Beyond Direct Action:

The Competitive Context

China and Russia seek to advance their revisionist agendas and threaten Western security by operating below the threshold of armed conflict. This isn’t a new idea, but adversary use of economic statecraft and financial warfare specifically remain gaps in military discourse today.[1] These adversarial actions demand a response beyond “kicking doors” within the gray zone of competition – the interactions amongst state and non-state actors that fall between the traditional war and peace duality.[2] Such interactions elevate the importance of using non-lethal irregular warfare (IW) activities as a way to compete. The United States Department of Defense (DoD) recently released the IW Annex to the 2018 National Defense Strategy, stressing the need to institutionalize and operationalize IW to expand the competitive space against state adversaries.[3] Counter-Threat Finance (CTF) is one such irregular tool that offers a potentially outsized return on investment.

Counter-Threat Finance offers a means to weave together a multitude of military disciplines within the Special Operations Forces (SOF) community and combine them with specific, conventional Army expertise for effect. CTF also represents a “boundary-spanning”[4] confluence of innovative ideas, unconventional warfare, economic drivers, and SOF capabilities. Integrating CTF as a proactive competition activity will deny adversaries financial access and influence derived from their coercive economic statecraft, while improving national positions of advantage. Building upon lessons learned in the decades-long Counter-Violent Extremism (CVE) struggle, a SOF-led “counter-threat finance approach” to competition expands the range of military options to shape adversarial behavior short of war.

Counter-Threat Finance Definitions

Threat finance is an all-encompassing term that bundles the financing methods used by malign actors such as terrorists, criminals, and states.[5] For the U.S. DoD, threat finance incorporates a broad spectrum of activities beyond terrorism which includes “…illicit networks that traffic narcotics, weapons of mass destruction, improvised explosive devices, other weapons, persons, precursor chemicals, and related activities that support an adversary’s ability to negatively affect U.S. interests.”[6] Unfortunately, this 2010 definition is dated and requires revision since it under-emphasizes the adversarial role of states as malign actors. Additionally, it does not address the legitimate, but coercive use of national economic power in the competition space that typifies current Chinese and Russian economic warfare.

Economic Warfare and Financial Flows

Modern Western militaries struggle with understanding and articulating what a land force does to "compete" against state rivals beyond traditional security cooperation activities, troop rotations, and flexible deterrent options.[7] At the same time, revisionist powers are actively blending economic statecraft with military coercion, like using maritime militias, to advance their interests in a zero-sum game.[8] Economic statecraft entails the use of mechanisms such as trade policy, financial structures, and state-owned enterprises (SOEs) to achieve foreign policy goals. With malicious intent, a state can coerce a targeted government to adopt policies that support its goals by using the threat of severe damage to its economy.[9] Actions inextricably linked with economic and financial power offer both China and Russia the ability to embrace opportunities to elevate global competition to advance interests and gain enduring strategic advantage.

For example, the Peoples Republic of China (PRC) leverages investment dependencies to coerce partners and mobilizes SOEs to act towards Beijing’s goals.[10] Specifically, the PRC exploits its “One Belt, One Road” (OBOR) infrastructure investments - such as railways and ports, to gain access to key political leaders across the globe and shape their behavior.[11] Russia similarly pursues economic statecraft by manipulating the price and supply of Russian energy, as well as building favorable business relationships and resourcing armed proxies.[12] Russia’s annexation of Crimea exemplifies how such non-military preparation sets the conditions for its success.[13] In illustration, the April 2010 Russian-Ukrainian Kharkiv agreement allowed the Russian Black Sea Fleet to remain in Sevastopol until 2042 in exchange for a significant reduction in the price of Russian natural gas.[14] This naval station later provided a beachhead for the subsequent 2014 annexation of Crimea by the Russian Federation.

In essence, financial incentives serve as an underlying mechanism enabling both China and Russia to gain access to targeted states and leverage that influence for strategic objectives. Unfortunately, while Western countries postulate the dangers of such predatory economics and financial coercion globally, these same nations, often with the strongest competitive advantages, struggle to maintain power and legitimacy internationally in the face of this economic and financial onslaught. Yet all these Chinese and Russian economic actions require or generate vulnerable financial flows that CTF specialists can ultimately disrupt.

Balance Sheet Analysis

An unorthodox approach starts by thinking broadly to reassess and allocate existing capabilities in new and creative ways. Concentrating on adversarial financing and the role SOF can play to disrupt these activities leads to a federative construct that unites psychological operations, cyberspace operations, civil affairs operations, security cooperation, intelligence activities, and military finance and comptroller professionals (uniformed “financiers”) into a CTF package.

With this instrument, the military can pursue an integrated defensive/offensive CTF approach: (1) conventional force financiers apply financial risk assessments, compliance structures, and “fiscal preparation of the environment” to prevent monies from reaching proxy support, criminal, and patronage networks employed by state actors, while in concert, while (2) SOF financiers disrupt and dismantle these networks. Properly coordinated and networked, the access, placement, and expertise of the aforementioned skillsets extend the scope, scale, and reach of finance-related tools across interagency and intelligence elements. This SOF-led CTF network offers the broader community of CTF stakeholders access to an unmatched cross functional team and sensor system that can report on the financial flows of adversary networks, while simultaneously disrupting or deconstructing them.

Assets of a Competition CTF Approach

As adversaries deliberately stay below the threshold of war, militaries must go beyond just enabling access, sustainment, and projection of forces in armed conflict. They must aspire to a future state that explicitly includes denying access to adversaries through CTF in competition. Current CTF efforts aim to deny, disrupt, destroy, or defeat financing used to engage in terrorist activities and support illicit networks. The shift to inter-state competition from CVE requires reconsideration of how to employ CTF as an element of irregular warfare to support a wider lens of economic statecraft, greater than that of the narrower post-9/11 terror finance. A better CTF approach provides non-traditional options for deterring state adversarial behavior short of war. A framework for such “unconventional deterrence” would employ CTF to achieve financial access denial, which follows the logic of making the target (corrupt politicians, key businesses, criminal organizations, etc.) too difficult or costly to purchase and leverage by adversaries.[15] This revised CTF would cover the full spectrum of actions ranging from defensive actions to prevent friendly force money inadvertently funding adversaries through contracting, to offensive operations against significant nodes in adversary funding streams. 

Prevention through Financial Resilience

The goal of preventing funds from reaching adversarial networks is to develop financial resilience - hardening a commercial sector against adversarial economic coercion. This step begins with developing a clear picture of the financial and economic conditions within a geographic area, or “fiscal preparation of the environment.” This reconnaissance of the financial landscape allows financiers (primarily from the conventional military) working in the U.S. Army’s geographic commands, to determine adequate controls required to mitigate risk in financial transactions. Operational constructs employed to reduce risk generate effects toward identifying, suspending, and/or negating high risk transactions required to support the sustainment of a ground owning Commander. Resultant products include not only a payment risk framework, but also a mapping of all relevant companies and financial systems supporting the local economies that provides valuable context to senior leaders. The latter investigation includes an examination of:

• local banking systems

• underlying societal value transfer systems

• known black market or prominent illicit businesses

• sanctioned or restricted companies or individuals

• and the extent of adversarial foreign direct investment

This procedure mirrors the architecture in the international banking sector where the Financial Action Task Force and International Financial Intelligence Units handle risk, detection, and enforcement requirements for Anti-Money Laundering and the Countering the Financing of Terror. Developed to keep the banking sector incentivized to deny illicit actor money flows inside the international financial system, the military can adapt this regulatory construct for competition. The main tasks are to assess companies to avoid funding opponents via undisciplined contracting actions and to inform the selection of merchants that will contribute to positive outcomes aligned to Western economic interests.

Next, “shaping the fiscal operating environment” builds off the analysis of data identified in the preparation phase to not only prevent contract funding from reaching criminals, corrupt officials, or enemy state proxies, but to deliver positive local economic resilience to coercion-prone industries. Enhanced understanding of the fiscal landscape allows for the identification of adversarial investment in an underlying economy and provides the ability to support competing businesses through contracting for conventional theater sustainment requirements.

Disruption through Cost Imposition

Offensive operations against adversarial funding nodes complement preventive measures to support comprehensive financial access denial. Working as cross-functional teams, financiers paired with intelligence and SOF elements can disrupt and dismantle networks supporting Chinese and Russian interests similar to those outlined earlier in this article.[16] The intersection of CTF and special operations can be most effective in the information environment. SOF execute several critical roles that enable and complement CTF, ranging from civil reconnaissance to precision messaging and support to resistance against economic coercion.

Operating with small footprints allows SOF to easily establish relationships with low political visibility while preparing the fiscal environment. Persistent presence in strategic areas allows SOF to observe PRC economic activities and assess their effects on the population. This civil reconnaissance facilitates the mapping of OBOR’s reach - such as new construction sites or pending contracts, to apply targeted CTF measures against individuals and businesses facilitating PRC financial access.[17] SOF can also raise the costs of China’s economic efforts by organizing civil resistance against OBOR activities and working with legal organizations to disrupt licensing processes.[18] As frustration continues with debt-laden Chinese infrastructure projects, SOF can enable local and multi-national influence campaigns to discredit OBOR activities and impede the Chinese from further investments.[19]

SOF can serve a similar function against Russia by identifying key populations that are especially vulnerable to energy control and working with them to mitigate dependence. Engagement with non-governmental organizations and industry could identify alternative energy options without the need to change the entire country’s energy infrastructure. SOF could also support resistance against Russian economic pressure by hindering pipeline construction through environmentally sensitive areas or culturally significant regions.[20] These efforts, combined with targeted CTF measures against associated patronage networks, could provide the partner government with political leverage to resist Russia’s efforts to sway its key leaders – denying financial access over time to reduce Russia’s position of advantage.

Competing: Full Spectrum Counter-Threat Finance Generates Shareholder Equity

Deterring adversaries from capitalizing on advantages inherent in their economic statecraft approaches requires new ways to affect their decision calculus. Competing through the defensive and offensive application of CTF offers a way to do so, fully integrating traditional ground force elements and SOF. This dual-pronged approach applies financial risk assessments, compliance structures, and “fiscal preparation of the environment” to prevent money from reaching proxy support, criminal, and patronage networks employed by adversaries, while simultaneously disrupting and dismantling these networks through operations in the information environment.

Applying CTF towards financial access denial against China and Russia in competition would capture and build upon lessons from CTF in the decades-long CVE fight, expanding the range of military options to shape adversarial behavior short of war. Beyond sensational direct-action raids, this evolution of SOF offers a form of unconventional deterrence that ultimately puts the United States, its allies, and partners in a position of advantage to secure their interests while reducing adversary influence and leverage.

The views expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the U.S. Army Special Operations Command, the Department of the Army, the Department of Defense, or the U.S. Government.

Colonel Sara Dudley is a Finance and Comptroller officer in the U.S. Army. She currently serves as the U.S. Army Special Operations Command Comptroller. She holds a bachelor’s in economics from the United States Military Academy at West Point, a Master of Business Administration from Harvard University, and a Master of Financial Integrity from Case Western Reserve Law School. Additionally, she served as a War College Fellow at Yale University for one year studying Threat Finance.

Colonel Kevin D. Stringer, U.S. Army Reserve, is a Eurasian foreign area officer assigned to U.S. Special Operations Command Europe. He is currently a military faculty member at the U.S. Army War College. He holds a BS from the U.S. Military Academy at West Point, an MA from Boston University, an MSS from the U.S. Army War College, and a PhD from the University of Zurich. As a civilian professor at the University of Northwestern Switzerland, affiliated faculty at the Military Academy of Lithuania, and a Fellow at the Centre for International and Defence Policy, Queens University, his research interests are special operations, unconventional warfare, and multinational operations.

Major Steve Ferenzi is a U.S. Army Strategist and Special Forces officer in the U.S. Army Special Operations Command (USASOC) G-5 Strategic Planning Division. He has served in a number of special operations and conventional assignments and holds a Master of International Affairs degree from Columbia University’s School of International and Public Affairs. 

End Notes:

[1] Brian Petit, Steve Ferenzi, and Kevin Bilms, “An Irregular Upgrade to Operational Design,” War on the Rocks, March 19, 2021, https://warontherocks.com/2021/03/an-irregular-upgrade-to-operational-design/.

[2] United States Special Operations Command, The Gray Zone, September 9, 2015, https://www.soc.mil/swcs/ProjectGray/Gray%20Zones%20-%20USSOCOM%20White%20Paper%209%20Sep%202015.pdf, 1.

[3] Kevin Bilms, “The Defense Department Just Published a Summary of the National Defense Strategy’s Irregular Warfare Annex. Here’s Why it’s So Significant,” Modern War Institute, October 2, 2020, https://mwi.usma.edu/the-defense-department-just-published-a-summary-of-the-national-defense-strategys-irregular-warfare-annex-heres-why-its-so-significant.

[4] Eitan Shamir and Eyal Ben-Ari “The Rise of SOF” Journal of Strategic Studies 41, no. 3 (2016) 21

[5] See for example Kevin D. Stringer, “Counter Threat Finance (CTF): Grasping the Eel,” Military Power Revue, No. 2, 2013, and Danielle Camner Lindholm and Celina Realuyo, “Threat Finance: A Critical Enabler for Illicit Networks,” in Illicit Networks and National Security in the Age of Globalization, eds. Michael Miklaucic and Jacqueline Brewer (Washington, DC: NDU Press, 2012).

[6] United States Department of Defense, Counter-Threat Finance (CTF) Policy, DoD Directive 5205.14, August 19, 2010 (incorporating change 3, May 3, 2017), https://www.esd.whs.mil/Portals/54/Documents/DD/issuances/dodd/520514p.pdf

[7] Katie Bo Williams, “What’s Great Power Competition? No One Really Knows,” Defense One, May 13, 2019, https://www.defenseone.com/threats/2019/05/whats-great-power-competition-no-one-really-knows/156969/

[8] Shuxian Luo and Jonathan G. Panter, “China’s Maritime Militia and Fishing Fleets: A Primer for Operational Staffs and Tactical Leaders,” Military Review (January-February 2021), https://www.armyupress.army.mil/Journals/Military-Review/English-Edition-Archives/January-February-2021/Panter-Maritime-Militia/.

[9] Travis Clemens, Special Operations Forces Civil Affairs in Great Power Competition, JSOU Report 20-4 (MacDill Air Force Base, FL: Joint Special Operations University Press, 2020), 22, https://jsou.libguides.com/ld.php?content_id=56753304.

[10] Thomas Mahnken, Ross Babbage, and Toshi Yoshihara, “Countering Comprehensive Coercion: Competitive Strategies against Authoritarian Political Warfare,” Center for Strategic and Budgetary Assessments (2018), 36-37, https://csbaonline.org/research/publications/countering-comprehensive-coercion-competitive-strategies-against-authoritar/publication/1.

[11] Clemens, Special Operations Forces Civil Affairs in Great Power Competition, 59.

[12] Mahnken, Baggage, and Yoshihara, “Countering Comprehensive Coercion,” 20-21.

[13] András Rácz, Russia’s Hybrid War in Ukraine: Breaking the Enemy’s Ability to Resist (The Finnish Institute of International Affairs), 58-59.

[14] Wojciech Kononczuk, “Russia’s Real Aims in Crimea,” Carnegie Endowment for International Peace, May 13, 2014, https://carnegieendowment.org/2014/03/13/russia-s-real-aims-in-crimea-pub-54914.

[15] Keith Pritchard, Roy Kempf, and Steve Ferenzi, “How to Win an Asymmetric War in the Era of Special Forces,” The National Interest, October 12, 2019, https://nationalinterest.org/feature/how-win-asymmetric-war-era-special-forces-87601.

[16] Financiers within these cross-functional teams are finance and comptroller service members possessing enhanced training within the CTF domain.

[17] Clemens, Special Operations Forces Civil Affairs in Great Power Competition, 87.

[18] Ibid., 65.

[19] Christopher Balding, “Why Democracies are Turning against Belt and Road: Corruption, Debt, and Backlash,” Foreign Affairs, October 24, 2018, https://www.foreignaffairs.com/articles/china/2018-10-24/why-democracies-are-turning-against-belt-and-road; for a notional vignette of a U.S. Special Forces/Civil Affairs/Psychological Operations cross-functional team disrupting Chinese economic activities in Africa, see: 1st Special Forces Command (Airborne), “A Vision for 2021 and Beyond” (2020), 12-13, https://www.soc.mil/USASFC/Documents/1sfc-vision-2021-beyond.pdf.

[20] Clemens, Special Operations Forces Civil Affairs in Great Power Competition, 80.

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