How Hezbollah Diversified Its Funding

The so-called “crime-terror nexus” is alive and well, and only multilateral cooperation can break it.

By Clara Broekaert, a security researcher focused on disinformation and violent extremism, and Colin P. Clarke, the director of research at The Soufan Group and a senior research fellow at The Soufan Center. FP.

In roughly two months, U.S. President-elect Donald Trump will take office and, according to his campaign promises, work to end the ongoing conflicts in Gaza, Lebanon, and the broader Middle East. On Iran, a second Trump term will look like his first, with the administration almost certain to reinstate its maximum pressure campaign to further weaken Tehran.

In all these instances, a key issue Trump will need to address is the revenue streams of the axis of resistance—Iranian-backed proxies operating in the region. Groups like Hezbollah, Hamas, Palestine Islamic Jihad (PIJ), the Houthis, and other Iran-backed factions remain surprisingly robust through their diverse financial streams—even after the first Trump administration successfully weakened the Iranian economy through extensive sanctions. This time, Trump will need to go beyond financial sanctions and target the full revenue portfolio of these groups, particularly Hezbollah. The Lebanese group has proven remarkably resilient through a diverse funding portfolio, which includes criminal enterprise. Multilateral cooperation will be the only way to dismantle this activity, which spans from Latin America to West Africa and beyond.

While most of the coverage of the post-Oct. 7, 2023, war in the Middle East has focused on the kinetic aspects of Iran’s proxy network, less attention has been paid to its financing. After months of imposing sanctions on the key players and revenue streams of Hamas and Hezbollah, Israel bombed al-Qard al-Hasan association this past October—Hezbollah’s main cash source. According to some researchers, the strikes have significantly impacted Hezbollah’s financial situation, and the group is also facing increasing difficulties accessing the Lebanese banking system.

Hezbollah owes the lion’s share of its budget to state sponsorship from Iran, which provides the “Party of God” with hundreds of millions of dollars per year—reportedly as much as $800 million, according to some estimates. But beyond that significant financial windfall, Hezbollah has cultivated a global network of money-making schemes, such as drug trafficking, fraud, and the abuse of cryptocurrencies. By “going global,” Hezbollah understands that it makes the group’s activities more difficult to trace, operating between the various seams of national laws, authorities, and policies.

The most crucial challenge awaiting the Trump administration in redressing this issue is getting countries that form nodes in the supply chain of Hezbollah’s criminal enterprise to help crack down on its illicit activities. For some countries, it may be a matter of political will; for others, capabilities; and for some, both. U.S. diplomacy should be able to address the matter of political will, while security cooperation, intelligence-sharing, and building partner capacity can help mitigate the capabilities challenge. But in an era of great-power competition, with rivalries trumping cooperation in many instances, Hezbollah is betting that the lack of international coordination will allow its criminal activities to continue unabated.

West Africa plays a crucial role in Hezbollah’s criminal activities beyond the Middle East, particularly through the significant Shiite Lebanese diaspora in Ivory Coast and Guinea. Elements within these communities are integral to Hezbollah’s lucrative operations, not just through the payment of zakat to the group—an annual charitable and religious payment that forms one of the five pillars of Islam—but also through aiding and abetting smuggling and money-laundering operations. This money can then be transferred through hawaladars, bulk cash smuggling, or front charities. In past Hezbollah money-laundering schemes in West Africa, money was funneled through networks of money couriers.

Profits from drug trafficking and diamond sales are, for example, funneled through Ivory Coast and Guinea to Hezbollah’s war chest, facilitating the laundering of funds and making it significantly more complex for law enforcement to track its financing streams. For instance, Hezbollah’s transnational drug trafficking network collaborates with South American cartels in Mexico and Colombia to route drug money through West Africa, the profits of which ultimately bolster the group’s finances. While it remains opaque how much of Hezbollah’s financing is derived from its money-laundering operations through West Africa, profits from drug trafficking are known to be a significant share of Hezbollah’s revenue. Roughly 40 percent of Hezbollah’s revenue is reportedly from its drug trafficking trade.

The transnational nature of its drug trafficking schemes is not new. In the 1990s, Hezbollah started to oversee the growth of illicit crops, particularly poppies used to produce heroin and hashish in Lebanon’s Bekaa Valley, the profits from which it funneled to its operations. In the early 2000s, Hezbollah also worked with South American narcotics networks, gaining a significant foothold in the infamous Tri-Border Area, the largely ungoverned territory between Argentina, Brazil, and Paraguay, where criminal groups take advantage of jurisdictional arbitrage. Also in the 2000s, profits Hezbollah reaped from cocaine trafficking in Latin America were funneled to its war chest by an elaborate scheme that included shipping secondhand American cars to Benin, which the local Lebanese diaspora then sold through car dealerships. The profits went from West Africa to Hezbollah in Lebanon through a network of money couriers.

Terrorist financing has long been connected to both the participation in transnational organized crime by terrorist groups and cooperation between terrorist and criminal organizations—the so-called “crime-terror nexus.” The go-to playbook of illicit narcotics trafficking has been repeatedly copied by terrorist groups in the region and beyond. Most recently, Captagon, a form of fenethylline of which about 80 percent is produced in Syria, has become vital in supporting the activities of Iranian-backed militias throughout the Middle East. This drug financially reinforces Iran’s axis of resistance through its trade, while simultaneously suppressing fear in militias committing atrocities through its abuse. It has spread quickly throughout the region. Multiple Hamas fighters captured and killed by the Israel Defense Forces allegedly had the meth-like drug on them, likely used to suppress fear as they killed and sexually assaulted civilians.

Captagon, the drug of choice by Islamic State terrorists during their caliphate, has become especially important for Hezbollah, supporting its operations and replenishing its weapons arsenal as the Israel-Hamas war rages on. In addition, Captagon has provided a financial lifeline for the regime of Syrian President Bashar al-Assad, whose brother Maher controls the trade. It has become a regional phenomenon that, according to experts, is poised to expand globally in the coming months ahead. Captagon facilities under Hezbollah’s control in the Bekaa Valley and southern Lebanon remain active and form a crucial lifeline after all the tactical setbacks Hezbollah has endured since the Israel-Hamas conflict kicked off more than a year ago.

Like Hezbollah, Hamas’s criminal activities are more complex than just money laundering through drug trafficking. The group has searched to hedge against risk by diversifying its funding operations. Hamas and PIJ, for example, have been actively abusing blockchain technology to solicit donations in cryptocurrency, which has drawn funding globally. The U.S. Treasury Department and other counterterrorism financing entities remain behind the curve when it comes to blunting terrorist groups’ use of virtual currencies, especially so-called “privacy tokens,” which are cryptocurrencies designed to make the tracing of transactions impossible by obfuscating the sender, receiver, and transaction amount.

While various counterterrorism financing bodies have sought to crack down on this issue, it is especially the U.S. Treasury and the Israeli National Bureau for Counter Terror Financing (NBCTF) that have seized crypto wallets from terrorist organizations and sanctioned cryptocurrency addresses used by terrorist financing schemes. Soon after the Oct. 7, 2023, attack, the U.S. Treasury Department, for example, sanctioned Buy Cash, a cryptocurrency exchange based in Gaza, for providing funding to al-Qassam Brigades. In March, the NBCTF published a January seizure order against Gaza Now, a media outlet that collected donations for Hamas, including in cryptocurrency.

In September, federal police in Argentina arrested four people suspected of financing Hezbollah through cryptocurrency transfers, for a total of 1.8 billion Argentine pesos. Hamas has also used the guise of charitable foundations to fund its operations. For example, Italy-based Hamas member Mohammad Hannoun established the Charity Association of Solidarity with the Palestinian People to bankroll Hamas’s military operations. According to the U.S. Treasury, as of early 2024, Hamas may have received as much as $10 million a month in donations through its use of sham and front charities.

Iran, the grand benefactor of militant groups from Hamas’s al-Qassam Brigades to Hezbollah, is another case in point of the crime-terror nexus and the importance of its transnational scope. Tehran is also involved in extensive money laundering efforts through narcotics trafficking to fund militant groups under its patronage. Outside of the Middle East, in Europe, Iran is increasingly relying on criminal networks to carry out attacks against dissidents, journalists reporting in Farsi, Israeli citizens and diplomats, and Jews.

The topic of terrorist innovation is critical to understanding the resiliency of groups like Hamas and Hezbollah in continuing to target Israel after the elimination of much of their leadership. In response to the traceability of Bitcoin transactions, for instance, Islamic State in Khorasan has reportedly shifted to Monero as its cryptocurrency of choice to solicit donations due to its strict privacy features, and other groups will inevitably follow suit.

To effectively combat the finances of militant groups like Hamas and Hezbollah, policymakers must move beyond simply aligning with other nations that also classify these organizations as terrorist entities. Forming a coalition of the willing is naive at best, and counterproductive at worst. It is essential to engage with countries that are part of the supply chain of these organizations’ criminal activities. For example, to disrupt Hezbollah’s transnational funding networks, the United States, Israel, and others must engage with South American and West African countries that are used to funnel profits. This approach will require reciprocal, tit-for-tat diplomatic efforts to encourage these partners to assist in interrupting financial flows while also addressing their own domestic- or foreign-policy priorities to build goodwill. This could involve unfreezing certain assets currently held in abeyance by the U.S. Treasury, in exchange for measurable progress on anti-money laundering initiatives and counternarcotics programs. If the Trump administration follows the advice of some crypto supporters in dismantling or rolling back anti-money laundering and counterterrorism financing tools, it will lose credibility in pushing other countries to tighten restrictions and implement tougher laws.

There are some concrete, proactive steps, too: Hezbollah’s drug labs should not be able to continue production unfettered. In January, Jordan launched airstrikes inside Syria against suspected Tehran-linked drug warehouses. The drug labs in Bekaa Valley and southern Lebanon should also be forcibly closed. As long as the Lebanese Armed Forces (LAF) do not have the capabilities to do so, Lebanese allies need to reinforce the LAF and crack down where possible.

Only a combination of kinetic and non-kinetic activities, including diplomacy, intelligence-sharing, and building partner capacity, can succeed in putting a dent in Hezbollah’s vast financial network. Unless the United States and its allies can follow the money and then seriously disrupt it, Hezbollah and other Iranian proxies will continue to finance their organizations through the crime-terror nexus. The interconnected nature of the crime-terror nexus necessitates a coordinated, transnational response, proving that it takes a network to defeat a network.