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     Apr 1, 2008
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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

Continued 1 2 

US moves towards engaging Iran (Mar 27, '08)

Fallon falls: Iran should worry (Mar 13, '08)

1. Russia challenges US in the Islamic world

2. A sheikha, a queen and a first lady

3. September 11 was a third-rate operation

4. Tibet, the 'great game' and the CIA

5. Inflation in heart-attack territory

6. Knives out for Malaysia's Abdullah

7. The mustard seed in global strategy

8. Your number's up

9. The new Brahmins

10. The little administration that couldn't

(Mar 28-30, 2008)


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