How many Lebanese members of Parliament does it take to make a mockery of the people they supposedly represent? At most 128 (the number in parliament), but it usually takes only two: one to propose and the other to oppose. When that happens, the country’s carpenters’ ears perk up, knowing that they will soon be called to build larger drawers in which to stuff heaps of new parliamentary committee minutes.
As I write this piece there are about 340 laws waiting to be discussed and passed by the various parliamentary committees and subcommittees, only to reach the desk of one man who will decide upon the country’s legislative fate: Parliament Speaker Nabih Berri. This year Berri will celebrate 20 years as the headmaster of the playground that is the house of Parliament. Regardless of what one thinks about his politics, his all-too-familiar snapping voice from atop the pedestal in Parliament seems to be the only thing the children below fear.
While MPs are busy calling each other ‘dogs’ or comparing their compatriot’s respectability to that of their shoe, they still salivate over 10 seconds of Berri’s time to advance their particular piece of draft legislation and move it up his infamous list of priorities. With such a backlog, one would think Parliament meets quite often in order to get through its to-do list. But since committee meetings are held in secret, it is little wonder that all contentious issues are sent to them to be ‘studied’.
A walk past the empty and locked offices of Parliament shows how much our honorable MPs are slaving over the laws being thrown their way. Again to the carpenters’ delight, many of the 340-odd pieces of legislation are different drafts of the same law, proposed by a different MP or member of cabinet. The fact that the executive branch of government is even permitted to mingle in the affairs of the legislature is already an overt aberration of the constitution — which no one feels the urgency to apply anyhow.
The constitutional deadline for passing a budget into law will expire at the end of last month, exactly when the ministers involved will take their annual vacation. MPs too will take some time off, which are the only date in their calendar that seems set, given that Parliament still does not have a yearly work-plan. Even if the budget proposal is approved by cabinet and reaches the newly renovated Parliament building, do not assume its halls will be bustling with activity. More often than not committee meetings, not to mention sittings of Parliament, fail to meet quorum.
One of the few things Parliament did actually reach last month was its Internet quota, temporarily crashing the government’s online access. That may seem surprising, given that of 400-odd staff in Parliament it seems not one has the ability to digitize the content that their own institution produces — instead that is the task of a private company paid with public money.
By the time anything gets done in Parliament it is almost always too little, too late; not that it matters anyway. There is little point in passing laws, given that ministers choose when to apply them, and when to issue their notorious ‘implementation decrees’. This executive cop-out makes certain a non-elected cabinet, controlled by the country’s sectarian overlords, maintains real control. What it also means is that MPs can focus on their private businesses until they are asked to rubber stamp an agreed-upon text in Parliament. On the way out the door, they can also collect their salaries — something they, and their children, will do for the rest of their lives.
In such a state of affairs, it is little wonder that the institution that is meant to represent our democracy has become nothing less than a dysfunctional dictatorship. And now that the issue of the Special Tribunal for Lebanon’s funding is over, the parliamentary electoral law is likely to be tossed around in the media by politicians as their next ‘crisis’. But for the people who live in this country, where real incomes are falling and basic public services are lacking, the real crisis is that whatever the next electoral law or the next votes cast, the result will likely be the same: a body whose sole function is to give a vote of confidence to a non-elected cabinet.
On the side of a busy street Abu Imad stands in front of his warehouse that appears much the same as any other. Inside, the air is humid and Abu Imad’s products are stacked in boxes from floor to ceiling. Just inside the entrance is a display area for customers who wish to view the goods on offer. But Abu Imad is not in the business of peas and carrots; he is one of the many arms dealers that have been making a killing off rising demand for weapons both inside Lebanon and next door.
The smell of white chalk and sawdust from newly opened boxes full of M16s are telltale signs that the trade is booming, as is Abu Imad’s smile as he brags about his best selling items and Lebanon’s history of armed struggle. With a tinge of nostalgia in his voice he explains how collectors items and handguns, such as the Glock 17 and Sig “Swiss” P210, no longer drive demand. Now the market is dominated by M16s, AK47s, Zakharov machine guns (smaller versions of the AK47) and rocket-propelled grenade (RPG) launchers.
Asked how and when prices began to rise, Abu Imad scratches his head and replies that between 2005 and 2008 prices were seen to have risen by some 100 to 150 percent on average, only to level out after the Doha accords. Back then he claims weapons were being bought by “the Salafis”, a terms he throws around liberally to describe anyone who opposes the Syrian regime. Then, with the onset of political tension in 2010 and the Syrian uprising last year, prices began to skyrocket on the back of an increase in demand and a cut in supply [see table]. Recently he says supply from Iraq has been disrupted, as has an intermittent supply from Jordan that actually came through Syria.
If you’ve got the money
Most of Abu Imad’s weapons used to come from Iraq, as he claims many of the police and army were selling off their firearms in exchange for much-needed cash. But recently he claims there has been an inflow of older M16s into the market. He suspects these are coming from sources that had access to US-made weapons through America’s allies during the Lebanese Civil War — when the boxes are opened a plume of white dust emerges, a sign they have never been cracked before; the M16s themselves have a thinner barrel than the more recent models, an indication the weapons have been in storage for a while. If true, this would lend credibility to the rumor that the current arms supply is being fed by parties selling off stockpiles to take advantage of rising prices.
One area where he is certain arms are being sold is the infamous village of Brital, just west of Lebanon’s ‘handle’ between Zahle and Baalbek. Brital has long been known as a hub for all types of organized crime: from guns, to drugs, to stolen cars. “Usually the Shia sell to Shia, the Sunni sell to Sunni, but those bastards in Brital sell to anyone, they just want money,” Abu Imad says, releasing a slew of Arabic curses aimed at various members of his competitors’ families.
As for buyers, he says that most in the market these days are the Syrian “Salafis”, but adds that “there is one guy, who comes around and buys up everything from all the middle men.”
According to Abu Imad, the most popular smuggling routes to Syria are through Akkar in the north, Arsal east of Baalbek and another area called Jurit Al Araseleh through Marsharia Al Qaa, which has become the most recent causeway for his precious and deadly cargo.
Asked about the Lebanese authorities’ attempts to stem arms smuggling to Syria, Abu Imad almost falls off his chair laughing. After composing himself he agrees that there have been more efforts and a few more checkpoints on the border but, he says, it is usually the Syrians, and not the Lebanese authorities, who catch the smugglers. The Ministry of Interior did not respond to Executive’s request for comment.
“They are useless,” Abu Imad says about the Lebanese security services because no matter what they do “it’s impossible to seal the border.”
First published in Executive Magazine’s January 2011 issue
A friend in need is a friend indeed, or so the saying goes, but when sticking up for your confidante means you find yourself in a heap of trouble, companionship can be more of a liability than an asset. The accord between Lebanon and Syria, as with any old couple, has seen its ups and downs, yet no matter how precarious the politics ever were, the economic bond between the two has kept the Levantine neighbors’ fates intertwined, especially when it comes to banking.
“It has always been the case because there was no private banking sector in Syria and they are still at an early phase in terms of techniques,” said Elie Yachoui, dean of the School of Business Administration and Economics at Lebanon’s Notre Dame University. “The Syrians have always done their transactions in Lebanon and gone back to Syria. It’s nothing new.”
What is new, however, are the widening sanctions being imposed on Syria by those near and far, as its economy and foreign currency reserves continue to buckle under international pressure. The United States, the European Union and Turkey have all recently imposed new sanctions on the Syrian government, its central bank and prominent members of the business community [see table]. The Arab League initially mirrored the moves in November after an initiative to impose similar sanctions, including asset freezes and travel bans, was leaked to the press. In theory, these sanctions were seen to be the most effective against the regime as most trade with Syria goes to its neighbors: close to 60 percent of its exports are to Arab countries. But the league’s sanctions were more or less declared dead on delivery.
“They said they were going to freeze the Syrian government accounts but they allowed the Syrian government to pull 75 percent of the accounts before the decision was made,” said Yachoui. “They say they want to sanction the Syrian central bank but then allow Syrian expatriates to send foreign currencies back to Syria. So from one side you sanction and from another you nourish.”
Ibrahim Saif, specialist on the political economy of the Middle East at the Carnegie Middle East Center think tank, agrees that the sanctions will have limited effect, “For the simple reason that those countries that seem to be very adamant about imposing the sanctions are not the countries that can effectively do it.”
As Executive went to press the Arab League was wavering and the list of sanctions was removed from the league’s website in December. Arab League Secretary General Nabil al-Arabi even released a statement last month denying that a ban on air travel would be implemented, given that discussions were ongoing between the league and the Syrian regime.
“Many countries will not be applying [Arab League sanctions] and even [regarding] the countries that want to apply them, we don’t really know if they have the know-how and logistics to implement those measures,” said Jihad Yazigi, editor-in-chief of The Syria Report. “So in this sense they are not extremely meaningful.”
The ones that bite
The sanctions that are proving consequential are those coming from the West that pressure Syrian access to foreign currency, such as a ban on Syrian oil exports to Europe. Already the Syrian pound has lost some 25 percent of its value since March and an emergency reserve fund used by the Syrian central bank to prop up the currency is dwindling. With gross domestic product estimates for 2011 forecast (depending on who you ask) to fall by some 20 percent and the Syrian fiscal deficit continuing to climb on the back of an increase in subsidies and civil servant pay, the situation has produced an economic exodus according to Yazigi. “Everyone’s plan now is not to do anything. For everyone, business is dead here, they are just managing. Those who can are leaving,” he said.
As the economic migration takes place, Lebanon is finding itself under increasing international pressure to abide by Western sanctions. A visit by US Treasury Assistant Secretary for Terrorism Financing Daniel Glaser in November set off a renewed wave of fears in the banking sector, especially after “concern” over the dealings of Lebanese Canadian Bank (LCB) threw the sector into crisis mode earlier in the year.
While the case of LCB and Syrian sanctions are not directly related, the fear that further action could be taken by the US over assistance to the Syrian regime is ever-present, even though “US sanctions do not directly obligate Lebanese financial institutions,” according to a US Treasury department official who spoke to Executive.
“Lebanese financial institutions may be choosing to perform their own enhanced due diligence on transactions associated with Syria due to the heightened risk associated with that jurisdiction,” the official said.
True or not, reports of sanctioned individuals attempting to use Lebanon as an outlet abound, and a battle has kicked off between those seeking to dodge the sanctions and financial institutions looking to protect themselves, the sector and by extension, the country’s economy.
“Now we are afraid of another LCB issue,” said Paul Morcos, founder of the Justicia law firm that provides legal consulting for the banking sector. “They need a new scapegoat so that the new procedures they are asking for can be implemented. Since our banks have accounts with correspondent banks in the US, they should be afraid.”
Sanctions are based on what those in the business of complying with them call ‘the lists’. The most infamous of all is the US’s Office of Foreign Assets Control (OFAC) list. Companies placed on this list, or those who have dealings with persons on them, are effectively banned from dealing in US dollars and any banks that carry out transactions for such a person could potentially be sanctioned themselves. Banks have relationships with other intermediary American banks to deal in US dollars, which would act as the initial trigger for any US-imposed sanctioning of transactions. “The banks have to do their due diligence and not have accounts with people who are on the lists, because they have relations with US banks,” said the manager of a compliance unit at one of Lebanon’s major banks, speaking on condition of anonymity.
Of course, anyone on a list would likely not be naïve enough to think they could waltz into a Lebanese bank and open an account. But using an intermediary, or setting up a Lebanese company that then would work with the Syrian government, could be ways around this, given that, in theory at least, “the sanctions are on Syria and not Syrians,” according to the compliance manager.
“Banks don’t hold any accounts for people listed on the OFAC lists or other lists,” said Morcos. But those who deal with or front for sanctioned individuals is another issue: “We don’t know if we have [sanctioned accounts] or not,” Morcos added.
Camille Barkho, manager of Amerab Business Solutions, a firm that provides products to help financial institutions protect themselves against US money laundering and terrorist financing regulations, confirmed that some banks are simply saying “no” to Syrian traders. “But it’s institution by institution and it also depends on the sect the bank belongs to. For one sect it’s okay and for another it’s not.”
He stressed that in principle the OFAC list targets money laundering, terrorist financing and other financial crimes and not sanctions, which come under a wider US legal principle called a country ruling. Even so, banks still use the lists as the basis for compliance.
Lebanon’s legal texts do not actually cover sanctions per se, given that banking secrecy can only be lifted on accounts under Law 318, which, like the OFAC list, covers financial crime and not sanctions. Under that law, the Special Investigations Committee at Lebanon’s central bank can remove secrecy and look into the account after the banks raise the alert. Even then, very few of these cases actually make it to court. “You have rare cases in the courts, very rare cases. Most of them are not tried for specific reasons, like the case does not apply under Law 318,” said Morcos. Indeed, according to the compliance manager, “The central bank has nothing to do with this — it is up to each individual bank to do its due diligence.”
Given the uncertainty, many banks are taking measures that go beyond the text of the law by refusing to bank with those on the OFAC list as well as their relatives, close friends, business associates and so on, according to Morcos. And, according to Yazigi, many Syrians can no longer open up accounts in Lebanon and find it very difficult to conduct financial transactions even if they do not have ties with the regime. “I would not open a [Syrian national’s] account. I would advise other banks not to give themselves a headache and just not take the account,” he said.
In theory, holding the accounts of sanctioned individuals should not pose a problem for the banks, as long as they do not move money through them, especially in US dollars. And of course there are ways around that as well. “If I am a Syrian and I’m sanctioned and I have money, I can easily get four people to set up a company and trade with China and do it all with cash,” said Barkho. “When you trade with lots of cash the banks start asking, but all you have to do is convince them that you are generating daily sales. The main point is that it is not money laundering because it’s not covered by Law 318.”
Last month Executive called 12 Lebanese banks, both large and small, asking how they were dealing with accounts held by Syrian nationals. None of the banks responded.
Many ways to still move money
Those seeking to dodge the sanctions are likely to employ the same methods that money launderers do, given that these techniques have proven useful in the past. In essence, what those seeking to skirt sanctions will do is find ways to generate cash and obfuscate the origin of funds and to whom transfers are going. It’s up to the banks to monitor and report suspicious transactions.
What launderers generally do is generate the illusion of as many cash sales as possible to justify their cash deposits. Supermarkets are a good way to do this, given the number of retail operations that take place in a single day. “What you can do is go to the supermarket and stand at the cash register and count the cash. But who is going to do that?” Barkho asked rhetorically. The only legal entity theoretically authorized to do so is the financial general prosecutor’s office, but the fact that the government currently has $11 billion unaccounted for on its books does little to inspire confidence that it will be able to keep pace with the launderers.
Another tool used by launderers are pre-paid cards offered by banks where one can deposit cash on a card and then use it to withdraw money internationally, with some banks offering ‘buy-one-get-one-free’ packages. “Pre-paid cards are not customers, you don’t know them,” said Barkho. “Basically the banks are creating a tool for money laundering.”
Executive, posing as a potential customer, enquired at one of Lebanon’s top banks about the buy-one-get-one-free offer and was told that it was indeed available. The bank said the second cardholder did not have to come to the bank or sign any paperwork and could give the card to someone else whenever they wanted. The card itself carried a daily limit of $5,000 and could be used internationally, said the sales rep.
Since the LCB scandal, which allegedly involved a fair amount of currency conversion, the exchange sector has come under increased scrutiny from the central bank.
Given that the Syrian pound has lost around 25 percent of its value since the uprising began, there is considerable pressure on Syrians to change their money into another currency or place it in a fixed asset. So far the Central Bank of Syria has taken several measures to limit this conversion, including closing dozens of exchange houses in Damascus, increasing the interest rates on deposits in Syria from 7 to 9 percent, reducing the amount foreign currency banks and Syrian exchange houses can give out to local residents from $10,000 to $5,000, as well as further limits on how much foreign currency can be taken abroad, especially in Arab countries.
“It’s about the time when the foreign currency issue they are having and their injections into the market will not be adequate to protect the Syrian pound,” said the Carnegie’s Saif. “Already there is a black market for the Syrian lira. The more you witness of this the less likely you will see the resistance of the Syrian economy.” According to Yazigi, the Syrian pound was trading at roughly 60 pounds to the US dollar on the black market in mid-December. The official rate at the start of the uprising was around 47 pounds to the dollar.
Lebanese exchange houses are regulated by Law 347, enacted in 2001, which declares that if they issue checks for more than $10,000 they must notify their affiliate bank, give the identity of the beneficiary and the purpose for issuing the check. Otherwise they legally have free reign and this simultaneously places pressure on and creates opportunities for, the Lebanese exchange market. Even so, most people believe that this avenue has been closing in recent months.
“No one should think that millions of dollars a day are being exchanged at the exchange companies but there is nothing stopping someone with small amounts to exchange,” said Yachoui. “Today the borders are open. If someone brings in banknotes, especially dollars, in a suitcase and this comes into the market, there is no way to find out where it came from.”
Indeed what many Syrians are looking to do is change their money into fixed assets that hold value. “You either keep your money and pray that it is not going to deteriorate further, or if you have more money you buy real estate or invest in something,” said Yazigi. With the banking sector effectively closed off, and discounts on real estate purchases aplenty at a time when the market is cooling, this has become an increasingly viable option to place money.
“If you are known to be a real estate promoter and I bring you $700,000 in cash and buy an apartment from you, you go and put it in the bank, they ask you where it came from, you tell them you made a sale, the bank is not going to ask more than this,” said Yachoui. “He’s not going to ask you who your customer is when you have hundreds of them.”
Indeed, the compliance officer agreed: “Every bank is responsible for their accounts but we don’t have a crystal ball to see other accounts. It’s not your business to ask the nationality or the source of money of the other [third] party. The client is responsible. We flag it if there is much more cash than a real estate transaction would normally be.”
Trouble down the road
As the Syrian currency and economy continue to take a beating and the uprising takes on new dimensions, Lebanese financial institutions seem to have chosen which side of the divide they stand on. In mid-December the Association of Banks in Lebanon announced that its members would fund the government’s contribution to the Special Tribunal for Lebanon, something that Syria’s main ally and the accused party in the investigation, Hezbollah, has stated should not have happened.
“At every moment, every instant and every second they [Americans] can do what they want with us. If there is a decision to do something to us, they do it. But right now there is no decision,” said Yachoui. “No matter what precautions the banks take, don’t think for one second that all the records are clean. They can always find a million reasons to take action, but for now there is no decision to do so. The target is not Lebanon, it’s Syria.”
Reporting contributed by Youssef Zbib, First published in Executive Magazine’s January 2011 issue