Although Syrian troops have withdrawn from Lebanon, their departure is little more than a symbolic acknowledgment of Lebanese sovereignty, extracted under enormous pressure from the international community. They had not been directly involved in policing the country for nearly a decade, and their number had already dwindled in recent years from a peak of over 40,000 down to 14,000. The backbone of Syria’s power in Lebanon—its intelligence apparatus—has merely gone underground. The assassination of former Lebanese prime minister Rafik Hariri in February and the murders of prominent dissidents Samir Kassir and George Hawi in June suggest that Syria remains as capable as ever of murdering dissidents and fomenting violence if developments in Lebanon do not go its way.

As Western observers debate how tenaciously Syrian president Bashar al-Assad will resist the independence of Lebanon and what the implications are for his grip on power at home,[1] many ignore the most critical factor affecting these questions. Put simply, the Assad regime is hooked on Lebanon. Jibran Tueni, editor of Beirut’s leading daily newspaper, An-Nahar, recently estimated that the Assad regime siphons at least ten billion dollars (US) a year from Lebanon,[2] equivalent to 47 percent of Syria’s gross domestic product (by comparison, Saudi Arabia’s oil exports represent 36 percent of its gross domestic product).[3] While Tueni’s estimate is probably exaggerated, Syrian revenue from Lebanon amounts to several billion dollars a year. Assad’s political survival may well hinge on how successfully he fights to preserve this financial lifeline.

When Syrian influence in Lebanon waned in the aftermath of Israel’s 1982 invasion and the subsequent entry of U.S. and European peacekeeping forces, the late Hafez al-Assad struck back with terrorist and militia proxies, plunging the country back into civil war. Ironically, his son’s deeper financial dependence on Lebanon today lessens the appeal of a full-scale destabilization campaign. Bashar faces a much more difficult challenge: how to keep his golden goose without strangling it.

Drug production, counterfeiting, and other illicit trades account for the Assad regime’s oldest—and once the most lucrative—source of occupation revenue. Such criminal enterprises have flourished wherever Lebanese territory has come under the control of Syria or its proxies. Throughout the Lebanese underworld, whether Syrian officials are involved directly or merely offer protection to local criminal networks, Damascus gets its cut.

Drug production. While Lebanon’s eastern Bekaa Valley was already known for producing high quality hashish when Syrian troops first entered the country in 1976, it only became a major global narcotics producer under Syrian occupation. Between 1976 and 1991, drug cultivation in this region expanded from 10 to 90 percent of arable land.[4] By the early 1980s, the Bekaa was the source of more than half of all marijuana and hashish seized in Western Europe.[5] Under Syrian supervision, it also became a center for opium poppy cultivation and heroin processing. By 1990, according to Western narcotics agencies, Lebanon’s annual heroin trade was worth around US$1.4 billion.[6]

A 1992 report by the U.S. House of Representatives Subcommittee on Crime and Criminal Justice, itself based on classified briefings by the Central Intelligence Agency and the Drug Enforcement Agency, estimated that the Syrian military earned between $300 million and $1 billion from narcotics production and trafficking in Lebanon. “Whether by extorting protection payments, collecting bribes, or even becoming active partners with the Lebanese traffickers,” the report found, “most individual Syrian officers and troops directly profit from the drug trade… Without Syrian military participation, the present system of growing, producing and transporting drugs in Lebanon today would simply collapse.”[7]

Following the report’s release, Washington began pressuring the Syrian government to curtail Lebanon’s drug trade. In 1993, Syrian and Lebanese troops launched a much-publicized crackdown on drug cultivation in the Bekaa Valley. Moreover, Syrian and Lebanese security forces moved only against the easily observable cultivation side of Lebanese drug production. Laboratories in Hermel, Baalbek, Zahle, and other Bekaa Valley towns reportedly continued to produce heroin from opium imported from Turkey, Afghanistan, and Pakistan, as well as cocaine from raw coca paste imported from South America under Syrian protection.[8] Nevertheless, in 1997 the U.S. State Department removed Lebanon and Syria from its annual list of countries that produce or traffic in illicit drugs.[9]

Not long after its removal from the list, Syria began relaxing restrictions on drug cultivation and, by the end of the decade, marijuana harvests were on the rise.[10] When CNN Beirut bureau chief Brent Sadler and a team of cameramen tried to film cannabis fields near Hermel in June 2001, armed gunmen forced them out of their car and confiscated their film equipment.[11]

Counterfeiting. Beginning in the late 1980s, Syrian officers in Lebanon became heavily involved in counterfeiting U.S. and, to a lesser extent, European currencies. They initially focused on distributing Iranian-produced bills through the same networks that laundered their drug proceeds[12] but soon began to produce higher quality forgeries at their own Bekaa printing presses. In 1993, NBC quoted U.S. intelligence sources as saying that Syrian counterfeiting of $100 bills in Lebanon had “skyrocketed.” It reported both that U.S. authorities had already seized $200 million of the fake currency and officials’ fears that billions more were in circulation.[13] The bogus bills were so sophisticated that the U.S. Federal Reserve Bank’s scanning machines failed to identify the money as counterfeit.[14] After pocketing perhaps over $1 billion, the Syrian government came under intense U.S. pressure to cease their racket.

Money laundering. After gaining full control over Lebanon in 1990, the Syrian regime exploited Lebanon’s bank secrecy laws to launder billions of dollars from the drug trade, the sale of weapons to Iraqi president Saddam Hussein, and other illicit activities. For example, the Beirut-based Bank al-Madina bought billions of dollars in real estate at inflated prices. It required sellers to deposit their proceeds in the bank and accept “no questions asked” interest payments drawn from secret Iraqi accounts not recorded in the bank’s books. This pyramid scheme collapsed only when the influx of Iraqi money stopped in the weeks prior to the March 2003 U.S.-led invasion. Depositors panicked and tried to withdraw their money, only to find that more than one billion dollars were gone. The bank quickly collapsed.[15] The Lebanese government’s investigation failed to uncover the whereabouts of these funds, but there is evidence that the bank paid substantial kickbacks to senior Syrian officials.[16] After the owner of the Beirut-based television station New TV, Tahsin Khayat, declared in December 2003 that he had evidence linking a top Syrian intelligence officer to the scandal, Lebanese security forces detained him.[17]

The Syrian government’s return from money laundering is not readily quantifiable. The main financial benefit is that it allows the Assad regime to obfuscate its sources of income. More important though are the strategic returns—Syrian-backed terrorist groups can use Lebanese banks to launder and distribute funding received from donors who value anonymity.[18] Iraqi insurgent leaders have been allowed similar access. For example, Saddam’s half-brother and former intelligence chief Sabawi Ibrahim al-Hassan laundered millions of dollars in Lebanese banks before his capture earlier this year.[19]

Lebanese black-marketeers dealing in everything from stolen cars to audiovisual bootlegging can operate only by providing cuts to Syrian officials who may receive up to a billion dollars annually from underworld criminal activity in Lebanon. However, this figure is minor compared to what Syrian officials have skimmed in other ways from Lebanon’s open economy.

Lebanon has one of the most corrupt governments in the world. In 2001, a United Nations-commissioned corruption assessment report estimated that Lebanon loses more than $1.5 billion annually as a result of graft—nearly 10 percent of the country’s gross domestic product.[20] The mechanism for this graft is apparent. Of $6 billion in project expenditures examined in the report, only 2.4 percent ($143 million) was awarded by the state Administration of Tenders. The remainder went not to the most qualified applicants but to those willing to pay the highest bribes. Over 43 percent of companies surveyed in the report acknowledged that they “always or very frequently” pay bribes. Some 40 percent said that they “sometimes” do.[21]

Corruption was rife in Lebanon long before the Syrian army entered the country. More than one Syrian commentator has lamented that it was Lebanon that corrupted Syria. Once the Assad regime became kingmaker in Lebanon, a world of riches opened before it. A Lebanese cabinet minister who might pocket $200 million in bribes a year gladly remits half in return for the Syrian support necessary to remain in his position. In this respect, Syrian officials did not come into the country and change the rules—they simply used their control over Lebanon to siphon money out of the system in the same way, albeit on a greater scale, that Lebanese political elites had been doing for generations.

Having won Lebanon at a time when their own country’s economy was reeling from a cutoff of Soviet aid, Syrian officials learned to master the Lebanese economic game. Their mentor, ironically, was the late Rafik Hariri, a multi-billionaire construction tycoon close to the Saudi royal family. After two years of lobbying Damascus for the job, Hariri assumed the premiership in 1992, and the Lebanese economy went into overdrive.

Hariri poured billions of dollars into rebuilding the country’s war-ravaged infrastructure and resurrecting Beirut’s business and hotel districts, a construction boom financed by runaway deficit spending and massive injections of international aid. The results exemplified Lebanon’s version of trickle down economics—after everyone gets their cut, only a trickle of government spending actually reaches its destination.

He spent over $2 billion, for example, in the early 1990s on a plan to boost the country’s power capacity from 800-1,000 megawatts to over 2,000 megawatts by rehabilitating or constructing ten power plants and their accompanying grids. Not only was much of the money—over $500 million according to one former minister—siphoned off in the process,[22] but rampant profiteering directed the remainder to redundant or ill-conceived projects. A decade later, the Lebanese government is struggling to produce 1,400 megawatts of electricity, and rolling blackouts continue to plague the capital.[23]

Government expenditures are not the only source of graft. Lack of transparency and unreliable contract enforcement in Syrian-occupied Lebanon make it impossible for private sector investors, whether Lebanese or foreign, to enter any economic sector without cutting deals with Damascus. Whether their business is banking or BMWs, the most important ingredient of success for entrepreneurs in Lebanon is not cost efficiency or marketing savvy but political protection obtained through secret partnerships with Syrian officials. In this way, members of Lebanon’s oligarchy gain preferential access to government contracts, operating licenses, and law enforcement needed to beat out competitors.

A large portion of their profits is diverted into Syrian pockets. Lebanese investors often function as little more than front men for Syrian patrons who reap most of the profits. Until recently, for example, Lebanon’s cell phone market was dominated by two companies: LibanCell and Cellis. On paper, Ali and Nizar Dalloul, two sons of a former Lebanese defense minister, owned 86 percent of LibanCell, but both were widely rumored to be fronting for Syrian vice-president Abdul Halim Khaddam and former Syrian chief of staff Hikmat Shihabi.[24] Many Lebanese say that Najib Miqati, a close friend of Assad’s who served as Lebanon’s prime minister between April and June 2005, owned 30 percent of Cellis. In the latter half of the 1990s, the two companies saw their profits skyrocket as the Syrian-dominated Lebanese government blocked competitors from entering the market while allowing them to charge exorbitant subscription fees. Whereas mobile telephone calls cost around 3-8 cents per minute in other Arab countries, in Lebanon the rate was 13 cents per minute. As companies elsewhere in the world were giving away mobile phones to attract customers, LibanCell and Cellis charged new subscribers a $500 deposit for their new telephones.[25]

While many Lebanese elites resented Syrian profiteering, the Assad regime’s control over the Lebanese judiciary ensured that few dared to openly contest it. In a country where just about everyone in government is corrupt, selective prosecution is an enormously effective instrument of control. In 1994, Lebanese parliamentarian Yahya Shamas was arrested and imprisoned on drug trafficking charges which, according to Shamas, were filed after he refused to sell a piece of lucrative property to Ghazi Kanaan, the head of Syrian military intelligence in Lebanon, for less than its market value.[26]

Hariri, however, was no Syrian puppet. In making senior Syrian officials such as Khaddam and Shihabi rich, Hariri bought himself a bloc of support within the Syrian regime whose interests were not fully in line with those of the Assad family. Lebanon may have been in Syria’s pocket, but factions of the Syrian regime were effectively in Hariri’s pocket.

After assuming control of the “Lebanon file” as part of his political apprenticeship, however, Bashar al-Assad ousted Hariri in 1998 and shifted power to Lebanon’s military-intelligence elite, led by President Emile Lahoud. Bashar quickly found that Hariri was more dangerous out of office. Although Hariri returned to power after a two-year hiatus, his increasingly confrontational relationship with the Syrians was largely a reaction to this demotion.

A third critical economic return of Syria’s occupation is the flow of remittances from roughly one million Syrian workers in Lebanon estimated to range from $2-$4 billion annually.[27] During the heyday of Lebanon’s reconstruction, the number was much higher. According to statistics from Lebanon’s General Security Directorate, cited by Lebanese economist Michel Murkos, the number of Syrians entering the country between 1993-95 exceeded the number who departed by almost 1.5 million.[28] Since Syria’s per capita gross domestic product is less than a third of Lebanon’s, its workers are willing to labor for much lower wages than their Lebanese counterparts. As a result, Lebanon’s two largest unskilled labor markets—construction and seasonal agriculture—are dominated by Syrians while 20 percent of the Lebanese labor force is unemployed.[29] Those who manage to get unskilled jobs in the face of stiff Syrian competition are usually forced to accept low wages, dismal working conditions, and no health insurance or other benefits. The plight of Lebanon’s urban poor is directly linked to Syrian labor colonialism.

Very little money earned by Syrian workers remains in Lebanon. They typically live in squalid conditions, often sharing a single room with several compatriots so as to remit the bulk of their earnings back to their families. The Assad regime has further discouraged them from spending their wages in Lebanon by preventing them, for example, from bringing Lebanese-made durables back into Syria.

Damascus has protected this vital asset by entrusting only diehard loyalists with Lebanon’s labor ministry portfolio. The outgoing labor minister, Assem Kanso, and former labor minister, Abdullah al-Amin (1992-95), are senior officials in the Lebanese branch of Syria’s ruling Baath party. Former labor ministers Assad Hardan (1995-98, 2003-04) and Ali Kanso (2000-03) are leaders of the Syrian Social Nationalist Party, which advocates Lebanon’s dissolution as a state and incorporation by Syria. The Lebanese government is not allowed to regulate the influx of Syrian workers, who do not pay taxes or permit fees normally required of foreign workers, depriving the Lebanese treasury of several hundred million dollars per year according to Lebanese economist Bassam Hashem.[30] In order to limit the amount of competition faced by Syrian workers, Damascus has forced the Lebanese government to restrict the entry of non-Syrian laborers into Lebanon.

A fourth dimension of Syrian economic domination also hurts Lebanon’s poor. Much like nineteenth century European colonial powers, the Syrian government treats its protectorate as a captive market for its own exports, particularly agricultural produce. The Assad regime not only forces its Lebanese counterpart to accept disadvantageous terms of trade, but it also violates these terms whenever expedient by smuggling produce past Lebanese customs.

In desperation, some Lebanese farmers invested their savings, switching to cultivation of fruits unsuitable for Syrian climate, only to find the Syrians smuggling the same fruit into Lebanon from other countries. For example, in recent years, Lebanon has been deluged by bananas smuggled into the country from Syria. According to Waddah Fakhri, the head of the Southern Farmers’ Association, Syrian smugglers import the bananas through the Syrian port of Latakia where they avoid customs duties by claiming that the goods are in transit to Lebanon. The shipments are then smuggled past Lebanese customs and enter local markets duty-free.[31] In June 2003, the local media reported that “watermelon farmers in Lebanon are suffering from excessively low prices for their crops due to the smuggling of Jordanian watermelons across the Syrian border.”[32]

Stiff Syrian competition might have had a silver lining if it had spurred the Lebanese government to develop and modernize its agriculture sector. However, the Syrians disallowed this. While agriculture accounts for about 12 percent of Lebanon’s gross domestic product, well under 1 percent of the yearly budget is allocated to this sector. Of $7.5 billion in development funds allocated under the 1999 five-year plan of the Council for Development and Reconstruction, agriculture and irrigation projects itemized separately received only .5 percent and 1.1 percent, respectively. “Civic education, youth, and sports” projects, by contrast, received 2.6 percent.[33]

Consequently, despite its abundance of arable land, premium soil conditions, plentiful water resources, and rich diversity in topography and climate allowing for the cultivation of a wide variety of fruits and vegetables, Lebanon is one of the least agriculturally self-sufficient countries in the world, with agricultural and agro-industrial imports exceeding exports by a nearly 20-to-1 margin.[34]

The Assad regime is not yet in trouble. Syrian troops may no longer be in Lebanon, but none of its most important Lebanese revenue streams have been cut. Drug producers in the Bekaa Valley and corrupt bankers in Beirut will continue paying off the Syrians as long as Damascus can guarantee that the authorities in Beirut leave them alone. Syrian farmers will continue to export tariff-free produce into Lebanon until the authorities block their smuggling routes. Most Syrian workers will remain in the country until the Lebanese government starts limiting and regulating their presence.

Lebanon’s new government will face tremendous domestic pressure to act against Syrian interests in all of these areas. However, the threat of assassination will continue to loom over Lebanese elites who defy Damascus, and the Assad regime will remain capable of fomenting instability in the country.

That said, Assad has to contend with the fact that, justly or not, the international community will blame Syria for any assassination, especially if Lebanese politicians are killed after taking actions that hurt Syrian interests. More importantly, fomenting instability in Lebanon could damage an economy in which the Syrian officials are heavily invested and undercut demand for and security of Syrian workers. Assad will have to use violence more selectively than did his father if he is to preserve Syrian interests in Lebanon.

Syria’s financial dependence on Lebanon also poses a problem for the United States. While the White House has signaled its desire for fundamental change in Damascus, a sudden erosion of Assad’s grip on power might encourage him to embark on diversionary adventures, spark a Sunni Islamist uprising against his minority ‘Alawite regime, or precipitate a coup by the so-called “Old Guard.” Assessing the impact of reduced revenue from Lebanon on Assad’s regime is complicated by the fact that it is hooked on income from its Lebanese interests in different ways. Worker remittances flow to a large segment of the Syrian population, for example, while kickbacks go directly to the regime or constituent factions. Produce smuggling benefits both farmers and smugglers, but the exact dispersal of proceeds between the two is not entirely clear. If the Bush administration seeks to change Syrian behavior, it would do well to order a thorough assessment of Syria’s financial balance sheet in Lebanon to clarify the motivation of various Syrian factions as well as subtle pressure points that could help to ensure that Damascus does not interfere in Lebanon’s fragile independence.

[1] William Harris, “Bashar al-Assad’s Lebanese Gamble,” Middle East Quarterly, Summer 2005, pp. 33-44.
[2] “One of Hariri’s Legacies—A Massive Debt for Lebanon,” Inter Press Service, Mar. 10, 2005.
[3] All figures are for 2003. For Saudi oil revenue, see “Saudi Arabia Country Analysis Briefs,” U.S. Department of Energy, Jan. 2005; for Syrian and Saudi GDP, World Development Indicators Database, The World Bank, Washington, D.C., accessed July 12, 2005.
[4] International Narcotics Control Strategy Report (Washington, D.C.: U.S. Department of State, Bureau of International Narcotics Matters, 1992), p. 50.
[5] Associated Press, Nov. 28, 1985.
[6] Associated Press, June 29, 1990.
[7] “Syria, President Bush, and Drugs—The Administration’s Next Iraqgate,” Subcommittee Staff Report, House Judiciary Committee’s Subcommittee on Crime and Criminal Justice, Oct. 28, 1992; see also, The Wall Street Journal, Nov. 23, 1992. Syrian revenue from the drug trade was estimated at $500 million in U.S. News & World Report, May 4,1987.
[8] Reuven Erlich, “Terror and Crime in Lebanon: Removal of Syria and Lebanon from the U.S. Department List of Countries Selling Drugs,” International Policy Institute for Counter-Terrorism, Apr. 25, 1998; Agence France-Presse, Feb. 26, 2002.
[9] Associated Press, Nov. 12, 1997.
[10] Ziad K. Abdelnour, “The Revival of Lebanon’s Drug Trade,” Middle East Intelligence Bulletin, June 2001.
[11] Agence France-Presse, June 19, 2001.
[12] Associated Press, July 2, 1992.
[13] U.S. News & World Report, Apr. 4, 2005.
[14] United Press International, Sept. 30, 1993; The Washington Post, Mar. 6, 1994.
[15] Gary C. Gambill and Ziad K. Abdelnour, “The Al-Madina Bank Scandal,” Middle East Intelligence Bulletin, Jan. 2004.
[16] U.S. News & World Report, Apr. 4, 2005; ibid.
[17] Financial Times, Mar. 22, 2005.
[18] Agence France-Presse, Sept. 22, 2003, Jan. 16, 2004; Avi Jorisch, “Al-Manar: Hizbullah TV, 24/7,” Middle East Quarterly, Winter 2004, p. 21.
[19] Newsday, Mar. 7, 2005.
[20] The Daily Star (Beirut), Jan. 27, 2001.
[21] Ibid.
[22] Agence France-Presse, Aug. 15, 2003.
[23] Ibid.
[24] Numerous author interviews with Lebanese officials and activists.
[25] The Daily Star, Aug. 17, 2002.
[26] The Associated Press, Nov. 25, 1994.
[27] For the lower estimate see, Financial Times, Mar. 22, 2005; for the higher estimate see, The Christian Science Monitor, Apr. 8, 2005.
[28] An-Nahar, July 24, 1995, cited in Habib Malik, Between Damascus and Jerusalem: Lebanon and the Middle East (Washington: Washington Institute for Near East Policy, 1997), p. 41.
[29] Agence France-Presse, Apr. 20, 2005.
[30] The Daily Star, Nov. 16, 2000.
[31] The Daily Star, Oct. 19, 2002.
[32] The Daily Star, June 19, 2003.
[33] The Daily Star, Oct. 18, 2003; As-Safir (Beirut), May 31, 1999.
[34] The Daily Star, Sept. 15, 2003.