BEIRUT (Reuters) – Lebanon is likely to be placed on a “gray list” of countries subject to special monitoring because of unsatisfactory practices to prevent money laundering and terrorist financing, three sources familiar with the matter told Reuters.
Adding it to the list would be another big blow for a country that has been in financial slump since 2019 and has been struggling to secure a deal with the International Monetary Fund.
The local pound has lost more than 98% of its value, plunging most of the population into poverty, and diplomats have been expressing concern for months that a growing cash-based economy could mask growing illicit financial flows.
The Middle East and North Africa division of the Financial Action Task Force, the financial crime watchdog, has conducted a preliminary assessment of Lebanon’s economy, which the sources said will be seen by member states this week in Bahrain.
A diplomatic source who has seen a copy of the initial report said the cumulative result of this assessment puts Lebanon “one tick above the threshold of the gray list”.
According to a draft seen by Reuters, Lebanon was rated only partially compliant in several categories, including anti-money laundering measures, transparency about beneficial ownership of companies, and mutual legal assistance in freezing and forfeiting assets.
The Financial Action Task Force declined to comment on the report or the finding prior to its publication.
“Lebanon is seeking more leniency and is trying to get a better result in one of the categories so that it is not included in the gray list area,” the diplomatic source said.
Lebanon’s Deputy Prime Minister Saad al-Shami, who heads the country’s talks with the International Monetary Fund, told Reuters he had not seen the draft report and declined to comment on the impact it might have on talks with the lender of last resort.
A financial source familiar with the matter said the draft had given Lebanon a score worthy of inclusion in the gray list. “The authorities are trying hard to prevent this from happening,” the source said.
A second diplomatic source familiar with the matter said the draft document was already lenient given the collapse of Lebanon’s economy. “Anything other than a greylist would be a scandal,” the source said.
The two diplomatic sources said that the compliance department of the Central Bank’s Investigative Committee has been pressuring FATF member states to try to change the outcome.
The Compliance Department did not respond to an emailed request for comment.
Being placed on the FATF’s gray list could disrupt capital flows to a country, the International Monetary Fund found in a 2021 paper, with banks potentially exiting relationships with clients located in high-risk countries to reduce compliance costs.
Such a listing also risks reputational damage, credit rating adjustments, difficulty in obtaining global financing, and higher transaction costs.
In the case of Lebanon, the financial meltdown has already severely restricted banking transactions and many corresponding institutions have cut ties with the country.
But the listing would be an indictment of the Lebanese financial system at a painful time. The country has been slow to make progress on major reforms required for a deal with the International Monetary Fund, and France has indicted a central bank governor in a financial fraud case, prompting an Interpol Red Notice.
South Africa was added to the FATF list in February and the United Arab Emirates was added in March 2022.
(Reporting by Maya Jubaili). Additional reporting by Taimur Azhari in Baghdad. Editing by Kirsten Donovan
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