Lebanon’s Cash Economy and Money Laundering: A Growing Concern

Beirut — The reliance on a cash-based economy in Lebanon is increasingly becoming a significant concern for financial integrity experts, as it reportedly facilitates money laundering activities, particularly for Palestinian militant groups such as Hamas.

Hamas and the Cash Economy

Growing apprehension surrounds the use of cash transactions in Lebanon’s economy, which could potentially hide the origins of funds for Palestinian militant groups like Hamas. This trend poses a significant threat to Lebanon’s economy, potentially reversing progress made before 2019 and increasing vulnerability to financial crime.

Hamas and Lebanon: A Historical Context

The United States has previously expressed concern regarding Hamas’ potential use of Lebanon to channel funds. During a recent visit to Beirut, Jesse Baker, Deputy Assistant Secretary of the Treasury for Asia and the Middle East, urged Lebanese authorities to prevent the transfer of funds to Hamas via Lebanon.

Fact-finding Mission

According to a source from the Central Bank of Lebanon, the discussions between Baker and Lebanese officials echoed a fact-finding mission. Although Lebanese authorities assured the US Treasury that Hamas could not conduct bank transfers from Lebanon, concerns persist about the use of Lebanon’s cash economy as a means to bypass these safeguards.

Lebanon’s Financial Sector and Money Laundering

The involvement of Lebanon’s financial sector in money laundering activities has been a contentious issue, with several Lebanese companies identified for alleged involvement in such operations.

Risks for the Lebanese Banking Sector

While the names of the financial institutions involved are rarely mentioned, the potential risks for the Lebanese banking sector are significant.

AML/CFT Protocols in Lebanon

With Lebanon narrowly evading the Financial Action Task Force (FATF) grey list in a mutual evaluation report in 2023, it is crucial for the country to address deficiencies in its anti-money laundering and counter-terrorism financing protocols.

The Cash Economy: Risks and Encouraging Informality

The burgeoning cash economy, estimated at $6.05 billion in 2021 and $9.86 billion in 2022, poses risks for financial integrity and encourages informality among small and micro businesses. The prevalence of cash transactions obscures the origins of funds used in illicit and illegal activities.

Concerns of International Authorities

A Treasury official, who spoke on condition of anonymity, expressed specific concerns to Lebanese authorities about the movement of Hamas funds through Lebanon, as well as Hezbollah funds from Iran and their outflow into regional areas.

Recommendations for Lebanon

Economist Maan Barazy emphasized the importance of intensified efforts against the burgeoning sector of illicit financial service companies, including unlicensed money transfer operations, to reduce opportunities for groups such as Hamas and Hezbollah restricted from formal financial systems by U.S. sanctions.

By addressing these issues and strengthening its anti-money laundering and counter-terrorism financing protocols, Lebanon can increase its compliance with international standards and attract much-needed foreign investment, a crucial step in addressing its prolonged crisis.