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.
Syria
has been sanctioned by the United States, the European Union (EU),
and the United Nations (UN) since 2011. Numerous new measures have
been applied in the intervening years as the conflict between the
regime of President Bashar Assad, the opposition and Islamic State
has raged on. More recently, in May 2016, the EU extended restrictive
measures against the Syrian regime until 1 June 2017. In October
2016, it added
10 further people to its lists, bringing the total to 217 persons
subject to a travel ban and asset freeze. In December 2016, the US
Treasury designated
a further 18 people and five entities as being covered by its Syrian
conflict-associated sanctions, which also blocks “any property or
interests in property of the designated persons in the possession or
control of US persons or within the United States” and
“transactions by US persons involving the designated persons are
generally prohibited”. In January (2017), Britain and France were
drafting a new UN Security Council Resolution proposing additional
sanctions, diplomats in New York have said – these would ban
countries from supplying the Syrian government with helicopters and
impose financial and travel sanctions on 11 Syrian individuals and 10
entities connected to chemical weapons attacks in Syria.
Top targets
Initial sanctions, imposed by the USA, EU and UN on Syrian interests,
targeted members of the government, state-owned institutions, the
military, and individuals and businesses connected to the regime,
restricting their access to foreign banks and curbing their use of
the SWIFT network.
“The Syria programme has been fairly successful
in putting economic pressure on Assad’s government. Its
macroeconomic indicators have taken a nose dive,” said Eric Lorber,
a lawyer at the Financial Integrity Network in Washington D.C., who
advises financial institutions on regulations administered by the US
Office of Foreign Assets Control (OFAC).
Indeed, in early 2016, the International Monetary Fund (IMF)
estimated that Syria had US$1 billion in foreign currency holdings,
and the World Bank estimated some US$700 million. “The finance
minister, appointed in July, confirmed the World Bank figure.
Whatever it is, that’s a figure from a year ago, and down from
US$20 billion in 2010,” said Jihad Yazigi, editor of financial
publication, the Syria Report.
Bankers’ response
Private banks in Syria have also been impacted, with some closing
down early on in the conflict, while others have changed names and
management over concerns about being too associated with Syria.
Correspondent banking relationships have also been lost. “Most
European banks refuse correspondent banking as they think it’s too
risky or the clients are too risky,” added Yazigi.
The main change in new EU sanctions designations has been adding more
government officials, largely due to a changing roster in top jobs,
like the July 2016 appointment of Central Bank governor Duraid
Durgham and finance minister Maamoun Hamdan, appointed the same
month. But unlike earlier lists, the US has also added focus on the
private sector. “I was surprised as it is not
the usual list you see of generals, colonels and government
ministers. This time around OFAC was using good intelligence and due
diligence as to who these people are, and what has happened in
(Syria’s) political-economy over the past two years,” said Rashad
Al Kattan, a security risk analyst, and a fellow with the Centre for
Syrian Studies at the University of St. Andrews, Scotland.
Flight risk
Among the private companies sanctioned is Cham Wings, a private
Syrian airline that was used as a national carrier for the January
peace talks in Astana, Kazakhstan as state-run Syrian Air is down to
just three planes. “Many analysts think the airline is not owned by
the Shammout Group but is actually a front for Rami Makhlouf,” the
maternal cousin of Bashar Assad, noted Kattan. Makhlouf is considered
Syria’s wealthiest businessman. He was sanctioned by OFAC in 2008.
Adib Muhanna, the former head of Cham Holding, in which Makhlouf has
a confirmed stake, has also sanctioned by the US Treasury (December,
2016) for “having materially assisted, sponsored, or provided
financial, material, or technological support for, or goods or
services in support of, Rami Makhluf (sic)”; it is thought that he
had conducted real estate transactions on Makhlouf’s behalf. Two
security firms – Al Hisn Firm for Security Protection and Guard
Services (Al-Hisn) and Al-Qasiun Security Services LLC (Al-Qasiun) -
established after a legislative change in Syria in 2013 to allow
private security companies - have also been designated by the US
Treasury for links to Makhlouf. Another declared reason was that
these companies had been facilitating the oil trade between Damascus
and areas under the control of the Islamic State of Iraq and the
Levant (ISIL).
Russian influence
The Syrian government and its supports have only been able to
withstand such tough sanctions due to credit lines and support from
allies Russia and Iran. “Before Russian
(military) intervention (in September 2015), Moscow’s main role was
providing a life line, such as military supplies and weapons, but
also deposits of central bank capital into the Russian banking system
and the utilisation of secondary Russian banks that don’t have the
same exposure (as larger Russian banks) to facilitate capital
transfers,” said Andrew Bowen, a researcher for geopolitical
consultancy Wikistrat.
In
December 2012, Syrian state press reported that the country’s
central bank had opened Euro and Rouble accounts with state-linked
banks VTB, VEB, and Gazprombank. While VTB
and VEB have issued statements denying handling Syrian cash, in
October 2016, a leaked
document indicated money had gone to VTB. “Wikileaks dumped all
these documents on the Assad regime but left out one, the central
bank depositing 2 billion euro in VTB,” added Bowen.
While Russia is subject to its own EU and US sanctions, it has been
able to circumvent them, he noted, notably on behalf of Syria. “It
has become more complex with Russia having sanctions, but Cyprus
plays a crucial role in the transfer of illicit capital through
Western banks, and a key transit point for transfers from Russia to
Syria,” said Bowen.
Outflow destinations
Moreover, according to Kattan, Russian ally Belarus is suspected of
having “substantial” amounts of Syrian money. As is Dubai. “There
is some decent money going there, and I wouldn’t be surprised if
Latin America is being used. If you look geo-strategically at who is
voting at the UN for Syria, it is Cuba, Venezuela and others, and
(Lebanon’s) Hizbullah (which is involved in the Syrian conflict)
has good links in Latin America,” he said.
Swiss leaks
Other major financial players have also been implicated in efforts by
Syrian government figures to sidestep sanctions. The Swiss Leaks,
based on the inner workings of HSBC’s Swiss private banking arm,
and combed through by the International Consortium of Investigative
Journalists, indicated Rami Makhlouf to be the beneficial owner of
multiple accounts.
Ultimately, there are a lot of rumours as to where the cash has gone.
“A significant amount of money likely made its way from Syria to
Lebanon, and also to a number of more opaque jurisdictions like
Panama and the Caribbean, but there seems to be limited concrete
information,” said Lorber.
Difficult neighbours
Lebanese
banks have been under particular pressure over Syria given
longstanding bilateral ties, and Lebanese banks operating five of
Syria’s 14 private banks. In Lebanon, banks have been actively
de-risking Syria-linked clients and have made it difficult for
Syrians to open bank accounts, despite no regulations prohibiting
this. “They have been under pressure in general, and especially
after the Hizbullah
International Financing Prevention Act
of 2015,
as Lebanese banks are the biggest, and most significant, operators in
Syria,” said Kattan. The law says the US shall impose sanctions on
financial institutions shown to be facilitating Hizbullah payments.
Iran and Iraq
Iran has provided both military and financial support to Syria.
Indeed, Syrian Prime Minister Imad Khamis said in January that only
Iran has provided economic aid to the country. His remarks followed
Tehran providing a new credit facility of US$1 billion to Damascus in
January (2017), while several agreements were signed to transfer
Syrian owned phosphate mines and a maritime port to Iranian
companies, and a mobile phone licence to the Revolutionary Guards,
according to Yazigi.
Iraq, sandwiched between Syria and Iran, has also been a conduit for
Syrian capital. A joint Iraqi-Syrian trade bank was proposed at a
January (2017) meeting of the Chamber of Commerce in Damascus,
according to Kattan. An Iranian-Syrian bank had been mulled back in
2010 (as reported in MLB in October 2010, see Iran-Syra: a banking
axis), but did not materialise. “With Iraq, it
might be more doable as banks in Iraq are very politicised. There is
a lot of movement between Iraq and Syria, and that is moving towards
economic cooperation. This might be an effort led by Iran, for the
Iraqi and Syrian governments to work together,” said Kattan.
Back to Moscow
Any
such financial institutions may have to cope with even more
sanctions. With Russia already under new sanctions, new legislation
has been proposed in the US Congress to punish the country for its
military activity in Syria and Ukraine, as well as to counter
Russia’s alleged cyber activities. The Counteracting
Russian Hostilities Act
of 2017, has bipartisan support, despite President Donald Trump’s
desire for better relations with Russia, and includes new primary and
secondary sanctions, for instance authorising sanctions on defence
companies providing arms to Russia for use in Syria, and prohibit
both US and foreign companies from doing business with those
entities.
“If passed, which is a big question, I think it will be very
effective. The Act will put pressure on Russia but I question whether
it will stop Russia’s military involvement in Syria. Moscow is
determined to ensure Assad’s survival, so the economic pain would
have to be pretty extreme,” said Lorber.
The last section of the bill provides for a joint task force of the
Justice Department, OFAC, and Financial Intelligence Unit FinCEN to
investigate money laundering activities, organised crime, and
sanctions evasion in Russia. “If the task force is set up, I would
expect that, during the investigations, they would find significant
illicit connections between Russia and Syria,” added Lorber.
