Why Israel is now bombing Lebanese banks.
Residents of Beirut are, by now, used to warnings from the Israel Defence Forces ahead of bombing runs. Typically, these instruct locals to stay away from a tower block suspected of harbouring fighters, or perhaps a school said to double as a weapons cache. The warning on October 20th was a little different. It told people to steer clear of branches of al-Qard al-Hassan (AQAH), a bank.
Israel targeted the bank because it is linked to Hizbullah. Once a mere militia, the group has enormous sway in Lebanon, where it runs a sprawling welfare system, in part funded via business interests at home and abroad. It draws power from a reputation as the Middle East’s most professional non-state outfit and from the popularity of its services, which it provides to Lebanon’s Shia sect even as it wages war against its neighbour. Israel hopes, therefore, that destroying AQAH branches will help undermine this strength and disrupt the financial flows which keep Hizbullah’s soldiers armed, fed and paid.
Lebanon’s economy has been a disaster since 2019, when a shortage of dollars precipitated a financial crisis. A huge explosion at Beirut’s port in 2020, in which more than 200 people died, made things worse. The government resigned; no subsequent caretaker one has lasted much longer than a year. At official exchange rates, the Lebanese pound has lost 98% of its value against the dollar since the financial crisis; last year inflation reached a high of 221% and debt hit 285% of GDP. IMF officials say that there is no one with whom to even begin discussing a bail-out.
This misery has only increased reliance on Hizbullah’s services, most of which are funded through AQAH. To dodge Western sanctions, the bank mostly exists outside of mainstream finance. It does not hold accounts with Lebanon’s central bank and carries out few transactions with the country’s other financial institutions. Although America, Europe and Israel have put AQAH under strict sanctions, and America has placed Adel Mohamad Mansour, the bank’s boss, on a blacklist, Israeli officials believe these moves have had little effect.
Where does the money Hizbullah holds in AQAH accounts come from? Getting cash into Lebanon is a labyrinthine operation, designed to dodge Western sanctions, and often involves Iran. According to several Western officials, Iran’s ambassador brings cash on a private jet each time he arrives in Beirut. Funds dribble in through a network of small currency exchanges that Iran uses to take payments for oil. Hizbullah officials are also employed as middle-men for Iran’s oil trade. According to America’s Treasury, Muhammad Qasim al-Bazzal, one of the group’s financiers, each year trades Iranian oil worth hundreds of million dollars.
Iran provides $700m a year in direct support. Less than $200m of this makes it to Hizbullah’s civilian administration—far from enough to fund its varied social programmes. The rest is siloed in the budget of the military wing, which is kept away from the organisation’s bureaucrats, so as to prevent them from being subject to the extremely strict American sanctions, including secondary penalties, that the military wing already faces.
Such distance enables Hizbullah’s bureaucracy to solicit funding via a network of humanitarian charities, into which money pours from Europe and North America. Sanctioneers spend a lot of time trying to work out whether new charities are fronts for Hizbullah’s financiers, or genuine. The Martyrs Foundation distributes handouts to families of Hizbullah fighters; America placed it under sanctions in 2021.
Other sources of finance are unambiguously illicit. The Treasury reckons that Nazem Ahmad, just one dubious financier, has overseen at least $1bn in sales of goods, including art and diamonds, in the past decade. According to American officials, many of the most dodgy flows arrive from West Africa and Latin America. The Ivory Coast is a hotspot for the gem trade; Colombia plays a similar role for drugs. Different regions send cash in different ways. West Africa favours jets laden with cash, whereas South-East Asia tends to opt for disguised remittance payments.
Lebanon’s government is a final source of finance. Hizbullah’s allies control ministries and, though the government has been in debt default since March 2020, it has not stopped spending. The state is due to disburse 20% more than it takes in through taxes this year, with money cobbled together from monetary financing and international aid. Western officials believe that contracts go to firms that employ off-duty Hizbullah fighters, among other forms of patronage.
Even before Israel bombed AQAH branches, war was putting this system under strain. Of the million or so Lebanese people displaced in the past month, some 150,000 are believed to be in Hizbullah-run areas. Payments to injured soldiers and the families of those killed are growing. On top of this, many of the most experienced financial tsars have been killed, prompting a drastic reshuffle, which has in turn spooked backers abroad, who are nervous of being linked to Iran or Hizbullah’s military arm. Foreign donors mostly want to fund orphanages rather than explosives.
Iran is unlikely to come to the rescue. Despite its military support for Hizbullah, the country is itself mired in economic difficulties and will not have an appetite to bail out its ally’s welfarism. America is seeking support for a plan to force Hizbullah out of Lebanon’s government, which would only add to the group’s problems. Its soldiers are now said to be complaining of not being paid on time. And Israel’s targeting of AQAH could throw everything from hand-outs to Lebanon’s financial plumbing into disarray. As a Western sanctions official puts it: “Job done, for us.” ■
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