How Hezbollah turned Lebanon into a cash economy

Iran’s shadow economy exploits a vast geographical area spreading across Iraq, Yemen, Syria, and Lebanon

How Hezbollah turned Lebanon into a cash economy

Iran is a great example of a ‘shadow economy,’ which encompasses several illegal activities. Its modus operandi is to organise a parallel (or hidden) economy, then run that economy across borders and seas, establishing supply lines by land, sea, and air.

It also involves the creation of a black market for drugs and smuggling, even the launch of fake ‘stock exchanges’ to govern the flow of US dollars in cash.

In its endeavours, Iran exploits a vast geographical area for this shadow economy, so far spreading successfully across Iraq, Yemen, Syria, and Lebanon.

In one decade, Tehran has turned these economies - together with the lives of its populations - upside down, after exhausting them with war, assassinations, violence, intimidation, and exploitation of political and sectarian conditions.

The interference and devastation described above has led to the collapse of states’ currencies and economies. The consequences have not spared Iran’s economy, either, which was already reeling from the rhythm of sanctions and internal repression.

Hollowing out an infrastructure

Lebanon is a perfect example of what a ‘shadow economy’ can lead to: security chaos, alongside political, financial, and judicial collapse, together with the crumbling of the national currency, and erosion of people’s savings in banks, which the Lebanese naively thought would be immune to looting.

The staggering losses have led to three years of chaotic arguments over who was responsible for the financial, social and living crisis that Lebanese are enduring. All parties say others should be held accountable for the pillaging. The unsightly melee has involved the government, Banque du Liban and commercial banks.

Lebanon has been a victim of the shadow economy, facing security chaos, political and judicial collapse, and a crumbling currency, with bank savings looted.

In this debate, however, 'experts of ignorance' overlook the impact of Hezbollah, in particular its political, military, and security decisions since 2005.

Among the consequences was imposing the disastrous election of former president Michel Aoun, up till the end of his term, promising that Lebanon was "going to hell" — a promise now sadly being fulfilled. 

Engineering a cash economy

It took the Lebanese years to realise that their deposits had flown from the banks they had entrusted with their life savings, their children's needs their families' legacies.

One morning, they awoke to a financial gap that exceeded $72 billion - three times the country's gross domestic product (GDP) for the year 2021, according to the latest reports of the World Bank.

Years earlier, Hezbollah understood that the cornerstone of its freedom of movement and its absolute financial and economic control over Lebanon would be based on building its economy on cash liquidity, conducting transactions using bags full of US dollars — the currency of a country that Hezbollah and Iran call the 'Great Satan.'

This would allow it to avoid the inevitable banking restrictions and international sanctions and would enable it to pay both its militias' salaries as well as its supporters, brigades, and media mouthpieces. It was a smart move.

Hezbollah realised that the cornerstone of its freedom of movement and its absolute financial and economic control over the country is based on building its state's economy on cash.

The malicious party understood that the Lebanese banking sector — which was an example in its advancement and commitment to the decisions of the Financial Action Group for the Middle East and North Africa region — was the "enemy" because it met the requirements of international laws to combat tax evasion, money laundering, and terrorist financing, abiding by directions from the Foreign Account Tax Compliance Act (FATCA) up to the most recent 'Caesar' and 'Magnitsky' laws.

Hezbollah was aware that it needed to build both channels and 'banks' that deal exclusively with the cash economy, especially after enlisting the Lebanese Canadian Bank as a party financier, which forced the bank to suspend payments and was later liquidated by an American decision in 2011.

Forcing the banks' hand

It all came to a head when the party's threats collided with the limits of the Banque du Liban and the commercial banks, who were unable to facilitate some of its operations and pay the salaries of its parliamentary representatives in cash.

A message was sent to the banking sector. On the evening of Sunday 12 June 2016, on the sixth day of the Holy month of Ramadan, an explosive device targeted the headquarters of the BLOM Bank. It was a straightforward message with perfect timing and place.

It was also a significant indicator of what would follow, a final bloody warning to the banking sector and the Banque du Liban to stop restrictions on Hezbollah and pay the salaries of its deputies, ministers, supporters, and their families in cash.

Hezbollah came to see the Lebanese banking sector as the enemy because it met the requirements of international laws to combat tax evasion, money laundering, and terrorist financing.

Hezbollah continued its attempts to circumvent international sanctions until the Office of Foreign Assets Control (OFAC) ruled that the Jamal Trust Bank and three of its subsidiaries were 'Specially Designated Global Terrorists' in August 2019.

OFAC accused the bank of providing financial and banking services to institutions affiliated with Hezbollah, including Al-Qard al-Hassan [the Good Loan Association]. The bank was liquidated and closed, damaging the reputation of Lebanese banking sector and signalling the sad end for a pioneering industry in the Middle East.

Benefitting from paper money

The monetary, banking, financial and social collapse in October 2019 was described by the World Bank as one of the worst global crises, but Lebanon's leaders appear to be benefitting from cash operations.

This includes the "halal cash" that Hezbollah collects either from Tehran (which it openly admits) or from importing foodstuffs, medicines, and other goods from Iran and selling them in the local market, using a complex network of trading companies affiliated for this purpose. 

Hezbollah has been running a network of speculative money changers that absorbed the dollar liquidity available at the time at the lowest prices, yet the Lebanese judiciary has not yet ruled – or looked likely to rule - on who is accountable.

This is only a drop in the sea of highly organised smuggling operations and the trade in contraband in its 'statelet' and through its international crossings and borders.

A bomb targeted BLOM Bank HQ. It was a simple message: end the restrictions on Hezbollah and pay the salaries of its deputies, ministers, supporters, and their families in cash.

Banking on expansion

Since 2020, Lebanese banks have closed dozens of branches and reinforced security setting iron barriers around those that remain open, for fear of angry "robbed" savers. In many cases, they have morphed into currency shops with neither deposits nor loans.

Meanwhile, Al-Qard al-Hassan expands its "banking" businesses. Up until February this year, the Association had 31 branches. It is benefiting from the weakness of banks, the decline in their role, and the country's transformation into a fully cash economy, not only in Lebanese lira but also in dollars. Its ATM service now available in most of its branches, dispenses what it calls "Fresh Dollar".

To date, Al-Qard Al-Hassan has provided around two million loans valued at $4.35 billion, guaranteed mainly by gold jewellery, while the number of "shareholders, dealers, and subscribers" has topped 400,000, according to its own figures.

Lebanon is now on a par with or even worse than Zimbabwe, Yemen, Venezuela, and Somalia for macroeconomic policy, with total cash in circulation now 100 trillion lira, up from six trillion recently.

Al-Qard al-Hassan is central to the parallel economy and a rosy picture of it, but what is hidden is worse. Furthermore, it plans to expand into new areas, specifically the Souk El Gharb in Mount Lebanon.

This poses questions about its activity in an area far removed from the party's home turf, amidst a Christian and Druze opposition majority, and is a clear indication of the expansion of the 'party economy' into different environments.

Unsurprisingly, Lebanon's position in the Transparency International Index has plummeted from 83rd in 2005 to 150th in 2022. The World Bank's Lebanon Economic Monitor has put the country on a par with or even worse than fragile or broken states such as Zimbabwe, Yemen, Venezuela, and Somalia in terms of its macroeconomic policies.

The World Bank now expects Lebanon to inch further towards a cash economy and increased dollarisation, even after a recovery period, if it ever happens. Meanwhile, the total cash in circulation is expected to reach 100 trillion Lebanese lira, compared to only six trillion before the crisis.

This means more money printing, prompting a further devaluation of the lira, and more "poisonous operations" - both economically and monetarily - to acquire the US dollar, which a few days ago became the official pricing currency declared on goods in supermarkets, according to the Ministry of Economy and Trade.

It gives official cover for the state of the ruling party – the Cash Party.

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