Does Treasury Believe Spreading Our Flawed Banking System Is a Solution to Terrorism?

Sheldon Whitehouse had a hearing on terrorist finance the other day. There was an interesting exchange that I think bears notice.

The hearing focused, in part, on hawalas, not least because DOJ recently prosecuted Mohammad Younis, the guy whose hawala Faisal Shahzad used to fund his terrorist attempt. Richard Blumenthal suggested (around 75:50 and following) that that funding may have come from Pakistani authorities (implicitly, the ISI). The FBI’s acting head of counterterrorism wouldn’t answer a question about that in public session.

A more interesting response came from Treasury’s Assistant Secretary for Terrorist Financing, Daniel Glaser. Sheldon Whitehouse asked him (at 92:50 and following) whether we were making progress on solving the problem hawalas create for counterterrorism efforts. Here’s my transcription of Glaser’s response:

Daniel Glaser: The reason hawala and other forms of informal remittances and informal money services exist is because there’s large communities around the world that don’t have access to formal financial services or affordable financial services. So the long-term quote-unquote solution to hawala is a generational one and it is about building an international financial system that everybody around the world has access to. Now, since that’s a long-term solution, we need to address the problem in a shorter term way as well.


The way we try to approach it beyond the long term effort to make financial services available to everybody is regulatory prong, enforcement, international standards, and general economic development.

While Glaser described a four-pronged approach in his written testimony (and described in more detail in the parts of his response that I’ve snipped), he said the ultimate solution would come when international financial services were available to everyone.

So the way to solve terrorism, then, is to make sure everyone banks at Jamie Dimon’s bank?

That’s an exaggeration, of course. And unless and until bankers get squeamish about the way the US government is accessing SWIFT, integrating everyone into the formal finance system would give counterterrror investigators transparency into terror financing. But given the state of the banking system–given how much more damage the international financial system has done to the world in the last decade than terrorism (leaving aside the effect of couter-terrorism and false counter-terrorism, like the Iraq War) it troubles me that a high ranking Treasury Department official believes one solution to terrorism is modern banking.

Now Glaser strikes me as an incredibly intelligent and sincere guy–coming from him this “generational solution” sounded like a completely sincere idea. So while this comment made my spidey sense tingle, it didn’t in the way it would have if, say, TurboTax Timmeh Geithner had said it.

Nevertheless, here are some issues it raises.

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GAO Audits and Poppy Bush’s Covert World

Steven Aftergood has an important update on the continuing saga of whether or not GAO can conduct investigations of intelligence activities. He explores the source of current restrictions on GAO review: a 1988 OLC opnion written by Douglas Kmiec.

The current dispute between the Obama Administration and some members of Congress over whether to strengthen oversight of intelligence programs by the Government Accountability Office is rooted in a 1988 opinion from the Justice Department Office of Legal Counsel (OLC), which held that GAO access to intelligence information is actually barred by law.

In 1988, the GAO requested access to intelligence files concerning Panama as part of an investigation of U.S. policy towards Panamanian leader Manuel Noriega.  In response to an inquiry from the National Security Council, the Office of Legal Counsel issued an opinion (pdf) stating that the GAO was not entitled to the requested records on Panama and Noriega.  Not only that, but the opinion (written by Acting OLC head Douglas W. Kmiec) concluded categorically that “GAO is precluded by the Intelligence Oversight Act from access to intelligence information.”

Today, the FBI cites that 1988 opinion to justify its refusal to permit GAO to perform a review of the FBI counterterrorism program and other matters previously studied by GAO.

The 1988 OLC opinion “has had a broad negative impact on our access to information at the FBI and several other agencies that are part of the intelligence community,” wrote Acting Comptroller General Gene L. Dodaro in a recent letter (pdf).

Aftergood goes on to explore the troubling current use of this 1988 opinion protecting raw intelligence to protect more function-oriented reviews of Executive Branch counter-terrorism activities.

But I couldn’t get by the multiple levels of irony of the OLC opinion itself.

The OLC opinion was written in response to a June 23, 1988 letter asking to what extent GAO could investigate whether Executive Branch foreign policy making adequately accounted for the illegal activities of top foreign officials like Manuel Noriega.

This memorandum is in response to your request for the opinion of this Office on whether, or to what extent, the Administration has a legal basis for declining to cooperate with the pending General Accounting Office (“GAO”) investigation concerning U.S. foreign policy decisions with respect to Manuel Noriega. In its June 23, 1988 letter to the National Security Council, GAO described the nature and purpose of the investigation: In order to evaluate whether “information about illegal activities by high level officials of other nations may not be adequately considered in U.S. foreign policy decisions . . ., the General Accounting Office is undertaking an initial [*2] case study of how information about General Noriega was developed by various government agencies, and what role such information played in policy decisions regarding Panama.” As stated in the National Security Council’s response to GAO of July 13, 1988, representatives of GAO have made it clear that GAO’s “three areas of interest [are] intelligence files, law enforcement files, and the deliberative process of the Executive branch, including internal communications and deliberations leading to Executive branch actions taken pursuant to the President’s constitutional authority.”

The GAO investigation, then, would have been a part of Congress’ (and, to a significant extent, John Kerry’s) larger attempt to investigate BCCI and Noriega and CIA involvement in the drug trade. Just as importantly, the request and the August 16, 1988 response would have taken place in the shadow of a Presidential election that would result in Poppy Bush’s election. Read more

We’re All BCCI Now

I’ve been saying for a while that when everything finally unravels, it will probably be revealed that Citibank has been playing the same function as BCCI–the bank that served as the means for organized crime, terrorists, and the CIA to launder money in the 80s–once did.

Maybe I wasn’t so far off (h/t Gitcheegumee):

Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations‘ drugs and crime tsar has told the Observer.

Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were “the only liquid investment capital” available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.

This will raise questions about crime’s influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. “In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system’s main problem and hence liquid capital became an important factor,” he said.

Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, he said.

Will We Finally See the John Kerry Who Investigated BCCI Again?

Thwarted in his dreams to be Secretary of State–or some cabinet position, any cabinet position–John Kerry is settling in and making some changes at the Senate Foreign Relations Committee.

Kerry has hired Douglas Frantz, the former Los Angeles Times managing editor, to lead the committee’s investigative wing. The committee won’t specify what Frantz, who recently coauthored a book on Pakistani nuclear proliferator A.Q. Khan, plans to investigate. But sources note that he’s currently in Vienna, the seat of the International Atomic Energy Agency (IAEA). Sources tell The Cable that the pro-Israel lobby group the American Israel Public Affairs Committee (AIPAC) has encouraged Kerry and other members to probe Iran’s alleged sanctions busting, and how the country might bypass international sanctions to supply its nuclear program.

"For sure folks are strongly supportive of congressional and U.S. efforts to go after trans-shipment issues, often through the UAE, but in other places as well, that the Iranians have been using to bring in dual use items and other things not allowed under the sanctions," a source following the Iran issue said on condition of anonymity. With the recent U.S.-UAE nuclear power deal, "there is increased expectation on the Hill that the UAE will do a better job of cracking down on their country being used by Iran to push their nuclear programs forward and step up their effort to help ensure the economic sanctions aren’t being violated under their noses."

In addition to Frantz’ book on AQ Khan, Frantz wrote A Full Service Bank on an intimately related subject: the BCCI scandal (along with funding terrorism and CIA covert ops, BCCI served as the finance vehicle for AQ Khan’s nuke program). At the same time Frantz was working on that book, a guy named John Kerry was investigating BCCI in the Senate. I’ve always believed that the BCCI investigation–particularly Kerry’s decision not to press Democratic fixer Clark Clifford on his involvement with the bank–was the beginning of John Kerry’s evolution away from the courageous stance he took opposing the Vietnam War and towards the more accommodating, cautious stance that might allow one to someday run for President. For some support in that view, here’s Doug Frantz (with James Ring Adams) writing about his new boss’ decision, in 1988, to go easy on Clifford even though his bank, First American, was really not revealing its role in BCCI.

The Senator did not challenge Clifford. Read more

DOD Contract Goes to Known Money-Launderer

Jeebus. First we confirm that the British defense company BAE was funneling bribe money into Soviet covert ops. And now we learn (h/t scribe) that DOD has a jet fuel contract with Gaith Pharaon.

Pharaon is best known for his central role in the BCCI scandal. As a seemingly wealthy Saudi, he served as a perfect front for BCCI, which wanted to purchase an American bank to make it easier to get money in and out of the US. So Pharaon schmoozed all the right people in Georgia (including a number of high level Democrats with ties to Jimmy Carter) and got BCCI its approval for the bank.

Well, now we’re back in business with him, to the tune of $80 million.

The US military has awarded an $80 million contract to a prominent Saudi financier who has been indicted by the US Justice Department. The contract to supply jet fuel to American bases in Afghanistan was awarded to the Attock Refinery Ltd, a Pakistani-based refinery owned by Gaith Pharaon. Pharaon is wanted in connection with his alleged role at the failed Bank of Credit and Commerce International (BCCI), and the CenTrust savings and loan scandal, which cost US tax payers $1.7 billion.

The Saudi businessman was also named in a 2002 French parliamentary report as having links to informal money transfer networks called hawala, known to be used by traders and terrorists, including Al Qaeda.

Interestingly, Pharaon was also an investor in President George W. Bush’s first business venture, Arbusto Energy.


An official at Attock, who did not wish to be named, confirmed the refinery was supplying thousands of tons of jet fuel to the US base at Bagram Air Base every month.

Is it just me, or does anyone else doubt that the money for a contract in Afghanistan with a known money-launderer with ties to hawala is really going to jet fuel? I mean, c’mon, really. This guy’s in the business of laundering money for the rich and powerful, and apparently his clients now include the Pentagon.

Meet Our New Sovereign Wealth Fund Overlord

The NYT offers us a much-needed look at our new sovereign wealth fund overlord, the Abu Dhabi Investment Authority (ADIA), the guys who just bought a big chunk of Citibank.

Abu Dhabi has about 9 percent of the world’s oil and 0.02 percent of its population. The result is a surfeit of petrodollars, much of which is funneled into a secretive, government-controlled investment fund that is helping to shift the balance of power in the financial world.

After decades in the shadows, the fund, the Abu Dhabi Investment Authority, is turning heads on Wall Street and in Washington by making high-profile investments in the United States and elsewhere.


[ADIA’s $650 to $700 billion in] riches, coupled with the more aggressive stance being taken by ADIA and other sovereign funds, has raised concern that these investors will wield their wealth for political as well as financial reasons.

ADIA’s secrecy is also drawing scrutiny. The fund has no internal communications department, although it says it is in the process of setting one up. When sovereign fund leaders from around the world descended on Davos, Switzerland, last month for the World Economic Forum, no one from ADIA saw fit to show up.

Unfortunately, the article kind of reads like the NYT’s Vicki Iseman article on McCain–it reflects unease, but doesn’t state clearly the reason for the unease. Big money, secrecy, what’s wrong with that, if they want to bail our biggest banks out of the shitpile, right?

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