On December 18, 2015, President Barack Obama signed into law the Hizballah International Financing Prevention Act of 2015 (HR 2297), which authorizes new sanctions targeting Hizballah (also known as Hezbollah), its media arm al-Manar, and non-US persons who support and finance Hizballah’s operations.
Sanctions on Foreign Financial Institutions
In particular, section 102(a) restricts foreign financial institutions (FFIs) from knowingly:
- Facilitating a significant transaction for Hizballah.
- Facilitating a significant transaction of a person placed on the Specially Designated Nationals (SDN) List as a result of its involvement with Hizballah.
- Engaging in money laundering to carry out the foregoing activities.
- Facilitating a significant transaction or providing significant financial services to carry out the foregoing activities. While not entirely clear, this provision appears to target peripheral services in support of restricted activity.
The provision is effective 120 days after enactment of the law, which is April 16, 2016.
Section 102(f) defines Hizballah to include the Foreign Terrorist Organization designated by the Secretary of State and any person identified on the SDN List as an agent, instrumentality, or affiliate of Hizballah whose property has been blocked pursuant to the International Emergency Economic Powers Act (IEEPA, 50 U.S.C. §§ 1701-1706).
If an FFI does undertake one or more of the foregoing activities in support of Hizballah, section 102(a) of the law requires the President to prohibit or impose “strict conditions” on that FFI’s ability to open or maintain a correspondent or payable-through account in the United States. In addition, if any “person” violates, attempts to violate, conspires to violate, or causes a violation of regulations promulgated pursuant to this law, the law provides that IEEPA penalties “shall” apply. This includes civil penalties of the greater of $250,000 or twice the amount of the prohibited transaction, and criminal penalties – for willful conduct – of up to $1 million and up to 20 years imprisonment.
Section 102(b) authorizes the President to waive sanctions where he determines that such a waiver is in US national security interests and submits a report to Congress supporting that determination. In addition, similar to the “Special Rule” contained in the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (Pub. L. 111-195), section 102(c) contains a Special Rule authorizing the President to forego the application of sanctions if the President certifies to Congress in writing that: (1) the FFI is no longer engaging in the sanctionable activity or has taken significant verifiable steps toward stopping it; and (2) the President has received “reliable assurances from the government with primary jurisdiction over the foreign financial institution” that it will not engage in the sanctionable activity in the future.
The law contains a number of reporting requirements for certain federal agencies to provide information to Congress. Section 101 requires a report on whether to sanction satellite, internet, and other communications providers that carry the Al-Manar television station. Section 201 requires a report on Hizballah’s narcotics trafficking activities and whether it should be designated under the Foreign Narcotics Kingpin Designation Act (21 U.S.C. §§ 1901-08). Section 202 requires a report on Hizballah’s transnational criminal activities and whether it should be designated as a Transnational Criminal Organization under Executive Order 13581. Section 203 requires a report on actions taken by the Department of State via its rewards program to gather information on Hizballah’s fundraising, financing, and money laundering networks.
Section 204 requires detailed reporting on which countries are or are not taking sufficient steps to disrupt Hizballah, including:
- A list of countries that support Hizballah – including agents, affiliates, and financiers – or in which Hizballah maintains important components of its global network
- An assessment of whether those governments are taking adequate measures to disrupt Hizballah’s networks
- An assessment of why certain countries may not be taking adequate measures
- An overview of actions being taken by the United States to encourage those governments to improve their measures to disrupt Hizballah
- A list of methods that Hizballah uses to raise or transfer funds, including trade-based money laundering, foreign exchange houses, and/or free trade zones
The US government has already designated Hizballah as a Specially Designated Terrorist, Specially Designated Global Terrorist, Foreign Terrorist Organization, and for its support of the Assad regime in Syria. Therefore, Hizballah has already been subject to sanctions, which effectively preclude US persons from having anything to do with Hizballah or entities it owns or controls. This new law serves notice to the non-US financial sector, including banks operating in the Middle East, that the US government continues to scrutinize transactions with Lebanon and Hizballah, and will apply additional secondary sanctions restrictions to try and dissuade foreign financial institutions from being involved with this organization.
This law may also enable the United States to target terrorism financing, money laundering, and criminal activities of an Iranian proxy without violating the Joint Comprehensive Plan of Action (JCPOA) by directly targeting Iran. It languished for a year in the prior Congress without advancing, but picked up the support of JCPOA critic and House Foreign Affairs Committee Chairman Ed Royce (R-CA) after the United States and other world powers reached the landmark agreement with Iran in 2015.
Beyond the political optics, the bill has real implications for non-US companies and foreign financial institutions that do business in the Middle East because Lebanon is a major financial and banking center for the region. Foreign financial institutions – already wary of US sanctions laws after blockbuster fines against banks like BNP Paribas – will likely screen even more closely transactions in the region that may raise concerns about their potential connections to Hizballah or its agents or affiliates. Foreign financial institutions and foreign companies should seek counsel to ensure that their transactions remain compliant with the ever-broadening reach of US sanctions laws.