Lebanon is once again at a critical financial crossroads, with its fragile political and economic systems under intense scrutiny. The country faces the looming threat of being placed on the Financial Action Task Force (FATF) "gray list," which signals non-compliance with international standards for anti-money laundering (AML) and counter-terrorism financing (CTF).

Being placed on this list could isolate Lebanon from the global financial system, cutting off its banks from crucial international transactions. This would severely exacerbate the country’s financial crisis, limiting its ability to receive international investments or process cross-border transfers.

Originally slated for earlier deadlines, Lebanon’s compliance has been pushed back to October 2024, following repeated extensions. While this delay has bought the country more time, it also underscores Lebanon’s slow pace in implementing the necessary reforms. 

In an interview with Annahar daily, Economic expert Patrick Mardini, director of the Lebanese Institute for Market Studies, outlines a comprehensive list of eleven reforms Lebanon must implement to avoid the gray list:

1. Extending financial regulations to jewelers: Banks are currently subject to strict AML controls, but these must also be applied to jewelers. Given that much of Lebanon’s economy now functions on cash transactions, many citizens bypass banks by investing in precious stones—some of which are used to launder money or finance terrorism.

2. Reducing corruption in the public sector : The public sector, particularly the government contracts, must be regulated more stringently. Implementing the Public Procurement Law would ensure greater transparency in public projects.

3. Addressing the informal financial sector: With the collapse of Lebanon’s banking sector, an unregulated financial system has emerged. Implementing AML/CTF controls in this sector is critical.

4. Training customs and tax officials: Lebanon must invest in training customs officers, tax authorities, and financial regulators to track money laundering activities and conduct proper investigations.

5. Creating a centralized data system: A unified database under the Attorney General’s office and security agencies would facilitate investigations into money laundering and help collect evidence more effectively.

6. Activating the National Fund for Asset Recovery: Implementing the law on recovering stolen public funds from corruption cases is essential for restoring public trust and fighting financial crime.

7. Enhancing international cooperation: Lebanon must collaborate with international bodies to track and recover laundered assets and combat terrorism financing more effectively.

8. Combating drug trafficking: Drug-related crimes, a significant driver of money laundering, must be a key focus for Lebanese authorities.

9. Strengthening intelligence access to financial information: Lebanon’s intelligence agencies need timely access to financial data to conduct more thorough investigations into money laundering and terrorist financing.

10. Raising awareness among notaries and real estate agents: Professionals such as notaries, currency exchange operators, and real estate agents need to be educated about the risks of money laundering in their industries, and stronger oversight is needed to ensure compliance.

11. Enforcing sanctions compliance: Both financial and non-financial institutions must adhere to international sanctions. Violations should result in penalties to ensure accountability.

Despite the urgency, Lebanon has made minimal progress in implementing these reforms. Parliament remains mired in political deadlock, unable to pass the necessary legislation. The government, limited to caretaker duties, is equally hamstrung in its capacity to act. Meanwhile, the country has been without a president for nearly two years, adding to the paralysis.

Mardini warns that the reforms require legislative, executive, and administrative action. Some changes need to be codified into law by Parliament, while others demand immediate action by the government or the Central Bank. The lack of coordination between these branches, however, continues to stall progress.

If Lebanon fails to meet the FATF's October 2024 deadline, the consequences could be severe. The most immediate impact would be further isolation from the global financial system. Lebanese banks and financial institutions would struggle to conduct international transactions, deepening the country’s financial crisis. The loss of international banking relationships would hinder everything from remittances to foreign investments, leaving Lebanon even more vulnerable.

As the clock ticks toward the October 2024 deadline, it remains unclear whether Lebanon can implement the necessary reforms in time. The country’s political divisions and ongoing economic collapse make swift action unlikely. However, the consequences of inaction are too great to ignore.