Sociologie/Economie - Economie libanaise

Lebanon’s financial recovery: navigating away from the grey list

Lebanon grapples with an economic crisis and distrust in banks, narrowly avoiding the FATF grey list. Potential consequences include financial disruptions and reputational damage, underscoring the urgent need for legislative reforms to combat financial crimes. 

Lebanon is currently facing a profound economic crisis that has not only exacerbated existing political instability and regional conflicts but also eroded trust in its governance. In 2022, the World Bank estimated that the cash-based economy accounted for nearly $10 billion, equivalent to over 45% of Lebanon’s Gross Domestic Product (GDP, the final value of goods and services produced within the geographic boundaries of a country during a specified period, normally a year). This will likely persist, if not intensify, as the population continues to lose faith in the banking system. The prevalence of cash transactions naturally creates opportunities for criminal elements to engage in illicit activities, including money laundering and concealing the proceeds of illegal transactions.

Skepticism towards financial institutions

Growing public discontent has been directed at the banking sector as an increasing number of people face difficulties in accessing their savings due to the implementation of capital controls by financial institutions. Lebanon received a score of 24 out of 100 in the latest Corruption Perceptions Index (CPI) by Transparency International, where a lower score indicates a higher perception of corruption within a country's public sector. Given the widespread disillusionment among the public, it comes as no surprise that Lebanon received this low CPI score. The diminishing trust in the banking sector has led to a significant reliance on cash within the Lebanese economy. Because of this economic instability, non-traditional financial entities like money transfer companies have attempted to step in to address the void left by banks. However, it's worth noting that many of these enterprises operate without proper regulation. Al Jazeera has reported that an estimated 50% to 60% of Lebanon's entire GDP operates within the informal, unregulated sector. This shadow economy encompasses illicit activities that are challenging to oversee and poses a threat to the effectiveness of fiscal and monetary policies.

Cash Crunch: Lebanon's Vulnerability to Financial Crimes

With an increasing dependence on cash, the Lebanese economy becomes more susceptible to vulnerabilities related to financial crimes. The risk of money laundering has escalated due to the use of cash to conceal assets acquired through illicit means. Cash transactions also pose a threat to the advancements made before the crisis in bolstering Lebanon's financial integrity and implementing comprehensive measures against financial crimes. Lebanon's financial crisis has significantly hampered banking transactions, leading to the severing of ties with many correspondent institutions. The country has made minimal headway in implementing the reforms mandated by the IMF, and its former central bank governor faces charges of financial fraud from France, which has resulted in the issuance of an Interpol red notice.

FATF's Verdict: Lebanon's Close Call with the Grey List 

Contrary to expectations, Lebanon managed to evade placement on the grey list by the Financial Action Task Force (FATF), the global authority overseeing money laundering and terrorism financing, during its most recent plenary session in June 2023. However, Lebanon narrowly avoided this designation by just one point, indicating that it remains under close scrutiny by FATF due to its inadequate measures for combating money laundering and terrorism financing.


Nevertheless, Lebanon's financial crime situation has not gone unnoticed on the international stage. FATF has granted Lebanon a one-year grace period to implement essential reforms in the realms of financial, monetary, and banking systems before reevaluating the possibility of greylisting. In its assessment, FATF identified specific areas of concern in Lebanon's anti-money laundering efforts, beneficial ownership transparency, and the country's ability to provide mutual legal assistance in asset freezing and confiscation. These areas were rated as 'partially compliant.'


During 2024, Lebanon is required to submit a progress report to MENAFATF (Middle East and North Africa Financial Action Task Force), outlining the steps taken to address the identified deficiencies and correct these issues. Given the ongoing economic crisis, especially the shift toward a cash-based economy, Lebanon faces a crucial task of overhauling its legislative and regulatory framework to combat financial crimes effectively and avoid greylisting in FATF's upcoming meeting.

FATF's Verdict: Lebanon's Close Call with the Grey List 

Being placed on the grey list can have various detrimental effects on a country's financial landscape, as highlighted in a 2021 paper by the IMF. These effects may include disruptions in a country's capital flows, as banks might opt to terminate relationships with customers in high-risk countries to lower their compliance expenses. Additionally, there are other associated risks, such as:


• Reputational Damage: Greylisting can tarnish a country's reputation in the international financial community, potentially leading to a loss of trust among investors and foreign partners.


• Credit Ratings Impact: Being on the grey list may result in adjustments to a country's credit ratings, which can make it more expensive for the government and businesses to borrow funds in international markets.


• Difficulty in Accessing Global Finance: Greylisted countries might find it more challenging to access global financing, including loans and investments, as international lenders and investors become more cautious.


• Increased Transaction Costs: Businesses and individuals in greylisted countries may face higher transaction costs when conducting international financial operations, which can impede economic activities.


One of the critical issues that Lebanon needs to address pertains to the "slow" judicial procedures when dealing with individuals suspected of money laundering whose names have been identified by the special investigation commission.

In summary, being placed on the grey list by international bodies like FATF can have multifaceted negative consequences for a country's financial system, affecting its capital flows, reputation, creditworthiness, access to global finance, and transaction costs.