 Where the hell is Juan Zarate? It will be a boring Where is Juan Zarate Yeah Good afternoon everybody welcome. Thank you. Thank you for coming the bar will stay open. So those that aren't going to be sufficiently Educated can always take their repast back there, but I think you're going to be fixated by a very interesting evening I want to say thank you for coming. My name is John Cameron the president here at CSIS And this is probably the last thing we're going to be doing here in this building. We're going to be Decamping very quickly a matter of fact there's brackets around here if you look to see we're moving out Moving to our new headquarters will be there and about well Probably ten days before we're actually going to be there But this is about the last thing we're going to do with you here and want to say Welcome to all of you. It's not hard to find our new place And I would hope that you all join us when we get up to 1616 Rhode Island Avenue. It's just four blocks from here I want to say thanks to Ron to Juan for giving us a chance to host this tonight now I feel like I'm spending my entire day with Juan because when the alarm went off this morning Whose dulcet voice was on NPR? But Juan's a ratay, you know, and so I fear my whole day is going to be devoted to listening to one I think it's But it's emblematic of the significance of the book the book is really quite good and you know we frequently Talk about whole of government But what that usually means is I want your budget and would you please send it to me? You know, that's usually what that means when you hear a government people talk about whole of government and But what I think we're really going to listen to today is about What real whole of government means when we brought to bear? Honestly an underutilized Tool that is available to governments for their national purposes and intents and Juan's going to describe that to us and discuss that with us today and was one of the champions one of the pioneers I've frequently amassed is is one a treasury guy or is he the fence guy? I say yes He's been that's been his Personal avocation to help build America in many ways and he did it very powerfully During his role when he was over at Treasury, so we're gonna we're gonna explore that today and listen to it And of course who better to bring this to all of us and engage all of you than Rachel Martin Now I don't know how this lady does it I mean, you know she her you know her husband works in the NSE. She's she's with NPR with a weekend edition and is as a little one-year-old at home So she she covered she has terrorism at home terrorism at work You know everything But but a remarkable a remarkable journalist and personality and Genuine policy leader and I and I'm grateful that she's willing to take the time tonight to be with us I mean, I will say one I don't know how the hell you convinced her to read your book But she should have been taking care of her little son But but she devoted the time to it and it's gonna make it for a very interesting evening for all of us So would you with your applause please welcome both Rachel and one and we'll get this Well, dr. Hammery was half-joking, but it is serious when one called and said got a favor to ask Little book have written, you know, three four hundred pages Paris financing and I said sure and I was and I've said this to his face privately Pleasantly surprised at how compelling I found this book to be it is not exactly a beach read But as far as the topic is concerned it is pretty darn close my wife read it So I think that's a test exactly Exactly, so I was honored and I'm thrilled to have been asked to moderate the conversation and it's an important one It comes also on an important day That we should not forget and this is when Everything started to change for Treasury everything changed for this country, but in particular Everything changed for this department where one was working the outlook for terrorist financing its import and and really a tectonic shift in how many in our government looked at the tool chest that we had amassed in order to to confront Al-Qaeda and and how that threat would evolve and change is what is chronicled in this book and in particular The tectonic shift that happened at the Treasury Department and so with that I would love to to kind of start back Rewind the clock 12 years You were at Treasury at the time of the September 11th attacks I wonder if you could start off by just giving us a sense of those early days and When it became apparent to the people who were sitting in that building That there was going to be a that they were going to have a role to play that that that there was going to be something called Financial warfare that was launched in response to these attacks Rachel before I answer the question first of all Let me thank you for accepting the invitation and for doing this. You're a remarkable voice on Even before you took your role on Sunday edition. You you've been phenomenal on national security issues, which is Admirable, and I love listening to you on Sunday mornings. I just want to thank dr. Hamry CSIS or no to Borsch-Graw of Tom Sanderson CSIS and others for all their support. I would not have been able to do this book or craft it without their help The other thing I want to say is this is like a little bit of a reunion There's a lot of you who are part of the community who were Working on these issues before 9 11 certainly after 9 11 and it's a really an honor and a privilege that you've attended today So I want to thank you for that 9 11 really was a dramatic day not only for the obvious reasons and the tragedy that we we all experienced But it was a shift in how the government thought about the use of power And it was very clear the president Bush not only articulated That we were going to be at war with an enemy that had been at war with us and brought that war to our shores in New York and Pennsylvania and in Washington But that also we had to think creatively and differently about the use of all elements of national power And I think it's significant that the first Real step that the president took and the US government took was the signing of this executive order The executive order announced on September 24th, 2001 that gave the Secretary of the Treasury enormous powers Powers that weren't necessarily new but they were amplified And in essence opened the door to this new age of financial warfare And what it did was it empowered the Secretary of the Treasury and all the tools attendant to the Treasury Department its regulatory Functions its sanctions capabilities at the time its guns and badges the law enforcement and the policy community internationally to start focusing on the isolation of al-Qaeda from the financial system both formal and informal And that really opened the door for a new way of thinking about how to use Treasury's powers At the time. We were very much focused on terrorist financing. I remember that day I had just arrived at the Treasury Department three weeks before from the Department of Justice I was welcomed by folks like Danny Glazer who's the current assistant secretary who's here with us and others But I didn't really know what Treasury did to be honest I came over to work on international money laundering and enforcement, but I didn't quite understand Treasury's role And I think that was emblematic of the government writ large I don't think many people understood what Treasury could bring to bear and the directive from the White House was Bring your powers to bear figure out how to go after al-Qaeda's money Isolate it internationally build an international coalition deep in the standards that you have on money laundering to go after terrorist financing and Do everything possible to not only stop the next attack But to deter future funding of terrorist groups and that really was the paradigm as I call sort of the first part Of the book the foundation for a new approach to the use of Treasury and its powers So that were that those were your marching orders you started operating under something called the 80 20 rule Can you describe what that is and and how it shaped what you were doing at the time? well, the the mandate at the time was to be aggressive to be as aggressive as possible and as Underlaw as we could in terms of the use of these powers and so secretary O'Neill the secretary of the Treasury at the time instituted what is in essence a management rule the 80 20 rule for purposes of using Treasury powers and he said We're not going to have paralysis by analysis. We're not going to do anything. That's beyond the law We're going to we're going to abide by the law But we're going to be aggressive with what we can do and that meant freezing assets aggressively Which created some controversy because the use of asset freezing authorities are powerful In essence you throw a net around a network Regardless of whether or not people are criminally liable To freeze assets to stop those funds from in the future going into the wrong hands. You only need it to be 80% sure Yeah, and and under the law you the secretary of the Treasury under this power only has to have a reasonable basis to believe That somebody is a terrorist or falls under the categories of the executive order and that executive order again And folks like David off-houser who general counsel the time were seminal and in crafting it That that executive order allowed the Secretary of Treasury not only to go after terrorists the bin Laden's of the world But also those who were financially supporting or even associated with those who were financially supporting So it opened up the potential for the use of the power and the directive was use it aggressively Now the lawyers in the room who were part of that process probably screaming right now because there was no question It went through a battery of lawyers and checks and an interagency process That was rigorous, but the mandate was use it aggressively Let's touch some nerves And do what we can and we did we did that I lay out some of the sensitivities for example with the Saudi government in terms of looking at The sources of Wahhabi funding and how some of the charities that had been built up over time to not only do good works But also to support the Afghan Mujahideen Really was really a problem and that led ultimately to the shutdown of the largest Saudi charity In existence at the time and as you say there were innocent people who were swept up in this who were found to be culpable or suspect or suspected of being culpable of some kind of financial misdeeds in the end were Proven that they were not involved and you and you write in the book that this is just the price of doing business at that time a bit it's a it's a price of the nature of this kind of authority and the fact that we were Being preventative with the tool that is to say we were arresting assets not people we were trying to stop bad money from going to nefarious groups and Plots and that meant you had to stop the money and if it was in the possession of people who weren't necessarily Culpable or we didn't have necessarily proof of intent That was okay because that's not the standard and that creates all sorts of friction We had all sorts of debates internationally particular with our European colleagues about what those standards are how should use it Now I think it's important to note. We used it judiciously We knew how the power how important this power was and we wanted to preserve it and over time that 8020 rule grew to be 100% rule I mean there was there were diplomatic costs to doing this wrong There were legal consequences if we if we didn't get it right and so that rule shifted over time But the the baseline was we're going to be preventative and we're going to try to Disrupt in this mantle financing that goes to terrorist groups another pivotal event Comes through the creation of the Department of Homeland Security Which stripped Treasury of some pretty as you described key authorities And it's interesting how you describe the effect on that department. Can you talk a little bit about? What that did to morale and and your sense of what your role was supposed to be in this new post 9-11 world Well, one of the reasons I wanted to tell the story was because I think the history of that transition the transition of the Department of Homeland Security is not well understood from the Treasury perspective at least not outside of the halls of the Treasury Department And one of the dramatic things that happened was the stripping of what was then called the Treasury even Treasury Enforcement Office Keep in mind Treasury at the time had about 40% of federal law enforcement under its auspices the custom service secret service Bureau of Alcohol Tobacco and Firearms was responsible for all federal law enforcement training Which I have to say some who might not know this world might say why in the world were those authorities ever under Treasury to begin with well, a lot of them grew up over Excised taxes Secret Service for example was born out of a directive from Abraham Lincoln to go after the counterfeit rings That were bedeviling the country during the Civil War And so these were authorities that were sort of naturally Treasury, but look like guns and badges That often creates friction and did create friction with the FBI Department of Justice and other agencies But what happened when these? Bodies were stripped and this these functions were stripped from the Treasury was a real fundamental question as to What is the Treasury Department if? 98% of its budget in this realm is gone if it's most Significant agencies like the Secret Service are stripped out What is the Treasury and does it even have a seat at the table and I recount in the book there were times When I had to go and represent the Treasury and some of my colleagues did as well in interagency meetings over at the White House Where literally the question would come up people raising their hand saying why is Treasury here? Why are they here and the remarkable thing Rachel is that that question is never asked anymore that the question instead Is where is Treasury? Why aren't they here? What do they have to bring the table in terms of national security strategies? And I think to me that's the the great success of that bureaucratic transition And frankly the magic of that period which was we were so demoralized very much sort of kicked in the gut But we reconceived what Treasury should be And you know if you look at all the key national security issues Treasuries at the table for each and every one of them without blinking an eye and I want to talk about those specific evolutions but When that person looked at you at the table and said why is treasurer here? Did you have an answer in that moment? Oh, absolutely, and and we we strategized around this. I mean this This was a small cabal the original title for the book by the way was gorillas in gray suits and Part of the reason I love that title publisher didn't But part of the reason I love that title was we were not only Engaged in a financial insurgency against our enemies But we also had engaged in an insurgency bureaucratically within the US government to survive And it was actually a very small group Danny Glazer was one of them chip Ponsy Jeff Ross a very core group of people I was left with six people To help oversee the elements of the Treasury that were left behind the office of foreign assets control folks like Bob McBride And others that handle sanctions the financial crimes enforcement network The criminal investigators from the IRS were still left behind But we we actually strategize we had sort of a come to Jesus moment to say what are we? Do we even exist should we exist and why and the answer was internally into others? Treasury has unique powers Authorities and relationships that can impact our enemies in ways that no other agency and government can the FBI can't do What we can the CIA can't the Department of Homeland Security can't we're the only ones that can touch the markets and the financial system in a way That forces the isolation of rogue financial activity Treasury can do that with our powers and authorities and we set out to do that so let's get into that And I'm going to quote from the book you write that the 21st century financial and commercial environment had its own Ecosystem that could be leveraged uniquely to American advantage in the system the banks were the prime movers simple as it was This was strategic revelation. This strategic revelation was revolutionary Where was the revolution and how did that manifest the revolution was in two ways? I think the first was recognizing that this was an ecosystem that the ability to isolate rogue actors from a financial perspective was really about tending to the financial environment and Harnessing the fact that financial actors Held as the coin of the realm their financial reputation and risk and really that that in and of itself that motivation Was a core element of this ecosystem and if we could impact it we could actually impact How banks non-bank financial institutions decided to do business with? Suspect actors Iranian front companies North Korean actors so understanding that it was an ecosystem the second Revolution I think was the fact that we recognize that What mattered most was what those financial and commercial institutions decided in their boardrooms and in their compliance offices? It became more important to us The how the CEOs of banks around the world reacted then how? Foreign ministries were reacting because at the end of the day it was the the financial actors They were acting as the guardians of the gate of the financial system They were the ones determining whether or not they were going to open accounts wire money Issue liens allow financial activity to go forward And if they weren't People were blocked from the the financial system and it didn't matter what the UN said it didn't matter what the finance ministry said In fact one of one of the things that we came up against especially in the later years with Stuart Levy driving much of this on Iran Was just the grave consternation that European countries had with the fact that we were meeting with their financial institutions And the financial institutions were taking steps that were further and beyond what the governments were both mandating and frankly wanted But those banks were more concerned about their bottom line and their financial risk and their reputational risk than anything else And I think again it was a simple proposition But what we did was we said look there's a strategy to actually impact this and impact it centrally And so that's what we did and I think that's why you've seen These financial pressure campaigns and and other things work in ways that people hadn't even imagined You know just a few years ago. Let's walk through this a little bit. We're not talking about sanctions. You're talking about something different you're talking about isolating and Convincing those CEOs in the boardrooms that it is it's not only a moral It's just bad business to do to do business with these rogue countries right sanctions are a core part of it I don't want to dismiss sanctions because the way that The US Treasury has innovated and used targeted sanctions the way the European does this very important and critical UN as well But it's part of what I call financial suasion You know, how do you impact the ecosystem in a way that actually organically rejects illicit financial activity? And how can you prompt that system to reject it in a way where you align your national security interests with the financial interest and so You're absolutely right. It's not just sanctions and it's not just classic sanctions It's the use of sanctions enforcement mechanisms regulations laws international standards UN resolutions Finds everything in your toolkit to actually set the ecosystem and then to prompt it and that was the trick And Treasury today, they're just masterful at it. They do this very well And it's one of the great tools that I think the US government brings to bear In a tool that we've got to preserve in many ways It's not all it's not all perfect as you write about in the book There are several different case studies most notably North Korea, which is a page-turner of a section if you're looking for that that really good be treed I've never met North Korea But you write about shortcomings how Treasury's goals in this kind of isolation didn't always Measure up with line up with the goals of of other agencies other departments in in the government Can you talk a little bit about those shortcomings and and how you how you navigate this? I think there's an inherent tension with These kinds of campaigns and keep in mind that this is about Not just telling banks what to do, but it's about focusing on illicit conduct It's often called called conduct based sanctions or conduct based Activity that we're focused on and the the point of this is it often is Difficult to move the agenda from looking at some of those illicit activities and to mesh it for example with diplomatic goals The North Korea example is a great example of why this is different than classic sanctions the sanctions pre 9 11 We're typically trade based sanctions commercial based sanctions driven by Diplomacy or what was happening at the UN in the post 9 11 period in the way we applied it against North Korea What we did was to focus on North Korea's illicit financial activity the soprano state Which deals in drug trafficking money laundering counterfeiting a hundred dollar bills Is engaged in illicit activity that is bad for business and so we focused very much on that element of The North Korea portfolio the problem though Rachel is there's a Divergence or or a juxtaposition between the interests of the diplomats to make a deal and to have Chips on the table to trade and this kind of pressure which is basically about cleansing and protecting the international financial system and what you had in the North Korean example was Our ability to actually isolate the North Koreans in a way that they hadn't felt before they told senior White House Negotiator in private you finally found a way of hurting us because we had isolated them from the banking system with one Domestic regulatory act the problem was it worked too. Well and it got in the way of the six-party talks and the diplomats wanted to unwind it and That grew very difficult because what we had tried to do was inoculate the system from doing business with North Korea And in the unwinding what we had to do was tell the financial system to do business with North Korea And so it became a very tense Interagency process between the Treasury and the State Department And also became a very difficult episode. I think in our diplomacy because we gave away leverage I think too early in the interactions with North Korea does that then undercut the effectiveness of these kinds of tools and specifically We're talking We're talking about section 311 Does that make it less effective if they are susceptible to to politics geopolitical interests national security concerns? And and other interests of other US government agencies. I think so I think that the danger here is that you have Not only the potential overuse of these powers, but you also have the potential that there's a Divergence of interest between the Treasury and the State Department or even between the Treasury and other parts of the government for example The CIA or the intelligence community in terms of wanting to take action to actually isolate actors and the intelligence community Wanting to sit back and watch and wait But absolutely, I think there's a there's a potential tension there And I think that's something that has yet to be resolved in the Iranian context because we have President Rouhani talking about Negotiations and the question that he will raise and already has begun to raise is How can the economy be improved? How can sanctions and pressure be lifted? The question on our end is how do you unwind it? Because the baseline of the of the pressure we've put on Iran has been the baseline of Suspect and illicit activity that the Iranians are engaged in it's not because they're necessarily engaged in a nuclear program It's because their activities are Potentially detrimental to the financial system And so how you unwind that becomes a very tricky venture And if the sense in the in the banking community is that these are just political tools to be tossed around like diplomatic chips Then it really starts to lose its resonance and starts to lose its effectiveness globally I want to get to questions But before we do I do want to ask you about Syria and might be something other people pick up in questions But you write about a Syrian case study applying this kind of financial warfare to a bank used by the Assad regime I wonder as you look at at the situation now where we are in this moment in Syria Do you look and and see an obvious Opportunity for some kind of financial Pressure that would actually make a difference in in a moment like this. I Think it's difficult and one of the points I try to make in the book is that these powers and these campaigns have been very successful and in a sense they've been sort of thought of as as The alternative to diplomacy and military power and often seen as kind of maybe the silver bullet for some of these problems And it's not unfortunately. It's part of a set of tools and strategies to build leverage And so I'm not polly an ish enough to think that You know a more effective or aggressive financial campaign would actually stop what Assad's doing and the atrocities in Syria That said I do think you can build on what's been done and and to the Obama administration's credit It's done a fair bit on Syria It hasn't risen to the level of attention like Iran and North Korea or even al-Qaeda But it has garnered attention and you've seen the Treasury Department do some very creative things Isolating another Syrian Bank just about a year ago along with the Qataris Which was a significant sort of move in terms of coordination with Gulf related countries Trying to isolate actors and financial actors that are not only engaged in corruption But also tied to Iranian support and so that's very powerful because The financial community doesn't want to deal with the Iranians and it certainly doesn't now want to do with deal with the Syrians But I do think there's a moment for amplification and this is probably it And we just have to have the political will to say look we're willing to take some risks In terms of our diplomacy and otherwise to go after Syria more aggressively on the financial front I'll give you two examples. One is I think we should launch a preemptive asset hunt for For Assad his regime and his cronies that is to say traditionally the way we've done asset hunts the way I described we did the Saddam Hussein asset hunt or even the the Qaddafi freezing of assets that Stewart led levy led Those have been sort of after the fact post revolution post fall of the regime Why don't we do that now? We've declared the regime illegitimate. We've declared them corrupt They're engaged in all sorts of atrocities now to include chemical weapons use So let's go after their assets now Let's leverage the international system all the actors in the space that actually go and hunt and look for those kinds of assets And let's go find them and make it a concerted effort and maybe you split elements of the Assad regime the other thing is There are no doubt Russian banks who are assisting with providing Financing for the weapons and other things that are going in and perhaps a lifeline for Assad Maybe we Do more than send a shot across about maybe we hit a Russian bank that serves as a nexus And you send a very clear message to the Russians the Russian banking system the banking system at large and to Assad That we're playing for keeps with respect to financial warfare And so those are just a couple of examples where if we wanted to ratchet up the dial we probably could Okay, with that I know there are people in the audience who are perhaps even in the book now Call out Zerate on what he got wrong I think we have a couple of microphones wandering around does anyone have a question Not we'll keep blathering on up here Yes, sir, right in the front and if you don't mind waiting for the microphone And introduce yourself if you would my name is Frank Barone and I'm a private investor So I'm on the you're effectively the tail that's whacking my dog So I would like to tell you a little bit of a story and then I'll ask you a couple of point of questions I was in markets very heavily and very deeply for some 25 years before the crisis began I went through those markets with the crisis and felt indirectly at the third and fourth layer the effect of many of the Things you're talking about most of us Could not figure out what was going on, but we knew something was going on Usually when we reach that state in the financial community, we always look at the government as being a real cause So we suspected you guys, but we couldn't prove it So now comes a question at the core of all of this is the protection of the US dollars the global reserve currency If we lose that it's game over Now there's a lot of counter plays going on against you now You know what you did on wheat and sugar in Syria, which reveals what you just talked about Has already tipped your hand There's already some discussions going on between Saudi and between Qatar to do direct Tratings for EU's on oil. There's a lot of significant other alternatives that are weakening the dollar I would ask you this what's the Treasury Department's natural checkmate if in fact you do begin to damage the dollar as a reserve currency Because that's game over Well, you raise a great point I talk about this in the latter part of the book the challenges to the power and Certainly the challenge of the dollar is a central one All the things you've mentioned also that the use of the remin B for bartering and exchanges more and more often So I to answer your question I think the check is is the private sector because in order for this power to work Private sector has to be on side, you know The question is how do you build the legitimate systems where the private sector is on its own taking the right steps or prompted to take the Right steps if if the steps we're taking and I talk about this as a tipping point potentially Is actually forcing the good actors in the system to retreat from not only use of the dollar But from providing banking services or financial services and at-risk business lines or in at-risk jurisdictions Then our policy of exclusion from the financial system is actually Being done damaged you because we're losing the inclusion that allows that to be To function and so there's a very healthy But delicate balance between inclusion and exclusion in the financial system And I think the bright minds of Treasury understand that And so it's a matter of calibrating how hard we go and use these powers But I think that the natural check is the private sector itself And that's why these interactions between the private sector and the Treasury Are so important and frankly one of the things that makes Treasury unique is that it has that dialogue with the finance Financial community on a regular basis and by the way, I'm no longer in government. So the the we here is historical He says so I said outside That does raise another question in this related vein And that is about the risks of over designating Can you talk a little bit about because it it is a balance? I mean if every other day Treasury is throwing down some different designation On a bank that's Doing some nefarious business does it lose its power? Yeah, I think it potentially does I think that these powers are best used when they're not only used on Issues of national security import, but also in ways that are targeted and focused You do run the risk because these powers are so attractive, right? These are the powers that sit between diplomacy and war and so and people have seen that they're effective and so Congress Administration officials the executive want to use these powers and they want to use them for everything And I'll take a little bit of blame for this I think some of us should because what happened in the post 9-11 period was we adopted and adapted the terrorist financing paradigm the foundation of this and started to apply it in other areas ones that were critically important like counterproliferation or against transnational organized crime or looking at kleptocracy and so You know, you've got to be careful how far you take it because you do run the risk that it starts to blunt its effectiveness And as I just said starts to drive the private sector away from even wanting to do business in potentially risky zones and so Again, it's an ecosystem and so it has to be tended very carefully And if you don't have some of these checks you could you could run the risk of overusing the authority or affecting your ability to actually exclude from the market and if you you also raise the risk of Allowing a space where other rogue actors other financial institutions that aren't playing above board can come in and fill that space if If the sanctioned bank. Yeah, and that's one of the dangers You've actually seen it you've seen it in a couple of ways, but you in particular and when I was at the White House I was worried about this because he started to see The countries that were isolated starting to band together a little bit like you know the alliance of financial rogues and Trying to help each other evade sanctions and create alternate ways of moving money and the trick there is Do they have the facilities to do that? Do they have outlets into the financial system? Venezuela Has done that historically now for the last few years for Iran for example And so you've seen this with Belarus as well in certain cases and so the question is How can you continue to isolate actors without creating a shadow network or an alliance of financial rogues that actually serves to circumvent and Part of this is making sure the dollar is still central making sure New York as strong as a banking center And that we are a central place for capital investment And I think the fundamentals of America's economy and its strength globally Is at the heart of why this power even works the less powerful? We are the less our economy runs the less the dollar is central the weaker We are and that the the part it is to implement these strategies Go to the audience again, sir. Third row back right here. Don't mind waiting for the mic Thank you. My name is Olin. Why don't I thank you one for your service for this book look forward to reading it Question could you make some comment, please on the state of cooperation of governments and other major money centers London Singapore Hong Kong Tokyo How are we doing and bringing them into the kind of approach that? Treasuries put in place Oh, and thank you and Olin did great work in Iraq for the US government US Treasury. So Thank you for your service. Oh, I Think in when you think about the sort of the international coalition that the Treasury built What's interesting about it was we built coalitions along three lines one We did it with counterparts and so the finance ministries in the central banks of the world actually became very important actors in this space Including in the financial intelligence space Secondly the banks themselves as we've talked about and third the banking centers And so certain countries like Switzerland or Lichtenstein or Luxembourg Become more important in those kinds of alliances, right? It's it's less about NATO and more about the banking centers And so I think one of the successes of this period and it's a constant challenge is having the banking centers sort of in line with US interests and policies and You know a lot of credit goes to Treasury officials John Taylor others who were involved in this space trying to ensure that The major economies the banking centers were adopting the same standards were applying and enforcing them And politically we're on the same page as we started to isolate Iran North Korea and others And so I think that has gone relatively well Where you have some friction of course and it's worth watching in the newspapers is on the tax side and I think Tax treaties the treatment of tax transparency has always been a point of friction between banking centers And that's one that I think the US is trying to deal with quite aggressively and one that's going to continue to present some challenges between some of these traditional banking centers Well sunny a friend with human rights first I welcomed your comments on the Russian banks and wanted to draw you out on that more Specifically on the issue of how to deal with a frenemy like Russia You know last week we were in one place in the relationship this week We're in a little bit of a different place the two points that you raised about the preemptive search for Assad's money And the question of how to go after the Russian banks. I think you know all All of those strands converge on Russia and Russia's decision to continue to arm the rebels And I wonder if you could talk about how you would pursue that without running some of the hazards of Having the tool politicized or tanking a major relationship or sending shockwaves through the financial system. Thank you I think you have to do it delicately But the historically what the Treasury has done is to has been to focus on conduct, right? This isn't a political maneuver. It's one that relates to the Sanctity and the protection of the financial system and so in the North Korean context for example We picked a bank that was a very bad bank Bank of Delta Asia and Macau and we targeted it because it was facilitating North Korean activity Now we also targeted it because we knew it wouldn't necessarily upset the Chinese in the first instance because the Chinese were banking with the North Koreans as well But we knew it would send a very clear signal to the Chinese banks and markets And so I think finding the right example is important You've seen the Treasury do this recently a couple of years ago. They designated a Chinese bank Kulun Bank for doing business with Iranians As well as an Iraqi bank. It was subsequently delisted But the the import here is you can pick the right bank as both an example for the market and an example diplomatically without destroying the relationship And I imagine there's probably a Russian bank or two that we could pick that would serve as a sacrificial lamb In this effort and would really send some clear messages in Moscow and elsewhere But we've got to be careful not to over politicize its use Let me go to the gentleman right here in the second row get a microphone to him Thank You Juan All this exercise started after 9-11 because of a direct security threat and What you have turned rogue players or actors have been Directly a source of threat to the security of the United States Is there any perception of a threat to the national security out of corrupt governments? That are not directly involved in any security threat to the United States but as threat to the security of Their people and therefore connected with the security of the United States and other any measures being considered to Address this issue. How do they affect the ecosystem? Yeah, you know Zia, that's a great point I think the most dangerous thing to the ecosystem are state actors that Amplify and enable non-state actors to access the financial system and so You see that in two ways as the odd the first is where you have States like China that serve as outlets for those who are coming under financial pressure In the book I detail, you know, how the Chinese and the North Koreans through the trading companies have largely evaded sanctions over the last Few years and develop protocols for doing so So you have kind of states that do that you also have states that are involved in corruption Moises naeem has talked about The mafia states and that's a real problem where you have states that are that have direct ties with organized criminal groups and That purposely leverage the power of these non-state networks to access the financial system empower themselves and enrich themselves and What's so dangerous about the nation-states is the nation-states have access to lots of Not only protocols and laws, but facilities and for example one of the things the North Koreans have done Traditionally is to use their embassies to curry your money back and forth to be able to deposit the supernote the counterfeit hundred dollar bills And that's why you see the counterfeit note show up in places like Yemen and Peru and Taiwan And so it's when this the nation-state is mixed with these non-state actors to engage in Profit-making and illicit activity that you really have dangers not only to the ecosystem, but potentially to national security Hi, Dan wurz from the National Committee on North Korea In the cases of financial sanctions on Iran and North Korea, there have both been some humanitarian consequences In Iran with difficulties getting medicine into the country in North Korea after the foreign trade bank sanctions earlier this year The UN agencies have had difficulties Getting money into the country to pay the bills Is it possible for the Treasury Department or the US government to create channels for humanitarian aid in these cases? without disrupting the ecosystem That it wants to shape in accordance with national interests It's a great question, and it's certainly a challenge. I think sort of the maximalist use of this isolation in these campaigns Can do some damage, and you've seen this not just in the examples you've given but in remittance operations Charitable contributions, and so that's always a balance and a challenge, but sitting in front of you is a former council from OFAC Sean Thornton who could tell you chapter and verse as to how the Treasury Department actually issues regulations and licenses To allow for those kinds of humanitarian exemptions and actually one of the interesting things that you've seen the Treasury do And this goes to a more positive agenda in the financial warfare campaigns It's to allow licenses for categories of exports or categories of financial dealings that actually allow for the kinds of Goods and services to get into countries that we want for example Technology to get to opposition movements in places like Iran That has been done fairly recently The license has been granted and so banks and exporters know that they can export then Perhaps with some danger, but can export given the license that the Treasury has provided So yes, there are the vehicles for that and you've seen the Treasury Department use that strategically to affect some key policy goals Sir in the back. He was quickest Well, thanks a lot to one for an excellent book and for your service. I just had one question I'm Amit Kumar from the Center for National Policy. Just just one question on section 311 Which is quite a widely used tool now and it's helpful in quarantining tainted accounts transactions Jurisdictions and and financial institutions from the US financial system But I think one of the drags is that other jurisdictions do not have a section 311 like system What can be done or what is the Treasury doing in that regard to make other jurisdictions? Implement and execute and design something like section 311. Thanks Amit, thank you very much. Thank you for your scholarship on on these issues, too You know one of the interesting things Rachel, especially with the president's speech last night and the debate about the United States is the indispensable and indispensable nation and power It's clear that that's the role that we played when we're talking about these financial campaigns It's not to say that other countries haven't done quite a bit and it's not to say that other countries don't have initiatives and strategies But it's often left to the US Treasury. It's often left left to the US government to actually drive these strategies Now that European Union has actually been fairly aggressive in recent years on things like Iran sanctions and Syrian sanctions But even in their legal system. They're coming across difficulties with a number of Iranian banks for example Challenging the listing in Europe and actually winning that challenge just recently just recently a number of al-Qaeda financiers Challenging and winning in the European system And so there are challenges to the system writ large and I think at the end of the day We still are the indispensable nation and Treasury is the indispensable party in driving What happens in the ecosystem and that require requires clarity of policy And good strategic thinking and great execution Hello Brennan Shields with CACI. Thanks for spending a little time here I think if you went and walked on the street in any city and asked an American to describe You know, what do you think our instruments of national power? It might be a short list that might say well military and state department I think it's great. We can bring more attention this and hopefully it gets a little bit more widely understood in DC and elsewhere Two things one what other instruments of national power Do you think we can be brought better to focus to pursue our national interests and two as October's coming up? What do you think is the best shout the World Series? Well, my angels are suffering this year, so I'm not going to comment on the World Series It's a great point Brennan because I think you know You listen to some of the great sort of national security professionals from the US And they're always bemoaning the fact that we don't have enough tools in the toolkit There's something Madeleine Albright talks a lot about she lexers about And in some ways we've added to that toolkit here And so I would hope with this book at least people are aware look We've got a set of actors and actions we can take in this space that Give us at least a complement to the types of things that we're more aware of But I think more interestingly and this is I think a lesson of the use of this kind of power in In the 21st century in a globalized world and economy It's often the non-state actors that have power and influence, right? We've bemoaned the fact that the US is not good at street craft as the Arab Spring has emerged So what do we learn then we learn actually what you can try to do at least is to leverage the power and influence of these non-state actors and networks for positive agendas Those that are in line with US interest and whether it's a human rights agenda or it's a financial integrity agenda or something else There are actors out there that actually are in line with our interest And I think the trick there in the 21st century is figuring out how you actually leverage that power And how do you create strategic? Swasion to complement financial suasion so that so people start to see that our diaspora community is an asset and a resource That the fact that we've got Americans who are helping to run the Somali transitional government is an asset The fact we have Pakistani business people in the fatah doing business is an asset the fact that you know social activists can draw out 11 million people using a Facebook campaign against terrorists That's an asset and so thinking differently about how we use power and frankly the power of individuals themselves I think it's pretty important because we often get in this dichotomy of what Washington does what the rest of America thinks And I think 21st century is going to be more about what people power can do and what the super empowered individual can do Not just for nefarious purposes as we've seen with terrorism, but on the positive side of the ledger And I think and I hope that's one of the lessons for what we've done over the last 12 years One Tom Sanderson from CSI I said first like to say that I think I speak for everyone here in the front row that's been tremendously rewarding to work with you over the past few years, so Thank you and congratulations on the book What you were able to accomplish in your successors as well demonstrates that You're able to influence the formal banking system Can you talk a little bit about the informal banking system how difficult it is to impact things like the Huala? No, it's a great question Tom And I think one of the one of the great challenges because I think The tools that we've talked about are most effective when you're talking about the formal financial system Now I think it's a little bit of a False paradigm to think of the informal sector and the formal sector and no ties in between So one of the things I do in the book is try to explain what the Huala network is The Huala network is this informal system of moving money across borders basically a Brokering system kind of like Western Union, but between trusted actors The interesting thing about these networks Tom is that they they keep records The brokers want to know where they've sent money who owes them. So there's record-keeping. They're on computers There are transfers their settlements between brokers using bank accounts And so there are ties between the informal systems and the formal system and even I was very critical For example when talking about piracy sort of using these tools against piracy and thinking, you know What are we going to do launch Danny Glazer and a parachute and go attach a land rover and Mogadishu? You know, what do we do but the reality is and as you've seen in your own research and field work in Kenya That illicit trade and finance actually ultimately if it reaches enough of a volume Starts to infect and impact the formal system and so in places like Eastley you have banking Centers built up around the financial networks of these pirate networks And so at some point the ligaments of the financial system Interact and can be impacted, but that's not to say it's easy And it's not to say that it can be done As effectively But it can be affected the other thing that's a challenge in here and talk about in the book is sort of the new technologies that are Merging the bitcoins the alternate currencies that not only impact the role of the dollar But start to impact the the ability of law enforcement to know who's behind Transactions and how money laundering is operating the FBI has put out a number of warnings about the use of Bitcoin by criminal groups And so we've got to watch the digital currency space For for these purposes as well One more question gentlemen in the back Yeah, I get to ask my question rich Davis from artists Juan. Congratulations. Thank you, right I'm going to put you on the spot policy wise assuming that you had a policy position today And we were considering the issue of non-proliferation Or proliferation particularly around nuclear camera bio But recognizing that you have state actors and potentially non-state actors that are interested in and pursuit of proliferation say nuclear the What opportunities are there through the instruments of Treasury to be able to actually prevent Proliferation in countries that might be reactive to Iran for example, whether it be Saudi Arabia or another One caveat to the question would be to recognize that oftentimes you have Nuclear power plants because they cost so much for example and oftentimes they're able to be used for plutonium or Enrichment that because they cost so much oftentimes they're syndicated loans that are actually used to pay for them Are there any tools that can be used in in that fight? Great and complicated question rich I think one of the huge challenges in this space and it's not just in the financial space but also with trade is the problem of dual use items And whether it's nuke or chem or even bio you have the challenge of goods that are potentially being used for normal commercial purposes or or in a various purposes One of the things we did rich. I think that was Effective was we transplanted the paradigm on terrorist financing On the issue of counter proliferation financing And so now if you talk to the anti-money laundering community whether it's the compliance officers and banks or The financial action task force you look at the standards They are anti-money laundering counter-terrorist financing counter proliferation financing and it's hard to say and So you've got the tools you've have standards set internationally The trick is I think in this space politically what you decide to do Because I think there are sensitivities around these programs mixed agendas in terms of Where they fall on the on the arena of priority and I think given the situation with Syria the whole question of chem weapons precursor Proliferation is going to now fall to the top of the scale because people saying the New York Times reporting the other day You know, why weren't we worried about this before? Clearly we were but things like nuclear proliferation terrorism and other things fall to the head of the line And so I don't have an easy answer for you But the system is set so that you can use sanctions you can use the financial pressure techniques that we've used all along to go more aggressively at the networks that matter and frankly, I think if I You know, this is hard to say But I think that's the kind of system you would have needed to go after for example the aq con network which relied on financiers in Switzerland suppliers in Malaysia and the ability to ship to places like Libya And and elsewhere and so I think we've we've created enough awareness and Systemic attention that now you just need the political will to start going after these targets and networks of concern But that takes political guidance and strategy Thank you. I think I'm gonna ask one more question as Moderator and as a way of giving you a chance to make some closing remarks, but you talk about the The system an ecosystem of bad banks and rogue actors terrorist networks In the beginning right after 9-eleven there was a moral imperative It wasn't a tough sell to get cooperation I wonder if you could talk a little bit about the evolution of that now 12 years on is that Cooperation which really is essential to what you describe as an organic kind of process That has a sense of fragility to it. Is that cooperation as forthcoming? How do you ensure that it is going forward? It's a great question right y'all I'd answer it this way. I think the intensity of cooperation the sense of the day-to-day importance of counterterrorism work with large Fades over time. That's human nature. I think that's natural I think the interesting thing about these tools Financial campaigns and and focusing on illicit finance is that these are enduring issues that matter to the integrity of the financial system and so Money laundering mattered before 9-eleven and it matters more so after 9-eleven Financial crime mattered before it matters even more so now I think the real question is how far you expand these powers And whether or not you reach a tipping point where they start to be less effective over time Either because the US has lost its predominance as a central economy in the world or the dollar has lost its primacy in terms of currencies or Because we've just overused it and people stop paying attention and these alliance of rogues have emerged and so I Don't think the attention is waned. I think the pressure is still there people understand it But it comes from different motivations and that's in part what makes these tools also unique Well with that The book is called treasuries war at the unleashing of a new era of financial warfare. I think you can buy some copies outside Thank you all so much for coming. Thank you to dr. Hamory. Thank you to CSIS for hosting the event Thank you to one. Thank you, Rachel. Appreciate it