Consortium Against Terrorist Finance Jul. 15, 2016, 11:01am

The U.S.’s Hizballah International Financial Prevention Act (HIFPA), signed into law on December 18, 2015 and implemented on April 15, 2016, crossed a red line in Lebanon. Faced with the unbearable prospective of Lebanon being cut out of the international banking system, the Lebanese Central Bank was cornered into a dead-end decision to cut ties with Hezbollah-linked individuals, businesses, and organizations. Hezbollah, on the other hand, announced and demonstrated that it will not stand by while losing ground under U.S. pressure. Beyond Hezbollah Secretary General Hassan Nasrallah’s unconvincing efforts to downplay the HIFPA repercussions for all Lebanese political, economic, and financial actors – Hezbollah included – the themes and tones of his televised speech to Hezbollah supporters on June 24 revealed that harsh times are ahead for the movement as well as for Lebanon.

Nasrallah’s audience was left with few, concerning certainties. The first is that Hezbollah is facing financial strains, as Nasrallah’s obstinate efforts to deny any negative consequence from HIFPA implementation ironically emphasized. In fact, the U.S.’s most recent anti-Hezbollah legislation added valuable ammunitions to the arsenal of the Obama administration, which is now authorized to enforce secondary sanctions against foreign financial institutions facilitating or conducting activities on behalf of Hezbollah. So far, risks of exposure to U.S. secondary sanctions have cost Hezbollah hundreds of bank accounts as well as the freezing of the accounts of several prominent officers. According to Nasrallah, some Lebanese banks pushed their loyalty to the extent of closing accounts of charities supposedly affiliated with Hezbollah even if their names did not appear on the OFAC sanction lists - an “irresponsible and aggressive” conduct that allegedly equaled an attack on Lebanese sovereignty and would have destroyed Lebanon’s economy.

Hyperbolically, Nasrallah also argued that American sanctions will have no influence on Hezbollah because “its entire budget comes from Iran.” Certainly, Iran ranks high as Hezbollah’s traditional top funder, and in fact the U.S. legislation is purposely targeting Hezbollah’s extensive social services network in Lebanon by preventing the organization from “reaping any financial benefits following Iran’s nuclear accord last year.” Often Iran-sponsored, Hezbollah’s social institutions include a range of schools, hospitals, and charity organizations mostly concentrated in Lebanon’s Shiite areas and serve as the backbone of Hezbollah’s social support and entrenchment as a socially and politically relevant actor in Lebanon. Affiliation with that network is causing unprecedented troubles for its beneficiaries, whose stipends – now often paid in cash – were slashed as an effect of declining oil profits and international sanctions. Against Nasrallah’s claims, their members risk being cut out of the banking system. Once an extremely popular resistance movement, Hezbollah has substantially evolved into a “sectarian weapon in Iran’s arsenal” whose resources appear to be over extended. Its staunch commitment to defend the Assad regime in Syria since 2012 has cost the group crucial leaders and more fighters than over 18 years of wars with Israel. The organization has also suffered heavy losses from Saudi Arabia’s obstinate efforts to counter Hezbollah networks both in the Levant and in the Gulf, including the most recent Saudi-maneuvered terrorist designation formalized by the Gulf Cooperation Council last March. As a result of these converging factors, “today the group is in its worst financial shape in decades,” Assistant Secretary for Terrorist Financing at the U.S. Department of the Treasury recently claimed.

A second certainty, as announced by the Central Bank Governor Riad Salameh over the past several weeks and confirmed by Nasrallah’s words, is that Lebanese banks will opt for a strict adherence to U.S. legislation, bound by legal mechanisms and by political and financial convenience. In 2012 the Central Bank of Lebanon issued “Circular 126”, which prescribes automatic compliance with foreign laws of the countries where Lebanon is engaged in business transactions. However, the Central Bank’s commitment to HIFPA transcends its internal protocol. Past experience with the Lebanese Canadian Bank, which was liquidated for authorizing supposed money laundering activities on behalf of Hezbollah, taught Lebanese banks that inadequate compliance with U.S. regulations may lead to tougher financial sanctions that would remove Lebanon from the global financial system. “We don’t want illegal funds in our system,” Salameh commented to reinforce his position, “We don’t want a few Lebanese to spoil the image of the country or the financial markets in Lebanon.”

Unfortunately, at least in the short and medium term, the banks’ hard line is expected to clash with Hezbollah’s proportionate response. About two days after Hezbollah associates’ bank accounts were closed, a bomb hidden in a flower pot exploded in front of BLOM Bank in central Beirut, damaging the building and injuring two people. Although Hezbollah never claimed responsibility for the attack, as the Foundation for Defense of Democracies Vice President of Research Jonathan Schanzer observed, the last bombing served as a reminder that Hezbollah “have the ability to hold Lebanon hostage.” Few hours before the explosion, Iranian press agency Fars News released a report entitled “The Financial Aggression Against Hezbollah,” in which it was argued that “offering lip service to the U.S. law” would trigger a direct confrontation with Hezbollah. According to Fars, Hezbollah would consider Lebanese banks’ enduring efforts to close Hezbollah-tied accounts as a direct attack both on Hezbollah and “its incubator environment”, the Shiite community in Lebanon. Several measures are, therefore, to be expected from Hezbollah in response, which could boycott the Lebanese banking system or force branches located in areas under its control to close down. Ultimately, the report intimated, “the crisis today requires banking prudence, or else we may, in the end, be before a new May 7,” in reference to Hezbollah’s takeover of Beirut in 2008 after the Lebanese government dismantled the organization’s telecom network.

Constrained by different political and financial interests and considerations, neither Hezbollah nor the Lebanese banks seem to be willing or able to sustain moderate stances. No compromise is, in fact, really possible: banks cannot afford “banking prudence” at the cost of being excluded from the international banking system, neither can Hezbollah afford to be cut out of Lebanese banks. If exacerbated, the confrontation between the organization and the Lebanese banking system risks to precipitate Lebanon into a political climate conducive to greater tension, with incalculable costs for the country’s economy. However, an increasingly polarized scenario is to be expected also in the broader region, as this confrontation transcends a national dimension and has direct implications for international regulators and foreign supporters involved in dynamics of proxy wars.

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