AML Compliance Guidelines: Lebanon

Lebanon, a country with rich history, located along the coastline of the Mediterranean Sea, has been a significant player in the financial landscape of the Middle East. However, in recent years, due to geopolitical and economic factors, the country has faced significant challenges related to money laundering and terrorist financing.

This led to the country being placed on the Financial Action Task Force (FATF) “grey list,” in October 2024. This move followed as the country committed to resolve strategic deficiencies in its Anti Money Laundering (AML) and Countering the Financing of Terrorism (CFT) frameworks.

Understanding Lebanon’s AML/CFT Framework

Lebanon’s anti money laundering and terrorist financing framework is set by Law No. 44, of 2015, titled “Fighting Money Laundering and Terrorist Financing.” This law outlines the AML rules, preventive measures, and the roles of various institutions in combating financial crimes. The implementation of this law is overseen by the Special Investigation Commission.

Lebanon AML Laws

Law No. 44 of 2015

The primary AML legislation in Lebanon criminalises money laundering and terrorist financing. It establishes. It establishes a financial intelligence unit it defines money laundering as concealing the source of illicit funds and imposes penalties for violations.

Lebanon Anti Money Laundering Authorities

Special Investigation Commission (SIC)

The Special Investigation Commission stands at the centre stage of implementing Lebanon’s AML policies. Established under Law No. 44 of 2015, SIC plays the dual role of Lebanon’s financial investigation unit and a supervisory body for AML compliance. The SIC receives and analyzes suspicious transaction reports (STRs), investigates these reports and forwards verified cases to the concerned judicial authorities. The SIC conducts examinations of banks and other reporting entities to ensure their compliance with current regulations. The SIC also provides AML guidelines in Lebanon to all institutions to assist them in fulfilling their obligations.

Banque du Liban (BDL):

The Central Bank of Lebanon regulates financial institutions and supports the implementation of AML/CFT regulations in banks and other institutions.

Internal Security Forces (ISF):

The ISF publishes the “National Terrorism Financial List” also known as the Lebanese Watchlist consisting of individuals and entities designated due to involvement in terrorism or terrorist financing. Lebanon imposed targeted financial sanctions against individuals and entities on this local list.

Who Is Regulated Under Anti-Money Laundering Laws in Lebanon?

Entities and individuals subject to AML laws in Lebanon include:

• Banks, financial institutions, and money service businesses.
• Insurance companies and leasing companies.
• Real estate agents and dealers in precious metals and stones.
• Notaries, lawyers, and accountants.
• Non-profit organizations (NPOs) receive foreign funding.

Key AML and CFT Regulations Lebanon

An AML/CFT compliance programme should include the following key elements of Lebanese AML Regulations.

Customer Due Diligence (CDD):

Organizations must establish internal policies, procedures, and controls to prevent money laundering and terrorism financing. These measures should be proportionate to the risks identified through the risk assessment process. Following due diligence measures must be performed by the AML-regulated businesses:

• Reporting entities must verify the identity of permanent customers (natural or legal persons) using reliable documents or information.
• Identification and verification are also required for transient customers (occasional) if the transaction amount exceeds a threshold set by Banque du Liban (BDL).
• Institutions must identify and verify the economic owner (beneficial ownership) of funds.
• Continuous monitoring of business relationships is required
• Customer due diligence measures shall also be applied if there are doubts about the accuracy of customer data or suspicions of money laundering or terrorist financing.

Reporting Suspicious Transactions:

Entities must report any transactions suspected of being linked to money laundering or terrorist financing to the SIC without delay.

Record-Keeping:

Institutions are mandated to maintain records of transactions and customer identification documents for a minimum of five years after executing a transaction or terminating a business relationship, whichever is longer.

Sanctions Screening:

Reporting entities should have systems in place to screen their customers (whether occasional or permanent) and transactions against the UN sanctions and Lebanese Sanctions list. If a match is found, the reporting entity should file a report with the SIC without delay and implement any relevant measures as needed (asset or transaction freezes).

Apart from UN and domestic lists, the Boycott Law of 1955 prohibits any direct or indirect dealings with Israeli entities or individuals. Financial institutions should ensure compliance with this law by blocking transactions and dealings with individuals and entities from Israel.

Politically Exposed Persons (PEPs)

Reporting entities are required to apply enhanced due diligence measures for customers or beneficial owners who are classified as PEPs. Institutions must also apply the same measures to close family members and close associates of PEPs. To achieve compliance with EDD obligations, institutions must have systems to identify PEP.

PEP Screening:

The SIC guidance document on PEPs highlights that an effective method to identify a PEP is combining PEP screening with customer self-declaration. A PEP check should be conducted at least:

• As part of the onboarding process;
• On periodic basis
• When there is a trigger event (e.g. new appointments, election, or formation of governments)

EDD Measures:

EDD measures for PEPs, their family members and close associates include:

• Increasing the frequency and intensity of ongoing monitoring
• Establishing a source of wealth for the customer
• Obtaining senior management approval
• Periodically review of relationship with the customer

The SIC guidance mandates that EDD measures must be applied for at least 24 months after a PEP ceases to hold prominent public functions. It also emphasizes the importance of adverse media screening when deciding to declassify a PEP.

Corruption Monitoring:

Reporting entities should file a STR to the SIC if there are reasonable grounds to suspect that a transaction (whether executed or attempted) is linked to corruption. FATF Mutual Evaluation Report (MER 2023) cited that corruption and tax evasion form the major part of illicit proceeds in Lebanon. The SIC guidance on corruption provides a non-exhaustive list of indicators to identify transactions related to corruption. These indicators among other things include monitoring adverse media reports, poor reputation, prior convictions (criminal screening), or ongoing investigations. These indicators can be promptly identified by adopting an AML compliance software providing comprehensive watchlist screening.

Penalties for Non-Compliance:

Money laundering is punishable by 3 to 7 years imprisonment and a fine of up to twice the laundered amount. Terrorist financing carries a maximum sentence of 7 years with forced labour and a fine up to 3 times the amount involved. Failure to comply with a provision of the Lebanon AML Law can result in 2 months to 1-year imprisonment and fines of up to 100 million Lebanese pounds.

Conclusion:

Lebanon’s addition to the FATF grey list highlights the critical need for robust AML compliance measures within its financial system. Lebanese institutions can mitigate risks and contribute to the global fight against money laundering and terrorist financing by enhancing understanding of the level of Lebanon’s AML risks, implementing comprehensive screening processes, adhering to regulatory obligations, and fostering a culture of compliance.