A homeless man in Beirut, a Middle East financial hub until an economic crisis hit Lebanon last year. Reuters
A homeless man in Beirut, a Middle East financial hub until an economic crisis hit Lebanon last year. Reuters
A homeless man in Beirut, a Middle East financial hub until an economic crisis hit Lebanon last year. Reuters
A homeless man in Beirut, a Middle East financial hub until an economic crisis hit Lebanon last year. Reuters

Hezbollah steps up campaign for control of Lebanon’s financial system


Khaled Yacoub Oweis
  • English
  • Arabic

Hezbollah is stepping up a campaign to place its allies at the heart of Lebanon's banking system as the US seeks to disrupt the armed group's financial networks, four senior Arab financiers said on Thursday.

The outcome of the political battle could extend Hezbollah's reach into the nerve centre of Lebanon's banking sector – once the most important in the region – and could hamper any chance the country has of emerging from the worst financial crisis in its modern history, they said.

One of the four sources said Hezbollah "is delving into uncharted territory" by trying to install allies into the – until now – largely independent monetary authorities to help the movement circumvent intensified US sanctions.

The US has been stepping up its financial pressure on Hezbollah – sanctioning dozens of its members' business associates, as well as institutions tied to the group.

Washington has also placed crippling sanctions on Hezbollah's benefactor – Iran.

"For almost three decades the monetary authorities have been forced into an accommodation with Hezbollah while maintaining their relative independence," the Lebanese financier said. "It is something else for Hezbollah to put its hand on the system."

The banking sources in Beirut and the Arabian Gulf spoke to The National on condition of anonymity citing the sensitivity of the issue, and the power of Hezbollah, the only player allowed to keep its arms after the country's 15-year civil war ended in 1990.

Since Lebanon's financial system came under huge strain last year, the value of the Lebanese pound has almost halved. The pound was trading on the black market in Beirut at 2,950 to the dollar on Tuesday, compared with the official rate of around 1,507 to the dollar six months ago.

At the centre of the power-struggle is Riad Salameh, governor of Banque du Liban, the central bank, since 1993.

Lebanon's Central Bank Governor Riad Salameh, September 27, 2018. Reuters
Lebanon's Central Bank Governor Riad Salameh, September 27, 2018. Reuters

Mr Salameh is one of the most well-connected Lebanese figures in the United States and the man who ensures Lebanon's enforcement of US sanctions on Hezbollah to protect the financial system.

Washington says its measures have helped cut off channels for hundreds of millions of dollars a month in illicit funding for the group.

For years, Lebanese banks have had to adhere to compliance requests from the US aimed at preventing Hezbollah from using the system.

But last year Washington sanctioned the Jammal Trust Bank over ties to Hezbollah that forced Mr Salameh to withdraw its banking licence. In 2011, the Lebanese Canadian Bank faced a similar fate.

Washington has also offered rewards for information regarding Hezbollah's financing conduits, announcing on Friday a $10 million (Dh36.7m) bounty on one of the group's top operatives.

The US State Department said the reward for information on Mohammad Kawtharani comes under US efforts to disrupt "the financial mechanisms of the terrorist organisation Lebanese Hezbollah".

Hezbollah sets sights on central bank

Now Hezbollah's political allies are moving to try to appoint their clients to some of the four open positions for vice governor of Banque du Liban as well as top spots in the Banking Control Commission that oversees the daily operation of the country's 142 lenders.

Lebanon's financial community was alarmed by the attempt because Banque du Liban has been one of the most independent institutions in the country.

There has long been an understanding among politicians who competed for spoils elsewhere in the system that the monetary authorities were too important for the survival of the country as a functioning entity to be politicised.

Political associates of Hezbollah, and its main Shiite ally, Parliament Speaker Nabih Berri, already hold the main portfolios of finance and the interior ministry despite the government insisting it is an independent administration.

But the plan was derailed when former Lebanese prime minister Saad Hariri, a close friend of Mr Salameh, threatened to pull his allies from Parliament if the Cabinet passed the appointments, a senior Lebanese financier with knowledge of the proceedings said.

"Four vice governors unanimously hostile to Salameh would have greatly curbed his power," the financier said.

There was no immediate comment from Mr Hariri's office.

On April 2, Prime Minister Hassan Diab, a Sunni Muslim, shelved the vote in Cabinet at the last minute to avoid a rift.

Although Hezbollah supports Mr Diab, and his government received the endorsement of Parliament with few abstentions, he does not have a Sunni political group behind him that could have kept his administration together had Mr Hariri withdrawn from Parliament.

Exerting a large influence on Mr Diab is Ahmad Jashi, a top prime ministerial adviser and a long-time critic of how of Banque du Liban functions, the sources said.

Mr Jashi was the first vice-governor at Banque du Liban in the 2000s, a position reserved for a Shiite under Lebanon's sectarian political system. The governor position is reserved for a Maronite Christian, although communal quotas are not stipulated by law.

A US-educated economist, Mr Jashi was associated with Mr Berri but over the last decade he has moved closer to Hezbollah, the sources said.

During his term as vice governor, Mr Jashi privately expressed deep concerns that the public debt was becoming unmanageable and the monetary authorities had too cosy a relationship with the banking sector.

He was a strong advocate for cleaning up the loan portfolio of Lebanon's banks. He argued that a crisis would be multiplied if banks kept non-performing loans hidden in their balance sheets.

Lebanon's public debt has been the main source of the pressure, as well as the government's failure to enact reforms tied to the $11bn (Dh40bn) rescue package promised at a donor meeting in Paris in 2018.

At about $92bn (Dh337bn), the debt is equivalent to more than 150 per cent the size of the economy. Local banks hold a large percentage of the national debt.

Beirut, Lebanon, April, 12 2020. EPA
Beirut, Lebanon, April, 12 2020. EPA

Although Mr Jashi is thought of as a main instigator for personnel change at the Banque du Liban, competition between Hezbollah's allies over the plan to install their associates contributed to the unravelling of the attempt.

Hezbollah, the sources say, may have bungled the takeover attempt by relying on head of the allied Free Patriotic Movement Gebran Bassil to execute the plan. Mr Bassil is a former minister, the son-in-law of President Michel Aoun and has had an important political alliance with Hezbollah since 2006.

A long-running enmity towards Mr Bassil from Sleiman Frangieh, the head of the Marada Movement and one of the closest allies of Hezbollah and the Syrian regime in Lebanon, may have derailed his efforts.

Although both Mr Frangieh and Mr Bassil wanted to diminish Mr Hariri's influence in the banking bodies, the Marada head regarded the Free Patriotic Movement leader as trying to upstage him on the issue and use it for his own benefit.

Co-opting anger at the elite

October's uprising against years of stagnation, corruption and ineffectual leadership failed to make the sweeping political change that those on the streets were calling for. But it led Mr Hariri to resign and a new administration that sold itself as non-politicians.

In contrast to Mr Hariri and his allies, Hezbollah and its backers emerged relatively unscathed from the protests that eventually were met by violence by the authorities and fizzled out in the weeks before the country went into lockdown to stem the spread of the coronavirus.

The Shiite group has since sent thousands of medical staff and its highly organised loyalists to assist in the fight against Covid-19 in a public-relations blitz to rehabilitate its image.

Mr Salameh too has sustained political damage. Before the uprising, he was a man rarely criticised in the media. But the governor's popularity took a hit with demonstrations outside the central bank.

He is accused by activists of facilitating a rent economy that has for years profited the country's banking elite and their political backers – by some estimates 25 per cent of the country's income goes to just 1 per cent of the population.

His defenders said he warned consecutive governments for decades that public borrowing was unsustainable and resorted to the tools at his disposal to maintain liquidity in the system.

When the Association of Banks shut branches at the start of the October uprising and Banque du Liban banned dollar withdrawals in November to prevent the system from collapsing, Mr Salameh lost more popularity on the streets.

Lebanon's banks have for decades been the deposit box of the country's diaspora, as well as a hub for Syria and Iraq, giving generous interest rates and having a track record of weathering international financial storms, such as the 2008 global crash.

The US sanctions on Jammal Trust contributed to a run on deposits across Lebanon's banking system in the second half of last year, with Syrian withdrawals among the largest outflows, the sources said. Banks in Syria have been under US sanctions since before the 2011 revolt against Bashar Al Assad.

As the Hezbollah campaign over appointments has increased, so too have personal attacks on Mr Salameh.

Hezbollah appears to be trying to capitalise on the public sentiment against Mr Salameh by turning the governor into the symbol for Lebanon's economic malaise.

Mr Salameh denied Lebanese media reports last week that through the 2000s he deposited $789m into accounts controlled by himself, a female assistant and his brother in banks in Zurich, Panama and elsewhere Latin America. His Banque du Liban salary is roughly $420,000 a year.

He said that the documents for the deposits cited by the media were forged as part of a "programmed campaign against Banque du Liban and its governorship council".

He said he knew of the existence of the forged documents against him since 2016, the year Mr Aoun became president. Mr Salameh's stewardship of Banque du Liban was renewed for a fifth, six-year term in 2017 as part of a political deal between Hezbollah and Mr Hariri.

The reports on Mr Salameh have been appearing across the political media spectrum. But Al Akhbar, a pro-Hezbollah newspaper, criticised Lebanese TV channels that gave Mr Salameh airtime to deny the reports.

The paper even accused female presenters who interviewed Mr Salameh of "flirting" with the governor.

Amid the media noise around the appointments, Hezbollah officials have claimed that America's ambassador to Lebanon, Dorothy Shea, is directly interfering by trying to force US-friendly candidates. A US embassy official told The National that the accusation was entirely false – a rare public rebuttal to Hezbollah.

The end game - influence but not total control 

Although Hezbollah is trying to exert influence in the central bank through the appointment of Mr Salameh's deputies, the sources said it is unlikely that the group wants to go as far as some of its Christian allies or Mr Jashi by removing Mr Salameh entirely.

"I think we are seeing a case where Bassil is going further than Hezbollah wants," a Lebanese financier based in the UAE said, adding that the Free Patriotic Movement head is driven by personal ambition to undermine Mr Salameh.

As a prominent Maronite, Mr Salameh's name has often been tipped as a future president – a position that Mr Bassil covets for himself when Mr Aoun's term ends in 2022.

Ultimately, the ability of the Lebanese financial system to survive depends on the US trusting that the monetary authorities are not helping Hezbollah to raise funds. While Washington provides significant military and development aid to Lebanon – more than $1bn in the last decade – there remain sceptical politicians in Washington who want to cut the country off.

"Salameh has made it clear to Hezbollah in that his actions against them do not go beyond adhering to the US sanctions," the banker said.

"If Hezbollah takes over Lebanon's banking system, it can no longer use it."

The major Hashd factions linked to Iran:

Badr Organisation: Seen as the most militarily capable faction in the Hashd. Iraqi Shiite exiles opposed to Saddam Hussein set up the group in Tehran in the early 1980s as the Badr Corps under the supervision of the Iran Revolutionary Guards Corps (IRGC). The militia exalts Iran’s Supreme Leader Ali Khamenei but intermittently cooperated with the US military.

Saraya Al Salam (Peace Brigade): Comprised of former members of the officially defunct Mahdi Army, a militia that was commanded by Iraqi cleric Moqtada Al Sadr and fought US and Iraqi government and other forces between 2004 and 2008. As part of a political overhaul aimed as casting Mr Al Sadr as a more nationalist and less sectarian figure, the cleric formed Saraya Al Salam in 2014. The group’s relations with Iran has been volatile.

Kataeb Hezbollah: The group, which is fighting on behalf of the Bashar Al Assad government in Syria, traces its origins to attacks on US forces in Iraq in 2004 and adopts a tough stance against Washington, calling the United States “the enemy of humanity”.

Asaeb Ahl Al Haq: An offshoot of the Mahdi Army active in Syria. Asaeb Ahl Al Haq’s leader Qais al Khazali was a student of Mr Al Moqtada’s late father Mohammed Sadeq Al Sadr, a prominent Shiite cleric who was killed during Saddam Hussein’s rule.

Harakat Hezbollah Al Nujaba: Formed in 2013 to fight alongside Mr Al Assad’s loyalists in Syria before joining the Hashd. The group is seen as among the most ideological and sectarian-driven Hashd militias in Syria and is the major recruiter of foreign fighters to Syria.

Saraya Al Khorasani:  The ICRG formed Saraya Al Khorasani in the mid-1990s and the group is seen as the most ideologically attached to Iran among Tehran’s satellites in Iraq.

(Source: The Wilson Centre, the International Centre for the Study of Radicalisation)

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