Lebanon feeling the heat of US banking sanctions on Hezbollah

Sunday 19/06/2016
A Lebanese policeman walks outside the headquarters of Blom Bank in Beirut.

Beirut - Lebanon’s problems are dangerously exacerbat­ing with the implemen­tation of a US law impos­ing banking sanctions on Iran-backed Hezbollah and pitting the country’s two most powerful entities — the militant group and the banking sector — against each other.

A powerful explosion that tar­geted one of Lebanon’s top banks, Blom, on June 12th sounded the alarm about the country’s financial stability, weak economy and the very existence of the Shia militant group Hezbollah. No one claimed responsibility for the Beirut explo­sion, which caused considerable damage to the bank’s headquar­ters, but Hezbollah was quickly blamed.

Whether it was a message from Hezbollah to warn banks against proceeding with the implementa­tion of the US sanctions or a “fifth column” seizing the opportunity to tarnish Hezbollah’s image, Leba­non is in a crisis situation.

“Obviously this new US law is go­ing to cause a lot of headaches for the Lebanese economy… It is hard to implement it and it is harder not to implement it,” said Kamel Wa­zni, a political and economic ana­lyst.

Lebanon’s Central Bank in May started to enforce the Hezbollah International Financing Prevention Act (HIFPA), which the US Con­gress passed in December to forbid banks from dealing with the Shia militant group. Any organisation or individual providing significant finances to Hezbollah, listed as ter­rorist group by the United States, is to be punished.

With Lebanese banks fearing in­ternational isolation, 100 accounts were closed — as confirmed by Cen­tral Bank Governor Riad Salame — in compliance with a list provided by the United States.

Hezbollah has downplayed the impact of HIFPA, saying it was not using the official financial system for its dealings. However, it com­plained of “over-zealousness” by some banks in including accounts that need not to be closed — a clear reference to its large number of supporters, sympathisers and, most importantly, its social, medi­cal, cultural and charity institu­tions that provide services to im­poverished areas and the reasons for the group’s popularity.

If the sanctions were expanded to include Hezbollah’s non-military institutions or other organisations and individuals Washington says are associated with Hezbollah, Wa­zni said the group “will most prob­ably be fighting it back. It will be harmful for the financial system.”

According to economic analyst Adnan Hajj, sanctions are likely to expand and be implemented gradually. “One hundred accounts have been closed but this does not mean there will be no other lists (by Washington to close more ac­counts),” he said.

Hajj said Hezbollah was trying to put pressure on the Central Bank to not abide by HIFPA “but it cannot. There is no way out.”

Hezbollah thus turned to focus on preventing the expansion of the US law and the scope of its imple­mentation.

A senior banking source, who asked not to be identified, said HIFPA is not “a positive thing for Lebanon” but the situation “is manageable if all parties agree and work together. Things are clear to Hezbollah.”

“There is a well-structured and well-defined mechanism (by the Central Bank to implement the sanctions). It is not easy but with time, it could become a natural (process),” the source said.

He explained that any bank has to provide justification to close an account or refuse to open one for people or institutions it believes vi­olates the HIFPA. The Central Bank is to study any such case within 30 days.

The Central Bank is also to make sure that no “specific group of Leb­anese” are targeted, according to the source.

However, such efforts might not be sufficient to appease growing fears.

Wazni expressed concerns that the US sanctions “will go beyond Hezbollah” to target Shias in Leba­non “who control a large sum of money in the banking sector”. With no accurate figure available about such deposits, he said “the ru­mours put them at around $50 bil­lion, probably one-third of the total deposits”.

“As if you are telling one-third of the population to go and create their own financial system, this will encourage an underground econo­my that nobody wants in Lebanon and that is very dangerous,” he said, warning that the weak Leba­nese economy cannot “take any additional shock unless they want us to be like Cuba, a failing country financially”.

With Hezbollah resorting to “cash money” distributed heavily after the 2006 Israel war on Lebanon, Wazni said the “US is encouraging an underground economy whose consequences actually work oppo­site to what the law intended to.”

“The dangers are great. All the sectors will be affected (by the sanctions),” acknowledged Hajj. “What will happen if they are ex­tended to expatriate remittances to Lebanon estimated at $8.7 billion a year? Lebanese exports will be af­fected too.”

The banking source, however, was more reassuring about the currency stability because of large liquidity reserves and about the banking sector, which “is doing well.”

“The banking system proved to be resilient. It is not the first time it faces such a strong shock,” he said.

Feeling the heat of the US sanc­tions, many have decided to keep away from Hezbollah even if this means losing business. For ex­ample, a journalist, an occasional guest of Hezbollah-run Al Manar TV’s political programmes, is evad­ing such appearances.

Although money will likely keep being funnelled to the Shia militant group directly from Iran’s ayatol­lahs and religious institutions, at­tention is being shifted to how an alienated Hezbollah will express its dismay politically.