Stop Iran funding? Hezbollah’s Financial Activities Should be Israel’s

Stop Iran funding? Hezbollah’s Financial Activities Should be Israel’s Top Priority

The radical Shi’ite organization’s criminal networks in Latin America generate hundreds of millions of dollars of annual revenue, with near impunity. Israel must commit more diplomatic, law enforcement, and intelligence resources to this region if it wishes to block Hezbollah’s primary source of income

 

Illustration: Adva Luvrani

 

With more than one hundred thousand rockets deployed in South Lebanon, a well-oiled supply line of increasingly sophisticated weapons that connects Tehran to Beirut, and dominance over Lebanon’s political system, Hezbollah is understandably one of Israel’s top national security concerns, with intelligence resources laser-focused on its northern border.

 

Yet Israel’s security and diplomatic establishment should also pay attention to what the radical Shi’ite organization is doing in faraway places such as Latin America and West Africa, where its terror-financing networks are raising hundreds of millions of dollars a year to fund its military buildup and regional adventurism in the Middle East. These networks, which extend into Europe, have been used over the years to move drugs from Latin America to remote markets and launder the proceeds back to the cartels, minus the hefty commission retained by Hezbollah for its own financial needs.

 

Israel’s efforts on the financial side have overwhelmingly been focused on getting Iran squeezed to reduce its ability to support Hezbollah. Instead, Israel should focus on the organization’s booming overseas revenues, which – as data recently compiled from multiple sources has shown – have increasingly made Hezbollah financially self-reliant. Contrary to conventional estimates, the periodic predictions that Hezbollah is going broke, and its own declarations, the terror organization is now nearly or entirely capable of offsetting any financial shortfall caused by sanctions against its main patron.

 

The size of the threat posed by Hezbollah’s criminal network in Latin America stands in stark contrast to the meager resources Israel devotes to combating it. Given its limited diplomatic, law enforcement, and security assets in the continent, boosting its presence and intel-gathering capabilities there should be Israel’s top priorities. Furthermore, while several leaders in the region have recently proclaimed their support for Israel’s cause, their motives may have more to do with shielding themselves from possible U.S. probes into criminal conduct by them or their close associates than with an actual commitment to uprooting Hezbollah. Israel, therefore, also needs to choose its friends in the region more carefully.

 

A smugglers’ paradise

 

The Tri-Border Area (TBA) of Argentina, Brazil, and Paraguay is home to one of the largest Shi’ite Lebanese communities in Latin America. It is also Hezbollah’s main hub of activities in the continent. Over the past four decades, through a network of local residents, Hezbollah has established an extensive trade-based money-laundering infrastructure there that is currently laundering billions of dollars on behalf of regional organized crime syndicates.

 

The TBA is an ideal location for Hezbollah’s operations: a metropolitan center, which is home to almost a million residents and features a well-developed tourism infrastructure, including three international airports, and a high-quality service industry. Yet the aura of a first-world tourist destination cloaks what can best be described as a smugglers’ paradise. Corruption is pervasive in all three of the bordering countries, in particular within the government of Paraguay. That country’s weak and overburdened judicial system offers Hezbollah’s financiers protection, and they enjoy access to the highest echelons of government.

While Argentina and Paraguay have recently designated Hezbollah as a terrorist organization, it is unclear how effective this step will prove in dismantling its well-entrenched criminal networks in these countries

The shared border area, with its three languages, three currencies, weak border controls, and well-established smuggling routes, lends itself to large-scale contraband. The tax-free retail commerce zone on the Paraguay side feeds the smuggling frenzy and gives cover to local, often Hezbollah-controlled, businesses, which sustain a head-spinning turnover of merchandise. Brazilian authorities have assessed the thriving illicit economy to be worth $18 billion a year.

All three countries have historically done very little to disrupt Hezbollah’s activities in the region.

 

Ideology and expediency have usually been the reasons why they have been reluctant to confront the growing threat of Hezbollah. The dark history of dictatorial regimes using accusations of terrorism against political opponents – an all too common and recent experience in most Latin American countries – has also played a part.

 

Argentina and Paraguay have recently designated Hezbollah as a terrorist organization. However, it is far from clear how effective this designation will prove to be in dismantling the Shi’ite organization’s well-entrenched criminal networks in these countries, as is discussed below.

 

Why should Israel worry?

 

The scale of Hezbollah’s criminal activities in Latin America should be a prime concern for Israeli officials, for four main reasons.

 

The first reason is that the volume of illicit trade, coupled with the commission fees that Hezbollah is known to charge criminal networks worldwide for its services, suggests that much of its fundraising overseas originates from Latin America. Cases that emerged in the U.S. during the past ten years indicate that Hezbollah charges between 8 and 15 percent commission to launder illicit proceeds.

 

The numbers are startling: at those rates, the estimated $18 billion a year of illicit revenue, once laundered, generates hundreds of millions of dollars in commission fees. Admittedly, it is impossible to assess accurately how much of that sum is actually laundered by Hezbollah financiers for its own direct benefit. Regardless, the size of the illicit economy and Hezbollah’s robust presence and central role in it suggest that its financial proxies could be raising many hundreds of millions of dollars for the organization a year – and that is just through money laundering in the TBA. In fact, I and others have argued on several occasions that, contrary to conventional estimates, and even without Iran’s contribution, Hezbollah’s global criminal activities are now likely to be enough to sustain its entire annual budget, which the Washington policy consensus estimates at around $1 billion per year, even without Iran’s contribution.

 

Hezbollah has recently bemoaned the fact that its resources are drying up, due to U.S. sanctions on Tehran. However, while Washington’s pressure no doubt affects both Iran’s ability to sustain its contributions and Hezbollah’s ability to manipulate Lebanon’s financial system to its benefit, these claims should be met with skepticism.

 

Hezbollah's global activity and funding network, 2017 | Source: US Army

 

The second reason why Israel should be concerned about Hezbollah’s activities in Latin America is that the terror organization’s modus operandi in the TBA is a miniature version of what it does in Lebanon to control and coopt the Shi’ite population. As in Lebanon, Hezbollah has funded the establishment of Shi’ite community institutions across Latin America and, where those institutions already existed, it has offered its support to sustain them. The result is that clerics from local mosques and cultural centers, instructors from local youth movements such as the Scouts, and teachers at local schools are imparting Hezbollah dogma to local communities.

 

The results are very visible. Local communities regularly mark May 25, the day Israel withdrew from South Lebanon in 2000, with carefully choreographed community events. They frequently welcome Hezbollah and Iranian clerics as speakers to the community. They support Hezbollah’s media machine with local correspondents and get support in turn from Hezbollah’s publications to advance their own agenda. For example, in 2018 Hezbollah mounted a pressure campaign through Lebanon’s ambassador in Paraguay to prevent the extradition of Nader Mohamad Farhat, a suspected Hezbollah financier, to the United States.

 

Shi’ite communities in the TBA join in mourning Hezbollah’s fallen, especially when they have a family connection to the deceased. In the summer of 2019, for example, Lebanese residents of the TBA took to social media to mourn the death of two Hezbollah operatives whom Israel had killed in southern Syria, where they were set to launch a drone attack on Israel’s northern communities. More recently, while there have been official mourning events only in Sao Paulo to commemorate the slain Quds Forces commander Qassem Soleimani, outpourings of grief and anger on social media from prominent TBA figures abounded.

 

By sustaining loyalty among its diaspora over time, Hezbollah will continue to leverage Lebanese expatriates in the TBA for fundraising purposes for years to come.

 

A two-way crime superhighway

 

Hezbollah’s financial needs have increased in recent years due to the movement’s growing involvement in Middle East conflicts, its takeover of Lebanon’s political system, and its expanding and increasingly costly welfare payments to families of “martyrs.” At the same time, Iran’s annual subsidy – estimated at $700 million or more – has become unreliable, due to biting sanctions the U.S. has imposed on Tehran since 2018.

 

But rather than spell bankruptcy for Hezbollah, this development means that the terror organization’s ability to self-fund through overseas operations is becoming more important – and should therefore become a priority target for Israel. As early as 2006, when the costs of rebuilding south Lebanon after its war with Israel and the sanctions against Iran strained Hezbollah’s finances, the organization understood that it needed to be more self-reliant, and not dependent on Iranian largesse. Since then, and even more so since 2018, Hezbollah’s financial backers and facilitators overseas have escalated their involvement in illicit activities. In Latin America, this includes drug trafficking and money laundering on behalf of local criminal syndicates.

 

Criminal actors and state sponsors of terrorism do not typically post financial statements on their official portals. Nevertheless, publicly available estimates from U.S. sources indicated that, in 2004, Hezbollah’s annual revenues from its TBA activities amounted to approximately $10-20 million. That might have been a conservative guestimate. The current figure, just for the TBA, is likely to be several multiples of that.

Hezbollah can now leverage local criminal networks everywhere for procurement purposes and, potentially, for more sinister goals should a decision be made to carry out terror attacks

This information provides the third and fourth reasons for why Israel should be concerned about Hezbollah’s activities in Latin America. The third is that Hezbollah’s global network of supportive financiers and facilitators can present its criminal clients with excellent opportunities to expand their markets, without the need to build their own criminal infrastructure in far-flung places. Access to this global network offers the cartels efficient channels to distant markets, as well as ways to repatriate revenue through complex Hezbollah-owned and trade-based money laundering schemes.

 

But the reverse is also true – Hezbollah can now leverage local criminal networks everywhere for procurement purposes and, potentially, for more sinister goals should a decision be made to carry out terror attacks. When the Islamic Revolutionary Guard Corps sought to blow up the then Saudi Ambassador to Washington at a popular upscale restaurant in Georgetown in 2011, its U.S. based agent Mansour Arbabsiar leveraged Hezbollah contacts within the Zeta Cartel in Mexico to procure the necessary explosives.

 

This capability is something that Israel should be especially worried about. Criminal contacts, after all, can help Hezbollah agents with the logistics, weapons procurement, document forging, safe houses and other services that operatives dispatched to plot and execute terror attacks would need. Hezbollah has already struck Jewish targets twice and an Israeli embassy once in Latin America, and could do so again in the future.

 

The fourth and final reason is that Hezbollah’s global reach makes it a threat that must be addressed in multiple arenas, and not just close to home. An example of the significance of its illicit funding activities comes from a string of U.S. court cases from the past decade. Readers may be familiar with the Lebanese-Canadian Bank case of 2011. U.S. authorities accused Hezbollah facilitators of laundering drug money for Mexican and Colombian cartels, to the tune of $200 million a month. This was achieved by channeling the sum through West African used car businesses that imported their inventory from U.S.-based dealers. The money, once laundered through the bank, was then repatriated to Colombia, minus a hefty commission.

Documentary on Hezbollah's global crime network | Source: Youtube

 

The complex web of connections necessary to run these schemes is rooted in the large family networks that run through Hezbollah-linked expatriate communities. For example, the Barakat clan, which is the most closely identified with Hezbollah in the TBA, has multiple members and businesses, not only across Latin America but also in West Africa, where Hezbollah facilitators run used car businesses. Their family networks span the globe, with a presence in both Latin America and Europe and, in some cases, a direct involvement in money laundering for drug cartels.

 

The U.S. is also not immune to such influence. Many of Hezbollah’s schemes are run through Miami and other U.S. commercial hubs, as evidenced by a string of recent cases involving TBA businesses trading with front companies in both Miami and New York. Such schemes often triangulate with Hong Kong and mainland China, where Hezbollah operatives have an established commercial presence, thus ensuring they control virtually every step of the trade.

 

Hezbollah has thus established a forward operating base in the heart of the U.S. and is using its financial system to launder money, while bringing in operatives and supporters under the guise of legitimate financial and commercial endeavors. That can pose a national security threat to the United States, as recently evidenced by the conviction of Ali Kourani, a Hezbollah operative and naturalized U.S. citizen, who scouted numerous targets in the New York area in preparation for possible mass casualty attacks. It certainly poses a threat to the integrity of the U.S. financial system, as hundreds of millions of dollars of drug money are laundered through its banks and real estate sector for Hezbollah’s benefit.

 

Disrupting the network

 

The size and complexity of Hezbollah’s global operations have until now ensured that its activities continue to thrive, despite the decline in Iranian funding and the occasional setback caused by criminal investigations into the organization’s drug trafficking and money laundering schemes. It relies primarily on the strong loyalty and family bonds that tie expatriate communities to the organization.

 

Blocking Hezbollah’s sources of independent income therefore requires a much more aggressive global effort by Western governments and their law enforcement agencies to prosecute illicit finance schemes and disrupt the chain of supply. Washington should lead, but its allies across the globe are also affected and should contribute. After all, the drugs that Hezbollah helps to sell and distribute wash up in markets as diverse as Europe, Australia, and even Israel; the financial crime associated with laundering the proceeds takes place in virtually every region of the world, spinning off a variety of collateral criminal endeavors in the process. So, while Israel may be far from Hezbollah’s financing networks, the damage such financing produces can come very close to home.

 

Despite the gravity of this threat, Jerusalem has over the years committed very limited resources to combat Hezbollah in Latin America. Israel’s diplomatic missions in the region are small, its security and intelligence presences are even smaller, and it has only one liaison police attaché to cover the entire Latin American arena.

 

On the diplomatic front, Israel also has a problem: By recently engaging local conservative-leaning governments in Latin America, Jerusalem has successfully prodded them to back Israel-related issues in UN forums and other international agencies. In isolated cases, it has even persuaded countries to move their embassies to Jerusalem.

Paraguay’s designation of Hezbollah as a terrorist organization currently lacks operational effect on Hezbollah’s business networks inside the country’s borders

Yet this support comes at a cost: Friends of Israel, such as Paraguay’s former president Horacio Cartes or Honduras President Juan Orlando Hernandez, have both been implicated in organized crime. Their willingness to side with Israel may have more to do with efforts to shield themselves from possible U.S. attempts to investigate their business interests than with a genuine policy shift. The risk for Israel is that it could lend legitimacy to compromised political leaders in exchange for concessions that could be short-lived. The case of Paraguay, where former president Cartes’ decision to move his country’s embassy to Jerusalem was reversed less than four months later by his successor, is a case in point.

 

Paraguay’s designation of Hezbollah as a terrorist organization may have more staying power, but it currently lacks operational effect on Hezbollah’s business networks inside the country’s borders. Furthermore, given the close proximity of Paraguay’s ruling elites to the local Lebanese community, which serves as an important source of political funding, it remains to be seen whether Paraguay’s action will have any practical consequences.

 

The July 2019 designation by Argentina’s Macri administration had more impact: It set an important precedent, with a federal prosecution against local Hezbollah agents ordering asset freezes for the first time in the region. Yet the results of the October 2019 elections, which dethroned Macri and brought President Alberto Fernández to power, may ultimately have a chilling effect on these efforts.

 

During her presidency of Argentina (2007–2015), Christina Fernandez de Kirchner, the new vice-president, sought to restore friendly relations with Iran and embraced Iran’s anti-American and anti-Israel regional allies. The new minister of public security Sabina Frederic dismissed terrorism as a “U.S. and NATO problem” before taking office (she has since agreed to keep Hezbollah on the terror list). Thus, while Argentina’s new government will uphold its designation of Hezbollah as a terrorist organization, at least for now, it is unlikely to pursue further actions against Hezbollah entities.

 

Brazil, the third member of the TBA, has yet to follow its neighbors in designating Hezbollah as a terrorist group.

 

High stakes, meager resources

 

Given the many difficulties it faces in tackling Hezbollah in Latin America, Israel could start by taking two relatively low-cost and simple steps. First, it should increase its investment in intelligence-gathering, through a larger deployment of field agents, the development of local informants, and better usage of technological capabilities to sift through and leverage open-source intelligence. Second, Israel should cooperate more and better with the allies it now has across Latin America, such as Brazil and Colombia. Specifically, it must also assist such allies in building capacity, as well as encourage them to share information among themselves and with the U.S.

 

Brazil, for example, with its 17,000 kilometers of borders through often remote and impenetrable areas, can improve its fight against organized crime and contraband, thanks to Israeli surveillance technology, including the massive deployment of drones. Paraguay’s western areas remain largely uncovered by radar surveillance and, with more than a thousand clandestine landing strips peppered through the vast emptiness of its underdeveloped rural areas, it is ideal as a staging area for cocaine traffickers, who are overtaking the country.

 

Colombia was at the forefront of fighting Hezbollah as early as 2006, when it provided the U.S. Drug Enforcement Administration (DEA) with the critical intelligence obtained from phone intercepts that spurred the decade-long effort to combat Hezbollah’s illicit enterprises, known as Project Cassandra. There is no shortage of opportunity, in other words, to work with friends and improve their track record in the common struggle against terror financiers and the organized crime cartels that they assist.

 

The Hezbollah money trail is what sustains its malign activities. Now that its supply lines from Tehran are under fire both from Israel’s hardware and America’s sanctions, disrupting financial flows from Hezbollah’s cooperation with organized crime is more important than ever.

Emanuele Ottolenghi (PhD, Hebrew University) is a senior researcher at the Foundation for Defense of Democracies (FDD) in Washington, D.C. (Photo: FDD website, courtesy of the author)

Contact: @eottolenghi

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