Lebanon's central bank bans dealings with Hezbollah finance arm

Lebanon’s central bank, the Banque du Liban (BDL) on Tuesday issued a directive banning financial institutions from dealing with unlicensed entities, including Hezbollah’s crisis-hit financial arm, Al-Qard Al-Hassan.

In a circular, BDL said all banks, licensed financial institutions, intermediaries, and collective investment schemes are prohibited from engaging in any direct or indirect transactions, financial, commercial, or otherwise, with unlicensed money exchange and transfer entities.

BDL explicitly named Hezbollah’s Al-Qard Al-Hassan Association, along with Tasheelat S.A.L., Al-Yusr for Finance and Investment, Bayt al-Mal Lil Muslimin, and other institutions listed on international sanctions lists.

The ban includes providing or facilitating any form of financial or brokerage services, lending, leasing, or financing arrangements, and granting access, direct or indirect, to Lebanon's banking system in any currency.

The move aims to "prevent dealings with unlicensed entities and those subject to international sanctions, ensuring compliance with regulatory requirements and maintaining the integrity of Lebanon's financial system", the circular said.

Crackdown amid financial crisis

The decision comes as Lebanon seeks to clamp down on its cash-based economy, which has grown significantly since the 2019 financial collapse. The country remains on the Financial Action Task Force's (FATF) grey list and an EU blacklist for money laundering.

Authorities say they are working to change this, with the government pledging sweeping reforms, including a bank restructuring bill expected to go to parliament. International institutions such as the World Bank and IMF have made these reforms a precondition for financial aid.

However, BDL's move to target Al-Qard Al-Hassan has drawn particular attention.

Operating outside the formal banking sector, Al-Qard Al-Hassan provides interest-free Islamic loans and has been accused by critics of functioning as a shadow bank for Hezbollah. Some have called for its shutdown or integration into Lebanon's regulated financial system.

Local media reports suggest the central bank's decision, regardless of the practical impact, was meant to send a positive signal to the international community.

Mounting pressure on Hezbollah

The decision adds further pressure on Hezbollah, which is facing a deepening financial crisis. The group, blacklisted as a "terrorist" organisation by the US and several Western and Arab states, is under increasing scrutiny.

Once dominant in Lebanese politics, Hezbollah is struggling to maintain its vast social service network. The group is also under pressure to disarm, both under last year's ceasefire agreement with Israel and in line with Lebanon’s constitution, which mandates a state monopoly on arms.

With much of the destruction from the war was concentrated in Shia-majority regions where Hezbollah dominates, the group has faced growing demands to compensate residents for lost homes and businesses.

Al-Qard Al-Hassan's branches were bombed by Israel last year, and the association recently announced a freeze on war compensation payments due to financial constraints.

Iran, Hezbollah’s main backer, is also facing economic hardship after a 12-day conflict with Israel and tightening Western sanctions.

US welcomes Lebanese action

Since the Hezbollah-Israel ceasefire, Lebanese authorities have stepped up efforts to monitor the country’s airports, ports, and border crossings, aiming to curb the smuggling of funds linked to Hezbollah.

Earlier this year, Lebanon banned flights from Iran over suspected cash smuggling—an allegation denied by both Tehran and Hezbollah.

Commenting on the Central Bank’s decision, US Ambassador to Turkey and Special Envoy to Syria, Tom Barrack, praised the move as “a step in the right direction.”

"A step in the right direction by the Lebanese government in harnessing the flow of Hezbollah militia finances that had been directed thru Al-Qard Al-Hassan," he said in a post on X.

"Transparency and alignment of all financial intermediaries in Lebanon under the supervision of the Central Bank is a valued and necessary accomplishment."

Barrack is expected to return to Beirut later this month to discuss Lebanon’s plans for disarming Hezbollah and other armed groups.