Skip to content

Banking in the age of US unilateralism

  • by

The Al Aqsa Foundation of South Africa is a legitimate organisation registered with the Department for Social Development. It is religious, non-political and its objective is to provide for the cultural and social needs of the poor and needy Palestinians living within the West Bank, Gaza, Lebanon and Jordan.

However, the writing is on the wall for Al Aqsa, at least in respect of its banking account, which is the essential infrastructure for its work. First National Bank (FNB) has notified Al Aqsa that its account will be closed effective on 31 March. And their relationship with Albaraka Bank is already terminal, after ten and eight years respectively.

The Office of Foreign Assets Control (OFAC), an agency of the US Department of the Treasury, had in 2003 already decreed Al Aqsa a Specially Designated Global Terrorist (SDGT) entity. This is the key reason why the means of funding of a South African charitable foundation, supporting orphans in Palestine, was suddenly sabotaged. The question of from who and how the directive to close Al Aqsa’s banking account came after so many years is by now academic.

This event, as important as it may be for South African Muslims, is almost of no consequence in the global theatre of banking and politics. Ultimately it is the unilateral, extraterritorial and self-serving imperial agenda of the US that provides the larger context for Al Aqsa’s fate.

Two compelling facts are noteworthy in an analysis of this saga. First, the greatest threat facing the global banking industry, according to a 2010 survey by Price Waterhouse Coopers, is not financial. It is political.

Second, an IMF working paper reports that the US is home to one of the most powerful banking hubs on the globe. Due to the connectivity of the global financial network it is impossible for any bank in the world to do business in total isolation of any of the global banking hubs.

In other words, it is impossible for either FNB or Albaraka to avoid any contact with the US banking or financial system and remain an optimally viable business. US banks, in compliance with OFAC regulations, impose stringent obligations in respect of the correspondent accounts they offer to banks in South Africa.

This is why an imperial power like the US can, both directly and indirectly, dictate policy to relatively small financial institutions in a developing country, who in turn give the boot to grassroots organisations like Al Aqsa. It is really a classic case of globalisation impacting at macro and micro level.

If one connects the dots the scenario can conceivably be reduced as follows: An executive order from the office of the President of the United States is the reason why an orphan in Palestine is deprived of basic needs. Of course, the President has no interest in the welfare of Palestinian orphans, but a serious interest in its own security, hence the executive order. The impact on the orphan is real, but incidental. The correct term, if you please, is collateral damage. Either way, the empire is indifferent.


The background to this saga harks back to US post-World War II strategy. The US has always been able to maintain imperial power with a balance primarily between military intervention and sanctions. This is conventional US strategy in pursuit of its imperial agenda. Whilst military intervention historically bears typical features, the imposition of sanctions is much more complex and sophisticated.

The 9-11 attack provided an ideal pretext for extraordinary measures. Along with the wars in Iraq and Afghanistan the US has devised legislation and a global sanctions regime designed ostensibly to make the world a safer place. The cornerstones of these measures were Executive Order 13224 and the USA Patriot Act of 2001.

After the massive loss of lives in the Iraqi and Afghan odyssey the US is relying increasingly on sanctions to advance its agenda. Financial strangulation is far more effective to ensure compliance than military intervention. You can beat a designated terrorist entity without the prospect of bringing dead American soldiers home.

Both the Patriot Act and the executive order essentially require compliance in the form of instituting draconian anti-money laundering measures and the prohibition of all US citizens and businesses from doing any kind of business with Specially Designated Global Terrorist (SDGT) entities or Specially Designated Nationals (SDNs).

Both the Patriot Act and the executive order radically tighten existing related legislation such as the Money Laundering Control Act and the Bank Secrecy Act in order to detect what the US defines as terror activity and money laundering. Much of the new powers of the US State Department enables its agencies to crack down on real crimes associated with drugs and money laundering. But much of it is for the ‘war on terror’ as defined by Uncle Sam and executed by agencies such as OFAC.

Surveillance and monitoring by OFAC is meticulous. “Every US-denominated cross-border transaction is screened against the OFAC list,” says Stuart Grobler, senior general manager of Banking and Financial Services at the Banking Association of South Africa (BASA).

The OFAC SDN list on the US Treasury Department’s website contains over 5000 names and is frequently updated. Violations of OFAC regulations are subject to corporate and personal penalties of up to $1 million per count. Individuals may face 10 to 12 years imprisonment per count or penalties ranging from $11000 to $275000 per count.

These laws have sharp teeth and 2012 has been a pretty grim year for banks both inside and outside the US in terms of the consequences for non-compliance. Violations are met with severe penalties, as has been demonstrated by a record of $10.7 billion in fines imposed by US authorities in 2012 for US banks alone. Charges include money laundering for Cuba and Iran, manipulating interest rates paid by customers and improper homeowner foreclosures. Fines paid by HSBC, Standard Chartered and ING Bank total over $3.2 billion.

Another controversial US piece of legislation is the Foreign Account Tax Compliance Act (FATCA) which requires foreign banks to find any American account holders and disclose their balances, receipts, and withdrawals to the US Internal Revenue Service (IRS), or be subject to a 30% withholding tax on income from US financial assets held by the banks.

These precedents are stark and compelling for FNB and Albaraka, hence their hasty adoption of compliance mode. Al Aqsa had lost value as client. It had become a liability, nay a threat to their existence. The loss of a client as well as the damage to their reputation as institutions that prejudice the interests of a legitimate humanitarian organisation, are evidently a price worth paying.

Al Aqsa was at pains to demonstrate its clean record, that it is ‘100% non-political’ and that it is a legitimate humanitarian organisation recognised by both the South African Department of Social Development and the United Nations. They ask for evidence of any link with terrorism, but to no avail. And none of their appeals can undo the OFAC decree.

Remote remedy for Al Aqsa

According to Cass Coovadia, managing director of BASA, the only recourse for Al Aqsa is to petition the South African government to act on their behalf. This matter is in the realm of international relations and Dirco is the appropriate entity for engaging with the US State Department.

“I can’t see our government supporting this decision,” Coovadia said when asked about the position of the government. “From where I sit as a Muslim and as a progressive person, this is wrong, but as managing director of BASA we are bound by the legal process,” he said.

Al Aqsa is prepared to take the matter to the Department of International Relations and Cooperation and is even willing to disband and re-invent itself. But it is not prepared to call for a boycott of FNB and Albaraka. This is not surprising.

It seems Al Aqsa accepts that the banks are powerless and at the mercy of forces that have no interest in any just cause that conflicts with US interests.

What are the chances of success of government intervention and how long will it take before they succeed? A useful precedent is the case of the South Africans Junaid and Farhad Docrat in 2007 who were accused of having links with Al Qaeda. The US proposed at the UN Security Council that the Docrats be placed on the United Nations terror list.

However, South Africa, then also a member of the Security Council, vetoed the proposal and demanded evidence for the allegation. The US simply refused to do so and proceeded to place the Docrats on the OFAC list as Specially Designated Nationals (SDN). This is standard US unilateralism and extraterritoriality.

Although the Docrats evaded a UN-imposed international travel ban and a worldwide freeze on their assets the OFAC listing nevertheless continues to have serious implications for them. Businesses in the Docrats’ names are also listed. No bank would open personal or business accounts for them, nor can they travel anywhere. Although the South African government allows them to travel they do not have right of entry to any other country due to their SDN listing and the directive for foreign governments to comply.

After six years—and intervention by the SA government—it is unlikely that the Docrats will succeed in getting their names off the list. An attorney in Washington, Erich Ferrari, specialising in OFAC litigation says although there have been successful cases, it can take between seven to nine years of litigation before a name is removed from the list.

If the South African government was bullied by the US into complying with reduced oil imports targets from Iran, it is hardly conceivable that the banks will put up a fight.

Principle of the matter

The overwhelming body of unilateral sanctions, policy and legislation is alarming to a growing constituency in the US progressive business community. But initiatives to rationalise sanctions and to introduce a multilateral process do not seem promising as each successive administration is increasingly hawkish and determined to expand the influence of the empire.

Title VI of the Patriot Act makes special provision for what it considers the victims of terrorism as defined by the US. They are granted special compensation and other forms of material assistance. In contrast, the act makes no provision for exemption of bona fide humanitarian organisations that provide relief for victims of war and conflict who are in any way associated with groups that do not support or that oppose the foreign policy of the US.

This deep bias and unilateral interest runs through US foreign policy. Indeed, the act is built on premises and assumptions that the US has sole prerogative to define terms like terrorism. The arrogance of the empire is clearly evident in the assumption that the world should accept all the measures the US imposes to secure its own interests.

And there is no reciprocation. For example, it is simply assumed that legislation like FATCA cannot be reciprocated in the US. Or that the US will not recognise South African nationals like the members of the Boeremag who are currently on trial—should they be convicted of treason—as terrorists.

Obama, in Mandela’s autobiography, Conversations with Myself makes a telling point about his ‘modest’ role as a US college student while Mandela was on Robben Island. He says that when sanctions were imposed on South Africa he supported the American people’s anti-apartheid movement and that Mandela—who was then designated a terrorist by the US—inspired him to stand up for what is right.

The irony and hypocrisy in these words offend deeply. This very man now criminalises advocacy against Israeli apartheid and continues to threaten South Africa with sanctions should we not comply with US demands. Iran is a case in point.

About FNB and Albaraka

Whilst one accepts that FNB and Albaraka were compelled to comply, neither of them have adopted a moral position on the gross compromise of the rights of a legitimate client.

The US position is absolute and non-negotiable. Hence, Al Aqsa and the banks are cast in the familiar stereotype of binary opposites: you’re either with us or you’re against us; our enemies must necessarily be your enemies, or else. Banks don’t make political statements. They make money, and abide by regulations and policy, even if these are imposed unilaterally and illegally in terms of international law.

FNB has, to its credit gone to great lengths to appease its Muslim clients and to explore ways in which it can continue its relationship with Al Aqsa. Albaraka has done no such thing. It simply complied.

For Albaraka the episode presents an added, particularly embarrassing dimension. They are a Muslim bank for a largely Muslim clientele and they are perceived to betray their own community. Albaraka’s blanket response to questions from Muslim Views was that, in compliance with the banking code of conduct, they cannot discuss the account of a client.

As an outraged victim of US unilateralism, commenting on Albaraka’s obsequious stance, anonymously told me, “If you’re the house nigger you’re first to comply.”

Written by Mahmood Sanglay