Understanding US sanctions and Lebanon's place on the front lines of financial warfare

Understanding US sanctions and Lebanon's place on the front lines of financial warfare

The Department of the Treasury is one of the leading actors on US sanctions. (AFP/Paul J. Richards)

BEIRUT — If war is diplomacy by other means, then sanctions have arguably become the US’ weapon of choice to combat its rivals, with the globalized world of cross-border trade and international finance serving as Washington’s preferred battlegrounds.

One of the cornerstones of modern US foreign policy, economic sanctions are often misunderstood and, according to critics, misapplied by Washington. Since President Jimmy Carter signed into law the International Emergency Economic Powers Act in 1977 — setting in motion the present US sanctions framework — successive presidents have increasingly turned to sanctions.

The US has sanctioned companies, organizations, groups, vessels, airplanes and other properties. Specific commercial activities have been proscribed, while entire countries have been nudged away from the international financial system.

Over 250 of Washington’s sanction targets are in Lebanon or related to the country. This number has been growing quickly, all while US sanctions continue to snowball in neighboring Syria and the region. There can be no denying that Lebanon is on the front lines of the growing financial war waged by the US, making knowledge of sanctions all the more important.

What are US sanctions and why do they bite?

Stripped down to their core legal basis, US sanctions are simple in concept. The International Emergency Economic Powers Act grants the president the authority to block US citizens or entities from doing business with any blacklisted foreign country, organization or individual. Foreign companies or individuals based in the US are also subject to this sweeping authority. Anyone violating these blocks, or primary sanctions, faces severe legal consequences.

While at first glance the jurisdiction of this legal authority might appear limited, the global primacy of the US financial system means sanctions have far-reaching repercussions. The US dollar is king — at least for the foreseeable future — constituting a little over 60 percent of worldwide currency reserves declared to the International Monetary Fund. The dollar also fuels global commerce, with around 50 percent of international trade invoiced in greenback, according to the Bank for International Settlements.

To access these dollars, banks across the world rely on a complex set of financial relationships that transit through financial institutions in the US, which are legally subject to the country’s sanctions. In effect, a stroke of the pen in Washington could force a Lebanese bank to shut its doors to a Lebanese person or company, as the bank will likely prefer its access to the US financial system over its relationship with a sanctioned client due to international compliance standards.

Lebanese banking officials have long stressed the compliance of the country’s financial system with foreign sanctions. Riad Salameh, the head of Lebanon’s central bank, told a conference in January 2012 that no US or EU sanctioned people or companies could do business with Lebanese banks.

Bank of Beirut chair Salim Sfeir, who was elected president of the Association of Banks in Lebanon in June 2019, said in 2017 that banks in the country had a vested interest in complying with US sanctions.

With this enormous financial power in mind, US foreign policy practitioners and academics have envisioned sanctions as a potentially powerful tool of coercive diplomacy. In theory, sanctioned individuals would alter their behaviors to the US’ satisfaction in exchange for being removed from Washington’s blacklist.

In reality, sanctions are increasingly a punitive measure, according to Peter Kucik, a former senior sanctions policy advisor at the US Department of the Treasury. Kucik, who now practices sanctions law, argues that the US does not offer a proper path forward for those sanctioned to demonstrate they have changed their behavior.

“It becomes less about whether the behavior stopped, and more of if this is someone who did bad things, why should we ever take the sanctions off that person?” he told L'Orient Today.

What are the different types of US sanctions?

US sanctions come in many different forms, reflecting the complex bureaucracy for their design, implementation and enforcement, which spans several government agencies. The Treasury, State and Commerce departments play the lead roles in implementing sanctions, while the departments of Defense, Energy, Homeland Security and Justice, as well as the US intelligence community, provide support according to their expertise.

Even the Coast Guard — known mainly for its search and rescue missions in American waters — has issued an advisory to the international maritime community listing vessels suspected of transporting oil to Syria, including ones owned by front companies in Lebanon.

To kickstart sanctions, the US president invokes the International Emergency Economic Powers Act to issue an executive order declaring national emergencies regarding perceived threats. These EOs — which can include a list of blocked people, entities and activities — regulate the US government’s administration of sanctions. The US Congress can also usher in sanctions with legislation that mandates the president and government agencies to take action. Since 1977, 59 national emergencies have been declared, 33 of which are still in place, regulating sanctions programs involving a wide range of countries, such as Syria and Iran, and activites, such as terrorism and transnational crime.

US sanctions can be comprehensive, covering a wide swath of activities with entire countries, such as Cuba, North Korea, Iran and Syria, in effect embargoing them. Since the Clinton administration, however, policymakers in Washington have favored targeted designations of specific individuals, organizations or commercial activities, for example restrictions on the import of rough diamonds from Sierra Leone.

Dubbed smart sanctions, these designations were meant to avoid the broad civilian suffering inflicted by embargoes and instead inflict financial pain on specific targets. Critics argue smart sanctions do not live up to their name and wreak unintended consequences, including the very suffering they are meant to avoid.

One startling example of the ripple effects of such targeted designations was a little-known set of sanctions in 2012 against Belizean businessman John Zabaneh for his alleged role in narcotics trafficking. Zabaneh’s ties to banana farms prompted an Irish importer to cut off its purchases of the farms’ crop, immediately dropping Belize’s exports of bananas by 13.5 percent and leaving hundreds unemployed, according to Reuters.

“Sanctions are never as targeted as they claim to be,” Hicham Safieddine, a lecturer on the history of the modern Middle East at King’s College London, told L'Orient Today.

Safieddine added that US sanctions involving Lebanon “have seriously undermined the stability of the banking sector by creating a chilling effect, and reduced the inflow of foreign capital — even if the major cause of instability from the outset was the monetary and fiscal policies of the Lebanese government and the lending policies of the banking sector.”

“The US law has to be implemented worldwide and in Lebanon,” Salameh told Reuters in May 2016, in reference to a newly introduced law raising the specter of secondary sanctions for banks knowingly facilitating Hezbollah.

An expansion of Washington’s sanctions policy first rolled out in force by the Obama administration, secondary sanctions authorize US action against foreign banks and companies conducting transactions with targets of Washington’s primary sanctions, even when no US person or entity is involved.

Secondary sanctions are what allows the US to translate the fear of being blacklisted into actual restrictions on foreign entities, according to Mohsen Zarkesh, a Washington-based attorney at the Zarkesh Law Firm, which specializes in US sanctions.

The US implements a number of other, lesser-known sanctions, including on the export of dual-use goods to proscribed companies and businessmen and the denial of visas to current and former officials of foreign governments deemed corrupt. One of the more powerful but least-used US sanctions tools is Section 311 of the Patriot Act, which allows the Department of the Treasury to declare banks and geographic areas, among others, as being of “primary money laundering concern,” effectively blocking their access to the US financial system.

Exponential growth: The numbers game of increasing US sanctions involving Lebanon

US sanctions involving Lebanon mainly revolve around Hezbollah and the conflict in Syria, a reflection of Washington’s foreign policy priorities in the region. L'Orient Today crunched the data made available by the Treasury Department and the results show a dramatic increase in Lebanon-related targeted sanctions under the Obama and Trump administrations.

The opening salvo for US sanctions related to Lebanon came during the Clinton administration as it hoped to broker peace between Israel and Palestine. In January 1995, President Bill Clinton signed an executive order blocking the assets of “terrorists who threaten to disrupt the Middle East Peace Process.” Among those sanctioned were Hezbollah and its leader, Hasan Nasrallah.

Washington’s desire to constrain Hezbollah’s power and its reliance on targeted sanctions to try to achieve this objective can be seen in the increasing number of sanctions from 2001 to the present. During the same time, Hezbollah has grown in political power and military capacities, battling Israel to a stalemate in the July 2006 war and then helping the Syrian regime maintain its stranglehold on power the following decade.

The George W. Bush administration issued twelve sets of sanctions against Hezbollah, targeting 34 individuals and entities allegedly affiliated with the party. These numbers accelerated under the Obama administration, which issued 26 sets of anti-Hezbollah sanctions targeting 112 individuals and entities. Most noticeable of these was the designation of Lebanese Canadian Bank as an institution of primary money laundering concern in 2011 under the Patriot Act, leading to the liquidation of the bank.

In a further bolstering of sanctions touching upon Lebanon, Obama signed into law the Hezbollah International Financing Prevention Act of 2015, commonly known as HIFPA, which first introduced the threat of secondary sanctions on banks accused of dealing with Hezbollah.

In his first term as president, so far, the Trump administration has taken 20 separate sanctions actions against Hezbollah, targeting 89 individuals and entities. Maximum pressure has been the name of the sanctions game under Trump, whose administration backed out of Obama’s nuclear deal with Tehran and instead levied an avalanche of sanctions against Iran, Hezbollah’s top ally in the region.

US Secretary of State Mike Pompeo spelled out how the administration couples Hezbollah and Iran in its sanctions policy considerations, claiming in July 2019 that “the United States’ maximum pressure campaign against the Iranian regime ... and its proxies has already succeeded in limiting the financial support Hezbollah receives.”

As with its predecessor, the Trump administration sanctioned a Lebanese bank, this time Jammal Trust Bank, in August 2019, which was liquidated the following month. Trump also signed the Hezbollah International Financing Prevention Amendments Act of 2018, which expanded on the powers of HIFPA.

Broken down by administration, the average number of Hezbollah-affiliated individuals and entities sanctioned per year has jumped from 4.25 under George W. Bush to 14 under Obama and finally 23.64 under Trump, so far.

According to Kucik, increasing targeted sanctions are numbers driven, with the Trump administration seeking to show it is tough by designating arbitrary numbers of people.

“Trump is willing to turn to sanctions quite quickly. The goal of this administration is the action itself,” he added.

Hezbollah is not the US’ only foe operating in Lebanon to be slapped with sanctions, though it has incurred the lion’s share of Washington’s sanctions wrath. Of the 267 targeted sanctions by the US that relate to Lebanon, as tabulated by L'Orient Today, 224 involve Hezbollah. Most of these sanctions were issued pursuant to EO 13224, which declared a national emergency to combat terrorism directly following the Sept. 11, 2001, attacks on the US.

“Americans would be surprised if they read what people are being designated for under [the counterterrorism] label,” Kucik said, referring to individuals and companies seemingly far afield from acts of terrorism.

Among the targets of the US counterterrorism sanctions there are accused Hezbollah security and military officials who are bundled in with anodyne entities, such as the Amana gas station company and pharmaceutical firms linked to Hezbollah, which the US argues financially prop up the party.

Other than Hezbollah, US sanctions in Lebanon have targeted Al-Qaeda, Hamas, Fatah al-Islam, a Libyan bank and family members of Saddam Hussein, among others. In August 2007, amid especially tense political divisions in Lebanon, George W. Bush declared a national emergency to deal with the perceived threats of Syrian interference in Lebanon and attempts to undermine the sovereignty and democratic institutions of the country.

Three months later, the national emergency was invoked for the sanctioning of Syrian intelligence official Hafiz Makhluf, Arab Tawhid Party head Wiam Wahhab and Syrian Social Nationalist Party politician Asaad Hardan. Both Wahhab and Hardan are former ministers, the latter serving several terms, most recently thrice as Rafik Hariri’s labor minister.

The Obama administration brushed the dust off the national emergency in December 2012 to sanction Michel Samaha, months after the former minister was arrested on charges of plotting to commit terror attacks in Lebanon on behalf of Syrian intelligence officials.

Since then, the national emergency pertaining to Lebanon has been renewed annually by US presidents, but never used again for sanctions purposes.

What is to come?

In recent months, as Lebanon’s ruling class struggles to overcome their differences and move forward on measures for unlocking an IMF bailout, the Trump administration has beat the drums of further and wider sanctions aimed to corner Hezbollah.

In its sanctions following the Aug. 4 explosion at the Beirut port, the US adopted anti-corruption rhetoric while framing the issue in terms of Washington’s ongoing financial battle against Hezbollah.

The Treasury Department reappropriated slogans from Lebanon’s civil society protest movement for its own purposes when it announced sanctions against two former Lebanese cabinet ministers from the Amal Movement and Marada on Sept. 8.

“The protesters’ calls for ‘all of them means all of them’ demonstrates the seriousness of their desire for reform and to pull back the curtain on certain groups’ corruption, including Hezbollah,” its statement said at the time. While these sanctions invoked corruption, they were issued pursuant to EO 13224, which declared a national emergency to combat terrorism.

Former US Treasury Department official Matthew Levitt told L'Orient Today that he wished the sanctions would have “focused on corruption and mentioned Hezbollah,” but instead they were “the other way around.”

“Hezbollah is involved, and is also the enforcer of the corrupt system, but is by no means the only corrupt actor,” Levitt, the director of the counterterrorism and intelligence program at the pro-Israel Washington Institute, added.

Following the Sept. 8 action, Assistant Secretary of State David Schenker warned that “in the coming weeks and months we will maintain pressure on Hezbollah and its supporters and other corrupt actors.”

Schenker hinted that the new designations might be issued pursuant to the Global Magnitsky Act, which authorizes the US government to pursue sanctions against perpetrators of corruption and serious human rights abuse anywhere in the world.

Since then, the US on Sept. 17 sanctioned two Hezbollah-affiliated construction companies and an official responsible for the party’s municipal affairs, accusing the party of corruptly abusing Lebanese resources. On Oct. 22, the US designated two members of Hezbollah’s Central Council, without making any reference to corruption. The Global Magnitsky Act has yet to be used against Lebanese officials or politicians.

Safieddine, the author of a book on the history of Lebanon’s financial system, voiced doubt over the capacities of Hezbollah’s political allies to personally navigate potential new US sanctions.

“While Hezbollah may be able to navigate these sanctions due to its long-term experience, its allies are less prepared, especially those that have assets abroad — and many do, particularly in the wake of the financial crisis,” he said.

“Should their assets be seized, it will affect their ability to finance their loyal base, but it may not fully erode their power as it depends on other sectarian and security factors.”

Beyond the hammer of anti-Hezbollah sanctions, Lebanon faces the anvil of wider US sanctions in neighboring Syria. The Caesar Syria Civilian Protection Act, passed into law in December 2019, aims to “send a clear signal that no foreign business should enter into business with or otherwise enrich” the Syrian regime, according to the US State Department.

In a July 8 webinar with the Washington-based Center for Global Policy, US Special Envoy for Syria Joel Rayburn said that the US does not want to sanction its partners under the Caesar Act, but warned such designations could be possible for Lebanon.

“I hope that the Lebanese business community and others don’t put us in the position of having to sanction,” he said.

Regardless of whether the US “has to” further sanction Lebanon, the data indicates a growing reliance on sanctions as a tool of foreign policy — and a bipartisan consensus in Washington on targeting Hezbollah.

The US is now less than two weeks away from its presidential elections, with former Vice President Joe Biden leading in polls and appearing likely to become president.

A new US administration could usher in a change in sanctions strategies. The 2020 Democratic Party platform warns that the misuse and overuse of sanctions undermine US interests and threaten “the importance of the American financial system,” but generally defends their use.

If modern history is any guide, the American sanctions regime stands poised to continue expanding under the next president, whether he is a Democrat like Biden or a Republican like Trump.

BEIRUT — If war is diplomacy by other means, then sanctions have arguably become the US’ weapon of choice to combat its rivals, with the globalized world of cross-border trade and international finance serving as Washington’s preferred battlegrounds.One of the cornerstones of modern US foreign policy, economic sanctions are often misunderstood and, according to critics, misapplied by...