Lebanon Between the FATF Grey List and the European Blacklist

The European Commission's decision to place Lebanon on its list of high-risk third countries suffering from strategic deficiencies in their regimes for combating money laundering and terrorist financing, known as the blacklist, complements Lebanon's placement by the Financial Action Task Force (FATF) on its grey list in October 2024. The European Commission's decision was taken on 10 June 2025 and entered into force on 5 August.

The Commission affirms that the European Union's adoption of this list takes into account the recommendations put forward by the Financial Action Task Force, especially since the Commission considers the Financial Action Task Force (FATF) to be the body responsible globally for setting standards to combat money laundering and terrorist financing, working to identify countries that suffer from strategic deficiencies in their anti-money laundering and counter-terrorist financing regimes.

In its decision, the European Union pointed to seven strategic deficiencies in Lebanon's regime for combating money laundering and terrorist financing, including weak risk-assessment mechanisms, weak supervisory structures, and a lack of transparency regarding beneficial owners. The decision obliges all financial institutions under the European Union's jurisdiction to apply enhanced due diligence (EDD) measures to transactions involving Lebanese entities, including:

- Gathering additional information on the client and the ultimate beneficial owner of financial transactions in order to gain a deeper grasp of the applicable standards (identifiers, beneficial ownership). - Identifying the nature of financial transactions and the source of funds and wealth, including requesting detailed data on the purpose and origin of the funds in circulation. - Conducting intensive monitoring of financial relationships and transactions by increasing the number and type of supervisory controls and the frequency of transaction reviews. - Verifying the absence of financial sanctions (TFS) that may apply to the client or the Lebanese counterparty entity, and ensuring that the relationship is free of them, including those that may fall under Commission sanctions. - Obtaining senior management approval at correspondent banks before executing or continuing financial transactions with Lebanese parties.

These additional measures entail higher costs for financial transfers and a decline in their volume, in addition to complicating relations with European banks and impeding transfers to non-governmental organisations (NGOs), and include:

- Extensive reviews of financial transfers, particularly transfers in euros, will lead to potential delays, or even the rejection of certain payments. - Additional costs linked to regulatory compliance systems may cause an increase in the fees charged for transfer services.

- Tighter scrutiny of expatriate remittances may cause a decline in the volume of transfers, which represent an important source accounting for a large share of gross domestic product in Lebanon. - Transfers in euros may decline by between 10% and 15% owing to higher costs and difficult procedures, according to local analysts.

3. Impact on banking relations and civil society transfers:

- Some European banks may decide to sever correspondent banking relationships with Lebanese institutions to avoid complications, despite verbal assurances that such steps will not be taken. - Non-governmental organisations (NGOs) and civil organisations may face additional obstacles in obtaining funding from Europe, owing to the need for extensive documentation and heightened oversight, which could hinder their relief or development operations.

Much as the decision to identify high-risk countries is necessary to protect the European Union's financial system, ensure the proper functioning of the internal market, and curb risks that could pose a threat to the Union's financial system, for Lebanon it highlights the delay besetting the achievement of the reforms required to lift the country out of stagnation in its financial and economic crisis and reach the desired recovery.

It is worth noting that, in classifying countries for inclusion on the list of high-risk third countries, the European Commission relies primarily on the systems and procedures followed by the state concerned in combating tax evasion and its capacity to enforce those procedures. Europeans consider tax evasion to be a stage of money laundering because it leads to illicit enrichment, a factor seen as the direct reason behind Lebanon's placement on the European blacklist.

Despite the increased obstacles that the European Commission's decision places before Lebanon's financial transactions with European Union member states, it could serve as an incentive for the Lebanese government to accelerate the implementation of the reforms required by the Financial Action Task Force and the International Monetary Fund, especially given the extensive economic ties between Lebanon and most European Union countries at various individual and institutional levels.

The focus on the need for the Lebanese government to carry out the measures required of it stems from the fact that Banque du Liban has implemented the measures required of it, going so far as halting the printing of the lira, encouraging the adoption of banking transactions among economic actors, and urging banks to encourage citizens to return to using their credit cards when purchasing their necessities.

Based on the foregoing, removing Lebanon's name, whether from the European Union blacklist or from the Financial Action Task Force (FATF) grey list, will not be out of reach if the Lebanese government pursues the structural reforms required on the one hand, and addresses the direct causes that led to its listing on the other, foremost among which are:

- Lebanon's failure to meet the European Commission's requirements regarding the exchange of financial information to combat tax evasion.

- Slowness in enforcing financial sanctions, particularly those targeting designated non-financial businesses and professions and certain non-bank financial institutions.

- Failure to demonstrate a sustained increase in investigations, prosecutions, and judicial convictions for money laundering offences.

- Delays in terrorist financing investigations and in exchanging information on them with foreign partners.

- The dominance of the cash economy since the onset of the crisis and over the past six years.

- The distress of the banking sector and the delay in embarking on its reform.

Translated from Arabic with AI. Read it in Arabic