The Lebanese economy is caught between the Financial Action Task Force’s (FATF) grey list and the European Union’s designation of high-risk countries in the fight against money laundering and terrorist financing, with all the consequences these classifications entail amid stricter scrutiny in dealings with the country’s financial institutions.

While these listings may not have surprised economists and specialists, questions remain: what led to Lebanon being placed on both the FATF grey list and the EU’s high-risk list? What are the implications of these decisions, and how will Lebanon’s relationships with correspondent banks and foreign trading partners be affected?

Risk strategist and economist Mohammad Fheili told Kataeb.org that monitoring the Lebanese authorities’ performance in combating money laundering and terrorist financing should have started long before 2015.

“The FATF has revised the standards for evaluating countries over many years, waiting for Lebanon to align with them,” he explained.

In 2015, Lebanon repealed Law 318/2001, which had established the Special Investigation Commission, and replaced it with Law 44, the Anti-Money Laundering and Terrorist Financing Law. This new legislation expanded the list of prosecutable offenses to include embezzlement, corruption, money laundering, and tax evasion, with around 20 to 21 crimes in total. While this was considered a legal achievement, expectations were that it would be effectively implemented, holding accountable those who misused public funds or evaded taxes. Instead, after 2015, public fund mismanagement, tax evasion, and corruption increased, culminating in Lebanon’s economic, financial, and currency crises of 2019 and 2020.

“We should not focus solely on laws, which may remain ink on paper, but on their practical effectiveness. The 2022 amendments to the banking secrecy law, Law 306/2022, were intended to allow forensic audits to uncover corruption and public fund mismanagement. Unfortunately, these provisions were never fully utilized. Additionally, the International Monetary Fund criticized the banking reform law for failing to meet required standards. Implementing banking reforms also depends on passing and executing the financial gap law; without this, enacting the reform law alone cannot be considered sufficient,” Fheili said.

He noted that Lebanon’s placement on the FATF grey list in October 2024 coincided with the Israel-Hezbollah war and the country’s ongoing economic, financial, and political crises.

“The FATF listed Lebanon because it failed to comply with international standards and due diligence requirements for anti-money laundering and counter-terrorism financing. Lebanon was given a clear roadmap and a deadline of 2026 to address the issues,” he said.

“The European Union, also involved in this process, expected to see tangible measures implemented on the ground. Unfortunately, Lebanon did nothing, remaining in denial, sheltered by security and political concerns. As a result, on June 10, 2025, the EU placed Lebanon on its high-risk list on August 5, 2025.”

“While we may not yet see the European market closing its doors entirely, banks now require additional documentation for cross-border transactions and scrutinize documents more closely, which increases time and costs. Continued denial could lead to stricter measures affecting Lebanese commercial banks’ relations with correspondent banks in Europe and beyond. This will impact Lebanese companies that import goods for domestic production or consumption, likely driving prices higher,” Fheili warned.

He clarified that these listings affect only cross-border banking transactions, from Lebanon abroad, particularly to Europe, and vice versa. Domestic banking operations within Lebanon, or foreign transactions by Lebanese residents, are not impacted.

Fheili also highlighted that Lebanon relies on approximately $7 billion annually from remittances, which have become more costly and cumbersome.

“Many Lebanese expatriates now prefer transferring money by hand rather than through commercial banks, which impose additional fees, delays, and require extensive documentation, which is costly both in time and money.”

Tracing Lebanon’s anti-money laundering and counter-terrorism efforts, he said the process began in 1996 with a due diligence agreement between the Association of Banks and commercial bank boards. By 1999, Lebanon was classified as non-cooperative, prompting the government to pass Law 318/2001 establishing the Special Investigation Commission. Yet, achievements over this long process have been minimal. Despite Laws 318/2001, 44/2015, and amendments to banking secrecy legislation, Lebanon now faces the FATF grey list and the EU black list, highlighting that the laws’ effectiveness has been weak—largely remaining ink on paper.

This is the English adaptation of an Arabic article by Julie Majdalani.