Financial Crime World

Syria’s Banking Industry: Financially Vulnerable Amidst Ongoing Political Instability and AML Concerns

According to the latestreport from the Financial Action Task Force (FATF) on 23rd February 2024, Syria remains on the watchlist for strategic deficiencies in Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) measures.

Syria’s AML/CFT Deficiencies

  • Syria has been identified as having Strategic Deficiencies in AML/CFT measures (FATF, 2024).
  • Previously deemed ‘Compliant’ for 5 recommendations and ‘Largely Compliant’ for 8 in the 2006 mutual evaluation report (FATF, 2006).
  • Weaknesses in 5 of the 6 core recommendations were identified (FATF, 2010).
  • Syria’s financial sector identified as a ‘Jurisdiction of Concern’ due to money laundering and terrorist financing vulnerabilities (US Department of State, 2016).

Challenges in Syria’s Banking Sector

The Syrian banking sector was growing before the onset of the civil unrest in 2011. However, subsequent sanctions imposed by several jurisdictions led to fewer formal banking services being used.

Current State of Syrian Banking

  • Large commercial transactions rely on Syrian banks.
  • Porous borders and significant areas beyond Syrian regime’s control pose significant money laundering and terrorist financing risks.

Regulatory Framework and Enforcement

  • Weak regulatory framework.
  • Poor enforcement of existing AML/CFT laws.
  • Absence of control over significant parts of the country and involvement of Syrian political and business elite in illegal activities perpetuates risks.

Money Laundering Volumes and Concerns

  • Money laundering volumes in Syria are estimated to range between $15 million and $70 million daily.
  • Regional hawala networks and smuggling-based money laundering are concerns.
  • Human smuggling and document trafficking crimes generate substantial proceeds and are a significant source of money being laundered.

Impact of Sanctions

  • Syria has been on the State Department’s list of countries sponsoring terrorism since its inception in 1979.
  • Sanctions imposed by the US, EU, and other nations have targeted financial institutions.
  • Prior to the Syrian crisis, the US Department of the Treasury had deemed CBS and its subsidiary, the SLCB, as financial institutions of ‘primary money laundering concern’.

Potential Economic Developments and Concerns

  • Syrian authorities have shown interest in establishing free trade zones (FTZs) as economic development tools.
  • Lack of transparency and oversight within these zones raises concerns over monitoring and regulating potential money laundering and terrorist financing activities.

Conclusion

Lingering political instability and ongoing sanctions keep the Syrian banking sector financially vulnerable. Despite interest in economic developments and potential strategic partners, the FATF continues to closely monitor Syria’s progress in AML/CFT reforms.