Juan Zarate: The Continuation of Iran’s Financial Isolation is a Security Imperative

by Joseph Braude – The name Juan Zarate may not be well-known in the Arab world, but his eight years of service under the George W. Bush administration have had a profound impact on security throughout North Africa and the Middle East and beyond. Between 2001 and 2005, he served as Assistant Secretary of the Treasury for Terrorist Financing and Financial Crimes, then as Deputy National Security Advisor for Combating Terrorism until the Bush term ended in January 2009. He is widely credited with having innovated crucial tools for cutting off financing for terrorist organizations and “rogue states” — as well as laying the groundwork for the crippling sanctions that were more recently imposed on Iran by the United States and the international community. 

Following the assassination of Osama Bin Laden at his home in Abbottabad, American soldiers discovered documents attesting to Al-Qaeda’s increasing difficulty in finding ways to raise funds and move them around the world. A Canadian-based Lebanese bank which helped Hezbollah launder hundreds of millions of dollars in drug money and used car sales revenue is now essentially extinct. Such achievements are the result of methods pioneered by Zarate that enable the United States and its partners to pinpoint targets for financial warfare and undermine them — while minimizing economic damage to the countries and societies in which they operate.

Five years since the conclusion of Bush’s second term and a few short weeks since the signing of an American-led interim according between Iran and the P5+1, Zarate has new worries about the future of the financial warfare system he put in place. I met with Zarate at his office in Washington.

Asked for his views about the present agreement with Iran, he drew attention to his own prognostications of the present situation, as expressed in his new book, Treasury’s War: The Unleashing of a New Era of Financial Warfare (Public Affairs: 2013): “I forecast that the question of how to unwind the financial pressure on iran would become a prominent and complicated one. If you look at the lessons of what happened with North Korea in 2005-6, the US government engaged in a process of trying to unwind very effective financial pressure against North Korea, and did so in a way that prematurely gave up the financial pressure and didn’t use the leverage to full effect.” While showing deference to President Obama, he conveyed his belief that more creative measures to be used to “peel away some of the layers of the sanctions without giving out the core elements of financial isolation.” He also raised a concern as to whether the United States may eventually be put in the undesirable position of “cleansing or validating Iranian financial activity” as part of an effort to rehabilitate the Iranian financial system.

Some analysts fear that President Obama’s efforts may eventually, if unintentionally, lead to a nuclear-armed Iran — raising the question as to whether the country’s weapons capability could be “contained” as in Soviet times. I confronted Zarate with the arguments in favor of containment made by Kenneth Pollack in Asharq Alawsat. In response, without speaking to the broader military and covert action on which Pollack’s argument rests, Zarate addressed the financial dimension of containment.

“Though I’m an evangelist for the centrality of the use of financial power in national security,” Zarate said, “it’s not a silver bullet, and it can’t unto itself necessarily change the calculus of a regime like the regime in Tehran, nor or even its hegemonic ambitions. Money finds a way to flow, like water. I think if Iran has capabilities to develop a nuclear weapons system or program, then that changes the landscape of region, especially at a time of heightened sectarianism and instability, which brings heightened proliferation risks. It could be more than just containment of Iran that’s at issue. It’s also about containing the effects of a nuclear Iran — and that has broader implications than simply whether or not you can contain Iranians within their borders, which I don’t even think you can do, with whatever tools.”

Zarate left government service before the outbreak of the so-called “Arab spring” revolutions. Some of the leaders who were ousted were among America’s staunchest partners in the financial war against transnational terrorist groups. We asked Zarate how the nature of financial warfare has changed since the fall of Ben Ali in 2011 — both respect to the post-revolutionary Arab states as well as the region’s enduring autocracies.

“Where there have been changes of leadership,” he explained, “there’s been a vacuum of security, and lesser coordination and capability to actually not only stop the flow of people but also to stop the flow of funds. So one sees for example, growth of Al-Qaeda in the Islamic Maghreb — with not only its march for control of territory like Mali, but also its ability to raise tens of millions. The other factor which is important, and which goes to the issue of cooperation in places like the Gulf, is that conflicts like Syria have resurrected both a geopolitical and an individual desire to support causes to fight oppression, like the Asad regime. This is noble and in line with US interests, but it has also resurrected some of the old networks that had previously been suppressed, to support groups like Jabhat al-Nusra and Al-Qaeda in Iraq. This raises once again the dangerous prospect of terrorist financing coming not only from some of the Gulf states but also from the United States itself.”

As a stalwart of the Bush Administration, Zarate does not presently find himself in the inner circle of the Obama-led White House. He serves today as Senior Advisor at the Center for Strategic and International Studies in Washington, a senior national security analysts at CBS news, a Visiting Professor of Law at Harvard, and a consultant to the private sector. We asked Zarate nonetheless what he might advise Obama at this pivotal moment, given five minutes with the President in the Oval Office.

“I would offer one broad piece of advice,” he said. “We have to tend to the perception of American power much more carefully. The appearance, or the self-fulfilling prophecy, of a decline in American power and influence, at the end of the day could be just as damaging as any singular policy. The lack of confidence or trust in us on the part of our allies and partners has implications as well for how our enemies and competitors view us. In the financial space, that matters quite a bit, because it’s not simply that we can regular or prosecute our way to the isolation of America’s enemies; it’s also the perception of legitimacy and importance of what America says and does that drives the isolation of America’s enemies.

 Joseph Braude is an author, broadcaster, and Middle East specialist, and senior fellow at Al-Mesbar Center. He is active on Twitter and can be reached via his Web site, Facebook, and Linkedin.