Merchant of Death
Money, Guns, Planes, and the Man Who Makes War Possible

Blood from Stones

Visit Douglas Farah's
author page at

Press Releases

Joint Hearing Focuses on Iran in Latin America
On Tuesday I testified before three Subcommittees of the House Committee on Foreign Affairs on the issue of Iran's involvement in Latin America. My oral testimony is a bit more detailed on Iranian banks in Ecuador, which I am including here.

The general consensus of those testifying (links to the the testimonies of all the witnesses can be found here under the hearing notice) was that Iran's penetration presents a strategic and under appreciated threat to both the democratic institutions of the region and the United States.

Iran's sponsorship of Hezbollah and Chávez's sponsorship of the FARC, and the history of both terrorist groups in reaching out to other non-state organizations for learning and cross-training is of particularly troublesome.

One of the factors that I think is important to point out in all this discussion is that the leaders of Bolivarian Revolution, and Chávez in particular, are not efficient in what they do or particularly coherent and consistent in how they behave. That is to say, Chávez does not necessarily have the broad control over all aspects of Venezuelan political life, nor does his government execute very well.

Venezuela has one of the highest murder rates in the world, and an oil-rich nation is suffering from both crippling electrical blackouts and water shortages in its main cities.

One of the factors that the Iranians and Cubans bring to the Boliviarian nations is a different sense of discipline and structure, making certain elements of the government far more accomplished at what they do. This is particularly true in the area of internal security and the suppression of dissent and control of the media.

The Cuban restructuring of the Bolivian internal security apparatus has created a whole new level of efficiency, last seen only when escaped Nazi Klaus Barbie ran the security apparatus for the "Cocaine Colonels" under Gen. Garcia Meza in 1980.

The Iranians have also been training small cadres of Nicaraguans, Mexicans, Bolivians and Salvadorans in crowd control, intelligence, counter-intelligence and surveillance. The Iranian regime has shown in the past elections just how efficient they can be at crowd control and dispersal, electronic surveillance and suppression of basic freedoms.

None of this will improve the level of street violence, provide more electricity or cause water to flow. But it does mean that, as the Boliviarian regimes attempt to consolidate their grip on power (and they have all moved in lock step on changing the constitution to allow themselves to stay indefinitely), they are receiving the best possible advise and training from repressive governments who have long histories keeping themselves in power for decades, despite unsustainable economic models.

This part of the alliance means that it will be harder than ever, through democratic means, to dislodge the Bolivarians now that they have arrived.
Iran's Expanding Latin American Reach
I have touched on the topic before, but from spending time on the ground in the region in recent months it is clear that Iran is making significant inroads into the Latin America financial services sector and other areas.

In Ecuador, as I have noted before, Iran has set up a way for its central bank to deposit money directly into the Ecuadoran central bank. The stated purpose is to allow $120 million in credit to flow to importers and exporters in both countries to facilitate trade.

The only catch is that there is virtually no trade between the countries. In recent years (2006 and 2007, the latest available) Ecuador reported zero exports to Iran and imports of less than $500,000 each year. Like the Iranian financial institutions in Venezuela, the economics of the case simply make no sense.

According to the "Protocol of Cooperation" between the Central Bank of Ecuador and the Export Development Bank of Iran (EDBI), which is under Treasury Department sanctions for supporting Hezbollah and the Quds Force, Iran was also willing to take an unusual step.

Point 6 of the agreement, which I have, states that:

EDBI manifests its readiness to establish a branch of Banco Internacional de Desarrollo (BID) in the Republic of Ecuador.

This is interesting because the BID is reportedly a Venezuelan bank, which the EDBI would have no over, including where it opened branches. But as I wrote earlier, the BID is wholly owned (all 40,000 shares) by Bank Saderat, an Iranian bank under U.S. and UN sanction.

It is registered a a wholly-owned Venezuelan bank in order to allow sanctioned Iranian organizations to bank through there as pass through to the global financial market. The Ecuadoran document shows clearly that BID is in fact an Iranian bank, and that Hugo Chávez's denials of that were (shock and dismay) a lie.

According to the OFAC sanction of Bank Saderat:

Bank Saderat has been a significant facilitator of Hizballah’s financial activities and has served as a conduit between the Government of Iran and Hizballah, Hamas, the Popular Front for the Liberation of Palestine-General Command, and the Palestinian Islamic Jihad.

The BID is not know to be operational yet in Ecuador. But Iran is attempting to gain access to the Bolivian banking system as well. In all likelihood, given the decades-long relationship between the Iranian revolution and Daniel Ortega in Nicaragua, including banking activities in the past, it has financial operations in Nicaragua.

All this points to a concerted effort to maintain a financial structure in Latin America that will allow Iran to withstand, and withstand with some ease, any future financial sanctions by the United Nations, the EU or the US.

Manhattan District Attorney Robert Morgenthau has been sounding the alarm on Iran's efforts, and said his office has several open investigations into Iranian banks and front companies operating in Latin America. Ecuador is just the latest link in a long chain of events that make braking Iran's nuclear ambitions even harder.
The Success of Counter-Terror Financial Measures
As David Cohen, assistant secretary of Treasury for Terror Finance recently noted, the United States and its allies have enjoyed some under appreciated success in cutting off the finances of al Qaeda and other radical Islamist groups, a goal that once seemed far out of reach.

As Cohen noted in a recent speech, "In the first six months of this year, al Qaida's leaders made four public appeals for money, including one in June of this year, when an al Qaida leader announced that a lack of funding was hurting the group's recruitment and training. We assess that al Qaida is in its weakest financial condition in several years, and that, as a result, its influence is waning."

This is interesting not only for what it says, but for what it implies. Core al Qaeda does not need vast amounts of money to operate. The amounts are significant, but not what they were al Qaeda core could help finance and direct franchise operations. This means that not even the relatively small sums needed are getting to al Qaeda's leadership.

This has been one of the most interesting success stories about what has gone right in the inter-agency process, and forward thinking that is often absent. Given that I have frequently commented on the short-coming in these two areas -- inter-agency cooperation and lack of adaptability and innovation in the intelligence, military and law enforcement communities, it is only fair to note this success.

Much of the current success began in Iraq, and the Special Operations programs there of collecting tactical financial intelligence on the ground during operations. This not only led to the unraveling of numerous financial networks that fed Al Qaeda in Iraq, it also shed new light on the funding sources and the major donors to the al Qaeda network.

The change in SOF strategy and conduct was deliberate and driven by forces on the ground, who integrated their findings into the inter-agency working group that includes Treasury and other entities with financial specialization. As intelligence accumulates and is exploited, it yields more intelligence and more success. This has been the case in going after core al Qaeda's revenue stream.

Fortunately Cohen was honest enough acknowledge the rest of the picture: The Taliban, with its access to drug money, is not weakened, and is in fact in a far greater position of strength than al Qaeda. It must be an odd reversal from when Osama bin Laden helped the Taliban, to the Taliban holding the money and not seeming to be too eager to help al Qaeda.

This, of course, is part of what makes the policy for Afghanistan so difficult. Not only is the enemy less dependent than ever on external sources of finance that can be pressured (Saudi nationals, United Arab Emirates, Pakistan), it has a source of revenue that is hard to combat.

The difficulty in part is because the government is corrupt and weak enough to allow many of its senior officials to engage in the very same trade, sapping the Karzi government's ability to even begin to make inroads into the opium trafficking. All sides benefit, so who is going to be serious about combating it? No one.

It is clear, as Richard Holbrooke has said, that crop eradication has been an abysmal failure. It can be done successfully under very specific conditions in very small areas. The new strategy is to go after the upper-echelon traffickers.

If the intent is clear, the full range of expertise engaged and inter agency struggles overcome, serious progress can be made under that strategy. The future of a great many people depend on getting it right.
Chávez Establishes Militias Under Personal Control-The FARC Can Rest Easy
In his latest move to insure his permanence in power and control over loyal forces, Venezuelan president Hugo Chávez has established nation-wide armed civilian militias that are answerable only to him.

According to the El Universal newspaper, the Bolivarian Militia of Peasants will become operational very soon.

For a country about to go on line with an AK-47 assault rifle factory, and with a government that has spent some $6 billion on weapons (publicly announced, without counting those that are not disclosed) in the past four years, this is a worrisome development, especially given Chávez's deep and growing authoritarian tendencies.

Yet it fits perfectly with Chávez's conception of the coming asymmetrical battle agains the United States and the need his forces will have to retreat to the hinterlands to wage guerrilla warfare. Here is my posting on this concept and actions.

There is no ambiguity on where the militias' loyalties lie. Not with the Venezuelan state, not with the military, but directly and personally with Chávez.

"We will start training (the militia) next week. We will establish some centers in the farms that have been seized, in the Zamoranos farms (named after Ezequiel Zamora, a leader of the Venezuelan Federal War) and in the fields and plants that have been seized, to defend the farmers and the fatherland, if necessary, against the imperialist occupation," said Jaua, who was in the event as Minister and Vice President of the ruling United Socialist Party of Venezuela (PSUV) for the Venezuelan plains region.

Further, Orlando Zambrano, a leader of the Simón Bolívar National Front of Peasants, said, "We must solidify the militia – the people's armed power- to defend ourselves. We are voicing anger, joy and willingness to support Commander Chávez."

Nor is there any ambiguity about where the militias will be operational. Many of them will be formed and armed along the Colombia-Venezuela border, where the FARC is increasingly seeking sanctuary from the Colombian military's offensives.

If one has armed Bolivarian militias, with access to a steady stream of new weapons, on the border where the FARC is (and Chávez has already demonstrated his determination to arm the FARC with Swedish rocket launchers etc.), it is not much of a stretch to see who will be significantly helped by this development.

One can be relatively sure that it will not be anyone who has anything critical to say about Chávez. Nor those who own the land and have no judicial recourse when armed mobs take their property.

Every dictator or dictator in the making wants his or her own armed groups that can act outside the more disciplined military structures and are loyal to the Leader above all else. This step usually happens when the Leader is feeling threatened and cannot be sure of the full support of the armed forces, or the security forces' ability to keep a lid on dissent.

Chávez, with control of the judiciary and a compliant legislature, got what he wanted. One can only imagine how much easier the FARC commanders are breathing, and how much fear now resides in the Venezuelan countryside.
The Problems with Sanctions on Iran
As the New York Times recently pointed out, the proposition of serious enforcing sanctions against Iran, particularly in the financial field, are not bright.

The reasons are multiple, but the basic one is that there are too many people and countries that simply want to make money and are happy to help evade sanctions. The second is that there is very little the international community can actually do to penalize sanctions busters. I lived through the global sanctions on Haiti in 1994, and if a desperately poor, isolated country like Haiti, with no real allies, could figure out how to break the sanctions, see the odds of meaningful actions against Iran.

Another reason is that, no matter what Western Europe and the United States -- heck, throw in China and Russia just for fun -- want to do, there are many countries that simply will not comply and in fact will go out of their way to aid Iran.

If one is searching for an answer as to what Iran wants with its expensive and sustained push into Latin America, at least part can be found in the desire to build an alternative structure to avoid sanctions through use of its Bolivarian allies. Venezuela has already agreed to sell Iran 20,000 barrels of gasoline a day, something Iran will desperately need if sanctions were to really kick in.

It is not likely to be a coincidence that Iranian banks operate in Venezuela as Venezuelan banks, or that Ecuador is allowing Iran's central bank in to operate. Nicaragua is hosting Iranian financial structures as well. Imagine Hugo Chávez or Daniel Ortega deciding not help Ahmadinejad out of a sense of international pressure. Can't do it? Neither can they.

But one does not have to look to Latin America to see how the sanctions will be circumvented. Ras al Khaimah, a small and poor emirate in the United Arab Emirates, has opened itself as an offshore haven and is busily registering hundreds of Iranian companies. Its airport is little encumbered by such things as strict cargo inspections or rigorous passenger manifestos, one of the reasons Viktor Bout operated there.

Dubai and Sharjah, also emirates of the UAE, slumbered through the registration and utilization of front companies for Pakistan's nuclear program and the network of A.Q. Khan, as they did with the Bout aviation empire. The list of places where Iran can go (and likely already is going and has long been) is endless.

As the Times noted:

Black market networks have sprouted up all over the globe to circumvent the sanctions. A typical embargo-busting scheme was detailed in a plea agreement filed in federal court here on Sept. 24, the day before Mr. Obama and European allies announced the existence of a previously undisclosed Iranian nuclear enrichment facility near Qum.

In the court filings, a Dutch aviation services company and its owner admitted that they had illegally funneled American aircraft and electronics components to Iran from 2005 to 2007. Under the scheme, Iranian customers secretly placed orders with the company, which served as a front, buying the parts and having them shipped to the Netherlands, Cyprus and the United Arab Emirates. The materials were then quietly repackaged and shipped on to the real buyers in Iran.

The Dutch company was eventually caught. But the ease with which it had operated until then illustrates a key hurdle facing the United States: even if diplomatic challenges can be overcome to persuade countries with significant economic ties to Iran, like China, to approve sanctions, it is virtually impossible to make an embargo airtight.

So one should be extremely careful about making statements about how sanctions will bring Iran to its knees and violators will be prosecuted. The hollowness of that statement will ultimately be shown, and credibility lost. At best they are one tool in a larger tool box.
Maintained by Winter Tree Media, LLC