Review: Treasury’s War, by Juan Zarate

Let me begin with an apology for the lack of posting lately. While tossing a football around with some friends, I took a direct head-on hit to that finger you need for typing words that contain the letters “l” or an “o,” which turn out to be less dispensable than you might think. The time I didn’t spend typing, I spent reading instead:

[clicking the image takes you to Amazon]

If you want to understand why the Banco Delta Asia action worked so well, how financial sanctions bankrupted al Qaeda, and how they’re bankrupting Iran today, you have to read this book. If you’re reading this site, however, the odds are you’re interested in what Zarate has to say in chapters 9 and 10, where he writes about North Korea, Banco Delta Asia, and Chris Hill.

Zarate, who is usually effusive in his praise for the people he worked with in government, clearly has no use for Hill. Hill comes off looking like a boorish, incompetent asshole who, despite repeated explanations of how Section 311 worked, either didn’t grasp the concept or didn’t care. According to Zarate, Hill’s minions reduced Daniel Glaser to tears by bullying him into simply switching off the section 311 action–and its downstream effects–almost instantly, which is a lot like asking Treasury to instantly give North Korea a new reputation for honest financial dealings with a banking “ecosystem” that’s extremely concerned about reputations and access to correspondent accounts in U.S. banks and dollar-clearing through New York.

Readers of this site already know that I’m no fan of Chris Hill. I’ve written extensively about how Hill played fast and loose with the truth when he sold his deal to Congress in 2007. Two years later, after his deal with Kim Jong Il had collapsed under the weight of its own suspended disbelief, Hill was eventually confirmed as U.S. Ambassador to Iraq, but only after a bitter confirmation fight. After just 16 months in office, Hill retired, having failed to broker a new Iraqi government or to negotiate a suitable status of forces agreement (and you’d think a guy like Hill could have closed a deal if he wanted one badly enough), and with his relations with U.S. military commanders strained.

I’ve already told you that Zarate’s book is indispensable (it’s also a fun read) but I do have two criticisms. First, his treatment of the SWIFT network as sacrosanct, and his implicit criticism of Section 220 of the Iran Threat Reduction and Syria Human Rights Act of 2012 reads like a set of SWIFT talking points. Zarate worries about U.S. laws and EU regulations that forced SWIFT to cut off certain Iranian banks, and wonders how far down this slippery slope we’d go to sanction other countries.

I agree that SWIFT should be commended for helping Treasury after 9/11, and that The New York Times shouldn’t have outed SWIFT for doing it. But SWIFT has significant business operations located in the United States, and it derives significant benefits from the security of our country and the health of our financial system. By Zarate’s admission, SWIFT took the actions it took in 2001 because it knew it would not prevail if Treasury served it with subpoenas for financial information. Should SWIFT be forced to stop financial messaging services to every country that gets low marks for human trafficking or anti-money laundering countermeasures? Clearly not. But when some supranational authority demands countermeasures against specific banks known to be involved in proliferation or money laundering, SWIFT shouldn’t be exempt, either, particularly given that by its nature, SWIFT doesn’t know the purpose of the transactions it facilitates. Here’s paragraph 11, from UNSCR 2094:

Decides that Member States shall, in addition to implementing their obligations pursuant to paragraphs 8 (d) and (e) of resolution 1718 (2006), prevent the provision of financial services or the transfer to, through, or from their territory, or to or by their nationals or entities organized under their laws (including branches abroad), or persons or financial institutions in their territory, of any financial or other assets or resources, including bulk cash, that could contribute to the DPRK’s nuclear or ballistic missile programmes, or other activities prohibited by resolutions 1718 (2006), 1874 (2009), 2087 (2013), or this resolution, or to the evasion of measures imposed by resolutions 1718 (2006), 1874 (2009), 2087 (2013), or this resolution, including by freezing any financial or other assets or resources on their territories or that hereafter come within their territories, or that are subject to their jurisdiction or that hereafter become subject to their jurisdiction, that are associated with such programmes or activities and applying enhanced monitoring to prevent all such transactions in accordance with their national authorities and legislation;

Zarate is otherwise pretty big on enforcing international norms and standards, and to be fair, Zarate’s manuscript was probably already with the publisher when this resolution passed. It’s hard to argue today that North Korean banks that have been specifically sanctioned by the U.N. itself, the EU, or the United States because of “credible information” about their proliferation should continue to receive messaging services without interruption. Maybe Zarate wouldn’t argue that now. I hope he wouldn’t. But even before that, we’d seen a long services of messages about the need for “countermeasures” against North Korea from the Financial Action Task Force.

My second criticism is of the opportunity Zarate misses at the end of his book when he calls for the government to help preserve and enhance our economic power. That’s especially unfortunate when Zarate’s explanation of that power and its importance were so effective. His last chapter and his epilogue introduce a series of important concepts concepts about trade, protectionism, technology, foreign investment, and the strength of the dollar, but unfortunately, and perhaps because of the editing process, those concepts aren’t explained or illustrated well, and I finished the book without understanding how more government intrusion would advance, rather than inhibit, our economic competitiveness. I hope that’s something Zarate will explain further, perhaps in a future edition.

(This chapter still stimulated much thought about other key networks, aside from the financial system, that run through the United States. Could the free flow of information through U.S.-based servers, or a cloud network, be another future power source? How about restricting the access to U.S. ports of cargoes originating from ports that fail to take their counter-proliferation or counter-terrorism responsibilities seriously?)

Treasury’s War won’t win any literary awards, but its simple and clear writing style is probably best for a topic this complex. The information, clear explanations, and illustrative examples make it required reading for any student of economics or foreign policy in this age. If you’re a North Korea watcher or congressional staffer who wants to understand how H.R. 1771 would work, and why its strategy is nothing at all like the old fashioned sanctions used against Saddam Hussein, read Zarate’s book (it’s also available on e-book).