The Banking Executive Magazine - July Issue 2021

Evolution of the Lebanese Banking Sector Legitimacy Lebanese banking industry due to the fallout of LCB, and which changed the rule of the game, and continued post LCB until 2018 with harsher and ascending US requirements. A PAST FILLED WITH REGULATION CHALLENGES During the period 1997-2010, the Lebanese banking sector has been subject to pressure from international regulations which have to do with anti-money laundering and counter- financing of terrorism. The interna- tional financial community considered that the measures adopted by the Lebanese banking sector in this respect were not suffi- cient to deter financial crimes. The lack of proper legislations and the strict banking secrecy regime were the main drivers behind this percep- tion, whereas Lebanon considered banking secrecy as the main issue. In addition, the United Nations An- nual Report on drugs “criticized Lebanon for its reluctance to impose certain limits on banking secrecy in order to prevent money laundering” and the International Narcotics Con- trol Board – an independent control organ for the implementation of the UN drug conventions – asked Lebanon “to reform its laws in a way that the judicial authorities in a way that the judicial authorities suspend the banking secrecy suspend the banking secrecy when investigating criminal activities” (Le Commerce du Levant, 2000). As a result, Lebanon had been placed in 2000 by an inter-govern- mental body – the FATF – on the list of Non-Cooperative Countries and Territories (NCCT), among 23 coun- tries. Subsequently, the US Department of Treasury alerted US banks to exercise enhanced due diligence over finan- cial transactions originating in or routed to or through Lebanon, and over transactions related to entities established in Lebanon or persons maintaining accounts in Lebanon. In view of the heightened pressure from the international financial commu- nity and the US as well, the Lebanese banking sector had to take immedi- ate actions. Owing to extensive efforts of Lebanese legislators, the Association of Banks and the Central Bank which felt the seriousness of the necessity to adopt measures to respond to the pressure from the international com- munity, the Fighting Money Launder- ing Law 318 was born on April 2001. These measures have been ap- plauded by the international finan- cial community, in particular the US, and have had positive impact on the image of Lebanon and its banking sector, and it was appreciated by the FATF which concluded that the adoption of a law to fight money laundering and the establishment of a control commission are satisfac- tory. Over the years the Lebanese banking sector has demonstrated its ability to serve as a model of stability and as a pillar of the country’s economy and society despite all challenges. How- ever, the sector continued to face in- creased institutional pressures deriving from international regula- tions. The most critical exogenous pres- sures are those exercised by a key in- stitutional actor – the United States, the BANKING EXECUTIVE 10 ISSUE 151 JULY 2021