I reviewed Juan Zarate’s Treasury’s War for the Wall Street Journal. If you have a subscription, here’s the paywalled link. For cheapskates, here’s the gist:
Treasury has attacked money laundering by big banks, imposing fines up to $2 billion on institutions around the world. As a result, banks have toughened their compliance regimes. Under the slogan “know your customer,” they now feel obliged to run checks on their customers’ reputations and to shun even faintly suspicious transactions.
In such a climate, it’s easy to become a customer no one wants to know. And the easiest way of all is to be officially labeled a “primary money laundering concern.” A bank that has been tarred with that brush quickly becomes a pariah to every bank with a compliance program. Because a pariah can’t perform normal financial transactions under such conditions, its solvency is immediately drawn into question. And, boom, within 24 hours, even a bank with no direct ties to the United States is effectively out of business, brought down by a Treasury-induced run. Treasury’s designation turns out to be a remarkably effective weapon—the Predator drone of financial sanctions—killing instantly, without warning, far from home.
In one of his better stories, Mr. Zarate shows how Treasury’s new weapon struck even North Korea, a veteran sanctions-buster that had sheltered comfortably in China’s lee for decades.
China’s diplomats stood by their client as usual, but not its banks. Rather than risk its access to world financial markets, even the state-owned Bank of China in Macau froze North Korean accounts. Later, after many ceremonial toasts at a session of the international talks on nuclear proliferation, one inebriated North Korean negotiator leaned in to his American counterparts and admitted: “You Americans have finally have found a way to hurt us.”
Mr. Zarate brings verve and the joy of combat to this and other tales. I served with him in government; and “Treasury’s War” certainly speaks with his hard-nosed, in-it-to-win-it voice. He is indeed a warrior-bureaucrat (and, truth be told, one after my own heart). In Mr. Zarate’s hands, what could have been a dry series of think-tank papers becomes a lively narrative filled with heroes, villains, and fools. …
Mr. Zarate’s enthusiasm for his new weapon is heartfelt. Since leaving government, though, I’ve had a chance to see Treasury’s war from the other side. And like a Predator strike, it looks a little different on the ground. If you own a bank, Treasury’s designation can wipe out your investment overnight. Yet because the decision is fatal, challenges are rare. Treasury never sees its errors or the collateral damage it has caused. And what begins as an awesome and sobering responsibility soon becomes a routine part of the bureaucracy’s toolbox, prone to overuse and free from oversight.
Read the whole thing. Comments as usual may be sent to email@example.com; please tell me if you want your name withheld.