Countries/Jurisdictions of Primary Concern - Lebanon
Lebanon is a financial hub for banking activities in the Middle East and eastern Mediterranean and has one of the more sophisticated banking sectors in the region. Lebanon faces significant money laundering and terrorism financing challenges; for example, Lebanon has a substantial influx of remittances from expatriate workers and family members, estimated by the World Bank at approximately $7.3 billion annually over the last four years. Media reports suggest that a number of Lebanese abroad are involved in underground finance and trade-based money laundering (TBML) activities.
Laundered proceeds come primarily from cybercrime money laundering operations and from Hizballah, which the United States has designated as a terrorist organization, though the Government of Lebanon does not recognize this designation. Lebanon’s Internal Security Forces (ISF) Cybercrime and Intellectual Property Unit tracked more than 50 cases of hackers located in Lebanon or abroad and who transferred funds embezzled from local depositors (totaling approximately $18 million) to bank accounts located outside Lebanon, namely in the UK, Hong Kong, Malaysia, China, and the Philippines. Domestically, there is a black market for cigarettes, cars, counterfeit consumer goods, and pirated software, CDs, and DVDs. Nevertheless, the sale of these goods does not generate significant proceeds that are laundered through the formal banking system. In addition, the domestic illicit narcotics trade is not a principal source of laundered proceeds.
Lebanese expatriates in Africa and South America have established financial systems outside the formal financial sector, and some are reportedly involved in TBML schemes. Lebanese diamond brokers and purchasing agents are reportedly part of an international network of traders who participate in underground activities, including the trafficking of conflict diamonds, diamond trade fraud (circumventing the Kimberley process), and TBML.
Exchange houses are reportedly used to facilitate money laundering and terrorism financing, including by Hizballah, but the Bank of Lebanon (Lebanon’s central bank) has strong regulations in place to regulate exchange houses. Although offshore banking and trust and insurance companies are not permitted in Lebanon, the government has enacted regulations regarding the activities of offshore companies and transactions conducted outside Lebanon or in the Lebanese Customs Free Zone. Offshore companies can issue bearer shares. There are also two free trade zones (FTZ) operating in Lebanon: the Port of Beirut and the Port of Tripoli. FTZs fall under the supervision of the Customs Authority.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: //2009-2017.state.gov/j/ct/rls/crt/
Do FINANCIAL INSTITUTIONs engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or illegal drug sales that otherwise significantly affect the U.S.: YES
criminalizATION OF money laundering:
“All serious crimes” approach or “list” approach to predicate crimes: List approach
Are legal persons covered: criminally: YES civilly: YES
Know-your-customer (KYC) rules:
Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: NO
KYC covered entities: Banks, financial and lending institutions, money dealers, financial brokerage firms, leasing companies, mutual funds, insurance companies, real estate developers, promotion and sales companies, and high-value goods merchants
Number of STRs received and time frame: 148: January - October 2014
Number of CTRs received and time frame: 18: January - October 2014
STR covered entities: Banks, lending institutions, money dealers, financial brokerage firms, leasing companies, mutual funds, insurance companies, real estate developers, promotion and sales companies, and high-value goods merchants
money laundering criminal Prosecutions/convictions:
Prosecutions: 9: January - October 2014
Records exchange mechanism:
With U.S.: MLAT: NO Other mechanism: YES
With other governments/jurisdictions: YES
Lebanon is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), a FATF-style regional body. Its most recent mutual evaluation can be found at: http://www.menafatf.org/MER/MutualEvaluationReportoftheLebaneseRepublic-English.pdf
Enforcement and implementation issues and comments:
Three proposed laws intended to strengthen Lebanon’s AML/CFT regime were passed by the Council of Ministers on March 14, 2012, and, as of the end of 2014, are still awaiting Parliament’s approval. These include amendments to the existing AML law (Law 318/2001); new legislation requiring the declaration of cross-border transportation of cash; and new legislation on the exchange of tax information, which would authorize the Ministry of Finance to join bilateral and multilateral agreements to exchange information related to tax evasion and tax fraud.
In 2014, the Bank of Lebanon issued circulars to improve its AML/CFT regime. These include Intermediate Circular No. 371, dated September 11, 2014, amending Basic Circular No. 83, requiring banks to establish an AML/CFT Branch Officer in each branch of a bank as well as to set up two departments within an individual bank’s compliance unit, one to oversee main headquarters and branches in Beirut, and the other to oversee the remaining branches across Lebanon; and Special Investigation Commission (SIC) Circular No.17 dated September 16, 2014, requesting banks to report suspicious transactions electronically to the SIC, Lebanon’s financial intelligence unit, through “E-STR” in order to improve the quality of suspicious transaction reports (STRs). Despite no requirement to file currency transaction reports (CTRs) with the SIC 18 such reports were filed voluntarily.
The SIC sent 16 allegations to the Office of the Prosecutor General for prosecution between January and October 2014. Although the number of filed STRs and subsequent money laundering investigations coordinated by the SIC has increased steadily over the years, prosecutions and convictions are still lacking. In addition, Lebanese authorities need to place greater emphasis on proactive targeting and not simply rely on STRs filed by financial institutions as a trigger to initiate investigations. This deficiency could be attributable to the absence of laws and a lack of political will to effectively prosecute cases, or a lack of resources and familiarity with AML/CFT standards. Customs must inform the SIC of suspected TBML or terrorist financing; however, high levels of corruption within Customs make this problematic. Existing safeguards do not address the laundering of diamonds. Another unaddressed vulnerability is the trading of bearer shares of unlisted companies. In 2014, the SIC froze the accounts of a business group and of its owners on suspicion of money laundering, with the investigation still on-going.
From January 1, 2014 to November 10, 2014, the ISF received 32 allegations of money laundering from Interpol and 14 requests from the SIC, and has arrested two persons and prepared files on 10 suspected cases of money laundering. The ISF is in the process of investigating each of these cases. The ISF Money Laundering Repression Office staff lacks the training and skill set to conduct effective money laundering investigations, as well as equipment and software to effectively track cases. Likewise, the ISF Cybercrime Unit also needs equipment and software to better monitor social media and detect cybercrimes. Additionally, law enforcement entities often do not coordinate activities. The government should encourage more efficient cooperation among financial investigators, including the development of joint task forces, and with other relevant agencies, such as Customs, the ISF, the SIC, and the judiciary. There also should be greater cooperation among local and international law enforcement organizations to combat money laundering and terrorism financing.
Lebanon should strengthen its overall efforts to disrupt and dismantle money laundering and terrorist financing activities, including those carried out by Hizballah. Lebanon should enforce cross-border currency reporting and take action to immobilize bearer shares. Law enforcement authorities should examine domestic ties with the international network of Lebanese brokers and traders. Lebanon also should consider amending its legislation to improve the ability of the government to cooperate with international forfeiture actions and also provide legal authority for the return of fraudulent proceeds. Lebanon’s parliament should enact the three proposed laws designed to strengthen Lebanon’s AML/CFT regime. Finally, Lebanon should become a party to the UN International Convention for the Suppression of the Financing of Terrorism.