A photo taken during the FATF working meetings preceding the February 2024 plenary. (Photo from the FATF Facebook page)
It’s a busy week ahead for several key international organizations involved in economic and financial matters. The World Bank (WB) and the International Monetary Fund (IMF) are holding their annual meeting in Washington, with preliminary sessions starting Monday, Oct. 21. Acting Governor of the Banque du Liban (BDL) Wassim Manssouri will be attending.
In Paris, the Financial Action Task Force (FATF), the reference organization for banking compliance and combating financial crime, is holding its working meetings from Oct. 20 to 25, culminating in one of its three annual plenary sessions, along with those in February and June.
At the conclusion of this event, the organization is expected to officially place Lebanon back on its “grey list” of countries that must address significant deficiencies to comply with FATF requirements and will thus be placed under “enhanced monitoring,'' barring a highly unlikely postponement at this stage.
“What changes at this plenary compared to previous ones is that the action plan developed by FATF and the Special Investigation Commission (SIC) is finalized. This is the plan that the FATF has drawn up with the country concerned, to put the country on track for removal from the grey list. Lebanon has reportedly chosen the SIC [the Lebanese jurisdiction responsible for investigating financial crimes] as its main interlocutor,” explained Walid Kadri, a member of the Lebanese Capital Markets Authority board and an expert in banking affairs.
“This was not the case at previous FATF plenaries following the failed evaluation in 2023, which led the organization to develop the action plan to potentially place Lebanon back on the grey list after it had been removed in 2016,” he added. A senior banker contacted by L'Orient Today stated that Lebanon’s placement on the grey list is inevitable, according to “information he received from abroad.”
Security factor
One factor that may still influence the official placement on the grey list is the security situation in Lebanon, with the ongoing intense conflict between Israel and Hezbollah since late September. A well-informed source suggested that the duration of the conflict could seal Lebanon’s fate, particularly due to pressure from Israel, a FATF member since 2018, and its allies. However, it’s not impossible that Lebanon could receive a reprieve due to this situation if FATF members deem the listing counterproductive. “At this point, it’s speculation. But what is certain is that the country is already virtually on the grey list, whether FATF formalizes it now or in February. The key is to focus on the day after and the precise and coordinated execution of the action plan,” said Walid Kadri.
A banking executive, speaking anonymously, noted that correspondent banks and other financial actors dealing with Lebanon have already incorporated the possibility of Lebanon’s return to the grey list into their compliance procedures, including the associated costs for transactions. The acting BDL governor has held multiple meetings in Washington and London in recent weeks to mitigate the effects of such a scenario.
The senior banker also believes that the grey list designation “will not affect his bank’s relationships with its correspondents” and that this is not an isolated case. “We have been in contact with major correspondents, and the level of compliance control we ensure in a very challenging environment has reassured them,” he said. He added that the recent events have had a “marginal impact” on Lebanese banks’ activities in general, given that the sector has been operating in “minimal mode” since the beginning of the socio-economic crisis in 2019. Authorities have yet to implement the IMF-requested reforms to restructure the banking sector and clean up the country’s financial liabilities.
Changes in FATF Rules
The suspense will last until the end. The well-informed source indicated that FATF ensures no tangible information is leaked before its plenary makes a decision, and no information about the prepared action plan has been disclosed so far.
The action plan will outline the priority areas Lebanon must address to exit the grey list as quickly as possible. According to previous evaluations, the country has a satisfactory set of standards on paper, but they are not effectively implemented. Lebanon received particularly poor marks in all areas evaluating the effectiveness of its judicial and law enforcement apparatuses in handling money laundering cases.
Lebanon is not the only case FATF will address. Last Thursday, the organization announced “major changes to the criteria for listing countries to reduce pressure on the least developed countries and focus on those posing greater risks to the international financial system,” according to news agencies.
Nine of the 21 countries currently on FATF’s grey list are among the least developed, as identified by the United Nations. FATF stated it would only review these countries if it deemed them to pose a significant risk of money laundering, terrorist financing, or proliferation financing. It added that these changes could halve the number of least-developed countries on its grey list. FATF also noted it would focus on reviewing its higher-income members with significant financial sector assets.
This article was originally published in French in L'Orient-Le Jour.
