Photographer: Mahmoud Zayyat/AFP via Getty Images

In War and Now Finance, Losses Mount for Iranian Ally Hezbollah

Tehran may be back in fashion, but an American law has cut off its Lebanese ally.

Iran may be emerging from the grip of western sanctions, but one of the most formidable militant groups it funds is paying the price.

As Hezbollah’s battlefield casualties mount in Syria, a U.S. law passed in December that forbids banks from dealing with the Shiite group is hitting its vast network of social services in Lebanon like never before.

The legislation aims to prevent Hezbollah from reaping any financial benefits following Iran’s nuclear accord last year. Nurses and doctors, administrators and teachers are being frozen out of the banking system as lenders close the accounts of hospitals, media companies and charities linked to Hezbollah.

The services are crucial to Hezbollah’s popularity as the group’s involvement in Syria’s conflict — where it’s part of an alliance with Iran, Russia and President Bashar al-Assad — lingers on. While the tide of the war has shifted in favor of the regime, hundreds of Hezbollah’s fighters, as well as several top commanders, have been killed.

"This is the most difficult period for Hezbollah since it was born," said Bilal Saab, senior fellow for Middle East security at the Washington-based Atlantic Council. “They’re in transition from a local actor into a regional power, and the outcome is quite uncertain for them. Can they survive something like this?"

Beirut Blast

The U.S. legislation was enforced by the Lebanese central bank last month, leading to a rare public spat between Governor Riad Salameh and Hezbollah. The former Merrill Lynch banker said it was the only way to guarantee the stability of banks, the backbone of the struggling economy in the Arab world’s most indebted nation. One hundred accounts have been closed, he told CNBC last week. 

On June 9, Hezbollah said Salameh’s position was “ambiguous and suspicious” and “we totally reject it."

Tension soared further this week when a bomb targeted Blom Bank, one of the country’s largest lenders, triggering speculation it was linked to the law. There has been no claim of responsibility. Hassan Fadlallah, one of Hezbollah’s 13 lawmakers, declined to comment on the law and calls to two other parliamentarians were unanswered.

Destroying Networks

Founded in 1982 to fight Israel’s occupation of southern Lebanon, Hezbollah is considered a terrorist organization by the U.S.

The law "gives us yet more tools in our campaign to destroy Hezbollah’s financial networks," Adam J. Szubin, acting U.S. under secretary for terrorism and financial intelligence at the Treasury Department, told a Congressional committee on May 25. "The group is in its worst financial shape in decades. I can assure you that, alongside our international partners, we are working hard to put them out of business."

A supporter holds a poster showing Hassan Nasrallah as he addresses supporters in Beirut's southern town of Mujammaa Sayyed al-Shuhada, on Jan. 30, 2014.
A supporter holds a poster showing Hassan Nasrallah as he addresses supporters in Beirut's southern town of Mujammaa Sayyed al-Shuhada, on Jan. 30, 2014.
Photographer: Joseph Eid/AFP via Getty Images

Its network mainly serves impoverished areas, including three hospitals, 12 health centers as well as 20 infirmaries, according to a 2009 study published by the Middle East Policy Council. One company, Jihad Construction, is involved in rebuilding areas damaged by Israeli strikes or recent bomb attacks linked to the Syrian war. The depth of the group’s coffers is harder to estimate.

Salaries are now having to be paid in cash. Recipients, including those with mortgages and loans, risk being cut off from the Lebanese banking system.

Cut Off

When a doctor applied for a mortgage at a Beirut bank recently, he was turned down because most of his income came from a hospital linked to Hezbollah. The banker who handled his request said the lender was acting in accordance with the law. The person declined to be identified by name because of the sensitivity of the issue.

Bilal Saade, 48, a university professor, decided against opening an account in a Shiite-owned bank that offered good deposit rates. "I didn’t want to take a risk," he said. The law reinforces Hezbollah’s message that Shiites are under attack, he said.

The U.S. law raised concerns in Beirut this year because of its potential impact on the banking industry. Delegations from parliament and the central bank went to Washington for talks with U.S. officials earlier this year and U.S. Treasury Department Assistant Secretary Daniel Glaser visited Lebanon last month.

Mark Meadows, the North Carolina Republican congressman and member of the conservative Freedom Caucus who was co-sponsor of the bill, Public Law 114-102, said in an interview he met twice with a few bankers and made adjustments to his proposal. “We made sure they knew we were going after the bad guys,” Meadows said.

Capital of Resistance

In the background, Iran will make sure Hezbollah can cope with the U.S. action, according to Mohammad Marandi, associate professor at the University of Tehran. “The only institution that may be affected is a hospital and of course that is in the heart of Beirut and it shows the Americans have no shame when it comes to dealing with innocent people,” said Marandi.

Hezbollah’s Lebanese Shiite base, which rarely challenged its decisions, is getting more agitated as the economy almost grinds to a halt following the influx of more than 1 million refugees from Syria.

“The war in Syria has made Hezbollah forget people’s economic and social woes,” accountant Mohammed Bazzi, 34, said in an interview in the southern town of Bint Jbeil, which welcomes its visitors to “the capital of resistance and liberation.” "I supported Hezbollah’s resistance against Israel, but politically the party has proved to be a total failure.”

Alienated

The group, led by Sayyed Hassan Nasrallah, has navigated international pressure since the 1990s. In a May speech eulogizing a top commander killed in Syria, he recognized that Hezbollah could be at a crossroads but said it would eventually prevail.

While the latest law won’t lead to Hezbollah’s demise, it makes it harder for them to operate, said Jonathan Schanzer, a former terrorism finance analyst at the U.S. Treasury Department. “There’s a possibility of Hezbollah really feeling alienated,” Schanzer, vice president for research at the Foundation for Defense of Democracies, said from Toronto. “Not just from the other sectarian actors in Lebanon but actually from its own Shiite population.”

—With assistance from Dana Khraiche and Laura Litvan.

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