THU 24 - 5 - 2018
Date: May 15, 2017
Source: The Daily Star
Lebanon’s banking sector: A partner in compliance
Ryan Bailey

Panic has grown within the Lebanese banking community about a new round of U.S. sanctions under development to further target Hezbollah financing. A draft sanctions bill, which began circulating in the Lebanese press in late April, demonstrates that there is a desire on Capitol Hill to amend and strengthen the Hezbollah International Financing Prevention Act passed by the U.S. Congress and signed into law by President Barack Obama in December 2015. This secondary wave of proposed financial sanctions against Hezbollah likely comes as part of the new administration’s focus on combating Iranian ambitions and support for proxy groups in the Middle East.

As the backbone of the Lebanese economy, the banking sector underwrites the majority of the government’s debt and holds deposits that outweigh the country’s entire gross domestic product. Therefore, it is essential that any further sanctions do not target the sector as a whole, or the U.S. risks impacting the economic and political stability of a country already struggling to host over 1 million refugees and maintain security against the backdrop of the civil war in Syria next door.

Lobbying efforts in Washington are already underway by the Association of Banks in Lebanon. A banking delegation is also set to visit the U.S. in May to discuss the proposed sanctions. In these discussions with U.S. lawmakers, the Lebanese banking industry’s strong history of compliance with efforts to combat financial crimes should figure first and foremost.

Lebanon became a signatory to the United Nations International Convention for Suppressing the Financing of Terrorism in 1999. In 2001, the country passed legislation that tightened fiscal regulations, expanded the scope of financial crimes and enforced stricter money laundering laws. In 2003, the Lebanese Parliament amended existing legislation to criminalize terrorist funding. The rules were updated again in 2011, when Lebanon issued circulars imposing greater restrictions on financial intermediaries that engage in the cross-border movement of funds and currencies.

As a result of this strong compliance culture and legal framework, Lebanese banks have been able to integrate successfully into the global financial system. Lebanese banks transact with more than 183 foreign banks located in over 82 cities and have their own operations in 32 countries worldwide.

Even before the original HIFPA legislation was passed in 2014, Lebanese bankers demonstrated their commitment to compliance with U.S.-led anti-laundering efforts during the Lebanese Canadian Bank affair. Banque du Liban, the country’s central bank, forced the sale of LCB’s clean assets in 2011 after it was accused by the U.S. of involvement in money laundering and drug trafficking for Hezbollah. Those assets were purchased by Societe Generale de Banque au Liban. SGBL’s CEO and chairman, Antoun Sehnaoui, in an effort to restore confidence in the sector with U.S. Treasury and international banking officials, hired John Ashcroft, the former U.S. attorney general, to assist in the process of purging questionable accounts.

With the HIFPA relegations coming into effect in 2016, BDL Gov. Riad Salameh issued a directive in May of that year, mandating that all banks abide by the U.S. act and immediately close accounts relating to Hezbollah or any of its expansive networks, including the media organizations, hospitals and charitable organizations. The Central Bank also lobbied Parliament to pass urgent legislation to strengthen Lebanon’s framework for combating money laundering and terror financing, which the legislative body did in November 2015.

The Lebanese banking sector quickly complied with the new HIFPA regulations, with few negative consequences. The only major incident came in June 2016 with the bombing of BLOM Bank headquarters in Beirut’s Verdun area, which caused damage but no casualties.

The man who led Lebanon’s compliance efforts, Central Bank Gov. Salameh, a technocrat who has served as the head of BDL since 1993, is seen as an integral force for economic stability within the country. His monetary policy led Lebanon relatively unscathed through the financial crisis of the late 2000s and his recent, though controversial, financial engineering scheme boosted the Central Bank’s foreign currency reserves to more than $41 billion. Amid speculation in the Lebanese press that President Michel Aoun is seeking to replace the long-serving governor as a part of efforts to bring major Christian posts in the country under his control, Salameh’s international connections and ability to walk a fine line between appeasing both Washington and domestic political forces would likely be instrumental in attempting to influence the structure of or implement compliance with any possible new sanctions.

The strength and compliance of Lebanon’s banking industry is one of its greatest assets and also why any threat to the sector stirs such worry. Officials in Washington considering a HIFPA 2.0 should recognize that they have professional Lebanese partners, with a long track record of complying with international financial regulations even prior to any specific sanctions targeting Hezbollah, who are willing to work with them to combat terror financing. The U.S. must also seriously heed the concerns of Lebanese bankers, who know the Lebanese economy better than anyone and can convey the invaluable role of the financial sector in maintaining political stability in the country. In the end, the Lebanese banking industry should have one major ally in promoting their history of cooperation and compliance: U.S. Ambassador to Lebanon Elizabeth Richard, who said during a March 2015 Senate hearing that the future success of the Lebanese banking sector in implementing HIFPA regulations “relies on upholding an already excellent reputation.”

Ryan Bailey is a Beirut-based political and economic analyst.
A version of this article appeared in the print edition of The Daily Star on May 09, 2017, on page 4.

The views and opinions of authors expressed herein do not necessarily state or reflect those of the Arab Network for the Study of Democracy
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