 Sami Geadah The Financial Action Task Force (FATF) put Lebanon on a list of countries that are subject to increased monitoring because of concerns regarding the effectiveness of Lebanon’s arrangements to combat money laundering, terrorist financing, and proliferation in October 2024. [1] This list is referred to as the grey list. The FATF noted that Lebanon’s ineffective judiciary and increasingly cash based economy had raised concerns about illicit flows of money into the country. How bad is a grey listing? The grey listing is not unusual for emerging market countries. There are twenty-five countries that are currently on the grey list, including the Philippines, South Africa, and Vietnam.[2] All countries on the grey list—including Lebanon—have made a commitment to address the strategic deficiencies that were found in the assessment over an agreed period. The FATF does not call for sanctions or enhanced due diligence because of a grey listing. There is also a list of countries that are thought to pose a high-risk money laundering and terrorist financing which is called the blacklist. Only three counties are on that list, namely Iran, North Korea, and Myanmar. To get off a list, a country must address the deficiencies that were identified by the FATF assessment. This is not an impossible task. Most countries that were grey listed managed to get off the list. Out of the 98 countries that were listed by the FATF since October 2023, 76 countries were removed from the list. Many countries exit the grey list within five years. Lebanon has committed to work with the FATF to implement the recommendations to strengthen its AML/CFT regime over the coming years. It of course remains to be seen whether or how quickly Lebanon will be able to do so, especially with regard to strengthening the judiciary. What are the likely economic effects for Lebanon? Not much, at least in the short term. Lebanon’s grey listing is not likely to have significant effects on the country’s economic and financial conditions in the short term, including with regard to remittances which have become more important for many Lebanese families given the ongoing crisis. Countries that are grey listed generally suffer declines in capital inflows, including foreign direct investment. However, foreign direct investment and foreign borrowing are not likely to be adversely affected by the grey listing beyond the effects of current financial crisis on them. There seems to be one study only on the effect of grey listing on remittances: the study—on Pakistan—did not find a long or a short run relationship between the FATF grey listing and workers remittances. What should Lebanon do? It remains important for Lebanon to get off the grey list. Once the current financial crisis is addressed, preferably along the lines of the government’s agreement with IMF staff, a grey listing could impede access to external financing and undermine incentives for foreign direct investment. Some of the issues that Lebanon needs to address—most notably strengthening the judiciary and resolving the banking crises, which would be expected to reverse the move to a cash-based economy—are important for the economic recovery of Lebanon irrespective of the grey list. Lebanon would also not want to remain on the grey list in order to avoid the possibility of becoming blacklisted by the FATF, which would be accompanied with sanctions and serious reputational damage. ---------------------------------------- [1] The FATF is an international body that sets and promotes standards for national authorities to tackle money laundering, terrorist and proliferation financing. [2] Algeria, Angola, Bulgaria, Burkina Faso, Cameroon, Cote d’Ivoire, Croatia, Democratic Republic of Congo, Haiti, Kenya, Lebanon, Mali, Monaco, Mozambique, Namibia, Nigeria, Philippines, South Africa, South Sudan, Syria, Tanzania, Venezuela, Vietnam, and Yemen. About the Author Dr. Sami Geadah is an IFI Associate Fellow. Comments are closed.
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