FATF is about to put Lebanon on its "grey list"
Lebanon is probably going to be added to a "grey list" of nations that are subject to extra scrutiny because of its subpar methods for preventing money laundering and financing terrorism.
A country that has been failing to reach a settlement with the International Monetary Fund since 2019 and is currently in a financial crisis would suffer a significant setback if it was added to the list.
Most of the people are now living in poverty as a result of the local pound's 98% value decline, and diplomats have been warning for months that the developing cash-based economy may be concealing growing illicit money flows.
According to the sources, the Financial Action Task Force (FATF) Middle East and North Africa department has conducted a preliminary assessment of Lebanon's economy, which it will present to member states this week in Bahrain.
The preliminary report's overall score puts Lebanon "one mark over the threshold to be grey-listed," according to a diplomatic source who has seen a copy of it.
In a draft that Reuters saw, Lebanon was rated as only partially compliant in a number of areas, including anti-money laundering measures, beneficial ownership transparency, and mutual legal assistance in asset freezing and confiscation.
Prior to its publication, the FATF declined to comment on the report or the score.
"Lebanon is pitching for more leniency, and trying to have an improved score on one of the categories so it is no longer within the grey-listing zone," according to the diplomatic source.
Saade Chami, the deputy prime minister of Lebanon and the person in charge of the country's negotiations with the IMF, told Reuters that he had not seen the draft report and that he would not comment on how it would affect negotiations with the lender of last resort.
According to a financial source with knowledge of the situation, Lebanon received a draft score good enough for a grey list. "Authorities are trying very hard to stop that from happening," according to the source.
Given the collapse of the Lebanese economy, a second diplomatic source familiar with the situation claimed that the draft document was already liberal. The source claimed that "Anything but greylisting would be a scandal."
Both diplomatic sources said that the Central Bank's special investigative commission's compliance branch was attempting to influence the results by contacting FATF member states.
An email request for comment was not answered by the compliance department.
According to a 2021 paper from the IMF, being added to the FATF grey list might cause a disruption in a country's capital flows, with banks potentially terminating business agreements with clients located in high-risk countries to cut down on compliance costs.
Such a listing also runs the risk of reputational damage, credit ratings adjustments, trouble obtaining global finance and higher transaction costs.
In the case of Lebanon, the financial crisis has already significantly curtailed banking operations, and a number of relevant institutions have severed their relations to the nation.
However, the listing would be a devastating indictment of Lebanon's banking sector. The nation has struggled to move forward with crucial reforms needed for an agreement with the IMF, and the governor of its central bank has been accused of financial fraud by France, leading to an Interpol red notice.
United Arab Emirates and South Africa were both added to the FATF list in March 2022.
By fLEXI tEAM