Bankers vs Terrorists

Posted: Feb 02, 2007 12:00 AM

John B. Taylor, a senior fellow at the Hoover Institution and an economics professor at Stanford University, was a key player in the international financial war against terrorism after 9/11. As Undersecretary of Treasury for International Affairs from 2001 to 2005, he had to form international coalitions to freeze the financial assets of terrorists around the world, plan the financial reconstruction of Afghanistan and oversee the creation of a new post-Saddam currency for Iraq. I talked to him about his book "Global Financial Warriors" Jan. 24 by phone from his offices at Stanford.

Q: Can you give us a quick soundbite about what your book is about and who it is written for?

A: The book describes the financial aspects of the war on terror, starting with the efforts to freeze the assets of the terrorists after 9/11. It describes the diplomacy that was necessary to do it, which was quite successful. And then it goes on to describe the financial reconstruction of Afghanistan and Iraq and also the increased stability of the world economy. It contains many success stories, many descriptions of things that went right. It’s written for an audience who’s interested in public policy. You don’t have to be a financial expert by any means to read this book. There are lots of stories about heroes and inspirational people and stories about my travels to places like Afghanistan and Iraq and also my meetings with the president in the situation room.

Q: How has terrorism affected the global financial system? A: Well, the effort has been made to use the financial system in the war against terror. In other words, to track the assets and money of the terrorists to find out where they are or find out about their networks. So in many respects, the global financial system has been used to better deal with this war. I think that’s the main message that I’m trying to get through here -- that this is an essential part of the war on terror. There is much focus on the military, much focus on the political. But the third leg on the stool is financial, and that is what this book is about.

Q: What are some of the weapons that are used in this financial warfare? A: The president of the United States has the authority to ask financial institutions in the United States to freeze assets of people or groups he designates as terrorist. That’s the primary tool -- the designation and freezing. The second tool is used against financial institutions that are helping in the financing of terror or are dealing with terrorists. For example, just two weeks ago an Iranian bank, Bank Sepah, was designated by the United States as an entity dealing with proliferation issues -- to finance the purchases of technology to build long range missiles in Iran that could deliver weapons. That’s the second tool, to actually take action against banks. And the way it’s done is telling U.S. banks you can not deal with these banks.

Q: There is also the technique of preventing or halting funds transfers? A: Yes. That is what I would call the freezing. If you attempt to put money in a bank to send (to terrorists) it will be frozen. That’s very much part of it – disrupting the flow via this freezing. A third weapon, if you like, is basically intelligence. Through the financial system you can follow the money and therefore learn about people in the networks that you otherwise wouldn’t know about. It’s been very useful as a form of intelligence and it’s a system that is still working well.

Q: Can you name a single-biggest success story since 9/11? A: I’ll just give you some indications: 172 different countries participated in the freezing of the assets, and that demonstrates how effective the diplomatic strategy was; 120 of those countries actually had to change their laws to make this happen, so it was difficult for them. Very soon after 9/11, about $137 million was frozen. Since then, the terrorists have had to use other means of finance, and therefore that has made their financing more difficult. With respect to the intelligence side, and the information that is obtained, it is very hard to give specific examples, of course. But one, for example, is that after some of a charity’s assets were frozen it found other ways to move money to al-Qaida through aliases. Through the tracking of the money through the aliases through the financial system, the aliases were detected. Another example is that in some of the bombings done in Bali, the mastermind of that operation was discovered through the financial system.

Q: Are there any important obstacles or problems that still need to be solved or worked out in this financial warfaring? A: Yes. The use of cash couriers is now more prevalent because the financial system is closed in many respects to this kind of activity. Also, the means of transferring money through a technique called “hawalas,” which are written up in my book. These are organizations that people can use to transfer money to other countries without the actual money moving across borders. That’s another thing – to get the hawalas to register, so we can track the money through them as well. A third thing, in terms of getting better progress, is to have more cooperation from other countries as this activity moves towards proliferation issues with North Korean and Iran. In the first couple years after 9/11, there was tremendous international cooperation. It is less now than it was, and I think to some extent it is because 9/11 has receded into the past and it’s becoming more of a memory instead of something very vivid.

Q: Is there a cost to the rest of us good citizens in terms of either creating obstacles or hassles for global financial transactions or increased government security in our private lives? A: With respect to the privacy issue, there is a very good protocol put in place to make sure that if information is obtained it is done with a subpoena process. ... And the subpoenas have to document that there is definitely terrorists involved. There’s also an auditing system of the subpoenas themselves to make sure they are being done properly. It’s very legal. It’s been cleared. There are no debates about its legality, so private citizens are protected from that.

But one other thing is the financial institutions themselves -- the banks and others. Their reporting requirements have increased. It’s very important for the government to make sure that the reporting requirements don’t get any more difficult and even more important than that to demonstrate to people that it’s an effective way to fight the war on terror. Then the financial institutions will feel better about having to spend extra resources. That’s really one of the purposes of my book -- to show how important this third leg in the stool is, in terms of our overall effort to stop terrorist attacks.