On the heels of the late 2013 release of his second book, Treasury’s War: The Unleashing of a New Era of Financial Warfare, Juan Zarate caught up with ExecutiveBiz to discuss his and the Treasury Department’s work in the years after 9/11 to promote U.S. national security interests through sophisticated global financial campaigns.
As the first-ever assistant secretary of the treasury for terrorist financing and financial crimes, Zarate implemented innovative and far-reaching financial mechanisms to drive illicit activity from the global financial system, deprive enemy leaders of their assets and restrict terrorists and rogue groups’ access to capital across international borders.
The former federal prosecutor went on to develop and implement U.S. counterterrorism strategy and transnational security threat policies between 2005 and 2009 as deputy assistant to the president and deputy national security adviser for combating terrorism.
In this conversation, Zarate speaks about how the private and public sectors aligned their efforts to bolster the government’s national security efforts in the financial markets, what lessons he transferred from his work with Treasury to combating WMD terrorism at the White House, and the roles of financial inclusion and incentives in U.S. national security efforts.
With a lack of international standards specific to terrorist financing and no concerted international campaign against illicit finance tied to national security, we needed to set out a strategy that reshaped how we thought about and leveraged financial integrity.
The private sector itself had a key role. They had enormous regulatory burdens and were under a great deal of enforcement pressure – the banks were being fined for ant-money laundering violations and such.
These were institutions that understood there was a risk involved in dealing with tainted capital and there was a realization that the private sector had a very acute interest in avoiding those types of risk.
That dovetailed directly with our national security interests to isolate rogue financial behavior.
It was that realization and that environment that allowed us to apply some very creative tools that allowed the evolution of our financial warfare campaign and strategies.
How did that relationship between the private sector and Treasury evolve over your time there and where is it today?
There’s always been a relationship between the financial community and the Treasury as both policy maker and regulator. That relationship only intensified after 9/11, where there were more burdens on the banks, but also more demand for information sharing and open dialogue between the private and public sectors.
In the post 9/11 period, you saw more collaboration, more discussion, as well as more pressure on the private sector to take on more of the burden of serving as the guardian of the gate of the financial system.
In many ways the preventative burdens of protecting the financial system were put first and foremost on the shoulders of the banks. That drove banks and non-bank financial institutions alike to make decisions to not do business with illicit actors or suspect rogue financial activity and that began to drive the essence of the most significant part of the financial pressure campaign.
It was one of the most significant steps taken to isolate the North Koreans in recent memory with the isolation of the North Korean financial apparatus from the banking system in 2005. The ability to unplug or isolate the Iranian banks from the international financial system has been central to Iran’s economic troubles and the constriction campaign we’ve put against the Iranians.
It’s been the ability to interact with the private sector and to align private sector business decisions with national security interests that has been at the heart of his new era of financial warfare.
Talk about how you were able to help recoup more than $3 billion in Saddam Hussein’s Iraqi and other assets when you led the global hunt for those assets.
The hunt for Saddam’s assets is a great story and a largely untold one in the context of the U.S.-led efforts to topple Saddam Hussein.
It was the combination of factors using many of the same tools that we had applied after 9/11 – the use of financial intelligence, the use of forensic investigators, the use of treasury tools along with deep international cooperation and coordination that allowed us to not only go after Iraqi state assets but also assets that had belonged to Saddam Hussein, his sons and his cronies that were controlled either in bank accounts, in real property or in the holdings of front companies.
It was the use of the tools and expertise that we had to bring to bear along with an international coalition committed to finding a kleptocrat’s assets that allowed us some success in finding assets in places like Jordan, Syria, Lebanon and beyond.
As you moved to the White House, how did you take what you had started at Treasury and incorporate it into overall U.S. counter terrorism measures?
There was no question there was a mandate from President Bush right after 9/11 to think creatively and aggressively about the use of American power and influence to undermine the global reach of Al Qaeda.
It was also clear that those same tools that we were applying against Al Qaeda could be applied in other contexts and Treasury had demonstrated that.
What I took to the White House with me from the Treasury was an appreciation for some of those alternatives and the strategy that could be brought to bear against networks and enemy states where we needed to undermine their power and their financial infrastructures.
Some of the lessons were important, for example, in the contexts of countering violent extremism, it became clear that the most important element of that campaign was the ability to drive an organic counter movement, perhaps even grass roots, to isolate ideologues and others that were trying to radicalize in the name of Al Qaeda.
That can’t happen necessarily through the U.S. government, or shouldn’t in many ways, so the question is, as in the case of financial power, how do you leverage alternate power in the environment in a way that is then conducive to their interest as well as our interests to avoid violent extremism.