Working with and against financial sanctions

Banks and businesses are being crippled by US anti terror financial regulations

It has never been easier to be branded a financial pariah. You wake up one morning and when you check your correspondence you find that you have been given the ominous title of “specially designated national” (SDN) by the Office of Foreign Assets Control (OFAC) at the United States Department of the Treasury.

This designation means that, according to “evidence” which can range from classified information of US intelligence services to reports in your local newspaper, you have been found to be a perpetrator of terror, narcotics, weapons of mass destruction or other threats to the national security, foreign policy or economy of the United States. As of this moment, you are a financial outcast with whom no US citizen or corporation with American interests will do any business. If you have assets in the US, these will be frozen.

International criminals, but also people with ties to organizations such as Hezbollah and persons doing business with sanctioned countries such as Iran and previously Cuba, are frequently added to the SDN list without much public attention, except for rare cases when big names in business are concerned. In one such recent case, Lebanese magnate Kassem Hejeij (Middle East and Africa Bank) was listed by OFAC on the grounds of “direct ties to Hezbollah organizational elements”. His alleged misdeeds also included investing “in infrastructure that Hezbollah uses in both Lebanon and Iraq.”

The worst thing for economically active people hit by the SDN hammer is that their businesses are just as ostracized as they themselves are. This was the implication for Hejeij when he was placed on the SDN list in early June. His business interests, most importantly the Middle East and Africa Bank (MEAB) under his chairmanship and majority ownership were in acute danger of being crippled. Hejeij, despite protesting and declaring his determination to fight the SDN label foisted upon him, eventually stepped down from his position, sold his shareholdings in MEAB, and overnight became a thoroughly private individual as far as business is concerned. Within one month, MEAB had presented a new management team, gotten busy on new business plans and started communicating its intended future [see story on page 20].

IS THERE A DEFENSE?

The good news about the case of Kassem Hejeij and MEAB is that it cannot be compared to the notorious dismantling of the Lebanese Canadian Bank on the basis of money laundering allegations by the US treasury more than four years ago, says Paul Morcos, a Beirut-based lawyer and consultant specialized in banking. “It is not realistic to compare the two cases of LCB and Kassem Hejeij since the [Middle East and Africa] bank was not listed on OFAC but rather the name of the chairman,” he explains.

In the LCB case, the bank was sold and its identity dissolved to control the damage. According to Morcos if MEAB itself had been accused, it would also in the Hejeij case have led to “catastrophic results” beginning with a total shutdown of all correspondent banking relationships. “This distinction is to differentiate between listing the juristic person of the bank, which was not the case, versus listing the natural person. This is why I think that there was a chance to handle the situation differently than other cases when banks are listed,” he says.

Being based, as Beirut observers are, far outside the Beltway, it would be idle speculation to wonder why the treasury department’s officials chose this particular time to target Hejeij, or why the department’s top man in the Office for Terrorism and Financial Intelligence, acting (and according to President Obama to be fully appointed) under-secretary Adam Szubin, would last month issue a fiery press release specifically attacking Hezbollah and declaring that his office would “pursue all of Hezbollah’s revenue sources, whether charitable fundraising, criminal proceeds, or state sponsorship.”

Statements of this sort are wellworn in the American repertoire, as was the name of Hezbollah’s Mustafa Badreddine who was highlighted in the July 21 dispatch. In past scenarios, such sanctions messages were interpreted to be warnings, or threats, demanding good behavior from Lebanon.

Whatever the hidden sticksand-carrots in the current American strategy may be, it remains possible that the last word has not yet been spoken on whether the potential threat to MEAB has been solved with the intra-familial transfer of chairmanship at the bank. In more general terms, however, all signals suggest that Lebanese and Arab banks cannot relax their attention when it comes to compliance with the US agenda.

One problem, Morcos says, is the American insistence on publicly confronting alleged financial facilitators of terrorism without giving these entities a chance to cooperate.