03/26/08 – John McGlynn – The Scott Horton Show

Alright, introducing John McGlynn from japanfocus.org, he's an economic and financial analyst and has a new article, the March 20th, 2008 US declaration of war on Iran.
Welcome to the show John.
Hi, glad to be with you.
It's good to have you here and this is a very interesting article, I think probably most people don't recognize the fact that America declared war on Iran March 20th, just six days ago.
What exactly are we talking about here?
Well we're talking about an effort by the United States government, specifically the Treasury Department of all agencies, and actually a unit inside the Treasury Department, which is making an effort to use US regulatory powers, such as executive orders issued by the President and a certain provision of the United States Patriot Act, so using those legal powers and the power of the US financial market to put pressure on the world's banks not to do business with Iran.
And that's the Financial Crimes Enforcement Network, FINCEN?
Yes.
And now, the article, you say at the beginning here, you recount that on March 3rd the United Nations Security Council issued new sanctions, and then I guess my understanding is whatever it was that FINCEN announced on March 20th, was the teeth in that, the enforcement of that, or what?
Well it's a step short of enforcement, it's an advisory that was issued by this Treasury unit, FINCEN, basically warning the US financial institutions, the financial institutions around the world, that Iran's banks represent a risk, a risk to the international financial system.
So with that advisory, at least at the beginning, you're supposed to draw your own conclusion if you're a financial institution in Asia or Europe or someplace else, that you might not want to do business with Iran's, with an Iranian bank.
But behind all that is a growing regulatory effort to put in place, I guess you could call it the ultimate sanction, which would be a sanction on any foreign bank, any non-US bank that wants to do business with an Iranian bank under the US Patriot Act.
So I think this is probably going to be the next step that FINCEN takes, based on my experience of analyzing what they did in applying sanctions on a bank in Macau that ultimately resulted in cutting off North Korea from the global financial market.
We haven't seen this yet, there was a letter sent by, I think it was 26 Democratic Senators to the Treasury Department urging them to cut off Iran's central bank, which if that's the case, then since all Iranian banks do business with Iran's central bank and other banks around the world are by extension doing business with the Iranian banking system, then once the Iran's central bank is formally sanctioned by the US Treasury Department, by this FINCEN unit, then effectively all banks around the world under US extraterritorial law should not do business with Iran.
And of course, in a battle of dollars between America and Iran, America wins, there's not a bank in the world that would choose to do business with Iran rather than the US, they can't.
Right, well, probably the case, I mean it remains to be seen what the response will be from financial institutions around the world if and when FINCEN takes the step of sanctioning Iran's central bank.
Let me just repeat for a moment that there hasn't been a formal sanction under US law placed on the Iranian banking system yet under the Patriot Act.
There are executive orders that effectively cut off Iranian banks and other Iranian businesses from the United States.
But under the Patriot Act, which I think is the key factor in all of this, no bank in Iran has been sanctioned yet, but once that happens, then probably the international financial institutions will just fall in line and any financial linkages between the global banking system and Iran stand to collapse like a house of cards.
Well now, you also say in this article that there's this group called the FATF, which is a combination, I guess, of the Western powers, basically financial enforcement, and that they demanded that the Iranians pass some new financial enforcement laws, and that they did.
But then, apparently that wasn't good enough?
Well, it's only been, I believe, about a month since new legislation went into effect in Iran to deal with counter-terrorism financing and to deal with money laundering issues.
So it seems by any reasonable standard that you might need a little bit more than a month to evaluate the effectiveness of this new legislation in Iran.
But apparently, FinCEN and the Treasury Department are deciding that that's not enough time, and so we have to increase our warning that all of Iran's banking system represents a risk to the international financial system.
So it's pretty clear that they don't want anybody doing business with Iran.
Yeah, well, and the accusation here is centered around, don't tell me, secret nuclear weapons program?
Well, it gets a little tricky, because I think in this case of the warning that comes from this FinCEN unit inside the Treasury Department, which is connected to this statement by the Financial Action Task Force, which incidentally is based in Paris, it consists of about 32 countries and two territories, and it was set up by the G7 about a decade ago.
They're saying in an October statement from last year that Iran's financial system represents a serious vulnerability to the global financial system.
So on that basis, banks should take caution.
Now it doesn't say that banks around the world should stop doing business with Iran, just that they should exercise due diligence or enhance due diligence.
Why the Financial Action Task Force suddenly decided to issue this statement is unclear.
If they have any statements that indicate why they arrived at these decisions, I haven't come across it yet, but Iran has not been on the radar of the Financial Action Task Force up until October last year, but suddenly it represents a risk, and so they feel compelled to issue a statement.
It all coincides, by the way, with the enhanced effort by the United States, starting about two years ago, to apply more and more financial pressure on Iran.
So obviously there was some behind-the-scenes effort by the U.S. government, possibly working with countries in Europe, to encourage the FATF, the Financial Action Task Force Board, to issue this statement.
So in this statement, now that it's issued, it's being used by FinCEN, the Treasury Unit, to say, wow, look out, Iran represents a big risk, take care when you're dealing with Iranian banks.
So it doesn't sound like there's any real specific accusation beyond, well, we know these guys are up to no good.
Right.
Exactly why Iran represents a vulnerability to the international financial system is not spelled out by FATF, the Financial Action Task Force.
Why it represents a money-laundering risk in the view of either the FATF or the Treasury Department has not been specifically spelled out.
There's also language in there that connects, yes, to terrorism and to proliferation, and so that's also part of the justification.
But I think that in order for the U.S. to take the next step, which is to formally sanction Iran's central bank, they're going to hang their hat on this FATF statement and other sort of financial risk issues, not so much the nuclear or proliferation issues.
But exactly what those financial risks are are not clearly spelled out.
What exactly now is the tie between the U.N. resolution passed on March 3rd?
Is it that the actions by FinCEN are in the name of enforcing or somehow implementing the U.N. sanctions, or these are two different sets of legal actions?
This is all very confusing to me.
Right.
Well, yes, the FinCEN statement that was issued on March 20th that says that, let's see, just a reading from the FinCEN statement right now, that banks should take into account the risk arising from deficiencies in Iran's anti-money laundering and combating the financing of terrorism regime, that in addition to that, then they also highlight the sanctions.
Or actually, it's not sanctions, but it's the mention of the two banks in the U.N.
Security Council resolution.
And all the resolution says is that two Iranian state-owned banks in particular and Iran's financial system or Iran's banking system in general, that the world should exercise caution.
It doesn't say anything about anyone should cut off banking business with Iran.
It just says that they should exercise caution in dealing with Iranian banks, particularly two state-owned banks.
Now I know this is a bit beyond the scope of your article, and I'm not certain whether this is beyond the scope of your expertise or not.
So you can feel free to pass on this one.
But my understanding is that there is no evidence that Iran has any kind of secret nuclear program, and that the Non-Proliferation Treaty, to which their country and ours are both signatories, guarantees them the unalienable right to pursue nuclear technology for peaceful purposes.
So even under the supposed U.N. charter, U.N. law, they're really way out on a limb here.
And they have really no right, that they can even claim, to tell Iran that they can't continue enriching uranium, which is what this is all about in the end, right?
Right.
This is not part of the essay that I wrote, and you're right, I don't have any special knowledge in this area.
So I rely on the same materials that everybody else is reading, which would be, for example, the National Intelligence Estimate, the declassified part that's been publicized, and statements from the IAEA, or even statements from the United States government.
But in short, all I can do is really agree with you, that it appears that Iran is not in violation of the Non-Proliferation Treaty, based on the NIA, and based on multiple statements that come from the Secretary of the International Atomic Energy Association.
All right, now back to actually subjects actually addressed in your article here.
Just to kind of sum up for people, because this is kind of complicated stuff.
Basically what we have here is the U.S. government not only telling American banks that they may not do business with any Iranian banks, because any Iranian banks must be doing business with Iran's central bank, which is under sanction, and at the same time they're telling the rest of the banks in the world, too, that we will boycott you, or we will blacklist you if you do any business with Iran.
So this is really meant to just, I guess, shut their economy down, huh?
Right.
You know, I'm sorry if it's a little tricky, and it is tricky to understand, because it requires a little bit of history.
Just to reiterate two points.
One is that Iran's central bank has not been sanctioned yet by the United States government.
That's possibly the next step, based on what the United States did in the case of North Korea about two years ago, when they did formally sanction a bank in Macau, which was a key bank for North Korea, and as a result of the sanction on that bank in Macau, effectively the whole world was warned that it would be unwise of you to do banking business with North Korea.
But North Korea was effectively cut off from the international financial system.
And then the Treasury Department several times, various Treasury officials, several times issued statements to the world saying that North Korea represents a money laundering risk and a terrorism risk and a counterfeiting risk, so you shouldn't do business with North Korea.
And the actual sanction that was applied by the Treasury Department was on a bank in Macau, which is a Chinese territory, a bank in Macau called Delta Asia that North Korea was doing business with.
And so that was the test run from about two years ago for how this Patriot Act, all of this action that was taken against North Korea and this bank in Macau, was based on a provision in the Patriot Act.
So that was the test run.
And so it appears that Treasury officials have been traveling the globe again and again and again over the past two years or so to meet with top banking officials throughout the world, to meet with government officials to explain how the Patriot Act and other powers that the United States government has, how this all works to potentially cut you off from the U.S. financial system if you decide to do business with a country that we say, or a bank in a country that we say represents a risk such as Iran.
So North Korea was the test run.
Everybody who is a top banking official around the world or is a top finance official around the world probably remembers the Macau-North Korea case, and so the U.S. doesn't necessarily have to take action under the Patriot Act to formally sanction another bank, such as a European bank or an Asian bank, to discourage the rest of the banks around the world from doing business with Iran.
They don't necessarily have to do that.
They could do that.
But this Macau-North Korea case serves as the example, that's the warning, this is what's going to happen to you.
You're going to be cut off from the U.S. financial system if you do business with an Iranian bank.
You quote from Der Spiegel, the German newspaper, it seems like they were reporting that there were some businessmen there who really regretted that they were having to go along with this.
They have long-standing business interests with Iran and really are between a rock and a hard place with this.
Right.
There have been some indications, not many that I've been able to find, but some indications that there are officials in Europe, such as banking officials in Europe and possibly elsewhere around the world, who are not thrilled about this idea of being cut off from the U.S. financial system or thrilled with being accused of associating with a terrorist-supporting bank or a terrorist country if they continue, in this case, to do business with Iran.
That apparently is the message that Treasury officials are imparting.
I think you can describe it as an educational process that's been going on for the past year to just clearly explain the powers of the Treasury Department, to clearly explain what happened with this bank that was doing business with North Korea, how it was cut off.
Just so everybody understands, these are the steps that we expect you to follow if and when we decide to formally sanction, under the Patriot Act, Iran's central bank or possibly some other bank in Iran.
But I think the big target is Iran's central bank because it's at the center of the web and so any bank inside Iran does business with the central bank.
So once, under U.S. law, Iran's central bank is formally blacklisted, then that sends the powerful message that, well, really, you can't do any business at all anymore with Iran's banks.
And so, as this Der Spiegel article indicated, yes, a few German bankers were very unhappy about that and weren't very excited about these repeat visits from Treasury officials and one or two of them complained to that German magazine.
Yeah, this educational effort sounds a bit like when Darth Vader pulls into orbit and comes down to explain the new regulations to you.
Everybody understands good and well to follow those orders.
Right.
That's an interesting point, Darth Vader, since Darth Vader, at least in the media or among the progressive media, is the alternate name for Vice President Dick Cheney.
I think it's interesting, all these visits that have been going on over the past two or three months from U.S. officials, it was President Bush back in January and now Vice President Dick Cheney recently, to the Middle East, but particularly to the Gulf states and the Gulf states, I think, are critical in U.S. plans because if the U.S. succeeds, and I'm not sure to the extent that they have succeeded so far, but if they have succeeded at more or less cutting off Iran's access to doing business with banks in Europe and most banks in, let's say, Asia, then Iran's last banking lifeline to the world would be through several Gulf Arab states.
So that would be the UAE, that would be Qatar, that would be Bahrain.
And so it appears that U.S. officials are very busy talking to bank officials and government officials in those three Gulf Arab states.
Presumably, the speculation is that the U.S. is laying the groundwork for a possible military attack against Iran, and it needs cooperation from other Middle Eastern countries, particularly Gulf Arab states, to get permission to use bases or base troops in the future.
I mean, this is the analysis that I know repeatedly at antiwar.com and by folks such as Scott Ritter, and that's probably correct.
I haven't really analyzed the military issue, so there could be a military attack in the cards someday, but I don't really know.
But the other side of that issue is that, you know, what are these, I think, people who are analyzing the importance of these visits by the president, the vice president, and then other officials in the U.S. government to these Gulf Arab states, in particular, what do these visits mean?
They should also look at what is being talked about in terms of sanctions, and getting these, the banks in those three Gulf Arab states to cooperate with the U.S. on a sanctions program.
Yeah, and that's the kind of stuff that gets a lot less attention because it's a lot harder to understand, I think.
Right.
And there hasn't been, and I don't think there's been a lot of information coming out about these meetings anyway, so it is a bit difficult to decipher.
So that's why you have to, that's why in my article I quote some testimony by U.S. Treasury officials to Congress about the types of things that they're talking about with banks around the world.
And so, again, they're talking about the Patriot Act, how the U.S. can penalize banks under the Patriot Act, executive orders, and so I'm sure those same issues are coming up to the extent that sanctions are discussed in meetings with banking officials and government officials in these Middle Eastern countries.
Well, you also talk about the Secretary of the Treasury in a speech that he gave at the Council on Foreign Relations, where basically he was explaining in what seems like as loose a language as he could possibly use how everybody in Iran is all tied to everybody and therefore they're all guilty since they're all guilty.
Right.
I mean, it's sort of like a few degrees of separation.
I mean, it sounds like in effect what's going to happen here is the average schmuck in Iran is going to be punished and not be able to do business because of all these things going on at a level much higher than his head.
Well, exactly.
When the U.S. talks about the impact of these sanctions, the sanctions that have been applied under executive orders, which, again, just to keep the information straight, these apply under these executive orders that have been issued by the Bush administration.
They apply just to Iranian banks, and it does not include the central bank yet.
And so the other shoe that's waiting to drop is some sort of sanction under the Patriot Act.
But Secretary Paulson said in his June 2007 speech to the Council on Foreign Relations said that Iran's Revolutionary Guard Corps is a paramilitary organization and that they're directly involved in the planning and support of terrorist acts, as well as funding and training of a terrorist group.
And then he goes on to say in that same speech that what he describes as an Iranian paramilitary group is so deeply entrenched in Iran's economy and commercial enterprises, it is increasingly likely that if you are doing business with Iran, you are somehow doing business with this Iranian paramilitary group, the Revolutionary Guard Corps.
So in effect, what he's saying is that this particular organization permeates all of Iranian society, and so from the top officials down to the lowliest business person, somehow they're all connected with this paramilitary group that the United States is worried about.
And so chances are, if you're doing business not only with a bank, but with just about any kind of business, if you're doing business with anybody in Iran, chances are you're doing business with this group that the United States charges as being involved in planning and supporting terrorist acts.
Well, now, when we look at history for the model, does this tend to work?
For example, when they did this to North Korea, did the North Koreans then bend to our will?
Well, there's speculation on both sides.
On the one hand, some people argue, some foreign policy analysts will argue that as a result of the sanctions on the Macau Bank, which then had the effect of cutting off North Korea from the rest of the world, that put enough pressure on North Korea to then join what's called this six-party process, a diplomatic process involved in the United States, North Korea, South Korea, Russia, China, and Japan to negotiate the denuclearization of the Korean Peninsula and to arrive at some sort of long-term peace pact for the region.
And so those sanctions put pressure on North Korea to come back to those negotiations.
And then the other view is that, well, after the US put sanctions on North Korea, North Korea actually quit that negotiations process for a little while, set off a small nuclear device in October 2006.
Then after that happened, then the United States started talking about, oh, how can we possibly ease these financial sanctions so that we can start negotiating with you again?
So, in fact, in the article, you even say that they announced these actions on the eve of one of the meetings of the six-party talks, and that provoked the North Koreans to call it off for a couple of years.
Yeah, exactly.
So we can have our cause and effect straight here.
I don't think we have to give too much to the other side.
Sounds like you got your chronology in order there.
Right.
Yeah.
If I had to make a choice, I would think that for some reason it may not have been the nuclear device that North Korea set off in October 2006, but that something has caused the Bush administration to change its policy towards North Korea, and they now want to do some serious negotiations with North Korea through this six-party venue.
But North Korea dug in its heels after these financial sanctions were issued, and so they weren't going to bend at all until these financial sanctions were somehow eased, which in the long run they were, and then they rejoined these negotiations.
And so I don't think it's the case that, at least in the case of North Korea, that financial sanctions forced them to do anything or do anything to bend to Washington's willpower.
Well, now, we hear a lot about Russia and China having strong ties economically with the Iranians, and I guess it's pretty clear that Europe is going to go along with America because the financial interests and other interests tying America and Europe together are much, much stronger.
But is it an open and shut case that Russia and China are going to go along with the Bush-Cheney regime on this one?
Well, good question, and I'm afraid the answer is that it's just too early to tell.
Russia, I'm sorry, I have no information about how much banking business Russia does with Iran.
I just don't know.
And China, as I say in my essay, there are some early indications that China is backing off its banking business with Iran a little bit.
And China is very important as a trading partner with Iran, and so presumably that means that there's a lot of banking business going on with Iranian businesses to get importing and exporting done.
So, in the end, how far China will go along in cooperating with U.S. sanctions, that remains to be seen.
But keep in mind that, as we try to examine this sanctions issue, and then how are countries going to cooperate, or the extent of cooperation by countries with this U.S. sanctions program, it's not so much a government-to-government issue.
I mean, what the U.S. in effect is trying to do is, as John McCain described in an article in Foreign Policy magazine two years ago, I'm sorry, about a year ago, the U.S. should try to come up with a privatized sanctions regime to deal with Iran.
And so there may be countries, there may be Russia, there may be countries in the Middle East, there may be China, they may all say that negotiations and peaceful diplomacy, that's the route to go in dealing with Iran.
And even the United States might say, fine, peaceful diplomacy, we'll give that a try.
But the sanctions program is against what the U.S. is threatening to do, and that's the sanctions program is against, what the U.S. is threatening to do is sanction banks around the world that want to do business with Iran.
And so no matter what the governments of those countries want to do, the banks are going to potentially be running scared at the prospect of being cut off from the U.S. financial market.
And so the pressure is really on the banks.
And some banks around the world are, you know, have stronger or less strong connections with their home governments, but the pressure will really be on the banks, and the banks have a responsibility to their shareholders, to asset holders, to bank account holders.
I mean, they have to run their business as a bank.
And if somehow they're going to be in trouble if they continue doing business with Iran, their banking business is going to be in trouble, then they have to weigh that and decide, well, in order to continue doing business with the United States and the rest of the world, we might have to cut off our business with Iran.
So no matter what their home governments think about peaceful negotiations with Iran, the banks, they're making their own bank business, business-related decisions.
And now to really bring this home, and you mentioned this in your article, too, that there's going to be real consequences for regular people.
And in fact, I don't guess anybody believes that the mullahs are going to have to, you know, give up their palaces and, you know, move into the neighborhood.
It'll be the regular folks in Iran who have to suffer.
And you talk about the fact that they make most of their pharmaceuticals, their medical products, they're in Iran, but they make them out of mostly imported precursors, and that this is the kind of trade that's going to be shut down.
We're going to be seeing Iranians dying of easily curable diseases before too long here.
Well, if they can't pay for their, I mean, they'll have the money to pay for importing raw ingredients to make the pharmaceuticals that sick people need in Iran.
But if they don't have any way of spending their money to pay for these imports of raw materials, then that's just an example of how these banking sanctions are going to have horrible consequences for Iranian society.
And I'm not talking about, I'm not an expert on the impact of sanctions, but I would imagine that if the U.S. can succeed at developing airtight banking sanctions on Iran, then possibly three, four, five years down the road, Iran is going to be having, Iranian society, civil society is going to be having a lot of problems with healthcare and food-related imports and imports that they need just to maintain the infrastructure of their society.
Well, in the 1990s, you know, Madeleine Albright would explain that, listen, we have these sanctions on Iraq in order to make the people of Iraq so poor and miserable that they will finally rise up and overthrow Saddam Hussein for us, or, you know, at least arguments along those lines.
Have they said anything like that about Iran, that that's what they're pushing for is, you know, where they admit that their target is to make the Iranian people's lives as miserable as possible?
Well, the language is very indirect.
When Treasury officials talk about their actions, they're talking about creating a debate inside Iranian society, or encouraging people to re-examine the policies of the Iranian government.
But the message is pretty clear, that the sanctions are going to put pressure on all of Iran, not just Iranian elites, but all of Iran to change its policies to do whatever the U.S. wants it to do.
So it's going to, these sanctions in the long run, as I say, probably two, three, four, five years from now, they're going to have horrible consequences for average Iranians.
I mean, if people need imports to run their businesses, to make pharmaceuticals, to all of the people who are experts on what Iran imports or exports, I mean, I'm hoping, my hope would be that people now begin to, who have expertise in the area, now begin to analyze what the impact, the actual impact of these banking sanctions would be on Iranian society if Iran depends on X item for drugs or X item for, let's say, water filtration, just to provide some concrete details about the exact impact these sanctions could someday have on Iranian society.
But just at the general level that I'm discussing it, if Iran's banks are cut off from doing business with the rest of the world, then I just assume that that's going to make life very difficult for Iranians who need to buy things from the outside world to keep their society going.
Do you know the answer to this one?
This is kind of a riddle for me.
I know, or I think I know, that back in the day, I don't know, a hundred years ago or something, to put sanctions or blockade in effect on another country was considered to be an act of aggression, an act of war.
Is the law changed now, you know, with UN resolutions and so forth?
Have they defined blockade down so it's not an act of war anymore?
Or is this an act of war?
And just what are you going to do about it?
I'm sorry, I'm not a lawyer.
I can't really comment that much about the legal situation.
I would just say that if a country such as the United States is able to put another country's banking system out of business so that they can't do any kind of exporting and importing, I would say that that's, to put it mildly, an extremely unfriendly act by that one country against another.
And so exactly how that constitutes an act of aggression or a crime of aggression or an act of war under international law, I would have to leave it for a lawyer, a legal specialist to define it.
But I think it's important to describe it right now as a kind of war-like act, which is going to have horrible consequences for, not only for Iranians, but for the U.S. position in the Middle East, someday for Americans.
I mean, this is going to extend well beyond Iran someday if these sanctions proceed to their ultimate conclusion.
And so certainly under the United Nations Charter, an economic blockade is something that can only be decided by the United Nations Security Council.
So in effect, these financial sanctions are in effect someday going to amount to an economic blockade if they're allowed to continue to their ultimate conclusion.
So this is something that I think policy analysts, average Americans, people in Congress, people at the United Nations, people have to start understanding now what is going to be the implications of these sanctions before we start seeing horrible health and consequences two or three or four years down the road.
And some U.N. coordinator is in Tehran saying, you know, this is horrible.
This is genocide.
This is near genocide.
This is like Iraq back in the 1990s.
I mean, we should start to examine the consequences now before we get there three or four years from now.
Yep.
Sounds like it's a declaration of virtual war, at the very least, if not technically.
Well, I'd define it as aggression.
But that's just me, maybe.
And you.
Right.
Well, I would say it's a very aggressive act.
Yes.
All right, folks.
That's John McGlynn.
He's an independent economic and financial analyst from japanfocus.org.
The new article is the March 20th, 2008 U.S.
Declaration of War on Iran.
And you can still find it if you click more viewpoints at antiwar.com.
Thanks very much for your time today, John.
Okay.
Thank you very much.