TERRORISM:
Financial Reinforcements

By John B. Taylor

While the troops go after the terrorists, officials back in Washington must keep after the terrorists' assets. By John B. Taylor.

Even as Congress and the Bush administration scrutinize the effects of a troop surge in Iraq, they should agree immediately to implement a surge on the financial front in the “war on terror.” Although the freezing and tracking of terrorists’ assets has been among the war’s greatest success stories, this progress is now being threatened by an unfunded mandate, which leaves our global financial warriors without the resources to do the vital tasks they have been asked to perform.

This is especially dangerous now that the financial front of the war on terrorism has extended from cutting off the flow of money to terrorist organizations, such as Al-Qaeda and suicide bombers in Iraq, to stopping nuclear proliferation in Iran and North Korea. Immediate action and teamwork between Congress and the Bush administration are needed to keep our terrorism-fighting capacity from deteriorating.

Freezing and tracking terrorists’ funds has been one of the most important and successful efforts of the war on terrorism. The first shot was fired September 24, 2001, when the Bush administration froze Al-Qaeda’s assets and, through a concerted diplomatic effort, assembled a coalition of 172 countries to join in the freeze—which was essential in preventing terrorists from moving funds from a bank in one country to a bank in another to escape the freeze. A Council on Foreign Relations report found that “the general willingness of most foreign governments to cooperate with U.S.-led efforts to block the assets . . . has been welcome and unprecedented.” And when the September 11 Commission issued a report card, it gave the only A-minus grade to the financial war on terrorism, among a sea of Cs, Ds, and Fs.

The situation has dramatically changed since those early successes. Now, more than five years after the September 11 terrorist attacks, the financial front is being stretched into new areas; the most important new foe is nuclear proliferation in North Korea and Iran. But that financial front is being stretched thin. A year ago, the U.S. Treasury Department blacklisted a Macau bank, Banco Delta Asia, that had aided North Korea’s money-laundering and counterfeiting operations—the money from which could be used for weapons development. North Korea’s $24 million in bank funds were frozen, thus cutting off a significant source of revenue. The North Korean government strongly objected, evidence that the financial action hurt. Then, seeing the dangers of possible further actions from other countries, including China, and ultimately being cut off entirely from the international financial system, North Korea returned to the six-party talks in February and agreed to shut down its main nuclear reactor complex at Yongbyon and allow international inspectors to verify the process. Here, financial sanctions and diplomacy worked in tandem to further the goal of stopping nuclear proliferation.

As for Iran, last December 23 the U.N. Security Council unanimously passed a resolution instructing member countries to freeze the funds of those “providing support for Iran’s proliferation-sensitive nuclear activities or the development of nuclear weapons delivery systems.” In January, the Treasury blacklisted Bank Sepah of Iran because of its involvement in financing the purchases of missile technology by Iran. If U.S. leaders want to repeat the North Korean outcome, those financial sanctions should be tightened—and the United States should launch a diplomatic effort to persuade other countries to join in their full implementation now that Iran has decided not to abide by the U.N. resolution.

What can Congress do? The most pressing need now is increased funding for these efforts. The computer and information-technology systems used by the U.S. Treasury must be upgraded to avoid the frequent system crashes that are interfering with timely processing of intelligence reports. Without such upgrades, the financial system’s next grade on the war on terrorism could drop to an F. The rapidly expanding responsibilities for stopping nuclear proliferation require additional skilled financial-intelligence analysts. Special secure rooms must be constructed in which these analysts can work; existing secure rooms are filled to capacity. Funds are also needed to hire more intelligence analysts to counter the increased insurgency funding in Iraq.

A forceful statement of joint congressional and administration support for these efforts would improve their effectiveness. A supportive resolution to the Implementing Unfinished Recommendations of the 9/11 Commission Act, along with the increased funding, would demonstrate U.S. resolve at a crucial time in the war on terrorism.

The financial part of this war can be waged more effectively if both our enemies and our allies know that Americans are working together. With a little education and encouragement, the new leaders in Congress and the administration can bring their constituencies together on this issue. If they want to show the American people they can cooperate, this is a good place to begin. Then perhaps we can move on to the more contentious issues.

This essay was published in the San Francisco Chronicle on March 2, 2007.

Available from the Hoover Press is Our Brave New World: Essays on the Impact of September 11, edited by Wladyslaw Pleszczynski. To order, call 800.935.2882 or visit www.hooverpress.org.

John B. Taylor is the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution and the Mary and Robert Raymond Professor of Economics at Stanford University. He was previously the director of the Stanford Institute for Economic Policy Research and was founding director of Stanford's Introductory Economics Center. He has a long and distinguished record of public service. Among other roles, he served as a member of the President’s Council of Economic Advisors from 1989 to 1991 and as Under Secretary of the Treasury for International Affairs from 2001 to 2005. He is currently a member of the California Governor's Council of Economic Advisors.