By Dafna Linzer, Michael Grabell and Jeff Larson, ProPublica, November 26, 2012
This past summer, as the Syrian economy began to unravel and the military pressed hard against an armed rebellion, a Syrian government plane ferried what flight records describe as more than 200 tons of “bank notes” from Moscow.
The records of overflight requests were obtained by ProPublica. The flights occurred during a period of escalating violence in a conflict that has left tens of thousands of people dead since fighting broke out in March 2011.
The regime of Bashar al-Assad is increasingly in need of cash to stay afloat and continue financing the military’s efforts to crush the uprising. U.S. and European sanctions, including a ban on minting Syrian currency, have damaged the country’s economy. As a result, Syria lost access to an Austrian bank that had printed its bank notes.
“Having currency that you can put into circulation is certainly something that is important in terms of running an economy and more so in an economy that is become more cash-based as things deteriorate,” said Daniel Glaser, Assistant Secretary of the Treasury for Terrorist Financing and Financial Crimes. “It is certainly something the Syrian government wants to do, to pay soldiers or pay anybody anything.”
According to the flight records, which are in English and Farsi, eight round-trip flights between Damascus International Airport and Moscow’s Vnukovo Airport each carried 30 tons of bank notes back to Syria.
Syrian and Russian officials did not respond to ProPublica’s questions about the authenticity and accuracy of the flight records. It is not possible to know whether the logs accurately described the cargo or what else might have been on board the flights. Nor do the logs specify the type of currency.
But ProPublica confirmed nearly all of the flights took place through international plane-tracking services, photos by aviation enthusiasts, and air traffic control recordings.
Each time the manifest listed “Bank Notes” as its cargo, the plane traveled a circuitous route. Instead of flying directly over Turkish airspace, as civilian planes have, the Ilyushin-76 cargo plane, operated by the Syrian Air Force, avoided Turkey and flew over Iraq, Iran, and Azerbaijan.
The flight path between Syria and Russia described in the manifests.
Tensions have been rising between Syria and Turkey since the spring. Last month, Turkey forced down a Syrian passenger plane traveling from Moscow. Turkey suspected the flight of carrying military cargo but officials have not said what, if anything, was confiscated.
If the flight manifests are accurate, a total of 240 tons of bank notes moved from Moscow to Damascus over a 10-week period beginning July 9th and ending on September 15th.
U.S. officials interviewed said evidence of monetary assistance, like military cooperation, point to a pattern of Russian support for Assad that extends from concrete aid to protecting Syria from U.N. sanctions.
In September, 2011, six months into the violence, the European Union imposed sanctions that prohibited its members from minting or supplying new Syrian coinage or banknotes. In a statement, the EU said the sanctions aimed “to obstruct those who are leading the crackdown in Syria and to restrict the funding being used to perpetrate violence against the Syrian people.” At the time, Syria’s currency was being minted by Oesterreichische Banknoten- und Sicherheitsdruck GmbH, a subsidiary of Austria’s Central Bank.
President Obama has issued five Executive Orders that prevent members of the Assad regime from entering the United States and accessing the U.S. financial system.
“Increasingly, it is more difficult to finance the war machine and the cost of the war is becoming more expensive for the Assad regime,” said one U.S. official who spoke on the condition of anonymity. “Targeted sanctions on those leading the violence are working and start to bite into their pocket books.”
Russia appears to be helping Syria blunt the impact of the sanctions.
This past June, Reuters reported that Russia had begun printing new Syrian pounds and that an initial shipment of bank notes had already arrived. The report was denied by the Syrian Central Bank, which claimed the only new money in circulation were bills that had replaced damaged or worn bank notes. Such a swap, the bank contended, would have no effect on the economy.
On August 3rd, the official Syrian news agency SANA, reporting from a news conference in Moscow with Syrian and Russian economic officials, quoted Syrian officials acknowledging that Russia is printing money. Qadr Jamil, Syria’s deputy prime minister for Economic Affairs, was quoted by SANA as calling the deal with Russia a “triumph,” over sanctions.
Syrian Finance Minister Mohammad al-Jleilati said that Russia was providing both replacement notes and additional currency to, as SANA put it, “reflect the country’s changing GDP.”
Al-Jleilati said the money would have no effect on inflation. Printing new notes beyond simply replacing old ones could undermine Syria’s already battered currency.
At the time of the meeting, at least 30 tons of currency had already been delivered, according to the flight records, and another 210 tons would be delivered in subsequent flights.
In its regional economic outlook released earlier this month, the International Monetary Fund noted that Syria’s currency has lost 44 percent of its value since March 2011, trading for about 70 pounds to the dollar compared with about 47 pounds when the conflict began.
Ibrahim Saif, a political economist based in Jordan and a resident scholar at the Carnegie Middle East Center said 30 tons of bank notes twice a week is a significant amount for a country like Syria.
“I truly believe it’s not only that they’re exchanging old money for new notes. They are printing money because they need new notes,” Saif said.
“Most of the government revenue that comes from taxes, in terms of other services, it’s almost now dried up,” noted Saif. Yet, “they continue to pay salaries. They have not shown any signs of weakness in fulfilling their domestic obligations. The only way they can do this is to get some sort of cash in the market.”
Before the unrest broke out, Syria had about $17 billion in foreign currency reserves. Saif said he and other economists in the region estimate they now have about $6-8 billion in reserves, dwindling about $500 million a month for salaries and supplies to keep the government running.
In Moscow, the Syrian finance minister had said that his country required additional foreign currency reserves, which Russia may provide in the form of loans.
“It’s possible the Syrians are acquiring foreign currency reserves, either Euros or US dollars, which they would need to conduct any serious commerce,” said Juan Zarate, who served as Assistant Secretary of the Treasury for Terrorist Financing and Financial Crimes during the Bush administration.
Zarate noted that other countries, when faced with economic sanctions, have leaned on allies for foreign currency reserves. China supplied North Korea with such funds in the past and Venezuela agreed to sell reserves to Iran.
Syria’s currency is still traded on open markets, but there is limited on-the-ground information about the economy, including inflation.
Officials at the IMF “have not been able to get direct information about Syria for at least a year,” Masood Ahmed, director of the group’s Middle East and Central Asia department, told reporters at a conference in Tokyo last month.
Glaser, at Treasury, declined to put a figure on Syria’s current reserves but said the Syrian economy is suffering in part from a lack of tourism and a ban on oil sales, both of which provided Damascus with foreign currency. “There is significant inflation in the country. It can be caused by adding new currency or not having foreign reserves to prop up the existing currency.”
Quinn Norton contributed to this story.