Online, Student Articles — February 22, 2013 at 7:00 pm

The New Tools of Counterterrorism: Combating Illicit Finance and Imposing Sanctions

By Menno Goedman*

On February 25, 2011 President Barack Obama issued Executive Order (E.O.) 13566, thereby authorizing sanctions against the Libyan government and Colonel Muammar Qadhafi.  Subsequent reports suggest that within hours of E.O. 13566, the Treasury Department – working through U.S. financial institutions – froze more than $30 billion in assets controlled by Colonel Qadhafi and his associates.  Concurrently, Western sanctions against Iran — especially those targeting oil exports — are credited with helping to undermine the value of the rial, slowing growth and destabilizing the Iranian economy.  Finally, the Treasury Department’s targeted efforts to disrupt al-Qaeda’s funding flows have contributed to a depletion of the organization’s cash reserves and have, by some accounts, weakened its operational capacity.

These recent examples illustrate that policies designed to cut off terrorist financing and isolate problematic regimes have become potent tools in the United States’ counterterrorism strategy.  Despite this increased prominence, however, the public remains relatively unaware of the process by which these policies are developed and implemented.  In the United States, a small cadre of individuals housed in the Treasury Department’s Office of Terrorism and Financial Intelligence (TFI) coordinate these efforts.  Created in 2004, TFI consists of four sub-groups: the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), the Office of Terrorist Financing and Financial Crimes (TFFC), and the Office of Intelligence and Analysis (OIA).  With OIA’s creation in 2004, Treasury became the only finance ministry in the world with its own in-house intelligence unit.  Separately, TFI members chair the U.S. delegation to the Financial Action Task Force, an intergovernmental body that develops and promotes policies to combat illicit finance.

In developing and coordinating the United States’ policies to combat terrorist financing, Treasury and TFI rely on a variety of statutes and executive orders.  A critical example of the former is the Comprehensive Iran Sanctions Accountability and Divestment Act (CISADA), signed into law by President Obama in 2010.  In key provisions set forth in §§103–105 and subsequently implemented through OFAC regulations, CISADA authorizes the Treasury Secretary to require U.S. banks to terminate certain banking relationships with foreign banks that knowingly engage in significant transactions with designated Iranian banks.  As explained by TFI Under Secretary David Cohen, these provisions are powerful precisely because they leverage the significant role U.S.-based financial firms play in facilitating global financial markets in order to isolate Iranian banks involved in illicit activities.  As Under Secretary Cohen succinctly stated, “CISADA offered foreign banks a choice: they could do business with banks in the U.S., or they could do business with designated Iranian banks.  But they could not do both.”

Recent statements by Iranian leaders suggest CISADA and related policies are having their intended effect: producing a weakened Iranian economy, and thereby destabilizing the current regime.  For example, faced with growing unrest and popular protest, President Mahmoud Ahmadinejad last September accused the United States of waging, “an all-out, hidden, heavy war” – explaining that, “[t]here are barriers in transferring money, there are barriers in selling oil.”  Separately, a close advisor to Iran’s Supreme Leader Ayatollah Ali Khamenei recently spoke of a “conspiracy that the enemy has brought to the currency and gold market.”

In the midst of these successes, however, some, including United Nations Chief Ban Ki-moon, have raised questions about whether sanctions risk inflicting excessive harm on the seventy-eight million people of Iran, by, for example, disrupting access to food and medicine, without spurring the Iranian government to halt its nuclear program or otherwise engage in good-faith negotiations.  A different set of skeptics, including Israel’s Prime Minister Binyamin Netanyahu, argue that sanctions will never succeed in deterring Iran’s nuclear ambitions, irrespective of the economic dislocation the sanctions create.  Yet at least this latter criticism appears to miss the mark by failing to view sanctions as one component of a broader counterterrorism strategy.  As Treasury Assistant Secretary Daniel Glaser notes, “Sanctions are not a replacement for policy.  Sanctions serve a policy.”

* J.D. Candidate, Harvard Law School, 2014.  From 2009 – 2011, Menno Goedman was an advisor for legislative affairs at the U.S. Treasury Department.

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