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Lebanon at Risk of FATF Gray Listing: LIMS Argues for Reforms

15:16 | 31 August 2024LIMS output
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FATF

Lebanon is on the verge of being placed back on the Financial Action Task Force’s (FATF) “gray list” by October 2024, a move that could deliver another blow to an already fragile economy.

LIMS explained that this gray-listing, which results from the Lebanese state’s inadequate efforts to combat money laundering and terrorist financing, would significantly raise the cost of financial transactions, further isolate Lebanese banks from the international financial system, and deter much-needed foreign investment. The country’s access to global markets, already strained, could be severely restricted, worsening the ongoing economic crisis.

LIMS has been a vocal critic of the Lebanese government’s inaction in addressing these critical deficiencies. The issue is not merely one of banking compliance, but a broader systemic failure rooted in Lebanon’s judicial and legislative frameworks. While Lebanon’s central bank has made some efforts, they remain insufficient without parallel reforms in the judiciary and greater cooperation with international anti-money laundering investigations. The country’s over-reliance on cash—estimated to account for 50% of its economy—fuels illicit financial activities, as evidenced by the rise in counterfeit $50 bills. The failure to enforce the rule of law has created an environment where both local and foreign investors are unwilling to take risks.

LIMS advocates for enhanced security measures to curb counterfeiting, money laundering, and terrorist financing. These efforts should be complemented by banking sector reforms aimed at restoring trust, thereby encouraging financial transactions to return to the formal banking system. This would help reduce the size of the cash-based economy that facilitates illegal activities. Although full-scale banking sector restructuring is politically deadlocked, some reforms could provide temporary relief. LIMS recommends allowing new banks to enter the market and enabling existing banks to issue loans payable in fresh U.S. dollars—moves that could attract deposits and reduce reliance on cash, thus curtailing counterfeiting and restoring confidence in the financial sector.

Gray-listing is not just a bureaucratic hurdle; it is a signal to the world that Lebanon is unsafe for business. It is imperative that the government adopts reforms, to prevent further economic isolation, reduce financial transaction costs, and create a business environment in which private enterprise can flourish.

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