Lebanon’s Financial Sector Faces ML/TF Risks Amidst Refugee Crisis

Lebanon is facing a significant challenge in containing money laundering and terrorist financing (ML/TF) risks in its financial sector, amidst a refugee crisis that has brought an influx of economic migrants from neighboring countries. Despite resource constraints, authorities are working to strengthen government control over remote areas where cannabis is grown and close illegal border crossings.

Challenges Faced by Lebanon’s Financial Sector

Lebanon’s financial sector may be modest in size compared to global or regional hubs, but it faces inherent vulnerabilities due to its:

• Open economy
• Significant international trade
• Developed banking system

These factors create opportunities for ML/TF offenders, particularly in the presence of an informal economy and wide use of cash.

Banks and Designated Non-Financial Businesses and Professions (DNFBPs)

• Banks are the largest component of Lebanon’s financial sector, accounting for over 95% of the total.
• Offer products that can be misused, increasing ML/TF risks.
• DNFBPs such as jewelers, real estate dealers, and money remittance companies also pose ML/TF risks.

Money Dealers (MDs) and Money Remittance Companies

• MDs purchase and sell foreign currencies in exchange for other currencies or Lebanese Pounds, making them vulnerable to ML/TF risks.
• Type “A” MDs, which offer hawala operations, are inherently more vulnerable than type “B” MDs, which have modest transaction volumes.
• Money remittance companies dominate the market, with three major players controlling most of the volume and geographic coverage. However, identifying the source of small funds and their potential end use is a challenge for these companies.

Other Financial Sector Entities

• Financial institutions, financial intermediaries (brokerage firms), and specialized lending entities (comptoirs) are less vulnerable to ML/TF risks due to their modest size and transaction volumes.
• Insurance companies also face limited risk given the modest value of insurance premiums paid against life policies with investment features.

Conclusion

Lebanon’s financial sector faces significant challenges in combating ML/TF risks amidst a refugee crisis that has brought economic migrants from neighboring countries. Authorities must continue to strengthen government control over remote areas and close illegal border crossings to mitigate these risks. The private sector must also play its part by implementing robust anti-money laundering and combating the financing of terrorism (AML/CFT) measures to ensure the integrity of Lebanon’s financial system.