© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
November 17, 2013 8:12 pm
Treasury’s War: The Unleashing of a New Era of Financial Warfare, by Juan Zarate, Public Affairs; RRP£19.99, RRP$29.99
Just over a year ago, Mahmoud Ahmadi-Nejad, the former Iranian president, made an admission. Watching the country’s oil exports plummet and its currency reserves disappear under the impact of US-led sanctions, he declared: “A hidden war is under way.” He added: “We should realise that this is a kind of war through which the enemy assumes it can defeat the Iranian nation.”
For Juan Zarate, this was the ultimate compliment. Iran has been hit by a series of financial weapons that the author spent the decade after 9/11 helping to develop, first as a Treasury official then at the White House. Here, he provides an entertaining insider’s account of America’s “new breed of financial power”.
Zarate’s band of Treasury lawyers and forensic accountants, “guerrillas in grey suits”, set about devising ways to squeeze America’s enemies with smart sanctions and asset freezes, a counter-terrorism version of “follow the money”. His central claim is that “these capabilities would increasingly become the national security tools of choice for the hard international security issues facing the United States”.
He dates sanctions back to the Peloponnesian war, which began when Athens tried to block from its ports merchants allied to Sparta. Today, Cuba has been under economic blockade since 1960. But Zarate and his colleagues figured out the opportunity financial globalisation has given Washington to develop new tools.
The role of the dollar and American banks in the financial system means the Treasury can cajole and bully all sorts of companies and countries. Avoid trading with our designated enemies, it announces, or we will shut you out of a significant part of the global economy. The banking industry is so interconnected that few institutions want to risk being branded a “primary money-laundering concern”.
The narrative relies too much on endless meetings at the Treasury, but it is full of interesting accounts of the way smart sanctions were applied. To put pressure on North Korea, which the US believed was involved in drug smuggling and forging $100 notes with unusually large profiles of Benjamin Franklin, it went after an obscure bank in Macau. After the US accused it of money-laundering for North Korea, the bank suffered a run and ended up under state control. Similarly, as the Pentagon and the CIA pursued al-Qaeda leader Osama bin Laden, the Treasury tracked his money man, an Egyptian accountant known as Sheikh Said who moved funds around the world and ensured the families of killed al-Qaeda members were paid compensation.
The centrepiece, however, is the campaign against Tehran. After the violence of the 2009 election and the revelation of a secret enrichment site near the city of Qom, the US systematically targeted the few banks still doing business with the Islamic Republic. “Without banks to accept Iranian business, the Iranian economy would begin to suffocate,” he writes.
Yet Zarate’s list of targets also exposes the limitations of his new type of financial war. Few stand out as striking successes of US policy.
As White House officials boasted during Barack Obama’s re-election campaign, al-Qaeda’s “core” has been decimated by the financial squeeze and drone strikes. But in the past year, Zarate’s counter-terrorism colleagues have been forced to acknowledge that several al-Qaeda affiliates remain robust and have moved on to new and ungoverned pastures.
The Syrian regime has been under intense economic pressure but Bashar al-Assad remains in power. His army is gaining ground on the battlefield, even against the part of the opposition that contains dispersed al-Qaeda renegades. North Korea is a poor, isolated, tragicomedy of a nation warped by a deluded family dynasty, but it is also a nuclear power.
Even Iran is only a partial success. The web of financial and oil sanctions has performed its role of pushing Tehran, now under Hassan Rouhani, a more reformist president, to the negotiating table. Yet as the administration edges towards a nuclear deal, it has provoked a firestorm among some of its closest allies in the region – Israel and Saudi Arabia – and in Congress. Sanctions are hard to organise, harder still to lift.
Treasury’s War is a valuable history of a hidden but essential part of America’s response to 9/11. Zarate shows this can help harass an enemy and shape some of its choices. But they are neither a game-changer nor a lawyerly escape from harsh political realities. A US president armed with the toughest sanctions devised still faces the agonising choice of an unsatisfactory diplomatic deal with Iran or a war he desperately wants to avoid.
The writer is the FT’s US diplomatic correspondent
Letter in response to this article:
Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.