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  Those labeled as Specially Designated Nationals by the US government and subject to OFAC’s jurisdiction and US sanctions laws would find it difficult to do business in the United States, because American citizens, businesses, and other entities were prohibited from interacting commercially or financially with them.

  Though the government’s authority was domestic in these cases and technically relevant only to those institutions and individuals subject to US jurisdiction, the nature of the list and the desire of citizens and businesses to maintain their access to the US financial system made this power a multilateral tool by effect. Banks around the world, especially those wanting to maintain a presence in the United States, had to monitor, if not honor, the lists. For years, banks in Latin America had implemented the OFAC list tied to the drug-trafficking cartels, often referred to in Spanish as “la lista Clinton” because of its use during the Clinton administration. The OFAC power was an inherently international power because of the importance of the American banking system and capital markets.

  This power extended beyond US shores thanks to the United States’ status as the principal capital and banking market worldwide. If you want to be a serious international institution with the ability to work globally, you have to access New York and the American banking system.

  The reach of this kind of US financial power derives as well from the predominance of the US dollar as the principal reserve and trading currency around the world. Companies and traders use the dollar as a benchmark for international trade. Countries, companies, and individuals keep dollars or accounts in dollars as security against the uncertainties of other currencies. Dollar-denominated transactions of any sort—from oil deals to settlement of commercial contracts—have to pass through dollar-clearing accounts. For most dollar-clearing transactions—including oil deals—the transactions pass through a bank account in New York. Defying OFAC is therefore not an option for most banks or businesses. Compliance offices and law practices have been built around compliance with OFAC regulations.

  OFAC would take full advantage of these kinds of targeted, public sanctions to go after Al Qaeda’s finances. Newcomb knew how to freeze assets in the international financial system and stop any transactions suspected of being tied to Al Qaeda. All he needed was a new executive order expanding the Treasury’s powers to go after the Al Qaeda financial and support network. At the same time, the Treasury general counsel, David Aufhauser, and his deputy, George Wolfe, saw such an executive order as a way of offering the White House powerful new armaments in the unconventional war on terror.

  Aufhauser was a quintessential Washington lawyer. A partner at the famed, cutthroat law firm of Williams & Connolly, he had helped the Bush campaign manage its Florida electoral legal strategy. Aufhauser was sharp and relished the ability to make convincing arguments with the flair of a master litigator. Wolfe, his deputy, was a South Carolina lawyer. His southern drawl was disarming and endearing, but his words belied a cutting and deep intellect. Wolfe would become a key figure for the Treasury’s legal work at home and in war zones. One of their chief lawyers, Bill Fox, a master problem solver and a big, jovial man who had been an attorney for the Bureau of Alcohol, Tobacco, and Firearms, would serve as Aufhauser’s chief adviser and would begin to take a central role in the post-9/11 work of the Treasury Department.

  The lawyers saw the executive order as a means of driving the financial war in a new direction. It could punish the bankers of terror and dissuade others from crossing the line to support Al Qaeda or other terrorist groups.

  The drafting began, with Aufhauser’s lawyers and the OFAC experts joining forces to lay out the contours of the executive order. In its scope and impact this order would be different from earlier ones. This was an emergency executive power to be wielded not just against Al Qaeda and its direct supporters but against terrorism support writ large. Prior attempts to use this power against terrorists had been limited to very specific terrorist targets and were not used to go after the financial infrastructure of the networks. This broader model had been used by OFAC against drug-trafficking organizations, but not against Al Qaeda.

  The executive order itself laid out a new principle to attack terrorist financing: that financial supporters of terrorism, the companies or businesses owned or controlled by them, and those “associated” with them were potentially subject to designation. The bankers and passive investors in terror who may have played the game of willful blindness in the past were now on notice. The US government was making clear that straddling the fence, with one foot in the legitimate financial and commercial world and the other in the arena of support for violent extremism, was no longer acceptable. This approach opened up the spigot for potential targeting and sent a clear message to the private sector that banks tarred with the label of “terrorist support” risked having their assets frozen and reputations soiled. This would prove a powerful tool in the post-9/11 period.

  Importantly, under the criteria of the executive order, the government did not have to demonstrate that designated individuals and entities actually intended to support terrorism or even knew that their money or activities were being used to support terrorism. This was not a criminal indictment or a civil forfeiture action. Instead, it was an emergency administrative power intended to arrest the assets of suspected support networks preventively. In this regard, this line of executive orders did not require prior notice or due process before someone was designated—nor did it provide for the usual rules attached to criminal processes, such as the right to confront witnesses. To do so would defeat the purpose of preventively freezing assets. If someone were notified that the government was considering freezing his or her assets, the funds would be transferred out of banks subject to US jurisdiction within minutes.

  This was a powerful administrative weapon that had to be wielded carefully, because the impact on individuals and businesses designated under this power—especially the label of “terrorist supporter”—could be devastating. There needed to be evidence and an administrative record attached to listing someone under these powers—the secretary of the treasury had to have a reasonable basis upon which to believe that the designee fit the criteria of the executive order. Whole tribes of lawyers from the Treasury, State, and Justice departments would review any designation proposal for sufficiency of evidence.

  On September 24, 2001, less than two weeks after the attacks in New York and Washington, President Bush announced the executive order—soon to be known by its number, “EO 13224.” He said, “At 12:01 this morning a major thrust of our war on terrorism began with the stroke of a pen. Today, we have launched a strike on the financial foundation of the global terror network. . . . We will starve the terrorists of funding, turn them against each other, root them out of their safe hiding places and bring them to justice.”12 The president continued, “We’re putting banks and financial institutions around the world on notice—we will work with their governments, ask them to freeze or block terrorists’ ability to access funds in foreign accounts. . . . If you do business with terrorists, if you support or sponsor them, you will not do business with the United States of America.”13

  President Bush had signed the order freezing financial assets and prohibiting transactions with twenty-seven entities suspected of ties to terrorism. This act also ushered in a new operational role for the Treasury Department in fighting terrorism. In the same speech, Bush announced, “We have established a foreign terrorist asset tracking center at the Department of the Treasury to identify and investigate the financial infrastructure of the international terrorist networks. . . . We will lead by example. We will work with the world against terrorism. Money is the life-blood of terrorist operations. Today, we’re asking the world to stop payment.”

  There had been scrambling right after 9/11 to determine what steps could be taken to attack terrorist financing, but now a strategy had emerged. The tools, legal structures, and ideas that had animated past efforts to undermine drug cartels and organi
zed crime would be used in new, more aggressive ways. We would wage an all-out offensive to meld financial power with national security. This was a new form of financial warfare.

  Ferreting out terrorist support networks that are veiled as or commingled with apparently legitimate activities is a complicated thing to do, and it is not a panacea to the problem of terrorism. But stemming terrorist financing by all available means plays an important role in stemming terrorism itself for three fundamental reasons: it makes it harder, costlier, and riskier for terrorists to raise and move money; it forces terrorist leaders to make tough budget decisions; and it constricts the global reach of their organizations. Their most threatening ambitions, such as funding a program involving weapons of mass destruction (WMD), must be put on hold if there is no money to pursue them. When a counter-terror-finance effort is successful, it ostracizes known financiers from the formal financial and commercial worlds and deters fundraisers, donors, and sympathizers from giving support and money to terrorist groups. Finally, tracking terrorist financing can uncover the financial footprints and relationships of the terrorist network—trails that can lead to sleeper cells, support elements, and terrorist leaders.14 If done well, a campaign to disrupt terrorist financing not only stops attacks, but can change the strategic reach and trajectory of the enemy’s network.

  The targeted sanctions and designations would be used to “name and shame” and freeze the assets and transactions of terrorists and their supporters. Those supporting terrorism would be isolated from the formal financial system. Intelligence and law enforcement would track money trails and identify and break up support networks. Regulators would put pressure on financial institutions to apply anti-money-laundering and financial regulatory mechanisms to ensure that their institutions were not being used by terrorists to hide or move money. There would be an effort internationally to leverage all the tools of the international financial system—including among the central banks and finance ministries—to amplify attempts to purge the financial system of tainted terrorist capital. There would also be alliance and capacity building with our partners around the world. And all of this would be expanded with new laws, regulations, and tools.

  On Capitol Hill, Congress formulated the USA PATRIOT Act, with Title III of that law focused on addressing money laundering and terrorist financing concerns. The act provided the legislative mandate that Treasury needed to extend anti-money-laundering requirements to a range of commercial and financial actors; to expand financial information sharing between the government and the private sector, as well as between financial institutions; and to develop more powerful tools to enforce the expanded policies and regulations.

  When President Bush signed the USA PATRIOT Act into law, it ushered in the most sweeping expansion of the US anti-money-laundering regime since the inception of the 1970 Bank Secrecy Act. Core anti-money-laundering requirements now encompassed not just banks but also nonbank financial and commercial industries, including money-service businesses such as Western Union, insurance companies, and brokers and dealers in precious metals and stones. Title III provided law-enforcement agencies and financial regulators with significant new tools to detect, investigate, and prosecute money laundering. With the adoption of the act, Treasury issued scores of implementing regulations to enhance the transparency and accountability of the US financial system, largely through improved customer identification, reporting, recordkeeping, and information-sharing requirements for an expanded range of US government and financial institutions.

  Internationally, we leveraged relevant multilateral forums to address the issue of terrorist financing and to reiterate or define international obligations. Just days after 9/11 at the Treasury, Jimmy Gurulé took the international components of the National Money Laundering Strategy and directed his team to leverage key international organizations to focus the world’s attention on terrorist financing. He asked Danny Glaser, a young staffer who had just been given the job of leading the US delegation to the Financial Action Task Force (FATF), to steer this international anti-money-laundering body to focus on combating terrorist financing. The FATF had been established by the G7 at a Paris summit in 1989 because of growing concerns over the threat of money laundering to the international banking and financial system. By 2012 it would have thirty-six members.

  In October 2001, the FATF assembled for a Special Plenary at the Omni Shoreham Hotel in Washington, DC. Hong Kong held the chair from 2001 to 2002, and the special session was chaired by Clarie Lo, then Hong Kong’s commissioner for narcotics. On hand were leading anti-money-laundering and law-enforcement experts from around the world. Secretary of the Treasury O’Neill spoke, along with Attorney General John Ashcroft and Interpol Secretary General Ron Noble, who had been Treasury’s assistant secretary for enforcement in the mid-1990s. The main ballroom was packed with the attendees, who understood the historic importance of the gathering. At the end of the plenary, the FATF agreed on “Eight Special Recommendations” for countering terrorist financing (a ninth was added in 2005). The recommendations would require countries to put new laws and regulations into place to monitor the movement of terrorist funds. They focused on elements of the international financial system that were specific to terrorist financing and had previously been ignored or underaddressed in the anti-money-laundering system. Small amounts of suspicious transactions now had to be reported by banks to financial intelligence units, wire transfers had to contain more data, jurisdictions had to be able to freeze assets preventively and criminalize terrorist financing, and informal money-service businesses (often seen in the form of traditional hawaladar brokers) had to be regulated like other financial industries.

  The effect of this decision was a greater focus on financial transparency, accounting, and regulatory oversight around the world. New laws, regulations, and processes would follow, with new sectors, such as money-exchange houses everywhere from Dubai to Detroit, now falling under anti-money-laundering scrutiny. These standards were later adopted by the World Bank, the International Monetary Fund (IMF), and the United Nations, creating a web of obligations around the world.

  Within the Treasury Department, the Office of International Affairs, led by famed Stanford economist John Taylor, began an effort to leverage G7, IMF, and World Bank processes to focus attention on the need to combat terrorist financing. Taylor was well suited to usher the world of central banks and finance ministries into a world of security to which they were not accustomed. He was well respected among international economists and was famous for the “Taylor rule,” a guiding principle for monetary policies stipulating that a central bank should raise its interest rate more than one percentage point for every percentage point of increase in inflation or output. Not only did most international finance officials know the Taylor rule, but many had been taught by Taylor or had read his work. In capital after capital, officials would reminisce about their first encounter with John Taylor.

  Taylor assigned a seasoned veteran of the Treasury Department, Bill Murden, a mustached and masterful civil servant, to establish a war room to track what different countries were doing to cooperate in the war on terror—from commitments to G7 action plans to the tabulation of frozen assets. Murden knew how to get things done—both within the US government and in the international financial institutions that the United States had long dominated.

  At the State Department, Assistant Secretary for Economic Affairs Tony Wayne took over the process of coordinating the State Department work with the Treasury. Wayne was an effective State Department operator who would later serve as US ambassador to Argentina and Mexico and as special ambassador in Afghanistan. His job was to ensure that Treasury’s drive to designate matched—or at least did not conflict with—America’s other diplomatic goals.

  US ambassador to the United Nations John Negroponte led an effort to expand the use of United Nations Security Council Resolution (UNSCR) 1267, which had been adopted in 1999 and established sanctions against Al Qaeda, the Taliban, and Os
ama bin Laden. UNSCR 1267 was an important international tool because it allowed the United States to internationalize the listing process—requiring the freezing of assets—of those designated as Al Qaeda or Taliban supporters. Negroponte, a tall, imposing man, was a well-respected career diplomat who would later become deputy secretary of state, ambassador to Iraq, and the first director of national intelligence. On September 28, 2001, the UN Security Council adopted Resolution 1373, which made it mandatory for all states to prevent and suppress the financing of terrorism and the provision of safe haven to terrorists, to criminalize the direct or indirect provision of funds for terrorist acts, and to freeze, “without delay,” the assets of entities involved in terrorist networks.15 This resolution was significant because it was not limited to Al Qaeda or the Taliban. Its scope was intentionally broad to ensure that the international community was putting broad measures into place to go after terrorist financing.

  All of this work would help to shape the financial regulatory and diplomatic environment. Banks and jurisdictions knew that the world was watching and that there was a steep reputational price to pay for falling outside the lines of legitimacy as they were being redrawn. In Treasury and in these other entities we were reshaping and deepening the rules of the game to emphasize legitimate financial activity and standards, while excluding or punishing those who dared to flirt with tainted capital.