U.S. Looks to Clamp Down on Hizbullah Funding

In the long-running cat-and-mouse game between the U.S. government and Hizbullah, Washington is bringing to bear its latest tool to crack down on what American officials say is the Lebanese terrorist group’s globe-straddling illicit financing network.

The Obama administration’s newest instrument is the Hizbullah International Financing Prevention Act, which authorizes U.S. sanctions on financial institutions that knowingly do business with Hizbullah or individuals acting on the group’s behalf.

The U.S. considers Hizbullah a terrorist organization, and has been working for years to try to box the group out of the American and international financial system. The Treasury Department has designated around 100 suspected Hizbullah financiers and Hizbullah-linked businesses in 20 countries, freezing their assets in the U.S. and barring Americans from doing business with them.

Those efforts, U.S. officials say, have taken a toll on the organization’s coffers.

“I can tell you that after many years of targeting Hizbullah, today the group is in its worst financial shape in decades,” Adam J. Szubin, the Treasury Department’s acting undersecretary for terrorism and financial crimes, told House lawmakers in late May.

The new legislation, which President Barack Obama signed into law in December and the Treasury Department issued implementing regulations on in mid-April, does not greatly expand the government’s powers to target Hizbullah’s finances. But it does provide American officials with a new way to prod foreign financial institutions to keep Hizbullah out of the banking system.

“Congress has passed a very specific law about Hizbullah, and that puts our diplomats and our Treasury officials in a stronger position,” said William F. Wechsler, a former senior Pentagon official who oversaw counter-narcotics and global threats. “What it really shows is the priority that Washington as a whole places on Hizbullah’s illicit activities, which is a great signal to send.”

It’s a signal that has not gone unnoticed in Lebanon, where Hizbullah lawmakers serve in a national unity government.

Since the bill was first introduced last year, Lebanese delegations to Washington have held talks with members of Congress and the administration about the legislation’s potential impact on Lebanon’s financial sector, a critical industry in the tiny Middle Eastern country.

Lebanese financial authorities have made clear they will abide by the law since it was signed into the books.

The country’s central bank chief, Riad Salameh, told CNBC in June that his priority is “to keep Lebanon on the international financial map, so we have taken a resolution that we will implement that U.S. law in Lebanon.”

“We have put in place a structure to do it to satisfy the objectives of that law and at the same time preserve the rights of the Shiites to have access to the banks,” Salameh said.

Lebanon has already frozen around 100 accounts that were deemed to have Hizbullah links by the Treasury Department’s Office of Foreign Assets Control, he added.

“As Long as Iran Has Money…”

Hizbullah, meanwhile, has sharply criticized the legislation. The group’s leader, Hassan Nasrallah, tried to play down the law’s impact, saying his organization has no money in Lebanese banks and that it does not transfer funds through the country’s financial system.

“We do not have any business projects or investments via banks,” Nasrallah said in a speech in late June.

“As long as Iran has money, we have money,” Nasrallah was quoted as saying by the AFP. “Just as we receive the rockets that we use to threaten Israel, we are receiving our money. No law will prevent us from receiving it.”

U.S. officials estimate that Hizbullah gets more than $200 million a year from Iran.

Still, Nasrallah’s comments can’t mask the obvious jitters in the Hizbullah camp.

The group’s bloc in parliament has said that for Lebanon to follow the law would amount to a “war of exclusion” against Hizbullah. That statement followed reports that the bank accounts of two Hizbullah lawmakers had been shut down.

Illegal activity presents opportunity

Hizbullah was established with the help of Iran in the early 1980s to resist the Israeli occupation of southern Lebanon, and it waged a guerilla war until Israel withdrew in 2000.

The group runs a political bloc as well as a vast network of social services, charities, hospitals and schools in Lebanon. But it also maintains a militia that is stronger than the Lebanese military, and Hizbullah has refused to disarm, saying it is the only force capable of protecting the country.

In 2006, Hizbullah fought Israel to what was widely considered a draw in a bloody war that left much of southern Lebanon in ruins. Going toe-to-toe with the strongest military in the region burnished the group’s reputation in the Arab world.

But that reputation has taken a big hit, particularly among Sunni Arabs, since Hizbullah intervened in Syria’s civil war in support of President Bashar al-Assad.

Hizbullah’s tarnished public image presents an opportunity for the United States, according to some former U.S. officials. They say the United States should further undermine Hizbullah by emphasizing what the U.S. officials allege are the group’s illegal actions.

“The fact that Hizbullah is involved in significant criminal activities, including drug trafficking and related to drug trafficking, is something that diminishes their brand,” said Wechsler, who is now with the Center for American Progress. “They’re in a position right now, particularly, in which their brand should be hugely diminished. We should right now have the greatest opportunity that we’ve had in years to attack Hizbullah at the root of its legitimacy.”

This tactic has an additional upside: It papers over the fact that members of the European Union don’t consider Hizbullah in its entirety a terrorist organization, as the U.S. does. EU states have been wary of clamping down on some Hizbullah fundraising in Europe because of the group’s legitimate political and social activities, but Europeans are happy to go after criminal actions like illegal substances and the illegal arms trade.

In the U.S. government, the Drug Enforcement Agency and the Treasury have played a leading role in piecing together Hizbullah’s alleged ties to money laundering and the international narcotics trade.

The highest-profile case so far culminated in 2011 with the Treasury Department’s freezing $150 million in assets of the Lebanese Canadian Bank.

The U.S. alleged that the bank had played a key role in a complicated money-laundering scheme that benefitted Hizbullah. The lender, which eventually closed, reached a settlement with the U.S. government but did not admit wrongdoing.

Most recently, the DEA announced the arrest of businesswoman Iman Kobeissi on charges of conspiracy to launder illicit money and international arms trafficking. Her alleged co-conspirator, a lawyer named Joseph Asmar, was arrested in France and also faces money-laundering charges in the U.S.

DEA officials allege that Kobeissi and Asmar are examples of the global network that Hizbullah taps into to make and move money around the world. It includes what DEA officials refer to as “super-facilitators,” shady middle men who help launder money and run guns for illegal substance cartels, terrorist organizations and other criminal enterprises.

There is no indication at this point that Nasrallah or his inner circle is aware of, or approves of, the purported trafficking ties. But the DEA alleges that a group within Hizbullah that U.S. officials refer to as the “business affairs component” is responsible for handling ties with the super-facilitators.

DEA officials say the BAC was founded in the 1990s by prominent Hizbullah commander Imad Mughniyeh. Mughniyeh was assassinated in Damascus, Syria, in 2008, reportedly by Israeli and U.S. intelligence agents.

The DEA alleges that Hizbullah engages in something called trade-based money laundering, which makes it hard to track.

Hizbullah officials will provide seed money to businessmen around the world, such as a gold merchant or a car dealer, and some of the profit generated by those funds will return to Hizbullah to supplement the hundreds of millions the group is believed to receive annually from Iran, DEA officials say.

“We believe that money is all intermixed and comes back to their coffers,” a DEA official said on condition of anonymity because he was not authorized to speak to the media .