The United States is stepping up efforts to track down alternative funding channels used by Hezbollah as tighter financial sanctions seek to disrupt the group's traditional sources of revenue, particularly Iranian funding that has underpinned its military capabilities, security apparatus and political influence in Lebanon for years.

Washington's campaign extends beyond efforts to curb the flow of money from Iran to Hezbollah. U.S. authorities are also seeking to identify the alternative networks the group may use to compensate for any decline in Iranian support, including overseas funding sources and cross-border commercial and financial operations.

A Reuters report last week that Hezbollah had received $200 million in cash from Iran the previous month to help tens of thousands of families displaced by the war drew particular attention to the issue. The report prompted a response from the U.S. State Department, which cast doubt on whether the money had reached the group while reaffirming Washington's commitment to maintaining financial pressure on Hezbollah.

The department said the United States would continue to target the group's funding sources through sanctions while supporting the Lebanese government's efforts to rebuild southern Lebanon.

A new front in the U.S. sanctions campaign

Sami Nader, director of the Middle East Institute for Strategic Affairs, said the latest developments reflected a new phase in Washington's efforts to tighten sanctions on Iran and its regional allies.

"We are witnessing a new round of U.S. sanctions targeting Iran and its proxies as part of a broader effort to tighten the pressure on them," Nader told Asharq Al-Awsat.

He said the campaign was primarily directed at Iran rather than Hezbollah itself, particularly following a recent U.S. announcement describing the group as an integral part of Iran's Islamic Revolutionary Guard Corps (IRGC).

Nader said Tehran had developed alternative methods to circumvent financial restrictions and counter efforts to isolate it, notably through transactions involving gold and cryptocurrencies.

"These networks are evolving across the region and are linked to Iran and Hezbollah," he said.

The latest sanctions are aimed at disrupting these alternative channels, Nader added. If cryptocurrency offices are found to be involved in such networks, Lebanon could face pressure to shut them down and take action against their operations. Authorities could also be pressed to tighten controls on gold transactions that might be used to circumvent sanctions.

The challenge for Washington, therefore, is not simply to restrict the transfer of Iranian funds but also to prevent Hezbollah from replacing lost revenue through less conventional financial mechanisms.

Four main sources of Hezbollah's funding

Hezbollah has relied on several sources of financing for decades. Under previous administrations and governments in Lebanon, billions of dollars were able to reach the group, including through official border crossings, amid what critics describe as a lack of effective oversight.

Economic expert Antoine Farah identified four main sources of funding that have sustained the group.

The first is direct Iranian financing, through funds Tehran has regularly transferred to Hezbollah over the years.

The second consists of illicit activities, particularly drug smuggling and the production and trade of Captagon, an amphetamine-type stimulant. Farah said Hezbollah had been active in these activities both inside and outside Lebanon, particularly in several Latin American countries.

The third source is donations from Shiite donors and supporters around the world, which Farah described as generous contributions that have helped sustain the group's finances.

The fourth is a network of front businesses established to generate additional revenue and facilitate money laundering, allowing the group to conceal the origins and destinations of funds.

Together, these channels have provided Hezbollah with multiple ways to finance its activities, making efforts to disrupt its financial networks more complex than simply blocking direct transfers from Iran.

Lebanon tightens financial oversight

Farah told Asharq Al-Awsat that Hezbollah's ability to rely on most of these funding sources had declined significantly. The group is also facing growing pressure from legislative and regulatory measures being strengthened in Lebanon.

Among the most significant developments are proposed amendments to Law No. 44, which governs efforts to combat money laundering and terrorist financing.

The changes are particularly important because they seek to identify the ultimate beneficial owners of companies and commercial enterprises, making it more difficult for individuals or organizations to conceal their interests behind intermediaries or corporate structures.

"Requiring authorities to identify the actual beneficiaries of commercial activities and trace the sources and destinations of funds would tighten the net around the front businesses established by the group," Farah said.

Such measures could make it harder to use seemingly legitimate businesses to conceal illicit proceeds or channel money to Hezbollah, provided the rules are effectively enforced.

Farah also pointed to steps being taken by Banque du Liban, the country's central bank, to regulate money changers and money transfer companies.

These measures are tightening oversight of two sectors that could otherwise be exploited to move funds and channel financing to the group, he said.

Financial pressure extends beyond direct Iranian transfers

The expanding focus on alternative funding networks underscores the difficulty of cutting off Hezbollah's financial resources through sanctions alone. Even if direct Iranian transfers decline, the group could seek to compensate through donations, commercial networks, illicit trade or other cross-border financial channels.

For Washington, identifying and disrupting those mechanisms is becoming an increasingly important part of its broader strategy to limit Iran's regional influence and weaken the financial infrastructure supporting Hezbollah.

In Lebanon, meanwhile, the effectiveness of that effort will depend in part on the authorities' ability to enforce financial regulations, establish who ultimately benefits from commercial transactions and prevent money changers, transfer companies and front businesses from being used to evade restrictions.