What did a US probe into money laundering in Lebanon find?

Any US ban on using dollars would be catastrophic for the economy given its dependence on it for exchanges

Lebanon's cash economy and money laundering have come under increased scrutiny. The banking sector is under intense pressure to comply or face serious consequences.
Ewan White
Lebanon's cash economy and money laundering have come under increased scrutiny. The banking sector is under intense pressure to comply or face serious consequences.

What did a US probe into money laundering in Lebanon find?

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.

Money exchange and converting dollars into liras and vice versa are daily concerns for the Lebanese after the collapse of confidence in the Lebanese pound.

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.

US officials raised concerns about the proliferation of cash transactions in Lebanon, particularly through Circular 165.

However, the US delegation said it would seek further assurances from the central bank on potential loopholes—particularly in money transfers through unregulated financial entities.

The US delegation also expressed concern over ineffective political and judicial oversight. The FATF pointed out that lapses have hurt the state's ability to pursue armed groups and their financial backers, as laid out in the enacted Law 44/2015, which outlines the framework for combating money laundering and terrorism financing.

On the decline

According to the latest report by Lebanon's Special Investigation Commission for 2020, suspected money laundering cases in Lebanon totalled 463 in 2020, down from 637 cases in 2019. Around 81% of these cases originated from domestic sources, with the remainder from abroad.

For now, the US Treasury is monitoring Lebanon's banking sector to ensure it's following the rules. Failure to comply may result in severe repercussions, including a ban on conducting transactions in US dollars for Lebanon's public and private sectors and sanctions entities or individuals found in violation.

Money laundering has long been a global problem, with international attention aimed at addressing it. The Organisation for Economic Cooperation and Development established the FATF in the 1980s. Its remit expanded to include the prevention of terrorism financing, particularly following the attacks on New York on 11 September 2001.


In 2005, the MENA-FATF was formed to develop standards and establish similar regional bodies across the Middle East and North Africa.

In the 1990s, the US Treasury's keen interest in Lebanon stemmed from the Lebanese government's decision to peg the Lebanese pound to the US dollar and legislate for using the dollar in cash, checks, and bank accounts as a secondary currency alongside the national currency. This arrangement still stands today.

While that decision doesn't directly impact the security of the US currency or economy, it raises concerns about the potential misuse of the dollar in money laundering and terrorism financing schemes.

The current cash-dominant Lebanese economy has added to the US's concern. The Treasury delegation was tough in that respect.

Now, the country is awaiting the MENA-FATF ruling on its compliance. Any negative ruling could possibly have catastrophic consequences for Lebanon, given its dependency on cash for exchanges.

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