On 3 September 1956, the Bank Secrecy law was implemented in Lebanon to attract capitals from the Arab oil countries and foreign deposits mainly from Lebanese citizens living abroad. As in Switzerland, the Lebanese Banking Secrecy law allowed banks in Lebanon to maintain secret accounts identified by numbers, to keep customer’s names confidential and private. This is, however, subject to recordkeeping of complete information and documentation about the customer at the bank. The provisions of this law strictly prohibit banks from exchanging information about their customers with each other or with any competent authorities, pertaining to saving accounts (or any creditor accounts) without the customer’s consent. The law obliges the banks to handle customers’ accounts with high confidentiality, and imposes the penalty of imprisonment when this confidentiality is breached.
In 2000, the Financial Action Task Force (FATF) assessed law enforcements and money laundering procedures in Lebanon and the Middle East and North Africa (MENA) region. The FATF also listed Lebanon on the Non-Cooperative Countries and Territories (NCCT) list at the first evaluation, as no legislation was issued at that time in Lebanon criminalizing the act of money laundering. In addition, the FATF was concerned that the Banking Secrecy law might interfere with the implementation of its recommendations on the exchange of information related to money laundering activities if detected in customers’ accounts. After a very short period of time on the NCCT, the Lebanese parliament passed legislations on 20 April 2001 designed to fight money laundering under AML law 318, which was amended later to include terrorist financing (TF) as an offence of money laundering. As a result of the second AML evaluation, the FATF removed Lebanon from the NCCT list in 2002 and ended its monitoring period over Lebanon in 2003.
The AML legislation determines sanctions, financial penalties and imprisonment on individuals and entities convicted of money laundering offences. It also calls for confiscation of any assets proved by court to be related or derived from any money laundering activities. The AML law affected financial and non-financial institutions, and imposed certain requirements upon financial institutions, including banks that are subject to the provisions of the Banking Secrecy law, to ascertain the true identity of their clients and that of the beneficial owner, and when operations are carried out through proxies, through figureheads acting for individuals, institutions or companies, or through numbered accounts; and to ensure that they report any violation to the governor of the Banque du Liban.
For monitoring the implementation of AML regulations, the legislation created an independent legal entity with judicial status, called the Special Investigation Commission (SIC) at Banque du Liban. SIC discharges its duties without being under the authority of Banque du Liban. Its mandate is to investigate money-laundering operations, investigate suspicious cases reported by financial institutions and by foreign competent authorities and financial intelligence units (FIUs), control financial institutions including banks and monitor compliance with the rules and procedures stipulated by this law. Accordingly, the SIC and its staff are not bound by the provisions of the Banking Secrecy law. However, during their investigations, the SIC examiners will discharge their duties under the obligations of confidentiality. Only the SIC can lift the banking secrecy on customers’ accounts when it decides on the seriousness of evidence of money laundering involvements. In addition, the law stipulates clearly when the AML law comes into effect, any legal provision that is contrary to, or inconsistent with its provisions, especially those specified in the Banking Secrecy Law of 1956, will cease to be operative.
On the other hand, financial institutions including banks should report suspicious activities in customer accounts to the SIC and should respond to queries from the SIC; hiding information will be considered as disguising the audit trail and assisting money launderers, which is subject to imprisonment. The banks’ employees are protected by the same law from any liability that could be raised from lifting banking secrecy if they are in good faith.
Subsequently, the regulator has issued guidelines to banks and other financial institutions to reinforce AML law 318, in conformity with the FATF 40 Recommendations 2003 and the FATF Nine Special Recommendations on Terrorist Financing 2001 (FATF Recommendations), EU Directives and international standards.
The AML legislation allows the SIC to share information with other FIUs based on reciprocity, without the need to sign any kind of treaty, but is limited by internal laws and regulations. This willingness to share information with the aim to combat money laundering and terrorist financing resulted in Lebanon being accepted as a member of the Egmont Group (an international network of FIUs) in July 2003.
Joining the international community in its efforts to combat money laundering and terrorist financing, Lebanon signed a memorandum of understanding (MOU) with 13 other Arab countries from the MENA region to found a regional body styled on the FATF, called The Middle East North Africa Financial Action Task Force (MENA FATF). This body is supported by major countries (the US, France and the UK) and international organizations (the IMF, World Bank, FATF, Egmont, GCC, the United Nations International Drug Control Programme (UNODC)). The regional body was launched in the secretariat headquarters in Bahrain on 30 November 2004, and the Secretary General of the SIC in Lebanon was named for the first-year presidency of MENA FATF. The MOU signed by the member states allows the FIUs to exchange information and better identify the trend of money laundering methods applied in the region, to deal with money laundering issues specific to the region, encourage the establishment of a centralized special register which includes information on individuals suspected to be involved in illicit operations and entities (charities and non profit organizations) suspected to be terrorism related and/or involved in ML operations, and to build effective arrangements throughout the region to combat ML/TF, by adopting and implementing FATF Recommendations, and in accordance with the region’s cultural values, constitutional framework and legal systems. After all, the Banking Secrecy law did not inhibit the implementation of the FATF Recommendations.