The Fine Line Between Banking and Blacklisting in Lebanon

Sophie Jacobs

Lebanon’s banking sector is constantly walking a fine line when it comes to financial transactions with Hezbollah. On the one hand, banking officials want to please US regulators who see Hezbollah as a terrorist group; on the other hand, the support of the Lebanese public has turned Hezbollah into a major political party, and is therefore seen as a legitimate actor. This contradiction is frequently under scrutiny and came to a head recently when the US Department of the Treasury blacklisted two Lebanese exchange houses under Section 311 of the Patriot Act, denouncing them as a “primary money laundering concern”.

Lebanon is a familiar character in the world of illicit finance due to its covert banking system and a lack of transparent regulations; however, Hezbollah’s categorization as a political group there and a terrorist organization elsewhere will continue to put the country at risk for sanctions.

Lebanon’s Drug Connection

The Lebanese case is not simply about banking regulations, but delves into the relationship between financial crime and other illicit activity – as a group, Hezbollah has connections to international crime rings and drug smuggling that many other partakers in illicit finance do not have, which makes the issue of banking even more complicated.

In the most recent case, two moneychangers, Kassem Rmeiti & Co. for Exchange and Halawi Exchange Co., were accused of laundering money for the Lebanese drug czar Ayman Joumaa and using those funds to finance Hezbollah (and therefore, terrorism).

This is not the first time that Joumaa and his connection to Hezbollah have come under US Treasury fire. In 2011, the Treasury department sanctioned Lebanese Canadian Bank for laundering and redistributing the spoils of the illegal drug trade. Officials now allege that after LCB closed, Joumaa transferred his financial transactions to the two smaller and lesser-known money exchanges.

The link between Hezbollah and drug activity is not new. It is known that Hezbollah gets its funding from both legitimate and illegitimate sources, from narcotics trafficking (much of it related to the sizable Lebanese population in South America) to used car businesses, charities and beyond.

However, the link between Hezbollah and drug smuggling is unlikely to slow any time soon, as its largest financial supporter, Iran, continues to struggle economically and fiscally due to sanctions over its controversial nuclear program. As a result, Hezbollah will increasingly need to find financial sources elsewhere. In fact, the situation will continue to worsen as its other supporter in the region, the Shiite regime of Bashar al-Assad, fights the rebel groups in Syria for power.

Helpless Victims?

Regardless of the fault of bankers involved, some Arabic sources have decried the practice of blacklisting banks that interact with Hezbollah. Since Hezbollah is widely seen as a political group and is a prominent figure in Lebanon’s government, the majority of Lebanese banks must deal with members of Hezbollah, or so they argue. For the US to attack banks with any connection to Hezbollah is unfair and unjust, since only the US and Israel consider Hezbollah proper to be a terrorist group (other countries, namely European, only consider Hezbollah’s armed wing to be a terrorist group).

Businesses in Lebanon are now seeing the repercussions of this activity. At the same time, however, assuming that these businesses are blind-sided or acting under duress is faulty. Lebanon’s largest banking group, the Association of Banks in Lebanon, announced that it would abide by all US sanctions and has even hired American legal council to help it increase transparency and stability.

Therefore, it could be said that the banks and financial institutions involved are doing so with the full knowledge that they are out of compliance with previously stated standards. Indeed, truly legitimate businesses refuse to take part in crime-related financial activity.

In some ways, the Arab reports are correct. As long as Hezbollah is considered a political party and is active in the government, financial institutions will be forced to deal with members of the group. Yet, as long as Hezbollah is considered a terror group by the US, the Treasury Department will be blacklisting Lebanese banks.

The US Response

In truth, groups such as Hezbollah have merged the line between politics, terrorism, and social works so thoroughly that it is next-to-impossible to ferret out the funds used for illegal activity. Members of Hezbollah hold government seats and in much of the country Hezbollah provides basic needs such as education, medical care, and infrastructure for communication. To take money away from Hezbollah is just as likely to deprive these sorts of activities from funding as it is to prevent the funding of another bombing in Burgas, Bulgaria (which most countries, even those that officially categorize Hezbollah as a political group, acknowledge was planned and carried out by members of Hezbollah).

However, until intelligence officials are consistently able to keep track of what money goes where, depriving groups that act as social movements as well as terror supporters will continue to raise the hackles of those who focus on social justice. Unfortunately, as long as Hezbollah funds both hospitals and terrorism, banks in Lebanon will be hounded for their interactions with the group.


This article was originally published on the WIIS-Israel blog on May 11, 2013.

Sophie Jacobs has a BS in economics and mathematics from the University of Washington and an MA in Middle East Studies from Tel Aviv University. She works as an analyst writing about Middle East economics, finance, and business.