A new U.S. law targets suspicious accounts down to the micro-level
By Nicholas Noe
Looking back at the American-led response to the 9/11 attacks, it is difficult to find clear-cut successes tied to military intervention.
Osama Bin Laden may have been killed, but his organization—and even more brutal successors like Daesh—has expanded.
At the same time, the Taliban in Afghanistan are steadily fighting their way back to their former capital, Kabul, while post-invasion Iraq is shattered by extreme corruption and constant violence that has brought misery to millions of Iraqis and destabilized the wider region.
One approach, however, has worked exceptionally well in fighting terrorism and pressuring opponents around the world: Weaponizing the global financial system by freezing assets and delinking states and institutions from the vital infrastructure of the global economy.
Indeed, there is now widespread recognition that the cocktail of financial instruments brought to bear against Tehran, for example, played a key role in forcing concessions on its nuclear program and opening a pathway towards at least a partial rapprochement with the West.
In this non-violent effort, arguably the most important tool was exercised in 2012 when Iran’s financial institutions and its government were cut off from the Belgium-based Society for Worldwide Interbank Financial Telecommunication system (SWIFT).
Iranian companies, ministries and individuals could no longer trade, pay bills internationally or move money around. The economic activity ground to a halt and inflation skyrocketed in the Persian state.
Last month, as part of the overall deal known as the Joint Comprehensive Plan of Action, several Iranian banks were finally reconnected to the SWIFT system, with more likely to follow in the coming months.
Almost immediately, the rusted lungs of the Iranian economy reopened with tens of billions of dollars in global trade deals offered.
The New Incentives Matrix
But almost as soon as this activity started to register, the longstanding conflict between Iran and some Western nations, actually moved into sharper focus with the honing of financial weapons by the U.S. Treasury Department.
Even though the United Nations and the European Union have essentially lifted their nuclear-related sanctions, U.S. President Barack Obama has kept in place an array of secondary sanctions that penalize anybody doing business with companies connected to Iran’s powerful Islamic Revolutionary Guard Corps (IRGC), an institution the Obama administration says supports global terrorism and regional destabilization.
Prove yourself to be free of any IRGC links—a tall order since it is believed to control huge swathes of the Iranian economy—and you can do business globally. Come to the table with question marks around this issue, and anyone dealing with you or moving your cash around would risk America’s financial wrath; not only in the form of steep U.S. fines in perpetuity—tens of billions of dollars were levied over the past few years under the old sanctions’ regime—but also by being cut off from the American side of the global financial system.
Of course, since the U.S. is at the heart of that system, and many key transactions are done using the U.S. dollar, few institutions around the world are likely to risk the possibility of facing Treasury Department scrutiny.
But all of this could quickly change with a new U.S. administration next year, or even increased congressional disgruntlement this year.
Just a week and a half ago, John Smith, the acting director of the Treasury’s Office of Foreign Assets Control, was berated at one public hearing by Representative Brad Sherman, a Democrat who opposed the Iran deal, because of the former’s statement that he, “has not seen evidence of European actors continuing to do business with the IRGC.”
Sherman countered with the example of Iran’s second largest airline that flies to several European cities, Mahan Air. In 2011, the Treasury Department sanctioned the airline for its IRGC links and it remains on the secondary sanctions list.
“Here’s an example where you have a major airline doing business in dozens of cities and you can’t find them doing business with a single bank?” an exasperated Sherman asked of Smith.
The Next Financial Frontline: Lebanon
Over the past month, the U.S. Drug Enforcement Administration (DEA) has arrested alleged Hezbollah members on charges of using millions of dollars in drug money raised from cocaine sales—including in the U.S.—to purchase weapons for the party’s fighters in Syria.
Among those arrested were Mohamad Noureddine, whom the DEA accuses of being a money launderer for Hezbollah.
The U.S. Treasury, which had accused Hezbollah of counterfeiting the greenback in the past, has already imposed sanctions against Noureddine and another alleged Hezbollah money launderer, Hamdi Zaher El Dine in January 2016.
Cases like these have been pretty standard fare over the past decade and a half. Now, however, U.S. attempts to dry up Hezbollah’s funds have found a new tool that is set to be unsheathed by mid-April, when the Treasury Department must promulgate specific regulations for the Hizballah International Financing Prevention Act of 2015. The act, which passed unanimously by Congress and was signed into law by Obama on December 19, 2015, is repeatedly touted by Republican presidential hopeful Marco Rubio as his signature achievement.
Crucially, and unlike previous executive orders pertaining to Lebanon that went after individuals or specific companies, the law penalizes any bank “that knowingly facilitates a significant transaction or transactions for Hezbollah.”
According to one top U.S. government official involved in the process, who wished to remain anonymous due to the sensitivity of his post, the law is less focused on Lebanon than on delinking Hezbollah from financial transactions that it benefits from elsewhere worldwide, especially in South America and Africa.
Despite such assurances, key sections of Lebanon’s political elite are worried, to say the least.
In fact, Lebanese politicians usually don’t agree on much: The parliament hasn’t been able to elect a new president over the past year and a half and there is still no plan for solving the country’s persisting garbage crisis.
Lebanon also just lost a multi-billion grant by Saudi Arabia intended for the army because of Lebanon’s failure to side with fellow Arab states against Iran, in addition to a raging dispute between the kingdom and some Lebanese political forces, not least of which is Hezbollah whose leader, Sayyed Hassan Nasrallah, has sharply criticized Saudi leaders in recent public speeches.
When it comes to Lebanon’s banking system though, everybody invariably seems to fall into line, fearful of doing anything that might disrupt one of the few profitable and reliable anchors greasing so many wheels.
Unsurprisingly then, waves of Lebanese bankers and officials have been traveling to Washington, hoping to soften or at least narrow the impact of the new law.
Unfortunately for them, it appears that their lobbying efforts might not come to much.
Much like the IRGC-focused sanctions, questions will likely linger long into the future including: What constitutes a significant transaction—since the Treasury Department will not set hard dollar limits, for example—and what must a bank do to prove it did not “knowingly” facilitate a transaction for Hezbollah?
Moreover, both the IRGC and Hezbollah are extremely secretive organizations, with both hidden and public faces; in the case of Hezbollah, the party has sizable elected representation at both the local and national government levels.
So, how can a bank manager really know whether a person is unaffiliated with the targeted organization? And what constitutes being a member of Hezbollah in the first place: Could a local “supporter,” or someone who votes for Hezbollah candidates, be prohibited from maintaining bank accounts? Could an MP who is not a “member” of the party per se—but is still a part of its parliamentary bloc—put a whole bank’s operations at risk?
Targeting a Community?
These unresolved questions—the interpretive grey areas—are already having an impact in Lebanon, despite whatever intentions that may have shaped the U.S. law and that are currently shaping the forthcoming regulations.
According to an adviser to a Lebanese political leader, intimately involved in the lobbying effort, the practical effect of the law’s passage in December has been that a broad range of Shiite businesspersons and individuals—some of whom oppose Hezbollah, itself a Shiite organization—are suddenly having accounts closed or questioned.
Banks are politely refusing requests for some new accounts, while scores of Lebanese businesspersons have been taking their complaints to a range of politicians and Lebanon’s Central Bank, angry about “fees” that are being demanded by some banks and other fixers to resolve questions about the nature of an account.
Another top government official told Newsweek Middle East about being repeatedly approached by such a fixer who demanded large payments for resolving problems at Lebanese banks.
“This is financial friendly-fire that is actually weakening transparency and opening up new spaces for intimidation and corruption,” argued the adviser, who noted—as does Hezbollah itself—that the party long ago separated itself from the Lebanese banking system specifically so as not to run afoul of all of the other communities who have substantial interests in the sector.
“Many of these people are against Hezbollah, in fact. But because they are Shiite, they are facing new difficulties.”
However, Lebanon’s Central Bank denied such allegations.
In a telephone interview with the head of the Banking Control Commission at the Lebanese Central Bank, Samir Hammoud told Newsweek Middle East that such allegations “are absurd.”
“First of all, everyone has the right to open a bank account irrespective of their religion or sect, and talk that some accounts have suddenly been closed without any reason is untrue,” said Hammoud.
He added that the banks operate under three levels: Regulations, circulars from the central bank in addition to “know-your-client” principles.
“Lebanese Shiites constitute a well-respected component of the banking sector, as workers and as clients, and have always been as such. We do not accept that anyone or any bank treat them differently,” he said.
“Hezbollah doesn’t have accounts in the central bank or accounts under its name in the Lebanese banks,” he added.
The U.S. Treasury Department, for its part, while generally praising Lebanon’s banking system for complying with U.S. and international laws related to money laundering and terrorist financing, also points out that the sector’s track record is not entirely squeaky clean.
In 2011, the U.S. government accused the Lebanese Canadian Bank in Lebanon of money laundering for Hezbollah-linked individuals. The bank was swiftly liquidated.
Then, in June 2015 another Lebanese bank—the Middle East and Africa Bank—saw the Central Bank intervene to change the administration after charges of terrorist financing were levied by the U.S.
According to Hammoud, the new law in the U.S. doesn’t bring anything new to the table as Lebanon’s banking sector “is committed to performing its due diligence and cooperating with the international community,” to combat money laundering and criminal activities.
“We are committed to cooperating with the international community, but we interpret the law in its broader sense, so we monitor significant financial transactions and if there is anything worth flagging, we’d inspect it and report it,” he added.
An Uncertain Future
Going forward, of course, the American authorities may or may not identify new individuals and institutions to single out in Lebanon.
Either way, the country as a whole seems to be steadily realizing that it is in a substantively different position than other countries when it comes to U.S.-led financial sanctions deployed around the world, including, most recently, against Russian companies and some individuals.
After all, with the persistent ambiguity surrounding the December law, to some degree a whole community—the Shiites—will likely continue to find itself suspect when it comes to doing business both at home and abroad.
“This goes to a micro level of our society,” said one Lebanese MP involved in the U.S. lobbying effort. “The IRGC may be singled out in Iran, but it is different and more dangerous when a whole religious sect of Lebanese citizens … is effectively put under suspicion,” he added.
Rather than pushing people away from Hezbollah, tactics that end up bringing pressure to bear on one’s co-religionists usually end up pushing people closer together, he added.
“This is what has been tried repeatedly over the decades. And the result is almost always the opposite compared to what was intended.”
With Lebanon struggling to deal with a massive refugee crisis—there are as many as 2 million Syrian refugees in a country of 4.5 million, aside from the hundreds of thousands of Palestinian refugees already living there—daily battles with both Daesh and Al Nusra Front terrorists along the border with Syria, and an economy that recorded zero growth in 2015, Lebanon can ill-afford further challenges, whether or not they are tied to the country’s deepening sectarian rifts.
It seems, however, that come April, Lebanon’s problems and divisions are set to widen even further, but this time where it hurts a banking-dependent country the most: in the pocketbook.