Zarate said, which identified banks \u201cthat were doing all sorts of illicit things, wittingly\u201d and used the Treasury\u2019s newfound tools to identify these banks as money launderers, risks to our financial system and to national security.<\/p>\n

For example, it looked at North Korea. In addition to their politics, he said, \u201cThey\u2019re also a criminal state.\u201d North Korea, he said, engages in drug trafficking, cigarette counterfeiting and smuggling, and proliferation, and \u201cthey\u2019re the best counterfeiters of $100 bills in the world.\u201d<\/p>\n

\u201cTo engage in proliferation they need lines of credit \u2026 to operate what is in essence a conglomerate,\u201d Zarate said. North Korea had ties to banks around the world \u201cprecisely for these illicit activities,\u201d he said. Treasury targeted a bank in Macau tied to a casino in September 2005. When it published notice of proposed rulemaking in 2005, he said, \u201cwhat happened was a shock heard around the world.\u201d<\/p>\n

It was the 21st century version of a targeted strike, he said.<\/p>\n

\u201cFor any bank that wants to be a player, \u2026 it has to have access to dollars. \u2026 That was gone\u201d for the targeted bank, Zarate said. \u201cThe bank, in essence, imploded.\u201d<\/p>\n

Within a short period, the effects were clear. \u201cSlowly but surely, North Korean bank accounts were closed\u201d around the world, he said, and \u201cthe North Koreans were blocked out of the system.\u201d For the first time in modern history, he said, North Korea called the US first. Every conversation for years afterward, Zarate said, \u201cbegan and ended with, \u2018We want our money back.\u2019\u201d<\/p>\n

After years of less effective measures, he said, the North Koreans admitted, \u201cYou finally found a way to hurt us.\u201d<\/p>\n

Modern financial warfare<\/h3>\n

This first move began a strategy of unplugging others economically, Zarate said; now, these strategies are \u201calso being used on organized crime groups that are seen as internationally significant.\u201d<\/p>\n

Today, \u201cwe\u2019re really just in the first chapter of a new era of financial warfare,\u201d he said.<\/p>\n

However, Zarate cautioned that \u201cwe tend to overuse and over-rely on these measures now.\u201d Further, \u201cCongress sees this as something they can do\u2014\u2018we don\u2019t want to go to war, but we want something more than just diplomacy,\u2019\u201d he said. He also wondered whether the Treasury has \u201coverburdened the private sector\u201d and whether \u201ctools of aggressive financial exclusion\u201d may affect whether people in immigrant communities can send money back home.<\/p>\n

\u201cAre we affecting the attractiveness of American capital markets?\u201d Zarate asked, or attracting people to currencies other than the dollar? \u201cAre we taking into account the connections between criminal networks, drug trafficking networks, and terrorist groups?\u201d<\/p>\n

Internationally, he asked, \u201care we taking into account that others are learning from our strategies?\u201d<\/p>\n

Zarate concluded with a host of other unresolved questions: \u201cAre we deputizing the private sector too much? … How do we think about financial inclusion and exclusion? \u2026 What\u2019s the role of new technologies, like crypto-currencies, in this space? \u2026 How do we deal with this new period of financial and economic warfare?\u201d<\/p>\n

For the answers to Zarate\u2019s questions, look to his new financial ecosystem.<\/p>\n","protected":false},"excerpt":{"rendered":"

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