Thursday, April 14, 2011

Monday, April 11, 2011

Time to rethink a nuclear Middle East

Commentary - Executive

Just days after the Fukushima disaster, work started on the UAE's first nuclear power plant

Unlike the UAE, China has bowed to the  concerns of activists like these and suspended its nucleaer plans after Japan’s disaster

Three days after an earthquake measuring 9.0 on the Richter scale critically damaged Japan’s Fukushima Daiichi nuclear power plant (NPP), the president of South Korea and the crown prince of Abu Dhabi attended a ground-breaking ceremony of the Braka NPP in the United Arab Emirates; it is the first of four to be built under a $20 billion contract inked in 2009 between the Emirates Nuclear Energy Corporation and a consortium of South Korean and American companies.

The inauguration celebration could hardly have been more inopportune. In the course of a week the incident at the Fukushima NPP went from being rated four on the International Atomic Energy Agency’s (IAEA) International Nuclear and Radiological Event Scale, “an accident with local consequences,” to level five, “an accident with wider consequences.” The Fukushima disaster is the only level five rating since the Three Mile Island meltdown in the United States in 1979. There has only been one level seven, the highest rating, in Chernobyl in 1986, which, according to research by New York’s Academy of Sciences published last year, resulted in the deaths of 985,000 people from cancer and related diseases.

The global “nuclear renaissance” touted just a few years ago seems far less secure, a fact reflected in investor sentiment: uranium prices on the spot market following the Japanese calamity plunged 27 percent to $50 per pound as countries started reconsidering the construction of new NPPs.

If there were ever a time to rethink nuclear power it is now, certainly before the dozen Middle Eastern and North African countries that have signed nuclear cooperation agreements start building NPPs. And the risks need to be seriously assessed, not just in terms of security, the logistics of storing spent fuel for thousands of years and so on, but also in terms of earthquake risk.

The Middle East is chock full of tectonic plates, with the Arabian plate in the middle flanked by the Eurasian, African and Indian plates. One of the most seismically active continental regions on earth is just across the sea from the United Arab Emirates, the Zagros Thrust in Iran. Of equal concern is the fact that modern systems to measure seismic activity have only recently been introduced in Saudi Arabia and Oman, while the UAE set one up just this year.

While there is little chance of a tsunami, an earthquake of a magnitude of 5.1 shook the emirate of Fujairah in 2002, and repeated seismic activity in the locality suggests that other, more sizable earthquakes are likely in the future. “When?” is of course the question, and the world can only hope that those building NPPs will do so with the worst-case scenario in mind; the Fukushima NPP was built at a time when the thought of it having to withstand a 9.0 magnitude earthquake was considered unlikely.

Braka was chosen as the site for the UAE’s first NPP as it is “an area with a very low probability of earthquakes — what is called low seismicity,” Ambassador Hamad al-Kaabi, UAE Permanent Representative to the IAEA, told the press after the Fukushima disaster. Yet it is not just unexpected earthquakes that are a concern when it comes to nuclear power. Transparency has been a major issue in the nuclear industry globally; in a 2008 US diplomatic cable released by WikiLeaks, a Japanese politician said the country’s Ministry of Economy, Trade and Industry, the department responsible for nuclear energy, has been “covering up nuclear accidents and obscuring the true costs and problems associated with the nuclear industry.”

The UAE hardly has a sterling reputation for transparency and accountability — think back to how the Dubai debt imbroglio was handled in 2009. If the Japanese, with 54 nuclear reactors, cannot be relied upon to be transparent, can we be sure the UAE will be?

Let us hope the UAE’s decision to go ahead with nuclear power, just as news of Fukushima’s fallout was dominating headlines, will not be retold through history as the epitomic example of a warning unheeded.

PAUL COCHRANE is the Middle East correspondent for International News Services

Sunday, April 10, 2011

Kashmir: A wedding under curfew

Revolve magazine -

It is mid week, the middle of the day and the streets of Srinagar are deserted. It’s like this four days out of every six. The “Quit Kashmir Movement” and “All Parties Hurriyat Conference” call for a hartal (strike) to demonstrate for azadi (freedom) and the Indian military responds by imposing a curfew to prevent the Kashmiris from taking to the streets. Road blocks are put in place, military vehicles move into strategic positions and troops go on patrol.

The violence has claimed over 100 Kashmiri lives since June 11, 2010 when the Indian Army shot at unarmed demonstrators. This violence has occurred most often when the Kashmiris challenge the curfew, swarming to junctions and the major arteries of Srinagar, with young men – and women – throwing projectiles, chanting slogans and, in general, resisting India’s occupation. Curiously, the slogans painted and chalked on roads, walls, shop shutters and in the grime of car windows are mostly in English: “Freedom”, “Go India Go Back”, and “Go Indian Dogs”.

The Indian Army is predominantly made up of Hindi speakers, with little Kashmiri known. Kashmiris are conversant in Hindi but lack literacy skills, so the default language of both sides – and useful for international media attention – is that of the former colonizer, Great Britain. Indeed, Britain was instrumental to Partition, promoting a separate Pakistan and after Pakistan invaded and occupied Kashmir in October 1947, Britain lobbied at the UN in favor of Kashmir becoming a Pakistani province.

Foreign Secretary Ernest Bevin told US Secretary of State George Marshall that “the main issue was who would control the main artery leading into Central Asia.” And as the then Chancellor of the Exchequer Hugh Dalton put it, Pakistan was central to Bevin’s ambition to organize “the middle of the planet.” (Read Mark Curtis, Secret Affairs: Britain’s Collusion with Radical Islam (London: Serpent’s Tail, 2010).

On the two days that are hartal and curfew free, Srinagar turns into a mad house, with people trying to pack a week’s business into 48 hours and families stock-piling food for the inevitable next shutdown. This is the Kashmiri status quo. In the midst of all this a wedding was to take place, for life must go on, but the guest list was to prove rather unpredictable and the ongoing situation generating a rather somber tone to the celebrations.

Gilani’s On Board

I had been to Kashmir before in slightly more ‘normal’ times; at least there were no curfews and daily life was able to go on, while there were some tourists but not on the scale of the boon times in the 1970s and early 1980s. Kashmiris I had met in Srinagar on my inaugural visit had family members in New Delhi that I later befriended and stayed with on return visits to India. It was this extended family, that shall go under the pseudonym of Manzar due to the fear – alas very valid – of repercussions from the Indian authorities given their opinions on the occupation, that invited me to join them for the wedding of one of their daughters.

Having endured the bum breaking 24-hour, 1,000 kilometer bus journey between Srinagar and New Delhi before, I decided on the easier option of flying to the Vale of Kashmir instead. One of my fellow travelers was none other than Sayyed Ali Shah Gilani, the Chairman of the Hurriyat Conference (HC). Gilani was warmly greeted by the Kashmiris waiting at the departure gate, going up to shake hands, the young ones to have their hair ruffled and smiles all round. Gilani was clearly admired.

Gilani and the HC call for the hartals to take place and demands hurriyat (freedom), while intractably involved in a decades-long game of cat-and-mouse with the Indian government. On arrival in Srinagar, Gilani was detained by the authorities and later placed under house arrest, contributing to some 140 days spent in the confinements of his property during 2010, along with 40 days of imprisonment under India’s Public Safety Act. One of the Manzar’s commented: “It is a part of daily life for him, like having a cup of chai (tea).”

As a foreigner, I had to register at the airport with a plain clothes member of Indian intelligence, and upon being greeted by the Manzar’s at the entrance, was accosted by a Kashmiri tourist policeman in a disheveled uniform, who took down my particulars only as “Mr. Paul from Ireland.” It was a quick drive through the empty streets of Srinagar to the Manzar’s three-story home near Lake Dal. Once installed, I related that Gilani was on the plane, but this aroused little curiosity. And for a reason indicative of the sectarianism that is as rife in Kashmir as in the rest of India.

This is not the Muslim-Hindu fitna (discord) that has flared off-and-on in Indian politics since the 1947 Partition with Pakistan – a controversial government paper has shown that Muslims are under-represented, and politically and socially disadvantaged in India. In Kashmir, one million Hindu Pandits were forced out over the years due to religious extremism and the perception that they sided with the predominantly Hindu national government rather than with Kashmir.

While this is a lingering scar, contemporary Kashmiri sectarianism is between the majority Sunni population and the Shia, the latter only having marginal political representation in the Hurriyat Conference. It is a similar story for minority Shia in other Islamic countries, such as neighbouring Pakistan, Afghanistan and Saudi Arabia, and an issue in countries where the Shia are in the ascendancy, namely Bahrain and Lebanon.

“I don’t like Gilani,” said Reza, the brother of the bride to be. “Gilani hates Shias.” This is not to insinuate that the Manzar’s dislike Sunnis – indeed, Reza is engaged to a Sunni and one of his father’s best friends is a Sunni – but that the Shia feel discriminated against by the likes of Gilani and other sectarian leaders. Division has become an obstacle for the Kashmiri resistance, as it has with every other occupied people, such as the Palestinians, when the occupying and neighboring powers successfully drive a wedge between, and pit the locals against, each other.

Internal Kashmiri rifts have been exacerbated by the Pakistan’s notorious Inter-Services Intelligence (ISI) sponsorship of militant groups, and bank-rolled by the Saudi Kingdom, ever keen to export its version of Islam, Wahhabiism, spending over $50 billion globally in the past decades. Propped up financially by the unlikely trio of China, Saudi Arabia and the United States, Pakistan has backed Kashmiri militant groups for over 30 years. Former Pakistani President, Pervez Musharraf, admitted in October 2010 in London that the ISI set up groups in the 1980s and early 1990s to attack India.

Another Bad Year

2010 was another bad year in Kashmir. In 1989, a popular rebellion – the Kashmiri intifada – against Indian misrule began, further stoked by militant Islamic groups connected to the ISI in the wake of the end of the Soviet occupation of Afghanistan, sending scores of Afghan veterans and Pakistani Kashmiris across the Line of Control (LoC) that separates Indian Jammu and Kashmir (J&K), and the Pakistani Azad (free) Kashmir (China has the remaining 20 percent called Aksai Chin, which is claimed by India). This proxy war between Pakistan and India, that remnant of the 1947 Partition, put the Kashmiri populace in the middle. Intifada after intifada has occurred since 1989 and the Indian Army has cracked down hard, notably in 2001, when over 1,000 civilians were killed. Over 45,000 Kashmiris have been killed since 1989.

One major difference over the past year from former crises, when feelings rose to a boiling point and Kashmiris took to the streets, is that this time there has been minimal militancy – apart from the stone throwing and rioting. Sympathy with the militants has waned – particularly for Pakistani-backed groups – but anger with New Delhi’s political dillydallying and iron fist policy in tackling the “Kashmir issue” has spiked. The youth are not interested in siding with New Delhi or Islamabad. The youth want independence, or, at worst, autonomy from India.

A poll released in May 2010, carried out by Chatham House on both sides of the LoC, affirms that just 2 percent of respondents in J&K want to join Pakistan, and only 28 percent want to join India. More than four in 10, or 43 percent of the total adult population, want independence, particularly in the Kashmir Valley Division (between 75 and 95 percent), and 82 percent of those polled in Srinagar (in Jammu just 1 percent, Leh 30 percent and Kargil 20 percent). Some 44 percent of Pakistani Kashmiris also want sovereignty over their own affairs. (See Robert Bradnock, Kashmir: Paths to Peace. London: Chatham House, May 2010.)

The results show an overwhelming desire of the estimated 12 million Kashmiris for independence. But this in itself poses a particular problem. The options for the Kashmiris is tied up with UN resolutions dating back to 1948-49 that call for a referendum to take place for the people to decide whether they want to join India or Pakistan. Clearly, if the survey truly reflects the opinions of the people, the Kashmiris want neither, but rather prefer total independence. But independence for Kashmir is the last thing Islamabad or New Delhi wants, despite talks between the two sides that have been off and on since 2003 and gained new momentum in 2011.

K is for Kashmir

The religious dimension of the Kashmir conflict, sandwiched between Muslim Pakistan and Hindu India, has deeply ingrained the mutual hatred over the past 65 years. Pakistan is against an independent Kashmir that unites both sides, losing its border and access to China, not to mention a major dent to its pride and the all powerful military that forms the backbone of the Pakistani nation. Azad Kashmir is so integral to Pakistan that the country’s name means “land of the pure” and is an acronym, according to the popular saying: P for Punjab, A for Afghanistan, K for Kashmir, and STAN for Baluchistan. Take out the K and Pakistan wouldn’t quite have the same ring to it. India’s Hindu populace – which has become far more radical and militant over the past 20 years – would equally be against losing a major part of the Northern provinces, especially to Muslim rule.

While international observers are calling for the LoC to become an international border, for joint institutions to be developed and for the United States to partake in ‘quiet diplomacy’ and utilize its relations with Islamabad and growing alliance – particularly militarily and on nuclear power – with New Delhi, a far more radical solution is called for. One fitting with what India champions itself as, “the world’s largest democracy” – a referendum on what the Kashmiri people want, not Delhi, its puppets or the Kashmiri dynasties that have ruled the region for generations.

Young Kashmiris think this could work – with the state having abundant land and resources and more than enough people for a viable country, plus a flourishing tourism sector if there were peace. Kashmir is land-locked and would require the good will of its neighbors – the very same from which it would secede – for trade to take off. Unified with Azad Kashmir, a free Kashmir would have access to the large markets of China and Central Asia.

But India is not ready: the diabolical Armed Forces Special Powers Act (AFSPA) goes unpunished and lets soldiers, quite literally, get away with murder. In 2010, Mian Qayoom, President of the Kashmir Bar Association, was arrested under the Public Safety Act for protesting human rights violations and sentenced to two years in jail, while peaceful protesters engaged in sit-ins are accused by the police of “offences” and “disobedience to order duly promulgated by public servants” while others were accused of spouting “anti-national slogans.”

The most sensational case was Booker Prize winning author and activist Arundhati Roy, along with Gilani and five others, being booked for “sedition” for making anti-India speeches at an event in Srinagar. In late 2010, Roy said the charge “is meant to frighten civil rights groups and young journalists into keeping quiet.” The case is to go on trial in April 2011. Read her book on what’s really happening in India: Listening to Grasshoppers, Field Notes on Democracy (London: Penguin, 2009).

“Suspect All, Respect All”

A slogan on an army road block: “Suspect All, Respect All”. This is India’s policy in Kashmir, although leaning to suspecting all, rather than respecting all. The slogan drew smirks from the young Kashmiri men I went around Srinagar with, as they saw little respect from the authorities. They related how during curfews Kashmiris were pulled from their vehicles at checkpoints and beaten by soldiers, for no apparent reason. They described how at hartals the army used live ammunition on the unarmed protesters, and how, during curfews, sticking one’s head out of your front door could also result in a beating. There was a sense of despondency about the situation and it being rectified anytime soon.

One of the failures of New Delhi in Kashmir is how little it has done to endear Kashmiris towards India. There has been no “nation building” or investing in infrastructure and improving living standards. Kashmiris view the Indians as exploiting their land – natural resources, water and the hydro-power that provides electricity to New Delhi and the populous state of Punjab while Kashmir experiences power shortages.

A major shortcoming is providing employment. Recent statistics show that 590,000 educated youth in the state are unemployed, while in the Chatham House survey in J&K, 81 percent of those polled said the most significant problem was unemployment, with government corruption and poor economic development in second and third place respectively.

The lack of work in Kashmir was reflected by the Manzar’s, their friends and extended family. A middle class family, the men had to work elsewhere in India to earn a decent wage, while some of the young men helping out at the wedding worked in Singapore, Dubai and Australia. With no opportunities in Srinagar, there was little choice but to head down to Delhi or further afield. But that didn’t mean the problems of Kashmir disappeared. The diaspora in India keep firmly attuned to what is happening through Kashmiri TV channels and newspapers, while trying to keep a low profile, particularly following terrorist attacks in the capital due to fear of anti-Muslim and anti-Kashmir bashing.

Due to the virulent anti-Muslim prejudices of the Indian media, which jumped to conclusions that Muslims were behind the majority of bombings in New Delhi in 2007 and 2008, one of the Manzar’s living in the capital refused to go out on the streets for fear of being arrested. Subsequent evidence has shown that in several cases it was right-wing Hindus behind the bombings rather than the familiar culprit of radical Islamists. Investigations have shown the deep-seated prejudices within the police and security apparatus against Indian Muslims. Indeed, a Wikileaks cable showed that prominent politician Rahul Gandhi told the U.S. Ambassador in 2009 that while “there was evidence of some support for [Islamic terrorist group Laskar-e-Taiba] among certain elements in India’s indigenous Muslim community, the bigger threat may be the growth of radicalized Hindu groups, which create religious tensions and political confrontations with the Muslim community.”


Weddings in Kashmir are major social events, bringing together families, friends and neighbors. Given the current situation, weddings are one of the few positive occasions and a good way to also bring the diaspora together. Weddings are protracted events, with visits and gift-giving ceremonies between the families of the bride and groom that go on well before the wedding day and in the following weeks. The festivities take place separately for the bride and groom, who are brought together only on the final day, once the imam has formalized the marriage.

The wedding day requires days of preparation, with some 20 cooks working for two days on the menu, the famous wazwan of dozens of dishes. Some 25 sheep, 70 chickens and 100 kilos of rice are prepared for the 280 guests at the wedding, all cooked on open fires and the meat cooked in multi ways – bashed to a pulp to make huge meatballs, called gostaba, mutton cooked slowly in sweet milk, grilled chicken, stewed mutton, and skewered kebabs.

The morning of the wedding, Reza gets a phone call from a guest asking about the extent of the curfew. “Is it a whole valley curfew?” he asks the other seven young men sleeping in the room. Yes, the whole valley. One of the guests managed to get through the checkpoints by showing his wedding invitation, but he had to go through 12 checkpoints and take alternative routes when the Indian Army would not let him through at certain road blocks – 12 checkpoints to cover less than 15 kilometers.

Reza keeps getting calls throughout the day – cancellations and questions about the checkpoints. There is no text messaging as the Indian authorities have banned SMS in Kashmir. Will the groom make it tonight? “Inshallah (God Willing)…” The curfew tends to be stricter in the morning. The preparations continue, the people are resigned, yet they tell jokes and drink tea. The Kashmiris are used to waiting, sitting around chatting and passing the time – no jobs, schools closed, no business, and nowhere to go except for the immediate neighborhood.

The wedding day goes off without a hitch, with enough guests showing up that the large tent erected in an uncle’s garden is not empty, and the groom is able to arrive that evening. But the wazwan is consumed quickly, without a jubilant atmosphere due to the situation and the curfew. In the past, said the elders, the wazwan would have been eaten slower with the festivities carrying on for five days rather than just two. Reza’s uncle remarked that he was one of the last to get married the old way, just before the troubles erupted in 1989.

The end of the wedding is however affected by the curfew. Usually dozens of cars would accompany the new couple to the groom’s house, but Reza forbids too many from going due to the curfew and that the groom’s relatives will not be expecting guests. While the Indian Army says they “respect all,” they don’t allow for special circumstances during curfews, even for weddings.

Returning the Keys

In 2011, the Indian-administered Kashmiris have kept up the struggle for their rights and freedom. To have effect, the hartals will have to continue – as in Azad Kashmir – while Delhi will have to meet the Kashmiri leaders instead of continuously imprisoning them and enter into constructive dialogue with Pakistan to hammer out a solution. Until a viable solution is enacted, Kashmir will remain a bleeding wound of Partition and a paradise lost. It was a place once called the Switzerland of Asia due to its snow-capped mountains, rivers and forests, but this beauty – also under threat environmentally – merely masks the oppression and violence that torments Kashmir.

As the late Kashmiri poet Aha Shahid Ali wrote from his deathbed in the U.S. in 2001, in a poem dedicated to a Kashmiri Hindu friend:

We shall meet again, in Srinagar
By the gates of the Villa of Peace
Our hands blossoming into fists
Till the soldiers return the keys
And disappear.

Photos courtesy of Sarwar B.

The taking down of Lebanese-Canadian Bank

By Paul Cochrane for Executive magazine

Two become one as Lebanon’s alpha banks feel heat from US

Lebanese Canadian Bank

The United States Department of the Treasury’s designation in early February of Lebanese Canadian Bank (LCB) as a “financial institution of prime money laundering concern” hit the bank like a missile strike. And, as so often is the case with American ‘operations’ in the region, the collateral damage was high.

Immediately blacklisted the world over and unable to deal in US dollars, LCB was “crippled,” in the words of a source close to Banque du Liban (BDL), Lebanon’s central bank. The Lebanese banking sector went into damage control mode, concerned it could be part of a wider targeting of the industry, with the designation the worst blow to the sector’s reputation since 2000, when Lebanon was placed on the Non-Cooperative Countries and Territories list of the Financial Action Task Force (FATF), a Paris-based inter-governmental body set up to promote the adoption of anti-money laundering and counter-terrorist financing regulations (it was taken off the list in 2002).

The governor of BDL, Riad Salameh, flew to Washington to discuss the charges, where the US reassured him that the measure was not politically motivated, despite LCB’s alleged connection with Hezbollah, which the US designates as a terrorist organization. Nor, he was told, was it related to the fact that Lebanon’s next government will be led by the Hezbollah-backed March 8 coalition.

“The designation of LCB made people scared,” said the source close to BDL. “The Treasury assured BDL that they didn’t target the Lebanese banking sector and said Lebanon is a friendly nation. The US says it is not a political act but the timing of the designation is a bit precarious. I personally believe politics was involved. [But] I’m not saying the evidence is unfounded — the US has promised to provide information — as there is no smoke without fire.”

Rumors began to circulate that three to four other Lebanese banks were in the sights of the Treasury’s Financial Crimes Enforcement Network (FinCEN). “This is a completely unfounded rumor, and Salameh said this publicly. He told us that during the meeting [in Washington] this was not mentioned,” said Makram Sader, Secretary General of the Association of Banks in Lebanon (ABL). LCB’s designation came as a surprise to the ABL. “It is a specific case but really surprised us as Lebanon is dealing with the world through a large network and with over 250 correspondent banks,” he said.

The designation drove LCB’s reputation into the gutter and stimulated a limited run on the bank by depositors. The designation is just a first step before further action against the bank is taken, with LCB allowed, under US law, 60 days to appeal, which they are doing as the management have denied any wrong doing.

But the damage has already been done; to stave off a crippling run on the bank, LCB had to act fast. “LCB’s shareholders decided to sell, as they couldn’t deal in US dollars, which killed the bank. It wasn’t a decision by the US or BDL,” said the source.

With BDL against the acquisition or merger of any of the top three Alpha banks — Bank Audi, BLOM Bank or Byblos Bank — with LCB, for fear that it would create a ‘super-bank’ and kill competition in the market, four other banks sought LCB assets and liabilities. Société Générale de Banque au Liban (SGBL) made the winning offer and, as Executive went to print, SGBL and LCB representatives were in Paris, along with members of BDL and SGBL’s part shareholder, French bank Société Générale, to hammer out a deal. The consolidation will boost SGBL from the 10th largest bank in Lebanon to fifth.

The charges

In the words of US Treasury publication The Federal Register, “FinCEN has reason to believe that LCB has been routinely used by drug traffickers and money launderers operating in various countries in Central and South America, Europe, Africa and the Middle East; that Hezbollah derived financial support from the criminal activities of this network; and that LCB managers are complicit in the network’s money laundering activities.” In the notice, FinCEN lays out a case stating Lebanese-Colombian citizen Ayman Joumaa, who was named a “specially designated narcotics trafficker under the Foreign Narcotics Kingpin Designations Act on January 26, laundered “as much as $200 million a month” from cocaine sales. The proceeds were ‘cleaned’ through foreign exchange houses linked to Lebanon, LCB and its Gambian subsidiary Prime Bank, as well as through Trade Based Money Laundering (TBML) activities involving used car dealers in the US and the trading of consumer goods.

FinCEN then laid out LCB’s connection in rather unclear language and dubious math: “With respect to the exchanges and companies related to Ayman Joumaa, numerous instances indicate that substantial amounts of illicit funds may have passed through LCB. Since January 2006, hundreds of records with a cumulative equivalent value of $66.4 million identified a Lebanese bank that originated the transfer; approximately half of those were originated by LCB, for a cumulative equivalent value of $66.2 million, or 94 percent, thus, indicating that LCB probably is the favored bank for these exchange houses, particularly in the context of illicit banking activity.” FinCEN did not reply to queries by Executive asking how, if $66.4 million is the total and LCB was the origin of half the transfers, this is equal to $66.2 million, or how the latter figure is 94 percent of $66.4 million.

With the BDL still to carry out an internal investigation, as it does not yet have the full American report, the details are still vague regarding the accusations of LCB’s possible money laundering activity or knowingly acting as a financial conduit for Hezbollah. The language within the designation (“may have”, “believed to be” or “probably”) is an indication of its ambiguity.

The bank has also been suspected through what is legally referred to as “guilt by association,” with LCB managers accused of having ties with Iranian officials through Hezbollah’s Tehran-based envoy Abdallah Safieddine. The bank is also implicated via a Lebanese shareholder in LCB subsidiary Prime Bank who is “known to be a supporter of Hezbollah.”An indication of the political motivations of the designation is the discrepancy between the punishments of LCB and Jordan-based Arab Bank, which was forced to pay $24 million in 2005 for allegedly inadequate controls against money laundering at its New York branch.

“Why wasn’t LCB fined? They wanted the bank closed. It’s a wake up call for the Lebanese banking sector and the threat posed by Hezbollah,” said a senior compliance officer (CO) at a Lebanese bank who requested anonymity. “The US has the power to sanction a bank anytime and put anyone away. We’re helpless here and need to be very careful to protect the banking sector. I’d give up a suspicious customer, even if it lost millions to protect the bank.”

Collateral damage?

LCB is not the only financial institution to have been shaken by FinCEN’s designation; all Lebanese banks and foreign exchange houses’ relations with the US have been affected.

“The effect from American banks was bad, by two banks in particular; we were not allowed to send from a Lebanese exchange house to an exchange house anywhere via the US. They don’t want any payments from banks related to the exchange dealers. It has created panic and is putting exchange dealers out of business,” said the CO. “The US banks also don’t want us to deal with used car dealers. But they cannot penalize other banks for what happened or consider all transfers as suspicious,” the CO added. “Deal with us or not, period. The banking sector is not loose and American banks shouldn’t be scared of Lebanese banks; banks are cooperating and closing accounts with exchange dealers, even good exchange dealers.”

The FinCEN links LCB and Joumaa to foreign exchange dealers in Lebanon. But those interviewed denied involvement. “We don’t know Joumaa. We’re a Category A listed exchange company and don’t know him,” said a manager of Hassan Ayash Exchange in Beirut. “This designation against us is not right, from A to Z. I will of course appeal with a lawyer and provide all the documentation and transfer records.” Another exchange manager noted: “Hezbollah doesn’t need the money; it gets it from Iran. So why would they use my exchange? And if I have to close my company [because of the designation], Hezbollah will not look after me.”

Joumaa is also linked to Elissa Holding, based in downtown Beirut, which owns Phenicia Shipping, the Elissa Exchange bureau in Sarafand, near Saida and companies in the Republic of Congo and Benin. The Elissa Holding manager, who was not at the holding’s office on a visit by Executive, did not answer further calls. The US also labeled Caesar’s Park Hotel in Beirut, next door to Hassan Ayash Exchange, as a meeting point for money launderers and a front company.

Jalal Joumaa, general manager of Caesar’s Park Hotel, declined to comment on the issue or on whether he would appeal. The exchange houses, Elissa Holding and the hotel are still operating, with no apparent action taken against them by the Lebanese authorities.

Upgrading the law

Ayman Joumaa was publicly designated as a drug kingpin in late January, two weeks before LCB was labeled a prime money laundering concern; this ought to have set off warning bells at LCB’s compliance department, at exchange houses and with Lebanese regulators. If the FinCEN report is to be believed and Joumaa has links to LCB that stretch back to 2006, what it would suggest is that there are certain weaknesses in Lebanon’s anti-money laundering (AML) regime.

The BDL has said that, in line with recent US requests and following a mutual evaluation of the country’s AML regulations in 2009 by FATF’s regional body, MENA-FATF, it will upgrade procedures. Current proposed laws include cross-border cash regulations, declarations and disclosures, and the addition of another 10 predicate offenses to the current seven.

“The procedures also have to be more explicit on terrorist financing, as according to MENA-FATF they are not clear,” said the source close to BDL.

Lebanon is also being pushed to ratify the United Nation’s International Convention for the Suppression of the Financing of Terrorism (1999). That it has not shows there “is no political commitment, and this sheds doubt on how committed the government is to the whole process,” said the source.

The ABL, however, said it has been in favor of signing the convention since 2000. “Reputational risk is important to us and we will double and review the procedures, as the authorities are doing. And we will try to push and accelerate the introduction of new laws and regulations to fill all the gaps,” said Sader.

The designation of LCB has certainly been a wake-up call for Lebanese banks and how the sector is regulated. “Banks have learned a lesson, for example closing exchange bureaus because they believe, [as do I], that it has a lot of risk,” said the source. As to LCB’s guilt and whether the designation was a carefully timed political move, only time will tell. According to Sader, “LCB’s appeal could take months or years.”