A collapsing economy and a family feud pile pressure on Syria’s Assad

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A collapsing economy and a family feud pile pressure on Syria’s Assad

– by Catherine Tai

In May, Syrian tycoon Rami Makhlouf, a cousin and long-time ally of President Bashar al-Assad, took a once unimaginable step.

In a video he published on social media, he lashed out against Assad’s “inhumane” state security forces. “Mr President, the security forces have started attacking people’s freedoms,” Makhlouf said.

The outburst shocked Syrians, and exposed a rift at the heart of the ruling elite. Never before had such a senior figure spoken out against the regime from within Damascus.

Through Syria’s 10-year civil war, Makhlouf had helped Assad evade Western sanctions on fuel and other goods vital to his military campaign. He was part of the president’s inner circle, accused by the United States of exploiting his proximity to power to enrich himself “at the expense of ordinary Syrians.” His business empire spanned telecoms, energy, real estate and hotels, looming large over Syria’s economy.

But now the two men were locked in a battle over money. Security forces had recently raided Makhlouf’s telecoms company, Syriatel, in a tax dispute and detained dozens of employees for questioning.

Makhlouf’s public defiance showed that a threat to Assad’s iron rule may ultimately come, not from the battlefield, but from once loyal allies and Syria’s collapsing economy. In a nation where criticism of the ruler is rarely tolerated, Makhlouf has been able to speak out, people familiar with the matter say, because of the family connection and because he is well regarded in the Alawite Muslim community that dominates the top echelons of Syria’s leadership. Makhlouf and Assad are both Alawite.

Reuters spoke to more than 30 sources – including people close to the Assad and Makhlouf families, local businessmen, and Western intelligence officials – and reviewed official documents to chart the breakdown of a family alliance that stretched back two generations. Many of the sources declined to be named because of the sensitivity of the matter.

In interviews, these sources described how:

• In expanding his business empire over two decades, Makhlouf kept some of his wealth hidden from the president.

• In May 2019, Assad instructed Syria’s intelligence chief to track down Makhlouf’s estimated billions of dollars of riches stashed abroad.

• After a decade of war, Assad is so desperate for cash that in Sept 2019 the central bank summoned Syrian tycoons to a meeting and ordered them to hand over some of their fortunes.

“Makhlouf has brought into the open the feud within the regime,” said a person with ties to the Assad family.

The Syrian Information Ministry didn’t respond to detailed questions for this story. Questions emailed to Makhlouf via his son went unanswered. Syriatel didn’t comment.

The rise

The financial arrangement between the Assad and Makhlouf families began with the fathers.

Assad’s father, Hafez, an air force officer from a mountain village, seized power in a military coup in 1970. He turned to Makhlouf’s father, Mohamed, to manage the money, derived from state-controlled industries and contract commissions, that would shore up his rule. Mohamed, known as Abu Rami, had financial skills that Hafez lacked.

“The Makhlouf side was generally better educated and refined, so they could help out with the finances, which is something the Assads were not good at and didn’t have the education for,” said Joshua Landis, a Syria specialist and head of the Center for Middle East Studies at the University of Oklahoma. “They were also better at dealing with the people of Damascus and Aleppo, who dominate Syria’s economy.”

Makhlouf senior reaped extensive rewards from the relationship. In the 1970s, he was appointed head of the General Organization of Tobacco, which had a monopoly over the industry in Syria. A decade later he expanded his business interests as chief of the state-owned Real Estate Bank, and acted as middleman for government contracts.

The sons grew up together and were close. As a young man, Rami Makhlouf “used to go to Assad’s residence and open the fridge like any family member,” said a former business associate of Makhlouf.

Bashar’s mother, Anisa, was Rami’s aunt. With a strong personality and deep political influence, she lobbied for her nephew within the family and was instrumental in his rise, said people who know the family. As his father aged, Rami smoothly took over the responsibilities as money manager for the Assads.

In the early 2000s Syria enjoyed rapid economic growth and Makhlouf’s business flourished. The jewel in the crown was telecoms firm Syriatel. The company has grown from a few hundred thousand subscribers in the early 2000s to around 11 million, according to Makhlouf. “Rami built Syriatel into a sophisticated business that many of Syria’s best and brightest wanted to work for,” said Landis.

Makhlouf drew the attention of the United States. In 2008, the U.S. Treasury imposed sanctions on the tycoon, describing him as “one of the primary centres of corruption in Syria.” The Treasury alleged he manipulated the justice system and used state intelligence officials to intimidate rivals and acquire exclusive licenses to represent foreign firms in Syria. His ties to Assad brought him lucrative oil exploration and power plant projects, the Treasury said.

“Rami Makhlouf has used intimidation and his close ties to the Assad regime to obtain improper business advantages at the expense of ordinary Syrians,” Stuart Levey, then Under Secretary for Terrorism and Financial Intelligence, said at the time.

Makhlouf, who rarely spoke in public, didn’t respond to the sanctions.

When protesters took to the streets calling for Assad’s overthrow in 2011, their chants were also directed against “the thief” Makhlouf.  As the popular uprising turned into a civil war and then a multifaceted conflict, Makhlouf helped power Assad’s military campaign with fuel and other imports.

Behind Assad’s back, he was also feathering his own nest, said more than a dozen sources with knowledge of the matter. A former business associate and a banker said Makhlouf had created a network of front companies, including in neighbouring Lebanon, where he generated his own money separate from the funds Assad asked him to place in safe havens on behalf of the ruling family. They didn’t quantify the sums of money involved.

In a post on social media on July 26 of this year, Makhlouf conceded that he set up such firms, but insisted “these companies’ role and aim is to circumvent sanctions,” not to enrich himself.

Among Makhlouf’s interests outside Syria was a Beirut law practice called Middle East Law Firm SAL. Publicly available data show the firm was set up in 2001 by Makhlouf, his brother and Lebanese partners. According to Lebanon’s Commercial Register, the law firm continues to operate and its activities include the management of companies inside and outside Lebanon and foreign trade transactions. Reuters couldn’t reach the law firm or its partners for comment, nor could the agency determine whether Makhlouf plays any role there today.

One former business associate with first-hand knowledge said that Makhlouf set up entities in Jersey and the Virgin Islands. “Makhlouf would buy supplies and equipment for the government from companies that he ultimately owns. He would create these shell companies that would be suppliers,” said the former associate, a shareholder in Makhlouf’s Cham Holding, a real estate developer.

Makhlouf’s personal wealth has been estimated by Syrian business associates at between $5 billion and $15 billion. Its true scale is a closely held secret. In one of his recent video appearances, Makhlouf said profits from his businesses were used for charitable causes, such as funding injured war veterans and bereaved families, via a holding company he owns.

The fall

With the help of Russia and Iran, Assad has turned the tide of Syria’s war. But victory on the battlefield has come at a cost.

Syria’s economy is in ruins. The Syrian pound has lost almost 80% of its value over a decade of war. The fighting has caused tens of billions of dollars’ worth of damage, disrupted agriculture, devastated industry and wiped out foreign currency flows from tourism and oil exports. Inflation is rampant and many Syrians are struggling to afford even basics such as food and power. Eight in 10 people live below the poverty line in Syria, according to the United Nations.

While Russia has backed Assad militarily and with food supplies, its intervention isn’t for free. Syria has to pay for much of the Russian wheat it imports and for weaponry.

In recent months, a banking crisis in neighbouring Lebanon has cut off a vital source of dollars for the regime, worsening the economic shock and aggravating already strained money relations between Assad and Makhlouf.

While much of Syria lies in ruin, two of Makhlouf’s sons have been living lives of luxury. On social media, they posted pictures, many since deleted, of fancy sports cars, a private jet and opulent homes.

In one video, in the summer of 2019, Mohamed Makhlouf, one of Rami’s sons, appeared driving a Ferrari in the South of France. The camera zoomed in on the speedometer as he revved the engine. Another video showed him at a beach party on the Greek island of Mykonos. Someone commented beneath the post: “It’s been 45 years and they are still stealing from the people.”

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