FinCEN Alert & Red Flags to Counter Financing of Hizballah and Its Terrorist Activities

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an alert to assist financial institutions in identifying and reporting suspicious activity supporting Lebanese Hizballah (Hizballah), a U.S.-designated Foreign Terrorist Organization.

The alert builds upon FinCEN’s May 2024 advisory on Iran-backed terrorist organisations and offers a comprehensive overview of Hizballah’s global criminal financial networks.

The full alert is available online at FIN-2024-Alert003.  https://www.fincen.gov/sites/default/files/shared/FinCEN-Alert-Hizballah-Alert-508C.pdf

THE FOLLOWING IS SUMMARY OF THE ALERT

1. Hizballah is part of a network of Iran-backed terrorist organisations that seeks to erode U.S. influence in the Middle East and encircle Israel with hostile forces.
2. Hizballah has engaged in ongoing violence against Israel since its inception in 1982 and is responsible for multiple large-scale terrorist attacks around the world, to include attacks against U.S. interests and persons.
3. In addition to receiving hundreds of millions of dollars in support from Iran, Hizballah’s revenue-generating activities are global in scale and include oil smuggling, money laundering, black market money exchange, counterfeiting, and illegal weapons procurement.

HIZBALLAH’S FINANCING AROUND THE WORLD

1. Hizballah’s revenue generation, procurement, and recruitment activities are global in scale, extending to Africa, Asia, Europe, and the Western Hemisphere.
2. As noted in the May 2024 FinCEN Advisory, Iran has provided hundreds of millions of dollars in support to Hizballah, with historical estimates approximating $700 million annually. Hizballah is also a conduit for funds flowing from Iran to other Iran-aligned groups.
3. Additionally, Hizballah has operated in the tri-border area of Argentina, Brazil, and Paraguay, as well as in free trade zones in Panama, to generate revenue for the organisation through licit and illicit activities.
4. The organisation draws revenue and launders funds through networks of businesses in West Africa, Europe, and South America. It has also pursued recruitment, weapons, and explosives precursor procurement efforts in Asia and the Western Hemisphere. Hizballah generates revenue through various illicit activities, including oil smuggling, money laundering, black market money exchange, counterfeiting, and illegal weapons procurement.
5. In some cases, individual Hizballah donors affiliated with transnational organised criminal groups and drug trafficking organisations may donate some of their illicit proceeds to Hizballah.

OIL SMUGGLING

1. Hizballah generates a significant portion of its revenue through the smuggling and sale of Iranian oil and liquified petroleum gas (LPG) to buyers in Asia and the Middle East, often in collaboration with Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF) and Houthi networks.
2. Most of this oil is sold to the People’s Republic of China (PRC); however, the Syrian regime is also a significant buyer.
3. The oil is smuggled by a complex network of facilitators and shipping networks supporting IRGC-QF and Hizballah. These networks use vessels typically owned by front companies in third-country jurisdictions that sail under flags of convenience from unrelated third countries. These networks sometimes blend Iranian oil with oil from other countries to further obfuscate its origins.
4. Hizballah oil smuggling networks often utilise deceptive shipping practices, such as falsifying cargo and vessel documents, ship-to-ship transfers, disabling shipboard automatic identification systems, and changing the names of sanctioned vessels to disguise their oil and LPG shipments.

MIDDLE EAST

1. Within the Middle East, Hizballah profits from smuggling goods such as gold, electronics, and foreign currency from Iran into neighbouring countries for sale. The goods and currency are either smuggled across borders or sold through front companies, and the proceeds are either returned to Iran directly, usually via bulk cash smuggling, or laundered using front companies.
2. Hizballah also profits from numerous business ventures in Lebanon and elsewhere in the Middle East, which are owned or controlled by Hizballah sympathisers and financiers.
3. These financiers leverage networks extending beyond the Middle East into Europe, Asia, and Latin America to provide illicit financial services like money laundering, bulk cash shipping, and black-market currency exchange to Hizballah and other organisations.

WEST AFRICA

1. In West Africa, Hizballah is sponsored by a network of financiers who use their businesses in the diamonds and precious stones, import/export, and high-value art sectors to raise and launder funds on behalf of the organisation.
2. These financiers have also formed front companies to disguise the movement of funds associated with Hizballah or to receive goods shipments as part of trade-based money laundering (TBML) schemes.
3. In some cases, these financiers have leveraged political connections or bribed law enforcement officials to facilitate the movement of funds, including through bulk-cash smuggling.
4. The U.S. government has sanctioned several of these financiers but has continued their illicit activities on behalf of the group using front companies and intermediaries.

LATIN AMERICA

1. Historically, Hizballah operatives have been active in Central and South America, particularly the tri-border region of Argentina, Brazil, and Paraguay, where they have carried out illicit activities ranging from smuggling to TBML to illegal weapons procurement.
2. Hizballah’s External Security Organization Business Affairs (BAC) has developed close ties with South American drug trafficking organisations and has benefited from laundering the proceeds of drug trafficking through elaborate schemes involving the Black-Market Peso Exchange, the Hawala system and intercontinental bulk-cash smuggling networks that span Europe, Latin America, and the Middle East.
3. Numerous Hizballah financiers and supporters have been arrested in South America for providing financial services to the organisation and plotting attacks.

LAUNDERING ILLICIT PROCEEDS

1. Hizballah and its supporters leverage an elaborate global network of front companies and legitimate businesses in the real estate, import/export, construction, diamonds and precious stones, and high-value art sectors to move and launder funds.
2. Treasury’s 2024 National Terrorist Financing Risk Assessment found that Hizballah continues to utilise the U.S. financial system in its money laundering, smuggling, and trafficking schemes.
3. Hizballah and its supporters have transferred funds through the U.S. financial system and attempted to purchase military or export-controlled equipment through front companies.
4. Furthermore, some U.S.-designated Hizballah financiers may seek to evade sanctions using front companies and intermediaries, open and use accounts held in the names of family members or use the services of other unrelated nominees who benefit financially in exchange for having accounts in their names.
5. Hizballah also engages in TBML, with electronics and used cars serving as common means of value transfer. Hizballah has also regularly sought access to the international banking sector and started money transfer businesses to take advantage of ordinary Lebanese citizens' dependence on non-bank financial institutions.
6. The terrorist group has used organisations like trusts and non-governmental organisations in Lebanon to provide financial services and facilitate banking activities, corrupting legitimate structures for their illicit use.
7. Hizballah also uses unlicensed money services businesses (MSBs) in Lebanon and elsewhere—some of which it controls—and the informal financial sector to move and launder funds. In recent years, Hizballah and its facilitators have used convertible virtual currencies to support money laundering activities.
8. However, the group continues to rely extensively on more traditional methods, like bulk cash smuggling. For these activities, Hizballah primarily targets jurisdictions with weak government institutions, porous borders, or corrupt state officials.

RED FLAG INDICATORS FOR HIZBALLAH FINANCING

These red flags are in addition to those identified in FinCEN’s 2024 Advisory on IRAN-BACKED TERRORIST ORGANIZATIONS, all of which remain relevant.

• https://www.fincen.gov/sites/default/files/advisory/2024-05-07/FinCEN-Advisory-Iran-Backed-TF-508C.pdf

As no single red flag is determinative of illicit or suspicious activity, financial institutions should consider the totality of available facts and circumstances, such as a customer’s historical financial activity, whether the transactions are in line with prevailing business practices, and whether the customer exhibits multiple red flags before determining that behaviour or transaction is suspicious.

1. A customer or a customer’s counterparty conducts transactions with entities and individuals that OFAC has designated due to their connection with Hizballah or conducts transactions that contain a nexus to identifiers listed for OFAC-designated entities and individuals affiliated with Hizballah, including email addresses, physical addresses, phone numbers, passport numbers, or convertible virtual currency addresses.
2. A customer or a customer’s counterparty utilises the services of foreign financial institutions identified as being of “primary money laundering concern” under section 311 of the USA PATRIOT Act referencing their association with, or use by, Hizballah.
3. A customer conducts transactions with an MSB or other financial institution, including one that offers services in convertible virtual currency that operates in jurisdictions known for, or at high risk for, Hizballah terrorist financing activity, such as the tri-border region of South America, the Middle East, or West Africa, and has opaque ownership or whose beneficial owners are known associates of Hizballah.
4. A customer conducts transactions that originate with, are directed to, or otherwise involve entities that are known or suspected front companies or other companies whose beneficial ownership information indicates that they may have a nexus with Hizballah. Indicators of possible front companies include opaque ownership structures or residential or co-located business addresses.
5. Invoices—particularly for shipments of electronics leaving the United States for the tri-border region of South America or the PRC or used cars being shipped from the United States to West Africa—appear to over- or under-charge the recipient, especially if the goods do not seem to correspond with the counterparty’s stated line of business and/or if the payments for those goods are facilitated by a Lebanese or Hizballah-connected financial firm, or a branch of a Lebanese or Hizballah-connected financial firm located abroad.
6. Transactions and wire transfers refer to underlying commercial activity that involves bills of lading with no consignees or involves vessels that have been previously linked to suspicious financial activities or registered to sanctioned entities connected with Hizballah, the Houthis, the IRGC-QF, or the Syrian regime. Documentation, such as bills of lading and shipping invoices, appears to be falsified or omits critical information, or there are inconsistencies between shipping-related documents and maritime database entries.
7. A customer, domestic or foreign, with businesses in the real estate, import/export, construction, diamonds and precious stones, or high-value art sectors with numerous international counterparties in high-risk jurisdictions for Hizballah financing makes an unusually high number of cash deposits in business accounts, transfers funds from business to personal accounts or vice versa, or uses personal accounts or personal credit cards to make business payments.

Source

https://www.fincen.gov/sites/default/files/shared/FinCEN-Alert-Hizballah-Alert-508C.pdf