The Jordan Harbinger Show - 863: Juan Zarate | Waging Financial War on Rogue Regimes

Episode Date: July 18, 2023

Treasury's War author Juan Zarate joins us to discuss how the US wields its financial power against terrorism, rogue states, and global crime syndicates. What We Discuss with Juan Zarate: Why the Treasury Department became part of the intelligence apparatus of the United States post-9/11 — after resisting such integration for years. Sanctions: what are they good for and how do they work? How and why criminals (whether they're of the independent, organized, or state-sponsored variety) need banks and financial institutions for any major crime to succeed. What the SWIFT (Society for Worldwide Interbank Financial Telecommunications) system is and how it's used to disrupt terrorist financing around the world. For better or worse, what role does cryptocurrency play in all of this? And much more... Full show notes and resources can be found here: jordanharbinger.com/863  This Episode Is Brought To You By Our Fine Sponsors: jordanharbinger.com/deals  Sign up for Six-Minute Networking — our free networking and relationship development mini course — at jordanharbinger.com/course!  Like this show? Please leave us a review here — even one sentence helps! Consider including your Twitter handle so we can thank you personally!See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

This episode is sponsored in part by Conspiruality Podcast. You know how I'm always talking about critical thinking and spotting manipulation? Well, there's a podcast that's all about dismantling new age cults, wellness grifters, and conspiracy mad yogis, basically the wild overlap of spirituality and misinformation. It's called the Conspiruality Podcast. The hosts, a journalist, cult researcher, and a philosophical skeptic, dive deep into how this stuff spreads, from Project 2025 and the Heritage Foundation's dystopian vision of the future to how former leftists get pulled into far-right conspiracies.

An interesting episode to check out is called Speaking Truth to Goop, where Jen Gunter breaks down the pseudoscience behind the wellness industry in a way that is super entertaining and eye-opening. It's sharp, funny, and makes you a lot harder to fool, which, if you listen to this show, you know I'm all about that. From exploring cults to analyzing our cultural and political landscape, the Conspiratuality Podcast will help you stay informed against misinformation and resist fear tactics.

Find Conspirality on Apple Podcasts, Spotify, and wherever you get your podcasts. Coming up next on the Jordan Harbinger Show. Again, if you ask me, where would you put your money, all your family's money, where would you advise your friends to put their money in China or Russia or in the U.S.? It's a ridiculous question, of course, in the U.S., in dollars.

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when it comes to financial policy of the United States, especially when it comes to using the financial power of the U.S. in diplomacy, conflict, fighting terror, terrorism, nuclear proliferation, international criminal organizations, and more. His bio is so long. It'd take half the show for me to even get through it. To start, he's the chairman and co-founder of the Center of Economic and Financial Power at the Foundation for Defense of Democracies, senior advisor at the Center for Strategic and International Studies, senior fellow at West Point's Combating Terrorism Center, as well as the author of Treasury's War, the book that we'll be

be focusing on here today. There's about 10 other things that I left more that I left out, because again, and we want to get to the discussion here. He was the first ever assistant secretary of the Treasury for terrorist financing and financial crimes. And that's what we're going to focus on here today. We're going to be discussing sanctions, what they are, how they work, do they work? How and why criminals need banks and financial institutions for any major crime to take place, including shipping, arms trafficking, even nuclear proliferation, terrorism, terror finance, money laundering,

Russia and Ukraine, China, Iran, North Korea, cryptocurrency, and more. And if you think this financial stuff sounds intimidating, maybe you even think it might be boring. Fear not, we keep this episode moving. And if a numskull like me can follow and enjoy the conversation, you definitely will as well. So here we go with Juan Zarate. I love this topic because financial warfare is something that, and is that the right term, by the way, financial warfare? Is it fair? I think it's fair.

I think economic coercion, economic statecraft are other terms of art. I think when you start using the word warfare, there's a lot of sensitivity to it. Sure. And especially when you're talking about the question of whether or not you're weaponizing the dollar or taking unfair advantage of sort of economic disparities or advantage in the marketplace, people get uncomfortable. Yeah. But I use it deliberately, and I used it deliberately in the title of the book, in part to kind of shock the senses to say,

look, like it or not, the economic and financial domain is a domain of conflict. and competition. It doesn't look like classic conflict, right? It's of a different sort. And frankly, our enemies and others understand this perhaps better than we do. And think about it all the time and our thinking about the use of their energy resources,

their companies, their currency in a much more deliberate way to affect their national security and the national security of their interests abroad. So it is proper to use it, but I think it's an uncomfortable term for many. You know, it didn't even occur to me until I said it out loud here on the show. I'm looking at my notes. And I was like, let's talk about

financial warfare. And I'm like, oh, yeah, warfare, though. Because on the one hand, we say, shame on Russia for their warfare in Ukraine. And it's like, but let's destroy the economy of this other country because they're doing something we don't like. And it's like, well, okay, let's maybe, I wanted to ask what you thought about that. But look, we've all heard of sanctions. We all kind of know what they are, but rarely do we know precisely what they are, how they operate. And I wanted to talk about Russia, China, North Korea. So we actually kind of have our work cut out for us in the next, you know, hour and change here. I love it. I love this stuff. And so I'm happy to talk about it and give your listeners a sense of how this all works and frankly why it's more

important now than ever. I think you read the headlines. Yeah. These are issues that are front and center in terms of international relations and national security. It always happens where my wife goes, so, all right, this is probably a dumb question, but what are sanctions? And I go, oh, I know this. And then I try to explain it. And I'm like, I'm not doing a good job of this at all in the reason is because even I don't fully understand the nuances of how this works. I think a lot of people, and we'll get into this in a second, but I think a lot of people, when you think of sanctions, it's like what? So they can't buy stuff. But what does that mean? So they can't use Amazon Prime, but there's got to be more to it, right? And I'd love to start with your connection to the financial

system. I don't need you to read your bio because it's long. You're on more corporate boards than years I've been allowed to rent a car. I did the math. So you've got a real inside look. at all of this, to say the least. You know, I came to this part through my role at the Treasury Department. This is right before 9-11. And, you know, frankly, I started as a federal prosecutor. I was a lawyer by training, interested in national security counterterrorism. I was on the USS Cole case, the East Africa bombings case, the Al-Qaeda case is, right,

as a young attorney. But I was asked to go over to the Treasury Department to fill a role. And frankly, I didn't quite know what Treasury did in the national security space. I had a sense of it, and I knew that they ran sanctions, and there was all sorts of other things that they were responsible for. I had no idea. So my entree into this world was as I walked into the Treasury Department and got to understand much more fundamentally what it was that Treasury did, what it regulated, what information it had, how it played in the international system. And it was that experience combined with three weeks later, 9-11 happening, and the question of how Treasury's

authorities, tools, information were going to be used to defend the country and to disrupt and dismantle terrorism and terrorist financing that really launched me into the space and got me to not just understand it better, but to begin to think about strategies as to how to use the American economic and financial system to our advantage, to attack our enemies, but also to protect it more fundamentally. And so that was really the entree. And obviously the experience has grown since then, you know, 20 years plus into it. initially thought when I started researching this, I was like, oh, this is the smallest part of us beating terrorism or rogue regimes, but not really, because when I started to research this,

terrorists, they admit they've been choked by U.S. finance. And other regimes, they do, they spend a lot of time, money, political capital, trying to get sanctions undone or loosened up so they can get a hold of assets, money that's been frozen. And we're talking about Iran, North Korea, Syria, kind of big talkers in the space of shit talking the West, right? And then they're like, but please give us our money back. We really need these. It's like, well, wait a minute. You're over here threatening to launch a nuke at Los Angeles.

And then on the other hand, you're basically having your diplomats beg and plead with everybody who will listen to get your $20 million out of some Chinese bank. So obviously, when it comes to what they're saying off camera, as we say in media, that's where the truth is told. And the truth is they need the U.S. dollar as much as they might hate the United States. I was talking with Yuval Noah Harari. And he was talking about stories

and the power of stories and how money is just a story. And he's like, but it's the most powerful story because if ISIS finds a million dollars, they don't light it on fire because they want death to the United States. They grab that money, protect it with their lives, and they put it in a bank or somewhere safe

so they can use it. Right? So even the most die-hard, apocalyptic, anti-US whatever, they need the dollar just as much as you and I do to pay our rent. Yeah, no, it's exactly right. And I get asked a lot about how do you think about the effectiveness of sanctions? How do you know they work? And Jordan, you just said it best, which is those that are targeted by sanctions feel the effects.

And what they feel the most is the lack of access, right? You ask what are sanctions? It's the lack of access to resources, to systems, to technology, and those that are subject to effective sanctions, at least, feel it in their bottom line. They are excised from the system. And to your point, the U.S. has enormous power here because of the attractiveness of our markets, the power of our economy, the role of the dollar is the chief reserve currency, chief trade currency. And to your point, everyone wants dollars.

You know, you look at the North Koreans, what do they counterfeit? They counterfeit at $100 bills, right? The super note. You looked at ISIS. you look at the drug trafficking organizations, they all want dollars, right? And all the major money laundering schemes are around how they get access to dollars or how they convert those dollars and put it into their pockets. So you're absolutely right. From a policy perspective, the way to think about this and the way to get more comfortable around the use of these authorities

is to think, you know, what tools do you have to affect something, like the Russian invasion of Ukraine or terrorist groups trying to operate globally and blow things up? Well, you can talk about it, or you've got diplomacy, you've got other things, that has limits. You've got prosecutions and things. You try to put people in jail. You've got kinetics, like dropping bombs on people or invading, you know, the hard military. But what do you have in between all of that? And in essence, the sanctions, financial measures, other economic tools to affect the

bottom line of whether it's a state or a company or a terrorist organization is that middle ground. It provides you the ability to influence, in the first instance, to deny access, but also maybe even to change their calculus. Because if you're changing their budget and their bottom line, you're forcing them to make choices, hard choices. And I often said at the Treasury Department, our job strategically was to make it harder, costlier, and riskier for America's enemies to raise and move money around the world. They were going to find ways around it, but I wanted to make it harder, costly, and riskier. And you've seen this with the Russian shadow fleet, trying to get around the oil sanctions and the oil cap. You've seen it with North Korean,

you know, hacks of crypto exchanges and the ransomware, the use of Lazarus Group. So they're going to try to find ways around it to get access to capital and things they need. But that's the essence of this power. And it sits between the talking of diplomacy and the hard power of our military. And that's why people resort to it so often. I love that you pointed this out. And by the way, for people who are like, wait, what is the hacking of cryptocurrency? There's a podcast called The Lazarus Heist. I don't know if you've ever heard of it, but it's pretty interesting. Yeah.

It's done well, and they talk the first season. I haven't listened to the second season yet, but the first season is about how North Korea essentially has this group of hackers, whether they're in North Korea or operating out of China, still sort of up in the air. Maybe you know more than I do about this where they are. I kind of assume they're in China, but whatever. And they go and they steal lots and lots and lots of money, especially from cryptocurrency exchanges because you can move it around, you can take it,

they can't claw it back. It's actually, if you're familiar with cryptocurrency, I know you are, but the listener, it's really, really hard to sort of undo those transactions, sometimes impossible and easier probably to launder a lot of those funds or at least put them somewhere where the U.S. government can't mess with them. And so this point that it's between that financial warfare or sanctions and, et cetera, are between a strongly worded letter from the United Nations as the, joke goes all the way on the other end to supplying High Mars to the Ukrainian military,

it's good to have this middle ground, regardless of what you think of coercion by the U.S. financial system, it's sort of, I would say it's better to have this than to go, okay, they didn't listen to our strongly worded letter, so we're going to run a beach invasion on the place because that's our only other option. Yeah, no, it's exactly right. And part of this is injecting in additional tools and variables to, you know, force a cost-benefit analysis, And part what's happening with the sanctions on Russia and Putin, which is sanctions are intended to deny the Russian economy and military, the ability to kind of perpetuate its war machine and the Treasury Department officials and others who are responsible for this, talk about it in those terms. But in essence, you're trying to make Putin make some hard decisions and to say, look, this is going to be costly for you.

If you continue this barbaric adventurism with your military, this is going to hurt your economy. your future prospects, your any foreign direct investment coming in. You've seen the flight of tech companies, other companies, other multinationals, not to mention tech talent and the rest. So that's part of the calculus here. It's making the targets understand that there are real costs, real world economic and financial costs and technical and commercial costs to behaving this way. Now, you can argue, do you overuse sanctions? Are they overly politicized? Are they being used for the right reasons. Those are all really important debates and the long-standing debate of, are you hurting the wrong people or the wrong elements? Those are really important questions and have been part of the

evolution of the use of sanctions. But at the end of the day, these are really valuable and important tools. And even those who say, look, we overuse these. We don't want to use them. Always come back to them because they are effective. They're more palatable than military power and use. And frankly, they give teeth to our diplomacy and they aid our law enforcement and intelligence and all the rest. And so it's a really exquisite power and tool that's been refined

over time. So basically we can alter, I think you wrote it this way in the book, we can alter the enemy's strategic behavior by altering its bottom line. And that's impressive because right, normally in order to alter strategic behavior, you have to blow something up or

occupy something. And this is cheaper and the resulting law of life is, of course, ideally a lot lower. People are going to say, yeah, but the sanctions on Russia aren't working. Can you speak to that a little bit? Because it certainly looked that way for the first, I don't know, 90 days, but now I'm not so sure. You know, it's a really important question because, you know, I am obviously somebody is a student of the use of sanctions. I've been a practitioner and certainly pontificate on their use and think they're important. At the same time, they're not a silver bullet. And I think we have to recognize that, right? So they're neither, you know,

unhelpful and unuseful, and they are also not the answer to all the world's problems. And I think when you get to more fundamental questions of national identity, national survival, things where, as with Putin or Kim Jong-un or the Iranian regime, where they're willing to die for whatever their cause is or whatever their set of actions look like, it's very hard for sanctions alone to change that fundamental calculus. That's why we often say, look, sanctions have to be part of a set of toolkits, has to be part of strategy, and you have to have other elements of pressure and influence and deterrence to actually affect some of these big, hard problems. But with respect to Russia, you know, you have to ask yourself, what are we asking the sanctions to do? For asking them

to roll back the tanks from eastern Ukraine and out of Georgia and other places, they're just not going to work that way. But are they damaging the Russian economy short, medium, and long term? The answer is absolutely yes. You look at GDP numbers. They're negative. The projections have been positive for this past year, absent the sanctions and absent the war. So you just have to look at GDP numbers, the contraction of the economy, the loss of foreign direct investment, the lowering of the value of the companies have been targeted, the clogging of the Russian ability to engage engage in commercial activities, financial activities, the difficulties, the oligarchs around Putin are having their desire to try to work around and evade sanctions and get off lists

and other things. These are all very clear signals that the Russian economy is hurting. And a lot of the things that the Russians did to backstop their economy initially with capital controls and with the central banks stepping in are not long-term solutions. They're short-term solutions to prop up the ruble and to ensure that the economy doesn't collapse completely. But that's hard to do longer term. The only other point I would make is this is hard stuff. It's hard to apply crippling sanctions against a major G20 economy, especially one that's an oil and energy giant like Russia.

And so the complications here have really been around how to deal with oil and energy, which is a major source, in fact, the predominant source of revenue for the Russian government. When we want those supplies to continue to be in the market, We don't want our European allies to be unnecessarily harmed. And frankly, we haven't established a sanctions regime where we're trying to choke the flow of Russian oil. We actually are allowing it. We're putting price caps on it in terms of maritime distribution.

We're seeing a lot of replacement in Europe, in the European markets, which is good. The reality is we haven't fully choked off the Russian economy. So that limits what you can expect the sanctions to do ultimately. Yeah, that makes sense. So sanctions, for people who are like, okay, what is this? It means you can't use the U.S. or banking system. And that means not just the banks of the United States, but I assume any other bank that also wants to do business with the U.S.

can't do business with Russia. Is that accurate? I think that is, but I think it's worth taking just a half step back toward because sanctions and financial measures have gotten really kind of intricate and complicated. So at the base level, a sanction, which is a law or regulation, that is intended to disallow access to the U.S. financial system or to U.S. goods or to services from U.S. citizens is a sanction, right? If you have a law regulation that's disallowing, let's say, trade with Cuba or, you know, oil trade or coal trade with Russia, that's a sanction.

You're disallowing some normal economic or financial activity. The way we use sanctions in the post-9-11 period was to very much target actors so that we would unplug them from the system. We wanted to prevent them from getting access, not just to the U.S. banking system, but broadly speaking, the international system, to not allow al-Qaeda bank accounts or to be able to wire money across the world to attack folks or to establish shell companies to move things around. And so that was sort of the strategy. What's happened over time as we've looked at more complicated targets like Venezuela or Iran or Russia that have serious economies is that there have been different targets to these measures.

So there's export controls. So certain technologies are now banned from being exported to Russia. For example, you know, for oil exploration or high-tech materials or technologies, you have a ban on certain types of investments. So debt and equity. So there are sanctions tied to actual financial products. You have sanctions tied to particular banks. So to your point, there are certain Russian banks that can't transact in the U.S.

and are largely excised from the international financial system. So there's a range of types of sanctions that are about disallowing access to the system and to particular goods and even currency. I guess, look, if the U.S. sanctions Cuba, but nobody else does, that puts them in a hard spot because they're 90 miles offshore and they're really small. But if you want to sanction a place like Russia, you can't just stand alone. You need everybody else or as many other people as possible and many other countries as possible to go along with that.

Otherwise, they just shift their trade from us to the EU and the rest of Asia. And it sucks for them, but it's not the end of the world, right? You need to gang up on them. Absolutely. I mean, it has been the mantra in the sanctions world that, you know, multilateral harmony with the application of sanctions is obviously the most effective way of imposing them. And the U.S. frankly, has been criticized at times for being too unilateral in the use of sanctions.

You know, there's often pressure for the U.S. to make sure that there are other countries, other currencies, other banking centers involved. I think the U.S. government has done a really nice job in the Russia context because even though you don't have China signing on directly or India signing on directly, you have all the major international currencies represented as a part of the bloc. that is sanctioning Russia, whether you're talking about the Swiss franc, the euro, the sterling, the yen, the dollar, you know, these are all the major currencies, which is important because you think about access to dollars and other currencies and FX. That's an important part

of the sanctions regime, as well as other key banking centers. So you don't have, you know, an obvious retreat for the Russian, you know, money or resources. There are challenges to this, of course, because there's lots of pockets of willingness to work with the Russians, to work with Russian capital. And that's why you've seen the U.S. government go after sanctions evasion and to pressure very aggressively in these other parts of the world. Yeah, because it seems like, okay, you're sanctioning me fine. I won't do business with the United States. So now I'm just going to do, now I'm going to move my money to a Chinese bank and that Chinese bank is going to handle all of my business. Problem solved. It took me three days to do that. But I guess if the United

States says to that Chinese bank, look, if we find out you're doing this with Russia, now your bank can't transact in the United States. And then that bank has to make a calculation, do we care about an economy the size of Italy that's invading its neighbors and embarrassing everyone? Or do we want to do business with the United States and all of their allies, which is 100x the size of this particular amount of money? And then the calculation changes. But you have to investigate and enforce that, right? That's got to be tricky. It's exactly right. I mean, you explained it so well, Jordan. frankly, a lot of people, including the diplomatic community, don't understand it the way you just described it.

And it's really important. That sucks. That's shocking and disappointing. There's a calculus here. And even in the context of Russia, to your point, you know, Chinese banks have decided, especially in places like Singapore or more international markets, that they're, frankly, going to comply with the sanctions. Even though Chinese government is not forcing them to and certainly hasn't abided by that broader policy, but the market realities are there.

If you want to be a legitimate actor in the international financial system, you can't be doing business with rogue regimes, rogue actors, you can't be banking drug traffickers, you can't have terrorist financiers, you know, wiring money through your platforms or whatever. There is an international market discipline around the risk of doing business with rogue capital rogue actors that becomes a part of the calculus.

And you're exactly right. Post 9-11, in some ways, we stoked that intentionally. We wanted the market, the banks in particular, but other financial institutions to grapple with the reality of that risk and to say, do you want to do business with al-Qaeda fronts? Do you want to do business with the Iranian Revolutionary Guard Corps, which controls 40% of the economy and a lot of the natural resources in the oil fields? Do you want to do business with the North Koreans operating through China, through shell companies, et cetera? And the answer is obviously no.

If you want to be legitimate, you want access to the U.S. system, you want access to the U.K., Europe, et cetera. And it's not just a U.S. thing anymore. And you've seen this in the Russian context, even with China where the Europeans have signaled to a number of Chinese companies that they may be subject to European sanctions because those Chinese companies seem to be supplying weapons and other material to the Russian military. So it has global impact. It's not just whether or not someone wants to shop in New York or San Francisco.

It's do you want to be legitimate and be able to operate in the global system? I know crypto platforms had that for a while, right? Back in the day, like 2015 or 2016, when I got into Bitcoin, it was like, all right, whatever. You say your name is Joe Blow and this is your fake email

and you say you live somewhere outside the United States. All right, here's your account. and then you log in a year or two later, and it's like, hey, we notice you're in the United States. Please fill out all of this AML anti-money laundering stuff and then upload a picture of your ID, and then you can't transact until we verify that. Then we might call you, and we're going to mail you a letter

so you can withdraw more than, I don't know, $1,000 at a month or whatever it is. And I was like, oh, this is real now. They finally have decided they don't want to get whatever, shut down by the Treasury Department, and they figured out that drug dealers are using Bitcoin all over the world. world or arms dealers, they're joining the real world, which is, I guess what happens when you sign it for a bank account. They just don't tell you. They check your ID and they're probably doing

the same thing. But when it's online, you really get an inside look at, wow, they're making sure I'm not a fake person. I'm not a cutout. That's exactly right. And, you know, I've been fortunate. I've advised Coinbase since almost its founding. I was its first independent advisor to Brian and Fred, you know, Brian Armstrong and Fred Arsum. The reality was that that economy, those platforms, exchanges were going to be regulated. The question was by whom and how and how far. And it was pretty clear that crypto is being viewed through the lens of risk, first and foremost. Consumer fraud risk, money laundering risk, potentially systemic risk, if it gained enough

volume in users. And I think the announcement of Libra by Facebook really kind of open the aperture to, oh, my goodness, this could actually be really big and global and systemic. Relevant. Throwback to a cryptocurrency that nobody ever used. Kind of funny. Yeah, it became DM and then and then it faded away. But in any event, you're absolutely right. So both the regulators have caught up to the fact that crypto isn't going away. These platforms are real. They're part of the financial system. Right. There was this euphoria around them. It, I think, was, you know, kind of masked a little bit of the immaturity of the system generally. So the regulators are coming at it. You've got legitimate actors like

the Coinbases, the circles, and others in the world saying to operate long term and legitimately, we've got to have these systems in place. We've got to know our customer. We've got to make sure we're not operating with people in North Korea or Iran, that we've got a sanction screen. So all of these things are at play when you've got platforms or technologies or tokens, if you will, that are now part of the financial system. Because in the post-9-11 world in particular, but even post-1970s with the Bank Secrecy Act, we've intentionally said we do not want the banking system to be misused by criminals, money launderers, and the rest.

And it has become now a national security issue in that context. And so nobody gets an Ali-Ali-Axin free here with with with with with the respect to worrying about who you're doing business with and how. Although, as the kids say, Mossack-Fonseca, Panama Papers has entered the chat. Yeah. There's a lot of...

Well, yeah, there's a lot of... Well, yeah, there's a lot of dark corners of the system, some bigger alleyways and corners than others. And I still think we're going to see some reckoning in the crypto context for a lot of past behavior that wasn't well regulated or well understood. So I think there will inevitably always be these dark corners and these enablers. And we see this all the time that are helping Russian oligarchs move their money or state actors, established shell companies. These things really exist and, you know, authorities go after them and target them and eventually find them. You're listening to The Jordan Harbinger Show with our guest, Juan Zarate. We'll be right back.

If you're wondering how I managed to book all these great authors, thinkers, and creators every single week, it's because of my network, and I'm teaching you how to build your network for free over at jordanharbinger.com slash course. The course is all about improving your relationship building skills, developing relationships with the right people at the right time and the right way. It's not cringy, it's not gross, it's not schmoozy. You're not going to feel weird or awkward doing this. It's going to take a few minutes a day. And many of the guests on our show, subscribe and contribute to the course.

So come join us. You'll be in smart company and sharing nuclear technology with your friends and family all over the world before you know it. You can find the course at Jordan Harbinger.com slash course. Now, back to Juan Zarate. Have you seen The Laundromat on Netflix with Antonio Banderas and like Merrill Streep or whatever? I'm sorry to say I have. but I will now.

It's about Mossick Fonseca. And I think Antonio Banderas and Gary Oldman or whoever, they play those two legal partners, those law partners. They try to make it really funny. I guess the premise is something like Merrill Street wants to buy an apartment that overlooks where she met her dead husband

and some Russian money launderers get it. And she's like, what the hell is this? And she just starts digging and finds how this all works and they expose it. It's really interesting. I mean, there's not a whole lot of movies that are kind of a comedy that are about the global financial system.

So it's basically right in your, it's right up your alley. It sounds like it's pretty well done. Yeah, yeah. Yeah. No, but, you know, the Panama papers, the, you know, the FinCEN leaks, all of these things that have come out,

have been really instructive, I think, to the public to see kind of the seedy underworld of this. And, you know, there is a shadow world here of actors that are trying to evade scrutiny, evade sanctions, evade taxes. There's lots of interesting questions about are there limits to transparency, right? Because, you know, transparency is not the same as exposure. Transparency is about the ability to understand relationships and flows, source of wealth,

source of funds. But you get into some dicey questions when there's security issues involved. You've got people living in places like Venezuela or even China, where you know the authorities are looking very closely at the wealth and access that people have. So anyways, there are some interesting questions there. That's true. I have a, we have show fans in Venice. who move freely from Venezuela inside and outside. And I thought, I asked them, I was like, how do you do that? Because aren't you sort of under sanction? And when you ask them these questions and they are feeling comfortable, it's really interesting.

You get guys who have a job in Florida and it's kind of, you know, it's legal because they're essentially, they fled, but they want to go back and see their family. But you can't just book a Caracas flight because of, well, if they exist, you can't really do it that easily. There was something like they weren't supposed to leave in the first place. and now they're not supposed to come back and leave freely. So they go to Columbia and they basically smuggle themselves across the border so they can visit their parents, which is very odd. But I would imagine if a 28-year-old kid can do that, somebody smuggling a briefcase full of cash can do that

and probably does do that every single day a hundred times. Yeah, and in particular in the Venezuelan context, you have a government that is very much willing to engage in criminal activity. So they've got relationships with drug, trafficking organizations. They run some of those rings. They're controlling elements of, you know, the environmental degradation, the illegal mining, all these things, deforestation that are happening. So, you know, Venezuela is a very hard case because you have a population in need of resources. And, you know, a country that used to be one of the most advanced and economically forward-looking

in the hemisphere is now totally impoverished with people in dire needs. So you've got that. You've got a corrupt regime. From a national security perspective, it's a problem because it's a regime that likes to play footsie with the Iranians and the Russians and let them sort of hang out in Caracas like it's Casablanca in World War II. And a lot of movement of money that is intended to not be seen or tracked. And so you've got planes coming in and out with supplies and people, lots of smuggling happening. And to your point, Jordan, lots of things that can happen across poorest borders when it comes to Venezuela. The more I think about that country, the sadder it is, right? Because it really was sort of an economic, I don't want to say paradise, but certainly

advanced like you said. So if you're my age 43 and you grew up in Venezuela, your entire future was stolen from you. You were supposed to be living really well and have a great education and a great life experience. But now everyone you know or a lot of the people you know are looking in dumpsters so they can eat. It's just, it's really horrifying. It's astonishing. You know, my mom is Cuban. And so In a sense, we live through this and watched sort of what happened to Cuba through that lens. And I've got a lot of Venezuelan friends. The amount of advancement, the professionalism, all of the things that were happening in Venezuela, it wasn't that everyone was a doctor or engineer in Venezuela or that poverty had been solved.

But that was a serious economy with serious professionals, serious businesses, and it's been turned into a poverty-stricken criminal state. where people are just struggling to survive, to your point. And it's really sad to see. When we exclude countries from the financial system, is it sort of a virtuous cycle in that the more they are excluded from the financial system, the more bad actors have to engage in riskier financial behavior

or maybe even just more suspicious financial behavior? It seems like if you shift, let's say, a drug cartel from using HSBC, for example, maybe I shouldn't name a bank. But there's a few bad, quote-unquote bad, banks that got in trouble for this. If we push them from that and then they have to go to some smaller bank that's headquartered in a shadier corner, is that a benefit because we can see the money more easily in the system and it's less efficient for them to use?

Absolutely. And just full disclosure for you and the listeners, I've worked with HSBC for the last decade after they got into trouble. They had a deferred prosecution agreement for a lot of the things you're mentioning, you know, lack of anti-money laundering controls, movement of drug money through their bank, especially in Mexico. But in a event, so I've worked to help them through those problems. But you're absolutely right. There's a hunter's trap dimension to this, which is the more that these targeted actors try to evade sanctions,

create alternatives, hide their hand, the more it's suspicious and the more that they kind of paint themselves into a bit of a corner or tighten the hunter's trap, if you will. This is also why it's hard for legitimate, actors or economies, think of the Chinese with the Russians, to go full in to participate with a targeted economy or a targeted set of actors. The last thing a big Chinese bank wants to do is to get wrapped up into not just a sanctioned relationship, but also all of the machinations that

go along with it. And so they want to avoid the taint. They want to avoid the entanglement. and to your point, there is a real targeting effort to look at where these bad actors go, how they try to evade sanctions. We hear murmurs of these, maybe not even murmurs, I mean, these are news articles, of countries like Brazil, Russia, China, the bricks, right? South Africa apparently is now the ass. It used to just be a plural thing. But they're trying to form another monetary union or organization to make sure that the dollar

isn't the primary reserve currency. and that would take away the United States and allies power to implement sanctions and probably a whole host of other things. How likely is this? Because it sort of sounds like a fever dream of rogue regimes to do something like this, but they all have to trust each other and they're all sort of run by kooky dictate, not Brazil, but a lot of them are run by kooky dictators who do a lot of stuff that's even against their own interests, let alone are they going to cooperate on the world stage?

So to me it seems ridiculous, but obviously I don't. really know this stuff like you do? It's a great question. It's a really important one. And there's a lot of focus in D.C. and in other kind of academic circles around this issue, a key question in the application of sanctions is what are the negative externalities? What are the things that result from this that we don't want to see happen? We don't want innocent people hurt. We want to make sure that humanitarian aid can get into places. When there's an earthquake in Iran, we want people to be able to go in and help people, you know, recover and survive. A big systemic.

question is, do we inadvertently, with the use of sanctions, drive the rogue actors together? I often call it, and I called it in the book, the Alliance of Financial Rogues. Do you inadvertently start to create this alternate universe or incentives to create alternate platforms and ways of interacting that are outside, not just the U.S. financial system, but the traditional financial system? And does that give enemy actors access to capital and things that they wouldn't otherwise have access to. And so that concern is very real. Now, does what the bricks, you know, what they're imagining really work? I think the first barrier to entry is, as you said, trust for a currency to

take hold or for platforms or financial relationships to take hold. There has to be trust in the system, that money will be credited, that the information is going to be secure, that, you know, there's a system to this that can be trusted. And frankly, this is one of the things that American policymakers, I remember Hank Paulson, former Treasury Secretary, former Goldman executive, used to say, we're tending to the magnificent glass house. And what he was referring to was we have predominance and guardianship over this financial system. And we've got to be careful not to throw too many stones or do too many things to upset the glass house. And there is a question here of, are we allowing the rogue actors to begin to create alternative?

But the first barrier to entry is trust in the system, and they've got a hard time with that. The second is scope and scale. The dollar is chief reserve currency, the chief trading currency. It doesn't always have to be that. Certainly the internationalization of the Remnant B, the Chinese currency is an attempt to attack it. The creation of the digital one, the central bank digital currency from China is an attempt to create a digital alternative, and you've got some pilots happening along those lines. The challenge to the traditional system is real.

and Russians have been pushing for this for some time. In 2014, they established alternatives to the Swift Bank messaging system, which is the existing global switchboard between the international banks. They've tried to create alternatives. They operate, but not really at scale. I think there isn't an immediate challenge, but I think policymakers are keeping a close eye on this, and there is more and more discussion about how do you reinforce and defend the role of the dollar, not just for purposes of national security, but for purposes of economic health and our ability to do quite a lot of different things because the dollar is really, you know, the chief reserve currency around the world. When you look at the United States. If we're bullying somebody,

you know, you look at the sort of least charitable interpretation of what we might be doing with finance. You can at least argue, all right, well, these are Western chauvinists. They only care about the West. Look at these jerks. But when you talk about Russia and China, you're not even saying they're doing the best thing for Russia and China. They're often just doing the best thing for Vladimir Putin and the 50 guys that own all of the kleptocrats that are in Russia. They're really not looking out for their own country, let alone for some block of the greater portion of the planet. Yeah. And so that worries me, you know. I think that's absolutely right. And I think it devolves back to this question of can you trust the currency, can you trust the platforms, can you trust the system?

The Chinese have capital controls. The Chinese are using every bit of information about their own citizens and others to the government's advantage. The digital wand will be another form of information that the government in China is hoovering up to then use for God knows what purpose, whether it's social credit scores for the Chinese or some other targeting purpose internationally. I think you're right. There is a fundamental question of can you trust whatever the alternative is? There's also the reality that, again, it's not just the U.S. alone. It's the G7 economies that subscribe to this system and are a part of it. And, you know, created the World Bank, created the IMF.

And, you know, it's not just the U.S. dollar. It's these other currencies that are really important, which harkens back to what I was saying with respect to Russia's sanctions. Part of the reason they've been effective and have felt multilateral is you've got these other currencies and these other countries very much. much invested in their application, that's hard to rupture, hard to replace the dollar and the sterling and the euro and the yen and the Swiss franc for a bricks alternative or a digital wand. Right.

Is that really what, you know, the international marketplace is looking for? I'm not sure. I'd be hesitant to put over a few grand in each one of those, let alone the entire treasury of my country if I ran one. Exactly. And then just praying that they don't do anything like, Oh, we're going to manipulate this because it's good for us this week. And sorry that it bankrupts every investment that you made over the past decade, but that's not really our concern. Or you're too small to do anything about this. Or we're going to expropriate, you know, whatever assets you have here

without any semblance of rule of law or recourse or anything like that. The Swift system, you mentioned earlier, all I kind of know about this is it seems like area codes for banks. I need these codes when I wire money to somebody. And if somebody wires money to me, I need to tell them, here's the Swift Code. And I know we cut Russia out of this, but tell us what this is and why that's a big deal.

It's a great question. Swift is, in essence, a nonprofit consortium among the G10 central banks that was established to basically be the switchboard of the international banking system. That is to say, as you said, Jordan, banks are wiring, whether individually or in batch, lots of transactions, wires from, you know,

one bank in Germany, to another bank in Japan or a bank in the UK to a bank in the U.S. There's this switchboard system that has the types of codes and information required to be able to transfer that and to credit those wires and those transactions. And so it has become the essential, in some ways, utility for allowing the bank messaging to happen and transactions to happen securely and effectively and efficiently. with everybody understanding what the rules of the road are, the information needed, et cetera. And all banks have a SWIFT code, right?

Every bank has a SWIFT code with your point, an area code. And if you want to do any sort of transactions internationally, you've got to have a SWIFT code. You've got to be engaged. In recent years, there's been a question in the context of sanctions, should we allow certain targeted economies or in particular banks like North Korean banks to have access to SWIF? Because to have access to SWIFT is to allow for international exchange of financial information and transactionality. And we've moved to a point where certain banks, certain North Korean banks, certain Iranian banks,

and now certain Russian banks, not all Russian banks, but some have been unplugged from that system, are not allowed to transact in and through SWIFT. And so what that means is they're not part of the switchboard. They're not part of the system. So they've got to find alternate ways, if they're going to try to move money out of Russia or out of Iran, they've got to find other ways of doing that. They can send fax messages. They can, you know, send bulk cash. They can, as we've seen in their reigning context, with Turkey in the past, they can engage in barter. You know, send me this. I'll send you that in terms of material. It's incredibly hard to operate as a legitimate financial institution without being able to operate on the swift system. And that has become a threatened tool in this sort of financial warfare landscape. And I'll just one quick point on this, Jordan, in 2014 when we had the Russian invasion of Crimea and the eastern parts of Ukraine, when there was talk of maximum species of sanctions in the U.S.,

especially out of the Congress, Congress said, and the certain officials said, we should desift all the Russian banks, basically unplugged Russian banks from the system. On two occasions, senior Russian officials said, if you take that measure, we will consider it an act of war. It reveals a couple of things. One, how important Swift is to a banking system and its legitimacy and its ability to transact. And secondly, the fact that the Russians, way back in 2014, recognized that there is economic and financial warfare underway. They have very much viewed it as part of their hybrid warfare, their irregular warfare.

I think we're now just realizing it as we are deploying sanctions as a part of a reaction to their further invasion of Ukraine. I know a lot of my cybersecurity friends were worried that when we unplug them from Swift, they were going to send their offensive cyber capabilities against the Swift system and try to destroy it or disrupt it heavily, which I guess maybe has not happened, although who knows if they're busy fighting off hackers every single day over there at Swift and securing everything because of that. Because it seems like if it's so important to everybody, but you unplug Russia from it, now their incentive really is to just give everyone the finger by making it not work anymore. Yeah. Well, it's interesting here is, as we were talking about earlier, the patchwork of Russia sanctions.

And so not all the Russian banks are off SWIFT, in part because you want to allow some of the oil payments to go through. For that to happen, these banks have to be on the SWIF system. So the Russians don't want to, you know, destroy it either because they're still benefiting from it. And so there's an argument then that it says, look, you don't want to give the targeted actors, you know, every incentive to actually destroy elements of the system if they can. You want to give them some stake in the way it operates so they're not taking a full frontal assault on the SWIFT system or key American banks or other facilities or utilities around the world that are important. for the global system. Interesting. I wonder if that's why North Korea hasn't targeted it yet, or maybe they have, but maybe Russia said, look, man, if you screw with this, you're screwing with us too now. So find something else to rob and destroy. You know, the North Koreans pay a lot of attention

to what the Chinese say and do. And again, this is part of the entanglement of the Chinese economy globally, certainly to the U.S. economy, but globally. And also this debate about the decoupling of the economies that's happening, both on the Chinese side and on the the Western side, but the Chinese have a deep interest in making sure the current system doesn't fail. Frankly, they have a deep interest that their dollar-backed assets and treasuries that they've invested a lot of resources in don't fail. Yeah. And so there is, and I've made this argument in pieces that I've written with respect to cybersecurity, that there's something very important about understanding who the systemic actors are and who isn't, and how do you incentivize

even rogue actors or bad actors or marginally bad actors from wanting to destroy the underlying system. And in some ways, the North Koreans are kind of ultra rogue, and so it wouldn't surprise me if they're trying to do all sorts of crazy things, and Swift is defending itself. But the Chinese don't have an interest in destroying the system. They have an interest in creating an alternative, perhaps, to the U.S. back system or even the U.S. dollar,

but they don't want to destroy it while they're building that in parallel. You mentioned in the book about terrorist financing and how it's often hidden in charity funds or other legitimate money transfers. How do you separate those? It's got to be so hard to do that. How do you determine what's funding a terrorist sleeper cell and what's funding an orphanage in Lebanon? This is one of the hardest problems in the field of counterterrorist financing and illicit finance. And frankly, the bad guys prey on this. It's a little bit like the use of human shields. There's the use of, co-mingling of assets and of nonprofits, orphanages. In the case of money launderers, they're great at co-mingling legitimate commercial assets with illicit activity and illicit funds. So the ability of disentangle is really hard when, in fact, the bad guys are doing everything possible to mix it. In fact, you know, you just think about the crypto domain. I think one of

the areas of focus for authorities is looking at tumblers and mixers. for precisely this reason, right? Because if you can't understand the origins of funds, the source of wealth, source of funds, you don't understand the ultimate beneficiary, you're kind of blind and you can't then figure it out. You can't figure out what's legitimate, what's not. Early days post-9-11, we had a very aggressive approach in part because it wasn't quite sure what was coming next. And there were so many blind spots with respect to al-Qaeda, how was operating, what operations and plots were next, what does financial networks look like? And so we took a much more aggressive preventative posture to say, even if we can't prove that it's 50% bad, 50% good, if this is being used by Al Qaeda, we're going to have to kind of cabinet and excise it from the system and not allow al-Qaeda access to it.

That's a challenge, though, when you do have charities, and Hamas and Hezbollah do this all the time where they're operating schools and charities and hospitals, that's helping real people. And so it gets very difficult to decipher what's good and bad. We've tried to implant humanitarian exceptions into the sanctions regimes. The Biden administration has amplified that in recent months. That's really important because you do want people to get access to things that they need. But it gets really hard, gets really hard in the context of Afghanistan, where a terrorist group controls the whole government now, controls the whole economy. How do you make sure that money going in isn't going into the wrong hand?

And at a certain point, you've got to make some risk judgments, and you either have to decide you're going to shut things down wholesale and provide alternatives, or you know, you're maybe just kind of, you're going to have to let things go. And you've seen that with the international community in Afghanistan, because the needs are so dire, and we don't have the ability to work around the Taliban. Frankly, this is where crypto might come in handy, frankly. And so you have these cases where it's really difficult to do that. And I think, you you've pointed to one of the most difficult aspects of countering terrorist financing, countering money laundering. I was going to say it's like got to be looking for a needle in a haystack, but it's actually more like looking for a needle in a needle stack because it's all money. Yeah. And there's two dimensions to this. One is you have terrorist groups that have established organizations,

whether they're front companies or charities or institutions that are theirs or that they control in some form of fashion. And so that gets easier to target. You know, this is a Hezbollah front, right? You know that this is a Hezbollah regional manager. You know that this is an al-Qaeda treasurer. When that happens, it's a little easier than to do the targeting, even if they're doing good things, but you at least know that it's operating.

It gets more insidious and more difficult when you've got legitimate organizations, and then they find their way in, they embed in, or they commingle funds. That then is even more difficult because you're then trying to figure out who's good guy, who's bad guy. How do you decipher what you're trying to excise and then how do you target as a result? This is the Jordan Harbinger show with our guest, Juan Zarate. We'll be right back. If you like this episode of the show, I invite you to do what other smart and considerate listeners do, which is take a moment and support our sponsors. I know you think, Jordan, you already have enough support. I don't need to do this. Every little bit counts. You'd be surprised. There's a lot of times

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You can always search for any sponsor using the AI chatbot on the website as well. You can even email me and I'll dig up a code for you. Seriously, I'd rather do that than have you not use one of our codes. So really, Jordan at Jordan Harbinger. as a last resort, thank you so much for supporting those who support the show. Now for the rest of my conversation with Juan Zarate. How do you shut down a charity that's run by a specific religion without looking like you're targeting one, that specific religion itself, or, and you mentioned

this before, a lot of Islamic charities, especially they fill gaps in social services that the state just can't or doesn't provide. So I'm thinking of Hamas, for example, or Hasbalah, that runs hospitals, education, but also launches missiles over the border to blow up. kids on farms. It's really hard. You can dismantle the charity and interrupt terrorist cash, but then you piss off all these people that charity served and you're creating more enemies as a result because people aren't going to say, all right, the United States cut off terror financing. They're going to say the U.S. just made sure that we don't get hospitals and schools in our area. They're even worse than I thought. No, it's a great question. One, we struggle with,

I struggled with directly in that post-9-11 period, in part because we were being aggressive and there was fallout. You know, charities were being closed down. Money had stopped flowing to certain parts of the world. Donors had dried up their willingness to give money because they were scared of getting caught up in some al-Qaeda scheme or Hamas scheme, et cetera. So we had to deal with it.

First thing to keep in mind, and it's important for your listeners to understand, there is an important debate. It's resolved in the U.S. context, but there is a debate about, can you treat these groups separately, right? Is Hezbollah as a whole, in all of its activities, bad, or can you say, look, there's a militant wing, and then there's a

social wing, there's a political wing. The U.S. government has, by policy, said, look, it's all the same stuff. The funds are commingled. There is no real difference between the social committee and the militant committee. They're all the same folks, and they're all in service and the same goals. So we're going to treat them the same. That then creates the complications you described, Jordan. And I think there you then have to do other things, not just target. You have to to do other things to fill the gap. You've got to have USAID and other charities filling the gap where charities are shutting down.

You've got to have other local authorities step in. We've had these discussions with the Palestinian Authority, often in the context of Hamas or the Lebanese government and authorities. And we also have to make sure that in moments of crisis, we're seen as a source of resources and of help, even if territory or government is under sanctioned. that's not easy to do, but you've got to do it. You've got to do it because you don't want,

first of all, you don't want innocent people hurt, but you also don't want the sanctions to backfire. And you don't want the bad guys to constantly use the sanctions like we've seen the Castro regime, we've seen terrorist groups, you know, blame the U.S. and make the sanctions the boogeyman for everyone's ills. And I think that's really important

to deal with those externalities directly. Yeah, it's interesting you mentioned Cuba because there's so many people when you, any Cuba discussion online is always, this country would be fine. It's not communism that's bad. It's the fact that they've been cut out of the economic system. And then someone will say,

okay, but why is this bad when we have a humanitarian exception? Well, that was only put in place from Obama. So it's kind of a tough web to untangle. My gut says Cuba would be poor, would not be doing so well because they have a terrible government any way you slice it. But I can't really prove that. Do you have any thoughts on that?

Yeah, I know. I've got a lot of thoughts on this. The Cuban government once called me Bush's mercenary. Compliment, I suppose? I don't know. Yeah, I take it as a compliment. It's a badge of honor. You know, Cuba's been trading with the rest of the world for, in essence, the amount of time of our embargo and sanction.

We're not stopping shipments of things going in and out of Havana. We're not, you know, occupying the Spanish and Mexican hotels on Varadero Beach. Cuba's been able to deal with the rest of the world. Canadian tourists and Europeans and Russians, of course, over time. So it's not as if the U.S. has actually imposed a full-throttled embargo and a choking of the financial system around Cuba. We've limited what the U.S. citizens, U.S. institutions can do. We've at times maybe threatened other institutions or entities. But it's not a full-throttled campaign, but it has become the boogeyman for the regime to excuse

all of their mismanagement, everything that's wrong with the Cuban economy, has been blamed on the sanctions. And so we've got to deal with that reality. My personal opinion is we shouldn't be doing anything that further empowers that regime. We shouldn't make it easier for them to enrich themselves because they do. We shouldn't make it easier for them to deepen their security state and establishment because they've got, you know, really sophisticated spy networks internally and externally. We shouldn't give them the ability to facilitate militant activity or relations with rogue regimes like hosting the Russians, these kinds of things. We shouldn't be doing anything to help that. At the same time, we should be doing things to help the Cuban people and frankly to empower

other elements of the Cuban system and economy that are kind of ripe for growth. I think there are ways of doing that without giving up all of our resources and leverage with the Cuban regime. And I think we've done this kind of on-off switch too much. And I think there's a there's a Goldilocks approach here where we incentivize the private sector and person-to-person exchanges, person-to-person investment or institutional investment that doesn't involve the government and that puts the on us on the government to determine how much they want in and out or out. And it's really up to them based on their behavior and how they allow their citizens to operate. Going back to terrorist financing, what sort of things are you looking for when you're

looking for that? You know, airline tickets for terrorists, they used to say, like, okay, one of these red flags is a one-way ticket and they buy it in cash at the last minute. Remember that, the whole thing? Like, no, we've got to look for those. Is there an equivalent of that for finance? Like, okay, this person opened a new account and immediately put $5 million in it. That's weird.

Or is there something along the lines of this? Yeah, so there are red flags that regulators and there are these things called financial intelligence units look for in suspicious activity that's reported to them by banks. And there's also things that banks are looking for in terms of anomalous behavior, anomalous activity for their clients for lots of different reasons, right? For fraud, for financial crime, for drug trafficking, money laundering, for human trafficking, and then for terrorist financing. And so there are certain red flags that you look at. Some of this has to do where institutions operate. Are they operating in places where there's a predominance of control or operations of a terrorist group? And so, you know, geography plays a role in that.

You look at the nature of the actors themselves. And so there's a lot of, in the post-911 period, a lot of diligence and analysis around networks. who's actually involved in these things, and are you one step removed from a known terrorist actor or a facilitator? That's happened a lot in Europe, where you've seen a lot of these networks proliferate over time. Do you have quick cashing out of accounts that have remained relatively quiet for a while, but suddenly you see cash moving out in suspicious ways? That's happened in some of the European attacks, for example, that we've seen. Do you have the opening, of certain charitable accounts that didn't exist before and don't quite make sense given the

customer profile or the activity of that charity. And are there suspicious inflows and outflows as a result? Is there over-reliance on cash in an environment where you wouldn't expect that, right? So there's all sorts of triggers that are built into rules and models and screening, as well as people are trained toward to look for suspicious activity. But for terrorist financing, I think a big challenge is, especially for some of these smaller attacks, it doesn't take a lot to fund some of these attacks, and it's hard to distinguish what may be suspicious financial criminal activity from terrorist financing activity. Those methodologies, those typologies have kind of morphed and changed over time, and it's not an easy challenge to overcome.

It seems really tough. It's funny, as you mentioned this, I remember, I got kicked out of a Chase Bank about 12 years ago, 13 years ago, because I lived in New York. I mean, it was about 14 years go, I lived in New York City, and I had roommates, and they said, hey, we're going to give you your rent on the first of every month for the following month, because I didn't want to have to front them cash, because, you know, and pay the rent and they get it later. So I wanted to open up a safety deposit box, and I went in that room, and I counted out like $4,000 in cash, and the woman, the manager came in and was like, I can't, you can't be a customer here.

And I said, why? And she goes, I'm watching you count cash on the camera. And I said, yeah, I'm putting cash in a safety deposit box because it's not mine. It's rent money from my roommates. I don't want to put it in my bank account and then take it out and da-da-da-da. And she's like, I believe you, but I can't let you open a safety deposit box, which I thought was ridiculous coming from a place like that. But, you know, I digress.

I understand why it looks suspicious, but like, come on, man. It's four grand. I'm an attorney on Wall Street. It's like, it's not like a suspicious. It's not that suspicious. I don't have facial tattoos in a visible scar or something, right? I'm not a drug dealer, but that's what she's. assumed was going on. But it's an interesting vignette because what you've seen in the banking world

is sort of acute sensitivity to this risk post-9-11. And that helps explain why these tools are so powerful when they're targeted at real bad actors, not you, Jordan, but real bad actors. But it also shows how, you know, major financial institutions have embedded this risk calculus around, well, I can kind of get my head around what my customers tell me, but it's unusual. Yeah. It's different. It's not worth our effort to try to figure it out. So guess what?

I'm not going to let you do it. Yeah. That's the problem of derisking that we've seen and isn't a negative externality because you've had U.S. banks, for example, get out of countries because it's just too risky, too corrupt the environment and it's not worth their while. But you may want a U.S. or a Western bank in that country, right? You don't want a Russian bank or a Chinese bank. Maybe you want a U.S. bank.

So that's not great. And then you've got segments of populations that aren't able to bank. And so think about somebody in the Somali diaspora. Yeah. That wants to send money into Somaliland or Puntland or into Mogadishu. You know, that starts to get dicey. And there's been a challenge of access from the Somali diaspora in the U.S., the U.S., the U.S., the U.S., the U.S., and elsewhere, to banking services, precisely because of the perceived

last mile risk, as it's called, of, you know, this could get into the hands of a pirate, a terrorist, some corrupt warlord. Chase doesn't want anything to do with that. Right. And it's not worth their while, right? And that's the challenge of derisking. So I have to cap this, that story. As I was leaving, the manager walked up to me and whispered, all you have to do is go to a different chase. You just can't bank here. It's totally fine. Just don't count the money. Count it before you come in. And I thought like, okay, so not only am I not a criminal, but you're telling me how to do the criminal thing that you're supposedly preventing at another branch just because you saw me on camera.

This is so ridiculous. It was just the worst possible outcome because I thought, okay, look at you defending the rules, you know, better safe and sorry. And then she was like, here's how you defeat these rules. I just don't want to get in trouble at this branch. And I thought like, ah, this is the worst. That's a total kabuki dance.

Yeah, that's terrible. Yeah, because I was like, wow, so now you're assuming I am a drug dealer, as you said, and you just don't care. It's like even worse than it was before. That's the worst of all works. Yeah, it's the worst case scenario. I don't bank a chase.

And now I can't because of this episode. Never going to be allowed to bank there again. Now I'm tainted by it too, Jordan. I'm in trouble. You're welcome. You were already. You're on the HSBC committee, so they already hate you. By the way, I'm listed by the Iranians and the Russians, so I'm on their sanctions list.

Well, you won't be having any vacations in Tehran or Moscow anytime soon. Neither will I. Yeah, no. Are you able to go to China? or is that a bad idea for you too? No, I've been to China and in the private sector, we have some Chinese clients. And so we could go there. You know, it's interesting what's happening in China now because there is a crackdown

on American, Western, Japanese companies. And in particular, you know, where I might have second thoughts is they're cracking down on, you know, companies like ours, which are engaged in business, due diligence, regulatory and compliance work. Our fundamentals are about helping clients. be more transparent, getting access to more data, understanding counterparty risk. The Chinese don't seem to like that these days. They're clamping down.

They expanded their espionage law. So I think, you know, there's a lot of Westerners thinking about their exposure to China. I would go if I needed to. This is an interesting time, though, for Westerners going in and out of China. I've done a lot of shows about China. I don't think I'm going to be able to go back just because people are like, hey, you might get arrested like other people have for kind of just not doing anything or time. talking negatively about the CCP.

There is the vagaries of both their laws and their enforcement and their aggressive enforcement, but it's also the expansion of their national security laws and their espionage law, which kind of gives them an open door to, you know, if you were to be in Beijing and send an email, is that subject to the espionage law? Maybe, I don't know, but the Chinese authorities would have an opinion about it. You mentioned that you advised Coinbase. We talked a little bit about cryptocurrency. A lot of cryptocurrency guys, Bitcoins,

they point to U.S. domination of the financial system like we've been talking about, and they say, hey, this is a bug, not a feature. But I don't know if I agree with that because, look, maybe it's good somebody like Vladimir Putin or Bashar al-Assad or Kim Jong-un can't operate as clearly and efficiently as they want to with respect to finance and moving money around and buying weapons and things like that. I mean, that's my opinion. I wonder if you agree.

And I also wonder if you worry about Bitcoin, as we talked about the bricks, putting a stop to what the U.S. can do to control illicit finance and put sanctions in place. It's a mixed picture because there is the risk that cryptocurrency or tokenization of assets gives rogue actors that wouldn't otherwise be able to access the financial system or getting access to resources, that they now have the ability to do that. Frankly, we're seeing that with North Korea. They've turned to the cyber heists and these crypto schemes to get access to capital. they'd have a hard time getting access to, you know, $2 billion worth, according to the last UN report and estimate. So that is a problem. That is a risk. I wrote a piece on the North Korean

threat, which goes to the point that it's a real, real threat to the integrity of the financial system, but it's a threat to crypto itself. And so it's worthy of a lot of attention by both the public and the private sector to try to deal with what the North Koreans are doing. Because the North Koreans don't care about the system. They're just trying to exploit it. So there is real risk. And we've got to deal with the real risk. On the other hand, this is a technology in the context of Bitcoin that allows for more and more people to gain access to resources. And I harken back to Michael Saylor's point, and I've done a lot of programs and shows of Michael Saylor talking about his view that this is a new form of digital property. And frankly, it's a form of digital property

that may not be all that relevant to us in the U.S. For God's sakes, we're the center of gravity in terms of the international financial system. You have dollars in your pocket. You've got resources you need. You've got access to capital. The government isn't trying to control everything, right? We're at the center of kind of the financial universe in a sense. So crypto doesn't make a lot of sense in terms of use cases here and now.

But it looks really attractive and interesting to an Argentinian whose currencies consistently devalued or to somebody in Turkey who's worried about expropriation of property or to a Venezuela. legitimate business person who is worried about what the Maduro regime is going to do tomorrow, right? So there is something to the ability to transact peer to peer in a more seamless way, frankly in a transparent way when you're talking about the open ledger that is attractive and can be part of, I think, an international financial system that is about transparency and is about access. But I think it's a balance because the bad guys are trying to exploit it

and access it. I think we as the good guys, I like to think of us as the good guys, have to figure out how to leverage it because it's a really interesting, important technology. And if we don't, I think the bad guys will continue to misuse it. And the bad rogue states that have systemic interests like the Chinese and the Russians will figure out ways of leveraging and exploiting it even more to weaken our interests. And so that's why I've been a firm believer in both the technology, but in dealing with the risk, but also figuring out how do we take advantage of it? I know we're running out of time, but I'm very curious what you think. Well, the United States, look, right now we have the advantage in financial warfare, right? The reserve currency,

powerful economy, is that advantage going to remain, or are we actually going to have a credible challenge from China? They have the Belt and Road. You know, how worried do we need to be about that? Will we perhaps in the future see sanctions from China against the United States? People on YouTube, of course, saying that. That seems like a long-ass time. You're killing your best customer at that point if you're China and you're sanctioning the United States. But, you know, is it possible? Would these be effective? I think we're already under-challenged, Jordan. And you've seen the Chinese actually implement some sanctions against, you know, some U.S. companies, obviously individuals are listed on their list. They've threatened additional sanctions. So certainly they are thinking about in using the power

of their economy and their attractiveness of their markets as a tool of influence and are already thinking about that. But to your point, they're not cutting off their nose to spite their face. They recognize the limits of it. But I do think there are going to be challenges fundamentally to U.S. predominance in this space. Challenges to the dollar itself. And we see that explicitly, explicitly from the Russians and the Chinese talking about that. You referenced the bricks earlier. challenges to the payment systems. And so you've got lots of alternatives that are being experimented with and challenges to the notion that this is the safest, most secure place to hold your money, to invest in and most attractive place because of our capital markets, rule of law,

et cetera. That's why I think some of these state actors have an interest in undermining the credibility of our institutions and the credibility of our financial system and political system, for that matter. So I think we've got to tend to all of that. We've got to work on our resilience, on strengthening these things, on strengthening our alliances, and making sure that we're still defining the rules of the road and, frankly, targeting rogue behavior in an effective way. And I think we can do it. You know, I'm bullish on the power of the United States. I'm bullish on our asymmetric capabilities and power and influence. And again, if you ask me, where would you put your money, all your family's money, where would you advise your friends to put their money in

China or Russia or in the U.S.? It's a ridiculous question, of course, in the U.S. in dollars. And I think the fact that you've got stable coins that are backed by the U.S. dollar that are the most attractive non-CbDC, you know, stable coins out there is an indication of that trust and confidence in the dollar, even in the crypto domain. So I think we've got a lot of advantages and we've got to play our cards Right. So for people who don't know, stable coins are like USD Tether, which is essentially, or USD coin. So essentially these are cryptocurrency, but each one is backed by a real dollar, if you can say that somewhere. And that brings up, there's all these things. They're audited and the audits are audited and all this stuff, you know, for these things, so that you can make

the U.S. dollar digital. Just for people who are like, what is a stable coin? Yeah. But you bring up a good point. Where would you put your money? China, Iran, North Korea. There's somebody go, well, yeah, of course, he's American, but here's the thing. If you are Russian, Iranian, or Chinese, you also agree with Juan because China has all these capital flow restrictions because Chinese people can't wait to put their money in Canada, the United States, especially in real estate. They're doing it so fast the government had to make it so that you can't move your money out of China because everybody who had money wanted to move it. Russians, where are they putting their money? They're putting him in banks that are not controlled by kleptocrats wherever possible.

The richest people in Russia have a lot of money that is not in Russia, and there's a reason for that. Iran's same deal. Yeah, Jordan, just a story on that. When the Treasury Department issued the new form of the $100 bill with all the new security features, in part because the North Koreans were so good at counterfeiting it, they ran campaigns around the world to explain that the old currency is still valid. Here's the new currency. Here's what it looks like.

The place where they had to concentrate most of their marketing material was in Russia. You know, why? because it was in Russia that you had the predominance of foreign holdings of U.S. cash, because that was seen as the safe and effective currency to hold in that kind of environment. And this was well before the wars and well before the sanctions. And so the reality is people want to hold dollars. They want access to the U.S. system. They want a list on the New York Stock Exchange, right?

These are real elements of power in a global environment where money, Money, power, economic influence is a part of competition and warfare. Juan Zarate, thank you very much. This is fascinating. I have so many more notes we didn't even touch, but I'm hungry, and I bet you are tired. So here we are. No, I loved it, Jordan. Thank you for having me.

It's great being with you. And congrats on all the success of your podcast. Awesome. Thank you. Now, I've got some thoughts on this episode, but before we get into that, here's what you should check out next on the Jordan Harbinger show. Tell me about the neighborhood where you grew up. South Central, Los Angeles.

Yeah. Well, most people play the game, Brandtafelado. Yeah. So I'm sitting on the porch, and I don't know what I'm going to do. And my partner calls me, and he's like, man, I got the new thing. It was cocaine. Cocaine was really, really expensive then.

Yeah. You know, a gram of cocaine back then. It was like $375. Wow. So it was dozens of times more expensive back then than it is now. Like 300 times. Wow. And it's also the most expensive thing that you can fit in your hand that cost that much money, probably.

Maybe you have watched. Yeah, absolutely. At that time, they said cocaine was more expensive to gold. How much money are we talking about here? I probably was making about $55,000 off of a kilo. I think you made up around a billion dollars in the 80s in L.A. That's what I heard on the documentary. For two years, I made like $600 million.

Not profit for me, but money that went through my hands. Before I started making a million every day, we was making $500 every day. Before we were making $500. We made $400. Before he was making $400. he made two, before he was making two, he made 100. So you scaled up to a million dollars a day? Yeah, yeah.

I had days that I went through three million dollars in one day. How are you even counting that much money? Oh, you have money counters. Yeah. And you have a team of girls that sit there and they count money all day. You know, you have a house, and this house would have like a slot in the door, and people would just come in and drop duffel bags through the door. So I wanted to know what was the difference between real business and the cocaine business.

And what did you find? There's none. For more of Freeway Rick's story as one of the biggest drug dealers of all time, including his ties to the CIA, check out episode 121 of The Jordan Harbinger Show. I told y'all you'd be able to file this really interesting stuff. The Treasury Department after 9-11 started to become part of the intelligence apparatus of the United States.

So it's not just CIA, NSA, FBI, whatever anymore. You actually have financial intelligence. It turned out to be such a big piece of everything. and maybe the missing piece. Really fascinating stuff. The book covers all of this in a lot of depth. I think we did a major dent in it during this conversation. We'll have to have Juan back because, like I said,

I could have spent half the show on his bio. The guy is brilliant, and there's way more where that came from. All things, Juan Zarate will be in the show notes at Jordan Harbinger.com or ask our AI chatbot for help. Transcripts also in the show notes. Advertis, deals, discounts, and ways to support this show, all at Jordan Harbinger.com slash deals. I've said it once, but I'll say it again.

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So if you're using the Stitcher app, time to switch. If you're on Android, podcast addict is a good one, cast box. And if you're on iOS, I suggest Overcast or Apple Podcasts. The Stitcher app is going away, folks. This show is created in association with Podcast 1. My team is Jen Harbinger,

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