U.S. Probes Lebanon Banking Deals


The Obama administration is intensifying its scrutiny of Lebanon’s financial system, concerned that Syria, Iran and the militant group Hezbollah are using Beirut’s banks to evade international sanctions and fund their activities.

Despite action by Beirut and Washington over the past 14 months to close banks and sanction individuals, the Treasury Department and Drug Enforcement Administration are continuing an aggressive probe into an alleged Hezbollah-linked money-laundering operation, U.S. officials said. They allege the operation involves hundreds of millions of dollars in drug-sales revenues from a Lebanese narco-trafficker that they say have gone to the Lebanese militia and political group.

The Treasury Department also is pressing Lebanese financial regulators to more closely monitor local banks that have operations in Damascus and Tehran, senior U.S. officials said.

U.S. officials believe Syrian President Bashar al-Assad is trying to use these financial links as other channels for moving money are blocked by international sanction campaigns against his government, triggered by his yearlong crackdown on political opponents.

“We’re concerned about Lebanon being used as a channel by Syrians attempting to evade sanctions,” said a senior Treasury official involved in Middle East policy.

Syria has had extensive influence over Beirut’s financial system for much of the past three decades, due to Damascus’s military presence in Lebanon, which ended in 2005. U.S. officials also have expressed alarm about Hezbollah’s growing control over Lebanon’s government, after the militant group led a political bloc last year that toppled Beirut’s pro-Western prime minister, Saad al-Hariri. Hezbollah maintains a close military alliance with Syria and Iran.

A stream of Treasury officials, including U.S. sanctions czar David Cohen, have visited Beirut in recent months to meet Lebanese officials and private bankers.

Lebanon’s government has stepped up efforts over the past year to combat money-laundering through Beirut, the country’s central-bank governor, Riad Salameh, wrote in an email. Deposits by Syrian nationals in Lebanese banks, both inside Syria and Lebanon, as well as loans to Syrians by these banks, have decreased by 40% over the past 15 months, he wrote, without citing total dollar figures.

That action came after the Treasury Department issued a formal finding last year that alleged Lebanon’s then-eighth-largest bank, the Lebanese Canadian Bank, had facilitated the movement of drug profits through an intricate trading network that involved Latin America, West Africa and the U.S.

The Treasury further alleged that Hezbollah generated revenues from the criminal activities of this network and that the Lebanese Canadian Bank provided financial services to Iranian government officials.

Lebanon’s central bank subsequently took over the Lebanese Canadian Bank last year and engineered the sale of the majority of its assets to a Lebanese bank partially owned by France’s Société Générale SA. LCB is currently in receivership.

The Treasury and the DEA, though, are concerned that hundreds of Lebanese Canadian Bank accounts that it considers suspicious have been passed on to other Beirut-based financial institutions, according to U.S. officials. There are also concerns that former Lebanese Canadian Bank executives continue to operate in Lebanon’s banking system, including at Société Générale de Banque au Liban, or SGBL, which is 19%-owned by the French banking giant.

“We’re still working with the Lebanese authorities to understand what happened after we issued” the notice last year, said a senior Treasury Department official briefed on the case. “We still have a finding on the books.”

The U.S. attorney for the Southern District of New York also filed charges last year against LCB and other Lebanese entities for allegedly using the U.S. financial system to launder drug proceeds on behalf of Hezbollah via the sale of used cars. The Lebanese Canadian Bank has yet to respond to the charges.

Hezbollah has denied any role in narcotics smuggling and said the U.S. actions are aimed at weakening the movement and its military campaign against Israel.

“They say a lot of things that are far from reality and are part of the media war against Hezbollah,” Hezbollah chief Hassan Nasrallah said about drug trafficking in an interview last week with Julian Assange, the Wikileaks founder who has begun a Russian television talk show.

Mr. Salameh, the Lebanese central banker, said in an email that Beirut financial authorities are continuing to investigate the Lebanese Canadian Bank. He said an autonomous Special Investigation Commission is “initiating procedures and conducting investigations…concerning the accounts that cause concern.”

Executives at Société Générale and SGBL said in interviews that they took stringent efforts last year to ensure that none of LCB’s suspect accounts were transferred to SGBL. The bank hired Ernst & Young LLP, Deloitte & Touche LLP and the Ashcroft Group, headed by former U.S. Attorney General John Ashcroft, to oversee the auditing of these assets, these officials said.

“SGBL’s first priority is compliance with strict anti-money laundering principles, over and above U.S. and European standards,” said Mr. Ashcroft, who continues to advise SGBL. “Their first step in the acquisition was to institute a robust filtering process that identified and rooted out potentially criminal and terrorist-related assets before any purchase could be made.”

Mr. Ashcroft and SGBL officials said LCB’s board was fired as part of the merger, as well as roughly half of the bank’s original 720 employees. Of the remaining 370 employees, most are lower-level workers, such as bank tellers, but some senior-level managers from the Lebanese Canadian Bank remain at SGBL.

Among them are two former top officials of Prime Bank Gambia Ltd., which was majority- owned by Lebanese Canadian Bank before it closed last year, SGBL confirmed. They were Prime Bank Gambia’s chairman and its chief executive when it was cited last year by the Treasury for alleged money-laundering activities.

The U.S. and Israel have been focused on the Lebanese Canadian Bank and SGBL for at least seven years for their alleged ties to Hezbollah, according to a State Department cable obtained by the Wikileaks website.

In early 2005, a U.S. delegation from Treasury visited Jerusalem to discuss ways Hezbollah and the Palestinian militant group Hamas were funding their activities and evading international sanctions. A senior Israeli counter-terrorism official alleged during the discussions that the Lebanese Canadian Bank and SGBL were “connected directly to the financial infrastructure of Hezbollah,” according to the cable.

Officials working with SGBL said the ownership structure of the bank has changed significantly since 2007, in part, because of the charges that the bank had ties to Hezbollah.