Financial World War 3 has started.

Posted: April 29, 2014 in Uncategorized

The US has already started a financial world war against Russia. It targeted all the Putin’s inner circle (not yet Putin as targeting an head of state could read directly to war.

For sure we do not know what Russia will do to counterattack. It has several options which are clear (manipulating the gas prices, stopping the agreed withdrawal routes designed for the exit of the US Army from Afghanistan) and naturally some that are unknown (nobody knows who placed a USD 2.8 billion put option on the SP500 the  26 March or who has, in Belgium, one third of all US Treasury and why).

I found on the Irish Examiner a nice article on how the US Treasury is targeting the hostiles.

Source: Irish Examiner

A branch of the US Treasury uses sophisticated financial tools to hit targets linked to hostile governments. This is the new global warzone, write Leah McGrath Goodman and Lynnley Browning.

IT WAS midday on March 20 when an executive at Gunvor Group, the world’s fourth-largest oil trading firm, sitting at his office computer in Geneva, glanced up at the screen and got a jolt: A tweet had popped up saying one of the company’s founders, Gennady Timchenko, a billionaire Russian businessman, had been placed on a US government blacklist, along with 31 other people and businesses said to be linked to Russian president Vladimir Putin.

The previous day, Timchenko had finalised the sale of his 43.59% stake in Gunvor to business partner Torbjörn Törnqvist, a Swedish oil trader, the firm’s other co-founder and now its chief executive.

The two men conducted the transaction amid escalating tensions over Putin’s push into the Crimea region of Ukraine because “they saw the writing on the wall”, the executive explained, adding that “we weren’t tipped off” about the blacklist.

Gunvor had a narrow escape, and the message was heard loud and clear around the world: The first salvo in modern warfare is likely to be financial — and the result is increasingly effective.

“Fifteen years ago, the idea that the US Treasury Department would be at the centre of our national security would have been inconceivable,” said Daniel Glaser, assistant secretary for terrorist financing at treasury. “But we have developed a whole new set of tools to put at the president’s disposal.”

The control room in this new kind of war is a unit inside the US Treasury Department: The Office of Terrorism and Financial Intelligence, with 730 staff.

Don’t let the name fool you. This little-known branch of treasury, created by Congress in the wake of the September 11 attacks, isn’t just going after terrorists or hunting illicit offshore money flows anymore. It is using sophisticated financial weaponry to hit carefully chosen targets linked to hostile governments.

“This is the 21st century version of waging war,” says Judith Lee, a lawyer and sanctions expert at Gibson, Dunn, & Crutcher in Washington.

TFI was responsible for drawing up the blacklist, which sought to paralyse the financial dealings of Putin’s inner circle as Russian troops advanced Crimea. In Russia, the assault has led to severe disruptions in the financial affairs of blacklist targets such as Timchenko, as well as Bank Rossiya, a mid-sized St Petersburg bank catering to senior Russian government officials, which has around $10bn (€7.2bn) of assets and which found its Visa and MasterCard services abruptly halted and its credit downgraded by Standard & Poor’s.

Once blacklisted by the Treasury, an individual or corporation can no longer conduct business using US dollars, which are involved in 87% of the world’s foreign-exchange transactions, according to the Bank of International Settlements.

How does this work? Foreign banks generally “dollarise” payments by routing the transaction through US banks, which are required to block any payment when a blacklisted person or entity has a direct interest.

Since sanctions were levied, the Treasury has noted an increase in Russia’s capital outflows — a measure of the money leaving the country. So far this year, it says, these “have exceeded the entirety of outflows last year”.

While Russia’s economy was already faltering, there are signs the Ukraine crisis is exacerbating the downturn. The International Monetary Fund recently forecast Russian growth of just 1.3% in 2014, representing a downward revision blamed in part on the Ukraine crisis. Anton Siluanov, Russia’s finance minister, has given a more dire prediction, warning government officials: “Perhaps it will be around zero.”

TFI has lawyers and financial analysts who honed their skills targeting rogue states, such as North Korea and Iran, and terrorist organisations such as al-Qaeda, in addition to drug kingpins in Latin America. Russia presents an entirely new type of challenge. Here, for the first time, Treasury is pointing its guns at a fellow member of the G8 — one with trade ties to the US, Europe, and Asia.

In many ways, Russia is the test case. At the heart of Treasury’s power is the Office of Foreign Assets Control, a division of TFI that compiles and shoots out Treasury’s blacklist, and whose legal authority stems from executive orders issued by the US president.

This branch of Treasury freezes the assets of targets inside US jurisdictions and imposes millions of dollars of fines on violators, which can include any individual or entity, foreign or American, found to be doing business with anyone on the blacklist.

The list also applies to entities that are 50% or more owned by those that have been blacklisted. Already there have been ripple effects, with banks from JPMorgan Chase to Goldman Sachs and financial institutions from MasterCard to Visa scrambling to stay on the right side of the US.

“The financial sanctions depend on direct outreach to private financial institutions, rather than on going to the foreign governments in which those institutions are based,” says Orde Kittrie of the Foundation for Defense of Democracies, a think-tank. Kittrie was a senior state department economic policy official from 1993 to 2004.

Treasury’s blacklist is sent out a bit like a Google alert. “We have an RSS feed with every financial institution in the country on it, and hundreds of other banks, not just in the United States but all over the world, who subscribe to the list too,” said Adam Szubin, director of the Office of Foreign Assets Control. “We blast it out, and it takes effect instantly.


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