As the country becomes more reliant on profiteers for the provision of basic goods and services, the systematic depletion of public resources is likely to continue for the foreseeable future.
Means of maintaining profiteer interests in regime-controlled areas
In addition to the Presidency, the security agencies and the Ba’ath Party, all of which have more direct roles in regime-controlled areas, profiteers have emerged as new actors with increasing influence. The regime relies on illegal networks and cronyism to maintain and expand its power in the private markets for goods and services, which has led to the rise of war profiteers. Together with key regime figures and actors, profiteers have made fortunes from conflict-related activities. There are interlinked means that the regime and profiteers use to meet the former’s needs and support the latter’s interests (according to the regime’s conditions). The power dynamics between the regime and profiteers have a direct impact on the provision of goods and services in regime-controlled areas.
Profiteers have different types of agreements with government entities, which in some cases are imposed on them by actors such as the office of the Presidency. For example, few companies are in the privileged position of HESCO Engineering & Construction Company, which imports crude oil and spare parts for oil wells. Its owner, Georges Haswani, has a very good personal relationship with Assad. He also has strong relations with security agencies, particularly Air Force Intelligence, and good connections with Russian companies and influential persons in Russia.
Another type of agreement is public-procurement contracts between profiteers and state entities. Many examples show that these are controlled by corrupt networks of public officials and businesspeople, and that the regime uses them as a tool to control profiteers. For instance, Hamsho, a company owned by a well-known US-sanctioned associate and former member of parliament, Muhammad Hamsho, signed 591 procurement contracts with the Ministry of Education between 2016 and 2018. These contracts were later revealed to be covers for corrupt transactions that cost the public budget around SYP 90 billion (around $200 million at the time, according to the late 2019 official exchange rate). Later the regime confiscated all the assets of the former minister and forced Hamsho to repay this amount to the government. The real reasons behind the fallout between the regime and many profiteers like Hamsho are unclear. Possible explanations include the regime’s need for money, its unwillingness to accept the increasing influence of some profiteers, and its aim to boost its diminishing popularity by appearing to fight corruption.
There are also agreements based on laws and regulations issued by the regime to legalize the monopoly of profiteers over public funds. Legislative Decree No. 19 of 2015 permits local councils to set up holding companies in partnership with the private sector to invest in public properties. Based on this decree, Damascus Cham Holding was established in 2016. This corporation includes associates like US-sanctioned Samer al-Foz and monopolizes all regime-led, so-called reconstruction projects such as Marota city.
Other regulations only benefit specific profiteers. Usually, these consist of decisions issued by ministries or the Prime Minister’s Office, and they do not include laws or legislative decrees. In early 2019, the government decided that all households in Damascus should use a ‘smart card’ to buy fuel, a measure later extended to other governorates. The government claimed that this would help in distributing fuel more effectively. A private company called Takamol was given exclusive rights to manage and organize the smart card. It reportedly made a lot of money, since it had a 0.25 per cent commission on each sale of fuel based on the official agreement with the government. The company is managed and partially owned by Mouhanad Dabagh, who is Asma al-Assad’s cousin.
The government decided in April 2020 to apply the smart card mechanism to other basic goods such as bread. This provoked a negative social reaction that was apparent on social media and in some of the pro-regime newspapers. People were afraid that this would be a first step in privatizing the production of similar subsidized goods. In the same month, Mahrukat, a state-owned enterprise, took over from Takamol and became responsible for managing the smart card. Yet, there are ongoing internal governmental discussions on how to re-hire Takamol to manage the distribution of fuel and other basic goods, including bread. The argument is that Takamol proved to be efficient in doing this job and that Mahrukat’s complicated bureaucracy may hinder the process.
The regime utilizes illegal networks to obtain basic goods from inside and outside Syria.
The regime utilizes illegal networks to obtain basic goods from inside and outside Syria. This is observable in the internal and external oil trade (see animation). Many intermediaries are responsible for transporting crude oil from oil fields in the northeast to the state-owned Homs refinery, which is in a regime-controlled area. Among these intermediaries is Hussam Katerji, a US-sanctioned war profiteer and a member of parliament. Hundreds of his group’s trucks transport crude oil from Self Administration areas to the Homs refinery via Palmyra under the protection of pro-regime militias. Other intermediaries include powerful families such as the Al Hassan and the Al Khouzaim in the village of Al-Shaheel in Deir ez-Zor. They are allegedly responsible for smuggling crude oil from Self Administration areas to regime-controlled ones via the Euphrates.
Similarly, a network of smugglers manages convoys of fuel trucks that pass from Lebanon into Syria through illegal border crossings controlled on the Lebanese side by Hezbollah, which is allied to the Syrian regime. Hezbollah also coordinates with the 4th Armoured Division, which monitors the Syrian side of the border. An important share of this fuel is used to cover Hezbollah’s military-related needs in Syria. The remaining quantity is to compensate for fuel shortages in different regime-controlled areas, including Damascus.
The regime also relies on profiteers to overcome sanctions while importing goods. For this purpose, many pro-regime profiteers have set up shadow companies through which they can trade and conduct financial transactions. One example is the sanctioned Lebanon-based BS Company SAL – affiliated with the Katerji Group – that imports oil for the regime using a variety of oil-tanker vessels.
Means of maintaining profiteer interests in northwest and northeast Syria
The power dynamics between the regime and profiteers in areas under Assad’s direct control are mirrored elsewhere in the country. In general, cooperation in non-regime areas includes formal and informal cooperation between the de facto authorities and their affiliates, the creation and application of regulations tailored to inner-circle interests, and reliance on illegal networks in the provision of goods and services.
The military dominance of HTS over Idlib in the northwest allowed it to support the creation of the Salvation Government, which it uses to maintain control over resources as well as administrative and judicial bodies. HTS affiliates have been able to secure their interests through formal memoranda of understanding (MoUs). This was demonstrated when Watad Petroleum, which presents itself as a private company, was granted a monopoly over the fuel market in Idlib. Not much is known about the origins of Watad or when it was established. It seems to be owned by various traders who have strong ties to HTS, but that does not mean that all of them are part of the group. Watad used its connections with HTS to sign an MoU with the Salvation Government giving it the exclusive right to import fuel through Turkey and to purchase crude supplies from the northeast. The MoU also allows the company to monopolize the purchase of crude oil transported from the northeast, to regulate the fuel trade, and to become the sole provider of oil to public institutions and service facilities.
The use of MoUs in this way is not as common in the northeast due to the Self Administration’s Central Executive Council, which oversees the work of regional and local councils, making such questionable MoUs harder to justify. Therefore, connected businessmen in the northeast seem to prefer focusing on securing their interests through ad hoc and discreet arrangements with local officials. Since a considerable percentage of the councils’ activities are outsourced to private businesses, so-called public tenders have become the primary avenue for such deals. This is especially the case in the lucrative fuel sector, where the operation of remote oil wells is outsourced to external contractors. Instead of announcing tenders publicly, as the procedures theoretically dictate, officials only share details of the tender with individuals linked to them. Therefore, applicants need to know someone on the inside in order to identify when to bid. Since such contracts are conditioned on getting security clearance, establishing a connection to influential officials (such as those in the security agencies and the military) is also essential. While some contractors may use their connections to gain the approval of such officials, who typically have the final say over such matters, the majority of contractors achieve this by paying a sizable bribe or offering a share of the revenues.
Affiliates of HTS have been able to use its authority to tailor the Salvation Government’s laws and regulations to suit their interests. This has been illustrated by Watad Petroleum’s willingness to change fuel-related import regulations to increase its profits. Before 2018, a $10 per tonne tariff on the transportation of fuel was imposed at the Bab al-Hawa border crossing with Turkey. Officially, the crossing is administered by an independent civilian entity, which thus does not fall under the authority of HTS or even the Salvation Government. Nonetheless, Watad was able to draw on HTS’s influence to reduce the tariff to $3 per tonne. Local sources indicate that this did not lead to a noticeable drop in fuel prices in Idlib, however. Watad is the only entity that has benefited from this tariff reduction. According to various estimates, Watad imports an average of around 60 fuel tanks a day. The reduced tariff rate can thus be estimated to save the company around $53,000 per week, at the expense of local governing entities that are struggling to provide quality services due to the lack of international funding.
HTS’s extensive control over the border with Turkey and the frontlines with the regime and other rebel groups has made it hard to transport goods into or out of Idlib without its permission. HTS’s efforts to ensure that products are available and affordable, as well as its ability to financially benefit from trade crossings, have apparently reduced the scale of smuggling outside of the region. As a result, large-scale smuggling of crude oil to Turkey has decreased. Similarly, the group took over the networks that were smuggling oil from the northeast and regulated its entry, in coordination with Watad, through the official crossing. HTS also has extensive control over the networks that smuggle people into Turkey, and it charges a fee in exchange for regulating and permitting the business. Powerful individuals within HTS are still involved in the smuggling of goods to regime areas, which includes livestock, fuel and cooking gas, especially during periods of fuel shortage.
In the northeast, the standardization of laws across the Self Administration’s regions makes the manipulation of its regulations for personal use more difficult. Private entities and profiteers instead rely on illicit deals with local officials. While there is no solid information on whether the Self Administration is involved (as an organization) in smuggling, officials within it reportedly play a crucial role in facilitating such operations. This is particularly clear in the oil business, where they typically turn a blind eye to, or even organize, the smuggling of fuel out of oil facilities. This is generally done in coordination with the operators of oil wells, who sell the undeclared crude fuel they extract from their facilities on the black market. While some of that fuel is consumed locally, the majority is transported, in coordination with military and security officials, to regime areas across the Euphrates in Deir ez-Zor. In exchange, these officials get a fixed amount or a percentage of the revenues.
Factors enabling profiteers: Limited institutional capacity and endemic corruption
Profiteers have benefited from two interlinked enabling factors to become influential actors. The first is the poor and deteriorating capacity of state entities to provide goods and services that meet people’s needs. The second factor is the institutionalized corruption in almost all government entities.
State institutions in all sectors in Syria have always suffered from inefficiency and a lack of accountability. The conflict has further weakened their capacity due to several reasons, such as exhausted financial and human resources, weak law enforcement, and poor monitoring systems. This allows profiteers and public officials to collude and illegally take advantage of these institutions by charging much higher prices for similar basic services.
For example, Hussam Katerji benefits from widespread corruption and poor monitoring at all managerial levels, which has cost the public budget millions of dollars. State-run Tishreen News reported that his firm sold crude oil mixed with water to the Homs refinery. In another example, public tenders for the purchase of medical equipment and medicines provide an opportunity for public officials to collude with private companies in invoicing the government at much higher prices than what these companies actually pay for delivering such services.
Many profiteers have established their own entities and NGOs, allegedly to deliver social services that the de jure institutions are no longer able to provide. These entities mainly aim to serve regime loyalists and increase their popularity with them. One example is the Al-Bustan Charity Foundation, which widely expanded its services during the conflict until the regime’s relationship with its founder, Assad’s cousin Rami Makhlouf, deteriorated in 2020. The foundation focused its assistance on the families of security and military entities, mainly from the Alawite community. In the early years of the conflict, Makhlouf through Al-Bustan established armed groups to support the regime in its military operations.
The poor provision of public services in regime-controlled areas enables profiteers to offer better quality services but at much higher prices. One example is the supply of wheat. In 2018 and 2019, pro-regime profiteers imported around two million tons of wheat at a total cost of $368 million, mainly from Russia, when the average international price for the same quantity was around $223 million. Thus, profiteers generated a profit margin of almost 40 per cent on such an essential product.
In areas outside the regime’s control, profiteers take advantage of the lack of capacity and efficiency of the quasi-formal institutions of de facto authorities. In the northwest, on top of the challenges caused by the conflict, the low salaries paid by the Salvation Government (even in comparison to local civil society groups) and its affiliation with HTS, which is a UN-designated terrorist organization, have pushed competent individuals who still live in the region to steer clear from it. Furthermore, HTS (which prioritizes loyalty over competence) intervenes in the recruitment process of administrative staff and vetoes the hiring of professionals who are not aligned with it.
As a result, local councils, which have been gradually hollowed out, lack the competent technocrats necessary to effectively monitor the work of quasi-formal institutions. Aware of this reality, profiteers typically identify the officials key to securing their interests and then use financial incentives or coercion to achieve their objectives. For example, despite HTS’s attempts to impose its monopoly over the import of construction materials, some traders bribe officials at the Bab al-Hawa crossing and then discreetly ship those commodities to Idlib.
Popular disapproval of the Self Administration, especially in Arab-majority areas (like Raqqa and Deir ez-Zor), has led many educated professionals in those regions to avoid engaging with its quasi-formal institutions. To overcome this, the Self Administration has primarily focused on appointing traditional tribal leaders in key administrative positions. While that may have helped ‘tick the box’ regarding local participation, it also created nominal structures that are incapable of preventing its officials, as well as influential profiteers from outside its structures, from turning the Self Administration into an avenue to secure personal interests. This has become even easier due to the lack of effective monitoring mechanisms to enforce the accountability of governance structures. For example, Al-Sheikh Construction Company, which is owned by a prominent family of the same name in Deir ez-Zor, does not seem to have direct ties to the Self Administration, but it has reportedly used personal connections to members of the governorate’s councils and financial incentives to win a substantial percentage of contracts. Lack of transparency allows profiteers to use such tactics to secure their interests without being caught.
The second enabling factor for profiteers is institutionalized corruption. The difficult living conditions, coupled with the lack of accountability, have led to the proliferation of corrupt officials in different state entities at all managerial levels. Corruption dominates the mechanisms of service provision in regime-controlled areas.
The bread-production process illustrates this systematic corruption (see animation). Hoboob, the state grain company, supplies private mills with wheat. These mills are supposed to produce and distribute high-quality flour to bakeries. Instead, they sell the best wheat to a network of traders and replace it with cheaper, low-quality wheat to produce the required flour for bakeries. This process is governed by a corrupt public–private network.
Networks of medical and administrative staff illegally sell the available subsidized medicines to the private health sector. The result is a sharp reduction in the quality of health services and the capability of public hospitals to cover medical needs.
Public health facilities also suffer from widespread corruption. Networks of medical and administrative staff illegally sell the available subsidized medicines to the private health sector. The result is a sharp reduction in the quality of health services and the capability of public hospitals to cover medical needs. In 2018, the former prime minister sacked many key figures in public hospitals under the guise of fighting corruption. Yet, corruption continues, indicating that these networks do not depend on the actions of a few individuals; there is instead a system that methodically depletes public resources.
The education sector has witnessed the increasing influence of international NGOs and UN agencies that have provided direct support to public schools. This support includes technical and financial assistance for school rehabilitation, educational equipment and training sessions for staff to improve their teaching capabilities. Some profiteers have colluded with public officials and managerial personnel in some international organizations to make illegal profits under the cover of renewing schools and providing teaching equipment (see animation).
Corruption in non-regime areas is mainstreamed in all quasi-formal institutions and service-provision entities, which allows it to permeate even when corrupt individuals are removed. In such cases, changing personnel would constitute nothing more than treating the symptoms while the root causes of the illness are left untouched. This is evident in the widespread corruption within the structures of the Salvation Government. For example, in the juridical system people receive preferential treatment due to their social status or affiliation with HTS. The group seems to use its influence over courts to clear or ignore cases filed against its members or people affiliated with it. However, the fact that funding channelled through the Salvation Government is limited – since the vast majority of foreign support is managed directly by civil society groups – has reduced its ability to misuse international aid.
Institutionalized corruption is also seen in the relationship between the Self Administration and the local investors to whom it outsources the management of remote – and therefore less secure – oil wells (more than 15–20 km away from the fields). While investors get access to revenue and a licence to carry arms in return for their cooperation, as well as a degree of protection because the Self Administration informs the International Anti-Daesh Coalition about their numbers and locations, the investors are obliged to sell 70–75 per cent of their produced crude oil to the Self Administration at prices set by the latter.
There are also signs of widespread corruption within the structures of the Self Administration. For example, the fuel committee in Deir ez-Zor reportedly misuses its authority over fuel allocation and distribution in that region. Local sources mention multiple examples where the committee conditioned the process of subsidies on receiving bribes from recipient entities (such as private bakeries and generators). Members of the committee were also accused of brokering illicit agreements with contractors to fast-track their work or undermine their competitors. In addition, its members reportedly stole around 800,000 litres of subsidized diesel in the first three months of the committee’s appointment.
The committee’s mismanagement triggered public anger, which forced the Self Administration to launch an official investigation in 2019. Although no information has been disclosed publicly about the findings, local sources confirmed that some committee members were fired and replaced. The lack of information about what happened led to speculation about the involvement of prominent military and security officials. Yet, illicit activities and abuses of power continue, as the main factors that allowed the committee to abuse its authority remain unaddressed, such as a lack of monitoring and transparency as well as the presence of ‘cadros’ – Kurdish individuals with technical expertise and long-term links to the inner circles of the Democratic Union Party (PYD) or the Kurdistan Workers’ Party (PKK).