UANI Reveals Lebanese State-Sponsored Iran/Hizballah Money Laundering Scheme that Fraudulently Supports Lebanon’s Sovereign Debt Market, Calls for Bondholder Divestment

UANI Investigation Uncovers Scheme to Artificially Support Lebanon’s Sovereign Backed Securities

Financial Institutions Begin to Divest Lebanese Sovereign Debt in Response to UANI Campaign

NEW YORK--(BUSINESS WIRE)-- On Tuesday, United Against Nuclear Iran (UANI) announced the results of a confidential, three month-long investigation into the influence of Iran and Hizballah in the Lebanese banking system (LBS) and Lebanon’s sovereign bond market, and announced a campaign to compel legitimate financial institutions into divesting from Lebanon’s bond market.

UANI research and analysis, being made public for the first time today, reveals the existence of a state-sponsored Lebanese money laundering scheme involving Lebanon’s Central Bank—Banque du Liban (BDL)—and the LBS under the direction and influence of Iran and Hizballah. Lebanon has employed a state-sponsored money laundering scheme to “wash” Iranian and Hizballah illicit monies, in order to artificially and fraudulently support Lebanese debt securities.

Over the past weeks, UANI has confidentially called on numerous institutions that hold and/or trade Lebanese debt securities to divest from those securities. Certain institutions have already divested as a result, including Erste-Sparinvest, Aktia, Eaton Vance, and Ameriprise Financial.

UANI is making its investigation public now, and calling on all financial institutions to divest from Lebanon’s Sovereign Debt market, and for all credit rating agencies to re-rate Lebanon to a “no rating” as a result of this fraud. Given its financial fraud in support of Iran and Hizballah, UANI additionally calls for Lebanon to be cut off from the U.S. financial system under Section 311 of the USA PATRIOT Act.

After a series of correspondences with Lebanon’s Central bank Governor, Riad T. Salamé, UANI CEO, Ambassador Mark D. Wallace, outlined UANI’s findings in a May 28 letter to him:

As a result of the actions and omissions of BDL and the LBS, Lebanon has become a sovereign money laundering jurisdiction that receives massive inflows of illicit deposits…. from Hizballah terror and criminal activities, and the illicit symbiotic relationships among Iran, Syria and Hizballah that is founded on terrorism, the material support of terrorism, and weapons transfers, including as related to weapons of mass destruction. Building upon a foundation of such massive inflows of illegitimate monies, Lebanon has portrayed a false image of economic legitimacy and stability to global markets, particularly as related to its sovereign bonds and related securities including the credit default swaps (“CDS”) that “insure” those bonds. In fact, the real picture of Lebanon and its sovereign backed securities reveals a fraud and market manipulation that is used by Hizballah, BDL and the LBS to continue money laundering on a massive scale. Attached to this letter, we provide a detailed economic analysis in a presentation that describes this fraud…. BDL and the LBS meet the criteria for determination under Section 311 of the USA PATRIOT Act of 2001 (“USA PATRIOT Act”) as a jurisdiction of primary money laundering concern that would result in their ban from the U.S. financial system.

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Iran’s role in Hizballah is no secret, but just in February of this year did Hizballah’s leader Hassan Nasrallah acknowledge that Hizballah was financially supported by Iran. That support is reported to be at least hundreds of millions of dollars per year and we believe much more based on the information contained herein. Iran’s support is the keystone by which Hizballah has built its dominant presence in Lebanon and avoided the economic stranglehold of U.S. and EU sanctions.

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Given the large-scale nature of the illicit finances that support Hizballah from Iran’s backing and the inflow of other illicit funding, the transacting of that support has to be facilitated by financial institutions – Lebanese banks. Ultimately, the vast majority of these illicit funds are laundered by Bayt al-Mal, Hizballah supporters, front companies and businesses into the Lebanese financial system including and primarily its banking system. But what was once a mechanism for providing financial support for Hizballah has also become a symbiotic financial relationship that allows Iran to evade the growing crush of international sanctions and the possible loss of its brutal ally, Bashar al-Assad in Syria. Now, the Lebanese banking system also provides the means by which Iran transacts funds transfers to ensure the dependability of its Hizballah proxy in order for Iran to evade the effects of sanctions and the growing international banking blockade against the regime.

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By traditional economic indicators Lebanon’s economy is in shambles. Lebanon suffers from an extraordinarily high level of debt and extremely high debt to GDP ratio. For example, while Lebanon’s GDP is around $40 billion, roughly equivalent to Uruguay, Lithuania, Costa Rica or Ghana, its sovereign debt is $53.8 billion – the fourth largest debt to GDP ratio (137% as of December 2011) in the world. The obvious risk of sovereign default is great – unless there is a fraudulent hidden scheme driven by Hizballah and its state sponsors, Iran and Syria, to support this economic house of cards. There is exactly such a scheme.

The irrational strength of Lebanese sovereign bonds corresponds with same time period of increased sanctions pressure against Iran. Iran has sought to avoid sanction pressure by directing more and more support to Hizballah to ensure the stability of its key proxy, and to ensure a financial outlet. Coupled with Hizballah’s criminal activities (and the flight of some capital from Syria), the result is vast inflows of deposits into the LBS. As a result, with all economic indicators pointing to a serious risk of sovereign default, Lebanon’s currency and banking system act like the currency and banking system of a far more successful sovereign.

Notably, the illicit Hizballah cash inflows into Lebanon have been gradually increasing coincidental with the rise of sanctions against Iran and as Syria falters. Once laundered into the LBS as bank deposits, the Lebanese banks pay relatively high interest rates and the deposits have to be put to work by the LBS to earn income for the banks. Among other illicit activities, the LBS utilize these deposits to purchase Lebanese sovereign bonds. The LBS’s large-scale purchases of Lebanese sovereign debt effectively price support and stabilize what would otherwise be a far more volatile security. The market effect is that Lebanese sovereign bonds and its central banking system are artificially stabilized. Given the size of this financial support, such support can only come from either or both of illicit activities and a state actor – namely Iran.

Lebanon uses the massive cash inflows of criminal funds and Iranian support to fraudulently prop up Lebanon’s struggling economy and to manipulate the market for its sovereign debt and the securities that “insure” that debt. Simply put, Hizballah cash is laundered into the LBS, whose institutions purchases Lebanese sovereign debt, thereby manipulating the yield on such securities to appear far more stable and resistant to default. Lebanese sovereign bonds (and related CDS) are a product of a sovereign money laundering scheme.

Based on the foregoing, the LBS can no longer be seen as a legitimate and independent banking system. The LBS is a fraud. Though the Lebanese banking system was once a great and well regarded sovereign banking system, it has evolved into a state-sponsored money laundering enterprise that enables the hidden large scale infusion of criminal and Iranian funds into Lebanon. The focal point of the fraudulent Lebanese banking system centers on BDL.

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As you know Lebanese sovereign bonds are offered as a security for sale in the United States subject to the rules of the United States as well as other jurisdictions where such debt is offered. The manipulation of Lebanese sovereign-backed securities and their fraudulent underpinnings violates a variety of U.S. securities laws. As a result of the foregoing, the various credit rating agencies should issue a “no rating” for Lebanese sovereign debt. Moreover, all holders of Lebanese sovereign debt and related securities should divest their ownership of such fraudulent securities.

Based on the foregoing and other acts and omissions, BDL and the LBS have been systematically perverted for the benefit of Hizballah and its state sponsors, Iran and Syria. Pursuant to Section 311 of the USA PATRIOT Act, Title 31, United States Code, 5318A, the overwhelming evidence supports the conclusion that, because of the actions of BDL and the LBS, many of the institutions operating within the LBS are money laundering concerns and, because of the pervasive influence of Hizballah, Lebanon is a jurisdiction of “primary money laundering concern” that would require the United States to impose “special measures.”

Under the terms of Section 311, such “special measures” should include the “fifth special measure” that would prohibit any U.S. financial institution or agency from maintaining correspondent accounts on behalf of a or all Lebanese institution(s). Simply put, under the terms of the USA PATRIOT Act, significant elements of the LBS including BDL, if not Lebanon itself, should be cut-off from the United States financial system.

In a separate letter to Lebanese bondholders including Blackrock Fund Advisors, American Life Insurance Company, Fidelity Management & Research, Blackrock Asset Management, Erste-Sparinvest, Aktia, and Ameriprise Financial, Ambassador Wallace called for divestiture:

The purpose of this letter is to place you on notice of our grave concern related to certain Lebanese sovereign backed and related securities that you (apparently) hold in portfolio and to call upon you to divest from all Lebanese sovereign backed debt securities that you may hold….

For some time, United Against Nuclear Iran (“UANI”) has been investigating the role of Hizballah, Iran and Syria in the Lebanese banking system (“LBS”). As part of this investigation, we have relied on both public and confidential sourcing. UANI has been corresponding with and making inquiry with the central bank of Lebanon, Banque du Liban (“BDL”) and its governor, Riad Salamé. As a product of that correspondence and investigation regarding the insidious role of Hizballah, Iran and Syria in the LBS, UANI has revealed that Lebanon is a sovereign money laundering operation that enables Lebanon to support a fraudulent market for its sovereign bonds.

Simply put, the value of Lebanese sovereign bonds and related securities is based on a massive fraud.

Attached for your review is our most recent correspondence with Governor Salamé, which includes an economic analysis of Lebanon’s sovereign debt. The correspondence and UANI’s presentation reveal a sovereign money laundering scheme that creates a fraudulent sovereign debt market.

By this letter, UANI calls on you and all Lebanese sovereign bond and credit default swap (“CDS”) holders to divest all such securities that are, of course, far riskier in nature than they appear on their surface in order to ensure that you do not unwittingly support Lebanon’s role as a sovereign money launderer and its sovereign debt fraud.

In a third letter to the world’s leading bond credit agencies, including Moody’s, S&P and Fitch, UANI called for the issuance of a “no rating” for Lebanon:

The purpose of this letter is to place you on notice of our grave concern related to Lebanese sovereign backed and related securities that your agency rates and to call upon you to issue a “no rating” on Lebanese sovereign backed securities. Currently, you have rated Lebanese sovereign debt B. Based upon the information contained herein, United Against Nuclear Iran (“UANI”) believes that Lebanon’s debt does not deserve this rating, and that you are unwittingly being duped by false Lebanese economic indicators that are in fact a fraudulent scheme.

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By this letter, UANI calls on you and all rating agencies to reconsider its ratings of Lebanese debt and offer a “no rating” on such debt because Lebanese sovereign debt is far riskier in nature than its appears and to ensure that your currently inflated ratings do not unwittingly support the Lebanese debt fraud.

UANI first contacted BDL on February 20, 2012, as part of its successful SWIFT campaign, to express concern with the influence the Iran-backed Hezbollah terrorist network holds in Lebanon’s banking institutions. “Given the insidious influence of Hezbollah in Lebanese financial institutions including banks and money exchanges,” UANI wrote, “Lebanon and the Banque du Liban have a higher duty to the international banking community to demonstrate that they are not complicit – knowingly or unknowingly – in facilitating Iran’s effort to avoid international sanctions.”

Governor Salaméresponded to UANI on February 24, 2012, stating that “Banque du Liban, the central bank of Lebanon, does not have any financial relationship with the Iranian central bank, Bank Markazi.” He also stated that: “There are no Iranian banks in Lebanon except for one branch of an Iranian bank that operates on the Lebanese territory since the 1960s, Bank Sadirat Iran, and which is supervised, as all banks operating in Lebanon, by the Banking Control Commission and the Special Investigation Commission (Lebanon’s Financial Intelligence Unit). The said branches balance sheet totals to a mere USD 135 million with a relatively low volume of transactions. …”

BDL contacted UANI again on April 4, 2012, sending a purported new “Basic Circular” that claimed to adopt a new anti-money laundering/terror financing set of rules for the LBS.

This led UANI to conduct its own financial research and analysis on the Lebanese financial system, and initiate its campaign.

Click here to read UANI’s May 28 letter to Riad Salamé.
Click here to read UANI’s May 28 letter to Lebanese bondholders.
Click here to read UANI’s May 28 letter to the world’s leading bond credit agencies.

United Against Nuclear Iran
Nathan Carleton, 212-554-3296
[email protected]

Source: UANI