By Emanuele Ottolenghi
The convergence of Iran-sponsored radical Islam with transnational organized crime in Latin America is a serious threat to the national security of the United States, especially in the tri-border area, or TBA, where Argentina, Brazil, and Paraguay converge.
In this area, Hezbollah supporters and operatives engage in illicit activities that generate tens of millions of dollars for Iran’s Lebanese terror proxy, while laundering money for local organized crime. In some cases, their trade-based money laundering operations extend into the United States, posing a direct threat to the integrity of its financial system.
Congress and the executive branch have a panoply of tools at their disposal to confront this menace. Yet since the last round of designations against the TBA-based Hezbollah financial activities in 2006, very little has been done to address the threat. This needs to change.
First, the U.S. needs to devote more resources understanding the nature and extent of the problem. Though U.S. authorities know that Hezbollah’s terror finance operations in Latin America are a growing threat, to date they have not been able to estimate its value accurately.
A 2004 Naval War College study and a 2009 Rand Corporation report put Hezbollah revenues from the tri-border area alone at between $10 million and $20 million, or between 10 percent and 20 percent of Hezbollah’s estimated $100 million annual operating budget as of 2004. Since then, Hezbollah’s growing involvement in Syria’s bloody civil war makes it likely that its needs have expanded significantly, making its overseas fundraising operations more critical to its overall finances.
Nevertheless, in his 2015 posture statement before Congress, then-commander of the U.S. Southern Command, Gen. John Kelly, lamented that “our limited intelligence capabilities make it difficult to fully assess the amount of terrorist financing generated in Latin America, or understand the scope of possible criminal-terrorist collaboration.” That should be a wake-up call for Congress and the White House to recognize that more resources need to be devoted to this challenge.
The U.S. government also needs to revamp its sanctions. The U.S. Treasury sanctioned Hezbollah operatives in the tri-border area in 2004 and then again in 2006. A decade later, these measures have neither been enforced nor updated, and those targeted are able to travel, transact, and conduct business as if there were no sanctions.
It is important that the U.S. rectifies this state of affairs, for two reasons. First, sanctioned operatives may continue to engage in nefarious activities. Second, the lack of sanctions enforcement undermines their credibility and deterrence.
Legislation to confront Hezbollah’s illicit financing, which Congress passed in 2015, empowers the president to redress this problem, but until now the executive branch has only leveraged its new authorities to go after Hezbollah’s finances in the Middle East.
The Obama administration relied on these measures to disrupt Hezbollah’s financial flows in Lebanon and the Gulf. The Trump administration should now aim these tools at Hezbollah’s Latin America operations.
There is also another problem the U.S. needs to address: In the tri-border area, Hezbollah has benefited from a permissive environment where corrupt local officials connive with Hezbollah for their own gain.
A $1.2 billion money laundering investigation by Paraguayan authorities last November, which a 2017 State Department report cites as evidence of corruption in Paraguay, offers proof of ongoing trade-based money laundering in the TBA and a related cover-up by local authorities. Local sources told this author that the investigated companies were given a 48-hour advance notice about the search warrants against them.
U.S. officials familiar with the case privately complained of subsequent obstructionism at the highest levels of power preventing attempts by U.S. law enforcement agencies to gain access to files. U.S. offers to cooperate were politely but decisively rebuffed.
Local authorities cannot be relied on to address the challenge of Hezbollah’s terror finance, due to a mixture of incompetence and complicity. Hezbollah networks and their local criminal partners use their criminally acquired wealth to buy political influence, thereby ensuring their impunity. They thrive in a corrupt environment where local politicians either collude or are too fearful to push back.
Only the United States can break this stranglehold and cause serious damage to both terrorists and their criminal partners. That’s why the U.S. must also target local financial institutions facilitating terror finance, inflict penalties to service providers, blacklist corrupt politicians and prosecutors, and restrict their access to the U.S. financial system and even to U.S. soil, by denying visas and freezing assets.
Local enablers have so far not paid any significant price for their collusion. Tough U.S. sanctions that hurt them in their pocket and their public status would create strong incentives to reverse the current situation.
The U.S. should also demand that local governments put an end to this type of impunity or face consequences,including designations under Section 311 of the Patriot Act against local financial institutions known to be used by Hezbollah financiers.
Once an institution is identified to be a primary money laundering concern, Section 311 gives the Secretary of Treasury a range of options, including prohibiting correspondence relations, imposing additional reporting burdens, and other such steps that, overall, can drive a bank’s operations aground. Besides, a 311 designation has dire reputational consequences for a bank, as the 2011 Canadian-Lebanese Bank case proved.
The U.S. should also work with regional allies, potentially through international forums like the Financial Action Task Force, to blacklist government entities that cooperate with Hezbollah in Latin America and go as far as to designate the entire banking sectors of countries, such as Paraguay, that facilitate Hezbollah’s terror finance, as zones of primary money laundering concern.
Although this measure is almost unprecedented, the devastating impact it has had on Iran and North Korea’s banking sectors is notable for its effect. U.S. government resolve to use this tool as the ultimate weapon against obstruction by regional governments could prove very persuasive.
To date, no Latin American country has listed Hezbollah as a terror organization. Such a step, coupled with adequate anti-terrorism legislation, would empower local governments to go after Hezbollah much more effectively and, if properly enforced, would have a multiplying effect on U.S. sanctions. The U.S. should use its considerable leverage to persuade allies in the region to change that and engage them to ensure they have adequate legislative tools to investigate terrorist activities and terror finance.
Finally, the U.S. can offer financial incentives, logistical and technical support, and training to help build capacity in the fight against terror finance. And it can leverage these incentives to facilitate cooperation between countries that prize their relation with Washington more than their own bilateral ties.
The global targeting of Hezbollah’s terror finance remains a top U.S. priority. Getting this right in Latin America remains to be seen.
Emanuele Ottolenghi is a senior fellow at the Foundation for Defense of Democracies, an institute focused on foreign policy and national security.