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A Collapsing Economy and a Family Feud Pile Pressure on Syria’s President Assad

World News Desk

A Collapsing Economy and a Family Feud Pile Pressure on Syria’s President Assad

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Beirut/Amman/Dubai (Reuters) – 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 Mr. Assad’s “inhumane” state security forces. “Mr. President, the security forces have started attacking people’s freedoms,” Mr. 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, Mr. Makhlouf had helped Mr. 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 Mr. Makhlouf’s telecoms company, Syriatel, in a tax dispute and detained dozens of employees for questioning.

Mr. Makhlouf’s public defiance showed that a threat to Mr. 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, Mr. 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. Mr. Makhlouf and Mr. 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, Mr. Makhlouf kept some of his wealth hidden from the president.

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

• After a decade of war, Mr. 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 Rise

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

Mr. Assad’s father, Hafez, an air force officer from a mountain village, seized power in a military coup in 1970. He turned to Mr. 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.”

Mr. 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 Mr. Makhlouf.

Ayman Abdel Nour met both men at Damascus University in the 1980s when he was a teaching assistant and they were students. Mr. Abdel Nour now lives in the United States. Mr. Makhlouf and Mr. Assad were so close that even their mannerisms were similar, Mr. Abdel Nour said. “Rami would sit very calmly, in a way that was similar to Bashar. He copied his personality because they grew up together.”

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 Mr. Makhlouf. “Rami built Syriatel into a sophisticated business that many of Syria’s best and brightest wanted to work for,” said Mr. Landis.

Mr. 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 Mr. 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.

Mr. Makhlouf, who rarely spoke in public, did not respond to the sanctions.

When protesters took to the streets calling for Mr. 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, Mr. Makhlouf helped power Mr. Assad’s military campaign with fuel and other imports.

Behind Mr. 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 Mr. Makhlouf had created a network of front companies, including in neighboring Lebanon, where he generated his own money separate from the funds Mr. Assad asked him to place in safe havens on behalf of the ruling family. They did not quantify the sums of money involved.

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

Mr. 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, Mr. 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, Mr. 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 percent 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 Mr. Assad militarily and with food supplies, its intervention is not for free. Syria has to pay for much of the Russian wheat it imports and for weaponry.

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

While much of Syria lies in ruin, two of Mr. 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.”

As the economy imploded, Mr. Assad became determined to bring home the billions of dollars held by Mr. Makhlouf in offshore companies, said more than a dozen sources. These sources include well-connected people in Syria’s financial community, an official with ties to Mr. Assad’s government and Western intelligence sources.

In the summer of 2019, Mr. Assad and his brother Maher, head of the Republican Guard that defends Mr. Assad’s seat of power in Damascus, met with Ali Mamlouk, the head of Syria’s intelligence agency, the General Intelligence Directorate. At that meeting, the Assads told Mr. Mamlouk to track down Mr. Makhlouf’s wealth overseas, said a person allied with the Syrian government and a Western intelligence source who was briefed about the meeting.

“It was time to put the house in order” now that the security pressures on the regime had eased after containing the insurgency, said the Western intelligence source.

A first sign of Mr. Makhlouf’s fall from grace came in December 2019, when Syria’s customs directorate accused Mr. Makhlouf and some other businessmen of importing goods without declaring their real value. The order, which was reviewed by Reuters, froze the assets of Mr. Makhlouf and his wife. It was signed by Syria’s finance minister. Mr. Makhlouf has since said he paid $3 million to settle the dispute. Syrian authorities did not comment.

The sums accumulated abroad by Mr. Makhlouf—estimated in excess of $10 billion by members of Syria’s business community—are of real economic consequence. One Western diplomat said repatriating the money “is of existential importance for the regime.”

Though he caved in the customs dispute, Mr. Makhlouf has resisted surrendering his vast holdings. He told the president to seek dollars elsewhere, from other tycoons, said bankers and business associates familiar with the matter.

Starting early this year, Syrian security forces began a campaign of arrests that netted dozens of employees at Mr. Makhlouf’s Syriatel, without legal explanation. Sources in Syria said people were arrested, sometimes released and then re-arrested. Reuters could not determine whether any charges have been brought. A Damascus banker with knowledge of the matter said the employees were questioned about fund transfers to front companies set up by Mr. Makhlouf in the British Virgin Islands and Jersey.

“They were interrogating them over the details of offshore companies that have signed management deals with Syriatel,” said the Damascus banker.

A businessman said the detentions were designed to send a message to those working for Mr. Makhlouf “that he is in disgrace.”

The rift between Mr. Assad and Mr. Makhlouf burst into public view on April 30, when Mr. Makhlouf posted the first of three videos to social media. In the videos, he said the government had asked him to step down from his companies, including Syriatel. He also spoke of threats by unspecified people in the regime to revoke Syriatel’s license and seize its assets if he did not comply.

On May 19, 2020, the finance ministry froze the assets of Mr. Makhlouf, his wife and an unspecified number of his at least two children, according to a document reviewed by Reuters. It also ordered that overseas assets should be seized “to guarantee payment of dues to the telecom regulatory authority.” The government has said Syriatel owes the telecom regulator $60 million relating to the terms of the company’s license. Mr. Makhlouf insisted in one of his social media posts that he stands ready to pay.

A separate order banned Mr. Makhlouf from obtaining government contracts for five years.

A former business associate said years of acting as Mr. Assad’s trusted money keeper and family treasurer made Mr. Makhlouf feel like a partner. “Makhlouf was telling his cousins [the Assads], ‘we are partners,’ and it has shocked him they are now telling him, ‘no you are not, you are just serving us,’” said the associate, who used to work with Mr. Makhlouf.

Hunt for Cash

As Mr. Makhlouf has fallen, others have stepped into his place.

One powerful man who has emerged at the top of a new elite is Samer Foz, a building contractor turned commodities trader. Mr. Foz, a Sunni Muslim, was sanctioned by the United States in June 2019, along with more than a dozen individuals and companies, for providing financial support to Mr. Assad.

“We Shouldn’t Disagree”

In recent months, Mr. Makhlouf has been projecting himself as a spiritual man, in an apparent attempt to appeal to members of the faith practiced by the minority Alawite sect, an offshoot of Shiite Islam, to which Mr. Makhlouf and Mr. Assad belong.

The Alawites rose to dominate the political system in majority Sunni Syria after controlling the army following a coup that brought the Baath Party to power in 1963. The Alawites’ influence has spread to business, undermining a Sunni merchant establishment that had traditionally dominated commerce.

One of Mr. Makhlouf’s social media posts after the rift became public was a prayer asking God to end the injustice against him, written in the Alawite dialect.

Commenting on Mr. Makhlouf’s social media posts and his messaging, a financial adviser involved in transactions with him before 2011 said the videos were clearly made to appeal to the loyalist Alawite camp.

“He is telling Bashar, ‘We are defenders of our community, we should not disagree.’”

In a recent post, on July 9, Mr. Makhlouf remained defiant. Arrests of his employees, he said, had not stopped. “Now it’s only our women who are left,” he said. “Even so, they didn’t get what they wanted to force us to surrender.”

 
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