http://www.moneylaunderingbulletin.com/sanctions/financial-conflict--syria-looks-to-russia-and-iran-93281.htm
Syria, mired in bloody civil
war, is also fighting multilateral sanctions. Although notionally cut
off from the international banking system, Damascus is evading the
restrictions through use of Russian banks and receiving assistance
from Iran, reports Paul Cochrane from Beirut. Neighbouring
Lebanon is caught in the crossfire, despite not serving the Syrian
regime as a major conduit for flight capital.
In 2011, as the Syrian government
cracked down on protesters, the United States, followed by the
European Union (EU), the United Nations and the Arab League imposed
economic and financial sanctions on the regime of President Bashar
al-Assad. Key members of the government,
state-owned institutions, and connected businessmen and companies
were also designated, including the Central Bank
of Syria and the country’s largest deposit-taking
institution, the state-owned Commercial Bank of Syria.
All transactions in US dollars
were curbed, along with the use of the SWIFT system, and state banks’
accounts outside Syria were frozen. In December 2012, the EU Council
of Ministers banned new correspondent banking relations between
Syrian financial institutions and EU banks.
The sanctions, in addition to the
loss of crucial oil export revenues with Europe, hit the Syrian
government hard but did not deal a crippling blow. The Syrian economy
had only been liberalising since the beginning of the century -
private banks entered the country after 2004 - and the state was
still a major economic player. When hostilities broke out, the
private bank sector had some US$11 billion in deposits, and the whole
banking sector USD29.8 billion, according to Syrian Central Bank
(SCB) figures, a blip on the global level, and significantly lower
than neighbouring Lebanon’s banks’ US$131 billion in deposits.
Nevertheless, March 2011 saw the
start of significant account withdrawals - estimated at US$2.5 billion in the first year of the conflict, according to Bank Audi figures. As hostilities dragged on, more money was taken out
with Lebanese media reporting Russia as the destination. But “the
well-to-do already had accounts in Europe, it is the smaller guys who
have cash and don’t have accounts,” according to Abdul
Hafiz Mansour, secretary of the
Special Investigation Commission, Lebanon’s financial intelligence
unit (FIU). While Lebanon was flagged as a destination for Syrian
flight capital, officials and bankers insist that the country –
which was partly occupied by Syria for 30 years, until 2005 - is not
a home for Syrian regime money. The data appears to support their
case, with no abnormal rise in deposits at Lebanese banks since 2011.
“The regulations and prudential supervision do
not make it easy for money to be placed in the system in Lebanon. It
could be easier to do so elsewhere,” said Mansour.
Another Lebanon official noted that across the Levant and west
Asia, “from Afghanistan to Turkey, it is a very porous region”
for banking, adding that it can be straightforward to deposit funds
in a Pakistani, Iraqi or Afghan institution, with few questions
asked.
Yet, Syrian money is clearly
entering Lebanon via refugees, migrant workers and businesses
transferring cash. Refugee numbers reached 914,000 this year,
according to the World Bank, and are forecast to rise to 1.6 million
next year – a particular problem given Lebanon’s population is
less than 5 million. The influx caused Beirut to advise the US
Treasury that it would allow accounts to be opened by non-sanctioned
Syrians and these would be monitored for abnormal activity.
“When the [US] Executive Order
was put in place the reality on the ground was different and you
didn’t have [a] large number of refugees in Lebanon,” said
Chahdan Jebeyli, general manager and head of legal and compliance at
Bank Audi, who also chairs the compliance committee of the
Association of Banks in Lebanon: “I personally expect more
relaxation, not of the rules, but the way the rules are applied to
those that have ceased activities in Syria and are engaged elsewhere,
including Lebanon.”
Not all Lebanese banks are
accepting Syrian deposits, however, with some unofficially but
commonly recognised as anti-Syrian for political reasons. Indeed,
Syrians know which to deal with and, if refused, Lebanese friends and
relatives will often hold deposits on their behalf.
The Syrian Pound (SYP) can also
be exchanged within Lebanon, albeit at fluctuating rates due to the
currency’s depreciation; it stood at SYP46 to the US dollar in
early 2011 but is over SYP200 today. Asked about the rate to the US
dollar, a dealer in Beirut said: “Between SYP210 and SYP230, but it
is changing by the second.”
Meanwhile, with blocks on SWIFT
and transactions in dollars there has been rising use of ‘hawala’,
despite a ban on the alternative remittance system in both Lebanon
and Syria. A war economy and rapidly depreciating currency mean that,
increasingly, trade deals and pricing are carried out in greenbacks,
and to a lesser extent in Euros, Emirati Dirhams and Saudi Arabian
Riyals. In response, the Syrian central bank banned both trading and
pricing in US dollars in August. “The SCB also limited the ceiling
of dollars sold to individuals, from US$1,000 to US$500 a month, and
clamped down on the black market. This is how it has managed to keep
the exchange rate at SYP200 for the past two months,” said Jihad
Yazigi, editor of financial publication, The Syria Report.
With the government haemorrhaging
money to pay for the conflict and keep subsidies as well as
state-sector salaries going, foreign reserves have dwindled from
US$18 billion (source: SCB) when the conflict started. To offset a
looming cash-flow problem, Damascus approached its only ally in the
Middle East, Iran, for financial assistance this year, opening credit
lines of US$7.6 billion.
“Syria may have just
US$3-US$4billion left in the central bank and would rather not spend
it, so they need the help from the Iranians. But there is really an
absence of any data. The last time the SCB made any announcements
about reserves was in May 2011,” Yazigi observed.
As to where the Syrian government
funds and those of regime members have headed, fingers are pointing
at Russia as a prime candidate. In September, four American senators
called on the US Treasury to cut off three Russian banks from the US
financial system as they were “undermining sanctions” by “aiding
Assad”. The senators accused Vnesheconombank (VEB) of facilitating
Syrian payments for Russian missile systems; Gazprombank for
processing crude oil payments; and VTB (75%-stated owned) for hosting
President Assad’s personal accounts.
VTB and VEB issued statements
denying involvement with Syrian government accounts. “Historically,
VEB acts on behalf of the government in terms of servicing the
foreign debt of Russia, including settlements with Syria. Our bank
does not have any other business with the Central Bank of Syria, its
government, or government-controlled organisations. All the
activities carried out by VEB are strictly in accordance with the
sanctions adopted by the EU and the UN on the Syrian Republic,” VEB
told state news agency RIA Novosti. Such protestations from Moscow
contrast with comments from the Syrian government. At the end of
2011, the Central Bank of Syria governor Adib Mayaleh said that his
institution had opened accounts at Russian banks. “There is around
USD2 billion of Syrian foreign reserves in Russia. Mayaleh was open
about that, that they had opened accounts,” said Yazigi.
In December 2012, Syrian state
press reported that the bank had opened Euro and Rouble accounts with
VTB, VEB, and Gazprombank, and issued guidelines to Syrian banks on
how to deal with the Russian institutions. Earlier in the year, in
June, the finance ministry stated that Syrian banknotes would be
printed in Moscow, following the ban on currency printing in Europe,
where, previously, it had used Austrian and Belgian printers.
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