Lebanon Likely to Be Added to FATF 'Grey List'

Several informed sources told Reuters that Lebanon is likely to be placed on the 'grey list' of countries that are under special monitoring due to unsatisfactory measures to prevent money laundering and terrorist financing. Being added to this list would be another significant blow to Lebanon, which has been in a financial crisis since 2019. This comes as Lebanon is trying to reach an agreement with the International Monetary Fund (IMF) for a loan, and the potential placement of Lebanon on the FATF grey list may affect the IMF's decision. The Lebanese pound has lost over 98% of its value, plunging most of the population into poverty. Diplomats have expressed concerns for months that Lebanon's economy, due to increasing reliance on cash, may be concealing illegal and rising money exchange activities. The Middle East and North Africa section of the FATF, which is a financial crime watchdog, has conducted an initial assessment of Lebanon's economy. Sources told Reuters that this assessment is set to be shared with member countries of the organization this week in Bahrain. According to a draft report related to FATF that Reuters has seen, Lebanon does not fully comply with necessary standards in several areas, including anti-money laundering measures, transparency in beneficial ownership of companies, and mutual legal assistance in blocking and confiscating assets. The Lebanese Deputy Prime Minister, who heads the country's negotiations with the IMF, told Reuters that he has not seen the draft FATF report and refrained from commenting on its impact on negotiations with the IMF, which is the last option for obtaining a loan. A source told Reuters that Lebanese officials are making significant lobbying and consultation efforts to prevent the country from being placed on the grey list and to change Lebanon's rating. The IMF noted in a 2021 article that being placed on the FATF grey list could disrupt a country's capital flow, and banks may sever ties with clients based in high-risk countries to reduce compliance costs with FATF regulations regarding those countries. Such a list also carries risks of reputational damage, credit rating downgrades, difficulties in accessing global financial resources, and higher transaction costs. In Lebanon's case, the financial crisis has already severely limited banking transactions, and many financial institutions have cut ties with the country. However, this list also represents an indictment against Lebanon's financial system. The country has been slow in making progress on the fundamental reforms needed for an agreement with the IMF, and France has also accused the head of Lebanon's central bank in a financial fraud case that led to an Interpol red notice. Hezbollah, linked to the Islamic Republic of Iran and holding significant influence in Lebanon, has been accused for years of engaging in illegal trades and money laundering.