The Perils of a Banker's War on Iran

The Perils of a Banker's War on Iran

Treasury Undersecretary Levey checks in with Israel's Olmert
http://tonykaron. com/2008/ 04/07/the- perils-of- a-bankers- war-on-iran/

The neocons are not going to get their war with Iran if it's to be
left to their traditional power centers in the Bush Administration to
make the call: They've lost the Pentagon, and it's abundantly clear
that neither the uniformed brass nor Defense Secretary Gates have any
interest in starting another catastrophic war. And the fact that they
still have a solid ally in Vice President Cheney doesn't mean much,
because Cheney is far less influential five years into the Iraq
debacle than he had been on its eve. Nor is there any significant
support (outside of Israel) among U.S. allies for a confrontational
path. Still, all is not lost for that merry little band of neocon
bomb throwers who've spent the Bush tenure quite literally "setting
the East ablaze." There's always the Treasury.

Well, its Financial Crimes Enforcement Network (FinCEN), dedicated to
fighting the "war on terror" etc. via the international banking
system. John McGlynn offers fascinating insights into a critical
aspect of Bush Administration policy that has scarcely appeared on
the radar of most mainstream media. In particular, he warns, FinCEN's
March 20 advisory warning the international banking community that
doing business with any Iranian bank, or bank that does business with
an Iranian bank, runs the risk of falling afoul of the U.S.
Treasury's expansive interpretation and enforcement of UN sanctions
and of anti-terror money laundering regulations adopted under the
post-9/11 USA Patriot Act.

The beauty of this approach, from a neocon point of view, is that it
completely skirts all those troublesome international diplomatic
forums where the U.S. and its closest allies have failed to convince
others to apply meaningful sanctions against Iran - most of the
international community is skeptical over the claims being made by
the U.S. of an imminent Iranian threat (as, of course, is the U.S.
intel community, as last year's NIE showed) and even more skeptical
of the value of sanctions in resolving the issue, rather than in
preparing the way for confrontation.

But by using the centrality of the U.S. to the international banking
and financial system, the U.S. is quite literally able to "privatize"
sanctions by going over the heads of governments that might oppose
such measures to lean on foreign banks. The U.S. doesn't even need to
prove its case against Iran; it simply warns foreign banks that by
continuing to do business - any business - with Iran, they run
falling afoul of U.S. regulatory authorities. And which international
bank would want to risk being shut out of the most lucrative market
of all?

AsTreasury Undersecretary for Terrorism and Financial Intelligence
Stuart Levey told a Senate committee last month, private sector banks
around the world had begun to comply, even when their own governments
had not pressed them to act. "Avoiding (U.S.) government-identifi ed
risks is simply good business," Levey told the Senators. "Banks need
to manage risk in order to preserve their corporate reputations.
Keeping a few customers that we have identified as terrorists or
proliferators is not worth the risk of facing public scrutiny or a
regulatory action that may impact on their ability to do business
with the United States or the responsible international financial
community."

The activist Treasury played a similar role in relation to North
Korea, which should serve as an object lesson in its dangers. Levey
told the U.S. Bar Association last Month that the North Korea
experience showed the potential of his department's interventions to
turn the international banking system into a form of leverage for
U.S. foreign policy. FinCEN had targeted the Macau-based Banco Delta
Asia, through which Pyongyang did business, for similar measures,
based on unproven allegations of money laundering and counterfeiting,
resulting in a panic that forced the bank to immediately freeze
hundreds of millions of dollars of North Korean assets. In response,
of course, North Korea withdrew from the Six-Party diplomatic process
set up to deal with its nuclear program, making clear that it would
not talk as long as the U.S.-imposed asset freeze remained in place.
It took 18 months for U.S. diplomats to untangle the mess created by
their colleagues in the Treasury, during which time North Korea
actually tested a nuclear device.

Iran, of course, is more integrated into the international economy,
as one of its largest energy exporters - and that means denying it
the credit facilities to conduct international trade could prove very
painful. Don't expect it to buckle, however. Instead, Iran would be
more likely to respond on other fronts where it has some capacity to
inflict pain on the Americans. Iran is presumably capable of making
the U.S. mission in Iraq far more complicated and dangerous than it
currently is, and it might well see bloodying the Americans next door
as an asymmetrical means of responding to U.S. financial pressure.
And then there's the oil question: If it's feeling the squeeze
anyway, Tehran might see a short-term turning off of its own oil
spigots - or sabotaging those of others - to send prices to $150 or
more, as another effective response.

Playing the oil card would also help the Iranians create a counter
argument for those countries who do the most business with Iran -
particularly China - from complying with the U.S. Treasury measures.

Then again, China, won't appreciate being forced to support
controversial U.S. foreign policy positions to the extent that they
impinge on its own trade and investment activities, particularly in
search of energy supplies. Beijing won't want to have to choose
between access to U.S. banks and access to Iranian energy exports.

Nor will it see why it should have to tolerate such a dilemma being
imposed on it by a country currently in debt to Beijing to the tune
of $3 trillion, and counting. Bankers in China, the Gulf, and
elsewhere, to which U.S. banks have recently turned in a desperate
search for liquidity, might be tempted to suggest that the U.S.
Treasury's regulatory energies might be more properly exercised in
pursuit of measures to contain and prevent a recurrences of the sub-
prime mortgage disaster and related products of a woefully under-
regulated environment, than on enforcing unpopular U.S. diplomatic
positions.

Given the weakness of the dollar and the U.S. position in the global
financial system right now, the international system's tolerance for
the excesses of an activist U.S. Treasury may not be infinite.