Financial Transparency Coalition

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Yesterday, the nation’s top intelligence official, James R. Clapper Jr., briefed Congress on the most important security threats facing our nation. Clapper didn’t bother to hide his disdain for the annual event, calling an open hearing on intelligence matters a “contradiction in terms.” In a more subtle critique, Clapper also noted that it is virtually impossible to “rank—in terms of long-term importance—the numerous, potential threats to U.S. national security.” In that vein, Clapper said it is the “multiplicity and interconnectedness of potential threats—and the actors behind them—that constitute our biggest challenge.” On that critique, I couldn’t agree more.

One of the starkest examples of these dynamic forces are in Clapper’s testimony on money laundering, illicit financial flows, and the dangers of an opaque financial system. As Clapper notes in his statement for the record, “Criminals’ reliance on the U.S. dollar also exposes the U.S. financial system to illicit financial flows. Inadequate anti-money laundering regulations, lax enforcement of existing ones, misuse of front companies to obscure those responsible for illicit flows, and new forms of electronic money challenge international law enforcement efforts.”

Understanding how these forces weaken U.S. national security is, per Clapper, multifaceted. It’s also quite important.

Let’s take Clapper’s front company example first. In several states in the United States, it’s remarkably easy for criminals to use anonymous shell corporations to access bank accounts, leaving authorities unable to track their assets. Among those who have banked in the United States, are: an al-Qaeda fundraising organization, which used a company called Truman Used Auto Parts as a front; Iran, which owned a Manhattan skyscraper; and Viktor Bout, an arms trader nicknamed the “Merchant of Death” for his role in  funneling weapons to terrorists, including the Taliban and al-Qaeda.

It’s not only non-state actors that seize upon these gaping holes in the fabric of U.S. security. In a speculative, but likely, pathway towards accessing nuclear materials, Iran has used a branch of its Banco Internacional de Desarrollo (International Development Bank or BID) in Caracas, Venezuela to open thick ties with Panama, a notorious secrecy jurisdiction to gain access to the U.S. financial system via New York City. Why would Iran go to these lengths for some bank deposits in Manhattan?  Because to obtain banned missile and nuclear materials in an international market, Iran must make payments through wire transfers in U.S. dollars, which must clear through correspondent accounts in the United States. In this way, Iran can use Venezuela’s banks as a third party to guarantee its “continued development of nuclear technology and long-range missiles.”

Similarly, we have good reason to believe that North Korea channels funds through a variety of international banks that help Pyongyang evade the ban on developing long-range missiles and a nuclear reactor. For example, North Korea used a Jordan-based bank receive money from Syria and Iran in exchange for illegal weapons. And U.S. officials believe North Korea is “aggressively establishing a network of front companies through which to secretly sell its weapons and evade sanctions.”

To Clapper’s point about the contradiction of “open intelligence,” I believe the issues above outline exactly why he is wrong. Yes there are obvious, and inherent, threats from airing our intelligence insights for the world to see. In most matters of intelligence, secrecy matters. But it is precisely the multifaceted nature of our security threats that warrant broad understanding. Because it is with understanding that we achieve action.

There are dozens of reasons to curtail illicit financial flows and improve transparency in international finance—but one of those reasons is for the role they both play in national security. Because of the holes in the financial industry both at home and abroad, criminals, terrorists, and states looking for nuclear weapons have been able to use the U.S. banking system against us. While it is not enough to simply understand these relationships, Clapper’s critique of the hearing misses an important point—without understanding there is no action. Congress, and the American people, must understand the threats to these systems so that we can fix them.

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