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Tuesday, March 07, 2017

The Syria selection – sanctions file

 


The Syria conflict is into its sixth year, as are the multilateral sanctions imposed on the government in Damascus. How effective have the sanctions been, given the Syrian regime’s survival? And where may funds from members of the regime, and those linked to it, have gone? Paul Cochrane, in Beirut, investigates.

To read the rest of this article go to: http://www.moneylaunderingbulletin.com/jurisdictions/middleeast/the-syria-selection--sanctions-file--1.htm

Photo by Paul Cochrane

Wednesday, March 01, 2017

Middle East – de-risking, collateral damage (Video)

Money Laundering Bulletin

De-risking by US and European financial institutions is putting immense pressure on Arab banks in the Middle East, especially in the dollarized economies, as they seek to preserve their correspondent relationships. In September 2016, the Arab Monetary Fund reported survey findings that around 40% of banks in the region had seen a “significant decline in the scale and breadth” of these relationships between 2012 and 2015. Paul Cochrane in Beirut talks to local professionals about the impact and consequences for AML.

- To watch the video go to: http://www.moneylaunderingbulletin.com/jurisdictions/middleeast/middle-east--de-risking-collateral-damage-video-122638.htm


Wednesday, January 25, 2017

Fuse paper – terrorist finance tracking in Europe

Money Laundering Bulletin




The pendulum of public sentiment swinging from concern for data privacy to security suggests now may be opportune for Europe to embark on a Terrorist Finance Tracking System (TFTS), says Paul Cochrane, whether independent or additive to the US Terrorist Finance Tracking Programme (TFTP).


Concerns about the US-EU Terrorist Financing Tracking Programme (TFTP) have abated, notably regarding oversight and data-sharing issues. But the issue remains controversial, with a potential EU version of the system still being debated within the EU executive, the European Commission, whether to be standalone or complementary to the USA-promoted TFTP. Meanwhile, with Britain voting to leave the EU, renegotiations may have to take place whatever is decided by the remaining members of the EU.

The TFTP caused a lot of controversy when it was exposed by the media in 2006. The programme, secretly enacted post September 11 2001, provides data to the US through an agreement with the Brussels-based Society for Worldwide Interbank Financial Telecommunication (SWIFT). In 2010, the European Union (EU) legitimised the agreement. It was slated for renegotiation in 2015, but the EU did not amend the treaty, meaning it has remained unchanged since 2010, prolonging the agreement for another year.

Analysts attribute the acceptance of the TFTP to the concerns of EU authorities mainly being addressed, with oversight of data and information transfers to US intelligence now handled by Europol, which had not been the case prior to 2010. The issue also dropped off the media radar, despite the ongoing surveillance and data privacy concerns raised by US whistleblower Edward Snowden.
“The rhetoric in the media, especially back at the time (in 2006 to 2010), was quite emotive, but a middle ground seems to have been reached and accepted,” said Tom Keatinge, Director of the Centre for Financial Crime and Security Studies at RUSI in London.

Europol, the EU’s enforcement agency, and the US have been more forthcoming in releasing information about intelligence leads stemming from the TFTP, claiming more than 22,000 leads have been provided since 2010, while 15,572 leads (out of the total) were from 2015 to April 2016. (1)

Further driving acceptance – and reducing the pressure to renegotiate the TFTP treaty - has been a renewed push to develop a European equivalent to the TFTP, the EU Terrorist Financing Tracking System (TFTS). The system was initially proposed in 2011, but was dismissed by the EU Commission, and again in 2013, as not being cost effective, with set-up costs for a hybrid-model EU-TFTP projected at €33 million to €47 million (US$36.9 million to US$52.6 million), and annual operating costs ranging from €7 million to €11 million (US$7.8 million to US$12.3 million). (2)

In 2011, the conclusion was it was very expensive and not really needed, but five years down the road things have changed,” said Dr. Michelle Frasher, an independent research scholar who recently published a paper with the SWIFT Institute on Transatlantic AML/CTF and Data Privacy Law.(3)

The shift in mindset may be attributed to the recent terrorist attacks in France and Belgium and concerns about foreign terrorist fighters returning to the EU from Syria. One issue is that the TFTP has not been effective in gathering intelligence in Europe as the Single European Payments Area (SEPA) system was not included in the TFTP (which is still the case); as of February 2016, all EU member states have to carry out credit transfers and direct debits in Euro through SEPA transactions, even those that have not officially adopted the Euro as a currency, while as of end October 2016, all non-EU SEPA countries will have to comply – this includes four European Free Trade Agreement (EFTA) member states – Iceland, Liechtenstein, Norway and Switzerland – as well as minnows Monaco and San Marino.
“It is estimated that only two percent of all SEPA data transactions goes through SWIFT, as SEPA data goes through different channels,” said Dr Mara Wesseling, a Research Associate at the Centre de Sociologie des Organisations at Sciences-Po, Paris. She added that some EU authorities wanted SEPA within the TFTP, but this was dismissed due to data protection issues.

“With the changing security situation in EU there is more appetite for SEPA data and to make a similar programme to the TFTP. The mindset has changed a lot. It’s not that data protection is not a priority in general. It is rather that the rationales of ‘data protection by keeping EU data on EU soil’ and ‘limiting the total amount of data that is gathered and shared’ don’t seem to be top priorities now compared to 2010 and 2013,” she explained.

The EU had earlier insisted on keeping data within the EU to abide by data protection laws. Changing that within the TFTP would have required renegotiating the treaty. The current thinking is to not have a standalone TFTS but to complement the existing TFTP treaty, which would increase the amount of data provided even if that means more people are subjected to surveillance as a result.

Originally when the TFTS was brought up it was looked at as an alternative to the TFTP but is now viewed as complementary in particular covering the gap created by the arrival of SEPA. Members states seem happier with that,” said Keatinge.

According to a EU Commission note, the EU TFTS will be “complementary to the current EU-US TFTP Agreement,” and is “to be completed by the end of 2016”. Analysts, however, expect it will take much longer to implement, also hinging on the implementation of the Fourth EU ML/TF Directive.(4)

“TFTS was only a matter of time, and with the terrorist events in Europe this has pushed the political will along,” said Frasher. “We need to have better European and TransAtlantic coordination, as there is a massive gap there due to SEPA data not being included. They are now trying to figure out how to make it happen, which involves many countries, law enforcement, and the privacy aspects as any system must conform to EU technology and privacy regulations.”

But while the focus is on a complementary system, other alternatives are being considered to better connect data within institutions, both public and private, in the EU.

“There is an idea to upgrade the competencies of financial intelligence units (FIUs). Another is a central register to make visible all the different bank accounts one person holds to make it easier to link data to each other, and visualize networks. It is still not sure a TFTS should be created,” said Wesseling.

Such an alternative system would require greater public-private sector cooperation – between intelligence agencies, regulators and financial institutions – to provide better data on terrorist financing and financial crime. This is being spearheaded to a degree by the Fourth EU ML/TF Directive (MLD4), which includes data protection measures.

Regardless of what system the EU opts for, Britain will have to implement the TFTS or its equivalent, and then renegotiate its position towards the TFTP following the Brexit vote, assuming the TFTS is set up before the UK exits the EU. “It is presumed the UK will continue with the programme, but formally there would need to be a new treaty, to have a US-UK TFTP,” said Wesseling.

Britain would also have to ensure a continuing working relationship with Europol. “One risk the UK faces when it’s outside the EU is that as the EU tries to make cross-border information sharing easier, the UK may no longer be part of that loop, particularly if it does not maintain equivalent status with the EU on data protection,” said Keatinge. 


Notes

  1. An EU Terrorist Finance Tracking System, Mara Wesseling, RUSI Centre for Financial Crime and Security Studies - https://rusi.org/publication/occasional-papers/eu-terrorist-finance-tracking-system
  2. https://www.swiftinstitute.org/wp-content/uploads/2016/07/SIWP-2014-008-Conflicts_US_EU_AML_CTF_FINAL-1.pdf
  3. The EU Commission was slated to provide an update on the TFTS in December 2016.

(Image from theincidentaleconomist.com)

Tuesday, December 06, 2016

Arab bankers: US financial rules turn us into 'spies for the CIA'

Middle East Eye

Arab bankers say they have to comply with overly stringent 'War on Terror' regulations


(L-R) Mohamed Baasiri, Vice Governor of the Central Bank of Lebanon, Amr Moussa, former Secretary General of the Arab League, and Saad Azhari, Chairman BLOM Bank at a session at the Union of Arab Bankers conference (MEE/Paul Cochrane)

BEIRUT - Arab bankers have had enough of being at the receiving end of US regulatory diktats. After years of reluctant compliance, they are finally speaking out. In November, they proposed establishing an Arab banking lobby to try to have a say in US and international regulations.
Middle East and North African (MENA) banks have been under the US financial regulatory spotlight since the Patriot Act was rammed through Congress in 2001 and the onslaught of the open-ended "War on Terror".
The MENA financial sector has had to comply with a barrage of US rules and OECD "recommendations" to be in line with international norms on anti-money laundering (AML) and countering the financing of terrorism (CFT). Banks have also had to adhere to economic sanctions against certain countries (Syria, Sudan and Iran), and screen for thousands of names on regulatory blacklists.
On top of that, MENA banks, like everywhere else in the world, have had to adopt, at significant cost (some $8bn worldwide), US legislation like 2014’s Foreign Account Tax Compliance Act (FATCA). FATCA is an attempt to repatriate tax dollars and requires non-US financial institutions to provide information on US account holders to the Internal Revenue Service (IRS).
The cost of non-compliance? Being cut off from correspondent banks in the US, which means being denied US dollar transactions and access to the international banking system. That is significant as around 64 percent of all global foreign currency reserves are in US dollars.

'The regulator is the devil'

 

At the Union of Arab Bankers’ (UAB) annual conference in Beirut on 24-25 November, the atmosphere was different from previous years.
Gone was the attitude of resignation, that "we have no choice but to comply," and touting to the world that Arab banks are following the rules. Instead, the mood was one of assessing the collateral damage, with sessions on "The Impact of the Arab & International Political Developments on the Arab Banking Sector," and the "Impact of International Regulations on the Funding Policies of Arab Banks".
During one panel discussion, the MENA head of Reuters’ governance, risk and compliance services, Mohamed Daoud, asked delegates: "Who is your financial regulator?" One attendee, Osman El Toum El Hassan, general manager of Sudan’s El Nilein Bank, stood up and said, "Theoretically the central bank but in reality the regulator is the devil."
"The CIA," another banker shouted out.
There were laughs, nods and knowing looks in the audience, aware that their central banks were not to be as feared as the US Treasury. It was not what you would usually expect from the conservative banking community. Again and again, the bankers spoke out about the problem of being at the receiving end of foreign regulations, de-risking, and that the MENA region was being unduly singled out.
One attendee expressed his dislike of FATCA, saying: "We have to be spies for the US". Under the act banks have to effectively be agents of the IRS. It was a point emphasised by Abdullah al-Saudi, CEO of ASA Consultants. "Arab banks are spies on people with American passports," he said in a speech.
The driving force of discontent was the de-risking going on, with some six MENA banks having lost their correspondent banking relationships with the US over the past year. The prime reason is the lack of profitability for US banks. To not get fined by US regulators, American banks have to carry out strenuous due diligence and auditing to ensure the Arab bank has done its own compliance work.
Unless a major Arab bank, such effort is not financially worth it for the potential risk involved. The irony is that Arab banks have to abide by domestic US legislation to continue their own domestic operations, with US correspondent banks even scrutinising local transactions – which do not leave a country’s jurisdiction – in the advent of wider money laundering within the Arab bank.
In the case of Lebanon, due to the US’s Hezbollah International Financing Prevention Act of 2015 - which intends to "prevent Hezbollah's global logistics and financial network from operating in order to curtail funding of its domestic and international activities" - local banks cannot have accounts for Hezbollah members, even though the party is a legal entity in Lebanon and has 12 members of parliament.
Lebanese banks have also been under pressure to not deal with Syrians due to the 2011 sanctions by the US and European Union on Syria, which is a serious problem for the estimated 1.5 million Syrian refugees in Lebanon. Due to such regulations, Syrians complain of not having access to the financial sector. Legitimate businesses struggle to make regional and global transfers, and anyone with the name Mohammad, Ali or Osama gets extra scrutiny.
"We’re part of the international community, but we are never asked our opinion, it is imposed on us," El Hassan said. "Why is a Sudanese prevented from sending $100 from Saudi Arabia to his relative in Sudan? I will never support any law that deprives people of their basic human rights."

One-size-fits-all policies

 

As is often the case with international regulations, they are one-size-fits-all, not taking into consideration local cultures and ways of doing businesses.
For example, 88 percent of Sudanese do not have bank accounts, according to El Hassan, as Sudan is a cash-based society. He said clients do not grasp the concept of money laundering and are puzzled by Know Your Customer (KYC) questions asking if they are married, have kids, or rent or own a house when they want to buy a car.
"When we explain to people what money laundering is, no doubt one out of a 100 will now go and try it," he said. Over in Egypt, out of 91 million people, just 7 percent of Egyptians are estimated to have a bank account.
But despite such realities, there is minimal understanding of the issues on the ground.
"It is as if the MENA has become an embargoed region and outsiders have limited dealings with us. It is as if compliance is focused on Arab countries, and it is chaining the banking sector, not taking into account local cultures," said Dr Ali Hasan Ismail, governor of the Central Bank of Iraq, at the UAB conference.

De-risking undermines development

 

While compliance experts in the West have stated that AML and CFT regimes need to be overhauled to be more effective (as Chip Poncy, a former US Treasury official, said at 2013’s UAB conference), the rules have not changed. Instead, business has become harder in a region beset with political and economic turbulence.
Indeed, the phenomenon of de-risking can undermine development, which is exactly what the MENA region does not need in the current environment. According to a recent report from the United Nations Economic and Social Commission for Western Asia, the GDP economic losses from the conflicts in Yemen, Syria and Libya are around $425bn, while reconstruction costs in the MENA are estimated at $614bn.
Countering the US’s regulatory strength and the dollar’s hegemony by having even a small voice in the drafting of US and international regulations will not be easy. Conflict in the region is an obvious dampener for cooperation, while massive economic disparities exist between the hydrocarbon rich Gulf countries and the Levant and North Africa. The Gulf monarchies themselves do not see eye-to-eye, and the Arab League kicked Syria out of the organisation in 2011.
Previous attempts at cooperation have not panned out. In 2008, after 27 years of deliberations, the Gulf Cooperation Council (GCC) Common Market was announced to much fanfare but has been a damp squib, largely due to bickering over where a GCC central bank would be located.

'Utopian thinking'

 

Moreover, the region cannot resort to using oil as a bargaining chip for a place at the regulatory table, unable to repeat OPEC's oil embargo on the West for its support of Israel in the 1973 war.
What the region has is a degree of financial power, with the total assets of Arab banks estimated at $3.2 trillion, although that figure is less than the US Federal Reserve’s assets and the combined wealth of the 500 richest people, at $4.5 trillion each respectively.
Such realities did not prevent conference delegates arguing the need for a banking lobby to be a part of the decision-making process.
"Instead of the Arab world being on the receiving end, we must take part," said Mohamad Baasiri, Vice Governor of the Central Bank of Lebanon. Amr Moussa, former secretary general of the Arab League, proposed that a lobby should not consist of all 22 countries in the League but select countries, like Lebanon and Egypt, to be more effective.
But overall, despite attendees’ anger at their powerlessness in the face of US and international regulatory diktats, there was a resigned acceptance of the fact that the kind of unity needed was unlikely to happen. As one senior member of the Lebanese Central Bank who wished not to be identified said, the idea was "utopian thinking, it will never happen".
"We Arabs speak more than we act," one participant said to claps and attendees saying "true".

Alternatives to the US dollar

 

Yet there was also the macroeconomic view. "Could any country or region stop FATCA? Even the EU couldn’t," said El Hadi Chaibainou, general manager of the Groupement Professionnel des Banques du Maroc. Neither could Russia or the world’s rising superpower, China, for that matter.
In a time-will-tell approach, bankers talked of looking to alternatives to the US dollar, such as the Chinese RMB, which is growing in status as a global currency reserve.
Nevertheless, the fact that the idea of an Arab banking lobby was being discussed, and that the acceptance of US diktats is not what is was just a few years ago, is telling, especially in a seemingly changing global order and the question marks raised by the upcoming presidency of Donald Trump.

Thursday, July 21, 2016

Professional Coaching: Closing the Arabian Gulf

 Coaching at Work magazine

Coaching in the Middle East is growing in both scale and quality and its key base is in the United Arab Emirates. Paul Cochrane reports from Beirut

The professional coaching sector is booming in the Middle East. Over the past decade the region has become increasingly interconnected in the global business system, and has adopted international standards. This has driven the need for professional coaching and training. But with coaching modelled on US and European norms, there is a need for greater localisation, while more accreditation is necessary to develop further confidence in the fledgling sector.
Professional coaching started to take off in the Middle East following the global financial crisis of 2008. Demand was driven by multinational corporations (MNCs) based in the Gulf region, particularly in the United Arab Emirates (UAE), a popular location for coaching organisations wanting to cover the Middle East and North Africa (MENA) markets.
“When I arrived in 2009, I told people I was a professional executive coach and was asked: ‘What is that?’ There were only five credentialed coaches in the UAE listed on the International Coach Federation (ICF) website. Today there are hundreds of coaches, so the sector is definitely growing,” says Annette Kirby of Executive Coaching Connections; she is a Danish leadership coach in Abu Dhabi, with an ICF Professional Certified Coach (PCC) qualification.

Rising demand

The UAE’s most populous emirate, Dubai, is a good location for coaches, given that it is a key business hub for major companies operating in MENA. Coaching specialists estimate that there are around 1,000 coaches in the MENA region with varying qualifications, while there are only a few hundred Gulf-based members of the main coaching bodies, such as the European Mentoring & Coaching Council (EMCC), the ICF and the International Association of Coaching (IAC), according to Nigel Cumberland, an executive coach and leadership facilitator in Dubai, with an EMCC Accredited Coach–Senior Practitioner level qualification, among others.
“I would say the amount of coaching is what you might see in the UK per capita, as a large majority of coaches live here in Dubai. There are smaller groupings in Abu Dhabi, Doha [Qatar] and a smattering in Muscat [Oman], Riyadh and Jeddah [Saudi Arabia], and the Levant,” says Cumberland.
Dubai’s location as a business and tourism hub has enabled coaches to cover more than the Middle East. “Most of my coaching is now through the web – video coaching – but I like to encourage people to meet in person. Luckily, because of Dubai’s popularity, we can do that, with people flying in from, say, Islamabad [Pakistan] or Kabul [Afghanistan],” he adds.
While there is demand for coaching from numerous sectors, and for different purposes, the leading certified coaches are involved with MNCs and the Gulf’s sizeable state and state-linked companies.
“A large number of us are helping organisations and governments to coach either leaders, managers or aspiring talent, which often means locals – Emiratis, Saudis or Qataris. So we call ourselves leadership coaches, or maybe business coaches, used interchangeably,” says Cumberland.

Keep it local

Across the Gulf, governments have set targets to bolster the participation of locals in the workplace, known as nationalisation programmes – Saudisation, Emiratisation, Qatarisation and so on. Governments are particularly keen to have local nationals – a small minority of the population in ex-pat hubs the UAE and Qatar – in managerial and leadership positions, providing funding for study abroad at leading universities and business schools. But academic experience requires additional support once in the workplace, which is where leadership and executive coaching comes in.
“The region is realising the importance of coaching, which as a culture started with the MNCs, as well as large local companies and organisations since they didn’t trust local providers,” says Rawan Albina, a Lebanese coach based in Dubai, with a ICF-PCC qualification.
Until recently, coaches and leadership development experts would be brought in from outside the region, but organisations soon got wise to the higher costs. “It got to the point where they realised they were paying an arm and a leg for people that didn’t know the region or how people think. So [international] coaching firms would look for local talent instead. For me, this was the big wake-up call for regional coaching,” adds Albina.
Locally based coaches have the advantage of knowing the culture and society, as well as the particularities of the Gulf, such as the high proportion of foreign workers. “Multiculturalism is unique here as you can have 12 nationalities in a [business] team. And within the past couple of years there’s been more requests for coaching of multicultural and multidisciplinary teams,” explains Executive Coaching Connections’ Kirby.
“The cultural component of coaching is very important, to know what you can and can’t do, those unwritten codes of behaviour in the workplace, which is not something you can understand unless you live here for years,” she adds.
Another difference in Middle Eastern coaching compared to the West is the blending of coaching and mentoring, attributed to a general lack of knowledge about what coaching is. “What’s interesting is people’s understanding of coaching, confusing mentoring and advising. When I coach I’m often looked to for advice. That is entering mentoring territory, and I happen to think a lot of coaching is a combination, as in this part of the world people are keen to explore coaching as personal exploration, but also can’t help asking: ‘What would you do?’ ” says Cumberland.
Not being able to speak Arabic is not a major obstacle to being a coach in the region, with middle and upper management usually fluent in English. Albina said that around 30 per cent of her coaching is in Arabic, and 10 per cent in French. “Most clients have very good English. However, Arabic is important, and being a woman also, as it works well with Gulf women, since they prefer to be coached by a woman,” she says.
Nationalisation of the workforce is likely to trigger more demand for Arab coaches. “The more nationalisation increases, there will be more leaders getting to the top who are local, so there will be more need for Arabic speaking coaches,” adds Albina.
However, there is not as much interest in the profession from Arabic speakers in the Gulf, particularly men. “Coaching is labelled as a woman’s vocation. In every workshop I attend related to pure coaching skills, it is always 80 per cent women and 20 per cent men, and the men tend to be Western. It is still such a new industry that there needs to be a mindset shift,” says Albina.

Lebanese connection

Lebanese coaches have a particular advantage over their English-speaking peers, as they are typically fluent in Arabic, French and English, and as a result able to cater to the whole region, including the French-speaking parts – Morocco, Algeria, Tunisia and Lebanon.
“It is a strength of Lebanese coaches, and something you can’t really find in the Gulf. It is also what makes Lebanese coaches a bit different. For instance, a trend now is for NGOs [non-governmental organisations] in Lebanon to use coaches for capacity development projects, such as for people in stress, or to coach farmers, so Arabic is an important bonus,” says Nada Jreissati Daher, founder of coaching firm PragmaDoms and a master certified coach trainer in Beirut.
Thwarting the development of Arabic language coaching is the lack of translated material: “There is a need for courses in Arabic as values are really different, while in business there is a different culture, especially as most are family-run. The problem is that coaching was really tailored to Western societies, so we try to adapt as much as we can, although with an accredited programme there is a limit to what you can do,” she adds.
Driving the popularity of coaching as a profession is the potential income. In the UAE, professional coaching remuneration can be anywhere from US$500 to US$700 per hour, whereas in Lebanon, executive coaching starts at US$250, up to US$600 per hour, depending on length of engagement.

Let’s regulate

But the profession’s popularity has led to a large number of unaccredited coaches with minimal experience offering their services. This has undermined trust in the sector at the very time local firms and accredited professionals are trying to get the advantages of coaching better known in the marketplace, as well as to better compete with international coaching firms.
In Lebanon, this unwelcome situation has prompted Daher to set up a coaching syndicate to improve standards in the sector.
Over in the Gulf, it is a similar story, despite the presence of local chapters of international bodies such as the ICF: “People want to get into the coaching market and to make good money from the beginning. It’s a very opportunistic market as it is not mature and companies don’t know what to look for in experienced coaches,” says Kirby.
Albina thinks governments in the Middle East need to recognise the profession before any regional coaching bodies or regulators can be established.
“At a very simple level it would be great if governments considered coaching as a vocation. When I applied for my licence [in the UAE], coaching was not listed. It is not in the vocabulary, although you find training and development, and consulting,” she concludes

Monday, July 18, 2016

International outlook

Accounting & Business magazine - International edition

Award-winning CFO Moazam Shah FCCA describes the challenges of working for a key conglomerate in Saudi Arabia in the current economic climate.



Monday, July 04, 2016

Elusive Target – US vs Hibzullah




 Mugs of Hizbullah leader Hassan Nasrallah on sale in Beirut 
(Credit: Paul Cochrane)
 

Hizbullah has long been on the terrorism radar and despite current focus on Islamic State, the United States is attempting to maintain pressure on the group's finances through specific legislation. Paul Cochrane, in Beirut, explores the likely impact.

At a time when the world is regularly sickened by webcast beheadings and civilian bombings carried out by Islamic State (IS), it is perhaps hard to recall that Shia militant group Hizbullah was previously viewed as the world's most notorious terror organisation. Today, with 12 members of Lebanon's parliament (and two ministers in cabinet), a panopoly of social services, a TV station and even a museum, Hizbullah is an integral part of the country's political and social scene. However, it still operates a private army, which is fighting in Syria's civil war, and is regarded by the USA with undiminished hostility. It was also labelled a terrorist organisation by the Arab League as recently as 11 March this year, although critics have claimed this reflected tension between Sunni country governments and Shia forces in the region. The designation, supported by the Gulf Cooperation Council (GCC), could bring any transactions deemed to be with Hizbullah within the scope of anti-terror finance laws in Arab countries.


US antagonism legislated


In AML terms, it was the passage, in November, by the US Congress of the Hezbollah International Financing Prevention Act of 2015 that probably caused the most concern in Lebanon. Enactment was followed by a Drug Enforcement Administration (DEA) announcement, in February 2016, that it had evidence of a “massive Hizbullah drug and money laundering scheme” operated at a global level by Hizbullah's External Security Organisation's Business Affairs Component (BAC). The statement followed US Treasury accusations (in June 2015) against three Lebanese Shia businessmen and investors, citing direct links with Hizbullah. One casualty was Kassem Hejeij, the head of Middle East Africa (MEA) Bank; he resigned in favour of his son after being placed on a US sanctions list.


Local reaction

The new Act and these moves have caused widespread concern in the Lebanese financial sector, anxious lest it fall foul of US regulators in the wake of the Lebanese Canadian Bank (LCB) in 2011, which saw that institution identified as a launderer for Hizbullah. In response, two delegations, comprising Lebanese politicians and financial institutions, went to Washington, separately, earlier this year to ensure that the whole country was not caught in the US' dragnet, this despite Iranian-backed Hizbullah saying that they have no presence in the country's financial system.

We had good discussions with Treasury and the State Department. We were not going to argue why (they) did it, it was about making sure there's no collateral damage because of the law,” said Yassine Jaber, a member of the Lebanese Parliament for the Shia-based Amal Movement. “We made the case that Lebanon is compliant (with international regulations). The reaction was, what's the fuss? [The Act is] not implemented yet, in April, and the US officials said, over and over, that it was not about the local banking sector but to not allow Hizbullah funding to enter the US banking sector.”

Hizbullah was labelled as a terrorist organisation by the United States as long ago as 1997 (http://www.state.gov/j/ct/rls/other/des/123085.htm), a designation also applied by France, Israel, Australia, Canada, and the Netherlands. Meanwhile, Britain, the European Union (EU) and New Zealand differentiate between Hizbullah's political and military wings, labelling the latter a terrorist organisation, while acknowledging that it has 12 seats in the Lebanese Parliament.


Political dictation


The Act is considered a political move following the international deal with Iran. “The sanctions are a reward to the Gulf countries and the Israelis, that the US is still committed to their security. That is the real reason, as the US knows such sanctions will not have any real influence over Hizbullah's policies or agenda,” said Hussam Matar, a Lebanese researcher. Hizbullah having been under intense scrutiny for decades (it was founded in 1982), the new designation came was no great surprise. “The law against Hizbullah did not come with totally new provisions, as a good part of the provisions of the new law was possible under the US Patriot Act. But as usual, US law has far-reaching impact, and financial institutions are scrutinising [clients] more closely in order to not expose themselves as well as their correspondent banks,” said Abdul Hafiz Mansour, secretary of the Special Investigations Unit – the country's Financial Intelligence Unit (FIU).

Out of scope?

Hizbullah's secretary-general Hassan Nasrallah, gave a televised addressed following the US move, in which he said the party held no accounts in Lebanon. It is presumed that Hizbullah uses cash for its transactions, while the Act specifically concerns US dollars and not Lebanese Pounds.

Within Lebanon, with the party a legal entity, there is little AML authorities can or would do to restrict Hizbullah's finances in any case.

Mansour's explanation probably says it all: “The Financial Action Task Force (FATF) recommends the protection of the international financial system from being abused. Accordingly, the AML/CFT and financial regulators' realm of operation is the formal financial sector. In this regard, any dealings in cash outside the formal financial sector is outside the realm of the AML/CFT regulators, it falls within the scope of police work. The FIU does not have the capacity, by law or institutionally, to go after cash or financial operations outside the formal financial sector.”

Despite Nasrallah's claims, repeated at the FIU and by Jaber, Nicholas Noe, co-founder of regional newswire Mideastwire.com in Beirut, is more questioning of Hizbullah's financial operations. “Treasury's push back was that you had the LCB case, the (DEA) allegations of drug trafficking, and over the last year, the head of MEA Bank was charged by the US for links to Hizbullah, so it is not exactly true nothing is going through the financial system,” said Noe. “For a super secret party it is not just about the party, but supporters and informal networks moving cash, so inevitably money is in the financial system via people that materially support Hizbullah,” he said.


US intelligence report


The FIU and financial institutions are awaiting scheduled release of a report (within 120 days from 15 April 2016) from the White House into Hizbullah's activities; with expected accompanying regulations to “prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account by a foreign financial institution that the President determines”.

According to public statements by Nasrallah, the party's funding is primarily from Iran while weaponry is received from Syria. Funds are presumed to come via Syria. “There is an open border with Syria, so cash comes from there,” said a compliance officer who requested anonymity.
Other than the funding from narcotics and trade-based money laundering reported by the DEA, Hizbullah raises money domestically through donations and using proxies, added the compliance officer. According to a leaked US embassy cable from 2007, Hizbullah's social services and employment network spends an estimated US$600 million a year “in payments and services to supportive Shia, Sunnis, and Christians not receiving those services from the government,” which is not widely known for providing effective services to the people of Lebanon.

Matar said that as Hizbullah is well integrated into Lebanese society, the new sanctions would not have a major impact, and the party would leverage sanctions-busting knowledge from Iran. “The Iranians went through this, so Hizbullah will not find it a problem,” he added.


Viewing restrictions


Al Manar television channel, the party's mouthpiece, was specifically targeted under the Act, with the April regulations detailing “satellite, broadcast, Internet, or other providers that have knowingly entered into a contractual relationship with al-Manar TV and its affiliates”.

The US' designation led to Al Manar being dropped from Arab League-backed satellite provider ArabSat, and, on 6 April, by Egypt's NileSat. Most of the damage happened to Al Manar, targeted in a special paragraph, and we are waiting to see how it will be defined,” said Jaber.

The channel's website, almanar.com.lb, is not expected to be affected as the domain name was issued within Lebanon while the website itself is registered in the name of a journalist, not the channel, according to a member of domain registry, the Lebanese Internet Centre (LINC).

The journalist would have to be named by the US authorities for there to be any action, and a Lebanese court order would be required to shutdown the website, added the LINC member.

According to the compliance officer, Al Manar pays staff in cash, while purchases of broadcasting equipment is via intermediaries.


Neighbours lose patience


While the US move was not unexpected, regional action was, despite the long history of animosity between Sunni Muslim governments and Shia Iran and Hizbullah. The terrorist organisation designation was also made by the Gulf Cooperation Council (GCC) countries, with the Arab League designation supported by all members bar Lebanon and Iraq (both with significant Shia populations). “The GCC is trying to say to Lebanon, you are (collectively) paying the price of Hizbullah's regional actions in Syria and Yemen,” said Matar. The GCC is opposed to the Syrian regime, which Hizbullah and Iran are supporting militarily, while a GCC force, led by Saudi Arabia, is fighting the Iranian-backed Houthis in Yemen.

The GCC action could potentially have more of a negative impact on Lebanon, as the Gulf monarchies are less predictable than the US, but they do not have the specific financial regulatory means to enforce such a designation, said the compliance officer. However, given how “fragile and vulnerable” Lebanon is, the GCC also “toned down their attack after the US and EU talked to them”, Jaber noted.