Special Online Briefing with Brian E. Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence

MODERATOR:  Greetings to everyone from the U.S. Department of State’s Dubai Regional Media Hub, and Ramadan Mubarak.  I would like to welcome our participants joining from the Middle East and around the world for this on-the-record briefing with the U.S. Treasury Department’s Under Secretary for Terrorism and Financial Intelligence Brian Nelson.  Under Secretary Nelson will brief on the Office of Foreign Assets Control [OFAC] April 4th designation of two Lebanese businessmen and on the U.S.’ anti-corruption strategy in Lebanon.  After opening remarks, Under Secretary Nelson will take questions from participating journalists.

We are pleased to offer simultaneous interpretation for this briefing in Arabic.  We request that everyone keep this in mind and speak slowly.

I’ll now turn it over to Under Secretary Nelson for his opening remarks.  Under Secretary, the floor is yours.

UNDER SECRETARY NELSON:  Thank you so much and I’m glad to be here, and I should say good evening and Ramadan Kareem.  Thank you for joining, and I especially appreciate those of you who are joining us after breaking fast.

As you all well know, the United States remains extremely concerned about the coercive effects of corruption in Lebanon.  Since October 2019, Lebanese elites have ignored the public’s calls for transparency and reform while shielding their own assets from depreciating by transferring their own money out of the country to other jurisdictions.

The U.S. Treasury estimates that since the beginning of the October 2019 protests, Lebanese banks allowed some customers to transfer at least $456 million to their own foreign accounts.  Meanwhile, Lebanese people are facing deteriorating energy infrastructure due to lack of action on reforms, mismanagement, and endemic corruption.  This compounds difficulty for the Lebanese people struggling in a profound economic downturn.

Yesterday the U.S. Treasury imposed sanctions on Raymond and Teddy Rahme, two brothers who used their companies to secure energy contracts through a highly opaque process.  The action supports those in Lebanon who want to break from the corruption and mismanagement that pushed Lebanon into this crisis.

Raymond Rahme’s company, ZR Energy DMCC, won a December 2019 Lebanese Government contract to import 150,000 tons of fuel to help avoid a fuel crisis in Lebanon.  Instead of importing quality fuel, his company imported tainted fuel.  They profited while their below-grade fuel destroyed power stations and took a toll on the Lebanese people.  Although ZR Energy DMCC is nominally registered as owned by a Rahme business associate in the UAE, make no mistake; it is controlled by the Rahme brothers.

In 2020, a Lebanese judge charged ZR Energy DMCC with bribery, fraud, and money laundering for its role in the tainted fuel import scandal.  While the brothers have tried to disassociate themselves, even ZR Energy DMCC’s executive secretary and a finance officer have attested in the course of legal investigations that the brothers control and finance the company.

The initial charges brought against the Rahme brothers and their companies, which Lebanese prosecutors never followed through with, pointed to a system put in place over years to falsify test results in exchange for bribes ranging from $200 to $2,500 for each fuel sample.  That is not to mention the gifts of all kinds – the vouchers, the watches, ties, handbags, ounces of gold, as well as trips abroad, among others, according to local press.

Treasury designated the Rahme brothers to impose personal financial costs on those who engage in corrupt practices at the expense of the Lebanese people.  Yesterday’s designations highlight how corruption is particularly endemic to the electricity sector in Lebanon.  Despite officials’ vows to improve the provision of electricity, blackouts continue to plague most of the country and hinder the provision of essential services.

In most countries, electricity production increases state revenues.  But despite spending tens of billions of dollars over the past decades, the ministry of electricity and the Électricité du Liban have left ordinary Lebanese vulnerable to the so-called “generation mafia” and the rest of the dysfunctional electricity sector has drained state funds and padded the foreign bank accounts of Lebanese businessmen.

Such blatant violations force us to ask the question:  Why has the Lebanese Government not held Raymond and Teddy Rahme along with ZRE Energy DMCC accountable, and when will the government begin to pass and implement meaningful reforms in the electricity sector?  By taking actions like this, we are making clear that the U.S. Government prioritizes accountability and the rule of law in Lebanon irrespective of political affiliation or religion.

Our message to the people of Lebanon is this:  The United States hears your calls for transparency and accountability; and to those choosing between continuing corrupt practices or creating change, know that we will continue to sanction those who profit from corruption, money laundering, and threats to the Lebanese people.  We call on Lebanese politicians to end the political gridlock, elect a president, form a government, and undertake the reforms needed to pave the way for Lebanon’s economic recovery.

This is not the first time we have taken action against corrupt actors in Lebanon.  And if corrupt activities continue, it will not be the last.  This action sends a clear message to those in power in Lebanon:  Cease any corrupt dealings or risk becoming the focus of our next investigation.

And with that, I will take questions.

MODERATOR:  Thank you very much, Under Secretary.  We will now begin the question-and-answer portion of today’s call.  We will start with a pre-submitted question, and the first question goes to Maher Khatib from Alnashra.com.  And the question is: “Is there a political message behind the new sanctions related to the upcoming presidential elections – election?”  Under Secretary, over to you.

UNDER SECRETARY NELSON:  Thanks for that question.  No, there is no political message.  The way we build our sanctions packages is that they take time to meet certain legal criteria.  In this case, OFAC, the Office of Foreign Assets Control, determined that they had sufficient evidence to designate the Rahme brothers at this time, and that has been the thing that has driven the timing of our actions over the last day.

MODERATOR:  Thank you.  The next question goes from the live queue to Michel Ghandour from MBN/Al Hurra.  Michel, please go ahead.  You can go ahead and unmute yourself and ask your question.

QUESTION:  Yeah, can you hear me?

UNDER SECRETARY NELSON:  We can hear you.

QUESTION:  Okay.  Thank you for doing this call.  My question is: Are these sanctions related to the presidential elections in Lebanon?  And did you want to send any message to the candidate Sleiman Frangieh, who is close to the Rahmes?

UNDER SECRETARY NELSON:  No.  It’s not related to the presidential election at all.  This action is focused on demonstrating the consequences for elites who continue to engage in corrupt practices in Lebanon.  I believe my colleague Assistant Secretary Leaf also said this is: “an overwhelming urgency for parliament to elect a president, to form an empowered government, and implement critical economic reforms in order to set Lebanon back on the path to recovery.”  So we fully encourage that activity to happen.  But this action, again, is just solely focused on demonstrating the consequences for elites – for these elites who have engaged in corrupt practices in Lebanon and for the conduct noted in the release and in the designation.

MODERATOR:  Thank you.  And the next question goes to – this pre-submitted question – to Monalisa Freiha from Annahar newspaper.  And the question is: “Can we uncover more details about the Rahme brothers’ political connections within and beyond Lebanon?  Are their activities linked to any other OFAC designations?”

UNDER SECRETARY NELSON:  No.  So these designations are related to the harmful impact of the Rahme brothers’ actions with respect to the tainted fuel.  And while we are aware of other allegations related to the brothers, the designations today again just relates to the conduct that has been noted in the designation in our press release.

MODERATOR:  The next question will come from the live chat from Rawad Taha from LBCI Lebanon.  And the question is: “What is expected to happen to businesses controlled by the Rahme brothers in Lebanon, such as hotels or other real estate assets, for example?”

UNDER SECRETARY NELSON:  So for U.S. persons, as a result, these designations, these can’t interact with any property held by the Rahme brothers.  So in the context of the designations that we’ve announced, it prevents U.S. persons from interacting with the Rahme brothers’ properties.  Obviously, in terms of other legal consequences, it would be up to the Lebanese judicial system to determine whether the brothers should face legal consequences for their actions, and then sort of those attendant consequences under Lebanese law.

MODERATOR:  And the next question comes from the live queue, from Adam Charmseddine from Al Jadeed TV.  Adam, please go ahead and unmute yourself and ask your question.

QUESTION:  Thank you, Mr. Under Secretary.  My question is: You have mentioned in the beginning of the conference that Lebanese banks has transferred the – transferred around 40 — $460 million brought for certain customers.  Some information or intel suggests that the Rahme brothers have shares in Lebanese banks.  Could this designation affect any of the Lebanese banks?

UNDER SECRETARY NELSON:  No.  I mean, obviously, the consequence of these designations, we hope that the Rahme brothers will face financial consequences.  As I noted, they personally enriched themselves while their companies were importing this tainted fuel and falsifying these quality tests, and that has resulted in just incredible destruction of the electricity infrastructure there.  The designations themselves and the effect of them is really to prohibit the interaction of U.S. persons with their property, and so at this time our belief and understanding would be any U.S. person who would potentially engage with a financial institution where the brothers have an interest would be prohibited from doing that, depending on what the nature of the interest is.

MODERATOR:  Thank you.  And the next question goes to – the pre-submitted questions – to Bassel Aridi from Waradana website.  And the question is: “In recent months, there has been talk of imposing sanctions on political parties, primarily those undermining the rule of law.  Are today’s sanctions of the Rahme brothers a precursor to similar measures targeting former or current energy ministers?”

UNDER SECRETARY NELSON:  As I – first of all, as a principle, we don’t preview future sanctions actions, but that is also rooted in I think what I described in my opening remarks, which is that this has obviously not been the first time we’ve taken action against corrupt actors in Lebanon.  And certainly to the extent that there is evidence of continued corrupt dealings, then there is a risk certainly for those actors, that they’ll be the focus of future U.S. investigations and future sanctions actions.

MODERATOR:  We’re back to the live queue for the questions in the chat from Timour Azhari from Reuters.  And the question is: “Can you expand on the political connections of the brothers?  Who in power helped facilitate the corruption?”

UNDER SECRETARY NELSON:  We are obviously aware of reports implying connections between the brothers and other political actors.  But for the purposes of this designation, that type of information had not factored into our decision to designate the brothers.

MODERATOR:  And we will move back to pre-submitted questions, from Zeyad Aljaperi from Suhail TV: “How significantly do these decisions contribute to cutting off financial resources for Lebanese Hizballah or Iranian militias in the region?”

UNDER SECRETARY NELSON:  So these particular designations are not related to any other OFAC sanctions on individuals who are related to Hizballah or Iran.  This is not a counterterrorism designation.  Certainly, using sanctions to counter bad actors supporting Hizballah and Iran is always a high priority for us, but just to be clear, OFAC’s investigation of the Rahmes and our decision to designate did not have anything to do with Hizballah or Iran.

MODERATOR:  And I will go to Raya Jalabi from the Financial Times from the live queue.  Raya, please feel free to unmute yourself.  Go ahead.

QUESTION:  Hi, Under Secretary Nelson.  Thank you very much for this.  I mean, to follow up on this notion that they’re not – this has nothing to do with their political connections, I wonder why it is that OFAC decided to designate them now.  There’s – a lot of these allegations date back to 2019, and a lot of their sort of dealings have been known about, certainly by OFAC, for many, many years proceeding that moment.  So if it’s not politically connected, then why now?

UNDER SECRETARY NELSON:  It really is just a function of going through, building the evidentiary package.  And once we have met that sufficiency, then at that time we’re prepared to roll out the designation.  And in this case, this was the time that we felt like we have sufficient evidence in order to roll it out, and we have taken the action.

MODERATOR:  Okay.  And we just have time for a couple of more questions.  The next is from Elizabeth Hagedorn from Al-Monitor:  “The Treasury’s press release referenced the brothers’ political connections.  Can you be more specific on who these connections are and how they played a role in the brothers’ corruption?”

UNDER SECRETARY NELSON:  I don’t have any additional details on particular political connections.  Again, I know there’s been a tremendous amount of public press reporting, local and internationally, about those connections.  But again, just to be clear, they were designated as a result of the activities noted in the designation package today.

MODERATOR:  And back to the live queue, to Ali Younes from Arab News.  Ali, feel free to unmute yourself and ask your question, please.

QUESTION:  All right.  Thank you.  Thank you, Under Secretary Nelson.  You’ve mentioned that this – the timing of this designation of the Rahme brothers has nothing to do with political connections in Lebanon, and you connect – you gathered the evidence; it took several years to gather the evidence.  Do you – is the administration – do you guys have any – collecting any evidence against any other entities engaged in corruption of – such as a few in the Middle East region, since it takes years, as you said?  Is there anything in the pipeline or in the process that we will – we should maybe know about at this point?

UNDER SECRETARY NELSON:  I have nothing to announce today, but just to assure that we are – as I noted in my opening remarks, have been and will continue to be deeply concerned about corrupt actors operating in Lebanon who are harming the Lebanese people.  And to the extent we have sufficient evidence to designate corrupt actors who have engaged in corrupt activities in Lebanon at the detriment of the Lebanese people, we will take appropriate action, including sanctions designations.  I’d also just note we’re doing a number of additional things outside of our sanctions authorities, including engaging with the financial sector in Lebanon and all the political engagement that the State Department is leading.  So this is a priority for us, not only here at Treasury but across our government.

MODERATOR:  Thank you.  And we’ll – we have time for one last question from Mohamed Maher Al-Ain News.  And the question is: “What potential legal consequences might the Rahme brothers face due to the charges against them?”

UNDER SECRETARY NELSON:  So it’s really up to the Lebanese judicial system to determine what consequences they will face for their actions.  From our perspective, obviously, if anyone attempts to help them evade our sanctions, they may face legal consequences here in the United States, but certainly we’ll be very supportive of the Lebanese judicial system to the extent it decides to look further into these activities.

MODERATOR:  Thank you so much, Under Secretary.  Unfortunately that – we are now run out of time.  The under secretary has a hard stop, so that now concludes today’s call.  I would like to thank the under secretary for joining us and thank all of our colleagues from the media for participating.  But before we close, I’m going to turn it back over to the under secretary for his last closing remarks.  Under Secretary, over to you.

UNDER SECRETARY NELSON:  Just to say again how much I appreciate the willingness to join this evening, particularly this evening, post-breaking fast, and again, emphasize this is something that we at Treasury are highly focused on in partnership with colleagues at the State Department and really throughout our government, using all the tools in our toolbox to get after corrupt activities that have really profoundly harmed the Lebanese people.  And we will continue to act with that sense of urgency and in that vein.

But for tonight, just really appreciate the interest and the thoughtful questions, and look forward to working – continue to working with you and State colleagues in making sure that we’re getting the message out.  So thank you for that.

MODERATOR:  Thank you, again, Under Secretary.  And thank you very much to all of our colleagues from around the world and from the region from the media for participating.  If you have any questions about today’s call, you can contact the Dubai Regional Media Hub at DubaiMediaHub@state.gov.  And with that, I will conclude the call, and thank you very much and have a wonderful evening.

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