The Financial Action Task Force (FATF), the global authority overseeing anti-money laundering (AML) and counter-terrorism financing (CTF) policies, is contemplating adding Lebanon to its “grey list,” subjecting the country to enhanced monitoring.

LIMS has highlighted Lebanon’s dependence on a cash economy as a significant risk factor. The ongoing banking crisis has eroded public trust in financial institutions, prompting individuals to eschew bank deposits in favor of cash transactions. This shift not only raises compliance issues with international financial standards but also hampers economic growth. LIMS further emphasized that Lebanon’s judicial system has shown reluctance in cooperating with the international community on money laundering matters. The nation also still grapples with rampant tax evasion and smuggling, compounding its financial woes.

To restore confidence in the banking sector and encourage deposits, LIMS has proposed urgent reforms. Firstly, the Lebanese parliament should permit banks to differentiate between old and new dollar deposits. Banks should be allowed to offer interest on new deposits and ensure that loans issued in new dollars are reimbursed in the same currency. Secondly, the market should be opened to new banks untainted by the current banking crisis. These measures would enable the banking sector to resume its financial intermediation role the time the broader crisis is addressed.

Addressing rumors about allowing pre-2019 depositors to withdraw funds at the market exchange rate, LIMS clarified that such speculation is baseless, as the necessary funds are unavailable for withdrawal. This situation underscores the urgent need for comprehensive restructuring of Lebanon’s banking sector to resolve the deposit crisis and stabilize the economy.

The potential grey listing by FATF highlights the critical necessity for Lebanon to align its financial practices with international standards. Without decisive reforms, the nation risks further isolation from the global financial system.

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