SYRIA'S CORRUPT CLASSES

C O N F I D E N T I A L SECTION 01 OF 02 DAMASCUS 000003

SIPDIS

SIPDIS

NEA/ELA
NSC FOR ABRAMS/SINGH
TREASURY FOR GLASER/SZUBIN/LEBENSON
EB/ESC/TFS FOR SALOOM

E.O. 12958: DECL: 12/29/2015
TAGS: ECON EFIN PTER SY LE SANC
SUBJECT: SYRIA'S CORRUPT CLASSES

REF: A. DMS 6224

B. DMS 2364

Classified By: CDA Stephen Seche, reasons 1.5 b/d.


1. (C) Summary: The Syrian economy continues to be dominated by a
"corrupt class" who use their personal ties to members of the Asad
family and the Syrian security services to gain monopolistic control
over most sectors of the economy, while enriching themselves and their
regime benefactors. The most powerful of the corrupt classes and
the ones who have benefited from the system of corruption most
egregiously are the President's maternal and paternal cousins, Rami
Makhlouf and General Dhu al Himma as-Shaleesh, respectively. The
cousins maintain a level of influence that puts them in the President's
inner circle. All members of the corrupt class are in a position to
provide material support for SARG policies that are inimical to USG
interests.
End Summary.

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The Top of the Class: The Family
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2. (C) According to contacts, the maternal and paternal cousins of
President Bashar Asad, Rami Makhlouf and General Dhu al Himma
as-Shaleesh, respectively, have developed significant economic power
bases that are increasingly political as well. Headed by Mohammad
Makhlouf, the Makhlouf family rose from humble beginnings to become the
financial advisor to Hafez al-Asad after the former President married
Makhlouf's sister. The family has established a vast financial empire
in the telecommunication, retail, banking, power generation, and
oil and gas sectors. Though Mohammad Makhlouf played a clearly
subservient role to the elder Asad, he and members of his family have
become more assertive politically since his nephew Bashar has ascended
to the Presidency. Rami is the caretaker of the family's investments
and is widely considered to be the poster boy of corruption in
Syria. Contacts report that Syrians used to whisper "Makhlouf,
Makhleef," playing on the Arabic word "khaleef," which in English means
"heir," to indicate the extent of Rami's influence. Many business
contacts have relayed to Post how Makhlouf has used the Syrian security
services and his personal relationship to President Asad to intimidate
and steal promising business ventures from them (ref B).


3. (C) Contacts state that members of the Shaleesh family, specifically
Zuhayr, aka Dhu al-Himma, who is the head of Presidential Security, and
his nephew Asif Issa, are comparatively as powerful but possibly more
corrupt than the Makhloufs. Unlike the Makhloufs, whom some contacts
say have attempted to burnish their reputation among average Syrians
with their investments in Syria's cellular phone network and the chain
of duty free stores along Syria's borders, the Shaleeshes make no effor
to create a friendlier image. As well as being active in the
automobile and construction sectors, contacts say that the Shaleesh
family has been engaged in a wide range of illicit activities including
smuggling and money laundering. In June 2005, the USG formally
established the family's involvement in SARG policies to undermine US
interests in Iraq when it designated the uncle and nephew and their
company, SES International Corporation, under E.O. 13315 for procuring
defense-related goods for Sadaam Hussein in violation of international
sanctions. (Note: According to the US Treasury, SES helped the former
Iraqi regime access weapons systems by issuing false end-user
certificates to foreign suppliers that listed Syria as the final countr
of destination. SES International then transshipped the goods to Iraq.
End note.)


4. (C) Contacts report that prior to the war in Iraq, the SARG awarded
Shaleesh's SES International exclusive rights on contracts to supply th
Iraqi market with goods from construction materials to detergent. SES
then sold the contracts to Syrian and foreign companies for a
substantial fee. Contacts further state that Dhu al-Himma Shaleesh
received a significant amount of the $580 million USD in Iraqi assets
that the SARG illegally paid out to Syrian claimants. (Note. The SARG
has yet to resolve this issue with the Iraqis though it blames the
stalemate on Iraqi inaction. End note.) Others assert that SES has
established dominance in the construction materials sector over the las
year and that it continues to expand its business interests
seemingly unfettered by U.S. sanctions.

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Links Between Corrupt Classes, Security Services
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DAMASCUS 00000003 002 OF 002



5. (C) Contacts state that the corruption which starts at the top
filters down through all levels of business. Contacts among Damascus'
Sunni business elite, many of whom have an axe to grind with the regime
because of their class's continued dimished role, complain that a
predominantly Allawite "corrupt class" has become entrenched over the
past 30 years and is using the corrupt system to dominate all
levels of business. While contacts often are unwilling to talk openly
about individuals in this group and their specific activities, they
contend that the members of the corrupt classes are well-known and that
any Syrian could develop a list of the 50 most corrupt. They state that
the corrupt classes have varying levels of influence and power in the
government, and that the most powerful are in President Asad's inner
circle. They further state that all levels of the corrupt classes are
connected to Syrian security and military intelligence, which they use
to gain monopolistic and extra-legal control of domestic markets.


6. (C) Badr Shallah, the son of a wealthy Damascene Sunni family whose
father Ratib Shallah is the President of the Syrian Chambers of
Commerce, argues that the business ethos in Syria has deteriorated over
the past 30 years due in large part to the influence of the corrupt
classes. Shallah asserts that it is becoming difficult to compete
unless one is willing to adopt their methods. Many aspiring businessme
who lack the Shallah family's historic wealth and influence feel
compelled to get their start by becoming vassals to the corrupt classes
According to contacts, they often begin as foot soldiers in their
patrons' illicit operations and then, after proving their worth, are
allowed to spin off their own business enterprises. Shallah and other
contacts further state that the strong link between the corrupt classes
and the regime, particularly with the Syrian security services, acts as
a barrier to entry for those who are not similarly connected.


7. (C) Shallah explained that the security services provide these
businessmen with protection and cover to engage in fraudulent import
schemes, lucrative smuggling operations and "muscle" to take over
businesses and intimidate potential competitors. In return for these
services, the officials in the security services receive kickbacks all
along the business chain. Haitham Jude stated that individuals
related to the heads of the security services have attempted to control
his family's business through blackmail on a number of occasions in the
past. He further stated that his family was able to fight off their
advances only because his father was a close childhood friend of former
President Hafez al-Asad.


8. (C) Several contacts described as an example the rise of Saleem
Altoun, aka Abu Sahker, a Christian from Lattakia who began his career
in the 1960's as the bodyguard of former Syrian Prime Minister Yousef
Za'en. During the 1980's he became head of imports for the Military
Housing Establishment, a position much saught after because of the
lucrative kickbacks associated with it. As such, Altoun was responsibl
for procuring the material needed to construct barracks for the soldier
as well as houses and factories for Ba'ath Party members and military
brass, realizing spectacular profits for his trouble. Under the
protection of the security services, Altoun was also allegedly heavily
involved in smuggling, bringing millions of Syrian Pounds (SYP)
across the border into Lebanon where he exchanged it for hard currency.


9. (C) In the mid- to late-1980's, the SARG arrested Altoun for
allegedly forging import documents after contacts contend that his
patronage ran out and he was in a position to be held liable under one
of the SARG's periodic anti-corruption campaigns. He served his
sentence in a posh cell with full access to the outside world. Proof o
his continued influence is his son, Sahker Altoun, General Manager of
the Zeina and Altoun Trading companies and a leading Damascus
businessman. Sahker is building on his father's business base and now
is the exclusive agent for Hyundai and Jaguar in Syria's lucrative
automobile import sector.


10. (C) Comment: The corrupt classes have a symbiotic relationship
with the Asad regime - both profit from their relationship and neither
could function without the other. As contacts among Syria's Sunni
community are quick to point out, the corrupt classes are preventing
more progressive elements, including many businessmen who have received
their college and post-graduate training in the US and Europe, from
fully participating in the economy. The Asads run Syria as a family
business, and the corrupt classes are the ones that make the business
function. As the Makhloufs and Shaleeshes prove, however, identifying
where the family ends and the corrupt classes begin can be difficult.
SECHE