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

AMERICA’S NEW WAR ROOM

The control room in this new kind of war is a unit inside the U.S. Treasury Department: the Office of Terrorism and Financial Intelligence (TFI) with 730 staff members.

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

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

This branch of Treasury freezes the assets of targets inside U.S. jurisdictions and imposes millions of dollars of fines on violators, which can include any individual or entity, foreign or American, found to be doing business with anyone on the blacklist. The list also applies to entities that are 50 percent or more owned by those that have been blacklisted. Already there have been ripple effects, with banks from JPMorgan Chase to Goldman Sachs and financial institutions from MasterCard to Visa scrambling to stay on the right side of the U.S. law.

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

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

Szubin says non-U.S. financial institutions also pay close attention to the list. That’s because they don’t want the associated risk of dealing with an outlawed individual or bank, such as Bank Rossiya. “The biggest, most sophisticated banks have it built into their filters and start screening out potential transactions within minutes,” he says.

Take JPMorgan, for example, which processes up to $4 trillion of payments a day. On March 26, it incurred the wrath of the Russian Federation when it blocked a routine payment of $3,080 by the Russian Embassy in Kazakhstan to a Moscow-based insurer that, only days earlier, had been majority owned by Bank Rossiya.

Although the payment was eventually cleared in early April after it was confirmed that Bank Rossiya was, indeed, no longer a majority owner, the Foreign Ministry in Moscow raged at JPMorgan for a week on its website, stating that the bank’s action was “unacceptable, illegal and absurd.” An insider close to the bank who did not want to be identified told Newsweek at the time, “The Russian Embassy is going crazy, but what can the bank do? Unfortunately, it’s caught in the middle.”

Around the same time, both Visa and MasterCard landed in similar hot water over their interpretation of Treasury’s blacklist, which as of April 11 had grown to include 40 people and business entities. Both credit card companies stopped processing payments for Bank Rossiya and Moscow’s SMP Bank on March 21, prompting the banks to accuse the credit card companies of acting illegally against them and their customers. In the case of SMP, the ban was lifted by March 23, according to MasterCard, after Treasury provided some clarity, but the ban on Bank Rossiya, one of Treasury’s “specially designated nationals,” remains in place.

Upon hearing of Bank Rossiya’s quandary, Putin (who was not named to Treasury’s blacklist, mostly out of deference to his position as president) stated that he would open an account there immediately. (A Treasury spokesperson later emphasized that sanctions against Putin in future were not off the table.)

As with JPMorgan, most banks’ compliance desks use sophisticated software and filters to screen out suspicious financial activity, including blocking the payments of anyone tied to the OFAC’s blacklist.

“Once you’re on an OFAC list, no bank anywhere will deal with you,” says Lee, who specializes in international trade regulation involving economic sanctions, embargoes and export controls. “The interconnectedness of global processing systems means that what’s now new is the lack of places to hide.”