Hitting Terrorists Where It Hurts: Their Wallet

Since Sept. 11, one of the most effective ways the United States has found to weaken terrorist groups has been to go after their finances. Renee Montagne talks to former Treasury official Juan Zarate, who's new book is: Treasury's War: The Unleashing of a New Era of Financial Warfare.

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STEVE INSKEEP, HOST:

Now, in the years after that event, the 9/11 Commission investigated what happened and issued a final report on the attacks as well as the U.S. response; it awarded only one A grade to federal agencies, and that A, which by the way was an A-minus, went to not the FBI, Pentagon or CIA, but to the Treasury Department for a strategy that took the fight against terrorists and rogue nations to the banks.

RENEE MONTAGNE, HOST:

Traditionally, sanctions and freezing assets have been the go-to financial strategies to punish or isolate, but over the last decade the U.S. has vastly expanded its reach into the world of global finance using complicated financial tools and even market forces to deny funding to terrorist groups like al-Qaida and to disrupt the economies of countries like Iran.

One man at the center of all of this was Juan Zarate. He offers a behind-the-scenes look at an effort he helped launch in a book called "Treasury's War: The Unleashing of a New Era of Financial Warfare." Welcome to the program.

JUAN ZARATE: Thanks, Renee.

MONTAGNE: What did 9/11 reveal about the sophistication of how terrorist groups were financed?

ZARATE: Well, it was clear that al-Qaida not only had deep support in the Middle East, deep pocket donors, charitable organizations that were funding them, but they also had the ability to raise and move money around the world. They were able to get money to cells in places like Hamburg, had bank accounts in the United States, and really a reservoir of both capital and capability to move in an unfettered way around the world.

And so what we had to do was not only find out how to go after the money that was there, but how to deter those who would finance al-Qaida from doing that, to hurt its bottom line and its strategy by going after its money.

MONTAGNE: Right. Up until then, really, I mean generally people thought, oh, freeze assets. But what new powers did the Treasury Department get after 9/11 to go much, much further than that?

ZARATE: Well, it was a broad array of tools, Renee. It was not just the ability to aggressively freeze assets of terrorists, but also to threaten to freeze assets of those who were financially facilitating, including financial institutions that might be associated with terrorist groups. So the executive order that President Bush signed soon after 9/11 really expanded those authorities and powers.

You also had the Patriot Act, which broadened and deepened the anti-money laundering system, making it much more onerous on the financial community to know their customer, to engage in due diligence. It also gave the secretary of the treasury a power to, in essence, put a scarlet letter, a Section 311, as we call it from the Patriot Act, to call something a primary money laundering concern, to basically brand something as out-of-bounds in terms of money laundering and thereby isolate it.

MONTAGNE: Give us an example of how a bank came up against Section 311 of the Patriot Act.

ZARATE: The best example is the Section 311 action against a bank in Macao called Banco Delta Asia. This was a bank that was doing business with the North Korean regime, helping them engage in cigarette smuggling, money laundering, counterfeiting of $100 bills. And what we did was we isolated that bank. We labeled it. We basically indicted it with this section.

And what happened was a ripple effect. Nobody wanted to touch that bank. Nobody wanted to touch the accounts or the North Korean activity that we had labeled as suspect. And what happened was the most powerful isolation of North Korea financially that we had seen in the last three decades. It was the first time in recent memory that the North Koreans had actually called the White House and the State Department to talk.

And for two years after that, they started and ended every conversation with saying we want our money back.

MONTAGNE: It will be of particular interest today that Syria was among the rogue nations in the crosshairs of the Treasury Department. Syria was a country with a dictator allied with Hezbollah, which is a designated terrorist group. It was allied with Iran, believed to be working towards nuclear weapons. Lots of reasons for looking at Syria. Give us an example of how Treasury, in particular, was targeting Syria.

ZARATE: We were looking at tools that we could use. Certainly we looked at 311 and we used that against the commercial bank of Syria. We started to designate elements of the Syrian regime that were tied to the nuclear program, tied to the WMD programs. We also, in 2008, took a very important step in going after one of the regime's cronies, a money man by the name of Ronnie McLuff(ph), who's tied to elements of the regime and has provided financial support for Assad and his regime.

So we tried to use as many tools as possible. The frustration, though, was that Syria, unlike Iran, al-Qaida or even North Korea, didn't fall to the head of the class internationally and so it was often more difficult to get people's attention about Syria, often difficult to get concerted action. And I think one of the things that may be lacking currently is a much more aggressive financial strategy against Syria.

If we are serious about going after the Assad regime, that means using our financial tools even more seriously against the banks that are doing business with Syria, the assets that are held by the regime and their cronies and the front companies and businesses that continue to help them.

MONTAGNE: Even now, you think there's not enough aggression there in the financial part of all of this?

ZARATE: I think that's right. Renee, you can always turn the dial up or down on financial sanctions. It's not a light switch, but it's a dial. And we've certainly done a lot in the Treasury Department under President Obama, has continued along the same path and has done some very good things. But you can always do more. For example, have we looked at potentially sanctioning the Russian banks that are financing some of the deals for missiles, for other weaponry for the Syrian regime?

We have not done that. Have we launched a preemptive asset hunt, not waiting for the regime to fall to go look to see where Assad has hidden his millions or billions? Why don't we do that now? These are all things that can be done even absent a U.N. mandate and certainly before we start dropping bombs.

MONTAGNE: Juan Zarate's new book is called "Treasury's War: The Unleashing of a New Era of Financial Warfare." Thank you very much for joining us.

ZARATE: Thank you, Renee.

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