Asset Protection BLOG - Mark Nestmann: The US Declares War on Iran (Part II)

In yesterday's blog, I described how on March 20, the United States launched the financial equivalent of a nuclear attack on Iran. Through the Treasury Department's financial intelligence unit, FinCEN, the Bush administration warned the world's banks that they do business with Iran at their financial peril.

FinCEN accuses all of Iran's banks, including the central bank, as constituting a risk to the international financial system, with no exceptions.

The nuclear analogy is not an overstatement. To understand why, consider the experience of North Korea, which FinCEN blacklisted in September 2005. Iran may be about to get the same treatment.

In North Korea's case, FinCEN published a "finding" alleging that its government used Banco Delta Asia (BDA), a small bank in Macau, to launder profits from drug trafficking and counterfeiting. This put the world on notice that FinCEN could begin freezing the U.S. "correspondent accounts" of any bank dealing with BDA. This draconian sanction is authorized in Section 311 of the USA PATRIOT Act and essentially prevents blacklisted banks from dealing in U.S. dollars.

BDA customers reacted predictably: they withdrew assets in droves. This forced BDA to freeze North Korean funds on deposit. Subsequently, banks worldwide began terminating business relationships with North Korean clients.

From the Bush administration's viewpoint, the strategy worked. North Korea became increasingly isolated from the global financial system. That gave the United States enough leverage to force North Korea to shut down its nuclear industry, which had produced at least one crude atomic bomb In 2007, North Korea signed two agreements promising to dismantle its nuclear weapons program. It is now doing so, under U.S. supervision.

It appears that the Bush administration, acting through FinCEN, will follow a similar strategy with Iran. If FinCEN issues a "finding" like the one it published on North Korea, the U.S. Treasury can begin grabbing the U.S. assets of Iranian banks, or of any bank doing business with Iran. All Treasury needs to do so is to prevail in a secret civil forfeiture hearing in which the targeted bank has no right to participate.

The two banks named in the U.N. order—Bank Melli and Bank Saderat—Iran's two largest banks, will probably be the first ones blacklisted. Iran's central bank, Bank Markazi, is also a likely target. Whatever "special measures" the Bush administration decides to apply will be posted on FinCEN's Web site.

The Bush administration's intentions are clear. It intends to shut down Iran's international banking links until the country ends its own nuclear program, which is clearly more ambitious than the one now being dismantled in North Korea.

To make the sanctions even more effective, the administration is trying to convince Germany, Japan, and China—three of Iran's key trading partners—to enforce them as well. It's counting on banks in those countries, and others to be named later, to essentially cut off all financial relations with Iran.

If it works, count on seeing this strategy applied against other countries with which the United States has diplomatic disputes. Indeed, it's a key part of presidential candidate John McCain's proposed international relations policy, as described in a recent issue of the influential journal Foreign Affairs.

Carrying out an undeclared financial war against Iran is not a risk-free strategy for the United States. Find out why in tomorrow's blog entry.