Hezbollah faces bleak new financial realities

Hezbollah's structure includes numerous cadres, each with salaries and privileges. A Hezbollah fighter earns around $1,500 per month, whereas a Lebanese Army soldier – due to the Lebanese pound's collapse – receives the equivalent of $300, two-thirds of which are paid by the United States and Qatar.

Nelson Mandela, the South African statesman and a leader of resistance to racist Apartheid rule, made an important distinction about pay: "A resistor ceases to be a resistor when they receive payment for their resistance"—becoming instead a mercenary.

A criminal network worth hundreds of millions of dollars

Hezbollah's operations have never adhered to its stated objectives or geographic limits. The party has acted as more of a regional resistance movement than a national one.

It began its activities by kidnapping several Westerners and bombing the barracks of US Marines and French paratroopers in Beirut in 1983, followed by the bombing of a Jewish centre in Argentina in 1994, and a bus explosion in Bulgaria in 2012.

Most recently, it sent thousands of its fighters to Syria and dispatched others to Iraq and Yemen. This involvement gave it significant combat experience, including against extremist groups, but also led it to turn its weapons against its people in 2008, during the 7 May attacks in Beirut and other parts of the country. The party's then secretary-general described it as a "glorious day."

The Beirut attacks coincided with the launch of an international security campaign called Project Cassandra. This campaign was initiated after the US Drug Enforcement Administration and several European countries gathered evidence confirming that Hezbollah had transformed from a militant and political organisation operating in the Middle East into an international crime cartel engaged in activities generating hundreds of millions of dollars annually.

These activities included drug and arms trafficking and money laundering. Consequently, the first international joint effort was directed at dismantling the party's militant structure and undermining its financial capabilities.

Terrorist designation

In 1995, the United States designated Hezbollah as a terrorist organisation, a classification later adopted by Germany, Canada, the United Kingdom, The Netherlands, Kosovo, and several Latin American countries, including Colombia, Honduras, and Guatemala.

Subsequently, the European Union decided to add Hezbollah's armed wing to its blacklist of terrorist organisations. This decision, in 2013, was deemed to be politically motivated, as the party doesn't separate itself into distinct militant and political wings.

Furthermore, Hezbollah isn't officially registered as an organisation with the Lebanese State, making it challenging to identify the specific elements subject to the EU-imposed restrictions. This reality limited the European decision's impact to tarnishing the party's international reputation and improving law enforcement cooperation among European officials in confronting its activities.

In January 2018, the US Justice Department announced the creation of a special unit to investigate Hezbollah's financing and drug trafficking activities. By October of the same year, then-US Attorney General Jeff Sessions designated Hezbollah as one of the world's most significant transnational criminal organisations, alongside four Latin American drug cartels.

Diverse funding sources for Hezbollah

The Iranian Revolutionary Guard Corps (IRGC) is considered Hezbollah's primary funding source. Initially, the funding amounted to several million dollars monthly, later increasing to hundreds of millions annually following the Iranian nuclear deal.

Nasrallah publicly boasted about this funding and was subsequently widely criticised for doing so.

Iran has been on the international blacklist run by the Financial Action Task Force (FATF) since 2007. Tehran sought to improve international relations in 2015 when President Hassan Rouhani began nuclear negotiations. He pledged to comply with FATF relations in 2016. The country subsequently moved from the blacklist to the greylist.

But the move did not last. Delays in the domestic approval of laws to bring Iran into the Convention against the Financing of Terrorism and the UN Convention against Transnational Organized Crime took a toll.

And Iran insisted on treating Hezbollah as a resistance movement rather than a terror group meant it was back on the blacklist by February 2020. This made it impossible for Iran to use the global financial system to transfer funds to Hezbollah.

As a result, Hezbollah resorted to alternative methods of transferring funds to Lebanon. These included various covert channels, assigning representatives to manage investment projects and front companies, and allocating revenues from these ventures to the party.

But the party avoided using methods like transfers or cryptocurrencies, unlike Hamas, which briefly used such means until Israel successfully traced and disrupted these transactions.

Drug trafficking and money laundering

Hezbollah's second significant financial source is revenues generated from crime.

Numerous investigations have confirmed the development of a network involved in a range of illegal activities, including terrorism and drug production and trafficking – particularly of fenethylline, commonly called by its former brand name Captagon – counterfeiting, and money laundering.

Read more: Drugs in the Arab world

Hezbollah's involvement in the illegal drugs trade became clear as Syria's civil war escalated and the demise of the Lebanese Army's patrols of cross-border smuggling routes. These operations expanded from local to regional to international scales, with drug trade revenues accounting for 40% of Hezbollah's income, according to a report by The Telegraph.

Lebanon's banking system reportedly became deeply implicated in laundering the proceeds of this trade.

Hezbollah sources claim that Israel was the first to accuse the party of drug trafficking during a meeting of the Israeli Knesset's Special Committee for Combatting Drug and Alcohol Abuse in 1997. The US later followed with similar allegations.

Nasrallah dismissed them as attempts to tarnish the image of his resistance movement.

But the party's former secretary-general, Subhi Al-Tufayli, confirmed its involvement in the Lebanon drug trade in a television interview, along the lines of other groups in Iran's so-called Axis of Resistance, covering Iran, Iraq, and Syria.

Research published in The Christian Science Monitor in March 1988 also highlighted the involvement of all combatants in Lebanon in drug production and trafficking. The study even cited a Shiite cleric issuing a fatwa permitting the production and sale of opium and heroin to "enemies" under the justification, "If we can't kill them with weapons, let's kill them with drugs." 

Project Cassandra

The party's involvement in drug trafficking was corroborated by global investigations, most notably Project Cassandra. This security initiative involved agencies from the US, France, Belgium, Germany, and Italy, among others, and uncovered Hezbollah's role in large-scale drug smuggling and money laundering operations across these countries, as detailed in the operation's reports.

Further investigations revealed Hezbollah's success in establishing a foothold for its illicit activities in Africa and the Americas, especially in Venezuela, the Guajira Peninsula, the Margarita Island, the Caribbean, and the Tri-Border Area among Paraguay, Argentina, and Brazil.

The party also operated in Panama, with confirmed links with the notorious Waked money laundering organisation and associated entities, such as Balboa Bank & Trust.

Hezbollah is also accused of exploiting the Al-Qard Al-Hasan Association as a front to manage its financial activities and access the international financial system. It was originally established as a charity offering interest-free loans in exchange for gold collateral.

However, the US Treasury imposed sanctions on the association in 2007, asserting that it facilitated the illicit transfer of funds through fake accounts and intermediaries, thereby exposing involved financial institutions to sanctions.

Hezbollah claims its funding sources are legitimate, citing its investment portfolios, donations from individuals, institutions, and businesses inside and outside Lebanon, and even Lebanese state funds.

Through its Waad Project, Hezbollah attracted a share of Arab aid allocated to Lebanon by requiring citizens to deposit their compensation into the party's financial system, which then oversaw the reconstruction of Beirut's southern suburbs after the 2006 war.

However, US historian Michael Rubin argued in an article published in National Security Journal in October 2024 that an increasing number of Lebanese view Hezbollah not only as a terrorist group but as a mafia-like entity.

According to Rubin, these sentiments aren't limited to Hezbollah; many Lebanese perceive their politicians – be they Shiite, Sunnite, Christian, or Druze – as mafias preoccupied with dividing spoils.

What sets Hezbollah apart, Rubin noted, is its militancy, which has helped it use dominance to get significant advantages, including tax exemptions and illicit revenues from customs duties, contraband, and smuggling activities at Beirut Port, Rafic Hariri International Airport, and border crossings.

This prompted Transparency International to rank Lebanon as more corrupt than Russia and Nigeria.

International response

On the global stage, an international consensus has emerged to counter Hezbollah's financial network. The US spearheaded these efforts.

In December 2015, Washington enacted the Hezbollah International Financing Prevention Act, which prohibited international funding for the group. The law imposed strict conditions on foreign financial institutions, barring them from maintaining correspondent accounts or payable-through accounts in the US if they facilitated Hezbollah's activities or dealt with individuals or entities listed as its affiliates.

Sanctions outlined under the International Emergency Economic Powers Act apply to violators, and the Treasury Department periodically identifies foreign central banks engaged in prohibited activities.

The law also required the president to report to Congress on Hezbollah's transnational criminal activities, including human trafficking, and on government efforts to counter its operations. The State Department was mandated to submit annual reports to Congress detailing the outcomes of its Rewards for Justice Programme related to Hezbollah's fundraising and laundering activities.

In response, Lebanon's Central Bank issued Circular 137, instructing banks and financial institutions to align their operations with the law. This included freezing or closing any accounts belonging to individuals covered by the US legislation and refraining from engaging with them. The Central Bank had previously supervised the liquidation of the Lebanese Canadian Bank and Jammal Trust Bank after they were found to have facilitated Hezbollah's financial operations.

Critics argued that Lebanon isn't bound by foreign laws unless incorporated into international treaties and ratified.

However, this overlooks the critical role of the dollar in Lebanon's foreign currency reserves and payment systems, necessitating compliance with the issuing authority's regulations. The Central Bank of Lebanon, like others around the world, is committed to the international standards required by instruments like the Basel Framework.

Sanctions for individuals

The US also targeted sanctions at individuals, businessmen, and major financial facilitators who assist Hezbollah with money laundering or access to Lebanese banks.

These designations also identified entities operating within Lebanon or abroad that dealt with Hezbollah. Lists were released by the US Treasury Department and the State Department to provide Lebanese banks with cover to protect the integrity of the financial system.

Continuous monitoring has ensured these sanctions were updated when necessary, enhancing their effectiveness as the US keeps its plans to counter Hezbollah's financial network under review.

Several Congressional hearings identified gaps and produced recommendations. The most prominent was designed to boost collaboration between agencies by setting up a joint task force with unified strategic leadership.

This was vital, given the complex nature of the crimes, which extended beyond drug smuggling and money laundering to a wide range of revenue-generating activities. These operations involved close coordination between Iranian headquarters and affiliates in Iraq, Syria, Lebanon, Pakistan, Afghanistan, the Gulf, Africa, Europe, and the Americas.

More widely, initiatives like the Global Counterterrorism Forum encouraged stronger coordination between law enforcement and intelligence agencies worldwide to combat international crime and its increasingly interconnected financial networks.

However such efforts have faced a series of challenges. When the EU distinguished between Hezbollah's militant and political wings, it argued that banning the entire organisation was inappropriate, given its legally elected representatives in Lebanon.

This position undermined international unity, contrasting with those of the US, Canada, and other nations that classify Hezbollah as a single entity.

The Obama problem

Political interference has occasionally hindered enforcement efforts, as seen during the administration of President Barack Obama.

During his time in office, concerns over jeopardising the nuclear agreement with Iran led to scaled-back investigations and prosecutions aimed at dismantling Hezbollah's financial network.

The former UN weapons inspector Dr David Albright criticised the Obama White House for prioritising the nuclear deal over action against Hezbollah. He claimed that both objectives could have been pursued simultaneously.

Critics have pointed out that no treaty with any adversary has ever been comprehensive in addressing all contentious issues. One of the most notable in history – the nuclear test ban treaty negotiated by President John F. Kennedy with Soviet leader Nikita Khrushchev – which did not cover a range of other Soviet activities which hot political issues in the US.

This shift in priorities led the Central Intelligence Agency's Director John Brennan to call for a "greater integration of Hezbollah into Lebanon's political system" rather than treating it as a criminal enterprise. This came despite evidence from the Cassandra investigations confirming Hezbollah's role as a major transnational criminal organisation.

Concern was also raised about the risks of imposing economic sanctions. It centred on measures targeting the Lebanese Canadian Bank, which was at the centre of Hezbollah's financial activities and had operations exceeding $5bn. There were fears of a full collapse of the banking sector if accounts of Hezbollah members and affiliates were frozen. 

These fears proved unfounded. The only retaliatory act was the detonation of a bomb near a major Lebanese bank's back gate, seen as a direct threat warning the financial sector. It later became clear that sanctions didn't destabilise Lebanon's economy. Rather, they shielded it from the pervasive money laundering operations that Hezbollah had embedded within the system.

Cracks in the financial network

Hezbollah's leadership has consistently declared that "the final word in battle belongs to the battlefield". It sees its mission of resistance in the simple terms of victory or defeat.

The group views resistance as both its doctrine and its duty and martyrdom as an honourable elevation. But regardless of these priorities, Hezbollah's three primary sources of revenue are shrinking. This is putting immense pressure on the group's obligations toward its community and may diminish its standing among its base.

And there may be further turbulence ahead, from Hezbollah's major state sponsor. Iran's President Masoud Pezeshkian recently requested the IRGC and the Office of the Supreme Leader reconsider financial support for its militias in Iraq, Yemen, Syria, Lebanon, and Gaza, citing the heavy burden it places on Iran's economy, which is already under great strain from international sanctions amid rampant inflation and public discontent over foreign spending have yielded disappointing results.

Then came an unprecedented move from Iran's Quds Force. It opened a bank account and urged Iranian citizens to make direct financial contributions to Hezbollah's forces in Lebanon. Previously, it had funded Hezbollah from its budget.

The threat from Israel has added to all these challenges. Tel Aviv has warned it will target Iranian flights to Beirut carrying cash, not just weapons. It has also targeted officials responsible for transferring funds to Hezbollah in Damascus and Beirut's southern suburbs.

Financiers fear Israeli reprisals.

David Asher, a former official at the US Defence Department and the State Department, noted that Lebanese bankers and Hezbollah financiers now fear Israeli reprisals. This has led to increased caution, hindering Hezbollah's access to banking services.

Israel has attacked Al-Qard Al-Hasan Association centres, destroying most of them and targeting the group's cash and gold reserves, eroding trust and confidence in what amounts to the retail-level banks run by Hezbollah. Branches have struggled to repay customer deposits and gold collateral, lost during the Israeli attacks.

Beyond the physical damage, these attacks aim to undermine Al-Qard Al-Hasan as an institution bolstering Hezbollah's community ties, particularly after Lebanon's banking crisis.

The group's previous expansion and its rise to dominance in Lebanon owed much to its abundant financial resources, which allowed it to generously fund its community. Now, circumstances have shifted. Cash transfers from Iran and other donors have dwindled, revenues from the drugs trade have shrunk, banking facilities have dried up, and Al-Qard Al-Hasan branches become liabilities.

Failure to meet these financial obligations – particularly salaries, wages, and the needs of healthcare, social, and educational institutions – could provoke negative reactions from Hezbollah's support base.

The group faces an important and urgent question:  Can Hezbollah sustain its war effort with a depleted treasury? To do so, it will have to defy the logic within an old adage from the philosopher Didier Erasmus: "As long as your sword is silver, you shall always prevail".