Day of Infamy
The March 20, 2008 US
Declaration of War on Iran
By John McGlynn
28/03/08 "ICH" --
-- March 20, 2008, destined to be another day of infamy. On this date the US officially declared war on Iran. But it's
not going to be the kind of war many have been expecting.
No, there was no dramatic
televised announcement by President George W. Bush from the White House oval
office. In fact on this day, reports the Washington Post, Bush spent some time
communicating directly with Iranians, telling them via Radio Farda (the US-financed broadcaster that transmits to Iran
in Farsi, Iran's native language) that their government has "declared they
want to have a nuclear weapon to destroy people." But not to worry, he
told his listeners in Farsi-translated
would not get the bomb because the US would be "firm."
Over at the US Congress, no
war resolution was passed, no debate transpired, no last-minute hearing on the Iran
"threat" was held. The Pentagon did not put its forces on red alert
and cancel all leave. The top story on the Pentagon's website (on March 20)
was: "Bush Lauds Military's Performance in Terror War," a feel-good
piece about the president's appearance on the US
military's TV channel to praise "the performance and courage of U.S. troops
engaged in the global war on terrorism." Bush discussed Iraq, Afghanistan
and Africa but not Iran.
But make no mistake. As of
Thursday, March 20 the US is
at war with Iran.
So who made it official?
A unit within the US
Treasury Department, the Financial Crimes Enforcement Network (FinCEN), which issued a March 20 advisory to the world's
financial institutions under the title: "Guidance to Financial
Institutions on the Continuing Money Laundering Threat Involving Illicit
FinCEN, though part of the chain
of command, is better known to bankers and lawyers than to students of US
Nevertheless, when the
history of this newly declared war is someday written (assuming the war is
allowed to proceed) FinCEN's role will be as
important as that played by US Central Command (Centcom)
in directing the wars in Afghanistan
In its March 20 advisory FinCEN reminds the global banking community that United
Nations Security Council Resolution (UNSC) 1803 (passed on March 3, 2008)
"calls on member states to exercise vigilance over the activities of
financial institutions in their territories with all banks domiciled in Iran, and their
branches and subsidiaries abroad."
UNSC 1803 specifically
mentions two Iranian state-owned banks: Bank Melli
and Bank Saderat. These two banks (plus their overseas
branches and certain subsidiaries), along with a third state-owned bank, Bank Sepah, were also unilaterally sanctioned by the US in 2007
under anti-proliferation and anti-terrorism presidential executive orders
As of March 20, however, the
US, speaking through FinCEN, is now telling all banks
around the world "to take into account the risk arising from the
deficiencies in Iran's AML/CFT [anti-money laundering and combating the
financing of terrorism] regime, as well as all applicable U.S. and
international sanctions programs, with regard to any possible
transactions" with – and this is important – not just the above three
banks but every remaining state-owned, private and special government bank in
Iran. In other words, FinCEN charges, all of Iran's banks –
including the central bank (also on FinCEN's list) –
represent a risk to the international financial system, no exceptions.
Confirmation is possible by
comparing FinCEN's list of risky Iranian banks with
the listing of Iranian banks provided by Iran's central bank.
The "deficiencies in Iran's AML/CFT" is important because it
provides the rationale FinCEN will now use to deliver
the ultimate death blow to Iran's
ability to participate in the international banking system.
The language is borrowed
from Paris-based Financial Action Task Force (FATF), a group of 32 countries
and two territories set up by the G-7 in 1989 to fight money laundering and
terrorist financing. As the FinCEN advisory
describes, in October 2007 the FATF stated "that Iran's lack of a comprehensive anti-money laundering and combating the
financing of terrorism (AML/CFT) regime represents a significant vulnerability
in the international financial system. In response to the FATF statement, Iran passed its
first AML law in February 2008.
The FATF, however,
reiterated its concern about continuing deficiencies in Iran's AML/CFT
system in a statement on February 28, 2008."
Actually, the February 28
FATF statement does not comment on Iran's new anti-money laundering
law. The statement does say, however, that the FATF has been working with Iran since the October 2007 FATF statement was
issued and "welcomes the commitment made by Iran to improve its AML/CFT
regime." Moreover, the February 28 statement, for whatever reason, drops
the "significant vulnerability" wording, opting instead to reaffirm
that financial authorities around the world should "advise" their
domestic banks to exercise "enhanced due diligence"
concerning Iran's AML/CFT
"deficiencies." In linking its March 20 advisory to the recent FATF
statements, apparently FinCEN cannot wait for FATF or
anyone else to evaluate the effectiveness of Iran's brand new anti-financial
"deficiencies in Iran's
AML/CFT" is probably the main wording FinCEN
will use to justify application of one its most powerful sanctions tools, a USA
Patriot Act Section 311 designation (see below).
Hammering away at Iran's
state-owned banks is central to US efforts to raise an international hue and
cry. Through its state-owned banks, FinCEN states,
"the Government of Iran disguises its involvement in proliferation and
terrorism activities through an array of deceptive practices specifically
designed to evade detection." By managing to get inserted the names of two
state-owned banks in the most recent UN Security Council resolution on Iran,
the US can now portray the cream of Iran's financial establishment (Bank Melli and Bank Saderat are Iran's
two largest banks) as directly integrated into alleged regime involvement in a
secret nuclear weaponization program and acts of
To inject further alarm, FinCEN accuses Iran's central bank of "facilitating
transactions for sanctioned Iranian banks" based on evidence (which for
various reasons appears true) gathered by Treasury and other US agencies that
the central bank has facilitated erasure of the names of Iranian banks
"from global transactions in order to make it more difficult for
intermediary financial institutions to determine the true parties in the
transaction." The central bank is also charged with continuing to
"provide financial services to Iranian entities"
agencies, business firms and individuals) named in two earlier UN Security
Council resolutions, 1737 and 1747. In defense, Iran's
central bank governor recently said: "The central bank assists Iranian
private and state-owned banks to do their commitments regardless of the
pressure on them" and charged the US with "financial
So what does all this
bureaucratic financial rigmarole mean?
What it really means is that
the US, again through FinCEN, has declared two acts of war: one against Iran's banks
and one against any financial institution anywhere in the world that tries to
do business with an Iranian bank.
To understand how this works
requires understanding what FinCEN does.
This means going back in
history to September 2005, when the US Treasury Department, based on the
investigatory work of FinCEN, sanctioned a small bank
in Macau, which in turn got North
Korea really upset.
FinCEN's mission "is to
safeguard the financial system from the abuses of financial crime, including
terrorist financing, money laundering, and other illicit activity" (FinCEN website).
Under Section 311 of the USA
Patriot Act the US Treasury Department, acting through FinCEN,
has been provided with "a range of options that can be adapted to target
specific money laundering and terrorist financing concerns." Specifically,
Section 311 contains six "special measures" to significantly increase
the powers of the Treasury (and other US government agencies) to block
alleged terrorist financing activities. As explained by a Treasury official
during April 2006 testimony before Congress, the most punitive measure
institutions to terminate correspondent relationships with the designated
Such a defensive measure effectively cuts that entity off from the U.S. financial
system. It has a profound effect, not only in insulating the U.S. financial system
from abuse, but also in notifying financial institutions and jurisdictions
globally of an illicit finance risk."
On September 20, 2005 FinCEN issued a finding under Section 311 that Banco Delta Asia (BDA), a small bank in the Chinese territory of Macau, was a "primary money
laundering concern." BDA was alleged to have knowingly allowed its North
Korean clients to use the bank to engage in deceptive financial practices and a
variety of financial crimes (such as money laundering of profits from drug trafficking
and counterfeit US $100 "supernotes").
By publicizing its
allegations, FinCEN let the world know that BDA was
now at risk of having all "correspondent relationships" with US banks
severed, a disaster for any bank wanting to remain networked to the largest
financial market in the world. Frightened BDA customers reacted by staging a
run on the bank's assets.
In the interest of
self-preservation, BDA was forced to act. After a quick conference with Macau financial authorities the bank decided to freeze
North Korean funds on deposit.
It just so happened that the
day before the FinCEN finding was made public the US
and North Korea, working through the Six-Party talks process (also involving
host China, Russia, South Korea and Japan), had formally agreed on a new
diplomatic roadmap that promised to lead to a denuclearized and permanently
peaceful Northeast Asia. But because of Treasury's BDA sanctions, North Korea was
now labeled an international financial outlaw and the Six Party process
Other banks began severing
their business ties with North
Korea, leaving the country more isolated
than ever from global commerce and finance. These other banks had no choice.
Treasury repeatedly made clear that any bank that continued to do business with
was another potential Patriot Act Section 311 target.
In anger, North Korea
withdrew from the Six-Party process. It required
18 months of negotiations
before a diplomatic and financial approach was devised that left BDA
blacklisted but allowed North
Korea to regain access to its frozen funds
and rejoin Six Party negotiations.
nor anyone else at Treasury has ever publicly produced any evidence in support
of the financial crime allegations against BDA and North
Korea (articles by this author on BDA, North Korea and
Treasury's lack of proof can be found at the Japan Focus website).
If Treasury was eventually
forced to back off in the BDA case (apparently because the Bush administration
changed its policy priorities), it had discovered that Patriot Act Section 311
could really shake things up.
The "real impact"
of the BDA-North Korea sanctions, as Treasury undersecretary Stuart Levey told members of the American Bar Association in early
March 2008, was that "many private financial institutions worldwide
responded by terminating their business relationships not only with [BDA], but
with North Korean clients altogether." Levey and
his Treasury colleagues had come up with a way to go beyond governments to use
the global banking sector to privatize banking sector sanctions against an
entire country (this, by the way, is presidential candidate John McCain's
proposed strategy for dealing with Iran as described in the Nov/Dec 2007 issue
of the journal Foreign Affairs ). This "key difference" in the
"reaction by the private sector" was an exciting revelation. Through
a little extraterritorial legal arm-twisting of the international banking
community the US
was able to put "enormous pressure on the [North Korean] regime – even the
most reclusive government depends on access to the international financial
system," said Levey. Washington
now had "a great deal of leverage in its diplomacy over the nuclear issue
with North Korea."
Turning to the present, Levey informed the gathering
of US lawyers that "we are currently in the midst of an effort to apply
these same lessons to the very real threat posed by Iran." However, "Iran presents a more complex challenge than North Korea
because of its greater integration into the international financial community."
Over the past two years Levey and other Treasury officials have been crisscrossing
the globe to make it abundantly clear in meetings (described by Treasury as
opportunities to "share information") with banking and government
officials in the world's key financial centers that dealing with Iran is risky
business. Levey frequently claims that major European
and Asia banks, once they hear the US pitch, freely decided to
cooperate with anti-Iran banking sanctions for reasons of "good corporate
citizenship" and a "desire to protect their institutions'
But these meetings include
quite a bit of browbeating. This can be deduced from some of Levey's public statements, such as his testimony to
Congress. On March 21, 2007 Levey told the Senate
Committee on Banking, Housing and Urban Affairs that unilateral US financial
sanctions "warn people and businesses not to deal with the designated
target. And those who might still be tempted to work with targeted high risk
actors get the message loud and clear: if they do so, they may be next."
Also, the possibility of becoming a Patriot Act Section
311 sanctions victim (which
means exclusion from the US market) probably comes up at the meetings, as this
part of his testimony indirectly suggests: "Our list of targeted
proliferators is incorporated into the compliance systems at major financial
institutions worldwide, who have little appetite for the business of
proliferation firms and who also need to be mindful of U.S. measures given their
ties to the U.S. financial system."
Secretary Henry Paulson has also been involved in high-level meetings around
the world concerning Iran,
which presumably includes presentations on the arsenal of US financial
sanctions. The message he imparts is unknown, but hints of the likely content
can be found in public statements. Among Treasury officials Paulson has used
the most dramatic language by making the argument that not only is Iran a danger
to the international community but that this danger permeates virtually all of
Iranian society. In a June 14, 2007 speech to the Council on Foreign Relations
he first makes the point that Iran's
Revolutionary Guard Corps (IRGC) is a "paramilitary"
organization "directly involved in
the planning and support of terrorist acts, as well as funding and training
other terrorist groups." Then he offers the alarming revelation that the
IRGC "is so deeply entrenched in Iran's
economy and commercial enterprises, it is increasingly likely that if you are
doing business with Iran,
you are somehow doing business with the IRGC." With such language,
Treasury lays the groundwork for applying financial sanctions against the
entirety of Iran.
All this makes clear that the growing coalition of bankers against Iran the US likes to trumpet may not be such
a willing group.
Some indication of how
unwilling can be found in the pages of Der Spiegel
(English edition). In July 2007 the German news magazine reported that
"anyone wishing to do business in the United
States or hoping to attract US investors had best tread
softly when it comes to Iran.
Germany's Commerzbank stopped financing trade with Iran in US
dollars in January, after the Americans piled on the pressure." One German
banker interviewed said: "German financial institutions feel the United States
government has been engaging in 'downright blackmail'." The magazine goes
on to report: "Anti-terror officials from the US Treasury are constantly
showing up to demand they cut their traditionally good relations with Iran. The
underlying threat from the men from Washington
is that they wouldn't want to support terrorism, would they?"
Also, an April 2007 report
from the UK's House of Lords
Economic Affairs Committee states that the Confederation of British Industry
indicated "strong concern" about Patriot Act provisions and other US
extra-territorial sanctions. The Committee recognized the need for
"vigorous action" in response to terrorist threats but also
"endorse[d] the condemnation by the EU of the extra-territorial
application of US
sanctions legislation as a violation of international law."
Thus the US will need
help from European government leaders to overcome resistance among major
European financial institutions to US-led financial sanctions. Such help has
already come from German Chancellor Angela Merkel. During her recent state
visit to Israel, Merkel told
the Knesset that Iran
was global enemy number one. "What do we do when a majority says the
greatest threat to the world comes from Israel
and not from Iran?"
she asked. "Do we bow our heads? Do we give up our efforts to combat the
Iranian threat? However inconvenient and uncomfortable the alternative is, we
do not do that." Iran
is public enemy #1 in the world, and everyone – including the European banking
establishment it would seem – has to accept that.
To summarize to this point:
(1) the March 20 advisory represents a US declaration of war by sanctions on
Iran and a sanctions threat to the international banking community, (2) the US
has various unilateral financial sanctions measures at its command in the form
of executive orders and Patriot Act Section 311 and (3) the BDA-North Korea
sanctions were, at least in retrospect, a test run for Iran.
If the US succeeds, an international quarantine on Iran's banks would disrupt Iran's
financial linkages with the world by blocking its ability to process
cross-border payments for goods and services exported and imported. Without
those linkages Iran
is unlikely to be able to engage in global trade and commerce. As 30% of Iran's GDP in
2005 was imports of goods
and services and 20% was non-oil exports (World Bank and other data), a large
chunk of Iran's
economy would shrivel up. The repercussions will be painful and extend well
beyond lost business and profits. For example, treating curable illnesses will
become difficult. According to an Iranian health ministry official, Iran produces
95% of its own medicines but most pharmaceutical-related raw materials are
With a financial sanctions
war declared, what happens next? There have been some hints.
On February 25 the Wall
Street Journal reported that Treasury was considering sanctioning Iran's central
bank (known as Bank Markazi).
"The central bank is
the keystone of Iran's
financial system and its principal remaining lifeline to the international banking
explains the Journal. "U.S. sanctions against it could have a severe
impact on Iranian trade if other nations in Europe and Asia
choose to go along with them." In anticipation of future events, the
notes: "U.S. officials
have begun trying to lay the groundwork for a move against the central bank in
public statements and meetings with key allies."
So look for the following to
happen in the coming weeks: FinCEN will probably
issue a Patriot Act Section 311 finding that Iran's central bank is a
"primary laundering concern." The "deficiencies in Iran's
AML/CFT" wording lifted from the FATF statement will be a key reason for
that finding. The finding may be accompanied by a formal decision to cut off Iran's central bank from the US financial
market, or such a decision could come later. Of course, an actual or threatened
cut-off has no immediate financial implications for Iran
since no Iranian-flagged bank is doing business in the US, except possibly to allow shipments from the US of humanitarian
provisions of food and medicine, which, if they exist, probably terminate with
the March 20 FinCEN announcement.
But a Section 311
designation of Iran's
central bank would have a powerful coercive effect on the world's banks. For
any bank in Europe, Asia or anywhere else that goes near the central bank once
the 311 blacklist is on, it would be the kiss of death for that bank's
participation in the international banking community, as it was (and remains
today) for BDA. Not only would that bank be barred from the US financial
market, it would also be shunned by European and Japanese financial markets, as
government and private banking officials in those markets are likely to
cooperate with Washington's intensifying sanctions campaign.
What about China, now one of the world's major financial
centers (two Chinese banks ranked among the top 25 in The Banker's 2007 survey
of world banks) and a major trading partner for Iran?
China and Japan "were
the top two recipients of exports from Iran, together accounting for more than
one-quarter of Iran's exports in 2006," according to an analysis of
International Monetary Fund (IMF) trading statistics contained in a December
2007 US Government Accountability Office (GAO) report on Washington's anti-Iran
sanctions regime. On the import side, the GAO found that in 2006 "Germany and China
were Iran's largest
providers of imports, accounting for 23 percent of Iran's imports." Airtight
global banking sanctions imposed on Iran would presumably make the
financial administration of this trade next to impossible.
Will China bend to US sanctions wishes? Early signs
suggest the answer is yes.
In December 2007
ArabianBusiness.com reported that Chinese banks were starting to decline to
open letters of credit for Iranian traders.
head of the Iran-China chamber of commerce, was quoted as saying that China's banks
did not explain the refusal but "if this trend continues it will harm the
two countries' economic cooperation and trade exchange." In February,
ArabianBusiness.com found that China's
cutbacks in its banking business with Iran was
affecting a joint automobile production arrangement.
Such disruptions in the
Chinese-Iranian banking relationship are minor. Meanwhile, Beijing
keeps insisting that peaceful diplomacy with Iran is the best policy and that
the only sanctions needed are those mandated under the three UN Security
Council resolutions already on the books. Thus, to make China cooperate with Washington's
unilateral banking sanctions, the US and the EU, reports the
Financial Times, are apparently using a tag-team strategy.
On February 12 the FT told
readers that "the US
believes that tighter EU sanctions will put pressure on other nations that do
more business with Iran - China for
example - to curb their activities." Therefore, explained an anonymous
diplomat apparently from the US:
"We will be pushing the EU to go further than the Security Council,"
a move intended, the diplomat said, to "gold plate" Security Council
To explain this move the FT
provided an example of "gold plating" from 2007, when the EU
implemented UN Security Council resolutions 1737 and
1747 on Iran.
In similar language to the
current text on Banks Saderat and Melli,
the UN had called for "vigilance and restraint" concerning the
movements of individuals linked to Iran's nuclear and missile programmes and members of its Revolutionary Guard. But in
implementing the resolutions, the EU subjected all the named individuals to a
travel ban - a much tougher measure.
Reading between the lines,
the intention behind "gold plating"
Council resolutions is to put pressure on China to bow to a more aggressive
US-EU sanctions program. In the case of the most recent Security Council
resolution on Iran,
1803, which put sanctions on two Iranian banks, FinCEN
rolled two "gold plating" actions into one. It combined the Security
Council's naming of the two banks with the October and February FATF statements
to justify its March 20 warning to the world that Iran's entire banking system is a
Whether the EU will follow FinCEN's action, and how China will respond to any of this,
remains to be seen.
In short, the US has in effect declared war on Iran. No bombs
need fall as long as the US
strategy relies solely on financial sanctions.
But if the US Section 311
designates Iran's central
bank as a financial criminal, the impact will be the financial equivalent to
the first bombs falling on Baghdad at the start
of the US-UK invasion of Iraq
in March 2003.
In a 1996 publication
written for the National
Harlan Ullman and James Wade introduced a military
doctrine for "affecting the adversary's will to resist through imposing a
regime of Shock and Awe to achieve strategic aims and military
Former US defense secretary
Donald Rumsfeld made Shock and Awe famous by invoking
it as the US strategy in the attack on Iraq in March 2003 (though weeks later Ullman was claiming Rumsfeld was
misapplying the doctrine).
But Shock and Awe's authors
(apparently with something like Vietnam or the 1993-1994 Somalia fiasco in
mind) also envisioned that "[i]n certain
circumstances, the costs of having to resort to lethal force may be too
politically expensive in terms of local support as well as support in the U.S.
and internationally." Consequently, they wrote:
"Economic sanctions are
likely to continue to be a preferable political alternative or a necessary
political prelude to an offensive military step . . .In
a world in which nonlethal sanctions are a political
imperative, we will continue to need the ability to shut down all commerce into
and out of any country from shipping, air, rail, and roads. We ought to be able
to do this in a much more thorough, decisive, and shocking way than we have in
the past . . .
Weapons that shock and awe,
stun and paralyze, but do not kill in significant numbers may be the only ones
that are politically acceptable in the future."
It was only a matter of
finding a sanctions strategy systematic enough to make this more obscure portion
of the Shock and Awe doctrine operational. What Ullman
and Wade could not have imagined was that Washington's
global planners would use extraterritorial legal powers and its financial clout
to coerce the global banking industry into accepting US foreign policy diktat. North Korea was
a test-run for the new strategy of Shock and Awe financial sanctions. As
Washington Post columnist David Ignatius put it in February 2007, "[t]he
new sanctions are toxic because they effectively limit a country's access to
the global ATM. In that sense, they impose -- at last -- a real price on
countries such as North Korea
What then will the impact be
of this US-Iran banking standoff? For the US, almost no
impact at all. Treasury bureaucrats will spend some time and a little
taxpayer money making phone calls, checking computer screens and paper trails
to monitor global banking compliance with sanctions. The cost of financially
ostracizing Iran will be a bargain for US taxpayers compared with the eventual
$3 trillion cost of the Iraq and Afghanistan wars estimated by Nobel
prize-winning economist Joseph Stiglitz and Harvard
financial expert Linda Bilmes.
Iran, however, will become
another Gaza or Iraq under the economic sanctions
of the 1990s, with devastating impact on economy and society. That Iran's complete financial and economic
destruction is the goal of US
policy was spelled out by the State Department the day before the FinCEN announcement.
During a daily press meeting
with reporters on March 19, the State Department's spokesperson was asked about
a deal recently signed between Switzerland
and Iran to supply Iranian
natural gas to Europe.
After condemning the deal,
the spokesperson explained that the US is opposed to any "investing in
Iran, not only in its petroleum or natural gas area but in any sector of its
economy" and questioned rhetorically the wisdom of doing business with
Iranian "financial institutions that are under UN sanctions or could
become under sanctions if it's found that they are assisting or aiding or
abetting Iran's nuclear program in any way." A clearer expression of US
desires is hardly possible.
is an independent Tokyo-based economic and financial analyst.