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Lebanon Banking Campaign

HIZBALLAH, LEBANON & IRAN: PARTNERS IN A SOVEREIGN MONEY LAUNDERING SCHEME

Lebanon, controlled by Hizballah, a terror proxy of Iran, is engaged in a massive money laundering scheme, and is helping to facilitate Iran’s evasion of sanctions. UANI calls for the designation of Lebanon, like the U.S. Treasury has already done with Iran, as a jurisdiction of primary money laundering concern under Section 311 of the USA PATRIOT Act.

Lebanon has become a sovereign money laundering jurisdiction that receives massive inflows of illicit deposits. Those illicit monies are generated from Hizballah terror activities, and the illicit symbiotic relationships among Iran, Syria and Hizballah that is founded on terrorism, the material support of terrorism, and weapons transfers. Hizballah has long been recognized as the world’s most effective and deadly terrorist organization. The U.S., EU and others have sanctioned various affiliates of Hizballah for their support of terrorist activities and the financing that supports Hizballah’s activities. Click here for a timeline of Hizballah’s Iranian-sponsored atrocities.

Lebanon has created a false image of economic legitimacy and stability to global markets, particularly as related to its sovereign bonds and related securities including the credit default swaps that ‘insure’ those bonds. In fact, the real picture of Lebanon and its sovereign-backed securities reveals a fraud and market manipulation that is used by Hizballah, Lebanon's central bank Banque du Liban (BDL), and the Lebanese banking system to continue money laundering on a massive scale. Click here for UANI's exclusive economic and financial analysis of Lebanon’s false economy and its money laundering enterprise.

Iran’s role in Hizballah is no secret. Iran is one of Hizballah’s chief foreign patrons. In February 2012, Hizballah’s leader Hassan Nasrallah admitted in a speech that Hizballah is financially supported by Iran. Some analysts believe that Hizballah has received approximately $200 million a year from Iran. Click here for more information on Iran’s support of Hizballah activities.

Given the large scale nature of Iran’s backing, the transacting of that support has had to be facilitated by financial institutions – Lebanese banks. But what was once a mechanism for providing financial support for Hizballah has also become a symbiotic financial relationship that allows Iran to evade the growing crush of international sanctions. Now, the Lebanese banking system provides the means by which Iran transacts funds transfers to evade the effects of sanctions and the growing international banking blockade against Iran, and allows the money transfers that support illicit weapons and other transactions, including with Syria.

UANI’s campaign has received media coverage in The Wall Street Journal as well as the following leading Lebanese publications: The Daily Star, Now Lebanon, L'Orient-Le Jour and As-Safir. The campaign has elicited comments from leading representatives of the Lebanese financial system, including Lebanese Central Bank Governor Riad Salamé.

In response to UANI’s campaign, Erste Sparinvest of Austria divested its holdings in Lebanese sovereign bonds, stating, "We came to the conclusion to divest our holdings in Lebanese bonds and therefore we will follow your recommendation." Eaton Vance Investment Managers, Nord Est Asset Management, Aktia Fund Management and Ameriprise have also informed UANI that they have divested their Lebanese sovereign bonds.

“Special Measures” Under Section 311 Reasons for Concern Supporting Data

Evidence that organized criminal groups, international terrorists, or entities involved in the proliferation of weapons of mass destruction or missiles, have transacted business in that jurisdiction

Lebanon operates under the influence of Hizballah. Hizballah is a known terrorist organization that has been designated by the U.S. Hizballah is known or suspected to have been involved in numerous terrorist attacks. It has been historically connected to Iran and Syria.

Hizballah is a known terrorist organization that has been designated by the U.S. as a Foreign Terrorist Organization (FTO) by the Secretary of State in accordance with section 219 of the Immigration and Nationality Act (INA), as amended. (U.S. State Department Website)

Hizballah is known or suspected to have been involved in numerous anti-U.S. terrorist attacks, including the suicide truck bombings of the U.S. embassy and U.S. Marine barracks in Beirut in April and October 1983, respectively. Receives substantial amounts of financial, training, weapons, explosives, political, diplomatic, and organizational aid from Iran and Syria. (Center for Defense Information Website)

The extent to which that jurisdiction or financial institutions operating in that jurisdiction offer bank secrecy or special regulatory advantages to nonresidents or nondomiciliaries of that jurisdiction

Lebanon's bank secrecy policies have been historically worrisome, and recent findings regarding the Lebanese Canadian Bank indicate that there are remaining concerns about the Lebanese banking system.

"The country's 1956 Law on Bank Secrecy prohibits bank managers and employees from revealing client names, or information regarding client assets and holdings (with certain limited exceptions) to any individual or public administrative, law enforcement, or judicial authority.

- The Banking Control Commission, with supervisory authority over all commercial banks in Lebanon, does not have access to individual account information and the names of depositors.
- Numbered accounts are permitted in Lebanon. Only bank managers know the identities of numbered account-holders, and they are prohibited by the Law of Bank Secrecy from revealing this information to Lebanese officials.
- The Law on Bank Secrecy may impede access to financial and commercial records in criminal investigations. However, bank secrecy does not apply to investigations into public corruption or money laundering charges involving drug manufacturing.
- The Law on Bank Secrecy can operate to prevent foreign authorities from obtaining customer identity information, even pursuant to formal requests for judicial assistance."

(FinCEN Advisory 18, July 2000)

This Advisory was withdrawn by FinCEN in July 2002 because of the enactment of a new counter-money laundering system. However, recent findings concerning the Lebanese Canadian Bank indicate that there are remaining concerns about the Lebanese banking system.

The substance and quality of administration of the bank supervisory and counter-money laundering laws of that jurisdiction

After significant pressure from the U.S., Lebanon enacted anti-money laundering legislation. However, loopholes remain as the policy does not cover all terrorist financing transactions nor does it cover Hizballah's activities.

“Lebanon faces significant money laundering and terrorist financing vulnerabilities. For example, Lebanon has a substantial influx of remittances from expatriate workers and family members, estimated by the World Bank at $7 billion per year. It has been reported that a number of these Lebanese abroad are involved in underground finance and trade-based money laundering (TBML) activities. Laundered criminal proceeds come primarily from foreign criminal activity and organized crime."

"In 2001, Lebanon enacted its anti-money laundering (AML) legislation, Law No. 318. This legislation creates a framework for lifting bank secrecy, broadening the criminalization of money laundering, and facilitating access to banking information and records by judicial authorities. Under this law, money laundering is a criminal offense. Law No. 318 broadens the criminalization of money laundering beyond narcotics but does not cover all terrorist financing transactions."

"In 2003, Lebanon also adopted Laws 547 and 553. Law 547 expands Article One of Law No. 318, criminalizing any funds resulting from the financing or contribution to the financing of terrorism or terrorist acts or organizations based on the definition of terrorism as it appears in the Lebanese Penal Code. Such definition does not apply to Hizballah, which is considered a legitimate political party..."

(The 2010 International Narcotics Control Strategy Report)

The relationship between the volume of financial transactions occurring in that jurisdiction and the size of the economy of the jurisdiction

Lebanon’s devastated economy suspiciously supports a stable banking system. While Lebanon’s GDP is around $40 billion, roughly equivalent to Uruguay, Lithuania, Costa Rica or Ghana, its sovereign debt is $53.8 billion – the fourth largest debt to GDP ratio in the world. Lebanon has consistently struggled to service its debt as the country’s underlying growth continues to decline. Despite these issues, Lebanon’s sovereign bonds and corresponding credit default swaps (“CDS”) appear to trade at low yields with no rational economic explanation. Questionably, Lebanon’s cost of debt in 2006 and 2007 was much higher (approximately 9%) than it is today (between 5% and 6%) – conveniently corresponding with increased sanctions pressure against Iran. All signs point to a serious risk of sovereign default, but even with its enormous debt, Lebanon’s currency and banking system act like a far more successful sovereign.

Hizballah’s leader Hassan Nasrallah acknowledged that Hizballah is financially supported by Iran. That support is reported to be at least hundreds of millions of dollars per year. Iran’s support is the keystone by which Hizballah has built its dominant presence in Lebanon and avoided the economic stranglehold of U.S. and EU sanctions.

It is clear that Lebanon’s false economy is being artificially propped up by such massive cash inflows.

See UANI’s economic and financial analysis and presentation on Lebanon and UANI’s letter to Banque du Liban’s Governor Riad Salame of May 28, 2012.

Iran’s role in Hizballah is no secret, but only in February of 2012 did Hizballah’s leader Hassan Nasrallah admit in a speech that Hizballah is financially supported by Iran. (Hurriyet Daily News, “Iran funds Hezbollah, leader Nasrallah admits,” 2/9/2012)

“Hezbollah has long relied almost exclusively on its relationship with Iran and Syria for funding. Since the early 1990s, Hezbollah has operated with a guaranteed annual contribution of at least $100 million a year from Tehran. Early last decade, Iran doubled that investment to more than $200 million a year, and its financial support for Hezbollah reached its pinnacle in 2008-9. “ (Foreign Affairs, “Hezbollah: Party of Fraud, How Hezbollah Uses Crime to Finance its Operations,” 7/27/2011)

The extent to which that jurisdiction is characterized as an offshore banking or secrecy haven by credible international organizations or multilateral expert groups

Lebanon is considered an offshore tax haven known for its banking secrecy policies.

The Congressional Research Service report entitled “Tax Havens: International Avoidance and Evasion” identifies Lebanon as a tax haven jurisdiction. (CRS Report, “Tax Havens: International Avoidance and Evasion,” Jane G. Gravelle, 9/3/2010)

The Financial Secrecy Index identifies Lebanon as a tax haven with high levels of bank secrecy. (Financial Secrecy Index, “Mapping Financial Secrecy: Lebanon,” Tax Justice Network, 10/4/2011)

Whether the United States has mutual legal assistance treaty with that jurisdiction, and the experience of United States law enforcement officials and regulatory officials in obtaining information about transactions originating in or routed through or to such jurisdiction

The U.S. does not have a mutual legal assistance treaty with Lebanon. Other than a bilateral trade framework agreement, the U.S. and Lebanon have not established any other bilateral treaty or agreement.

The U.S. does not have a mutual legal assistance treaty with Lebanon. (U.S. State Department, "2012 INCSR: Treaties & Agreements," 3/7/20120)

"The U.S. has neither a bilateral investment treaty (BIT) with Lebanon nor an agreement on the avoidance of double taxation. However, on December 1, 2006, the U.S. signed a Trade and Investment Framework Agreement (TIFA) with the Government of Lebanon to help promote an attractive investment climate, expand trade relations, and remove obstacles to trade and investment between the two countries." (U.S. State Department, "Background Note: Lebanon," 12/1/2011)

The extent to which that jurisdiction is characterized by high levels of official or institutional corruption

Lebanon has consistently scored poorly on the Transparency International's Corruption Perception Index. The U.S. State Department has also acknowledged that while Lebanon has laws and regulations to combat corruption, such laws and regulations are not always enforced. Lebanon appears to suffer from significant bribery problems within its public sector.

According to Transparency International's (TI) 2011 Corruption Perception Index (CPI), Lebanon ranked 134 out of 182 countries worldwide and 15 out of 18 MENA countries. (Transparency International's Corruption Perception Index 2011)

"Lebanon has laws and regulations to combat corruption, but these laws are not always enforced. According to Lebanese law, it is a criminal act to give or accept a bribe.... Bribing a government official is also a criminal act. The Central Inspection Directorate is responsible for combating corruption in the public sector, while the public prosecutor is responsible for combating corruption in the private sector. In April 2009, Lebanon ratified the UN Convention against Corruption. Lebanon is not a signatory to the OECD Convention on Combating Bribery. Corruption is more pervasive in government contracts (primarily in procurement and public works), taxation, and real estate registration than in private sector deals. It is widely believed that investors routinely pay bribes to win government contracts, which are often awarded to companies close to powerful politicians...." (U.S. State Department, "2011 Investment Climate - Lebanon," March 2011)


Further, before imposing these “special measures,” the statute requires the consideration of the following “specific factors” as outlined in the chart below.

“Specific Factors” Under Section 311 Expected Impact Supporting Data

Whether similar action has been or is being taken by other nations or multilateral groups

Lebanon has not been designated as a jurisdiction of primary laundering concern by other nations or multilateral groups. However, Lebanon is subject to numerous UN resolutions and banking sanctions.

U.S. Lebanon-related sanctions, including the designation of the Lebanese Canadian Bank SAL as a financial institution of primary money laundering concern. (U.S. Department of Treasury, “Lebanon-Related Sanctions,” 1/25/2012; U.S. Department of the Treasury, Federal Register, Vol. 76, N. 33, Proposed Rules, 2/17/2011)

The U.S., pursuant to Section 311 of the USA PATRIOT Act, has designated the Lebanese Canadian Bank SAL and the Syrian Lebanese Commercial Bank as financial institutions of primary money laundering concern. (Financial Crimes Enforcement Network, “Section 311 – Special Measures,” accessed 5/26/2012)

The UN Security Council adopted resolution 1701 on August 11, 2006 imposing sanctions against Lebanon in response to the continued escalation of hostilities in Lebanon and Israel stemming from Hizballah’s attack of July 12, 2006 on Israel. The measures imposed against Lebanon include (1) a prohibition on the export of arms and related material to any person in Lebanon and (2) a prohibition on the provision to any person in Lebanon of any technical assistance related to the provision, manufacture, maintenance or use of arms and related materials. (United Nations Security Council Resolution 1701 (2006))

The UN Security Council adopted resolution 1559 on September 4, 2004 calling for the disbanding and disarmament of all Lebanese and non-Lebanese militias. (United Nations Security Council Resolution 1559 (2004))

Whether the imposition of any particular special measures would create a significant competitive disadvantage, including any undue cost or burden associated with compliance, for financial institutions organized or licensed in the United States

The impact of a Section 311 designation on Lebanon would have a de minimis effect on U.S. banks and financial institutions. A Section 311 designation would not create an undue cost or burden for the U.S. financial system.

According to Banque du Liban, very few financial institutions have meaningful connections/operations in the U.S. and/or EU financial systems. (Banque du Liban, “List of Complete Financial Institutions,” accessed 5/26/2012)

“The Lebanese Banking Sector comprises 54 small, medium and large size private commercial banks and 14 specialized medium and long term credit banks better known by investment banks. Banks operating in Lebanon are categorized also, in terms of ownership, as Lebanese, foreign and mixed, hence revealing the diversity and competitiveness of this sector and the low to moderate concentration of activities. The Lebanese banking industry employs currently close to 21,337 employees in 943 branches conveniently spread throughout the country. It manages around USD 140 billion in assets nation-wide (i.e., excluding assets of abroad subsidiaries and other entities) according to the latest available data (June 2011).” (Association of Banks in Lebanon, “Facts & Figures,” October 2011)

The extent to which the action or the timing of the action would have a significant adverse systemic impact on the international payment, clearance and settlement system, or on legitimate business activities involving the particular jurisdiction

Lebanon’s GDP of approximately $40 billion is 80th in the world (out of 193 countries). Its banking and financial system, though important on a regional level, would likely have a limited impact globally.

World Bank Gross Domestic Product Rankings (2010)

The effect of the action on U.S. national security and foreign policy

Lebanon is a country run by Hizballah. Hizballah is a known terrorist organization responsible for numerous terrorist attacks and human rights violations. Hizballah has been designated by the U.S. as a Foreign Terrorist Organization, and it has been considered a proxy of Iran. Such concerns make Lebanon a threat to American national security.

Hizballah is a known terrorist organization that has been designated by the U.S. as a Foreign Terrorist Organization (FTO) by the Secretary of State in accordance with section 219 of the Immigration and Nationality Act (INA), as amended. (U.S. State Department Website)

Hizballah is known or suspected to have been involved in numerous anti-U.S. terrorist attacks, including the suicide truck bombings of the U.S. embassy and U.S. Marine barracks in Beirut in April and October 1983, respectively. Receives substantial amounts of financial, training, weapons, explosives, political, diplomatic, and organizational aid from Iran and Syria. (Center for Defense Information Website)

In February of 2012, Hizballah’s leader Hassan Nasrallah admitted in a speech that Hizballah is financially supported by Iran. (Hurriyet Daily News, “Iran funds Hezbollah, leader Nasrallah admits,” 2/9/2012)

“Of course, one cannot hope to apply effective financial pressure against a group like Hizballah so long as it maintains massive inflows of cash from a state sponsor of terrorism, in this case the Iranian Government.” (Testimony of Adam J. Szubin, Director, Office of Foreign Assets Control, U.S. Department of the Treasury, Before the U.S. Senate Committee on Banking, Housing and Urban Affairs, 9/12/2006)


Lebanese Bond/CDS Holders & Bond Credit Rating Agencies

Further, UANI has called all holders of Lebanese sovereign debt and related securities to divest their ownership of such fraudulent securities and for bond credit rating agencies to issue a “no rating” on Lebanese sovereign backed securities.

UANI has sought immediate action from these institutions. Firms that invest in and rating agencies that rate Lebanese sovereign securities help legitimize this debt instrument as a serious and legitimate investment and support the massive Lebanon/Hizballah/Iran sovereign money laundering scheme.

Bond Credit Rating Agencies
Moody’s S&P
Fitch

Lebanese Bond Holders
Advanced Series Trust HSBC Investment Funds Inc
AGF Management Limited JP Morgan Investment Management
Aktia Fund Management Ltd Jyske Invest
Aletti Gestielle SGR SPA Lombard Odier Darier Hentsch
American Life Insurance Company Mackay Shields Financial Corp
Ameriprise Financial Nationwide Fund Advisors
Amundi Neuberger Berman LLC
Aviva Funds Sicav Nord Est Asset Management SA
Blackrock Asset Management Normura Asset Management Co. Ltd.
Blackrock Fund Advisors Price T Rowe Associates Inc
BNP Paribas Asset Management SG RBC Global Investment Management Inc.
Consultinvest Asset Management San Paolo IMI Asset Management
Deka International SA SEI Investments Fund Management
Eaton Vance Investment Managers Sparinvest
Erste Sparinvest Kagmbh Sparinvest Fondsmaeglerselskab
Eurizon Capital SA T Rowe Price Global Asset Management
Fidelity Investments Canada Ltd T Rowe Price Global Investment Management
Fidelity Management & Research Thrivent Financial Lutherans
Fideuram Gestions SA Union Bancaire Privee
GE Asset Management Union Investment Luxembourg SA
GE Asset Management Incorporate Universal Investment Lux SA
Hartford Life & Accident Ins Co  

UANI Correspondence

UANI has had extensive correspondence with the head of BDL, Governor Riad Salame, regarding these concerns.

  • Click here to read UANI’s initial demand letter to BDL of February 20, 2012
  • Click here to read BDL’s response to UANI of February 24, 2012
  • Click here to read BDL’s subsequent unsolicited follow up email of April 5, 2012 and the attachment ‘basic circular
  • Click here to read UANI’s follow up letter to BDL of May 28, 2012
  • Click here to read UANI’s exclusive economic and financial analysis of Lebanon's Sovereign Money Laundering Scheme