Scholar Martin Rudner characterizes Hezbollah as having three distinct sources of revenue. The first is direct support from patron states Iran and Syria. With the ongoing civil war in Syria and debilitating economic sanctions on Iran, these sources of revenue have dried up in recent months. The second source of revenue for Hezbollah is the ‘taxes’ Hezbollah makes entities in it’s area of control pay. The third, and most relevant to our work is the remittances sent by Lebanese diaspora communities (or laundered through Lebanese diaspora communities).
The Lebanese Diaspora
Other than laundering money through Iranian Revolutionary Guard front companies and loans to Lebanese small businesses Hizbullah makes a good chunk of its’ money from the Lebanese diaspora. The Lebanese diaspora community is one of the largest, and most wide-reaching diasporas today. Starting as far back as the mid-19th Century, Lebanese Christians fleeing conflict have set up diaspora communities around the world. In time, these Lebanese Christian communities began to be safe havens for Lebanese Muslims. Historical identity politics aside, what matters is that today there are large and robust Lebanese communities on every continent except Antarctica.
Hizbullah routinely sends out operatives to Lebanese diaspora communities around the world. These operations are run by Hizbullah’s ‘External Security’ wing. Operatives raise large sums of money from the diaspora, at times masking the fact the money is being raised for Hizbullah. Israeli intelligence estimates that Hizbullah raises hundreds of thousands of dollars every year from diaspora communities in Africa alone.
Notable episodes include the 2003 crash of a transport plane in Benin, where a “foreign relations official” of Hizbullah was incinerated in the crash along with the $2 million he was carrying. As well as the 1998 interdiction of $1.7 million dollars between Senegal and Lebanon (Trinkunas p.142). In 2010 the US Federal Research division reported individuals connected with Hizbullah had made numerous inroads networking as financial advisors with unnamed African military leaders and heads of state (Levitt p.248, 250). The impetus for this overall program seems to have been at the behest of Imad Mughniyeh, a Hizbullah official who died via mysterious car bomb in 2008 (Levitt p.250).
Insight into the operations of these networks is provided by a combination of investigative journalism and US Treasury Department sanctions. In 2009 the Treasury Department sanctioned Abd al Menhem Qubaysi and Kassim Tajideen. Qubaysi was the “personal representative of “Hizbullah Secretary General Hassan Nasrallah” in West Africa. When a Ivorian counter intelligence unit tried to raid a cultural center run by Qubaysi, they were prevented from doing so by Ivorian President Laurent Ghagbo (Levitt p.256). This action lends credence to Hizbullah’s ability to infiltrate influential social networks in West Africa.
Tajideen is a family member of a larger Lebanese clan who operate front companies across West and Central Africa and is connected to a Hizbullah construction company sanctioned in 2007. The company made mortgages and loans in Gambia for businesses in South Lebanon. The ability for a man involved in a company sanctioned in 2007 to avoid blacklisting until 2010, shows how adept Hizbullah is adept at masking ownership and relations between its different entities.
The South American Connection
Hizbullah’s presence in Latin America is just as robust. The tri-border area of Brazil, Paraguay and Argentina is of particular note, with the Lebanese diaspora population in Brazil being larger than the population of Lebanese in Lebanon itself. Actors such as Assad Ahmad Barakat were able to set up an international crime ring from Chile to Paraguay to Brazil. Using a series of fronts Barakat and his associates were able to move large amounts of funds across multiple borders. Other Hizbullah operations in the tri-border area include document forgery services advertised travel services and possibly drug trafficking (Levitt 78-83). The mechanisms by which this occurred are similar to the African case, but different in key ways.
Hizbullah does not appear to have the same clout within the state institutions of Latin America it does in West Africa. Hizbullah exploits Shia identity politics to raise money for itself. But the numerous ethnic Lebanese power brokers in Brazil and other Latin American countries do not find it within their interest to aid Hizbullah. Although much is made of Hizbullah’s criminal activity (such as a large movie pirating operations) it is unclear whether Hizbullah operatives actually engage in these activities themselves, or if the criminal kingpins they raise money from are simply rich enough to donate large sums of money. Or if they are simply being blackmailed by Hizbullah and their large number of violent connections. This distinction is crucial, because it allows law enforcement interested in uncovering the networks to focus their energy on where the funds are actually moving rather than on finding Hizbullah drug smuggling operations that exist only on a small scale.
The duality of physically moving large sums of cash vs laundering money via charities and front companies shows that Hizbullah has successfully been able to “diversify risk”. If one node of the overall network is compromised, Hizbullah is still able to theoretically move large amounts of funds from the diaspora into Lebanon. Hizbullah’s ability to avoid Anti-Money Laundering/Counter Terrorist Finance (here on out AML/CTF) regimes in diaspora countries is unmatched and would take years of reform across multiple states. The proverbial ‘last mile’ where funds enter Lebanon may be the best chance at interdicting funds.
Attempted Solutions
The two main ways states have tried to cut off funding from the diaspora to Hizbullah is through sanctions and implementation of the Financial Action Task Force’s (FATF) AML/CTF regime. Sanctions are a mechanism to prevent funds from reaching persons and institutions known to be associated with Hizbullah. While implementation of FATF is a mechanism to find the persons and institutions associated with Hizbullah that are not explicitly sanctioned. Both of these regimes need improvement.
Sanctions can be imposed by either international bodies such as the United Nations or by individual countries such as the United States. Financial sanctions imposed by the United States have special clout due to the predominance of American finance in the world economy. The Treasury Department through either the Office of Foreign Asset Control (OFAC) or FinCen, can ban those who are non-compliant in preventing financial flows to sanctioned groups and individuals from trading with US banks, effectively putting them out of business. Obviously, for a profit minded business, it makes more sense to trade with one of the world’s most developed markets rather than a terrorist group that runs only part of Lebanon.
Successful instances of sanctions include the sanctioning of a Hizbullah business network across Western and Central Africa. And the removal of the Tanzanian/Cypriot bank FBME from the international financial system in part for moving funds for Hizbullah. However these successes are undermined when institutions such as HSBC do not check lists of sanctioned individuals and end up laundering funds for Hizbullah. When banks such as HSBC are caught doing this, they get measly fines of $32,000
Understanding the international regimes surrounding AML/CTF is more than daunting. International organizations as varied as the World Bank, to the EU, to the Basel Committee on Banking Supervision which was created by the G-10 in 1974. All of these organizations have their own guidelines and definitions for what constitutes money laundering, terrorist finance, and how to deal with it. The solution to this byzantine disarray of standards was the creation of the Financial Action Task Force or FATF. Established in 1989 at the G-7 Summit, the FATF is the most robust set of standards for AML/CTF to date.
Under the system of treaties, it is up to states to run and fund ‘Financial Intelligence Units’ to enforce the treaty within their own borders. Unsurprisingly these task forces are neglected in states with rampant corruption. Remittances to Lebanon is much less of a priority for these guys than running corruption investigations at home.
The responsibility of implementing FATF guidelines falls upon financial institutions and financial intelligence units. When banks or other financial institutions see large transfers of cash or just general suspicious activity, they go on to file Suspicious Activity Reports or SARs. A core aspect of the FATF framework is that every country should have a robust and well funded financial intelligence unit of FIU to investigate suspicious activity when they are reported by banks and other financial institutions. FIUs work with one another through a network known as the Egmont Group. FinCen serves as the FIU for the United States. The FATF has set up a byzantine array of regional bodies so that FATF controls can be implemented region by region, but this makes the control and investigative process mind-numbingly difficult. Likewise, not all of these regional bodies are fully able to implement FATF guidelines in their respective member states. Non member states were urged by the UN in UNSC Resolution 1617 to implement the 40 recommendations on money laundering and 9 recommendations on terrorist finance.
So It’s Totally Broken And Unlikely To Be Fixed?
Part of the reason sanctions regimes to cut off funding to Hezbollah have failed is that Hezbollah is able to rely upon Lebanese diaspora communities around the world. Starting as far back as the 19th Century Lebanese Christians and others have fled war in the Levant for safer pastures. These communities, although initially Christian, served as centers for Muslim relatives to travel to in the 20th Century. Because of this, Lebanese communities exist on every continent except Antarctica.
The war in Syria has meant that the traditional shipments of cash and arms flowing from Iran have slowed, especially as financial sanctions have wrecked the Iranian economy as well. Because of this Hezbollah has found itself being more responsible for it’s own finances. While most of the information surrounding this is classified, we can infer this phenomena based on a few measures. First, Hezbollah continues to be a major faction in the Syrian civil war. This would not be possible without finances to shore up the organization.
It is extremely difficult for individual states to be able to effectively clamp down on the illegitimate transfer of funds. It is even more difficult to expect every state containing a relatively large Lebanese community to be able to clamp down on the illegitimate transfer of funds. According to the World Bank 17% of Lebanon’s GDP was made up of remittances. This is massive, especially when one considers the population of the Lebanese expatriate diaspora in countries such as Brazil is larger than the Lebanese community in Lebanon. Remittances can come either in the form of legitimate transfers to family members, or cash being moved from front companies around the world. Significant effort is required to make sure every transaction is legitimate.
From Canada to Paraguay to Australia to West Africa, Hezbollah operatives have set up front companies to move both licit and illicit funds back to Hezbollah. The tri-border area of Brazil, Paraguay and Argentina is of particular note, with the Lebanese diaspora population in Brazil being larger than the population of Lebanese in Lebanon. Actors such as Assad Ahmad Barakat were able to set up an international crime ring from Chile to Paraguay to Brazil. Using a series of fronts Barakat and his associates were able to move large amounts of funds
FIUs should not be expected to spend large amounts of time and energy on money laundering cases that do not directly impact their country. Given the choice between pursuing a case that involves remittances to the Middle East or a case involving drug cartels, it is not surprising a Latin American police force would choose to focus on the case involving drug cartels. Why waste police time and resources on a case that could be global in reach when there are pressing issues affecting local communities?
For the most part however, the mechanisms by which funds are moved from Hezbollah front companies and purported charities to Lebanon is mired in secrecy. A large part of this has to do with the fact Hezbollah is a legitimate political party in Lebanon. Hezbollah can use it’s institutional clout to protect it’s most vital interests. Obviously, funding the day to day operations of an organization falls into this category. But not much effort is needed by Hezbollah to do this. Terrorist finance is a criminal offence according to Law no. 553/2003. But the law does not define what constitutes finance of terrorist organizations or what constitutes a terrorist organization. Likewise, disclosure and declaration of cross border transmission of funds is not mandatory. November 2009 was the last time an outside systematic review of Lebanon’s compliance with FATF guidelines were conducted.
This obfuscation is aided by the fact Lebanon, at the time of writing, is not a party to the FATF. It is a member of the MENAFATF regional body, but the actual implementation of FATF protocols inside Lebanon is not clear in the open source. In the case FATF recommendations were institutionalized, Hezbollah could again use its’ institutional, as well as military, clout to coerce and intimidate bank officials. Hezbollah is arguably the most organized terrorist organization in the world and has been implicated in the assassination of leading Lebanese government officials before. If it were the case Lebanon was moving against Hezbollah’s financial infrastructure in a systematic way, we would expect to see kidnappings and assassinations of bank officials in Lebanon. This does not appear to be the case.
The Special Investigative Unit, Lebanon’s FIU, have claimed in their 2013 annual reports that compliance has increased since 2009. These reports although bordering on press releases, do show attempts at bringing rule of law to Lebanon’s financial systems. Alas, by not releasing identifying information on cases it is impossible to verify whether the Special Investigative Unit is going after large organizations such as Hezbollah, or just relatively small time drug dealers. It is one thing to say one is pursuing terrorist finance, it is another to allow verification. Likewise, it is unclear what is happening to these individuals being investigated. Are they being prosecuted? Are they operatives who have fallen out of favor? Or are actors within the Lebanese government actually making a sustained drive to attack Hezbollah’s finances? This would make sense for the central government to do. Hezbollah undermines their legitimacy as sovereign of their own territory and attacking their finances would benefit actors within the government. But again, without verification this is merely informed speculation. Speculation that can lead down many different and contradictory roads based on the same evidence provided.
Compounding difficulties is the maturity of Hezbollah as an organization. Hezbollah involves itself in a number of ventures that are legitimate. As the quasi-sovereign of southern Lebanon, Hezbollah is heavily involved in construction and social projects. When looking at the Egmont group training manuals for FIUs, a theme that comes up again and again is that successfully detected money laundering operations usually involve relatively small time actors (in a reading of over 50 different case studies in the manual, only one case involved an enterprise with over 100 persons involved). Common mistakes of unsuccessful launderers involve criminals who didn’t have legitimate organizations to eventually transfer their funds to. Money was merely being transferred to personal accounts. Hezbollah does not encounter this issue as it has legitimate construction companies in Lebanon that until recently were open for international business. This gives organizations with the sophistication of Hezbollah a level of plausible deniability other criminal actors do not have. Likewise, if officials do become suspicious of a person vital to an organization, they can be protected by Iranian intelligence services.
Fractures in the sanctions regime make it simpler for local interests in Latin American states and elsewhere to ignore issues involving Hezbollah. The US designates all of Hezbollah as a terrorist organization, while the European Union only designates the military wing of Hezbollah as a terrorist organization. These disagreements make it easier for non-interested parties to detach themselves from the situation. Altogether this paints a bleak picture for the current anti-money laundering regimes as the pertain to groups like Hizbullah. With the increased policy focus on combating Sunni-nationalist organizations such as the self-declared Islamic State, the focus on Hizbullah’s operations become a secondary priority in the short and medium term.
Note
Editor’s note: This document was written in the Spring of 2015 and some of the information could do with an update. Likewise, large portions of the manuscript were salvaged from a damaged computer. Portions of the bibliography and other documents were completely lost. If you have any questions, feel free to contact me and I will see what I can do to help you in your follow-ups.
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