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Matt Nash

Treasury’s war on Hezbollah

Central Bank Governor Riad Salameh is singing a different tune.

When the US Treasury Department announced in early February that it found the Lebanese Canadian Bank (LCB) to be involved in money laundering tied to drug trafficking that financially benefited Hezbollah, Salameh defended the bank and essentially denied the charge.

“The Lebanese Canadian Bank abides by Lebanese laws and international standards,” he said. But after meeting with US officials on February 25, he backed away from that defense and said the US action “only addressed the activities of the bank and not the entire banking sector in Lebanon.”

The country’s banking industry is the backbone of the economy. There were fears when Treasury first made its announcement that the US might soon levy accusations against other local banks or that action against LCB could tarnish the sector’s reputation.

“It’s something the sector doesn’t need to begin with,” said one banker, who would only speak anonymously because of the sensitivity of the issue. “But other banks are functioning normally.”

Another banker who also spoke anonymously said Treasury’s action could be a black spot on the sector, but he thinks the Central Bank will step in to calm depositors and investors.

 “The Central Bank is very strict, so if they suspect anything, they don’t show anybody any mercy because it would tarnish the whole industry. And this is the only industry we have that’s still intact,” he said.

Salameh did not announce if the Central Bank – or law enforcement officials – would be taking any punitive actions against LCB. However, on Wednesday, An-Nahar reported that four banks are negotiating to buy LCB. The report said the bank could be sold for between $500 and $600 million and that the Central Bank is not mediating these discussions.

“This settlement is the most suitable given that the issue is linked to the reputation of the sector and its credibility,” banking expert Ghazi Wazni told the daily.

On February 10, Treasury announced that it had enough information to act against LCB for its alleged role in a money-laundering scheme. The scheme apparently involved drug trafficking and selling used cars in Africa. LCB employees in Lebanon and abroad allegedly knew about the drugs and money laundering and apparently helped move some of the proceeds from this illicit activity along to Hezbollah.

“According to U.S. Government information, Hezbollah derived financial support from the criminal activities of [drug kingpin Ayman] Joumaa’s network,” the department said in a press release. “LCB managers are also linked to Hezbollah officials outside of Lebanon. For example, Hezbollah’s Tehran-based envoy Abdallah Safieddine was involved in Iranian officials’ access to LCB and key LCB managers, who provide them banking services. LCB’s other links to Hezbollah include LCB’s subsidiary, Gambia-based Prime Bank, which is partially owned by a Lebanese individual known to be a supporter of Hezbollah.”

Treasury did not respond to an interview request.

LCB does not have any branches in the US, but does have relationships with several US banks through what are known as payable-through and correspondent accounts. Because branches are expensive to open and operate, in an increasingly globalized world, banks will often establish ties abroad so their customers can do business with their home bank in a foreign country via a payable-through or correspondent account. Treasury ordered US banks to cancel all payable-through and correspondent accounts linked to LCB.

For years now Treasury has been waging a financial war against Hezbollah as part of an effort to disrupt financing for groups the US labels terrorists. Since 2004, when then-President George W. Bush created the department, that war has been led by the Undersecretary for Terrorism and Financial Intelligence Stuart Levey.

Levey is the architect of US sanctions against Iran and is expected to end his long tenure at Treasury soon. His replacement will be longtime confident and Treasury colleague David Cohen, the Wall Street Journal reported.

Treasury’s moves against Hezbollah generally target Lebanese living and working abroad – some of the most high-profile actions have been taken against Lebanese in Africa and in the so-called “Triple Frontier” (or tri-border region) of South America, where Paraguay, Argentina and Brazil meet. In 2006, a US counterterrorism official told the Wall Street Journal that Hezbollah “is at a pretty high level now” in terms of Washington’s priorities.
 
In terms of how important going after Hezbollah is to Treasury and other US officials now, Mara Karlin, a former Pentagon official who worked on the Levant, told NOW Lebanon, “It’s safe to say folks are keeping an eye on what Hezbollah does…We’ve seen that Hezbollah actions don’t stay within Lebanon. We have to be cognizant of what they’re doing.”
 
Treasury’s finding against LCB does indeed highlight alleged Hezbollah activity abroad, something the US is keen to publicize, an analyst told NOW Lebanon.

“This is a pretty significant action,” said Matthew Levitt, director of the Stein Program on Counterterrorism and Intelligence at the Washington Institute for Near East Policy who served as deputy assistant secretary for intelligence and analysis at Treasury from 2005 to early 2007.

“Hezbollah raises a lot of money independent of the annual funding it gets from Iran, and efforts to deny Hezbollah the ability to do that and finance illicit activities – and highlighting the fact that Hezbollah does engage in explicitly illicit activities like being involved in the narcotics industry – is important to demonstrate what Hezbollah really is and what it isn’t,” he told NOW Lebanon.

Action against LCB, he said, obviously grew out of an earlier Drug Enforcement Administration investigation into Ayman Joumaa, who was mentioned in Treasury’s report on the bank. Levitt and Karlin said Treasury is not the only agency in the US government working against Hezbollah.

“If you’re looking at these issues [like terrorist financing] writ large, there’s a pretty good inter-agency process,” Karlin said. “Lebanon has generally benefited from senior-level interest, so you’d have close coordination at all levels, from action officers to cabinet officials discussing these issues in a robust dialogue.”

The particular timing of Treasury’s recent announcement – on the heels of Hezbollah toppling Lebanon’s government and, with allies, electing Najib Mikati as the next prime minister – raised eyebrows in Lebanon and abroad.

“My general impression is that [Treasury’s action against LCB] fits the pattern that I’ve been observing in the past nine or 10 years, which is that the question of timing is always interesting,” said Ibrahim Warde, author of a book on terrorism financing and a professor at the Fletcher School of Law and Diplomacy at Tufts University.

Warde said he thinks Treasury’s announcement was timed as a political message aimed at Mikati. Levitt cautioned that coincidences happen and have been incorrectly deemed significant in the past, but did not entirely dismiss a potential political message behind the announcement.

 “I do think there is a tremendous amount of activity going on in Lebanon today and more coming down the pike. And I do think it would be wholly appropriate if the administration decided that now was an opportune time to reveal this information,” he said.

The investigation and Treasury’s decision to act were “certainly” not driven by current Lebanese politics, he said, but if politics factored into the consideration of when to announce this move, “which is potential, then it would not be inappropriate.”

  • TP

    I guess Riad salameh' goal is to reelect him.

    March 7, 2011

  • walid

    The sad fact is that Riad Salameh went on TV with Marcel Ghanem and stated that this issue was imposed on LCB from abroad. Now that the bank is being sold to Societe Generale, the case is closed, no one will be prosecuted, and so much for Lebanon pretending to regain its status of financial centre of the middle east. As usual, bury the facts and move on until the next one blows up...

    March 7, 2011

  • David George

    Hezbollah activity is no doubt minnow-sized compared to the undetected, unexamined, uncontrolled, wholesale activities of the globalized gun running, drug 'trafficking', money laundering sharks.

    March 5, 2011

  • Ponzi

    Salah Ezzedine.

    March 3, 2011

  • mk

    Well, I have read the detailed report of the Treasury and unfortunately they can not make up that much of detailed story and facts, so what they have been accused of is for real! and most probably it took some insider from the bank to disclose all such details related to the bank;s branches and proiximity to the Exhange Houses, that were the focal points used to start the whole ML activity thing!

    March 3, 2011

  • walid

    You say that LCB is guilty hence its forced sale. Many should be held accountable: 1- The Bank managers for their crime. 2- The Central Bank for failing to properly control the Bank.

    March 3, 2011

  • walid

    Riad Salameh committed a huge mistake by blindly defending LCB. He not only proved that money laundering existed in Lebanon but also that the Central Bank is not properly performing its duties in anti-money laundering. Where is the accountability?? The LCB managers should be prosecuted for money laundering charges and Salameh should be replaced for failing to perform his basic duties as a regulator.

    March 2, 2011