The Man Who Madoff With Hezbollah’s Money

Our guest blogger is Thanassis Cambanis, a writer, journalist and teacher based in New York City. Cambanis has written a book about Hezbollah that will be published by Free Press in 2010.

ezzeddine_0908How much damage could Lebanon’s Bernie Madoff — Salah Ezzedine, a darling of Shiite Islamists who allegedly swindled as much as $1 billion dollars — cause Hezbollah? Probably not enough to dislodge the Shiite Islamist party’s grip on Lebanese politics. But the scandal is sure to rattle Hezbollah’s hitherto squeaky-clean image on matters of finance and corruption.

The scandal has dominated news in Lebanon for weeks, but only hit the American media this week. The New York Times reports that the most hard-hit investors in Ezzedine’s pyramid scheme were poor and middle-class Shiites, who put their trust in the wheeling-and-dealing operator largely because of his close ties to Hezbollah.

In a speech, Hezbollah leader Hassan Nasrallah attacked the group’s enemies for linking the group to Ezzedine, whom he said had no ties to Hezbollah. But within days he realized that Hezbollah couldn’t ignore the firestorm, especially since Ezzedine’s victims almost entirely coincide with Hezbollah’s base of support. Now, he says, Hezbollah will try to compensate victims of the Ponzi scheme.

What is the likely fallout of the affair for Hezbollah?

– It will cost the party money to bail out its most vulnerable constituents. It’s also likely that the party lost much of its own money; Hezbollah invests in many for-profit ventures to diversify its revenue streams, so it would be no surprise if it had directly or through proxies placed significant sums with Ezzedine.

– It will distract the party from other matters, not the least of which is the political struggle to form Lebanon’s next government — a negotiation in which Hezbollah is already at a significant disadvantage after failing to capture a parliamentary majority in the June 2009 elections.

– It has embarrassed the party with its most devoted base and called into question one of Hezbollah’s strongest assets: its reputation for probity and acumen. Supporters will ask themselves how come Hezbollah officials, who live like monks, had hundreds of thousands of dollars to invest? And they will surely wonder how come Hezbollah, with its reputedly brilliant intelligence services, was conned by a two-bit swindler?

Shiite officials, including a member of Hezbollah’s parliamentary delegation who helped bring the matter to light when he sued Ezzedine for a bounced $200,000 check, invested hundreds of thousands of dollars with the man, who established a religious publishing house named after Nasrallah’s slain son.

At the very least, Hezbollah and its financial backers in Tehran will find themselves redirecting funds and energy to the fallout of the pyramid scheme at a time when they can ill afford a distraction from more pressing matters, including hints of another conflict with Israel. And it’s possible that the Salah Ezzedine affair will plant a seed of doubt among those whose support for Hezbollah is on the fence. If the Party of God isn’t as pure, or as perceptive, as it claims to be, maybe they’ll decide it’s not that much better an alternative to Lebanon’s bumbling and corrupt government.