Time to get serious about sanctions on Iran, especially through Lebanese banks

By David Asher

Best Defense department of non-kinetic actions 

U.S. Treasury Department sanctions
against Iran are having a remarkable impact and much more is soon to come. In
recent weeks the Iranian currency has crashed and the Iranian balance of
payments, a close proxy measure for its oil revenue seems heading toward a
deficit. Moreover, recently enacted legislation -- requiring banks to cease
dealing with the Iranian Central Bank for oil imports within 60 days --
will soon be implemented. For Tehran, oil is money. Thus, cutting off oil
revenue could soon bring the Iranian economy to its knees. Iran's threats
to block the flow of oil via the Strait of Hormuz -- with the goal of sending
oil prices skyrocketing -- is a sign that the Iranians are feeling pain. For
Tehran it can only get worse. 

The problem with sanctions is that the
longer they drag on, the more affected countries develop the means to skirt
them. Saddam's Iraq came under the weight of a vast sanctions regime for over a
decade and the government did not fall from power, let alone change
course. Iran is a nation of sophisticated traders and we can expect it to undertake
a web of evasive measures to struggle on. Moreover, even if the Iranian
economy is brought to a halt, history shows that those in power will be the
last to suffer. In fact, Iran's hardline Revolutionary Guards appear to be
gaining power as the nation moves onto a quasi-wartime footing. 

To enforce sanctions and significantly
enhance pressure directed against Iran's leadership (not just its people), the
U.S. should consider an Iran-Hezbollah Illicit Activities Initiative similar to
the one used against Kim Jong Il's regime, 2001-2006, and akin as well to the
strategy applied successfully against Slobodan Milosevic and his
cronies in the Balkans in the mid-90s (see the testimony). These previous interagency
and international initiatives brought together
U.S. and foreign government partners to apply a matrix of pressure strategies
to directly effect the hold on power of the North Korean and Serbian regime
leaders and coerce them to either give up global defiance or potentially fall
from power. Notably, both initiatives incorporated domestic and international
law enforcement against the illicit support networks and financial sanctuaries
for regime leaders, in addition to the targeted and broader trade
sanctions being applied currently against Iran. 

Pretty much every seriously sanctioned regime in history has
gotten into illicit activity to offset the cost imposed by sanctions. Iran is
no exception to the rule. It appears to have been quietly engaged in
state directed illicit activities to benefit the Revolutionary Guard and their
antecedents since the onset of the revolution (and accompanying sanctions) --
everything from illegal technology procurement and weapons smuggling to involvement
in narcotics trafficking and money laundering. In the coming months, as
sanctions bite harder and oil profits disappear, we can expect the scale and
importance of these illicit activities for the IRGC (and Hezbollah) to increase
dramatically. However, the more Tehran and its affiliates rely on illicit
activity, the easier it will be to apply law enforcement and international law
strategically to hold their leaders and their finances accountable. Provided a
sufficient enforcement dragnet is created, Iran may fall into the same self-created
trap as North Korea and Serbia. However, if an enforcement system is not
rapidly assembled, we can safely assume that Iran -- particularly with the help
of China and Russia -- will embrace the black economy as well as marshal
sanctions workarounds that could enhance the power of the IRGC, speed up its
nuclear timeline, and heighten the chances of conflict.[[BREAK]]

The groundwork
for an illicit activities initiative already exist, thanks to the excellent
work of U.S. law enforcement. In the last year, the findings of Operation Titan
-- a massive Drug Enforcement Administration money laundering
investigation into Iran's key affiliated terrorist organization, Lebanese
Hezbollah -- have emerged in the public eye. As the New York Time details in a recent
article, this investigation has documented billions of dollars of cocaine laced
funds that have made their way from Hezbollah
accounts in Lebanon into the US and European banking system over the last
five years. A December 2011 asset forfeiture claim against Hezbollah
financial fronts, including the Lebanese Canadian Bank, filed in
the Southern District of New York (SDNY) spells out the case that for Hezbollah,
Lebanon has become a veritable money laundering machine. 

Ironically, the data below, from the Lebanese Central bank website,
plainly illustrates the scale of Hezbollah's money laundering activity. It is
hiding in plain sight. As the data show, miraculously, Lebanese banks
exploded in growth in the wake of Hezbollah's war with Israel in 2006 - with
dollar-denominated deposits making up nearly 2/3 of the Lebanese banking system
and over 50% of its growth. Until recently -- when DEA and Treasury began
to crack down -- bank dollar and euro deposit growth has kept up a dramatic pace, despite Lebanon having large sovereign
currency, economic, political, and security risk. This explosive growth makes no sense, unless Lebanon has become a major
financial safe haven for drug trafficking organizations worldwide (and where
the risk of moving so much foreign bulk cash and wire transfers is effectively
offset by a highly complicit Lebanese government). As the risk of
further U.S. actions has become clearer to bank depositors (bad guys included)
and the Syria/Iran crisis expands, capital has started to flee Beirut en masse
(see the balance of payments slide). Indeed, Lebanon is in the midst of a
balance of payments crisis presently as a result.

Bottom line: (undoubtedly with Tehran's consent) the Hezbollah
criminal terrorist organization -- as the
SDNY Civil action shows convincingly
-- established a world class money laundering mechanism out of Beirut at the end
of 2006 to help the organization survive amidst the economic fallout of a
financially ruinous war with Israel (where Iran didn't seem to want to fill the
whole financial void). Through its law
enforcement investigations, the U.S. is now well positioned to hold Hezbollah and Iran accountable for using Beirut as an illicit venue.
Moreover, cracking down on Hezbollah's illicit finances is one of the only
things that can save the Lebanese banking system and economy from unraveling
further. The predominant risk to the Lebanese banking system and the
Lebanese economy today is born from Hezbollah's domineering illicit activities
and their infiltration into the entire Lebanese financial system and economy
(real estate is infiltrated at least as much as banking). If the cost of
survival for Lebanese banking is punishing Hezbollah, then the Lebanese need to
turn on Hezbollah (and curtail Iran's access in the process). Strategic
law enforcement against Hezbollah, could serve as a key element to an
counter-Iranian illicit activities strategy in the weeks and months to come.

David Asher is a non-resident senior
fellow at the Center for a New American Security. He served as the architect of
the Bush administration's global campaign against the finances of the Kim Jong
Il regime and has long served as expert on counter-threat finance programs and
issues for the government and the private sector.