As the Financial Action Task Force (FATF) prepares to meet in Paris in mid-June, Lebanon’s financial system is once again under international scrutiny, with a particular focus on Al-Qard Al-Hasan, a Hezbollah-affiliated financial institution seen as a central test case for the country’s compliance with global anti-money laundering and counterterrorism financing standards, Nidaa Al-Watan newspaper reported.

Lebanon was placed on the FATF grey list in October 2024 after being found to have significant deficiencies in its financial oversight framework. At the time, authorities in Beirut were provided with a detailed roadmap outlining the reforms required to address systemic weaknesses, along with a warning that failure to act could eventually lead to blacklisting.

Since then, Prime Minister Nawaf Salam has held a series of meetings with relevant state institutions to review progress on compliance measures. While officials have implemented part of the required reforms, significant gaps remain, most notably in addressing the status and operations of Al-Qard Al-Hasan.

The institution, which operates outside Lebanon’s formal banking regulatory system, continues to provide lending and quasi-banking services without direct oversight from the central bank or financial regulators. For FATF observers, its continued activity has become one of the most sensitive unresolved issues in Lebanon’s file.

The Banque du Liban has already taken steps aimed at limiting its reach, issuing circulars prohibiting banks and regulated financial institutions from engaging with or providing services to Al-Qard Al-Hasan. However, these measures have not resulted in a full shutdown or legal resolution of its status.

The issue has become politically charged domestically. Hezbollah officials have sharply criticized growing pressure to target the institution, with some statements interpreted as warnings against any attempt to move toward closure. Observers see this rhetoric as part of an effort to deter the government from taking decisive action under international pressure.

Within Lebanon’s FATF assessment, Al-Qard Al-Hasan is widely viewed as a key benchmark. Its continued operation outside formal oversight is seen by international monitors as undermining efforts to demonstrate full compliance with requirements on curbing illicit financial activity and strengthening state regulatory authority.

Despite this, Lebanese authorities have so far avoided taking a definitive legal decision on the institution’s status. Officials have opted instead for a gradual and cautious approach, balancing international expectations with domestic political constraints.

Current assessments suggest Lebanon is likely to avoid immediate punitive measures at the June FATF meeting, Nidaa Al-Watan newspaper said. However, analysts warn that the issue of Al-Qard Al-Hasan could become decisive in the autumn review cycle if no concrete action is taken.

The most favorable outcome for Beirut in June would likely be a cautious FATF statement acknowledging partial progress while reiterating the need for further reforms. But diplomats and analysts alike expect Al-Qard Al-Hasan to remain at the center of the next phase of evaluation.

Critics argue that if Lebanon is serious about improving its FATF standing, it must move beyond partial measures and take a clear legal decision on the institution, including formal recognition of its status under Lebanese law. They also stress the need to protect the rights of individuals who have used its services in any transition process.

With only a few months remaining before the next FATF review in the autumn, pressure is mounting on Lebanese authorities to resolve the issue. Failure to do so, analysts warn, could limit Lebanon’s ability to exit the grey list and increase the risk of deeper financial isolation.