Webinar in Review
Terrorist Financing: Two Case Studies
While it may not be wholly deserving of an unsavory reputation, Lebanon can still be a perilous banking jurisdiction, fraught with recent examples of terrorist financing activity. We highlighted a pair of these instances in our webinar aired in July 2012, “Terrorist Financing: Two Case Studies.”
Dr. Moyara Ruehsen, a former-Fullbright Scholar and an expert on the Middle East region, first focused on the 2004 Bank Al-Madina, and then dissected the Lebanese Canadian Bank scandal that was exposed in 2011. In these cases, dirty funds were manipulated or redirected to help finance designated terrorist groups.
“It is about terrorism financing, but the real story is a crooked bank that is rotten to the core,” Ruehsen said, likening Al-Madina to the familiar BCCI case. She points out that while Al-Madina and Lebanese-Canadian both shared Lebanese roots, it would be wrong to ascribe their failings to Lebanese banking in general.
In fact, Ruehsen pointed to the hands-on role Lebanon’s Central Bank plays in AML and CFT, with the bank’s governor Riad Salameh attending meetings on regulatory matters. “It would be like Ben Bernanke sitting in on FinCEN meetings,” she explained.
Still, because of its geographical configuration and the prevalence of certain extremist groups near there, Lebanese banking remains at risk to terrorism-tinged transactions.
The webinar explored how brothers Adnan and Ibrahim Abu Ayash, after acquiring the bank in 1984, used it to operate what was essentially a Ponzi scheme and pay off politically exposed persons, including Syrian military officials and the son of Lebanon’s president.
Their investment scheme fell apart in 2003 when Iraq’s economy fell to pieces. Although many details of Al-Madina’s failing were withheld at the time due to a fear of Syrian retaliation, in recent years, the scandal was revisited in and the aftermath – $1 billion in lost deposits – was examined. The result has been more careful banking supervision and stringent AML efforts, according to Ruehsen.
She went on to illustrate how Ahmad Safa, as the Assistant General Manager of Operations and Branches at now-absorbed Lebanese Canadian Bank, helped hide certain transactions from scrutiny.
Narcotics traffickers moved up to $200 million a month using a complex web of transfers and used car dealers to facilitate the laundering. While Ayman Joumaa, the head of the cartel, was not a member of the Hezbollah terrorist organization, he nonetheless utilized the group’s couriers, as well as Hassan Ayash Exchange and Ellissa Exchange.
While the bank’s leadership was unaware, their inside man, Safaa, was able to steer financing around the controls in place. Said Ruehsen: “Here’s where KYE comes into play: Know your employee.”
After the United States Drug Enforcement Administration was tipped off and the scandal erupted, Lebanese Canadian Bank was absorbed by Societe Generale.