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Criminal funding

December 20, 2011

A US investigation has revealed that proceeds from drug smuggling and other criminal enterprises have been laundered through a prominent Lebanese bank and used as funding for militant group Hezbollah.

Hezbollah leader Sheik Hassan Nasrallah
Hezbollah's secret funding has been linked to drug cartelsImage: dapd

A six-year investigation by the United States into the inner workings of the Lebanese Canadian Bank (LCB), one of Beirut's many secretive financial institutions, has revealed an intricate web of money laundering and criminal activity through which the militant group Hezbollah has been deriving new strands of funding.

In an extensive report by the New York Times last week, the US operation into the LCB's activities, which began shortly after Hezbollah's 2006 summer war with Israel, has revealed that the depths of the bank's connections with the powerful Lebanese militant group have been carefully buried under untainted assets for years.

After painstakingly gathering information from undercover sources and networks, the investigation, according to the NYT, has hit pay dirt in the last few months with damaging evidence emerging during the sale of the LCB, a former subsidiary of the Royal Bank of Canada Middle East, to a Beirut-based partner of the French banking giant Société Générale.

Warning bells began ringing when intelligence agencies started noticing Lebanese Shiites working for South American drug cartels. However, one of the biggest breakthroughs in the pursuit of evidence against Hezbollah and its connections with the LCB came in 2007 when Chekri Mahmoud Harb, a Lebanese middleman working with a Colombian cartel, revealed his Hezbollah connections to an undercover agent.

Harb's link failed to bear fruit but investigators were then lucky enough to get a second chance when cash from the used car racket ended up in an exchange house owned by the family of Ayman Joumaa, a former cartel member and now owner of the Caesars Park Hotel in Beirut with alleged connections to Hezbollah's 1800 Unit (elite group believed to coordinate attacks inside Israel - the ed.), and another down the street from his hotel. The exchanges then deposited the money into accounts held by the Lebanese Canadian Bank.

Criminal activities funding Hezbollah

Iranian President Mahmoud Ahmadinejad, left, speaks with Syrian President Bashar Assad, center, as Hezbollah leader sheik Hassan Nasrallah, right, sits next to them
Funds from Iran and Syria to Hezbollah have been strangledImage: ap

It was only during the sale procedure, when the LCB's ledgers were opened and deeply investigated, that the extent of the bank's connection to Hezbollah became evident. The accounts have also shone light on how the militant group has managed to fund its rise to political and military prominence in Lebanon at a time when its main benefactors in Iran and Syria have suffered under the weight of international sanctions and growing public unrest.

Iran alone has been cited by US sources as providing as much as $200 million (153.5 million euros) annually, although this has been drastically reduced in recent years by the crippling restrictions placed on Tehran's own financial sector in response to its unwillingness to give up its nuclear ambitions.

With Syria's own financial crisis being exacerbated by its increasingly violent civil uprising, Hezbollah has had to look elsewhere.

"It's not much of a secret anymore that Hezbollah used illicit channels to raise funds, or launder money," Reinoud Leenders, Middle East expert and assistant professor International Relations at the University of Amsterdam, told Deutsche Welle. "I wouldn't be surprised if they use some Lebanese banks for their finances, which are not unknown in the world of money laundering due to ineffective controls and regulations despite what Lebanese officials may tell you."

It has long been known that Hezbollah has benefited from financial contributions from foreign loyalists and funding from elements of the large Lebanese Diaspora abroad who have successfully circumvented attempts to cut off the militant group's economic lifeblood.

What the recent revelations have shown is that this Diaspora, spread throughout Europe, Africa and South America, has provided Hezbollah with a ready made network of contacts involved in an intricate global money-laundering apparatus involving drug trafficking and other criminal activities which have in turn allowed Hezbollah to move huge sums of money into the legitimate financial system.

Drugs, cars and consumer goods

A member of Colombia's Navy checks cocaine seized in the Gulf of Morrosquillo, in Cartagena
Links to drug cartels have been traced back to the LCB bankImage: picture alliance / landov

The web of criminality allegedly stretches around the world and involves South American drug cartels, goods exporters in Asia, car dealerships in the United States and Africa, and Shiite Muslim businessmen dealing in everything from conflict diamonds to frozen chicken.

"Among other things, there are reasons to believe that Hezbollah is involved in cigarette smuggling in the US, the trade in blood diamonds in West Africa, and in recent financial scams in Lebanon," said Leenders.

Intelligence from several countries, not just the United States, has also revealed the direct involvement of high-level Hezbollah officials in the cocaine trade in South America.

Through the group's connections with the cartels, cocaine is sent through the porous border where Brazil, Paraguay and Argentina meet then onto Colombia and Venezuela where it is then sent to Europe via West African countries like Benin and Gambia. The cocaine is then moved north through Portugal or Spain, or east via Syria and Lebanon.

Profits from the highly lucrative European narcotics market are then transferred back to African accounts.

Used cars are then shipped from the United States to Africa where the proceeds from their sale is mixed with the European drug profits and sent to the Lebanese Canadian Bank via exchange houses across the Middle East. Some of the money is sent back to the US to buy more used cars while some is diverted to Hezbollah.

Another portion of the money is transferred through accounts in the United States to pay Asian consumer goods suppliers in countries such as China. The consumer goods are then shipped to South America where they are sold to pay off the drug cartels.

The NYT report said that the US investigation had revealed that hundreds of millions of dollars a year have passed through nearly 200 accounts associated with companies allegedly used as fronts for Hezbollah.

Whether any subsequent US action damaged Hezbollah's financial structure is still a matter of debate.

"The Lebanese banking establishment is very aware of how this could potentially affect stability in Lebanon and Hezbollah's grip on power and this is why the affair of the Lebanese-Canadian bank was dealt with very swiftly," Nadim Shehadi, a Middle East expert at Chatham House, told Deutsche Welle. "It would now be difficult for anybody to channel illegal money through Lebanese banks."

According to Leenders it's unlikely to have any direct impact on Hezbollah.

"They have very likely diversified their financial flows to the extent that no one measure against them can stop them. The potentially precarious support by both Syria and Iran will also have prompted Hezbollah to look for revenues beyond them, including by raising funds in the Lebanese Shiite diaspora," he said.

Author: Nick Amies
Editor: Rob Mudge