Al-Assad-Makhlouf Dispute: Background and Dimensions

EPC | 18 May 2020

The current dispute between the president of the Syrian regime Bashar al-Assad and Syria’s top businessman Rami Makhlouf constitutes a new variable in the policy of the Syrian regime and its way of dealing with the problems that erupt within the narrow circle of decision making. While Rami Makhlouf is not a political figure and has no specific position within the Syrian power hierarchy, it is no secret that in addition to being a relative of Assad, he represents a strong economic centre that owes its status to the significant role played by the regime policy. This makes him organically linked to the Syrian ruling system. This is evidenced by the fact that Rami Makhlouf benefitted a lot from the economic transformation that occurred in Syria under Assad the son’s presidency, that is the shift from planned to market economy which required the issuance of hundreds of presidential decrees to rehabilitate the legal and political structure accordingly.

This paper sheds light on the background of the dispute between the two men and Russia’s position thereon in its capacity as the most influential player in Syrian policies.

Mahklouf’s posts: background and objectives

The apparent disagreement between Makhlouf and Assad is attributed to the claim made by the Syrian Telecommunications and Post Regulatory Authority against Makhlouf for the payment of amounts due to the state treasury worth 233 billion Syrian liras (334 million dollars) for tax evasion and concealing profits belonging to previous years that should have been shared with the government based on a revenue-sharing agreement within the Makhlouf-owned Syriatel Mobile Telecom company, the largest mobile phone operator in Syria, in addition to restoring balance to the licence granted to Syriatel after Makhlouf transferred, in 2015, the company’s licence from a Build, Operate and Transfer (BOT) basis to a licence contracted with the government’s Syrian Telecommunications Establishment. That contract reduced the government’s share in profits from 60 percent to 20 percent. The government is demanding the difference in operating profits for the last five years.

This claim came amidst the economic crisis experienced by the regime, which made it force businessmen to pay money on the pretext of “combating corruption”. The regime issued a decision on the precautionary seizure of Rami Makhlouf’s assets which forced him to reach a financial settlement with the Customs Directorate over the case of Abar Petroleum Company. However, the seizure decision of the company was not lifted and was followed by the decision of the Telecommunications and Post Regulatory Authority mandating the payment by Syriatel of the aforementioned amount.

These developments took place in the context of a path of changes in the structure of the Syrian economic elite led by Assad’s wife, Asma al-Akhras, who headed the Anti-Money Laundering Commission and was behind many of the precautionary seizure decisions of the assets of Syrian businessmen. Makhlouf saw in those developments an introduction to dispossess him of his assets and drive him out of the Syrian economic scene completely. This drove him to post his video recordings on the social media platforms.

In the first recording, posted in the beginning of May 2020, Makhlouf attempted to appear as a businessman who has problems with the tax authorities without any political dimension. His discourse in that recording focused on two main points: first, his objection to revision by the State of mutually agreed contracts (the contract signed in 2015). He considered that the State has no right in those funds, accusing it of reneging on a deal that was signed years ago. He threatened to publish the documents confirming that the State is not entitled to the company’s funds. The second point is underlining that his companies are among the leading taxpayers and providers of liquidity to the Treasury. However, Makhlouf confirmed that he would pay that amount anyway, provided that this is done according to a mechanism that would not harm the company and that the amount be distributed among the poor and needy as a gift from President Bashar al-Assad.

It is clear from the first recording that Makhlouf wanted to send a direct message to Assad to intervene in solving the crisis between Makhlouf and those who he thinks are behind the measures taken against him who must be someone in the Palace, most probably Asma al-Assad, and perhaps Maher al-Assad. This means that contact channels between both sides were severed and that he could not reach Assad. Yet Makhlouf tried to imply that his problem is with the State and institutions and not with the regime. By this, he wanted to take part in the game that the regime is playing with him, knowing that this would satisfy Assad and give Makhlouf a margin for manoeuvre and rejection.

However, Assad did not respond to Makhlouf’s message who came under increasing pressure. This made him post another video two days later in which he disclosed what he described as “serious” developments. He said that the reason for his renewed appearance and sending this message is the continued violations and threats by security agencies to him and his companies.

It was noticed in the second and third recordings that Makhlouf has gone beyond the state of caution that appeared in the first recording. After underlining his role in protecting the regime through his support of the security agencies which he criticized for arresting two of his company officials, he sent implicit threats “in case this situation persists” by underlining that “the subject is sensitive and goes beyond what is perceived”. He said, “We’re faced with details that we shall not be able to control if the pressures which are put on us persist and which have become unacceptable and inhumane”. Makhlouf’s threats peaked in this recording when he considered that “there are hard days ahead, and I’m ready for them” and that “if things go on as they are, this will be serious”. He underlined that he will not give in to pressure and will not give up managing his companies and assets which he considered the “harvest of a lifetime”, asserting that “they are entrusted to him under a divine ordeal”.

What is noteworthy about those two recordings is that Makhlouf shifted the accusation from State institutions to those surrounding Bashar al-Assad who stand behind those “violations and practices that have become scary and nasty”, as he described them. He addressed Assad saying, “Don’t believe those surrounding you. Don’t allow them to violate the Constitution and the law”. Upon analysis of the context of events, it is clear that Makhlouf was targeting Asma al-Assad who, according to reports, stands behind downsizing the Makhloufs and driving them out of the economic scene in a war fought by both sides that has driven Makhlouf to leak to the Russian press the news that a painting was bought for 30 million dollars by Asma al-Assad, which made her increase the pressure on Makhlouf in retaliation.

While Makhlouf tried to appear as a panhandler, who requests support from Bashar, the facts and the context of developments indicate the existence of a conflict between the two sides that long preceded its emergence. The regime’s decisions against Makhlouf did not come out of the blue; rather, they are the product of a systematic plan that started long ago, through the dismantling of Makhlouf’s military arms (Al-Bustan militia) which he formed during the war, disbanding his political arm (the General Secretariat of the Syrian Social Nationalist Party), as well as dispossessing him of the Al-Bustan Association which served as the window of his charity work to access the supportive environment in the Coast and the poor belts around Damascus and Homs.

Makhlouf is aware that the decisions taken against him are really political and beyond the announced amounts which he did not object to paying. In fact, he objected to the context and collection mechanisms and what will follow. His public appearance was due to his feeling that he is heading towards a crucial stage where insinuation is no longer worthwhile. So, he tended to deploy his resources, or what he thinks are resources, in the face of Assad.

It is no secret that Makhlouf sought to address Russia and the Alawite sect. He attempted to benefit from the Russian media campaign that indicated that Assad is not in control of the situation in Syria. He tried to establish this by reference to “other sides” taking decisions about him without Assad’s knowledge and participation. He also attempted to undermine what Assad attempts to promote in terms of the law and institutions through expressing his lack of confidence in the regime and requesting Assad to receive personally the funds he is going to pay to the regime as tax and spend them on those who deserve them.

Makhlouf sought to depict the disagreement as a sectarian one, showing that those targeted by the measures are “the poor”, a term that the Alawites use to refer to themselves. Makhlouf resorted to allusion to insinuate that a Sunni side seeks to take control of power and wealth and that the targeted are the Alawites or the pro-Assad community.

These attempts reveal Makhlouf’s endeavour to create a strong safety network of the sect that currently constitutes the most important component in Syria after the defeat of the Sunni majority and the weakening and marginalization of the other sects. Perhaps he based his assessments on the extent of the influence he thinks he has within the Coast communities as a result of the aid offered by the Bustan Association to the injured, the poor and the families of those killed from the army and security services, as well as the complaint by those communities of the collapse of the economic conditions and the consequent extremely negative impact on them.

Al-Assad and the post-war shifts

The disagreement between Makhlouf and Assad is part of the shifts that Assad seeks to establish in the context of Syria’s future landscape, considering that the upcoming stage requires different dynamics that would enable the Assad regime to get through this stage to safeguard its continuity and stability.

The war stage has produced military, security and economic centres of power that went as far as transforming into influential actors that draw their legitimacy from their de facto strength, control and capability to secure services to the environments in which they exist in return for marginalizing the centre whose performance has declined and whose effectiveness has greatly receded, whether in terms of maintaining security and protecting the population or providing them with services and care. Those needs were more effectively met by the security structures and economic powers, both emerging and old, on the condition of loyalty to them and establishing their powers.

The end of hostilities has revealed a chaotic landscape that threatens the stability of the central authority. Being aware of this, the Russian leadership had to prompt Assad to re-structure the security services and the military establishment through the integration and dismissal of many military militias. In the economic domain, with the start of discussion on reconstruction, and in light of the collapse of the local currency and the enactment of the US Caesar Act whereby stringent sanctions are imposed on the Assad regime and dealers with it, the need arose for changing the economic structure and changing its doctrine from a war economy to a reconstruction economy, after it was found out that the economic elite, led by Makhlouf, is a faulty one as a result of international economic sanctions against it and the Syrians’ negative opinion of it, in addition to Assad’s awareness that this elite, which emerged and developed under abnormal circumstances, is hard to rehabilitate as an operational force for the upcoming stage.

Despite the prevailing belief that the disagreement with Makhlouf will be morally detrimental to Assad and might affect the stability of the regime, Assad is heading towards transforming the challenge into an opportunity and seems to have planned for this beforehand. There are indications of this, mainly:

  • The disagreement between Assad and Makhlouf helps to enhance Assad’s capability to remove the power centres that have emerged and played increasing roles during the war stage, particularly within the supportive communities, and to re-establish power sources in the presidential palace and under his supervision. Doubtlessly, this crisis, which is observed by all Syrians, will make all names and power centres rethink, seeing that Assad did not consider his closest name.
  • Assad proves that he cares for public funds and that he is a statesman and not a mafia godfather as he was recently depicted by western media. Thus, Assad would achieve gains at the domestic level. His “indirect” response to Makhlouf came by underlining, during his meeting with the government team tasked with confronting the coronavirus and made up of ministries and State institutions, “the need to restore the State’s role as an economic player and a market regulator”. At the international level, these measures enhance the regime’s account that the wars, decisions and policies experienced in Syria are produced by the State and agree with its interests.
  • Assad responds to the Russian position, which has recently emerged in the campaign launched against him by Russian media outlets, and which had Rami Makhlouf and his wealth at its heart. Assad also sends a message to Russia that he is capable of running the country and imposing his authority on all, after he was accused by the Russian media of giving in to power centres that manipulate the country to achieve their own interests.
  • Change of balances. The death of Bashar al-Assad’s mother Anisa Mahklouf and the illness of Mohamed Makhlouf and his movement to Russia mark the beginning of the decline of the Makhlouf family in the Palace, and the advent of the stage of Asma al-Assad who played an important role in arriving at this state of affairs. While some analyses cast doubt on Asma al-Assad’s capability to bring about those shifts in the regime’s complicated environment, attributing the main role to Russia that provided the main cover to most of the shifts carried out by Assad in the military, security and economic structures, this does not hide Asma’s impact in those shifts. The effectiveness of the President’s wife is manifested through its role in creating rivals and alternatives to Makhlouf in the economic domain. After Makhlouf remained for a long period the name that controls the tenders, agencies and dealerships, a portion of the basic services sector is now controlled by relatives of Asma al-Assad. The contract to issue the smart cards to buy basic commodities, such as rice, gas, tea, sugar and cooking oil, was granted to Takamol company, which is owned by Asma’s cousin Muhannad al-Dabbagh. It was leaked that Rami Makhlouf is the one who leaked the company’s name to the Russian press which obliged the regime to cancel the contract.

Russia’s position

The disagreement between Assad and Makhlouf raises the question about Russia’s role and position in this disagreement. This question is justified by the existence of several facts, as follows:

First, the aggravation of the disagreement between Assad and Makhlouf coincided with the Russian media campaign against Assad, and questions were raised about whether Makhlouf received certain signs from this campaign that made him raise his challenge level against Assad and refuse to concede to him. On the other hand, the disagreement started to be a public issue in the summer of 2019 as a result of the demand by Russia of a debt repayment of 3 billion dollars owed to it by the Assad regime. Makhlouf declined Assad’s request that Makhlouf repay the amount, which drove Assad to issue the precautionary seizure decisions of some of Makhlouf’s companies.

Second, the existence of a desire by the Russian financial elite to control the Syrian economy and acquire the share of Makhlouf who, according to several reports, controls 60 percent of the Syrian economy. It was mentioned in the media campaign launched by the Russian outlets that Assad does not control “Makhlouf’s tribe” which in turn controls the economy and hampers its reform.

Third, “official” Russia turns a blind eye to the current disagreement between Assad and Makhlouf. On the ground, however, according to the Syrian Observatory for Human Rights, the Russian military police joined the Syrian security services in the campaign to arrest managers of Syriatel company and Bustan Association, both of which are owned by Rami Makhlouf.

Rami Makhlouf himself is of little importance to Russia, for two main reasons: Makhlouf is not a political and military name of weight within the Syrian system. Neither is he a prominent figure within the Alawite sect. Despite his enormous wealth, Russia knows that the Assad family is a partner to this wealth. That is why Russia stands by Assad in this disagreement and favours him to Makhlouf. In fact, Russia becomes part of the campaign run against Makhlouf, for the following reasons:

  • Russia has interest in cracking the Syrian regime and weakening Assad whose obstinacy is a cause of complaint by the Kremlin, according to a Bloomberg Agency report. Weakening the regime’s narrow circle (hard nucleus) would make Assad more flexible to Russia’s political and economic demands.
  • The campaign against Makhlouf comes amidst Russian arrangements to control the joints of the Syrian economy and exclude the internationally sanctioned names which constitute an obstacle to opening up international economies to the Syrian economy.
  • Russia seeks to drive the US to give up implementing the Caesar Act or to implement it leniently, and to encourage businessmen, both Syrian and Arab, to invest in Syria in case of removing Makhlouf which used to blackmail investors and force his participation in their projects or profits inside Syria.

The campaign against Makhlouf is part of a wider landscape that Russia strives to create in Syria. Russia’s efforts focus on rehabilitating Assad for a stage of significant shifts through which it can present the Assad regime, regionally and internationally, in a new format. This requires it to trim that regime by displacing and neutralizing wings and issues that hinder the rehabilitation of Assad. This might even force Russia to make changes in the security and military domains, with the overall aim of creating an equation through which it can maintain the Assad regime and meet some of the international demands. Easing the regional and international demands towards the Assad regime constitutes an incentive for Russia to carry out this task.

Conclusions

The Assad regime is passing through a transition stage that it considers necessary to proceed to the next stage that has its own commitments and requirements. Exiting this stage requires the formulation of an integrated context and re-engineering all military, security and economic government agencies. This path coincides with, or perhaps follows, Russian directives that aim to present the Assad regime in a new mould that differs from the one known by the world during the war stage. Makhlouf, who resisted those changes, will most probably have to concede to them and seek a settlement with the regime that will not be in his interest, knowing that he is the weaker side in this confrontation and that the transition path overpowers him.

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