As US targets Hezbollah, Lebanon lobbies against more sanctions

Moves in Washington to widen financial sanctions on the Hezbollah political group have triggered alarm in Beirut where the government fears major damage to the banking sector that underpins Lebanon’s stability.

Not yet proposed as law, draft amendments to an existing law threatening sanctions against anyone who finances the heavily-armed Iranian-backed Hezbollah in a significant way prompted lobbying trips to Washington in May by worried Lebanese bankers and politicians.

They returned saying that US officials recognized their concerns over draft proposals that would widen the scope of the law by subjecting Hezbollah’s political allies to sanctions or scrutiny, and believing any expansion of the law would be a toned down version of the draft.

But with US President Donald Trump keen to curb the influence of Iran and its Middle Eastern allies in the region, the risks have not gone away for Lebanon, where Hezbollah wields huge influence.

“There’s one question anyone who wants to put pressure on Lebanon should remember: Do you want another failed state on the eastern Mediterranean?” Yassine Jaber, a member of parliament who led a delegation to Washington in mid-May, told Reuters.

“Lebanon is very, very vulnerable economically at the moment,” added Jaber, an independent Shi’ite politician who is aligned with Parliament Speaker Nabih Berri’s Shi’ite Amal movement, which was named as a target for investigation in the draft amendments first reported by Lebanese media in April.

Political and financial figures fear more regulatory pressure could damage the banking sector - the cornerstone of Lebanon’s precarious economy - endangering a financial stability maintained despite the war in neighboring Syria where Hezbollah along with Iran backs President Bashar al-Assad.

Main worry correspondent banks

The main worry is that US correspondent banks - which face huge fines if found to be dealing with people or companies sanctioned under anti-terrorism financing legislation - might finally decide Lebanese banks are too risky to do business with.

That would threaten the remittances upon which the highly dollarised Lebanese economy depends. Shortly after the Lebanese press published the draft, President Michel Aoun - a Maronite Christian and political ally of Hezbollah - said as it stands it could cause “great damage to Lebanon and its people”.

The draft proposal would widen legislation to include persons and entities affiliated with Hezbollah, and to report on the finances of senior members of Amal. The wording gave rise to speculation in Lebanon that Aoun’s finances could be also targeted for scrutiny.

Jaber told Reuters the draft - a copy of which was seen by Reuters - was now “outdated”.

But sources familiar with the matter told Reuters there remains a strong desire in Washington to press harder against Iran and Hezbollah, and there are likely other measures being drafted.

A US congressional aide told Reuters that Republican representative and head of the US Foreign Affairs Committee Ed Royce, who authored the original 2015 law, is considering additional legislation.

“If they (the banks) aren’t doing business with Hezbollah, they don’t have anything to worry about,” the aide said.

The US Treasury declined to comment on the draft saying it had no formal position.

Jaber said: “The position at the moment is that there might be some congressmen or senators thinking of preparing a bill, but I think our discussions will help in toning it down from what we saw as a draft.”

The United States says Hezbollah is financed not just by Iran but also by networks of Lebanese and international individuals and businesses. The 2015 law, known as HIFPA, aimed to cut off these funding routes.