The fight against money laundering in Lebanon has gained steam nationally and globally following the collapse of the country's banking sector, which created ideal conditions for illegal financing, including the funding of terrorist groups.
Since then, Lebanon has taken proactive steps to combat money laundering. The central bank has increased its oversight of money entering Lebanese banks, tracing it back to legal and legitimate sources.
The moves aim to restore the reputation of Lebanon's financial sector, which was once renowned across the Middle East and the world, before 2019’s dramatic banking collapse and the subsequent wave of scandals.
The turmoil effectively turned Lebanon into a cash economy, adding to the vulnerability of a nation with a porous border with Syria. Instead of being a centre of legitimate finance, Lebanon became known for drug smuggling and a place where the funding of terrorism and organised crime was rampant.
International concerns
International attention on Lebanon has focused on concerns over Hezbollah and Hamas financing, but national banks do not service these groups or facilitate their money transfers. Their funds are mostly kept in cash and do not run through banking systems.
Lebanon’s efforts against terrorist financing and money laundering were hailed at a recent visit from United States government officials.
The visit from a US Treasury team came at a politically sensitive time, during the war in Gaza and at a time of escalating tension on Lebanon’s southern border. But as the pre-arranged event unfolded, it became clear that America was getting serious.
All fund movements via Lebanon—whether conducted through the banking system, local transfer companies, or money-wire firms—will now be meticulously scrutinised in line with international standards expected by the Financial Action Task Force (FATF) and the Middle East and North Africa Financial Action Task Force (MENA-FATF).
Any sign that Lebanon is not complying will seriously affect its ability to conduct international financial interactions. A verdict on Lebanon's compliance, thus far, is due soon.
Jesse Baker led the US delegation. He is deputy assistant secretary of the US Treasury for Asia and the Middle East in the US Office of Terrorist Financing and Financial Crimes.
After meeting with relevant Lebanese financial and monetary officials, the US team said it secured Lebanon’s commitment to United Nations resolutions and other international measures to protect the integrity and propriety of financial systems.
While the meeting was routine, what was discussed was not entirely new. Baker was concerned that Lebanon’s financial sector is being used by groups the US designates as terrorists, including Hamas and Hezbollah.
There are strict “know your customer” or KYC rules, under which clients must also meet the required standards without exception. Regular data updates are carried out annually.
Further measures
Baker emphasised the need for further measures to prevent suspicious transfers that violate counter-terrorism financing and money laundering regulations.
General concerns were raised about the proliferation of cash transactions in the Lebanese economy, particularly through Circular 165, which permits the opening of new bank accounts known as “fresh dollar” accounts—ones that opened after the banking crash hit on 17 October 2019—and their susceptibility to money laundering.
Wassim Mansouri, the acting governor of the Central Bank of Lebanon, assured the US Treasury delegation that Circular 165 has significantly contributed to Lebanon’s protection.
He pointed out that the circular has effectively managed checks and transfers in “fresh” Lebanese pounds, which have surged in volume and don't pass through correspondent banks, unlike most “fresh dollar” transfers and checks. He also argued that the circular shielded Lebanon from potential sanctions from MENA-FATF.
Baker expressed confidence in the Central Bank and its steps toward transparency. He said the “know your customer” protocols have been effective in curbing money laundering and other financial irregularities.
