Treasury's War Read online

  Yet I feared that the perception would be quite different. With the most visible and powerful of the Treasury agencies moving to a new department focused on preventing terrorism, the common assumption within the executive branch and on Capitol Hill would very likely be that the Treasury was no longer relevant on terrorism and other national security issues. Those agencies with the core resources and ability were now going to be located at the Department of Homeland Security and the Department of Justice.

  The fact was that there was a deep and pervasive misunderstanding of what Treasury was actually doing to combat terrorist financing. Contributing to this misperception, Treasury officials had relied too much over the years on the prestige and weight of the Customs Service and the Secret Service to justify and define the Treasury Department’s place at the US government’s law-enforcement and national security table. With these agencies gone, there would appear to be little reason for Treasury to be involved or to have a seat at the table on such issues. The prevailing opinion would be that Treasury should restrict itself to taxes, financial regulation, fiscal policy, and issuing commemorative coins. I worried that our innovative campaign would be buried and lost in the massive reorganization.

  After we returned from Italy, Secretary O’Neill held a meeting with the Enforcement leadership in the secretary of the treasury’s ornate conference room. Gurulé, who had yet to speak to the secretary about this decision, was in attendance, along with the leadership of the Treasury enforcement agencies he oversaw. Sitting at the huge mahogany table were Judge Rob Bonner, customs commissioner; Brian Stafford, director of the Secret Service; Brad Buckles, ATF director; Ralph Basham, director of FLETC; Jim Sloan, head of FinCEN; Rick Newcomb, OFAC director; and Eric Hample, acting director of TEOAF. These were serious figures in the law-enforcement and regulatory community, and they had come to this meeting expecting to hear a plan of transition, an explanation of what was next, or at least a pep talk.

  Instead, what they heard was a discussion of issues they felt were mundane and irrelevant. Secretary O’Neill, who had done much in the private sector to improve workplace safety, and had made it a priority to protect workers throughout the Treasury Department, started every meeting with a review of workplace safety. He focused his time with his Enforcement leadership that day on safety improvements at the Treasury. To the Enforcement leaders, he seemed oblivious to the enormous elephant in the room—the very existence of Treasury Enforcement and its centuries of history. Instead, he spent the time talking about the number of workplace hours lost to injuries and accidents on the job and the desire to reduce the number of such instances.

  Gurulé and the others were incredulous. They looked at each other dumbfounded and deeply disappointed. Gurulé and the chief of staff, Tim Adams, locked eyes. Adams looked apologetic and in disbelief. After a short while, the secretary was pulled out of the meeting for a call from the White House. When he returned, O’Neill apologized, indicated that he had to leave for another meeting, and left the room for good. That was it. The Treasury Enforcement leadership sat together stunned at what had just transpired. Gurulé approached Adams to complain about the lack of sensitivity and leadership for the thousands of employees to be affected by this decision. Adams agreed and could only meekly apologize for his boss. Everyone walked away in shock.

  This was the start of the oddest, most confusing, and difficult period of my professional life. The Office of Enforcement would melt away. Most of its leadership left government while the employees were being transferred to the new department. There was no certainty as to what would happen next, who would be transferred to DHS or Justice, and whether any functions would be left at Treasury to drive the policies and strategies tied to our promising counter-terrorist-financing and financial-crimes activities. We feared the worst—that bureaucratic reshuffling would inadvertently lead the United States to lose its most potent financial weapons.

  Soon after the announcement, Tim Adams talked to me about staying on board. He asked me if I would remain to run and oversee Treasury’s remaining offices and functions related to the counter-terrorist-financing and anti-money-laundering programs, asset forfeiture, the Bank Secrecy Act, and sanctions enforcement. Adams, and his deputy Jeff Kupfer, made clear to me that they needed and wanted me to stay on to run what was left of Treasury. David Aufhauser made a case to me for staying as well—saying he would not stay unless I did, too. I appreciated the flattery, but I remained confused. It was not clear to me what or who would be left to run. Frankly, they weren’t sure either.

  In meetings with Treasury management staff, we would assemble and listen to assurances that there was nothing to worry about, but we received few specific answers to our questions. In one such meeting, the remaining Enforcement staff members present felt so uncomfortable that they stood along the walls of the conference room, unwilling to sit at the table. The assistant secretary for management at the time who was leading the meeting ended the painful gathering by sliding small American flag pins wrapped in plastic across the conference table to those standing in the room. It felt to me like we were watching a carnival ringmaster callously rolling dice with the future of the people in the room. I could not bear to look my colleagues in the eye. It was awful.

  Perhaps the worst indignities the staff suffered involved sitting through farewell ceremonies. These were mixtures of back-slapping award ceremonies for departing officials and veritable institutional wakes for the departments and agencies departing the Treasury Department. While officials left and new offices made their way into the Department of Homeland Security, the career staff, which was still working every day, had to listen to speech after speech. They felt adrift and alone, not knowing what was to come.

  What made this period even worse was that Treasury continued to do the same indispensable counterterrorism work it had been doing since 9/11. The demands remained high. Via designations of terrorist financiers, meetings in major capitals around the world, and private-sector outreach, we were achieving a great deal. Yet this work seemed oddly and frustratingly divorced from any decisions being made and discussions had about the transfer of Treasury’s assets to the new Department of Homeland Security.

  By the end of the summer of 2002, the shock of the initial announcement and the crumbling of Treasury Enforcement around us gave way to my determination to stay and lead what would be left. I was angry that there had been so little thought as to how this transition would occur and how it might impact Treasury’s current and future mission. But I was determined to keep a team alive that could manage and drive the core issues that mattered most to Treasury.

  More importantly, I saw an opportunity. In conversation after conversation with my closest colleagues, I grew convinced that this was a moment of potential rebirth. Treasury had been stripped at last to its core strengths. With the transfer of almost all of Treasury’s law-enforcement resources and the end of Treasury Enforcement, we would no longer be considered a lesser law-enforcement agency. We could instead focus on what made Treasury powerful, valuable, and unique.

  Treasury was the only department in the US government that was responsible for the management and integrity of the domestic and international financial system. Because of this, Treasury has special powers within the US legal system—to regulate, sanction, and determine access to the financial system. It can require banks and nonbank financial institutions to do specific things—from freezing assets, closing accounts, and blocking wire transfers to enforcing regulations requiring reporting of information about certain types of clients, transactions, and correspondent bank accounts.

  Treasury maintains and has access to unique financial data about flows of funds within the international financial and commercial system—from tax information to currency transaction reports. The USA PATRIOT Act expanded all of this, making due diligence and know-your-customer rules ubiquitous and increasing the amount of financial intelligence being produced by the private sector.

  Treasury also operates in a u
nique community of key financial actors in the world. The Treasury is the primary interlocutor with finance ministries, central banks, financial regulators, the IMF, the World Bank, regional development banks, and the CEOs and compliance offices of the major banks in the United States and around the world. Those channels are not about classic government conversations or interactions between diplomats. This is the arena of the technocrats and managers of the international financial system, who see themselves as part of an exclusive club with control over the levers of money flows around the world.

  Beyond legal and regulatory authorities, financial information, and unique channels, the United States Treasury has the power of suasion—the ability to convince and coerce behavior simply based on what it says and does. Banks, foreign finance ministries, and central banks well beyond our borders care about what the US Treasury declares. Financial advisories, communiqués, or the talking points of a Treasury official are scrutinized and credited in the decision making of financial actors around the world. Treasury’s word can move markets.

  Treasury sits uniquely at the epicenter of the flows of money around the world in the world’s most powerful economy. With this comes real power and influence. Overshadowed by its law-enforcement mission, Treasury’s real strength to protect the integrity of the financial system had long remained untapped and unrecognized. And our work pursuing terror financing was only scratching the surface of what the department was capable of doing.

  Treasury had unique authorities, information, relationships, and influence. No other department or agency could claim these, and no other department or agency could isolate the flows of illicit financing around the world. As we rebuilt Treasury, this was our refrain—and we repeated it like a mantra in memos, briefings, hearings, and speeches. Though we had lost about 95 percent of our personnel and budget, we could start anew to prove Treasury’s relevance to national security in a more fundamental and lasting way. This then became my mission—to redefine Treasury’s role, demonstrate its unique powers, and prove its growing and essential relevance to national security.

  In November 2002, on the plane returning from the G20 meetings in New Delhi with Secretary O’Neill and Tim Adams, I sketched out a vision for the office on a legal pad. With my notes in hand, I sat down with Secretary O’Neill while in flight and laid out for him what I had in mind—our priorities and what we would need to do to maintain momentum on our core responsibilities. For an hour we sat face to face eating tortilla chips as we flew over the Atlantic. He understood my vision, asked the right questions about what we would have to jettison, and was completely on board and supportive with the plans. It was the best I had felt in months, and I felt reassured that we could make this work. Later in the flight, Adams and I spoke about the office. Adams looked me in the eye and asked if I was ready to take on the role, knowing I would be given a skeleton crew at best. I said yes. I was excited and now on a mission.

  And then the rug was pulled out from under my feet again. A few days after we landed, the president fired Paul O’Neill. I was in shock—not that he was fired, but that we had lost a secretary who had started to become an advocate. O’Neill had finally gotten it—and understood why Treasury—in its stripped-down form—was important to national security. And now he was gone. Institutionally, Treasury was reeling.

  But I couldn’t look back. My first mission was to save what I could of our resources. The Office of Management and Budget (OMB) and the White House were demanding significant cuts, and I knew holding onto any personnel would be a struggle.

  There could not be a sense that we had missed a beat or that our focus was distracted. Substantively, we had to stay ahead of our country’s enemies as they raised and moved money around the world and evaded financial controls and sanctions. We would need to continue and build on what we had been doing since 9/11. We had to continue our work in capitals around the world and flex our muscles within the government. The number of people I could keep—and which people I could keep—would become the most critical questions for the survival of the office and our efforts. Treasury was blessed with some of the world’s top experts on money laundering and illicit finance, and we needed to keep as many of them as possible.

  I focused on keeping a core team at Treasury that would allow me to oversee the work of the remaining agencies while driving the initiatives that would allow us to demonstrate our value. This proved to be a painful process. I had negotiated to keep six employees, so we had to winnow the remaining staff to keep the essential members. We assembled a team that was willing and able to do everything from take out the trash to meet with prime ministers. More importantly, I needed true believers in our mission.

  First and foremost, I had to keep Danny Glaser, the anti-money-laundering expert and lawyer who was the head of the US delegation to the Financial Action Task Force. Without Danny, the office could not function, and despite his initial doubts, he shared my vision of what the office could be. I also needed Chip Poncy, my best friend from college, who had just left his previous job at my urging and had already demonstrated that he had an intellect deep enough to disentangle arcane issues, the charisma to get along with anyone, and the seeming energy of five men. Chip, who would become the head of the US delegation to the FATF, quickly became my confidant and is now recognized as one of the world’s great anti-money-laundering experts. I also needed to keep Jeff Ross, the seasoned southern anti-money-laundering prosecutor who had deep experience with the financial criminal world and whose interagency and law-enforcement credentials would buttress Treasury’s seat at any table.

  With three slots left, we had some very hard decisions to make. The deputy chief of staff, Jeff Kupfer, who would later become the deputy secretary of energy, and I began interviews for those who wanted to stay. We interviewed and kept Nan Donnells, who was a Caribbean money-laundering expert and the lynchpin to our international engagement with the FATF and all its regional bodies. We also kept Anne Wallwork, a Wellesley graduate and Yale-trained lawyer who could be frenetic and scattered but was capable of diving hard and deep on myriad issues.

  In the final interview, Paul DerGarabedian, a long-standing Treasury expert and well-known figure in the Asian anti-money-laundering world, walked in, having just returned from leading an evaluation of the anti-money-laundering system in the Philippines. DerGarabedian, who often rode a motorcycle onto Treasury’s Hamilton Place, was known for being a blunt, tough character. On this occasion, he was in rare form—confident and on cue. DerGarabedian sat down for the interview wearing jeans and a wrinkled shirt, having just landed from a twenty-one-hour journey from Asia. He sat back and plopped the front page of a newspaper from the Philippines onto the coffee table. It had been published that day. On the front page, top fold, DerGarabedian was pictured amid a crowd of media representatives in Manila—as if he were a celebrity. The article reported on his verdict on the country’s anti-money-laundering system. He proceeded to explain to us why he should be kept on board, especially given the growing importance of Asia to the financial system. It was illustrative of the situation we were in. Our work was front-page news around the world, but we were struggling to prove our relevance to our own government. DerGarabedian would stay.

  We lost some very important experts in this process, to the benefit of DHS. Most were people I considered friends. Unfortunately, I had no choice. Later we would add three important members to the team: Linda Johnson, Traci Sanders, and Charlie Ott. Johnson was a Treasury institution who knew everyone in the building and how to get what we needed. She wore her pepper gray hair closely cropped to her head, and she could convert someone instantly with a smile or chill them with a steely glare. There was no one better at filtering bluster from what was important. Johnson would serve as the administrative assistant for the office while I was at Treasury, and was an indispensable guardian angel both while I was at Treasury and later when I was at the White House. Sanders, a redheaded, no-nonsense lawyer, would prove to have a pragmatic, steady hand. She kne
w how budget games were played and would help to manage the office through the challenging times to come. Ott was a grizzled veteran who had a pulse on European anti-money-laundering circles. He would allow us to retain a presence and face in the Central European and Central Asian anti-money-laundering groups.

  We had to fight an internal battle to explain our relevance. This was not just about bodies (known in budget parlance as “FTEs,” or full-time equivalents), but also about office space. I would have to fight to ensure that our office remained in the main Treasury building and would not be confined to its basement forever. In meeting after meeting, we campaigned for the office to rise after renovations to its traditional fourth-floor perch just above the secretary’s office.

  The budget and management professionals, both in the White House and at the Treasury, had no clue what we did substantively. They would not be the only ones. As we would make good on our mission in the years to come, many members of the government misunderstood our work and the import of the tools we were using. For now, we had to do whatever we could to overcome the increasingly common assumption that Treasury’s role in national security and law-enforcement issues should fade away with the transfer of the guns and badges of the old Treasury Enforcement team to DHS.

  At times, it felt as if sharks smelled blood in the water and were trying to pick at the remnants of Treasury Enforcement. Rumors were swirling that OFAC would soon find its way to the State Department, while the Justice Department was making a case for the transfer of FinCEN and TEOAF. Gurulé had advised me to leave, as he returned to teach at Notre Dame Law School, since Treasury was facing an uncertain and likely disastrous period. I knew we had to do a better job of defending our office outside of Treasury. In many ways, we had to become like a blowfish. We needed to demonstrate our continued relevance on the issues that mattered to us and the rest of the government. We needed to look bigger than we were to defend our remaining staff and the important work we had to do against the bureaucratic sharks circling us daily.