Potential Repercussions of the new Trump-Iran Sanctions on Lebanon

9 May 2018 revised by Bachir El Nakib (CAMS), Senior Consultant, Compliance Alert (LLC).

The decision marks a bitter defeat for America’s top European allies, who have spent months beseeching Mr Trump to stay in a deal that he has denounced as “insane”. Critics warned it would further endanger stability in the Middle East and have repercussions for major companies that have been doing business with Iran following the 2015 accord. European leaders have vowed to try to salvage the Iran nuclear deal if US President Donald J. Trump carries out his threat to withdraw later this week. But unlike the Paris climate accord and the Trans-Pacific Partnership (TPP) trade deal, the Joint Comprehensive Plan of Action (JCPOA) would have great difficulty surviving without US participation. Tehran may not react immediately, but the government of Iranian President Hassan Rouhani would be under intense domestic pressure to resume aspects of the nuclear program restricted by the JCPOA. Those that fear that the agreement would allow Iran to get close to a nuclear weapons threshold in a decade or so would have to confront that possibility much sooner. But many companies would be unlikely to risk the hefty fines that violating US sanctions could entail. The negative consequences of no deal could go beyond proliferation and the likelihood that Saudi Arabia and other regional powers would also seek dual-use nuclear technology. The Middle East and South Asia are rife with conventional conflicts that would only get worse if Iran feels compelled to retaliate in a non-nuclear arena to a US withdrawal from the JCPOA. Already, Iran has set the Arab world on edge through its support for Shi’ite militias in Iraq and Syria as well as its long-standing collaboration with Hezbollah in Lebanon and newer alliance with Yemen’s Houthis.

On October 25, 2017, US Congress passed new sanctions against Lebanon’s Hezbollah to curb its political, economic and military activities as well as foreign relations. The three bills unanimously approved by the House of Representatives impose comprehensive sanctions against the Iran-backed terrorist group’s role after it has grown over the past years across the Middle East. In Syria, Iraq and Yemen in particular, Hezbollah stoked and took advantage of armed conflicts with one set goal in mind: achieving Iran’s policies.

Special Attention 

Hezbollah’s funding received special attention from the House of Foreign Affairs Committee over the past six months, with discussions focused on three main topics: Hezbollah’s ties with Iran, loopholes used by the militant group to circumvent previous sanctions imposed in 2015, as well as threats posed on the interests of Washington's and its allies by the militia's weapons, activities and relations with Iran.  

Significantly, the new sanctions target Hezbollah’s current suspicious role in the region. While previous sanctions targeted the group’s illegal trade in drugs, money laundering operations conducted through certain states as well as its role in conflicts and the deliberate use of civilians as human shields. 

Needless to say that all Republican and Democratic congresspeople came to consensus on the Hezbollah-related measures acts as a prelude to a continuous mechanism against Iran and regional alliances. The development is of special significance because the Administration of President Donald Trump is bent on adopting the new strategy against threats posed by Iran in the region and, at the same time, its new policy on the 2015 nuclear agreement with Iran which, in Washington’s view, took advantage of the deal to consolidate its influence in the region. 

Multiple Measures

Over the past period, and before the most recent sanctions, the United States was keen on countering Hezbollah’s and its direct threats to American interests. Two weeks before the new bills were passed into law, the U.S. Department of State offered rewards of between US$5 and $7 for information leading to the location, arrest, or conviction, in any country, of  Fu’ad Shukr and Talal Hamiyah, two key leaders of Hezbollah who were involved in terrorist attacks against Americans. The rewards are the first offered by US for Hezbollah operatives in a decade. 

Moreover, for the first time, footage showing Hezbollah’s terrorist attacks against the United States were shown at events held on March 25, 2017, and Lebanese businessman Kassim Tajideen, a key Hezbollah supporter already designated by the US as a terrorist, was accused of attempting to circumvent previous sanctions against him. 

Different Approach

Tightening the economic screws on Hezbollah is not the sole target of the new sanctions passed by Congress, which indicates that Washington has adopted a different and global approach to address the threat of militant group’s activity in light of its expanding network of various activities in the Middle East. Escalated sanctions were required to fit the new US Administration's strategy for curbing the group.

During six months of congressional deliberations and amendments, the focus was maintained on diversifying and broadening the sanctions to target Hezbollah’s activity at all levels, including its networks, departments as well as ties with social and media entities seen as fronts used to circumvent the 2015 sanctions against it, as well as figures and entities supporting, or dealing with the militant group. This means Hezbollah’s internal alliances have also come under the expanded sanctions. 

Special attention was given by US Representatives to crucial issues such as Hezbollah’s deliberate use of civilians in a war it fights on behalf of Iran in Syria, Iraq and Yemen. This issue in particular can usher in further sanctions by international rights organizations against Hezbollah with a focus on the negative implications of its activities in domestic and regional arenas.

The United States also seeks to convince European states to impose their own sanctions on Hezbollah that can impact relations with Iran, which still counts on European positions on Trump’s new policy regarding the nuclear deal in particular. The Trump Administration  believes that the deal does not provide for tight sanctions on Iran’s nuclear program and that Iran continues to violates the spirit of the deal by deliberately continuing to conduct ballistic missile tests and support terrorism.

Moreover, the new US sanctions also aim to counter Iran’s incessant support to Hezbollah. Several reports indicate that financial transactions between Tehran and the Lebanon-based terrorist group are being conducted using “cash bags”. This might very well pave the way for new tight sanctions against Iran’s cross-border movements aimed at maintaining its influence within some states, establishing an overland corridor to territory held by its allies. The movements are an issue of concern for world powers involved in Middle East crises. 

That said, it can be argued that the new US sanctions against Hezbollah usher in a new and different stage where several world powers will double their efforts to counter the terrorist group’s activities. That is because these activities are aimed at supporting Iran’s regional role thus exacerbating regional turmoil and instability while also supporting various terrorist organizations.

Lebanon has been at risk of getting sucked into the vortex of the ethno-sectarian war raging across its border with Syria. With the scars of its own civil war in 1975-90 still vivid, the country is divided on similar sectarian lines to Syria where, furthermore, the intervention of Hizbollah, the powerful Lebanese Shia paramilitary movement backed by Iran, has contributed decisively to keeping Bashar al-Assad’s regime in place. Now, Lebanon’s fragile equilibrium is being rocked from a different quarter: US Treasury sanctions aimed at cutting Hizbollah off from financing channels abroad. This could put at risk Lebanon’s dollar-dependent banking system, and voluminous remittance flows from the Lebanese diaspora that feed an anaemic economy.

The US measures are not intended to undermine the stability of a country that hangs by a thread, but unintended consequences work just as well to produce state failure in the Middle East, as the US-led invasion of Iraq or Nato intervention in Libya attest. Lebanon’s Hizbollah sanctions problem is a tangled story.

The US Treasury, through its extraterritorially powerful Office of Foreign Assets Control (Ofac), has come up with a battery of regulations fleshing out the Hizbollah International Financing Prevention Act passed by Congress last December. This significantly adds to the list of sanctioned Hizbollah leaders, facilitators and front-companies. But most of all, it threatens any Lebanese bank that “knowingly engages” with any Hizbollah-related entity or individual with being cut off from the US banking system. The Lebanese central bank, one of the country’s few functioning institutions, insists all banks must comply with the US law. “If we do not do that”, its governor, Riad Salameh, said last week, “our banking sector could become isolated from the world.”

Hizbollah leaders have accused him of collaborating in an act of war against them. But this polemic is the least of it. Both sides know this is a real problem.

First, Lebanese banks, amounting to about 7 per cent of the economy, are heavily dependent on their US counterparts since more than half their deposits are in dollars, which circulate legally alongside the Lebanese pound. They also receive the bulk of remittances, which the World Bank estimates averaged 20 per cent of the economy over the past five years, from a Lebanese diaspora three to four times the size of the population.

The biggest flow of remittances — sometimes described as Lebanon’s secret sovereign wealth fund — comes from the Gulf and west Africa. Much of these dollar flows are from Shia expatriates, and even before the recent sanctions banks were getting chary of dealing with them lest they attract the attention of Ofac.

Second, Hizbollah is by far the most powerful political force in Lebanon, bigger than the state from which the US measures propose to disentangle it. Its seasoned paramilitaries have joint custody of security with the army, and it has great influence in three main security services. Like it or not, a country threatened from Syria by Isis and al-Qaeda jihadis now relies on the Party of God for its security.

Third, it is very big. It has MPs and ministers as well as fighters, and a network of schools, hospitals and orphanages as well as foundations paying the families of dead fighters — a vast welfare network that is part of its power base and mystique.

One former minister says it has a payroll of 80,000, or 400,000 people once their families are included, roughly a tenth of the population. Is all this to be cut of from the banks? One of the biggest Shia charities says it has already been targeted. Fourth, the rise of Hizbollah has come with the rise of hitherto marginalised but now visibly prospering Lebanese Shia, in an economy where many lucrative concessions are parcelled out on a sectarian quota basis. It is not just banks that bump up against Hizbollah. Lebanon is a byword for resilience. Yet it is a country that has been unable to elect a president for two years, whose MPs have twice extended their own terms because of sectarian deadlock over new elections to parliament, and which limps on in political penumbra with a caretaker cabinet often made inquorate by factional boycotts. Economically, it is a mercantile republic kept afloat by its globalised diaspora. The Lebanese have survived decades of civil war and assassinations, invasion and occupation. Despite reassurances from officials in Lebanon and the US that only banks directly implicated with Hizbollah are at risk, they are not shrugging off Ofac. david.gardner@ft.com

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OFAC Page on Lebanon-Related Sanctions

 

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Sanctions Brochures

Sanctions Brochures are an overview of OFAC's regulations with regard to the Lebanon-Related sanctions. They are useful quick reference tools.

Frequently Asked Questions

OFAC has compiled hundreds of frequently asked questions (FAQs) about its sanctions programs and related policies. The link below sends the user to the entire list of OFAC's FAQs.

Interpretive Guidance

OFAC issues interpretive guidance on specific issues related to the sanctions programs it administers. These interpretations of OFAC policy are sometimes published in response to a public request for guidance or may be released proactively by OFAC in order to address a complex topic.

Applying for a Specific OFAC License

It may be in your and the U.S. government’s interest to authorize particular economic activity related to the Lebanon-Related Sanctions. Visit the link below to apply for an OFAC license.

Guidance on OFAC Licensing Policy

Certain activities related to the Lebanon-Related Sanctions may be allowed if they are licensed by OFAC. Below OFAC has issued guidance and statements on specific licensing policies as they relate to the Lebanon-Related Sanctions.

  • Licenses for Legal Fees and Costs - Guidance on the Release of Limited Amounts of Blocked Funds for Payment of Legal Fees and Costs Incurred in Challenging the Blocking of U.S. Persons in Administrative or Civil Proceedings
  • Entities Owned By Blocked Persons - Guidance On Entities Owned By Persons Whose Property And Interests In Property Are Blocked

Executive Orders, Statutes, Rules and Regulations Relating to the Lebanon-Related Sanctions

The Lebanon-Related Sanctions represent the implementation of multiple legal authorities. Some of these authorities are in the form of executive orders issued by the President. Other authorities are public laws (statutes) passed by The Congress. These authorities are further codified by OFAC in its regulations which are published the Code of Federal Regulations (CFR). Modifications to these regulations are posted in the Federal Register.

Executive Orders

  • 13441 Blocking Property Of Persons Undermining The Sovereignty Of Lebanon Or Its Democratic Processes And Institutions (August 1, 2007)

Statutes

Code of Federal Regulations

Federal Register Notices

  • 75 FR 44907-10 New regulations to implement Executive Order 13441 (Blocking Property Of Persons Undermining The Sovereignty Of Lebanon Or Its Democratic Processes And Institutions)

 

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