Iran is funding Hezbollah via suitcases stuffed with sash, Israel warns

According to the Israeli complaints, Iranian envoys have been flying from Tehran to Beirut’s international airport with suitcases stuffed with U.S. dollars, the people familiar with the allegations said. In addition, Israel alleged in its complaints that Turkish citizens have been used to ferry money from Istanbul to Beirut by air, the people said.

The cease-fire committee, which doesn’t adjudicate alleged violations, has conveyed the complaints to Lebanon’s government, the official speaking for the committee said. The committee has representatives from Israel, Lebanon, the U.S., France and the United Nations.

Officials of some governments represented on the committee said they were aware of Iran’s use of the airport to smuggle cash or considered the allegations credible.

The cease-fire deal requires Lebanon to secure the country’s ports of entry and prevent the flow of arms and related materiel to groups like Hezbollah, a U.S.-designated terrorist organization. The terms don’t specifically address deliveries of cash.

The Lebanese government and armed forces didn’t reply to requests for comment. A spokesman for the Iranian mission at the United Nations in New York and representatives of Hezbollah also didn’t reply to requests for comment.

Behnam Khosravi, a diplomat at the Iranian Embassy in Lebanon, told Iranian state media this month that Tehran doesn’t use passenger planes to smuggle funds into Lebanon.

Turkish officials said any large amounts of cash moving through Istanbul Airport would have been detected by X-ray machines or other security measures. The officials indicated no such movements had been found and said no third party had raised the issue with Turkey.

Cash shipments from Iran to Hezbollah could deepen friction between Israel and the two Shia allies. In two months of fierce fighting last autumn, Israel wiped out most of Hezbollah’s top leaders, killed or injured many of its militants and significantly degraded its arsenal of missiles.

A wall covered with portraits of dead Hezbollah members during a funeral ceremony in southern Lebanon.

Israel has said it is committed to keeping Hezbollah from rebuilding and has threatened to strike Beirut’s airport if it is used to smuggle in aid for the group.

The two sides have largely stopped fighting under a cease-fire that has held for two months, though Israel has carried out hundreds of strikes on Hezbollah targets which it says violated the deal, including two attacks Tuesday on vehicles Israel’s military said were transporting military equipment.

Lebanon has called the strikes a violation of the cease-fire.

On Jan. 2, Lebanese authorities searched passengers on a Mahan Airlines flight that landed in Beirut after a Saudi news station reported the plane was being used to bring in funds to Hezbollah. An Iranian diplomat aboard refused to comply and entered Lebanon with two bags Iran said contained documents and cash for embassy operations, according to Lebanon’s Foreign Ministry.

Hezbollah needs cash as it tries to recover from the conflict, which killed or wounded many of its members and did extensive damage to its strongholds in southern Lebanon and the southern suburbs of Beirut, the people familiar with the matter and Lebanese security officials said.

The group, which has a political party and social organization in addition to its militant wing, uses money to pay and recruit fighters, support families of the injured, compensate supporters for property that was destroyed and cover the cost of ongoing social-support programs.

Israel has targeted Hezbollah’s sources of cash to hamper its ability to fight and slow its recovery. Over the past year, Israel killed central figures in Hezbollah and Iran who were responsible for keeping funds flowing to the Lebanese militia.

It also used airstrikes during the fighting last fall to destroy several sites where Israel said Hezbollah was keeping cash and gold, including branches of Al-Qard al-Hassan, a bank that is sanctioned by the U.S. for its role as a financial hub for Hezbollah.

“First, Hezbollah just literally has just lost a whole lot of money. Second, they now have massive expenses," said Matthew Levitt, former deputy assistant secretary for intelligence and analysis at the U.S. Treasury Department and now at the Washington Institute for Near East Policy.

Iran is dealing with a crisis in its sanctions-hit economy. Still, it sees Hezbollah as an important ally and deterrent against Israel and won’t let the group wither away, said Levitt.

There are some signs Hezbollah is struggling to cover its commitments. The head of a Lebanese charity helping displaced people in southern Lebanon said experts appointed by Hezbollah had visited his area but underestimated the cost some people would incur to rebuild.

“There is a lot of discontent against Hezbollah," the person said.

A person familiar with Hezbollah’s thinking said the group wasn’t experiencing a liquidity crisis and was paying compensation for badly damaged property that ranges from $12,000 to $14,000 a year for rent, along with extra payments for furniture.

Since the cease-fire came into effect in late November, Al-Qard al-Hassan has reopened 28 branches, and Hezbollah has used the bank to issue $500 million worth of checks—a sign the person said showed that the group doesn’t have a cash flow problem.

But the extent of the damage in Lebanon as well as the crimped pipeline of support through Syria and increased scrutiny at the Beirut airport will limit Hezbollah’s ability to fully fund reconstruction, the person said.

Lebanese officials said Beirut airport is under Lebanese army control.

Until recently, Iran’s main smuggling route for supplying cash and weapons to Hezbollah ran through Syria, though Israeli officials have said Iran also used the Beirut airport to smuggle in cash and gold in the past. The Syrian option was largely removed by the fall of the Assad regime late last year, increasing the importance of the Beirut airport route, the people familiar with the matter said.

Lebanese officials said that under the cease-fire agreement, the airport is under the tight control of the Lebanese army to ensure funding and weapons aren’t brought to Hezbollah. It would be hard to smuggle large amounts of cash through the airport, a senior Lebanese security official said, though valuable items like precious stones and diamonds might bypass detection.

U.S. officials who recently left office following the change of administrations expressed concern that Hezbollah might hold enough influence over Lebanese security forces for Iranian-backed couriers to escape rigorous searches at the airport.

—Saleh al-Batati contributed to this article.

Write to Dov Lieber at dov.lieber@wsj.com, Michael R. Gordon at michael.gordon@wsj.com and Benoit Faucon at benoit.faucon@wsj.com