Through The Static

May 11, 2008

U.S. Declaration of (Financial) War Against Iran

Filed under: Economics,Government,Politics,World News — disciplepete @ 10:15 am

This article from a couple of months back is about the commencement of a war against Iran, waged by the United States, not with bombs but through financial sanctions. Shout out to my boy Rick for the article. It’s a pretty long article, but I’ll try to make this as concise as I can.

As of Thursday, March 20 the US is at war with Iran.

So who made it official?

A unit within the US Treasury Department, the Financial Crimes Enforcement Network (FinCEN), which issued a March 20 advisory to the world’s financial institutions under the title: “Guidance to Financial Institutions on the Continuing Money Laundering Threat Involving Illicit Iranian Activity.”

So what’s this advisory all about?

In its March 20 advisory FinCEN reminds the global banking community that United Nations Security Council Resolution (UNSC) 1803 ( passed on March 3, 2008 ) “calls on member states to exercise vigilance over the activities of financial institutions in their territories with all banks domiciled in Iran, and their branches and subsidiaries abroad.”

In simple terms, FinCEN has set the stage for the isolation of Iran from the international banking system, citing money laundering and terrorism concerns.

…the US, speaking through FinCEN, is now telling all banks around the world “to take into account the risk arising from the deficiencies in Iran’s AML/CFT [anti-money laundering and combating the financing of terrorism] regime…In other words, FinCEN charges, all of Iran’s banks – including the central bank (also on FinCEN’s list) – represent a risk to the international financial system, no exceptions.

Iran actually passed some legislation to combat money laundering in February, but as the article notes, FinCEN is not waiting to evaluate the effectiveness of the law. So…

So what does all this bureaucratic financial rigmarole mean?

What it really means is that the US, again through FinCEN, has declared two acts of war: one against Iran’s banks and one against any financial institution anywhere in the world that tries to do business with an Iranian bank.

All this drama is facilitated by a section of the Patriot Act, section 311:

Under Section 311 of the USA Patriot Act the US Treasury Department, acting through FinCEN, has been provided with “a range of options that can be adapted to target specific money laundering and terrorist financing concerns.” Specifically, Section 311 contains six “special measures” to significantly increase the powers of the Treasury (and other US government agencies) to block alleged terrorist financing activities. As explained by a Treasury official during April 2006 testimony before Congress, the most punitive measure requires:

“U.S. financial institutions to terminate correspondent relationships with the designated entity. Such a defensive measure effectively cuts that entity off from the U.S. financial system. It has a profound effect, not only in insulating the U.S. financial system from abuse, but also in notifying financial institutions and jurisdictions globally of an illicit finance risk.”

So now the U.S. has put itself in a position to isolate Iran financially. What could the effects be?

If the US succeeds, an international quarantine on Iran’s banks would disrupt Iran’s financial linkages with the world by blocking its ability to process cross-border payments for goods and services exported and imported. Without those linkages Iran is unlikely to be able to engage in global trade and commerce. As 30% of Iran’s GDP in 2005 was imports of goods and services and 20% was non-oil exports (World Bank and other data), a large chunk of Iran’s economy would shrivel up. The repercussions will be painful and extend well beyond lost business and profits. For example, treating curable illnesses will become difficult. According to an Iranian health ministry official, Iran produces 95% of its own medicines but most pharmaceutical-related raw materials are imported.

But a Section 311 designation of Iran’s central bank would have a powerful coercive effect on the world’s banks. For any bank in Europe, Asia or anywhere else that goes near the central bank once the 311 blacklist is on, it would be the kiss of death for that bank’s participation in the international banking community, as it was (and remains today) for BDA. Not only would that bank be barred from the US financial market, it would also be shunned by European and Japanese financial markets, as government and private banking officials in those markets are likely to cooperate with Washington’s intensifying sanctions campaign.

Whew, that was long huh? Hope it made some sense. I’ll keep an eye out for any new developments on this. I’ve still got more Iran stuff to get out of my system. It’s OMGZCRAZY.

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2 Comments »

  1. Hold up now. So we’ve declared a fiscal war on Iran? What? A secret war???

    Comment by bobbleheadedbob — May 11, 2008 @ 11:33 am | Reply

  2. Mmmm not exactly a secret war…it’s not an official war declaration. What the article is saying is that what the U.S. has done by threatening to cut off Iran’s access to the global banking system is tantamount to an act of war. If you’re brave enough to wade thru the whole article it might become more apparent, maybe I didn’t do a good enuff job quoting all the relevant points. I will try to post more on this and other related stuff in the future, specifically the issue of Iran’s challenging U.S. dollar hegemony…basically Iran has acted to the threaten the sovereignty of the dollar, and some argue that this might be one of the many possible reasons the U.S. is considering war with Iran…but ya I’ll post something about that issue later…

    Comment by disciplepete — May 11, 2008 @ 12:12 pm | Reply


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