The US Congress passed the Hezbollah International Financing Prevention Act (HIFPA) in December last year. Its goal was to broaden existing financial sanctions against both Hezbollah, the Lebanese Shi’ite group designated a terrorist organization by the US, and Hezbollah-affiliated Lebanese television station al-Manar.
The Lebanese central bank quickly moved to accept the US rules. In April, just three days after the US Treasury Department's Office of Foreign Assets Control (OFAC) issued regulations aimed at implementing HIFPA, Riad Salamé, Lebanon’s central bank governor, said the country’s financial sector would abide by them. By then, Lebanese officials and bankers had travelled to Washington to discuss the bill with US officials.
Political tension has grown since the implementation of the rules. Hezbollah is a powerful force in Lebanon, with seats in the parliament and the cabinet. Earlier this year, Lebanon’s industry minister – himself a member of the Hezbollah-linked parliamentary group Loyalty to the Resistance Bloc (LRB) – was quoted in regional media as saying banks had closed the accounts of two Hezbollah parliamentarians and the daughter of a former member of the bloc.
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Katherine Bauer, |
Katherine Bauer, a senior fellow at the Washington Institute for Near East Policy and a former official at the US Treasury Department, says: “When this legislation came out, Lebanese regulators were already requiring their banks to abide by US regulations when dealing in dollars.” But, Bauer continues, tensions mounted when Lebanese banks decided to go above and beyond the US restrictions: “There are anecdotal accounts that banks are cutting off all kinds of accounts related to Hezbollah-affiliated parliamentarians, aspects of Hezbollah’s social support network like hospitals, family members’ accounts.”
Two Lebanese bankers said they were not sure hospitals had indeed been targeted.
“Banks in the Middle East,” Bauer says, “in places that are perceived to be or are higher risk, are having a hard time maintaining correspondent relationships with US banks. Their risk calculation is, as a bank, and especially a Lebanese bank, where the majority of trade is denominated in dollars: ‘I won’t survive if I lose my US correspondent, so I’m going to do everything I can to make sure that relationship is maintained’. And, in this case, even at the risk of violence.”
The violence happened on the night of June 12, when a bomb exploded outside Blom’s headquarters: “Two were injured, but [it was done] to send a message to the banking sector there,” says Bauer.
An investigation into the bombing by Lebanon’s Internal Security Forces is still under way. But Joe Sarrouh, executive adviser to the chairman of Lebanese lender Fransabank, says Blom was widely understood in Lebanon to have closed accounts beyond those on the OFAC list.
A source at Blom was hesitant to speak to Euromoney, because HIFPA, he says, “is a very delicate point” with “heavy political repercussions”. He does not, however, deny that curbing Hezbollah finances posed security concerns, as the bombing of Blom headquarters suggested. “It is difficult to work with the sanctions,” he says.
Sarrouh says the private banks have sought to reassure Lebanon’s Shi’ites that they are not targeting the community as a whole, only Hezbollah. The central bank has also changed the rules for closing accounts of individuals and entities not on the OFAC list. Banks could close accounts and inform the central bank afterwards; now they must obtain the central bank’s authorization before acting on suspicions of an account’s ties to the group.
HIFPA is just the latest in a series of moves by the US to fight the Lebanese organization. Adam Szubin, US undersecretary for terrorism and financial intelligence, told the House Committee on Foreign Affairs in May: “After many years of sanctions targeting Hezbollah, today the group is in its worst financial shape in decades. And I can assure you that, alongside our international partners, we are working hard to put them out of business.”
Lebanese bankers know the consequences of not complying with the US in its efforts to put the group out of business. In 2011, the US Treasury Department designated Beirut-based Lebanese Canadian Bank a primary money laundering concern for allegedly helping a smuggling organization with ties to Hezbollah. That designation, made under section 311 of the Patriot Act, eventually led to the bank’s liquidation.
“The Americans are very keen to implement it [HIFPA], and we are very keen to stay, as always, in the business community,” says Sarrouh.