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2 The day the US declared war on
Iran By John McGlynn
March 20 is destined to be another day of
infamy. On this date this year, the US officially
declared war on Iran. But it's not going to be the
kind of war many have been expecting.
No,
there was no dramatic televised announcement by
President George W Bush from the White House. In
fact, on this day, reports the Washington Post,
Bush spent some time communicating directly with
Iranians, telling them via Radio Farda (the
US-financed broadcaster that transmits to Iran in
Farsi, Iran's native language) that their
government has "declared they want to have a
nuclear weapon to destroy people". But not to
worry, he told his listeners in Farsi-translated
Bushspeak: Tehran would not get the bomb because
the US would be 'firm'."
Over at the US
Congress, no war resolution was passed, no
debate transpired, no
last-minute hearing on the Iran "threat" was held.
The Pentagon did not put its forces on red alert
and cancel all leave. The top story on the
Pentagon's website (on March 20) was: "Bush lauds
military's performance in terror war", a feel-good
piece about the president's appearance on the US
military's TV channel to praise "the performance
and courage of US troops engaged in the global war
on terrorism". Bush discussed Iraq, Afghanistan
and Africa, but not Iran.
But make no
mistake. As of Thursday, March 20 the US is at war
with Iran. So who made it official?
A unit
within the US Treasury Department, the Financial
Crimes Enforcement Network (FinCEN), which issued
a March 20 advisory to the world's financial
institutions under the title: "Guidance to
financial institutions on the continuing money
laundering threat involving illicit Iranian
activity."
FinCEN, though part of the
chain of command, is better known to bankers and
lawyers than to students of US foreign policy.
Nevertheless, when the history of this newly
declared war is one day written (assuming the war
is allowed to proceed) FinCEN's role will be as
important as that played by US Central Command
(CENTCOM) in directing the wars in Afghanistan and
Iraq.
In its March 20 advisory, FinCEN
reminds the global banking community that United
Nations Security Council Resolution (UNSC) 1803
(passed on March 3, 2008) "calls on member states
to exercise vigilance over the activities of
financial institutions in their territories with
all banks domiciled in Iran, and their branches
and subsidiaries abroad".
UNSC 1803
specifically mentions two Iranian state-owned
banks: Bank Melli and Bank Saderat. These two
banks (plus their overseas branches and certain
subsidiaries), along with a third state-owned
bank, Bank Sepah, were also unilaterally
sanctioned by the US in 2007 under
anti-proliferation and anti-terrorism presidential
executive orders 13382 and 13224.
As of
March 20, however, the US, speaking through
FinCEN, is now telling all banks around the world
"to take into account the risk arising from the
deficiencies in Iran's AML/CFT [anti-money
laundering and combating the financing of
terrorism] regime, as well as all applicable US
and international sanctions programs, with regard
to any possible transactions" with - and this is
important - not just the above three banks but
every remaining state-owned, private and special
government bank in Iran.
In other words,
FinCEN charges, all of Iran's banks - including
the central bank (also on FinCEN's list) -
represent a risk to the international financial
system, no exceptions. Confirmation is possible by
comparing FinCEN's list of risky Iranian banks
with the listing of Iranian banks provided by
Iran's central bank.
The "deficiencies in
Iran's AML/CFT" is important because it provides
the rationale FinCEN will now use to deliver the
ultimate death blow to Iran's ability to
participate in the international banking system.
The language is borrowed from Paris-based
Financial Action Task Force (FATF), a group of 32
countries and two territories set up by the Group
of Seven in 1989 to fight money laundering and
terrorist financing.
As the FinCEN
advisory describes, in October 2007 the FATF
stated "that Iran's lack of a comprehensive
anti-money laundering and combating the financing
of terrorism (AML/CFT) regime represents a
significant vulnerability in the international
financial system. In response to the FATF
statement, Iran passed its first AML law in
February 2008. The FATF, however, reiterated its
concern about continuing deficiencies in Iran's
AML/CFT system in a statement on February 28,
2008."
Actually, the February 28 FATF
statement does not comment on Iran's new
anti-money laundering law. The statement does say,
however, that the FATF has been working with Iran
since the October 2007 FATF statement was issued
and "welcomes the commitment made by Iran to
improve its AML/CFT regime". Moreover, the
February 28 statement, for whatever reason, drops
the "significant vulnerability" wording, opting
instead to reaffirm that financial authorities
around the world should "advise" their domestic
banks to exercise "enhanced due diligence"
concerning Iran's AML/CFT "deficiencies".
In linking its March 20 advisory to the
recent FATF statements, apparently FinCEN cannot
wait for FATF or anyone else to evaluate the
effectiveness of Iran's brand new anti-financial
crime laws.
Anyway, the "deficiencies in
Iran's AML/CFT" is probably the main wording
FinCEN will use to justify application of one its
most powerful sanctions tools, a USA Patriot Act
Section 311 designation (see below).
Hammering away at Iran's state-owned banks
is central to US efforts to raise an international
hue and cry. Through its state-owned banks, FinCEN
states, "the government of Iran disguises its
involvement in proliferation and terrorism
activities through an array of deceptive practices
specifically designed to evade detection". By
managing to get inserted the names of two
state-owned banks in the most recent UN Security
Council resolution on Iran, the US can now portray
the cream of Iran's financial establishment (Bank
Melli and Bank Saderat are Iran's two largest
banks) as directly integrated into alleged regime
involvement in a secret nuclear weaponization
program and acts of terrorism.
To inject
further alarm, FinCEN accuses Iran's central bank
of "facilitating transactions for sanctioned
Iranian banks" based on evidence (which for
various reasons appears true) gathered by Treasury
and other US agencies that the central bank has
facilitated erasure of the names of Iranian banks
"from global transactions in order to make it more
difficult for intermediary financial institutions
to determine the true parties in the transaction".
The central bank is also charged with
continuing to "provide financial services to
Iranian entities" (government agencies, business
firms and individuals) named in two earlier UNSC
resolutions, 1737 and 1747. In defense, Iran's
central bank governor recently said: "The central
bank assists Iranian private and state-owned banks
to do their commitments regardless of the pressure
on them" and charged the US with "financial
terrorism".
So what does all this
bureaucratic financial rigmarole mean?
What it really means is that the US, again
through FinCEN, has declared two acts of war: one
against Iran's banks and one against any financial
institution anywhere in the world that tries to do
business with an Iranian bank.
The
North Korean experience To understand how
this works requires understanding what FinCEN
does. This means going back to September 2005,
when the US Treasury Department, based on the
investigatory work of FinCEN, sanctioned a small
bank in Macau, which in turn got North Korea
really upset.
FinCEN's mission "is to
safeguard the financial system from the abuses of
financial crime, including terrorist financing,
money laundering and other illicit activity"
(FinCEN website).
Under Section 311 of the
USA Patriot Act the US Treasury Department, acting
through FinCEN, has been provided with "a range of
options that can be adapted to target specific
money laundering and terrorist financing
concerns". Specifically, Section 311 contains six
"special measures" to significantly increase the
powers of the Treasury (and other US government
agencies) to block alleged terrorist financing
activities. As explained by a Treasury official
during April 2006 testimony before Congress, the
most punitive measure requires:
US financial institutions to
terminate correspondent relationships with the
designated entity. Such a defensive measure
effectively cuts that entity off from the US
financial system. It has a profound effect, not
only in insulating the US financial system from
abuse, but also in notifying financial
institutions and jurisdictions globally of an
illicit finance risk.
On September 20,
2005 FinCEN issued a finding under Section 311
that Banco Delta Asia (BDA), a small bank in the
Chinese territory of Macau, was a "primary money
laundering concern". BDA was alleged to have
knowingly allowed its North Korean clients to use
the bank to engage in deceptive financial
practices and a variety of financial crimes (such
as money laundering of profits from drug
trafficking and counterfeit US$100 "supernotes").
By publicizing its allegations, FinCEN let
the world know that BDA was now at risk of having
all "correspondent relationships" with US banks
severed, a disaster for any bank wanting to remain
networked to the largest financial market in the
world. Frightened BDA customers reacted by staging
a run on the bank's assets.
In the
interest of self-preservation, BDA was forced to
act. After a quick conference with Macau financial
authorities the bank decided to freeze North
Korean funds on deposit.
It just so
happened that the day before the FinCEN finding
was made public the US and North Korea, working
through the six-party talks process (also
involving host China, Russia, South Korea and
Japan), had formally agreed on a new diplomatic
roadmap that promised to lead to a denuclearized
and permanently peaceful Northeast Asia. But
because of Treasury's BDA sanctions, North Korea
was now labeled an international financial outlaw
and the six-party process stalled.
Other
banks began severing their business ties with
North Korea, leaving the country more isolated
than ever from global commerce and finance. These
other banks had no choice. Treasury repeatedly
made clear that any bank that continued to do
business with North Korea was another potential
Patriot Act Section 311 target.
In anger,
North Korea withdrew from the six-party process.
It required 18 months of negotiations before a
diplomatic and financial approach was devised that
left BDA blacklisted but allowed North Korea to
regain access to its frozen funds and rejoin
six-party negotiations.
Neither FinCEN nor
anyone else at Treasury has ever publicly produced
any evidence in support of the financial crime
allegations against BDA and North Korea.
If Treasury was eventually forced to back
off in the BDA case (apparently because the Bush
administration changed its policy priorities), it
had discovered that Patriot Act Section 311 could
really shake things up.
The "real impact"
of the BDA-North Korea sanctions, as Treasury
Under Secretary Stuart Levey told members of the
American Bar Association in March, was that "many
private financial institutions worldwide responded
by terminating their business relationships not
only with [BDA], but with North Korean clients
altogether".
Levey and his Treasury
colleagues had come up with a way to go beyond
governments to use the global banking sector to
privatize banking sector sanctions against an
entire country (this, by the way, is presidential
candidate John McCain's proposed strategy for
dealing with Iran as described in the
November/December 2007 issue of the journal
Foreign Affairs ).
This "key difference"
in the "reaction by the private sector" was an
exciting revelation. Through a little
extraterritorial legal arm-twisting of the
international banking community, the US was able
to put "enormous pressure on the [North Korean]
regime - even the most reclusive government
depends on access to the international financial
system", said Levey. Washington now had "a great
deal of leverage in its diplomacy over the nuclear
issue with North Korea".
Turning to the
present, Levey informed the gathering of US
lawyers that "we are currently in the midst of an
effort to apply these same lessons to the very
real threat posed by Iran". However, "Iran
presents a more complex challenge than North Korea
because of its greater integration into the
international financial community."
Over
the past two years, Levey and other Treasury
officials have been crisscrossing the globe to
make it abundantly clear in meetings (described by
Treasury as opportunities to "share information")
with banking and government officials in the
world's key financial centers that dealing with
Iran is a risky business. Levey frequently claims
that major European and Asia banks, once they hear
the US pitch, freely decided to cooperate with
anti-Iran banking sanctions for reasons of "good
corporate citizenship" and a "desire to protect
their institutions' reputations". But these
meetings include quite a bit of browbeating. This
can be deduced from some of Levey's public
statements, such as his testimony to Congress. On
March 21, 2007, Levey told the Senate Committee on
Banking, Housing and Urban Affairs that unilateral
US financial sanctions "warn people and businesses
not to deal with the designated target. And those
who might still be tempted to work with targeted
high risk actors get the message loud and clear:
if they do so, they may be next."
Also,
the possibility of becoming a Patriot Act Section
311 sanctions victim (which means exclusion from
the US market) probably comes up at the meetings,
as this part of his testimony indirectly suggests:
"Our list of targeted proliferators is
incorporated into the compliance systems at major
financial institutions worldwide, who have little
appetite for the business of proliferation firms
and who also need to be mindful of US measures
given their ties to the US financial system."
Reportedly, Treasury Secretary Henry
Paulson has also been involved in high-level
meetings around the world concerning Iran, which
presumably includes presentations on the arsenal
of US financial sanctions. The message he imparts
is unknown, but hints of the likely content can be
found in public statements.
Among Treasury
officials, Paulson has used the most dramatic
language by making the argument that not only is
Iran a danger to the international community but
that this danger permeates virtually all of
Iranian society. In a June 14, 2007, speech to the
Council on Foreign Relations he first makes the
point that the
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