US sanctions on Hezbollah cause fallout on Lebanon’s economy

Sunday 04/06/2017
Threat of isolation. A woman walks outside Lebanon’s Central Bank building in Beirut, last January. (Reuters)

Beirut- The United States is plan­ning to tighten sanctions on Hezbollah in Lebanon as part of the Trump ad­ministration’s stated de­termination to roll back Iranian in­fluence across the region, a policy that was given a further boost by the US president’s recent whirlwind tour of Saudi Arabia and Israel, the Islamic Republic’s bitter regional foes.

The widely expected imposition of new measures against Hezbollah and its support base could have sig­nificant repercussions on Lebanon’s economy and financial stability and threaten the traditionally buoyant banking sector, which will find itself in the cross hairs of the US Treasury Department’s scrutiny. It could also greatly complicate efforts by Leba­nese Prime Minister Saad Hariri to pursue his goal of attracting $10 bil­lion-$12 billion in investments to be spent on Lebanon’s dilapidated in­frastructure that is under additional strain from the presence of 1.5 mil­lion Syrian refugees.

“We have demanded that Leba­non’s interest be taken into consid­eration as it faces the challenges of fighting terrorism and the displaced Syrians,” Yassine Jaber, a Leba­nese MP and part of a delegation in Washington in May said. “Leba­non faces a complicated financial and economic situation and can no more tolerate any further pressure.”

The United States introduced the Hezbollah financing prevention act, known by the acronym HIFPA, in December 2015 during Presi­dent Barack Obama’s administra­tion. It threatens sanctions against anyone that has financial dealings with Hezbollah. However, critics of Obama say the act was not applied with sufficient force and they are seeking to tighten HIFPA.

The measures being drawn up re­portedly could include political al­lies of Hezbollah, such as members of the Amal Movement and the Free Patriotic Movement of Lebanese President Michel Aoun. Hezbollah, which has had years to find ways of bypassing and minimising the ef­fects of sanctions, may suffer less than other individuals and entities that may have only fleeting rela­tions with the party.

A year ago, the United States is­sued a list of some 100 names to the Lebanese Central Bank, call­ing for their accounts to be frozen, a demand with which the Bank of Lebanon had little choice but to comply. Next time, however, the United States may not bother to is­sue a list of names but will require banks to increase their own due dil­igence measures for their custom­ers, according to a Lebanese politi­cian closely involved with the issue. Such a demand would be almost impossible to achieve in full.

“Imagine someone opens a bank account and he has no dealings with Hezbollah,” the politician said. “What happens if his brother two years later joins Hezbollah and the account holder lends him money? How is a bank supposed to be aware of that?”

The risk to Lebanese banks is that if they are caught handling funds that are in some way con­nected to Hezbollah, they will be fined and shut out of the US finan­cial system. Many Lebanese banks have correspondent banks in the United States to allow them to fa­cilitate business where they have no branches but correspondent banks themselves can be at risk of sanctions if their Lebanese clients are found guilty of handling funds related to Hezbollah.

The concern among banking circles is that some American cor­respondent banks may conclude that Lebanese banks carry too high a risk to continue doing business with them.

Furthermore, if Leba­nese banks are no longer seen as safe repositories for funds, it could lead to a downturn in the flow of remittances from expatriate Leba­nese, a mainstay of the Lebanese economy, as well as encourage the flight of capital from the Lebanese banking system.

While the United States classi­fies Hezbollah as a terrorist organi­sation, in Lebanon, Hezbollah is deeply enmeshed within political, social and economic society, mak­ing it often difficult for Lebanese groups to treat it separately.

The American University of Bei­rut inadvertently found itself a victim of this complication when it was fined $700,000 for provid­ing “material support” to Hezbol­lah. A civil lawsuit filed against the university, one of the most prestig­ious in the Middle East, accused it of breaching US law by providing media training in 2007-09 to jour­nalists affiliated with Al-Nour Ra­dio and Al-Manar television, both Hezbollah media organs and under US sanctions.

The implications of tightened financial measures against Hezbol­lah led the Lebanese government to send a delegation to Washing­ton. Included in that group were Jaber and Mohammed Qabbani along with Ali Hamdan, an adviser to Lebanese Parliament Speaker Nabih Berri, and Antoine Chedid, a former Lebanese ambassador to the United States. Another del­egation of banking officials was in Washington at the same time. Both delegations met with a host of con­gressmen, senators and adminis­tration officials to press Lebanon’s case that too harsh a sanctions re­gime could backfire on a country struggling with a teetering econo­my.

“I believe that the proposals made by some US congressmen to tighten sanctions on Hezbollah will at least be amended to ensure no harm befalls Lebanon and its bank­ing system,” said Joseph Torbey, the president of the Association of Banks in Lebanon, in upbeat com­ments following his trip to Wash­ington.

Hariri is a staunch political op­ponent of Hezbollah. Several mem­bers of the organisation are on trial in absentia in the Netherlands on charges of assassinating his father, Rafik, in 2005. Hariri was Leba­non’s representative at the recent Arab summit in Riyadh attended by US President Donald Trump in which Iran was in the firing line for what Saudi Foreign Minister Adel al-Jubeir said was “interven[ing] and meddl[ing] in the affairs of Arab countries like Iraq, Syria, Lebanon and Yemen” and creating “the world’s foremost terrorist or­ganisation, Hezbollah.”

Nevertheless, Hariri has set aside his personal differences with Hez­bollah in recognition that Lebanese financial stability could face a con­siderable challenge in the months ahead.