The Lebanese Banking System under Attack: a Credible Defense Strategy is Needed
These are dangerous times for Lebanon. As if the desperate attempt of the Assad regime to quell a determined and increasingly capable revolt isn’t bad enough, Hizbollah’s promise (or threat, depending on where you stand) to enter the conflict on the side of the regime in case of outside military intervention in Syria (as recently intimated by Hizbollah’s leadership to Damascus-based PFLP General Command) has compounded the danger. This is on top of the strategic risk of Lebanon becoming the theater of a violent conflict between Iran and its adversaries over the still-unresolved nuclear issue. Now we have to face a new and more insidious threat. Its target is Lebanon’s banking system.
The occasional media and/or judicial claim of some Lebanese banks being used for money laundering and financing of terrorism (as defined by the US, of course) is not particularly new. Most people have actually become rather desensitized to such reports and do not view them as a serious threat to the financial system as a whole. Even the conspicuous and widely covered case of the now-defunct Lebanese Canadian Bank has not sounded the alarm bells loud enough in most people’s ears – although Governor Riyadh Salameh and other central bank officials have been trying hard to address this matter in cooperation with US and other international agencies to rectify problems and fill any gaps which may exist in Lebanon’s system of safeguards and controls.
However, in the last few months, and especially in recent weeks we have seen an elevated level of attack on the Lebanese banking sector, including on the Central Bank itself as well as on Lebanese treasury securities (so called Eurobonds) as alleged primary instruments of money laundering and of Iran and Hizbollah’s financial operations in Lebanon, the region, and beyond.
There are clear indications that a deliberate, sinister, and multi-pronged campaign is underway to use Lebanon’s banking sector as a pressure tool against Iran. It is not a coincidence that this campaign is being led by an activist organization called UANI (United against Nuclear Iran), currently directed by a former ambassador and aide to president G.W. Bush. UANI’s published documents on Lebanon leave no doubt about its aim. It is simply to pressure the Lebanese state into choosing between protecting the country’s vital banking sector and its alleged tacit support to Hizbollah and Iran. UANI goes beyond the US official investigation of specific banks or specific suspected money laundering operations and mounts sweeping and unfair accusations against the Lebanese banking system and against the Central Bank’s administration. In lengthy well-crafted and threatening letters to bond holders, credit rating agencies and others, UANI attempts to make a case for a ban against the Lebanese banking system, for dumping Lebanese sovereign debt, and for ceasing to rate Lebanon's sovereign risk on the part of rating agencies. While some bond holders may want to play it safe and sell their small holdings of Lebanese paper, it is very unlikely that the US government will take such a drastic step against the banking system. It is one thing to act against one bank or certain individuals. Dealing a fatal blow to the whole system is something else. The US will think a hundred times before it even considers such action.
In this case thinking a hundred times is good but not good enough. This matter should be viewed with utmost seriousness. Lebanon cannot afford to take it lightly while people who know how this kind of game is played in the US are working diligently to target Iran through the Lebanese banking system, regardless of the cost (to Lebanon). Besides, this is an election year in the US and the anti-Iran lobby is pushing hard to increase the pressure against Tehran. The less likely the military option becomes, the stronger the argument will be for tightening non military screws on Iran. Hizbollah is seen as extension of Iran’s power, and Lebanon (including its banking sector) are likely to be viewed as a conveniently soft target for non-military but effective pressure.
What can Lebanon do? A lot, actually.
To begin with, an intelligent and comprehensive action plan is needed. It should include hiring professional legal/lobbying firms which know the US system well. There are many such firms, primarily in New York City and Washington DC. With the help of BDL, Lebanon’s banking associations, and others, these experts can quickly put together a wide ranging plan to address all the parties involved (including, congress, think-tanks, investment firms, rating agencies, the press, and others) with convincing representations, with solid facts and figures and with the measures taken by the banking control authorities, in order to counter and discredit the allegations of UANI and others - such as those made in the workshop on this matter held at the Washington Near East Institute about three months ago, which paraded a number of former US government officials making terrible accusation of BDL and Lebanese banks. There is no reason why less-biased former US officials cannot be used by our counter offensive.
In addition, the Lebanese government at the highest level should also be part of this effort - in more ways than one. This should include first and foremost some straight talk by the President and the Prime Minister to those sitting around the table of the council of ministers, as well as to the relevant ambassadors. The message should be simple, clear, and strong. The Lebanese Banking sector is a red line. Any use of the system in ways that risk punitive action against the country is tantamount to attempting collective suicide (for Lebanon). It’s a risk we cannot afford.
Mutual deterrence is often mentioned as a justification for Hizbollah independent military arsenal. Many of us have a serious problem with that. But the logic is at least understandable. In the world of finance, however, where the US, for better or for worse, is the clearing hub and transit center for all dollar transactions, mutual deterrence is does not work. The plain is grossly uneven. We do need to hit back. But neither rockets nor empty rhetoric will work. What we need is a genuine and effective defense strategy of the banking system (including its effective communication) if we are to fend off an attack that may ultimately be aiming at Iran but after going through the heart of the Lebanese economy. We simply cannot let this happen.