To commemorate Stuart Levey’s resignation from Treasury, I send him off into the sunset with an affectionate slap on the rump in the Asia Times article, Good-bye Mr Insubordination.
I’ve been an interested observer of Mr. Levey’s activities as Assistant Secretary of State for the Office of Terrorism and Financial Intelligence ever since the OTFI’s designation of Macau’s Banco Delta Asia as an institution “of money laundering concern” froze $25 million in North Korean deposits in 2005.
After the North Koreans detonated their atomic bomb in October 2006, the U.S. State Department said it would “resolve” the issue so the denuclearization talks could resume.
After Secretary of State Rice and Under Secretary Christopher Hill announced the agreement in February 2007, there was a concerted effort to sabotage the unfreezing of the BDA funds by John Bolton and hard-liners in the House of Representatives.
Amazingly, the effort was abetted by Stuart Levey’s office, which found myriad reasons not to “git ‘er done”. It took four months (instead of the promised thirty days) and a Rube Goldberg arrangement involving the Fed, the Russian central bank, and a Russian commercial bank to return North Korea’s ill-gotten gains to Pyongyang.
Literally, ill-gotten. Something I don’t get to in the article is the fact that half of the money were deposits of irreproachable provenance belonging to North Korean joint ventures of British American Tobacco and a European banking operation that had nothing to do with Kim Jung Il and his alleged forex shenanigans and shouldn’t have ended up in the DPRK’s coffers.
Unless you read China Matters at the time, you were probably unaware of this, since the general reporting on the issue was pretty craptacular.
The Asia Times piece provides a neat and persuasive summary of the whole fiasco.
One thing that always puzzled me was that there was no reckoning for Stuart Levey. Nobody called him out for defying the State Department; he not only kept his job under Bush, he continued to do the same job under Obama.
Which leads me to believe that there was more going on in sabotaging the BDA transaction than a last ditch effort to torpedo engagement with North Korea by unrepentant hardliners (many of whom had left the Bush administration by 2007) acting under the aegis of Vice President Cheney as part of his war against the Condoleezza Rice’s State Department.
(Dick Cheney, it is probably forgotten, was at the time trolling through Asia at the time trying undercut State Department diplomacy by cobbling together an anti-China united front out of Australia, India, and Japan; I reproduce a post on the issue below as a matter of historical interest.)
However, for the BDA travesty to drag on as long as it did, thereby revealing President Bush’s favorite cabinet officer, Secretary Rice, as a powerless cipher, I would have to think that President Bush acquiesced to Vice President Cheney’s insistence that the humiliating BDA agreement wither and, if possible, die, taking the restart of the Six Party Talks with it.
There would be persuasive geopolitical reasons for doing so.
The left-leaning regime of President Roh was an unwilling partner to American diplomacy, especially of the confrontational type traditionally espoused by the Bush administration.
It was very likely that the conservative and actively pro-US Grand National Party would be in the saddle come December 2007.
So killing or at the very least slowwalking the BDA affair pending a re-set in 2008 might have enjoyed the tacit approval and back channel encouragement of a broad range of executive and national security opinion in the Bush administration.
And Stuart Levey, instead of being Mr Insubordination was actually Mr Virtuous Conspirator, working with the informal network of Bush era foreign policy enthusiasts that trampled over the chain of command and institutional checks and balances to execute policies whose success they considered to be of paramount importance—at least more important than the niceties of fact-based decision-making or consideration of the possibly catastrophic consequences of reckless adventurism.
As to why President Obama decided to keep Mr. Levey on, he had ample reasons starting with the Obama administration’s fondness for smart power and the strong support Mr. Levey enjoyed in hardline constituencies on North Korea and Iran.
Perhaps it was also thought that Mr. Levey’s demonstrated independence of State Department diplomacy contributed to the intimidating aura of OTFI’s activities.
I am rather skeptical of Mr. Levey’s achievements.
It seems to me that the sanctions campaign against North Korea, beyond denying Western energy and fuel aid to North Korea that might be exploited by its army (or possibly find its way to North Korea’s citizens), and driving Pyongyong into Beijing’s arms, has little to show after five years of effort.
As Lee Myung-bak enters the last years of his term, it appears that China, North Korea, and factions within South Korea itself are positioning themselves for a shift to a policy with a bigger dose of engagement and less emphasis on sanctions.
So, as I say in the article, this might be the best time for Mr. Levey to depart with his legend intact.
Sunday, March 18, 2007
Circular Gratification: Vice President Cheney’s Most Recent Effort to Contain China
Vice President Cheney recently visited Asia to lend his prestige and power—two increasingly devalued commodities--to two faithful and embattled allies in his global campaign of confrontation and containment, Japan and Australia.
Japan, in particular, needed bucking up, since the Abe regime is reeling from the perfunctory US abandonment of the abductee issue in the rush to conclude the Six Party Agreement on North Korea.
The abductee issue was at the core of Abe’s North Korea policy and, indeed, Abe’s entire political identity as a principled and valued core member of the US effort to assert its interests and agendas in North Asia through confrontation-based diplomacy.
With realists in ascendance at the State Department and negotiation, conciliation, and compromise at the heart of U.S. Asia policy, Vice President Cheney brought with him a rather contrarian and dubious gift—an effort to singlehandedly will into existence another coalition of the willing, centered on Japan, Australia, and India, to take on the unenviable and almost impossible task of presenting an effective, united front against China.
The Marmot’s Hole looks at a proposal for an anti-Chinese alliance midwifed by Dick Cheney and sees an iron ring of democracies containing China.
I look at the vision of an American, Japanese, Australian, and Indian security quadrilateral and see a regional circle j**k characterized by shared press conferences, private fantasies, and shamefacedly selfish gratification.
Australia is blundering through its self-made neocolonial quagmires in Papua New Guinea, the Solomon Islands, Tonga, and Fiji. It can’t even handle its back yard (where China is cautiously but productively fishing), let alone contribute effectively to the Ant-Chinese Superhero League that’s supposed to take the fight to the Yellow Peril.
All India wants is to play off the United States, China, and Russia against each other and reap concessions and aid from each while it concentrates on its economic development and energy security.
Indeed, Mr. Cheney's hasty initiatives in ad hoc coalition building are probably a direct response to a conspicuous piece of footsie between New Delhi and America's strategic competitors: the Russian/Chinese/Indian mini-summit in Delhi in February.
Which leaves the United States and Japan...well, maybe just Japan.
The money grafs in the story in the Australian:
The Japanese Government and US Vice-President Dick Cheney are keen to include the growing economic and military power of India in the already enhanced "trilateral" security arrangements, locking together the three most powerful democracies of the Asia-Pacific region.
Mr Cheney gave the Japanese proposal new life on his recent visit to Japan and Australia after sections of the Bush administration rebuffed the plan.
Ah, yes...emphasis added.
With the neocons in retreat on Washington and on the North Korean issue, it seems that Japan provides the vital function to Dick Cheney of providing political cover and scope for strategic initiatives that are foreclosed at home.
In this context, I am tempted to describe Japan as our “Israel in the Pacific”, exploiting relationships inside the US government to develop foreign and domestic policitical synergies that go beyond US official policy, in a manner similar to Tel Aviv's.
Now more than ever, Israel is openly and unapologetically working with elements in the Bush administration to advance a particular policy toward the Middle East—and elements within the US national security establishment are utilizing allies within the Israeli government to assist them in promoting their preferred agenda in the policy battles inside the U.S. government.
The estimable Laura Rozen, in profiling Secretary Condileezza Rice’s yearlong struggle to gain control over the Bush administration’s Iran policy, related a similar kind of back-channel initiative that, if it didn’t involve the politically sacrosanct state of Israel, might be unkindly regarded as colluding with a foreign power against the policy of the United States:
Rice knows how the system works. In February, she traveled to Jerusalem to attempt to restart the Middle East peace process. But while she was en route the neoconservative NSC adviser Elliott Abrams was, according to news reports, using contacts in the office of Israeli Prime Minister Ehud Olmert to arrange a phone call between Olmert and Bush. After the call, Olmert announced that Israel would not recognize the Palestinian unity government as a legitimate negotiating partner—an essential precondition for productive talks—and that Bush supported Israel’s stance. Her position fatally undercut, Rice returned to Washington empty-handed.
It’s one thing for a small-time erstwhile felon like Elliott Abrams to use a foreign government to promote his virtuous conspiracy against the Palestinian peace process.
But when Big Time, America’s shadow president, has to outsource his anti-China agenda to Japan and two weak and/or unenthusiastic partners in South Asia and rely on them to whipsaw the State Department, that’s a sure sign that it’s going nowhere.
Or better yet, in circles.
Showing posts with label Stuart Levey. Show all posts
Showing posts with label Stuart Levey. Show all posts
Thursday, February 03, 2011
Friday, December 18, 2009
Weaponizing Treasury’s Financial Enforcement: Credit Suisse Rolls Over on Tehran
…While Poker Players Fight Back
From her perch at Politico, the estimable Laura Rozen reports that the U.S. government has slapped Swiss bank Credit Suisse with a “half billion dollar” settlement punishing the bank for helping Iran evade U.S. financial sanctions.
Attorney General Eric Holder announced the decision, flanked by the head of Treasury’s Office of Terrorism and Financial Intelligence, Bush administration holdover, and China Matters bete noire Stuart Levey.
China Matters’ response: Grrrrrrrrr.
During the North Korean disarmament debacle in the last years of the Bush administration, China Matters tirelessly documented Levey’s efforts to sabotage the State Department's negotiated arrangement with Pyongyang by throwing up countless regulatory and extra-regulatory roadblocks to the key trigger for the deal: release of $24 million in North Korea-related funds frozen at Banco Delta Asia in Macau.
I hear echoes of that fiasco in the Credit Suisse deal.
I would note that, according to the Deferred Prosecution Agreement that Politico linked to, the $536 million dollars looks like it’s not Credit Suisse’s (also, the stock price doesn’t seem to have taken much of a hit since the announcement), which makes it look like Credit Suisse got off kinda easy in return for helping drop the hammer on Tehran:
…the parties agreed that the United States could institute…forfeiture against certain funds held by Credit Suisse…
And
Credit Suisse hereby acknowledges that $536,000,000 was involved in transactions described in the Factual Statement…[emphasis added]
So, it looks like it’s not Credit Suisse capital or earnings at stake. Probably it’s Tehran’s money and we have another Banco Delta Asia/North Korea situation.
In other words, just as we tied up North Korea’s money in a Macau bank in order to exert political pressure in 2007, now we’re tying up Iran’s money in a Suisse Bank.
From the U.S. point of view, the situation is improved because, instead of the money frozen under the jurisdiction of a bewildered and resentful foreign monetary authority, this agreement binds Credit Suisse to hand the money over to the United States on demand or face the consequences.
The Iranians, of course, are welcome to wade into the Swiss courts to try to get their money released from Credit Suisse. Once the $536,000,000 makes it to the United States, however, fuhgedaboutit.
So I guess China Matters may have Stuart Levey to kick around a lot longer.
Levey going rogue on North Korea policy, perhaps at the behest of the Office of the Vice President or some other hardline coven inside the Bush administration was one thing.
However, my strongest objection was the use of Treasury’s ability to exploit America’s central position in the world financial system to intimidate our insufficiently aggressive friends into disrupting the international financial dealings of North Korea and Iran and who knows who else.
I realize that President Obama and Secretary of State Clinton are much enamored of “soft power” and feel that working the financial levers is preferable to shooting a cruise missile down someone’s throat. And keeping on a Bush appointee to run the show makes for continuity, even if Levey runs an independent and refractory bureaucratic bastion.
But my main gripe about “financial enforcement” is that it’s unilateral, utterly untransparent, and targets our allies.
Most importantly, weaponizing financial enforcement undercuts America’s stance as indispensable honest broker in the world financial system.
Considering the emerging challenges to America’s role as world reserve currency from the EU and China (though, admittedly, no one seems eager to take on the job of keeping the world awash in liquidity, any more than any nation or bloc wants to assume Uncle Sam’s role as the world’s largest debtor nation), it would not seem especially wise to give other countries more reasons to start avoiding the greenback—and dodging Treasury’s heavy-handed intimidation.
However, the Credit Suisse announcement gives me a cause for holiday cheer: the opportunity to revisit one of the most popular posts in the history of China Matters, The Worldwide Gambling Storm, whose focus was the unilateral extension of the long, costly, and rather arbitrary arm of U.S. financial enforcement into foreign jurisdictions, and update the story.
The point of departure for the post was the passing of the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2006, a piece of calculated political folly by a delusional presidential aspirant, Bill Frist.
Under UIGEA’s aegis, the U.S. aggressively cracked down on financial institutions that held electronic wallets or otherwise facilitated the play of American gamers on offshore Internet poker sites.
The U.S. action shaved billions of dollars off the market value of British on-line gambling companies, who relied on U.S. players for much of their revenue.
The U.S. government also threatened to compel British investors to disgorge their illicit gains from illegal poker play by Americans.
The result was near apoplexy in the British establishment, and rage at the U.S. government’s use of Treasury sanctions to intimidate foreign corporations into adhering to U.S. national and even state statutes.
The Europeans brandished their own regulatory and financial clubs in a June 2009 decision citing the U.S. for WTO violations in its jihad against online gaming:
…report made it perfectly clear that there are high costs associated with U.S. infractions, citing the losses in revenue and stock market capitalization incurred by European companies who had to vacate the U.S. market. The report also provided a projection of what U.S. online gaming revenue would have been if not for the UIGEA, which showed $10 billion of hypothetical revenue loss for 2012 alone.
The report also chastised the U.S. Department of Justice for continuing to pursue European online gambling and betting companies that left the U.S. market in 2006, stating "The report comes to the conclusion that these proceedings are legally unjustified as well as discriminatory, because the activities of EU companies took place under the cover of US WTO commitments."
The U.S. is in the process of formally withdrawing from its GATS obligations as they pertain to online gaming. While the European Commission acknowledges that this process may have some influence on the actions it may ultimately take, it also was quick to point out that the U.S. would still be culpable for all its GATS violations prior to the withdrawal.
Meanwhile, American poker players felt the claws of the government at their throats.
In keeping with the theme of politicized and selective financial enforcement with zero due process, those of us with memories of the contortions and pretexts used to tie up North Korean-related funds at ADB will have a smile at this (although the 24,000 online poker players whose funds were frozen are no doubt struggling with other and stronger emotions):
Gambling911.com can reveal that the total amount of seized monies from the two largest online poker rooms, PokerStars and Full Tilt Poker, has now reached $40 million.
Gambling911 sources informed us that a few banks voluntarily froze another $10 million in funds over the past few days following news that the US Attorney out of New York froze $30 million transferring through payment processors on behalf of PokerStars and Full Tilt.
Last week, the U.S. attorney for the Southern District of New York instructed four banks to freeze accounts belonging to online payment processors.
In a letter dated Friday and faxed to Alliance Bank of Arizona, the prosecutor alleged that accounts held by payment processor Allied Systems Inc. were subject to seizure and forfeiture "because they constitute property involved in money laundering transactions and illegal gambling offenses."
Some of the said money was reportedly slated as $10,000 buy-ins to the World Series of Poker won by online players in satellite tournaments. The 2009 WSOP is already in progress with the main event set to begin the first week in July.
America’s poker players have found a friend in Barney Frank, who has memorably described UIGEA as “the stupidest bill ever written”, because of its impingement on Americans’ rights to lose their money quickly and efficiently as possible on the Internet, and because it mandates costly and onerous monitoring and enforcement obligations on the banking industry.
Just after Thanksgiving, Frank engineered a six-month postponement of full implementation of UIGEA to June 2010, and will try to push through a repeal of UIGEA in the next few months.
Frank, who doesn’t gamble himself but receives significant campaign contributions from gambling advocates, visited the World Series of Poker and apparently told reporters that the $40 million seizure did not represent the priorities of the Obama administration (again bringing to my mind recollections of the rogueish tendencies of Stuart Levey’s shop at Treasury):
In response to one question, Frank questioned whether [sic] the recent seizure of some $40 million connected to individual players’ online poker funds, asserting instead that it was likely Bush Administration holdovers at the Department of Justice’s Southern District of New York who initiated the action.
The expectation appears to be that President Obama, himself a poker player, will support the reversal of UIGEA and a more sympathetic stance toward online poker.
The European Union appears to think so:
The investigation has been ongoing since March 2008 and the report has been long awaited. But it might not be entirely coincidental that its release comes as U.S. Representative Barney Frank's bill, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, is in committee and looking for support. In fact, the report specifically stated that the European Commission's actions against the U.S. hinged on the path chosen by the Obama administration, asserting: "Moreover, the approach that the new US Administration takes with regard to the subject matter under investigation in this Trade Barriers Regulation examination may also be relevant for determining which subsequent acts are in the interest of the Community."
EU Trade Commissioner Catherine Ashton said: "Internet gambling is a complex and delicate area, and we do not want to dictate how the US should regulate its market. However, the US must respect its WTO obligations. I hope that we will be able to reach an amicable solution to this issue."
In addition to Frank, the Poker Players’ Association—ostensibly one million strong—has enlisted the services of Alfonse D’Amato. Whether this alliance of opposites is able to overcome the inevitable Republican resistance to any Obama administration initiative, regardless of its merits or ideological slant, remains to be seen.
But for now, interested readers can revisit The Worldwide Gambling Storm--which covers UIGEA, Britain's big bet on online casinos, Chinese gambling, the nuts and bolts of cheating people at poker, the origin of the phrase “pass the buck”, and an amusing anecdote concerning another poker-playing American president: Harry Truman—at this link.
Happy reading and happy holidays!
p.s. In the e-mail notice for this post, I incorrectly referred to the Swiss Bank as UBS i/o Credit Suisse. It's corrected here. Sorry 'bout that.
From her perch at Politico, the estimable Laura Rozen reports that the U.S. government has slapped Swiss bank Credit Suisse with a “half billion dollar” settlement punishing the bank for helping Iran evade U.S. financial sanctions.
Attorney General Eric Holder announced the decision, flanked by the head of Treasury’s Office of Terrorism and Financial Intelligence, Bush administration holdover, and China Matters bete noire Stuart Levey.
China Matters’ response: Grrrrrrrrr.
During the North Korean disarmament debacle in the last years of the Bush administration, China Matters tirelessly documented Levey’s efforts to sabotage the State Department's negotiated arrangement with Pyongyang by throwing up countless regulatory and extra-regulatory roadblocks to the key trigger for the deal: release of $24 million in North Korea-related funds frozen at Banco Delta Asia in Macau.
I hear echoes of that fiasco in the Credit Suisse deal.
I would note that, according to the Deferred Prosecution Agreement that Politico linked to, the $536 million dollars looks like it’s not Credit Suisse’s (also, the stock price doesn’t seem to have taken much of a hit since the announcement), which makes it look like Credit Suisse got off kinda easy in return for helping drop the hammer on Tehran:
…the parties agreed that the United States could institute…forfeiture against certain funds held by Credit Suisse…
And
Credit Suisse hereby acknowledges that $536,000,000 was involved in transactions described in the Factual Statement…[emphasis added]
So, it looks like it’s not Credit Suisse capital or earnings at stake. Probably it’s Tehran’s money and we have another Banco Delta Asia/North Korea situation.
In other words, just as we tied up North Korea’s money in a Macau bank in order to exert political pressure in 2007, now we’re tying up Iran’s money in a Suisse Bank.
From the U.S. point of view, the situation is improved because, instead of the money frozen under the jurisdiction of a bewildered and resentful foreign monetary authority, this agreement binds Credit Suisse to hand the money over to the United States on demand or face the consequences.
The Iranians, of course, are welcome to wade into the Swiss courts to try to get their money released from Credit Suisse. Once the $536,000,000 makes it to the United States, however, fuhgedaboutit.
So I guess China Matters may have Stuart Levey to kick around a lot longer.
Levey going rogue on North Korea policy, perhaps at the behest of the Office of the Vice President or some other hardline coven inside the Bush administration was one thing.
However, my strongest objection was the use of Treasury’s ability to exploit America’s central position in the world financial system to intimidate our insufficiently aggressive friends into disrupting the international financial dealings of North Korea and Iran and who knows who else.
I realize that President Obama and Secretary of State Clinton are much enamored of “soft power” and feel that working the financial levers is preferable to shooting a cruise missile down someone’s throat. And keeping on a Bush appointee to run the show makes for continuity, even if Levey runs an independent and refractory bureaucratic bastion.
But my main gripe about “financial enforcement” is that it’s unilateral, utterly untransparent, and targets our allies.
Most importantly, weaponizing financial enforcement undercuts America’s stance as indispensable honest broker in the world financial system.
Considering the emerging challenges to America’s role as world reserve currency from the EU and China (though, admittedly, no one seems eager to take on the job of keeping the world awash in liquidity, any more than any nation or bloc wants to assume Uncle Sam’s role as the world’s largest debtor nation), it would not seem especially wise to give other countries more reasons to start avoiding the greenback—and dodging Treasury’s heavy-handed intimidation.
However, the Credit Suisse announcement gives me a cause for holiday cheer: the opportunity to revisit one of the most popular posts in the history of China Matters, The Worldwide Gambling Storm, whose focus was the unilateral extension of the long, costly, and rather arbitrary arm of U.S. financial enforcement into foreign jurisdictions, and update the story.
The point of departure for the post was the passing of the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2006, a piece of calculated political folly by a delusional presidential aspirant, Bill Frist.
Under UIGEA’s aegis, the U.S. aggressively cracked down on financial institutions that held electronic wallets or otherwise facilitated the play of American gamers on offshore Internet poker sites.
The U.S. action shaved billions of dollars off the market value of British on-line gambling companies, who relied on U.S. players for much of their revenue.
The U.S. government also threatened to compel British investors to disgorge their illicit gains from illegal poker play by Americans.
The result was near apoplexy in the British establishment, and rage at the U.S. government’s use of Treasury sanctions to intimidate foreign corporations into adhering to U.S. national and even state statutes.
The Europeans brandished their own regulatory and financial clubs in a June 2009 decision citing the U.S. for WTO violations in its jihad against online gaming:
…report made it perfectly clear that there are high costs associated with U.S. infractions, citing the losses in revenue and stock market capitalization incurred by European companies who had to vacate the U.S. market. The report also provided a projection of what U.S. online gaming revenue would have been if not for the UIGEA, which showed $10 billion of hypothetical revenue loss for 2012 alone.
The report also chastised the U.S. Department of Justice for continuing to pursue European online gambling and betting companies that left the U.S. market in 2006, stating "The report comes to the conclusion that these proceedings are legally unjustified as well as discriminatory, because the activities of EU companies took place under the cover of US WTO commitments."
The U.S. is in the process of formally withdrawing from its GATS obligations as they pertain to online gaming. While the European Commission acknowledges that this process may have some influence on the actions it may ultimately take, it also was quick to point out that the U.S. would still be culpable for all its GATS violations prior to the withdrawal.
Meanwhile, American poker players felt the claws of the government at their throats.
In keeping with the theme of politicized and selective financial enforcement with zero due process, those of us with memories of the contortions and pretexts used to tie up North Korean-related funds at ADB will have a smile at this (although the 24,000 online poker players whose funds were frozen are no doubt struggling with other and stronger emotions):
Gambling911.com can reveal that the total amount of seized monies from the two largest online poker rooms, PokerStars and Full Tilt Poker, has now reached $40 million.
Gambling911 sources informed us that a few banks voluntarily froze another $10 million in funds over the past few days following news that the US Attorney out of New York froze $30 million transferring through payment processors on behalf of PokerStars and Full Tilt.
Last week, the U.S. attorney for the Southern District of New York instructed four banks to freeze accounts belonging to online payment processors.
In a letter dated Friday and faxed to Alliance Bank of Arizona, the prosecutor alleged that accounts held by payment processor Allied Systems Inc. were subject to seizure and forfeiture "because they constitute property involved in money laundering transactions and illegal gambling offenses."
Some of the said money was reportedly slated as $10,000 buy-ins to the World Series of Poker won by online players in satellite tournaments. The 2009 WSOP is already in progress with the main event set to begin the first week in July.
America’s poker players have found a friend in Barney Frank, who has memorably described UIGEA as “the stupidest bill ever written”, because of its impingement on Americans’ rights to lose their money quickly and efficiently as possible on the Internet, and because it mandates costly and onerous monitoring and enforcement obligations on the banking industry.
Just after Thanksgiving, Frank engineered a six-month postponement of full implementation of UIGEA to June 2010, and will try to push through a repeal of UIGEA in the next few months.
Frank, who doesn’t gamble himself but receives significant campaign contributions from gambling advocates, visited the World Series of Poker and apparently told reporters that the $40 million seizure did not represent the priorities of the Obama administration (again bringing to my mind recollections of the rogueish tendencies of Stuart Levey’s shop at Treasury):
In response to one question, Frank questioned whether [sic] the recent seizure of some $40 million connected to individual players’ online poker funds, asserting instead that it was likely Bush Administration holdovers at the Department of Justice’s Southern District of New York who initiated the action.
The expectation appears to be that President Obama, himself a poker player, will support the reversal of UIGEA and a more sympathetic stance toward online poker.
The European Union appears to think so:
The investigation has been ongoing since March 2008 and the report has been long awaited. But it might not be entirely coincidental that its release comes as U.S. Representative Barney Frank's bill, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, is in committee and looking for support. In fact, the report specifically stated that the European Commission's actions against the U.S. hinged on the path chosen by the Obama administration, asserting: "Moreover, the approach that the new US Administration takes with regard to the subject matter under investigation in this Trade Barriers Regulation examination may also be relevant for determining which subsequent acts are in the interest of the Community."
EU Trade Commissioner Catherine Ashton said: "Internet gambling is a complex and delicate area, and we do not want to dictate how the US should regulate its market. However, the US must respect its WTO obligations. I hope that we will be able to reach an amicable solution to this issue."
In addition to Frank, the Poker Players’ Association—ostensibly one million strong—has enlisted the services of Alfonse D’Amato. Whether this alliance of opposites is able to overcome the inevitable Republican resistance to any Obama administration initiative, regardless of its merits or ideological slant, remains to be seen.
But for now, interested readers can revisit The Worldwide Gambling Storm--which covers UIGEA, Britain's big bet on online casinos, Chinese gambling, the nuts and bolts of cheating people at poker, the origin of the phrase “pass the buck”, and an amusing anecdote concerning another poker-playing American president: Harry Truman—at this link.
Happy reading and happy holidays!
p.s. In the e-mail notice for this post, I incorrectly referred to the Swiss Bank as UBS i/o Credit Suisse. It's corrected here. Sorry 'bout that.
Thursday, September 20, 2007
Return to Failure
Is China the True Target of Financial Sanctions Against Iran?
Those with long memories—that go back, say, three months—will remember the last time the U.S. Treasury Department tried to bend an Axis of Evil member to its will through targeted financial sanctions.
Failure was the outcome.
Now the United States is trying for a do-over with Iran and, though the techniques—particularly for handling China—may be more sophisticated, I’m afraid the result will be the same.
As amply reported in this blog, Stuart Levey’s Office of Terrorism and Financial Intelligence repurposed Patriot Act Section 311 investigations away from their intended goal of perfecting the international anti-money laundering regime to attacks on the quite possibly legitimate assets of geopolitical targets and—something that got surprisingly short shrift from the international press—the assets and businesses of allies and neutrals who did not share the necessary enthusiasm for our strategic goals.
The previous intended victim of ad hoc financial sanctions secretly coordinated by the United States outside of the U.N. sanctions regime was supposed to be North Korea.
The whole effort imploded messily when sanctions endorsed piecemeal by Japan, Australia, and a few other countries—but not China or Russia—failed to do anything except encourage Pyongyang to accelerate its development of a nuclear deterrent.
The flagship enterprise of US financial sanctions—the two-year Patriot Act Section 311 investigation of Banco Delta Asia in Macau—collapsed when the State Department abandoned the BDA allegations, which stood revealed as an embarrassing farrago of cherrypicking, chestthumping, and cynical innuendo.
Even so, it took four agonizing months to get a recalcitrant Treasury Department to acquiesce to an unfreezing of the North Korean funds in BDA, even though the investigation could have been terminated and its measures rescinded overnight by a decision from Treasury.
At the time I speculated that the only reason for all this melodrama was to preserve Patriot Act Section 311 investigations’ aura of unilateral, unstoppable, and irreversible menace for the purpose of maintaining their credibility and intimidating power in the case of Iran.
Judging from the recent spate of articles in McClatchy and the Telegraph touting the purported successes of the somewhat secret financial war against Iran, I think I’m right.
But this time there’s a difference.
In 2005/2006 the North Korea effort was hijacked by regime-change hardliners typified by John Bolton, who sought to destroy Kim Jung Il’s regime by cutting off the flow of foreign exchange that they believed was vital to Kim to purchase the loyalty of his generals.
The only way to achieve a complete financial blockade was to obtain the cooperation of Beijing.
The hardline approach to the China issue was predictable, less than subtle, and completely ineffective.
The State Department’s point man for the anti-Nork effort at that time, David Asher, stated that the purpose of the move against BDA was to intimidate Chinese banks handling North Korean funds with the threat of being cut off from the US financial markets as BDA had been—“to kill the monkey in order to scare the chickens”, in Mr. Asher’s immortal phrase.
Well, the Chinese didn’t capitulate...and it turned out that the Bush administration was not interested in playing chicken with the Chinese over the fate of the world financial system, and did not sanction a further attack on Chinese banks.
So nothing was achieved except alarming and irritating the Chinese—and, oh yes, the North Koreans detonated a nuclear bomb and the sanctions regime fell apart.
However, it appears that U.S. policymakers haven’t drawn the lesson that coerced multilateralism is not only ineffective, it is counterproductive and, actually, a bad idea.
In fact, the Bush administration, that motherlode of bad ideas, apparently believes there are no bad ideas—only bad execution.
So on to Iran.
And this time it’s personal!
No,not Bush vs. Ahmadinejad.
Condi vs. Dick!
I think that this time Condi Rice has taken on the challenge of showing that she can do extra-UN unilaterally directed financial sanctions smarter, better, and more effectively than John Bolton, Vice President Cheney’s bespoke cat’s paw—and, in a high risk maneuver, she has staked the success of the diplomatic track in confronting Iran on showing results from the financial embargo.
Condi probably believes she has the acumen to enmesh China in our financial sanctions regime and persuade Beijing to abandon its support of Iran in the UN Security Council.
People who pay attention to the Iran sanctions regime have noted that pressuring European and Japanese banks to cease transactions with Iranian entities have simply pushed the business into China’s and Russia’s hands.
As Warren Strobel wrote for McClatchy:
Yet in some cases, when Western companies and banks move out of Iran, Chinese or other Asian firms simply move in and take the business.
And if we were dealing with the same reckless enthusiasts who controlled foreign policy in 2005-06, that self-defeating outcome would probably be the end of it.
But I give Condoleezza Rice and Stuart Levey more credit than that.
They’re smarter, and they also have the experience of the North Korea debacle to instruct them.
This time their menace is somewhat silken, in fact inchoate, compared with the full-bore frothing that characterized the anti-North Korea effort. From McClatchy:
The financial war began in earnest a year ago, when Treasury Department teams began briefing foreign governments and banks on intelligence the U.S. government had gathered on Iran. Among the findings was that the Central Bank of Iran was trying to conceal its role in financial transactions in which it was involved, a practice on which banks look askance, said the senior Treasury official.
“That’s just as suspicious as it sounds,” he said.
Huh?
Compare that to the incendiary accusations against Kim Jung Il used to justify the North Korea financial embargo. The Evil Dwarf of Pyongyang was accused of running a Soprano State, raping our currency with his vile Supernotes, peddling fake Viagra and phony smokes, and ruthlessly trafficking in forbidden rhino horn. Efforts were made to shut down any access by any North Korean entity to any bank anywhere, apparently on pretty flimsy pretexts in some cases.
Let’s assume that subtlety, stronger dossiers, and a more incremental approach to chipping away at Iran’s access to the world’s financial system is going on today.
Anyway.
My speculation is this:
The U.S. isn’t threatening China directly this time.
Instead we are seeking to assemble a coalition of willing and coerced European and Asian partners to present China with a united front.
The next step in isolating Iran will be to have the European and Japanese banks go to China and tell Beijing they can’t risk doing business with Chinese banks if there is any fear of Iranian taint—because the US government is threatening to land on them like a ton of bricks.
So the Chinese had better decide whether they want to continue to do business with fine, enormous banks like UBS, HSBC, and Deutsche Bank (who have already severed Iran ties, probably under U.S. pressure)—not to mention all those US banks required under US law not to handle Iranian business—or do they want to risk it for the sake of creepy little Iran?
Better to back off and back the harsher U.N. Security Council sanctions the U.S. is now attempting to orchestrate.
I’m sure that Condi Rice is working the diplomatic channels as well, telling the Chinese as well as a Beltway journalist or two that success of her financial sanctions strategy is the only thing that stands between the world and another Dick Cheney—perpetrated military outrage in the Middle East.
That, I think, would be a futile and dangerous game for Secretary Rice to play.
For the United States, which prior to 9/11 had not witnessed a large scale hostile foreign action on its soil since Pearl Harbor, is used to dishing out violence, not taking it in.
War in the homeland is an existential catastrophe and a terrifying journey into an unknown territory of fear, confusion, self-doubt, and danger.
Countries like China and Iran, on the other hand, have living memories of numerous battles within their boundaries that claimed hundreds of thousands of lives
A brief review of the “Forgotten Gulf War”in the 1980s (Iraqi aggression, 8 years, 500,000+ Iranian casualties, chemical warfare, missile attacks on Teheran) and the Chinese Anti-Japanese War (Japanese aggression, 8 years, 19 million Chinese fatalities, total war against civilians in some areas) might provide some useful perspective for our policymakers.
To countries like Iran and China, war is catastrophic and terrible—but sometimes it is unavoidable and often it is survivable.
That means that the clocks don’t stop and the world doesn’t end when the first bomb falls.
It means victims and bystanders start thinking about the post-battle challenges—and opportunities—before they occur.
Does Beijing want to permanently alienate the Iranians by going along with a US financial embargo and sanctions regime?
Or does it want to be the steadfast ally who extends a helping humanitarian, economic, and diplomatic hand to the enraged Iranians as they dig out of the rubble of the attack?
I wouldn’t bet on the first option, Condi.
Hopefully she has another plan to forestall a military attack if the financial sanctions campaign recapitulates its North Korean failure. Like engagement, maybe?
But it doesn’t look like the debate has been framed that way. McClatchy, again:
More broadly, nations from Cuba to Myanmar have managed to survive under economic assault, manipulating sanctions to blame outside forces and rally support from their people.
Another obstacle is here at home, where Secretary of State Condoleezza Rice faces stiff opposition from hard-liners led by Cheney. The Cheney camp argues that diplomacy and pressure are doomed to fail to stop Iran from going nuclear.
So, in response to a potential weaponization of Iranian nuclear assets that will occur, if ever, years after the Bush administration leaves office, we’ve got a false choice between a sanctions policy that failed against North Korea, and an aggressive military strategy that failed in Iraq.
Remind me, what are we paying these people for?
As a P.S., I realize I haven’t addressed the issue of addressing Russian intransigence on Iran.
“Russia is hiding behind China” is the current administration meme , which I don’t find a particularly persuasive piece of wishful thinking.
It would seem that the U.S. strategy is to peel China away from Iran and hope that Russia has no stomach for standing alone in the Security Council to defend Teheran’s nuclear program.
Good luck with that. I think that the increasingly assertive Russians are less interested than ever in dancing the diplomatic quadrille with the United States.
Maybe there’s a Russian affairs blog out there willing to pitch in on the question of Vladimir Putin feels the need to “hide” behind Hu Jintao.
Those with long memories—that go back, say, three months—will remember the last time the U.S. Treasury Department tried to bend an Axis of Evil member to its will through targeted financial sanctions.
Failure was the outcome.
Now the United States is trying for a do-over with Iran and, though the techniques—particularly for handling China—may be more sophisticated, I’m afraid the result will be the same.
As amply reported in this blog, Stuart Levey’s Office of Terrorism and Financial Intelligence repurposed Patriot Act Section 311 investigations away from their intended goal of perfecting the international anti-money laundering regime to attacks on the quite possibly legitimate assets of geopolitical targets and—something that got surprisingly short shrift from the international press—the assets and businesses of allies and neutrals who did not share the necessary enthusiasm for our strategic goals.
The previous intended victim of ad hoc financial sanctions secretly coordinated by the United States outside of the U.N. sanctions regime was supposed to be North Korea.
The whole effort imploded messily when sanctions endorsed piecemeal by Japan, Australia, and a few other countries—but not China or Russia—failed to do anything except encourage Pyongyang to accelerate its development of a nuclear deterrent.
The flagship enterprise of US financial sanctions—the two-year Patriot Act Section 311 investigation of Banco Delta Asia in Macau—collapsed when the State Department abandoned the BDA allegations, which stood revealed as an embarrassing farrago of cherrypicking, chestthumping, and cynical innuendo.
Even so, it took four agonizing months to get a recalcitrant Treasury Department to acquiesce to an unfreezing of the North Korean funds in BDA, even though the investigation could have been terminated and its measures rescinded overnight by a decision from Treasury.
At the time I speculated that the only reason for all this melodrama was to preserve Patriot Act Section 311 investigations’ aura of unilateral, unstoppable, and irreversible menace for the purpose of maintaining their credibility and intimidating power in the case of Iran.
Judging from the recent spate of articles in McClatchy and the Telegraph touting the purported successes of the somewhat secret financial war against Iran, I think I’m right.
But this time there’s a difference.
In 2005/2006 the North Korea effort was hijacked by regime-change hardliners typified by John Bolton, who sought to destroy Kim Jung Il’s regime by cutting off the flow of foreign exchange that they believed was vital to Kim to purchase the loyalty of his generals.
The only way to achieve a complete financial blockade was to obtain the cooperation of Beijing.
The hardline approach to the China issue was predictable, less than subtle, and completely ineffective.
The State Department’s point man for the anti-Nork effort at that time, David Asher, stated that the purpose of the move against BDA was to intimidate Chinese banks handling North Korean funds with the threat of being cut off from the US financial markets as BDA had been—“to kill the monkey in order to scare the chickens”, in Mr. Asher’s immortal phrase.
Well, the Chinese didn’t capitulate...and it turned out that the Bush administration was not interested in playing chicken with the Chinese over the fate of the world financial system, and did not sanction a further attack on Chinese banks.
So nothing was achieved except alarming and irritating the Chinese—and, oh yes, the North Koreans detonated a nuclear bomb and the sanctions regime fell apart.
However, it appears that U.S. policymakers haven’t drawn the lesson that coerced multilateralism is not only ineffective, it is counterproductive and, actually, a bad idea.
In fact, the Bush administration, that motherlode of bad ideas, apparently believes there are no bad ideas—only bad execution.
So on to Iran.
And this time it’s personal!
No,not Bush vs. Ahmadinejad.
Condi vs. Dick!
I think that this time Condi Rice has taken on the challenge of showing that she can do extra-UN unilaterally directed financial sanctions smarter, better, and more effectively than John Bolton, Vice President Cheney’s bespoke cat’s paw—and, in a high risk maneuver, she has staked the success of the diplomatic track in confronting Iran on showing results from the financial embargo.
Condi probably believes she has the acumen to enmesh China in our financial sanctions regime and persuade Beijing to abandon its support of Iran in the UN Security Council.
People who pay attention to the Iran sanctions regime have noted that pressuring European and Japanese banks to cease transactions with Iranian entities have simply pushed the business into China’s and Russia’s hands.
As Warren Strobel wrote for McClatchy:
Yet in some cases, when Western companies and banks move out of Iran, Chinese or other Asian firms simply move in and take the business.
And if we were dealing with the same reckless enthusiasts who controlled foreign policy in 2005-06, that self-defeating outcome would probably be the end of it.
But I give Condoleezza Rice and Stuart Levey more credit than that.
They’re smarter, and they also have the experience of the North Korea debacle to instruct them.
This time their menace is somewhat silken, in fact inchoate, compared with the full-bore frothing that characterized the anti-North Korea effort. From McClatchy:
The financial war began in earnest a year ago, when Treasury Department teams began briefing foreign governments and banks on intelligence the U.S. government had gathered on Iran. Among the findings was that the Central Bank of Iran was trying to conceal its role in financial transactions in which it was involved, a practice on which banks look askance, said the senior Treasury official.
“That’s just as suspicious as it sounds,” he said.
Huh?
Compare that to the incendiary accusations against Kim Jung Il used to justify the North Korea financial embargo. The Evil Dwarf of Pyongyang was accused of running a Soprano State, raping our currency with his vile Supernotes, peddling fake Viagra and phony smokes, and ruthlessly trafficking in forbidden rhino horn. Efforts were made to shut down any access by any North Korean entity to any bank anywhere, apparently on pretty flimsy pretexts in some cases.
Let’s assume that subtlety, stronger dossiers, and a more incremental approach to chipping away at Iran’s access to the world’s financial system is going on today.
Anyway.
My speculation is this:
The U.S. isn’t threatening China directly this time.
Instead we are seeking to assemble a coalition of willing and coerced European and Asian partners to present China with a united front.
The next step in isolating Iran will be to have the European and Japanese banks go to China and tell Beijing they can’t risk doing business with Chinese banks if there is any fear of Iranian taint—because the US government is threatening to land on them like a ton of bricks.
So the Chinese had better decide whether they want to continue to do business with fine, enormous banks like UBS, HSBC, and Deutsche Bank (who have already severed Iran ties, probably under U.S. pressure)—not to mention all those US banks required under US law not to handle Iranian business—or do they want to risk it for the sake of creepy little Iran?
Better to back off and back the harsher U.N. Security Council sanctions the U.S. is now attempting to orchestrate.
I’m sure that Condi Rice is working the diplomatic channels as well, telling the Chinese as well as a Beltway journalist or two that success of her financial sanctions strategy is the only thing that stands between the world and another Dick Cheney—perpetrated military outrage in the Middle East.
That, I think, would be a futile and dangerous game for Secretary Rice to play.
For the United States, which prior to 9/11 had not witnessed a large scale hostile foreign action on its soil since Pearl Harbor, is used to dishing out violence, not taking it in.
War in the homeland is an existential catastrophe and a terrifying journey into an unknown territory of fear, confusion, self-doubt, and danger.
Countries like China and Iran, on the other hand, have living memories of numerous battles within their boundaries that claimed hundreds of thousands of lives
A brief review of the “Forgotten Gulf War”in the 1980s (Iraqi aggression, 8 years, 500,000+ Iranian casualties, chemical warfare, missile attacks on Teheran) and the Chinese Anti-Japanese War (Japanese aggression, 8 years, 19 million Chinese fatalities, total war against civilians in some areas) might provide some useful perspective for our policymakers.
To countries like Iran and China, war is catastrophic and terrible—but sometimes it is unavoidable and often it is survivable.
That means that the clocks don’t stop and the world doesn’t end when the first bomb falls.
It means victims and bystanders start thinking about the post-battle challenges—and opportunities—before they occur.
Does Beijing want to permanently alienate the Iranians by going along with a US financial embargo and sanctions regime?
Or does it want to be the steadfast ally who extends a helping humanitarian, economic, and diplomatic hand to the enraged Iranians as they dig out of the rubble of the attack?
I wouldn’t bet on the first option, Condi.
Hopefully she has another plan to forestall a military attack if the financial sanctions campaign recapitulates its North Korean failure. Like engagement, maybe?
But it doesn’t look like the debate has been framed that way. McClatchy, again:
More broadly, nations from Cuba to Myanmar have managed to survive under economic assault, manipulating sanctions to blame outside forces and rally support from their people.
Another obstacle is here at home, where Secretary of State Condoleezza Rice faces stiff opposition from hard-liners led by Cheney. The Cheney camp argues that diplomacy and pressure are doomed to fail to stop Iran from going nuclear.
So, in response to a potential weaponization of Iranian nuclear assets that will occur, if ever, years after the Bush administration leaves office, we’ve got a false choice between a sanctions policy that failed against North Korea, and an aggressive military strategy that failed in Iraq.
Remind me, what are we paying these people for?
As a P.S., I realize I haven’t addressed the issue of addressing Russian intransigence on Iran.
“Russia is hiding behind China” is the current administration meme , which I don’t find a particularly persuasive piece of wishful thinking.
It would seem that the U.S. strategy is to peel China away from Iran and hope that Russia has no stomach for standing alone in the Security Council to defend Teheran’s nuclear program.
Good luck with that. I think that the increasingly assertive Russians are less interested than ever in dancing the diplomatic quadrille with the United States.
Maybe there’s a Russian affairs blog out there willing to pitch in on the question of Vladimir Putin feels the need to “hide” behind Hu Jintao.
Friday, March 23, 2007
Treasury's Not So Secret War Against the Six Party Agreement
Even though John Bolton is gone, like Lord Voldemort he left part of himself in horcruxes scattered through the US government.
With the realist takeover of the State Department and the exorcism of Bob Joseph, one of the last bastions of Boltonianism is Stuart Levey’s operation, the Office for Terrorism and Financial Intelligence at the Treasury Department.
Given the secretive nature of international banking compounding the instinctive secretive tendencies of the Bush administration, Stuart Levey’s operation has largely avoided public attention and scrutiny.
But that may change now that the Treasury Department has persistently and disruptively inserted itself into the execution of the North Korea Six Party Agreement, to the point that the execution of the Agreement is seriously endangered.
Most recently, the North Korean delegate walked out of the Six Party talks in Beijing because the matter of the Banco Delta Asia—which Christopher Hill had promised to resolve within 30 days—was still left hanging, with the Bank unwilling or unable to remit the funds into North Korea’s account at the Bank of China, probably because of behind-the-scenes obstruction by Treasury.
Treasury’s role as an independent and increasingly nettlesome factor in the North Korean negotiations has become increasingly apparent since last year’s mid-term elections exiled Bolton, catapulted Secretary Rice and the realists in control of the North Korea negotiations, and created a divergence between the priorities of State and Boltonian dead-enders at Treasury and elsewhere.
I blogged on it here, here, here, here, and here.
Now, the press is paying attention to the Treasury Department’s incessant efforts to throw sand in the gears of the Six Party Agreement on North Korea’s nuclear programs.
Via Arms Control Wonk, in mid-March, the Nelson Report reported “shock” in the State Department at the intransigent tone of the Treasury Decision on BDA.
On March 22, The Financial Times ran a piece laying bear the rift between State and Treasury, Rice helped unfreeze N. Korean funds.
And today the LA Times quoted an expert pointing out how unhelpful it was for Treasury to withhold its decision on BDA until the very last minute, shaving thirty days off the sixty days mandated under the agreement for North Korea to shut down the Yongbon reactor:
The importance North Korea has attached to these funds is no secret, prompting Li and other analysts to point a gentle finger at the U.S. for waiting until just hours before the Monday start of talks to announce the end of its investigation."
Maybe someone in the Bush administration believes they can't give in too easily," said Joseph Cheng, professor at the City University of Hong Kong. "But they already made the concession. Allowing enough time for the transfer to proceed smoothly would have been wiser."
And stories are starting to percolate about how elements in the Treasury Department might be working behind the scenes to make hinder the repatriation of the funds to Pyongyang’s account in Bank of China—a delay that caused a North Korean walkout from talks in Beijing on March 21, knocking off a few more days from the time available to get the deal done:
"As far as I know, the Bank of China refuses to accept the transfer of the frozen funds" from BDA, Xinhua's news agency quoted Russian envoy Alexander Losyukov as saying.
A diplomatic source said: "China, in fact, does not want to play a role in getting the 'dirty money' back to North Korea. The Americans are smart enough to toss the ball in the Chinese court over the questionable funds."
The North Korean situation is starting to shine unwelcome light on Levey’s Office of Terrorism and Financial Intelligence which, I expect, much prefers to operate behind the scenes to keep maintain its aura of power and unpredictability.
Stuart Levey is not a money man. He’s a lawyer, a smart cookie, (Harvard undergrad/law) one of many Bush loyalists that proved his merit in the Florida recount —he worked in Martin County—and found a slot in the Justice Department working on counter-terrorism.
He came to Treasury in 2004.
He wasn’t just filling an empty seat at Treasury or, for that matter, just a new slot on the organization chart.
According to his confirmation hearings, his mission at Treasury was to create a new counter-terrorist capability—a new office of Terrorism and Financial Intelligence-- inside Treasury.
In his prepared statement, Levey talked about an expanded enforcement role for Treasury, exploiting provisions of the Patriot Act:
I hope to bring a heightened sense of urgency to the terrorist financing mission at the Treasury Department...the overarching mission for the new Office of Terrorism and Financial Intelligence will be to ensure that the Treasury Department is fully exploiting all of it authorities, capabilities and all of the government’s information to combat terrorist financing and financial crime...I will strive to make better use of the tools the Congress provided in the new PATRIOT Act and of Treasury’s other enforcement powers. I also would build a new Office of Intelligence and Analysis that will exploit Treasury’s own information and integrate the Department more fully into the intelligence community...
Describing his work as the Justice Department’s principal representative to the Terroriist Financing Policy Coordinating Committee, Levey stated:
I have also become familiar with Treasury’s new and promising powers under Section 311 of the USA Patriot Act to impose counter-measures against financial entities or foreign nations that are a primary money laundering concern...the battle against terrorist financing [is]...a campaign to disrupt and cripple the end=users of these funds—the terrorists themselves.
About that intelligence office:
In response to a question from Senator Grassley concerning his vision for the Intelligence Analysis office, Levey responded:
The first function of the OIA (Office of Intelligence and Analysis—ed.) is to build a robust analytical capability on terrorist finance. The Department of the Treasury needs actionable intelligence that can be used to fulfill its mission and exercise its legal authorities. Analytical products from the intelligence community tend to be based on anecdotal information and are largely intended to inform policymakers rather than provide them with date points that can be a basis for then [sic] taking action. They also tend to be highly classified, whereas Treasury often needs to use the lowest classification possible to be used openly to press foreign governments or in evidentiary packages. While OIA will draw on all-source analytical products from the intelligence community, it willl produce its own intelligence reports tailored to the particular needs of Treasury’s mission.
To me, the money quote is “actionable intelligence”. Just like Stephen Cambone at Defense, Levey would have his own intelligence, his own justification for policy, and his own license to act.
If you’re thinking “stovepipe”, “independent spook operation”, so am I. In this case, however, the weapons are dollars instead of guns, and the battlefields in the plush offices of the world’s banks instead of on dusty deserts.
Levey worked hand-in-glove with John Bolton to squeeze North Korea and Iran, using the philosophy that it was not enough to hinder financial operations directly related to banned activities
Instead, Levey believed it was necessary to degrade the overall financial capabilities of the nations behind the activities by banning US banks from doing business with them, and persuading or intimidating the world’s banks into following Treasury’s lead.
I don’t know how successful Levey has been in conducting a worldwide financial boycott against North Korea and Iran.
Like most Bush administration initiatives, there is probably a lot of psy-ops and self-promoting bluster involved. China and Russia are certainly opposed to Treasury’s financial inquisitions, and the Europeans probably don’t like them either: the whole policy smacks more of intentional destabilization and regime change instead of interdiction or conventional counter-proliferation.
Back in November I questioned Levey’s grandiose claims concerning the financial noose that Treasury’s BDA sanctions were tightening around Pyongyang’s neck, opining that Chinese good offices had a lot more to do with the progress toward the Six Party Agreement than Levey’s Inspector Javert-like pursuit of Kim Jung Il’s $25 million.
Nevertheless, there is no question that threatening Chinese or European banks access to the US banking system is an extremely powerful weapon.
A hint that Treasury might threaten a harassing investigation of how Bank of China handled the North Korea transfer might be enough to stall it, and compel the Chinese to ask for clarification and reassurance from the State Department before they proceeded.
Levey has employed Treasury’s new powers discretely and persistently, even if we don’t know how effectively.
Until now.
The overt actions by Treasury against the North Korean deal make Levey’s shop look like a rogue department pursuing a vendetta against Pyongyang, deliberately undercutting the State Department, and embarrassing President Bush in one fell swoop.
It also makes Treasury look less like a team of dedicated, dogged government investigators and more like a cabal of disgruntled, obstructionist Boltonians.
There might be more to Treasury’s efforts to derail the North Korean deal than sheer ideological cussedness.
Treasury is undoubtedly infuratated that the State Department was able to override Treasury on the decision to release all the BDA accounts.
It’s not so much a question of principle.
It’s one of power.
Treasury destroyed BDA simply by announcing its investigation—and by asserting that its actions were under the Patriot Act, a matter of US law and enforcement, unrelated to UN sanctions, and therefore beyond international pressure or compromise.
The ability to sanction international banks while sheltered behind the Patriot Act and U.S. law would appear to be at the core of Treasury’s power—and just the sort of enforcement Easter egg that John Bolton would be happy to plant in the U.S. government.
That position was blown out of the water by the U.S. government’s backdown on BDA.
If foreign governments believe that Treasury’s decisions can be overturned by State on grounds of overriding national interest—or just casual deal-greasing—then Treasury’s intimidating “I’ll huff and I’ll puff and I’ll blow your bank down” approach to dealing with foreign governments and banks will look more like empty bluster.
As the Financial Times reported:
The same official, who broadly supports making small sacrifices to achieve the larger gain, said it was "very unseemly" to have Treasury publicly acquiesce in Beijing. It also appeared at odds with previous statements by Mr Hill, who in a speech to the American Enterprise Institute in 2006 said he had no influence over the Treasury action on BDA.
"We have a separation of duties and it is not for me to tell law enforcement people not to pursue and not to do their jobs," Mr Hill said.
Indeed, the Treasury Department had gone to great lengths in its initial moves against BDA to describe them as domestic enforcement issues, unrelated to the concurrent UN sanctions.
Of course, as the flip-flop ordered by the State Department reveals, it would have been more honest to characterize the Treasury investigation as “one element of U.S.
activities directed against North Korea and coordinated with John Bolton’s efforts at the UN but shielded behind the excuse that it was a Patriot Act enforcement activity”.
But I don’t think the U.S. government was fooling anybody. Certainly not the Chinese and North Koreans.
China’s sensitivity to the “Treasury weapon”, and the added possibility that it is out of control of the State Department, may very well turn out to be more of a headache for the United States—which has $350 billion of its bonds held by China, and would not like to see China moving to a new forex basket with decreased exposure to that dangerous dollar—than for China.
On matters of bureaucratic power, as well as enforcement power and institutional credibility, Treasury is on the defensive. The Financial Times reported on another measure that assured State’s current ascendancy over Treasury:
[A Capitol Hill staffer] added that the Treasury shift [to endorse release of all funds] came after the departure of Bob Joseph, the former state department hardliner on North Korea who "worked hand in glove" in opposing Mr Hill.
Stuart Levey’s operation has a lot riding on it.
With the State Department in the hands of the realists, the Treasury Department has become the stronghold of the hardliners, as can be seen from Levey’s recent uncompromising testimony before Congress on Iran.
The big fish in international financial counterterrorism is, of course, Iran.
With Iran sanctions sputtering, Stuart Levey might want to use the BDA matter to send a message to the UN and the State Department that Treasury, with its independent intelligence, investigatory, and enforcement powers authorized by numerous US resolutions and findings vis a vis Iran, is a force that still must be reckoned with in fixing US policy—and ignored at the peril of its foes, domestic as well as foreign.
With the realist takeover of the State Department and the exorcism of Bob Joseph, one of the last bastions of Boltonianism is Stuart Levey’s operation, the Office for Terrorism and Financial Intelligence at the Treasury Department.
Given the secretive nature of international banking compounding the instinctive secretive tendencies of the Bush administration, Stuart Levey’s operation has largely avoided public attention and scrutiny.
But that may change now that the Treasury Department has persistently and disruptively inserted itself into the execution of the North Korea Six Party Agreement, to the point that the execution of the Agreement is seriously endangered.
Most recently, the North Korean delegate walked out of the Six Party talks in Beijing because the matter of the Banco Delta Asia—which Christopher Hill had promised to resolve within 30 days—was still left hanging, with the Bank unwilling or unable to remit the funds into North Korea’s account at the Bank of China, probably because of behind-the-scenes obstruction by Treasury.
Treasury’s role as an independent and increasingly nettlesome factor in the North Korean negotiations has become increasingly apparent since last year’s mid-term elections exiled Bolton, catapulted Secretary Rice and the realists in control of the North Korea negotiations, and created a divergence between the priorities of State and Boltonian dead-enders at Treasury and elsewhere.
I blogged on it here, here, here, here, and here.
Now, the press is paying attention to the Treasury Department’s incessant efforts to throw sand in the gears of the Six Party Agreement on North Korea’s nuclear programs.
Via Arms Control Wonk, in mid-March, the Nelson Report reported “shock” in the State Department at the intransigent tone of the Treasury Decision on BDA.
On March 22, The Financial Times ran a piece laying bear the rift between State and Treasury, Rice helped unfreeze N. Korean funds.
And today the LA Times quoted an expert pointing out how unhelpful it was for Treasury to withhold its decision on BDA until the very last minute, shaving thirty days off the sixty days mandated under the agreement for North Korea to shut down the Yongbon reactor:
The importance North Korea has attached to these funds is no secret, prompting Li and other analysts to point a gentle finger at the U.S. for waiting until just hours before the Monday start of talks to announce the end of its investigation."
Maybe someone in the Bush administration believes they can't give in too easily," said Joseph Cheng, professor at the City University of Hong Kong. "But they already made the concession. Allowing enough time for the transfer to proceed smoothly would have been wiser."
And stories are starting to percolate about how elements in the Treasury Department might be working behind the scenes to make hinder the repatriation of the funds to Pyongyang’s account in Bank of China—a delay that caused a North Korean walkout from talks in Beijing on March 21, knocking off a few more days from the time available to get the deal done:
"As far as I know, the Bank of China refuses to accept the transfer of the frozen funds" from BDA, Xinhua's news agency quoted Russian envoy Alexander Losyukov as saying.
A diplomatic source said: "China, in fact, does not want to play a role in getting the 'dirty money' back to North Korea. The Americans are smart enough to toss the ball in the Chinese court over the questionable funds."
The North Korean situation is starting to shine unwelcome light on Levey’s Office of Terrorism and Financial Intelligence which, I expect, much prefers to operate behind the scenes to keep maintain its aura of power and unpredictability.
Stuart Levey is not a money man. He’s a lawyer, a smart cookie, (Harvard undergrad/law) one of many Bush loyalists that proved his merit in the Florida recount —he worked in Martin County—and found a slot in the Justice Department working on counter-terrorism.
He came to Treasury in 2004.
He wasn’t just filling an empty seat at Treasury or, for that matter, just a new slot on the organization chart.
According to his confirmation hearings, his mission at Treasury was to create a new counter-terrorist capability—a new office of Terrorism and Financial Intelligence-- inside Treasury.
In his prepared statement, Levey talked about an expanded enforcement role for Treasury, exploiting provisions of the Patriot Act:
I hope to bring a heightened sense of urgency to the terrorist financing mission at the Treasury Department...the overarching mission for the new Office of Terrorism and Financial Intelligence will be to ensure that the Treasury Department is fully exploiting all of it authorities, capabilities and all of the government’s information to combat terrorist financing and financial crime...I will strive to make better use of the tools the Congress provided in the new PATRIOT Act and of Treasury’s other enforcement powers. I also would build a new Office of Intelligence and Analysis that will exploit Treasury’s own information and integrate the Department more fully into the intelligence community...
Describing his work as the Justice Department’s principal representative to the Terroriist Financing Policy Coordinating Committee, Levey stated:
I have also become familiar with Treasury’s new and promising powers under Section 311 of the USA Patriot Act to impose counter-measures against financial entities or foreign nations that are a primary money laundering concern...the battle against terrorist financing [is]...a campaign to disrupt and cripple the end=users of these funds—the terrorists themselves.
About that intelligence office:
In response to a question from Senator Grassley concerning his vision for the Intelligence Analysis office, Levey responded:
The first function of the OIA (Office of Intelligence and Analysis—ed.) is to build a robust analytical capability on terrorist finance. The Department of the Treasury needs actionable intelligence that can be used to fulfill its mission and exercise its legal authorities. Analytical products from the intelligence community tend to be based on anecdotal information and are largely intended to inform policymakers rather than provide them with date points that can be a basis for then [sic] taking action. They also tend to be highly classified, whereas Treasury often needs to use the lowest classification possible to be used openly to press foreign governments or in evidentiary packages. While OIA will draw on all-source analytical products from the intelligence community, it willl produce its own intelligence reports tailored to the particular needs of Treasury’s mission.
To me, the money quote is “actionable intelligence”. Just like Stephen Cambone at Defense, Levey would have his own intelligence, his own justification for policy, and his own license to act.
If you’re thinking “stovepipe”, “independent spook operation”, so am I. In this case, however, the weapons are dollars instead of guns, and the battlefields in the plush offices of the world’s banks instead of on dusty deserts.
Levey worked hand-in-glove with John Bolton to squeeze North Korea and Iran, using the philosophy that it was not enough to hinder financial operations directly related to banned activities
Instead, Levey believed it was necessary to degrade the overall financial capabilities of the nations behind the activities by banning US banks from doing business with them, and persuading or intimidating the world’s banks into following Treasury’s lead.
I don’t know how successful Levey has been in conducting a worldwide financial boycott against North Korea and Iran.
Like most Bush administration initiatives, there is probably a lot of psy-ops and self-promoting bluster involved. China and Russia are certainly opposed to Treasury’s financial inquisitions, and the Europeans probably don’t like them either: the whole policy smacks more of intentional destabilization and regime change instead of interdiction or conventional counter-proliferation.
Back in November I questioned Levey’s grandiose claims concerning the financial noose that Treasury’s BDA sanctions were tightening around Pyongyang’s neck, opining that Chinese good offices had a lot more to do with the progress toward the Six Party Agreement than Levey’s Inspector Javert-like pursuit of Kim Jung Il’s $25 million.
Nevertheless, there is no question that threatening Chinese or European banks access to the US banking system is an extremely powerful weapon.
A hint that Treasury might threaten a harassing investigation of how Bank of China handled the North Korea transfer might be enough to stall it, and compel the Chinese to ask for clarification and reassurance from the State Department before they proceeded.
Levey has employed Treasury’s new powers discretely and persistently, even if we don’t know how effectively.
Until now.
The overt actions by Treasury against the North Korean deal make Levey’s shop look like a rogue department pursuing a vendetta against Pyongyang, deliberately undercutting the State Department, and embarrassing President Bush in one fell swoop.
It also makes Treasury look less like a team of dedicated, dogged government investigators and more like a cabal of disgruntled, obstructionist Boltonians.
There might be more to Treasury’s efforts to derail the North Korean deal than sheer ideological cussedness.
Treasury is undoubtedly infuratated that the State Department was able to override Treasury on the decision to release all the BDA accounts.
It’s not so much a question of principle.
It’s one of power.
Treasury destroyed BDA simply by announcing its investigation—and by asserting that its actions were under the Patriot Act, a matter of US law and enforcement, unrelated to UN sanctions, and therefore beyond international pressure or compromise.
The ability to sanction international banks while sheltered behind the Patriot Act and U.S. law would appear to be at the core of Treasury’s power—and just the sort of enforcement Easter egg that John Bolton would be happy to plant in the U.S. government.
That position was blown out of the water by the U.S. government’s backdown on BDA.
If foreign governments believe that Treasury’s decisions can be overturned by State on grounds of overriding national interest—or just casual deal-greasing—then Treasury’s intimidating “I’ll huff and I’ll puff and I’ll blow your bank down” approach to dealing with foreign governments and banks will look more like empty bluster.
As the Financial Times reported:
The same official, who broadly supports making small sacrifices to achieve the larger gain, said it was "very unseemly" to have Treasury publicly acquiesce in Beijing. It also appeared at odds with previous statements by Mr Hill, who in a speech to the American Enterprise Institute in 2006 said he had no influence over the Treasury action on BDA.
"We have a separation of duties and it is not for me to tell law enforcement people not to pursue and not to do their jobs," Mr Hill said.
Indeed, the Treasury Department had gone to great lengths in its initial moves against BDA to describe them as domestic enforcement issues, unrelated to the concurrent UN sanctions.
Of course, as the flip-flop ordered by the State Department reveals, it would have been more honest to characterize the Treasury investigation as “one element of U.S.
activities directed against North Korea and coordinated with John Bolton’s efforts at the UN but shielded behind the excuse that it was a Patriot Act enforcement activity”.
But I don’t think the U.S. government was fooling anybody. Certainly not the Chinese and North Koreans.
China’s sensitivity to the “Treasury weapon”, and the added possibility that it is out of control of the State Department, may very well turn out to be more of a headache for the United States—which has $350 billion of its bonds held by China, and would not like to see China moving to a new forex basket with decreased exposure to that dangerous dollar—than for China.
On matters of bureaucratic power, as well as enforcement power and institutional credibility, Treasury is on the defensive. The Financial Times reported on another measure that assured State’s current ascendancy over Treasury:
[A Capitol Hill staffer] added that the Treasury shift [to endorse release of all funds] came after the departure of Bob Joseph, the former state department hardliner on North Korea who "worked hand in glove" in opposing Mr Hill.
Stuart Levey’s operation has a lot riding on it.
With the State Department in the hands of the realists, the Treasury Department has become the stronghold of the hardliners, as can be seen from Levey’s recent uncompromising testimony before Congress on Iran.
The big fish in international financial counterterrorism is, of course, Iran.
With Iran sanctions sputtering, Stuart Levey might want to use the BDA matter to send a message to the UN and the State Department that Treasury, with its independent intelligence, investigatory, and enforcement powers authorized by numerous US resolutions and findings vis a vis Iran, is a force that still must be reckoned with in fixing US policy—and ignored at the peril of its foes, domestic as well as foreign.
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