Following the Money

And turning it off!

Apparently we've finally found "sanctions" with teeth -- that don't require the dysfunctional U.N. to approve.

Who knew this profound new weapon would come from the Treasury Department?

Authority for the new sanctions, as with so many other policy weapons, comes from the USA Patriot Act, which in Section 311 authorizes Treasury to designate foreign financial institutions that are of "primary money laundering concern." Once a foreign bank is so designated, it is effectively cut off from the U.S. financial system. It can't clear dollars; it can't have transactions with U.S. financial institutions; it can't have correspondent relationships with American banks.

The new measures work thanks to the hidden power of globalization: Because all the circuits of the global financial system are inter-wired, the U.S. quarantine effectively extends to all major banks around the world. As Levey observed in a recent speech, the impact of this little-noticed provision of the Patriot Act "has been more powerful than many thought possible."

Treasury applied the new tools to North Korea in September 2005, when it put a bank in Macao called Banco Delta Asia on the blacklist. There was no legal proceeding -- just a notice in the Federal Register summarizing the evidence: Banco Delta Asia had been providing illicit financial services to North Korean government agencies and front companies for more than 20 years, according to the Treasury notice. The little Macao bank had helped the North Koreans feed counterfeit $100 bills into circulation, had laundered money from drug deals and had financed cigarette smuggling. North Korea "pays a fee to Banco Delta Asia for financial access to the banking system with little oversight or control," Treasury alleged.

Wham! The international payments window shut almost instantly on Pyongyang's pet bank. Transactions with U.S. entities stopped, but the Treasury announcement also put other countries on notice to beware of Banco Delta Asia. The Macao banking authorities, realizing that they needed the oxygen of the international financial system to survive, took regulatory action on their own and froze the bank's roughly $24 million in North Korean assets. And around Asia, banks began looking for possible links to North Korean front companies -- and shutting them down.

A similar financial squeeze is being applied to Iran. Here again, the impact has come from the way private financial institutions have reacted to public pressure from Treasury.
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Treasury began squeezing Iran last September, when it accused Bank Saderat, one of the largest government-owned banks, of financing terrorism by funneling $50 million to Hezbollah and Hamas since 2001. The Treasury order cut the bank off from any access to the U.S financial system, direct or indirect. A similar ban was imposed in January on Bank Sepah, which Treasury alleged was a key intermediary for Iran's Aerospace Industries Organization, the agency that oversees the country's ballistic missile program.

Meanwhile, top Treasury officials began visiting with bankers and finance ministers around the world, warning them to be careful about their dealings with Iranian companies that might covertly be supporting terrorism or weapons proliferation. This whispering campaign was enough to convince most big foreign banks in Europe and Japan to back away from Iran.

I noted stirrings of this a year ago in Countdown:

Swiss banks get nervous:

ZURICH, Switzerland - Swiss banking giant UBS AG said Sunday it has stopped doing business with Iran because of the company's economic and risk analysis of the situation in the country.

UBS will no longer deal with individuals, companies or state institutions such as Iran's central bank, company spokesman Serge Steiner said. A similar policy is also being implemented in the case of Syria, he said.

Rumours swirl about Iran moving its foreign assets to avoid a freeze:

Iran is under increasing international pressure over its nuclear program and mindful of the freezing of its U.S. assets after the 1979 seizure of the American Embassy in Tehran. The nation has an estimated $50 billion in European banks and Iran's Central Bank governor said over the weekend that it will move its reserves quickly if it deems it necessary to do so.

Jan 24 [2006]: More big money senses danger:

It has also emerged that Credit Suisse, Switzerland's second largest bank, is looking into ending its business relationships in Iran.

"We are closely looking at the developments and we're increasingly worried," a spokesman told Reuters.

That's somewhat earlier than "last September" as mentioned in the article above!

Whispering Bankers: Deadly as a fleet of B-2 bombers!