When Lebanon’s bankers turned to DLA Piper and Patton Boggs for help last year, they hoped the lobbying powerhouses could burnish the image of a $127 billion industry tainted by allegations of money laundering for terrorists and drug dealers.

Instead, two Lebanese financial institutions last week were hit with U.S. Treasury Department sanctions, each designated as a "primary money laundering concern" for purportedly aiding Hezbollah, a Lebanese political party that the United States considers a terrorist organization. The classification sets the stage for regulators to cut off the two exchange houses from the U.S. financial system.

It’s not the first time Lebanese financial institutions have been in trouble. In August, the U.S. Justice Department seized $150 million from the now-defunct Lebanese Canadian Bank, also allegedly tied to money laundering for Hezbollah. Preet Bharara, the U.S. Attorney in New York City, said then that "money is the lifeblood of terrorist and narcotics organizations."

Faced with an unwelcome spotlight, the Association of Banks in Lebanon, the country’s banking trade group, in August retained DLA Piper to advocate regarding unspecified bank regulatory issues. The organization paid $40,000 in 2012 for DLA Piper’s advocacy, according to the firm’s most recent lobbying paperwork.

DLA Piper partner Matthew "Mac" Bernstein, who heads the firm’s Lebanon lobbying team, said via email that he and his colleagues were helping the bank association "communicate the contributions it makes to a transparent, strong, and stable banking system in Lebanon — and to the overall economic stability of the region." He declined to comment beyond that.

Banque du Liban, Lebanon’s central bank and financial system regulator, tapped Patton in September, spending $150,000 in 2012 on the firm’s advocacy work, according to Patton’s most recent foreign-lobbying report.

Patton name partner Thomas Boggs Jr. wrote in a September 28 letter to the Banque du Liban’s governor that his firm was pleased to help the regulator with "the promotion of the image of Lebanese banking before the U.S. Congress and Administration." The firm submitted the letter to the U.S. Justice Department with its foreign-lobbying registration.

DIRTY-MONEY ALLEGATIONS

It’s clear that the lobbyists have their work cut out for them.

Speaking during a news conference at the U.S. State Department on April 23, David Cohen, Treasury undersecretary for terrorism and financial intelligence, said Kassem Rmeiti & Co. For Exchange and Halawi Exchange Co. allegedly worked with accused Lebanese-Colombian drug kingpin Ayman Joumaa, stepping in after Treasury officials first raised concerns in 2011 about money laundering through the Lebanese Canadian Bank. Joumaa’s network laundered tens of millions of dollars through Rmeiti and Halawi, Cohen said. But he declined to estimate how much of that money would have benefited Hezbollah. Cohen said the United States has "concern about the adequacy of the supervision" by bank regulator Banque du Liban.

"Treasury maintains an ongoing and active dialogue with Lebanese authorities and with the Lebanese banking sector itself to underscore the importance of vigilance with respect to narco money laundering and other illicit financial activity," Cohen said. "We are working closely with the Lebanese regulators and private financial institutions to help address the concerns highlighted by today’s action."

Michael Robinson, whose public relations firm Levick represents the Association of Banks in Lebanon, declined to comment. Efforts to reach a representative of Banque du Liban were unsuccessful, but Banque du Liban Governor Riad Salame told The Wall Street Journal that the regulator has been independently investigating Halawi and Rmeiti.

"We are doing, first of all, the oversight on our own initiative because there are rules and laws and regulations that the money-exchange houses need to abide with," Salame said in an interview published last week. "We are cooperating and will continue to cooperate in a sincere and firm way with the U.S. Treasury."

UNDER PRESSURE

During several meetings with U.S. policymakers during the past eight months, DLA Piper and Patton lobbyists have painted a picture of a clean Lebanese banking sector — an industry that, according to Lebanon’s The Daily Star, held assets in 2012 equal to three times the country’s gross domestic product.

In addition to Bernstein, DLA Piper partners John Merrigan and James Pickup have lobbied for the banking association, focusing on Congress, the State Department, Treasury Department and White House, lobbying reports filed with Congress show.

Patton partner W. Caffey Norman; of counsel Graham Wisner and Laurence Harris; and associates Matthew Oresman and Alexis Early have advocated for Banque du Liban, meeting with key congressional staffers and a senator, according to a Patton foreign lobbying report the Justice Department published in March. The report covers advocacy work from July 1 to December 31.

Wisner, Patton’s lead lobbyist for Banque du Liban, declined to comment on his firm’s lobbying work for that client. But Patton’s foreign-lobbying report and congressional aides shed some light on the firm’s activities.

The firm engaged in a flurry of meetings on Capitol Hill in September, with Salame, the Banque du Liban governor, in tow for at least one of them. Between September 19 and September 21, Patton met with staffers on the House Financial Services Committee, Senate Banking Committee and Senate Foreign Relations Committee, as well as with Senator Richard Shelby of Alabama, then the top Republican on the banking panel.

In emails, congressional staffers elaborated on two of the six meetings. On September 20, Dwight Fettig, then the Democratic staff director for the Senate Banking Committee, met with Banque du Liban as part of the panel’s anti-money laundering enforcement oversight, according to panel spokesman Sean Oblack. "We used this meeting to emphasize the importance of having Lebanon’s Central Bank step up its efforts to combat money laundering and terrorist financing, and cooperate fully with the U.S. in those efforts," said Oblack, who declined to disclose who else was at the meeting besides Fettig.

The next day, Norman and Salame met with House Financial Services Committee Republican counsel Susan Blavin about "the compliance structure of the bank," panel spokesman Jeff Emerson said. Salame told Blavin that he was "working with bank officials to prevent money laundering," Emerson said.

David Schenker, director of the Arab politics program at the Washington Institute for Near East Policy, a D.C. think tank, said Hezbollah presents a tricky situation for Lebanon as it tries to ease U.S. terrorism concerns without alienating the Lebanese people, who have made the group a major political party. Schenker, who met with Salame in September, said the bank governor has "a balancing act that … [nobody] would envy." He added: "This guy has a lot of pressure on him."