 Good afternoon, welcome to the New America Foundation. I'm Peter Bergen, we're from the National Security Program here. It's my great pleasure to invite Juan Zarate to come and speak to us. Juan is, as many of you know, has had a distinguished career, senior position at the White House for President George W. Bush in the counterterrorism arena, the first assistant secretary at the Treasury to combat financial crimes. A senior advisor at CSIS now, a professor at Harvard Law School, from which you graduated. And the author of a very well-reviewed new book, Treasuries' War, which has already received positive reviews in the Post and the New York Times. And Mrs. Zarate has agreed to speak for about half an hour about the big themes of the book, and I'll engage them in Q&A and then open it to you for your questions. So thank you. Peter, thank you very much. It's an honor to be here with you. I've always been a huge fan of Peter's, and when I came out with the book, I asked Peter, and he kindly accepted to write a blurb for it. So if you look at the book on the back, you'll see Peter's very kind quote, and I want to thank you for that, Peter, and your years of support. And frankly, your years of great journalism and what you've done here to build the New America Foundation. You and Steve Cole and now Ann Marie Slaughter have built a really important think tank here in Washington, and I want to thank you for the opportunity to be here with you and everybody. This was a labor of love, this book, and I wrote it for two reasons. For those who are in the audience who work at Treasury, I think they'll understand this well. I think the first reason, and the most important reason to have written this book, was to explain and to talk openly about the role of financial power in influence and national security, and to underscore the reality that now in the post-911 period, we have seen financial power in some cases take pride of place in terms of our strategy. One need only look to current events to understand how that is and why that is. The debate around the Iran negotiations and the nuclear program in many ways center around not just the effectiveness of financial power, the ability to isolate the Iranians from the financial system and commercial system, but how then to choreograph the unwinding of that financial power and influence vis-a-vis the nuclear negotiations. If you look at the question of groups like al-Shabaab or the fractured al-Qaeda movement, the question of how groups like that continue to survive and persist and actually grow in terms of their capabilities and reach and how they're financing themselves, that continuously is a key issue in national security. The question of how you influence issues like Syria and the conflict there, if we're not willing to engage in military force or apply military resources or kinetic power and diplomacy isn't going to be the solution, what then is the middle ground? So this is a story about that middle ground, the development of financial power in a globalized system that moves beyond the use of classic sanctions, that moves beyond what was developed in the 1980s and 1990s as really the use of commercial and trade sanctions and sanctions that were tied to diplomacy and evolve the use of the power to isolate rogue actors and capital from the global financial system. So that's what this book is about, it's about the development of that strategy, the development of those tools, the use of financial intelligence and the political will to use these tools and influence to actually go after the finances of America's enemies. This all started of course after 9-11 where a lot of these tools were amplified, expanded, deepened and broadened and so the paradigm in many ways was applied in the terrorist financing context but then was evolved intentionally to look at issues like proliferation and proliferation finance, rogue states and the way that they were accessing and using the commercial and financial system, transnational organized crime groups, drug cartels, etc. All with the theory that any group that wants to pressure or affect American national security, any group that has global reach and influence and power has to have access to the global financial system and so the theory here is that with any of our enemies, state or non-state, those actors that actually have reach or want global reach, they are going to have to access the financial system and the commercial system. And there are really I think two orthodoxies that this new paradigm and I'm happy to explain kind of how this all works but I want to sort of, since we're here at the New America Foundation, I want to sort of talk about sort of the macro level strategic dimensions, really two orthodoxies that this new wave of financial power really in some ways destroys. In the first instance, the notion of sanctions, traditional trade based sanctions, as being either unilateral or multilateral and largely being ineffective because they end up affecting just the populace of a country, for example, like in the case of the Iraq sanctions. The use of these financial tools destroys that paradigm because in this new era of financial warfare, the use of financial tools, the ability to isolate actors from the U.S. financial system, the ability to influence foreign banks or commercial entities to not do business with certain actors, to influence the legitimate financial ecosystem to exclude this illicit capital, really is inherently multilateral. It feeds off of the globalized financial system, the importance of the U.S. as the reserve currency around the world and the ability to define norms and standards of behavior in that legitimate system. And so in this new world of financial warfare, it's no longer a question of unilateral or multilateral sanctions. It's no longer a question of what sanctions you can get through the UN Security Council. It's a question of how you can galvanize the financial and commercial globalized system to isolate these actors from that world. And it's a different way of viewing the system. And it's a way of viewing the system that puts actually the private sector right at the heart of, in many ways, driving that isolation. As I like to say, the banks in this new world are really the guardians at the gate of the financial system. They're the ones who are determining whether or not they're going to do business with the revolutionary guard. They're the ones who are determining whether or not they're going to apply enhanced due diligence on North Korean front companies. They're the ones who are determining whether or not particular charities or front companies that Al Qaeda has used in the past are going to have bank accounts. And so it's really the financial sector itself that has then both the burden and responsibility of isolating that behavior. The other key orthodoxy that this does huge damage to and shifts is the notion that financial power in many ways is ancillary to core national security interests. That really the core of international power is military power, first and foremost, or most effectively, or diplomacy. Or to a certain extent law enforcement and other activities. And what this new era does actually is to really define financial power as its own implement of national security. That financial power, the ability to leverage the financial community, the ability to use financial authority and influence and suasion is actually a power unto itself. And is effective not just as a power unto itself but as a clear complement to other powers. And so for example in the military context, you see that the focus on illicit finance, now called threat finance in the Department of Defense, lexicon, is now a core dimension of how the military thinks about how it wages war. Who is funding the insurgents that are shooting at our men and women in uniform? That is a core dimension of power and what can we do to affect that? With our diplomacy, how do you give teeth to our diplomacy? How do we actually build leverage in asymmetric ways? And financial power gives you that ability. How do we think about the use of law enforcement authority when it's very difficult, for example, to get our hands on perpetrators of crimes or illicit activity abroad? Well, law enforcement can leverage treasury and these powers in fairly unique ways. And so the orthodoxy that financial power is somehow sort of a sideshow or an ancillary element of power is done damaged due because that is no longer the case. And the second reason I wanted to tell this story, Peter, which is institutionally, treasury is now a central part of that story, is now a central part of the national security complex. When I was at the Treasury Department, especially when Treasury was defanged of its core law enforcement resources, about 98% of its enforcement resources, Secret Service gone, Custom Service gone, Bureau of Alcohol, Tobacco and Firearms gone. There was a fundamental question as to what Treasury's role would be. This was back in 2002, 2003. Folks like Tim Skud, who in the audience remembers this period vividly, a period of great tumult within the Treasury. And the question often asked, and this was literally asked at meetings I attended at the White House on behalf of the Treasury, was why is the Treasury Department even here? Do they even belong? They shouldn't be here because Treasury no longer has a role or a function in this world because it's lost its primary assets, its signature assets in this field, Secret Service, Customs. Why are you sitting at the table? And the fundamental answer to that was Treasury actually has put aside the guns and badges. It has fundamental tools and authorities that give the US government global reach and the ability to impact via the financial system. It has unique relationships with central banks and finance ministries and banks and organizations like SWIFT. It has unique authorities in terms of gathering financial intelligence and in terms of regulations, use of executive orders, freezing assets. It has an ability to reach beyond US borders in ways that are like a financial insurgency and allow us to go after our enemies in very creative and unique ways. And so that institutionally, if you look at 2013, the question now at the table at the Situation Room, and I witnessed this when I was at the White House after 2005 is not why is Treasury here, but why isn't Treasury here? And what is the solution? What are the strategies that Treasury can bring to bear on the hardest of our problems? Issues like terrorism, issues like proliferation, issues like North Korea or Iran. And so that's why you've seen very much a leading role, least strategically for the Treasury Department and these authorities in some fairly dramatic ways. Let me give an example of how this all works, because this all sounds very interesting and ethereal maybe to some. But I think it's important to give an example of how this has worked in the past. In 2005, the Treasury Department had prepared what is called the Section 311 Action. This is a unique power given to the Secretary of the Treasury under the Patriot Act. Folks may not realize that Title III of the Patriot Act actually was a provision to broaden and deepen the anti-money wandering system, and provided new tools and authorities to the Treasury Department. What we had been doing for two years, Peter, was to look around the global landscape to see where there were what we called simply bad banks. Where were there financial institutions in the international order that were providing financial facilities to not only America's enemies, but to the types of illicit financial activity that we thought were threatening to the American financial system. Things like not just drug trafficking and money laundering, but proliferation, finance, tariffs, financing, sanctions, evasion, and the rest. And so we engaged in a bad bank initiative looking across the globe, identified a number of them, and used this authority from the Patriot Act called Section 311 to identify these institutions as primary money laundering concerns. And in layman's terms, that means the ability by the Secretary of Treasury to put a scarlet letter on an institution or a jurisdiction or a class of transactions to say, this is a really dangerous or suspect entity. And you, the US financial system, shouldn't deal with them. Or if you deal with them, you should be very careful or cautious. In the financial ecosystem globally, that's really the death knell. Because if you're saying you cannot do business in the US, in many ways, you cannot do business around the world. And that also means whatever you're doing should not be touched and is inherently tainted because of what has been pronounced by the US Treasury. So in September 2005, what we had prepared and what we had worked with the interagency on was Section 311 action against a small bank in Macau called Banco Delta Asia. This was a bank that was doing business with the North Korean regime in particular Office 39. And for those of you who aren't familiar with North Korea and how it operates, some of its revenue is gathered from international illicit financial operations. They're engaged in drug trafficking, counterfeiting, and smuggling of cigarettes. And frankly, the counterfeiting of the most sophisticated counterfeit of $100 bills in the world known as the Supernote. And so this is, it's called by some, like David Asher, it's called the Soprano State because it's engaged in all forms of criminality. And this bank, among others, was providing financial facilities to allow them to do this. And interestingly, Peter, despite the orthodoxy that really wasn't much you could do to North Korea, it's already isolated globally. We don't trade with North Korea, they don't have bank accounts here. So what are we gonna do that decades of sanctions really haven't been able to affect the North Koreans? Well, the reality is the North Koreans rely on the international banking system. They had banks in Macau and China, even a bank in Austria that they controlled that allowed them to engage in all of the financing that they needed to get done to move their money and to get money back into North Korea and into the hands of the regime. And this one particular bank was a prime target because it was doing all of these things for the North Koreans. And it was run by the casino magnet Stanley Ho, who's well known to Macau. So what we did was we, in essence, prepared a section 311, which again, in layman's terms, is really an indictment on the bank, an indictment on the activity it was facilitating. And in this case, really an indictment of North Korean illicit financial activity. What we did in September of 2005 was to release this rule. It was a domestic proposed rule, not even a final rule. It wasn't backed by a UN sanction, wasn't backed by some bilateral arrangement. The EU didn't take action, it was simply a regulatory action by the Treasury Department. That one action set in motion a chain effect, a ripple effect in the international financial community that led to the most severe financial isolation that North Korea had ever seen. So much so that within three weeks of the action, after the bank had been closed and taken over by the McEnney's authorities, after $25 million of North Korean assets had been frozen there, after there was a run on the bank, after other banks in China and elsewhere had closed North Korean accounts. The North Koreans called, for the first time in recent memory, the United States first to talk. And for two years after that, they started and ended every conversation with we want our money back. And really what they wanted back was their ability to transact with the banking system and community. And in fact, in a private conversation between one of the North Korean negotiators and the White House negotiator, the North Koreans said in confidence, you finally found a way to hurt us. And it was the use of this financial tool, 311, but more broadly, the aversion of the financial community to do business with the North Koreans and elicit financial activity that they're engaged in that really led to the isolation. It was an organic isolation in power at the end of the day. And I'm happy to talk about this because interestingly, it led to a great deal of tension, which I detail in the book, between the Treasury Department and the State Department. Because this action was seen as being in some ways too effective, it started to complicate the diplomacy. And the financial campaign began to diverge from our diplomatic goals. And therein lies a good bit of the tension that I chronicle and the story that I chronicle in there. There's actually an interesting lesson for Iran. Because we're at a point now where it appears that the financial pressure, what I call the constriction campaign, which began in 2006 and was amplified in recent years, has not only taken a toll on the Iranian economy, but has perhaps begun to change the calculus of the regime. I think we'll have to see how serious President Rouhani and the clerical establishment is. But there's no question that their economy has been hurt by not only the isolation, but also their mismanagement. And the question is, can we negotiate a real nuclear deal while preserving our ability to pressure financially in the event that they're not serious or they decide that they're not going to commit fully to their promises? And I think the question of whether or not our financial pressure campaign can remain aligned with our diplomatic goals is a really serious and important one, and one that people are beginning to debate and discuss. On Iran, by the way, I think it's interesting that as we hear them talk about what they want in terms of relief from sanctions, the very first thing that they want, actually, is to be plugged back into the banking system. Because at the heart of Iranian, North Korean, al-Qaeda and other rogue actor isolation is the inability to bank around the world, the inability to have access to correspondent accounts, the inability to wire money across borders, the inability to have leans and banking facilities to provide the backing for trade finance. So it's actually the access to the financial system, which is the core of the financial isolation of the Iranians. And it's why they've asked, in the first instance, to be plugged back into the swift bank messaging system, which the Europeans have unplugged. So I think we're in a very interesting period because we have evolved the use of financial power in some fairly unique and interesting ways that has given pride of place to these authorities and powers, but creates all sorts of complications. And I think we've done grave damage to the old orthodoxies that these kinds of powers can't work or don't work. Or that there's not more that can be done with these kinds of regimes or non-state networks, in part because we don't do direct business with them. The reality is that if there's a state or non-state actor or network that has to access the financial commercial system, we then have an ability to impact it. Interestingly though, Peter, I think one of the questions moving forward is, how do we preserve this power and this ability without doing damage to the role of the American economy, the American capital markets in the system? And how do we preserve the role of the dollar and the role of New York as a primary capital center to allow us to continue to do this? And the other interesting question is how have we perhaps taught our competitors and our enemies how to use these powers for their own interests and perhaps against the US and US vulnerabilities? So I get into that a bit, the back end of the book, talking about how China and Russia may be thinking about the use of their financial power and influence, how the de-Americanization as the Chinese have now put it, of the international financial system actually plays into a weakening of not just American standing economically, but also our ability to use these powers and authorities for our national security interests. A final point, and I think this is important for an audience here at the New America Foundation. I think another interesting byproduct of looking at the world through the lens of financial power and influence is that it in many ways reveals things that we wouldn't otherwise concentrate on, at least in the first instance, from a national security perspective. And again, I had the deep privilege and advantage of having been at the Treasury and then having been at the White House and seen the evolution of these powers and authorities in a fairly, I think, unique way. But what's interesting about looking at the world through the lens of illicit finance is it reveals a number of very interesting things. In the first instance, from an analytic and intelligence perspective, and I know you appreciate this, Peter, it gives one a better sense of how nation states and non-state actors actually interrelate. If you actually follow and track and map the financial infrastructure of these groups and networks, you actually start to see some very interesting interrelations and marriages of convenience that you might not otherwise view if you're not looking through the lens of the flows of illicit capital. It also reveals very interesting strategic questions. Can you deter non-state actors, especially apocalyptic terrorist groups, in the 21st century? Well, if you're looking at the use of these tools expansively, you actually look at the role of deterrence more broadly. So you're not just trying to deter the trigger puller or the suicide bomber at the end of the chain. You're actually looking at the life cycle or the business cycle of a terrorist organization more broadly. And so can you impact the strategic thinkers who are launching the plans or devising the budget for a group like Al-Qaeda, the Sheikh Said al-Masri types? Can you impact the direct donors and those who are proponents, demanding donors or investors in these groups? Can you impact the more passive donor community or institutions that might play a role in supporting terrorist groups? Can you influence the financial facilities that actually help these organizations to operate in the global financial system? So if you look at the world differently through the lens of illicit finance and these powers, you can actually then start to devise different strategies, for example, on the issues of deterrence. It also emerges very difficult, diplomatic and strategic issues. So for example, how should we view the role of the Muslim Brotherhood in the 21st century, especially post-air of spring? Well that question emerged actually in 2001 because we had the question from a terrorist financing perspective of whether or not elements of the Muslim Brotherhood network were actually financially supporting Al-Qaeda. And so the question of whether or not the Muslim Brotherhood itself and its financial infrastructure around the world to include in Switzerland and elsewhere should be viewed as an enemy network or not, was actually driven by the question of terrorist financing and what you do with these financial networks. What is the role of the Saudi government in proselytizing and supporting Wahhabi causes, centers, groups, imams around the world in places like Southeast Asia, Central Asia, Africa? Well that question and the fundamental question in intention between the US and the Saudis which I get into in the book in chapter three was really driven by the question of terrorist financing, was really driven by the Treasury Department in many ways, and was put at the top of the agenda for precisely that reason. And finally I think, and I know the New America Foundation will appreciate this because I've been here for discussions that you've hosted about these issues. There's really an interesting question about what this teaches us about the use and leveraging of power in the 21st century. Because in many ways, the strategies that I describe in the book and what we've witnessed over the last 10 to 12 years is really an episode in the leveraging of non-state power and influence globally. It's the use of the interconnected international financial and commercial system to America's advantage no doubt, but to the advantage of our friends and allies as well. And it has not been necessarily what governments have done, but what the private sector has done at the prompting of the US government and in the context of the ecosystem. And I like to say, for example, in the context of Iran and the pressure campaign, it was often more important for Stuart Levy who was leading the campaign for Treasury at that point. It was often more important for him to sit down with CEOs and compliance officers than with his counterparts in finance ministries and central banks. Because the calculus about the isolation of rogue financial activity at the end of the day came from those financial institutions and not necessarily from their governments. And by the way, the governments would get very upset that Stuart would have those meetings or that US officials were meeting with their private entities and not going through governmental entities. And I think that presents a really interesting question and I get into this in the epilogue about how we think about what I call strategic suasion in the 21st century. When power, we admit that power has devolved from the nation state. The nation state's still important, but we're in a post Westphalian model for the use of power. How can we think about that using the lessons from the use of financial suasion? How can we think about street craft in addition to state craft that actually amplifies US interests and power in a more diffused power environment in the 21st century? And so I think the grand lesson of this period is that financial power is not only essential, but can teach us some very important lessons strategically about where we go with the use of financial influence and American power at large. So I hope that's a helpful introduction. That was a brilliant introduction, made without notes and very, very clear. Picking up on the question of the Saudis, so the narrative immediately after 9-11 is essentially if there's anybody really ultimately responsible, it's the Saudi law suits against the Saudi government, against named Saudi individuals, a lot of those were thrown out. But how would you assess what the Saudis did or did not do while you were in office about this issue? It's a great question and a great episode in this period. And it's probably the reason I devoted chapter three largely to this question. We had a problem with the Saudis after 9-11 because what had evolved from the Afghan Mujahideen, which nobody knows this better than you, Peter, what had evolved was a financial infrastructure to support global jihadi movements. I mean, that was the bottom line. It had been born out of the Afghan Mujahideen movement, but had in some ways metastasized. And so the Saudis were still in many ways supporters or at least passive players in that system and certainly deep pocket donors and institutions in Saudi Arabia were a part of that infrastructure. So if you looked at, for example, the largest Saudi charity at the time, Al-Haramain, Al-Haramain branches around the world were providing support to al-Qaeda or al-Qaeda related individuals and groups. There was no question about that. Knowingly or unwittingly? Well, it depends on who you're talking about. And I think this is the difficulty of the litigation. So there is an attempt to ascribe all knowledge to all elements of Saudi leadership. And I think the challenge and the difficulty was this paradigm of supporting these causes, these Wahhabi causes, as well as the Wahhabi causes that were linked to the jihadi movement was ingrained in the very kind of social ideology, even the notion of zakat was tied to this from the days of the Afghan Mujahideen. And so there were elements of knowledge throughout the Saudi system, but clearly post 9-11 they understood that this could not persist, there couldn't be elements of the Saudi infrastructure that were supporting al-Qaeda. And this was a key theme that we had shifted, that this was no longer the 80s and 90s where we could sort of passively allow this to happen. We actually had to be active in disrupting it. The challenge with the Saudis was not necessarily the awareness of that because the smart leadership of Saudi Arabia, including Muhammad bin Naif, who is now the Interior Minister, clearly got it. The question is, what's the right modality what's the right way of going about this given the ingrained nature of this in Saudi society? And that's where a lot of the tension between the US and Saudi Arabia happened because we wanted things to be shut down now quickly, using open and notorious tools that the Treasury could bring to bear. We wanted people designated, arrested, charities shut down, bank accounts frozen. We wanted UN designations, the whole suite of things that we were doing. We wanted to do right away. And the Saudis understood that and they worked with us and that's why you saw, for example, the first joint designation the US had with any government was with Saudi Arabia to start to shut down elements of the al-Haramain network. But they also wanted to do it at their pace in a way that built legitimacy for the undercutting of these very networks. And so their approach, which has turned out to be quite effective actually, and if you talk to objective observers about this, they would agree. The Saudis actually took a bit longer to do what we needed them to do, but they had in essence agreed that the system had to be shifted. Now the real danger here, Peter, is I think we've entered a period in the last year and a half with Syria where this all may be changing again. So what did they actually do? And how do you get around the issue of you have millions of people going to Hajj and they want to donate to the cause without really knowing what the cause is. And there's a very legitimate, you know, the Zakat issue. I mean, even if you shut down charities that are malfeasance, it's going to be hard to stop people donating to something they think is legit. That's right. And even harder now, and this is why I want to raise the issue of Syria and I raise it in the book, I think one of the dangers of Syria is that it provides, not just a site as for al-Qaeda to rejuvenate itself for foreign fighters to flow and gain experience and all the things that you know well, but it also is a venue to allow for a resurrection of the old Mujahideen funding networks in a way that is legitimated by Saudi Arabia, Qatar, Kuwait, because they are trying to finance the opposition to Assad and trying to support the fighters enabled by the Turks, for example, with the flows of money and foreign fighters through Turkey into Syria. And so the real danger here, aside from the fact that no system's perfect and people are going to donate to the Taliban, they're going to donate to some, you know, J.I. in Southeast Asia, they're going to do it, they're going to find a way. What you try to do is to deter them to make it harder, costlier, riskier, to raise the enforcement costs, to rate regulatory costs. You know, that's the essence of the strategy, but with Syria, the real fundamental challenge is, are we seeing the resurrection of some of these old networks? In fact, old networks using new technologies, for example, donations via Twitter, which the Washington Post recently reported on, flowing into Syria in a way that now is rejuvenating some of these old deep pocket donors, these old networks that we had largely suppressed, but now may be resurrected and resurrected with the legitimacy of the states. And so that's really a danger, I think, that we see now and we witness in the Syrian context. You must have taken some pleasure in reading the bin Laden documents out of Abdubat and his complaints about how tight money was. Absolutely. And in some ways, you know, there's a fair criticism, and I've heard this from you too, Peter, and it's a fair criticism about, well, you know, terrorism doesn't cost that much. You know, especially the Boston Marathon plot, how much did that cost? $200, you know, even 9-11, half a million. So we're spending a lot of money, resources, financial and diplomatic capital to do this. What does it matter? Well, the answer is what you're trying to do strategically, at least with groups that want global reach. You know, it's not every little group in every corner of the world, but with groups that want and need global reach and need a financial infrastructure to do big things. What you're trying to do is to constrict their budget and to constrict their decision-making. And so at the end of the day, what we were trying to do at Treasury, and when I was at the White House, what we tried to continue to do was to constrict the funding pool to deter people from wanting to or needing to fund al-Qaeda or al-Qaeda-related causes. And in essence, to put strategic strain on the organization itself. You weren't gonna stop every last dollar going to al-Qaeda, and you certainly weren't gonna stop every last dollar going to whatever particular end-state attack that was happening. You tried to disrupt it, but it's not foolproof. But what we did try to do, and I think was effective and demonstrated in those documents, was needed to constrict the budget of al-Qaeda such that its global reach was beginning to shrink, or at least its global ambitions were hampered. I wanted them, when I was at Treasury, I would say this, I want al-Qaeda to have to make a decision between paying the pensions of the suicide bombers and money to the families, which has all sorts of morale issues attached to the movement, and being able to pay a Pakistani scientist at UTN for knowledge about a nuclear program. And so if I can constrict their budget so that they have to make a decision that they're gonna pay for low-level training and pay for families of suicide bombers, and they're not gonna be able to develop a real serious WMD program, or get access to that knowledge or to material, we've won. Or at least we've used these tools in a very strategic and important way. And obviously if you're running an insurgent organization, you have a big payroll. A terrorist organization is made up of volunteers, and insurgent, you have to, so with the Taliban, explain a little bit about what you did, I mean, were you doing, were you thinking about the Taliban when you were in office, or what do you think we've accomplished on this issue? Absolutely, the Taliban in some ways was a very difficult challenge, in part because we had to find ways of trying to cut off funding to the fighters, that is to say, helping the threat finance context to use DoD's lexicon, and to do that in ways that affected the informal systems that the Taliban was relying upon, the Huala system, for example, to move money in and out, or the drug traffor. How do you get on top of the Huala system? Well, I detail this in chapter four. I think there's some misconceptions about informal systems, movement of money or value that is. What is the Huala system? The Huala system, in layman's terms, is basically a traditional system of moving money or value across borders that's present in South Asia, the Middle East, Africa. It is in essence an informal, brokering system. So think of a Western Union-like system where you can go into a trusted broker and say, Peter, I want, we're in Islamabad, I want $1,000 to go to my cousin in Nairobi. Can you make sure it gets there? You, Peter, have your Hualadar broker network, and you basically get on the phone or send an email or text or something to your broker friend, say deliver $1,000 to this individual at this address. It's actually a highly effective process, a network that allows people to engage in cross-border money transfers when they don't have access to banks or an ATM or classic financial system, and is used persistently and consistently around the world, in particular with remittances with certain diaspora communities. So it's really effective, and it's really an important way that the non-bank communities get access to financial facilities. The challenge is that they're not formal financial systems, and so you don't have the classic regulatory structures built into them, but you can, and one of the things we tried to do 9-11 was to try to regulate more of the Hualadar networks, bring them into some form of a regulatory system. You saw this, Dubai has tried this a bit with their money service businesses. We've tried it in the US with our money remittance operations. So you can try to regulate them. The other thing that's interesting about the Hualadar network is it's often assumed that they don't keep records and they don't connect with the financial system. Both are incorrect. They keep meticulous records, precisely because they've got to keep track of the thousand dollars that they've committed, they've received and committed to their broker agent in Nairobi. And secondly, they have to settle at a certain point, just like banks and just like commercial entities, they've got to settle with their broker networks. And so, you know, you owe 5,000 to this broker. This broker owes you 3,000. At a certain point, you've got to settle. You've got to move the money via accounts or some other system. The other thing that's interesting, Peter, is that these are often self-regulated groups. One of the things we realized post 9-11 with the Hualadar networks in Afghanistan was that they actually have a union. And so they self-regulate. They know who the actors in their system are better than we do. And certainly they know their customers better often than banks know their own customers. And so there's actually a sort of a self-regulating dimension to Hualadars. But very difficult. The Taliban's been very wily about how to use the drug trade and the poppy trade to raise millions of dollars. They've used kidnap for ransom to raise millions of dollars. And they've certainly been able to build alliances with the Hakani network and others to allow the use of smuggling and other commercial activities, siphoning of money from aid programs, that kind of thing, to raise money. And so you have to look at it as a broad-based problem. And one of the things we did, and this was the tail end of the Bush administration, was to create something called the Afghan threat finance cell, which was based off the model of what we built in Iraq to look at insurgency financing in Iraq. And the issue there is, by the way, it's led by the DEA. Going back to my point about the complement between Treasury powers and law enforcement powers, the DEA leads this threat finance cell in Afghanistan. They, along with Treasury and the military, have not only investigated and shut down a number of Huala networks that have been servicing the Taliban, but they've been doing more intelligence and law enforcement work to understand how these flows of money's are operating. And they're looking at the ledgers that the Hualadars keep to understand how the Taliban has been moving money. No system is perfect, but it's interesting that the tools of financial intelligence and enforcement and regulation actually can and do apply to the informal sector, something that most people assume is not the case. Was Al-Shabaab on your radar screen when you were in office? Yes. Certainly from a security perspective, the evolution from the Islamic courts in 06 was troubling. And then we saw, of course, in 06, 0708, the movement of American Somalis into the fight in Somalia. And of course, as you know, the first instance of an American suicide attacker outside of Mogadishu. So we were certainly worried about Al-Shabaab as a movement, its relations to traditional elements of al-Qaeda in East Africa. And interestingly, from a financing perspective, very concerned that Al-Shabaab was adapting quite well to this new environment, finding multiple ways of raising the money it needed to establish itself and to build relationships within Somalia and to build alliances and allegiances with certain clans. And so what became apparent, and this was over time, was that Al-Shabaab started to use some of the traditional ways of funding. For example, remittances from the diaspora community to raise money. But they were then also savvy to use their control of territory in Somalia. For example, the Port of Kismayo became a huge moneymaker for Al-Shabaab. Actually, they were very good at competing against the Port of Mogadishu, offering lower rates to shippers so that they were garnering taxes and customs fees through the Port of Kismayo. And then using checkpoints and other things to levy fees on those traversing through territory, including with NGOs. Interestingly as well, they used the Port of Kismayo as a way of exporting charcoal and importing sugar in a way that allowed them to basically build a trade-based money laundering system to raise millions of dollars. And so it's in part Al-Shabaab's concern and actual anger at the Kenyan takeover of the Port of Kismayo that I think led to some of the motivation for Nairobi. They had plenty of reasons to attack Kenya, and they've always signaled the desire to attack the Kenyans and the Ugandans and the Ethiopians. But the taking of the Port of Kismayo was a big deal when it happened. And it was a big deal because it hurt their bottom line. And so there's no question in my mind that that was part of their calculus in trying to inflict some harm on Kenya and Kenya's economy. So to answer your question simply, yes, we were worried about it. And the danger with Al-Shabaab is they've developed multiple ways of raising money and self-sustaining, which by the way is now the problem with the Al-Qaeda movement writ large. You have groups like Al-Shabaab, Al-Qaeda and the Islamic Maghreb, which has raised millions of dollars with its kidnapped for ransom operations, primarily of Europeans. They've been able to figure out ways of raising money so that they don't have to rely on Ayman al-Zawahiri or the core to send money. And in fact, it's the core that's asking them for money and asking recruits who come to be trained to bring $10,000 if you're going to come. So it's a club med, but bring your own money if you want to be trained by Al-Qaeda core. And that was clear in the Bin Laden documents, right? He was asking by the gate you I am to pony up a couple hundred thousand. Exactly right. And he was also looking at a different model for fundraising. He started, as you know, in the documents he was talking about moving to a kidnapped for ransom model because he had seen that it was so lucrative for the affiliates and the Taliban. You sort of hinted at this when you were in the presentation, but the fact that the city of London may have banking laws that are a little less stringent and be less concerned about these issues is, well, A, is that an accurate view? And B, does that basically help them with people like, I don't know, Kazaki billionaires who may have reason to hide particular kind of transactions? I mean, is this bad for the American banking system, what you've set up in a sense, or other costs? It's a great question. And I think moving forward, there is a major policy question brewing as to whether or not the aggressive use of these tools, which in essence uses access to the American financial system as the main lever. If in so doing, we are creating disincentives for people to want to do business with the US or in US dollars, are we accelerating, for example, the development of trading and currency relationships that center around the remnant B instead of the dollar? With the new FACTA law, the tax law that requires revelation of Americans who are keeping money abroad, perhaps for tax evasion purposes, is that actually dissuading foreign banks and institutions from taking on American customers? This is something you're hearing from the banking industry. Are we pushing out legitimate actors? For example, is all the regulatory pressure on American banks forcing American banks just to decide not to do business with risky customers, risky business lines, and risky jurisdictions? But are we cutting off our nose to spite our face because good legitimate actors that are willing to cooperate with the US government are just not going to be in dangerous or risky parts of the world? That's going to be filled by Russian banks, Chinese banks, Kazakh banks, and others. So that's an answer to your final question. In terms of competitive arbitrage between banking centers, there is a little bit of tension here. And I think this new era of financial warfare has raised some fundamental questions for jurisdictions like Switzerland and London and others that have relied on the attractiveness of their legal systems and their investment laws and practices and bank secrecy, especially for countries like Switzerland and Liechtenstein. What does it mean to be a transparent banking center in the 21st century given all of these requirements? And given, by the way, the reputational risk of having tainted capital, whether it's from a corrupt world leader or from an al-Qaeda affiliate sort of coursing through your system. And so that's a core calculus for the banking centers around the world. And no banking center, no bank, really wants to be caught with their hand in the cookie jar. They don't want to be the subject of fines. They don't want to be caught in the reputational risk attended to this. And I give one example. I talk about this in the book, Peter, because I often hear, well, the banks aren't getting hit hard enough. Even these major fines that you're now seeing really doesn't hurt. There's a cost of doing business to these banks. It really doesn't hurt them. The real cost, though, is the reputational risk. And you see that over and over again. Keep in mind that Riggs Bank in 2005, the bank that once called itself the most important bank in the most important capital of the world, was hit with a relatively mild anti-money laundering fine. It didn't have good anti-money laundering systems. It wasn't doing customer due diligence, no-year customer rules. It was banking Pinochet. It had all the embassy banks was being investigated by the FBI because of the Saudi accounts there and Equatorial Guinea accounts. $25 million fine. Not much for a bank. This is the bank that sat right across from the Treasury Department. In the book, I have a picture of it from the 1920s. This historic bank, an institution. What happened? The bank's no more. It's gone. The reputational cost of what happened to it, regardless of the fine, destroyed the bank. There's no more Riggs Bank in the US. And in fact, it's created a frenzy around who's going to bank all these embassies and what are the risks that tend into it that still persists to this day, persists here, persists in London, persists in Switzerland. Who's going to bank the Equatorial Guineas of the world? Who's going to bank the Sudan's of the world? Do you want a bank account for these countries in your bank? So the reputational risk here is now the coin of the realm. And even though you see banks continuously faltering, there is really, as a part of their business calculus, this question of reputational risk. And that goes for banking centers as well. Describe to us, at the Treasury, and you're thinking about designating a particular individual, or potentially organization. What is the calculus that goes into a designation? I know there was a big debate about whether to designate the Harkani network, for instance, because then it would be hard to negotiate with them at a potentially down the road. And how does that play into the UN designation? I mean, if you're designated by the Treasury, do you automatically get designated by the UN or vice versa, or how does that work? It's a great question. The UN targeted sanctions around terrorism are built around the al-Qaeda network and the Taliban. And so that's the 1267 process. And the Taliban have been taken out of that, right? They've been taken out, yes. So a negotiation could theoretically. Exactly. So now there's basically a different listing process or delisting process for the Taliban versus al-Qaeda. So what we did was we tried to parallel any designation the US did that was tied to the al-Qaeda and Taliban networks. We would try to do that at the UN. And so any time you've had an al-Qaeda figure designated in the US, they've been designated by the UN. That gives it broader scope. There's a Chapter 7 obligation for countries to freeze their assets. What happens to me if I get designated? What does it prevent me from doing? You've got real problems. You can no longer bank with the US financial institution. And if you're designated by the UN, you just can't bank around the world in your name. Any transaction that has you attached to it, either as a beneficiary or originator, just isn't going to happen. So it's going to get blocked. Even if the UN doesn't designate you, one of the interesting things, and this is why the destruction of this unilateral, multilateral orthodoxy is so important, even if you're designated just by OFAC. And OFAC designates lots of folks for different reasons, different programs that don't happen. What is OFAC? OFAC is the Office of Foreign Assets Control. It's the body within Treasury that administers all of the sanctions programs. And so it engages in the listing process. It engages in the back and forth of banks to ensure that we understand who's doing business. It clarifies, it issues fines for lack of compliance with sanctions rules. And so if you're designated, you don't have access to the banking community. What's interesting, though, is nobody can then do business with you either. And so I can't engage in a partnership with you. We're going to start a consulting business. We can't engage in any trade. No American entity or citizen can then do business with you, which is devastating. And likely, again, given the reach of these powers and the fact that the reputational risk is so large, it's likely that no foreign, no legitimate foreign bank or actor is going to want to do business with you either. Can you get taken off the list? Yes. It's difficult. How often does it happen? Doesn't happen that often, but it happens with enough frequency where you can say the US has a real system. The challenge in all of this has always been that there's a tension between due process before the fact or due process after. And this is the great tension with the European Union. And you've seen some of the court cases that have challenged the use of targeted sanctions to include with respect to Iranian banks some of those designations now being overturned or challenged. The question is, what is the due process? And in the American context, it's the ability to either challenge administratively through the treasury, your designation, and to get delisted. It's an arduous process, but it has happened before and does happen. The other process is to use the federal courts to challenge the designation. And that is people have tried it before, hasn't necessarily succeeded. But those venues exist. In the international community, the international community has struggled with this. And so for example, the UN has created an ombudsman to help with the delisting in the context of al-Qaeda and the Taliban. Because the UN system isn't really built as an adjudicatory body. It's not a group of judges up there to say these targeted sanctions are legitimate. These aren't. Let's accept this evidence. Let's not accept this evidence. So the UN is in a difficult position because they're mandating these very targeted, very severe financial tools in isolation. But they don't really have the means either before or afterward to adjudicate properly. Individually countries can also, I mean, by understanding is the Russia would reject a dead Taliban being delisted. Is that true? Right. And so countries have both the ability to sponsor delisting as well as to block it. And if you're a permanent member on the Security Council, you have quite a great deal of power to be able to influence it. One final question before we open it up. So in your many other hats, you're also a CBS News contributor and a leading thinker about al-Qaeda. How is al-Qaeda doing? And what is the sort of post-Arab spring prognosis for the group? By the way, I've learned from the best. So al-Qaeda and the movement has gone in waves. You wrote some incredibly important pieces during the height of the Iraq war and the growth of al-Qaeda in Iraq, which was a very important episode. I think we're in a period of al-Qaeda resurgence. And I wrote a piece two years ago, an op-ed in the New York Times and then a longer piece in the Washington Quarterly, warning about the euphoria around the Arab Spring because you were right. I was wrong about this issue. Well, I'm not sure there's a right or wrong. But I was warning that the security and strategic openings and political openings for al-Qaeda and its affiliates and those who've embedded the ideology and their movements, this was really a strategic pivot for them. And they could either take advantage of it or be destroyed by it. And I'm in Al-Zawahiri, as you know better than anybody, Peter, has always been focused on the Levant. And what was interesting to me about the Arab Spring was that it, for the first time, put the Levant really at play for al-Qaeda, where Egypt and the Sinai are really at play, Gaza is really at play, Syria is really at play, even Lebanon. And so in many ways, this was a strategic opportunity potentially for al-Qaeda. And what I worry about is that what's happening in Syria is providing al-Qaeda with all of the strategic opportunities that they have wanted. It's not only the jihad du jour where foreign fighters are flowing from around the world and energizing the movement. It's allowing the innovation of the funding networks, as we talked about earlier, and the resurrection of some of these networks that we didn't even see in the Iraq context. Because the Saudis and others continue to suppress them. It's allowing them political space to actually adapt and innovate. And so they're worried not just about fighting the Saud's forces, but they're finding ways of baking bread and mending moons, learning the lessons of hearts and minds from the AQI experience and the Taliban experience. And they're holding territory in the heart of the Levant. That's very dangerous. All of that is very dangerous. And I'm very worried that that, in combination with our withdrawal in 2014, which will be heralded by the jihadis as the fall of the second great empire that they have fought and defeated, along with the role of the regional groups that, in many ways, are gaining steam, are embedded in insurgencies, are finding ways of generating and regenerating, that were in a new period and chapter of potential al-Qaeda resurgence. I'm not a pessimist by any stretch. I think this can be contained. It can be contracted. I think we have enough regional allies and capabilities, as we've seen in East Africa, as we did in Southeast Asia, after 9-11, as we've seen with the French and Mali and the North African. I think there's a way of dealing with it. But we've got to realize that this is another episode and chapter of al-Qaeda's adaptation. And it certainly doesn't look like the al-Qaeda of 2001, but it doesn't mean it's any less dangerous. Can we identify yourself and wait for the microphone? David, this lady over here, we'll start with. But Bob, there's one here, the lady over here. I'm Nathalie Hvalich. I work at the Center for International Policy. I wanted you to expand a little bit more on the case of al-Shabaab and also touch on some of the criticism that humanitarian organizations have levied and also the question of remittances and whether there's attention, remittances and whether there's attention between human development and the financial war on terror. Yeah. It's a great question. I'll do a little advertising for CSIS. There's an event at CSIS later this month talking about the effects on the charitable community, the NGO community, on some of these tools. And so if I'm getting your question right, the question is, are these tools too heavy-handed? Do they have negative effects that impact other things that matter to us, like development, like NGO activity? And I think the answer is yes and no. And one of the self-criticisms I have in the book is these are tools that are hard to calibrate sometimes. Because what you're trying to do is to build, you're trying to inoculate the system, to build due diligence by private sector actors, whether they're banks or charities or money service businesses, what have you, around who they're doing business with and how they're doing business and where they're doing business. And that's difficult for a charity or an NGO. We had years of debates with the NGO community about the effects of our designation of charities and the promulgation of what we call voluntary guidelines, but which the NGO community considered to be mandatory guidelines. And what it meant in terms of cost of doing business, what it meant in terms of NGOs having to police their partners on the ground and their activities, and what it meant, frankly, for NGOs who wanted to do very good and important work in conflict zones, in regions that might be controlled, for example, by terrorist organizations or insurgencies that were designated. That's another effect of a designation, by the way. Well, during your time, there was the designation of that. Was it Baccarat, the big Somali? Albaracat. Albaracat, yeah. And that was, I mean, there was the argument that this was devastating to the Somali economy. Well, and it's interesting, because that debate persists, actually, because the Somali diaspora has lost access to banking facilities in the West at large. And so I think the last banking relationship that they had in London is about to go away if it hasn't gone away already. And so there is a real question about whether or not you constrict the arena of activity so much that actors that you actually want to be part of the legitimate financial system are excluded inadvertently. So that's a serious question. And again, one of the self-criticisms here, and actually one of the recommendations moving forward, is the strategy of isolation from the legitimate financial system has to be complemented by a couple of things. One is we've got to expand the notion of who is a part of the legitimate financial system. So that's part of the strategy of including the Russians and the Chinese in the development of these standards and making them stakeholders. You've got to expand what it means to be a part of the legitimate system and have people buy into it. The other thing is there has to be a positive dimension to the use of these financial tools and influence. And so in the charitable context, we rightfully shut down charities that were funding groups like Al Qaeda or Hamas or Hezbollah. But the reality often was that these charities were sometimes doing good work as well. And we knew that, we recognized that. And one of the things we weren't able to develop and that we have to is how do you develop a positive sort of playbook to deal with these issues? How do you, for example, as we were talking about when I was at Treasury and at the White House, how do we have charitable backfill if orphans and widows are being impacted in real way in a place like the Camaro's Islands? Shouldn't we have USAID or some other NGO come in and provide services to those people so that you're not having the negative impact of being viewed as the evil Americans having shut down these services? When in fact, that's not really the intent. The intent is to make sure that the funding that's going through that charity doesn't reach Al Qaeda. And so I agree that sometimes these tools can be blunt and we have to do some things not only to sharpen them a bit but also to figure out what a positive compliment can be that actually doesn't amplify the negative externalities. Gentleman here in front. Wait for the microphone. Yes, my name is Mark Botsford of Botsford Global and you've been, it's fascinating this discussion. You've been talking globally. What is, in your opinion, what are the flashpoints in our hemisphere, North and South America, in particular the triple frontier? And then finally, how would you assess threat levels in failed financial states like Argentina in the past and Greece now? Thank you. Interesting question. I think there are three, sort of, in my mind, at least three kind of risks in the hemisphere. One, more tactical is the question of the convergence of state and non-state actors engaged in illicit activity. And so I worry about the role of the Venezuelan state in coordination with drug trafficking organizations in South America. And then, by the way, that connectivity with Hezbollah and we've seen, for example, the Treasury action to use 311 against the Lebanese Canadian Bank, part of that shutdown of that bank was an attempt to expose the network that Hezbollah was relying upon to move not just drugs into West Africa and up into Europe but the money laundering operation that involved 20 used car dealerships in the United States, hundreds of millions of dollars of deposits into the Lebanese Canadian Bank and money flowing back to Hezbollah. That all has connectivity back to South America. And so the connectivity of these networks, and again, it goes back to the point I was making, if you look at the world through the lens of illicit finance, you start to see all these interconnections that are very interesting and troubling. And that's one example, and I think that's one issue. Two, I think, is the question of whether or not the banks and the financial centers in Latin America can ultimately deal with the heightened standards for transparency and accountability. The free trade zones, for example, which are potential money laundering magnets throughout the region is a real weak spot, a weak link in the system. And again, for this global system to work, there has to be a common set of standards and activities and norms that the key banking centers, even regionally, adhere to in trading centers. And so that's something. And then I think some of the more fundamental questions about the stability of the Argentine economy, for example, and what that means to their ability to actually be responsible players in the region at large is really important. It's interesting that the Argentines have come under a lot of criticism and pressure by the Financial Action Task Force. They're a member of the FATF, but they have been fairly ineffective in their application of anti-money laundering rules and standards. And I'm not suggesting it's connected to the weakness or instability of their banking system, but it certainly doesn't help. And so those are three, I'm not sure there'd be flashpoints, but the three arenas that I worry about in the hemisphere. David, over here, this gentleman. John McCollough from the Fund for Reconciliation and Development. Could you discuss the difference between situations where there is a broad international consensus, even if not formal authority, but certainly on terrorism, on Iran, on North Korea? What the US does, even if the formalities aren't entirely approved, people are not disagreeing with versus a situation where essentially the US is domestically politically driven, i.e. Cuba, where what we do is totally unpopular in the world and actually unpopular with most Americans and is a special interest situation. I mean, how does that affect the way this system works and the potential blowback from it? You've asked exactly the right guy for this since Juan is a Cuban American. Yes. And the Cuban government actually once called me Bush's mercenary, which I took as a badge of courage. Maybe I can run for mayor of Miami with that. It's a great question. There's no doubt that for these tools to be effective or most effective, there has to be a sense of international legitimacy and it's in two ways. Not just politically, because I think, traditionally when we thought of sanctions, it's been sanctions that are tied to diplomatic political efforts that have international consensus like South Africa, for example. But what's interesting about these tools is these tools rely on the isolation of illicit conduct. So one way of thinking about these tools is they are conduct based, not politically driven, at least not in the first instance. And so the sense of legitimacy here internationally and in particular with the financial sector is around whether or not what you're labeling as illicit is really illicit. Is it really a threat to the financial system? Is it really a threat to a bank's bottom line at the end of the day? There's no question with terrorism that that's the case. There's no question with proliferation financing that's the case. No question on corruption, drug, money, laundry, et cetera. When you get to more specific, politically driven sanctions or isolation efforts, that question of legitimacy is raised, not just in capitals, but in boardrooms around the world. And there's no question if you don't have a consensus politically as well as in terms of what illicit conduct is, it's gonna be a much weaker system. People talk about the embargo on Cuba. There's no embargo on Cuba. Everyone around the world is doing business with Cuba. US isn't, or if US companies are, they're doing it sort of second and third hand removed. So, there's no question you wanna build legitimacy around these tools. There's a political dimension, there's an illicit conduct dimension. And one of the dangers, by the way, with these tools is if they are perceived to be driven by political factors or diplomatic factors alone, then they will be weakened. This was a lesson of the North Korean experience where we tried to then, after the 311 action with BDA, unwind the measures. That was seen as a purely political diplomatic move. It had nothing to do with the fact that the North Koreans hadn't stopped counterfeiting $100 bills and hadn't stopped drug trafficking. It was because it was a diplomatic deal. That impacts the effectiveness at the end of the day. The same calculus will come into play with Iran because at the core of the suspicion around Iranian financial activity is a whole range of illicit conduct to include support for terrorist proxies and militias, development of a nuclear program and proliferation attached to that, money laundering, some drug trafficking, a whole suite of things, sanctions evasion that the financial community is actually worried about. But that's not what's being negotiated at the table in Geneva. And so there's a dynamic tension there. And my point is simply, if these tools are viewed as purely political, they will be much less effective. And you've seen that in other instances. And because you don't have an international consensus on Cuba, you see the tools are much less effective. It's just all against us. How was President Bush as a boss? You work with him pretty closely every day. You were often in the room with him. Yeah. I have deep affection for him. And I know that might not put me in good stead with something, but there were three impressions I had of President Bush. One, he was a hell of a lot smarter than people gave him credit for. There would be times when we would, I think you remember this, Peter, we would bring in people who were critical of the administration to actually voice their opinions to the president. And he welcomed that. What was interesting, bar none, every person that went in, a lot of these people, highly critical of the administration, highly critical of President Bush. Bar none, when people came out, they would say to me or to other advisors who were in the room, that is not the president I expected. Because he was always engaged, he was always smart, he was always asking good questions. So that's one thing, he was always smarter and more strategic than people ever gave him credit for. Two, he was funny. He was fun to be with. Whenever I would see him, he would say, hey, que pasa Juan. You know, it was always, there were times a lot of tension, a lot of anger and other things going on in the room because of some of the tense issues we were dealing with. But he never lost that human touch, which I think is important for a president. And third, there was never a question. And this goes counter to sort of the notion. And again, I was in the White House in the second term. So I can't speak to what happened in the first term in the inner sanctum of the Oval Office. But there was no question he was in charge. I was in meetings with the vice president, with Condoleezza Rice, Steve Hadley, president. There's no question the president was in charge. And I was in small meetings, big meetings, medium-sized meetings, meetings with outsiders, just insiders. The president was in charge. And so that's both good and bad. I mean, responsibility for our policies and decisions lie with the president ultimately. But it also sort of undercuts this argument that he was sort of being manipulated at all times by other actors and that others were in charge. When I was there, I didn't see that. Were you interviewed for Peter Baker's new book, which is about to come out? I'm not sure if it was a technical interview. I certainly talked to Peter about it. Sounds like it'll be a great book. I hope so. Peter's a great journalist and I have a lot of respect for him. This gentleman over here. Brian Beery, Washington correspondent for EuroPolitics newspaper. I had a question on the terrorist financing tracking program, TFTP. But I quickly want to mention you, because you brought up FATCA. And just to put on your radar, as a personal anecdote, I've had my bank account frozen in September because the Belgian bank didn't want me to sign a form saying that I would be financially liable for their non-compliance with FATCA. Universally? Yeah, and I did not sign the form. So the only way they've unfrozen my bank account was if I agreed to close it. So they've shut down my bank account. And there are loads of US residents and they're doing the very same thing. Anyway, that's the digression. My point was on the TFTP. I mean, my understanding is the Europeans were really mad when they found out about what was going on with monitoring the bank transactions by the Treasury. SWIFT themselves moved the database to Europe because of these tensions. And that now they're even considering the European Parliament is talking about suspending that agreement that gives monitored access to Treasury. So has the Treasury mishandled the whole thing? Because now it seems their access to that data is actually weaker. It's a great question. I write about the SWIFT program, TFTP in the book, chapter 2, and then later talk in chapter 12 about the revelation of the story by the New York Times in 2006. Can you also tell us just a little bit about that? Because you put a lot of pressure on the Times not to publish, right? Yeah, everyone did. Folks on the Hill, the 9-11 commissioners, the administration. How long did they hold the story for? There was a back and forth probably for a couple of months. Was it Jim Rison? Yeah, but it was in an air click file. But it wasn't that they were holding because we were asking them to hold. They were holding because they were trying to get more information and understand the program. Did they write to publish? No, they were wrong. Absolutely wrong. And in fact, I've had debates with the likes of Cy Hirsch, who has now admitted publicly that they were wrong. The New York Times ombudsman himself issued a mayocopal saying that they were wrong. Why? Because the program was legal. It was effective. What did the program do? The program, the terrorist financing and tracking program, was a subpoena-based program. Treasury Department issuing subpoenas to SWIFT. SWIFT, for those of you who don't know, is the bank messaging hub for the world. Basically, the switchboard for international banks. Bank messages come out of SWIFT. Established in the mid-1970s based in Belgium but with facilities in the US. So the idea behind the program was let's access SWIFT data, constrain the access to the information to only those things that are related to terrorist inquiries. Let's build a system that not only adheres to those requirements but allows SWIFT to actually control how the data is being used and allows them to audit generally and in real time, whether or not those parameters are being met. And by the way, a system that, over time, reduced the amount of data we were getting access to, reduced what we were retaining, and continued to allow SWIFT and SWIFT overseers, which are the G10 banks, by the way. Not just the Fed, but the G10 banks to understand what was happening. And so the program was legal. It was effective. We were adhering to the standards we had applied. We had embedded the very notion of privacy and civil liberties in it. And part, Peter, as I mentioned in the book, we knew at some point it was going to be revealed. This town can't keep secrets. We know that now in spades. But we knew that. And we knew that we had to both preserve the integrity of the financial system. We didn't want SWIFT to be destroyed with this. And we knew we would have to defend it at some point publicly. And so we knew that no one. And that's why we built it the way we did. The reason it was a mistake was, despite what commentators said after the fact, terrorists, terrorist supporters, and others who were tied to those networks didn't really understand the kind of information that we were getting access to. And there was no demonstration by the times or anybody else of misuse of the data in any way beyond the parameters. To include the European ombudsman who was created to look at this issue on behalf of the EU parliament, who looked at it twice, looked at the program twice, Jean-Louis Bruguet, who you know well, and came out with reports saying that not only were we adhering to the parameters of the program, but he saw no misuse and it was effective. Now, the EU parliament, which was emboldened after the Lisbon Treaty, was upset because they weren't aware of the program. But European intelligence officials were aware. Others were aware. And I relay a story in the book of Stuart Levy after the revelation of the program going to a European set of counterparts and bringing with him a stack of the reports that had been shared with that foreign government about terrorist leads. And bear in mind now we've made public what some of that information has led to. It led, in part, to finding Humbali in Southeast Asia. It led to the revelation of the Paracha Network out of Pakistan and New York. It helped with leads on the 2007 plots that were disrupted in Europe, the German, and the Denmark plots. A whole host of other things that have been helpful globally. So Stuart Levy goes and says, here's the stack of information that the US government has provided you based on this program that's been administered by the Treasury. What of this do you no longer want to receive? You tell us. And the answer, of course, is we still want the information. We need the information. We use the information. The trick then is, how do you demonstrate that the privacy and civil liberties elements of the program are actually honored and can be respected in a way? And I think the most damaging thing, I'd say this in the book, the most damaging thing about the revelation by the New York Times was not necessarily revelation. Again, we knew it would be revealed at some point. But it was the way it was revealed. It was revealed in the wake of the NSA revelation. And the outlook of the New York Times to this story was that this was just another example of an unwarranted, illegal, mass data access program that was violating privacy and civil liberties around the world. It was the furthest thing from that. Because it required a subpoena? It required a subpoena. It was cooperatively done with the source of the data. The source of the data actually had control of what we had access to and demanded diminishing elements of it, and we refined it as well. They could literally, this is unknown in the US law enforcement intelligence community, they could literally, and they did, have somebody sitting next to the analyst in real time to stop any analysis done that was deemed to be outside of the parameters of the agreement. So that was the company that could do that. They audited with external auditors what was happening. And it was just used for terrorist leads. And so you could not imagine a more, I think, innovative or constrained program to deal with metadata. And I think the lost opportunity in 06, and I wrote an op-ed in the New York Times about this recently in the wake of the NSA revelations. The lost opportunity was to look at this program as perhaps a model for how you think about access to metadata or mass amounts of data, where you clearly want access to the data, but you don't fully trust the government to have full access to it all the time. And so what are the constraints that you build around it? What are the external audits? What are the ways of conferring trust and confidence in that system so that you can actually access it, but there isn't abuse? This was a good example of that. Maybe it's not perfect, and it's not perfectly analogous to the NSA programs, but we lost that opportunity in 06 to actually have a rational, reflective debate about it. And instead, it's turned into a major controversy with the Europeans, and it's turned into a major problem for Swift. OK, well, we're almost at 145. And I know that some people will want to buy the book, which I presume you'll sign for them. I would love to. And we want to thank you. We want to thank you very much for a really fascinating discussion. Thank you. You're excellent.