Treasury's War: The Unleashing of a New Era of Financial Warfare

By Burbach, David | Naval War College Review, Autumn 2014 | Go to article overview

Treasury's War: The Unleashing of a New Era of Financial Warfare


Burbach, David, Naval War College Review


Zarate, Juan. Treasury's War: The Unleashing of a New Era of Financial Warfare. New York: Public- Affairs, 2013. 512pp. $30

A student once asked, "Why can't Fed- eral Reserve chairman Alan Greenspan just shut down the Iranian economy?" A discussion about the limited effective- ness of trade sanctions followed, but the student was more right than he or his instructor realized. New tools of finan- cial warfare wielded by the U.S. Treasury and Justice Departments have been powerful against terrorists, criminals, and rogue states, at little economic or diplomatic cost. This is the case made by Juan Zarate in his latest publication. Zarate led such efforts as the Assistant Secretary of the Treasury for Terrorist Financing and Financial Crimes during the George W. Bush administration. Thereafter he served on the president's National Security Council staff.

The conventional wisdom is that trade sanctions generally fail to make hostile regimes change course, because they rarely have enough multilateral sup- port, are easy to evade, and are too blunt in the pain they inflict on target countries. Sanctions are even less use- ful against nonstate actors; there are no Al Qaeda products to boycott.

Financial weapons capitalize on three key differences. First, the global banking system is a choke point. Even clandes- tine groups need financial services; Al Qaeda may not have exports, but it does have bank accounts. Second, U.S. power is greater financially than economi- cally. The United States represents only one-fifth of the world economy, but the dollar is the dominant reserve currency, and most international trade is settled in dollars. Also, the United States has the largest financial markets, and the other big markets belong to like-minded al- lies. Foreign banks cannot risk access to U.S. markets and clearinghouse banks. Finally, access to the U.S. financial sector is under unilateral American control-U.S. regulators can bar Ameri- can banks from doing business with firms involved in money laundering, drug trafficking, or terrorist support.

Zarate explains how U.S. agencies devel- oped tools and techniques (a financial intelligence infrastructure) to trace the flow of money to and within groups of interest, whether the Sinaloa cartel or the Iranian Revolutionary Guard. Often the mere threat of public disclosure, let alone formal blacklisting, has convinced foreign banks to cease business with illicit groups, even banks in nations not friendly to the United States. Zarate details campaigns against targets like Al Qaeda, Hezbollah, North Korea, and Iran. He contends that financial tools severely disrupted the terrorist groups and pressured North Korea and Iran into negotiations. …

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