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When Money Is a Weapon

Kim Jong Un
David S. Cohen
David S. Cohen
David S. Cohen was confirmed by the United States Senate to serve as Treasury?s Under Secretary for Terrorism and Financial Intelligence on June 30, 2011. | Photo: Archives | David S. Cohen, Treasury, Senate, Terrorism, Finance, Intelligence,

How the Treasury Got Into the Spy Game

Jimmy Gurule remembers struggling for a seat at the table with his counterparts from U.S. intelligence agencies when he was an under secretary of the Treasury a decade ago. In those days, the Treasury Department was a minor player in the world of three-letter spy agencies -- CIA, NSA, DIA.

"It was hard for us to get an audience, it was hard for us to be invited to the meeting," Gurule, now a law professor at the University of Notre Dame in Indiana, said in an interview. "There were these intelligence meetings and we were like, 'We want to have a seat at the table' and they'd say, 'Naw, what you're doing isn't that important.'"

No more.

Economic and financial intelligence is critical to targeting and enforcing sanctions against Iran, North Korea and Russia; strangling the flow of money to terrorist organizations, drug cartels and weapons traffickers; tracking nuclear proliferation; and assessing the strength of nations such as Russia and China that are now part of the global economy.

Treasury personnel in Washington -- and in Afghanistan, Pakistan and the Persian Gulf -- have worked with intelligence and military colleagues to attack the finances of the Taliban, al-Qaeda and other terrorist groups. The department has provided expertise and actionable intelligence to civilian and military leaders through "threat finance cells" for Afghanistan and Iraq, and worked elsewhere with the U.S. Special Operations Command.

Cohen's Appointment
How much the intelligence mission has changed is highlighted by the move next month by David Cohen, the Treasury under secretary for terrorism and financial intelligence, across the Potomac River to become deputy director of the Central Intelligence Agency. Cohen, 51, whose Treasury responsibilities included sanctions policy, replaces Avril Haines, a lawyer who's now President Barack Obama's deputy national security adviser.

It's the first time a Treasury official has moved into such a senior CIA post. That hasn't gone unnoticed in the intelligence community, where the Treasury has become a recognized power, and among the specialized legal and financial community affected by the nation's increasing use of economic coercion against adversaries.

"Financial intelligence is incredibly important, and it's much more important than it used to be," said attorney Christopher Swift, a former Treasury official who investigated financing of terrorist groups and weapons proliferators. "Cohen's move to CIA underscores that."

The expansion of U.S. financial intelligence efforts is a striking development in recent years, said a U.S. intelligence official who discussed the topic on the condition of anonymity. The driver has been the need to thwart terrorist financing networks and to develop more sophisticated ways of imposing economic sanctions, he said.

'Weaponization of Finance'
Financial intelligence has come into its own as the U.S. increasingly turns to sanctions, asset freezes and other financial actions to thwart adversaries from al-Qaeda operatives to Russian President Vladimir Putin. It's a tactic that Ian Bremmer, the president of New York-based Eurasia Group, recently called the "weaponization of finance."

The U.S. strategy is "premised on the simple reality that all of our adversaries, to one degree or another, need money to operate, and that by cutting off their financial lifelines, we can significantly impair their ability to function," Cohen said at a conference in London in June.

Exposing Vulnerabilities
Financial intelligence exposes vulnerabilities of adversaries -- whether nations or individuals -- who need access to the global financial system. Concealing financial flows can be harder than avoiding surveillance of e-mails and phone calls, which terrorists have tried to do in the aftermath of Edward Snowden's disclosures about U.S. communications intercepts.

"When people think about intelligence, they think about James Bond and running operations against the Russians or the Chinese, and that still goes on and we shouldn't diminish the importance of it," said Swift, an adjunct professor of national security studies at Georgetown University in Washington.

"But if you're looking at the other types of organizations in the global community that are causing problems for the United States and its allies, a lot of them are non-state actors, they're criminal syndicates, they're narcotics syndicates, they're transnational terrorist syndicates, and the best way to figure out how those organizations work, who's part of those organizations, and the best way to degrade those organizations is follow the money," he said.

Kim Jong Un
Kim Jong Un

Kim Jong-un, born January 8, 1983, is the "supreme leader" of the Democratic People's Republic of Korea. He is the son of Kim Jong-il and the grandson of Kim Il-sung. Here he inspects a storage facility for frozen squid, not long after executing his uncle Jang. | Kim Jong Un, North Korea, Fish, Military, Dictator, Smile,

Expanded Collection
The U.S. government has vastly expanded its collection and use of financial intelligence, bolstered by a series of post-9/11 laws and executive orders that have given the Treasury Department a leading role in financial intelligence and sanctions.

The U.S. has built an unrivaled capability to identify, track and disrupt the funding networks that underpin national security threats. The Treasury Department has more than 700 civil service personnel dealing with terrorist and financial intelligence.

Often following the money is a piece of a larger puzzle, according the intelligence official, who said the Treasury and its 10-year-old Office of Intelligence and Analysis have had a big impact with a limited number of people. The head of the intelligence office, Assistant Treasury Secretary Leslie Ireland, is a career intelligence officer.

Dzhokhar Tsarnaev
Dzhokhar Tsarnaev

Boston bomber Dzhokhar Tsarnaev is shown with a sniper's laser sight trained on his head as he surrenders to authorities April 19, 2013, in Watertown, Mass., after a massive manhunt. The photo was released by Massachusetts State Police Sgt. Sean Murphy via Boston Magazine. | Photo: Reuters |
Terrorism Investigations
The Treasury's Terrorist Finance Tracking Program, which has access to the Swift international banking transaction network, participated in investigations into the 2013 Boston Marathon bombing, threats to the 2012 London Summer Olympic Games and the 2011 plot to assassinate the Saudi Arabian ambassador in Washington, which U.S. officials said originated with senior members of the Quds force of Iran's Islamic Revolutionary Guards Corps.

The Financial Crimes Enforcement Network, a part of the Treasury's intelligence operation that regulates the financial industry to prevent money laundering and terrorist financing, receives more than a million reports a year on potentially suspect cash movements from financial institutions, Cohen said in a speech this month. FinCen's information, combined with data from other sources, assists investigators in "connecting the dots" involving sometimes previously unknown individuals and businesses, according to the Treasury.

With time and experience, the Treasury has become "better and better at mapping the networks of illicit actors, or the bad guys," said Elizabeth Rosenberg, a former senior adviser to Cohen who's now a senior fellow at the Center for a New American Security, a Washington policy group.

Financial intelligence has become a resource for the CIA, the National Security Agency and the Defense Intelligence Agency.

More Options
These capabilities have given Obama an expanded set of options at a time when he's sought to pull back from military confrontations. Further, developments such as Russia's takeover of Crimea create demand for alternate forms of coercive statecraft when the use of U.S. military force isn't feasible.

"What you're seeing is that financial sanctions are becoming the first response to foreign policy crises," said Eric Lorber, who worked at the Treasury and now specializes in sanctions law in the Washington office of Gibson, Dunn & Crutcher LLP. "The president can easily enact them; they can put a great deal of pressure on; and they can limit collateral consequences."

Financial intelligence "has opened up a new battlefield for the United States, one that enables us to go after those who wish us harm without putting our troops in harm's way or using lethal force," Treasury Secretary Jack Lew said in a speech in June.

Dollar Power
"If you look at what we call the weaponization of finance," the Eurasia Group's Bremmer said Jan. 5 on Bloomberg Television, "the U.S. dollar has been a much stronger lever of American power internationally than our combat forces have been over the course of the past couple of years."

The Eurasia Group ranked the weaponization of finance fourth among the top business risks in 2015, after the politics of Europe, Russia and the effects of the Chinese economic slowdown.

Now, the Treasury may be the first stop when Obama wants to take action. A recent development, said Rosenberg, the former Cohen adviser, has been the Treasury's use of intelligence and analysis to fine-tune sanctions and turn a sometimes blunt instrument into a sharper one that reduces collateral financial damage.

Kim Jong Un
Kim Jong Un

Kim Jong-un, born January 8, 1983, is the "supreme leader" of the Democratic People's Republic of Korea. He is the son of Kim Jong-il and the grandson of Kim Il-sung. Here he is mobbed during a tour of a women's subunit of the Korean People's Army in this shot issued by the Korean Central News Agency. | Photo: Korean Central News Agency |
Sanctioning North Korea
In responding to the hacking of Sony Pictures Entertainment computers, Obama imposed sanctions on 10 senior North Korean officials and three state organizations to impose a further cost on the leadership in a country that's already heavily sanctioned for its nuclear and missile programs.

In responding to Russia's actions against Ukraine, Rosenberg said, it was "necessary to find a really narrow target set in order to make sure the pain falls exclusively or primarily on Russia" and as little as possible on European and U.S. companies. The innovation in September was to impose sanctions that included prohibitions on dealing in certain Russian equity and debt instruments to put pressure on the country's central bank, she said.

Financial intelligence also plays a role in how to target the restrictions and ensuring that they can be enforced, according to the U.S. intelligence official.

Over the past three years, more than a dozen major banks have run afoul of U.S. sanctions rules. The most notable example is BNP Paribas SA (BNP), the large French bank that agreed in June to pay a record $8.97 billion in penalties for having conducted what the U.S. said were banned transactions involving Sudan, Iran and Cuba from 2004 to 2012.

'Specially Designated'
The Treasury's Office of Foreign Assets Control, or OFAC, which enforces U.S. sanctions regimes, has grown from an obscure wing of the Treasury bureaucracy to a key player in the administration's foreign policy. About 6,000 individuals and entities are on the administration's sanctions list of "specially designated nationals."

There's long been debate over the effectiveness of sanctions, though, particularly when it comes to coercing nations such as Russia, Cuba or North Korea. For starters, they require international cooperation to be effective, sometimes from reluctant partners such as China.

Using financial weapons carries dangers, too. "Risks of miscalculation and unintended consequences are high because use of these tools is new and Washington is learning how they work by trial and error," says the Eurasia Group report.

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Updated Apr 22, 2017 5:31 AM EDT | More details

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