Lebanon took a significant step forward in its protracted struggle to overcome the scourge of financial crime by partnering with a leading international risk consultancy, amid strenuous efforts to rehabilitate its shattered economy.

On Monday, the Lebanese central bank announced it had signed an agreement with US-based firm K2 Integrity to “combat all forms of illegal and fraudulent activities.”

Through this collaboration, K2 Integrity will provide technical and advisory support to devise and implement a comprehensive action plan designed to identify and close gaps in Lebanon’s regulatory framework. The objective is to bolster anti-money-laundering mechanisms and rebuild trust in the country’s financial system, both domestically and internationally.

This initiative comes amid a steep erosion of confidence in Lebanese banks and the rapid expansion of a cash-driven economy, factors that have severely undermined Lebanon’s capacity to conduct transactions with correspondent banks abroad.

The agreement was hailed as a pivotal milestone in Lebanon’s financial reform journey and a foundational move towards reintegration into the global financial system.

K2 Integrity boasts extensive experience advising central banks, governments, commercial and investment banks and fintech companies across more than 100 countries. Its experts reportedly possess a profound understanding of international standards and regulatory requirements, particularly in Europe, the Middle East and Africa.

Their remit includes compliance with EU directives and US financial crime legislation such as the Patriot Act, the Bank Secrecy Act and regulations enforced by the Office of Foreign Assets Control (OFAC).

The central bank confirmed that this step aligns with its ongoing efforts to have Lebanon removed from the Financial Action Task Force (FATF) grey list, where it was placed last October due to concerns over money laundering, terrorist financing and a lack of judicial independence.

FATF’s grey list subjects jurisdictions to enhanced monitoring and scrutiny. Lebanon’s inclusion has dealt another severe blow to its already paralysed economy and threatens to deepen its crises without decisive reforms.

Acknowledging Lebanon’s fragile situation, FATF extended the deadline for compliance to 2026 from the original 2025 target, in the light of the repercussions of last year’s conflict. Israeli air strikes and ground operations targeting Hezbollah devastated parts of the country before a ceasefire was reached.

While being on the grey list is less severe than blacklisting, it hinders foreign investment and complicates relations between Lebanese banks and the international financial community. Removal requires a broad consensus among FATF members that Lebanon has made sufficient progress.

Nonetheless, opposition from some member states could prolong Lebanon’s listing under enhanced monitoring.

Analysts from the US-based Stratfor Centre for Strategic and Security Studies note that Hezbollah has exploited the opacity of Lebanon’s banking system to finance illicit activities and has resisted reforms aimed at increasing transparency. Other political factions opposing Hezbollah have similarly benefited from banking secrecy to protect their assets.

The World Bank’s March report estimated that damages from the latest conflict would require some $11 billion for reconstruction and recovery.

Lebanon’s financial meltdown, which began in 2019, has been worsened by political paralysis and last year’s war. The government defaulted on its debt in 2020 and has since been shut out from global capital markets.

While the agreement with K2 Integrity signals a concrete move towards addressing institutional dysfunction, its success will ultimately depend on Lebanon’s deeply fragmented political landscape and its willingness to translate reform commitments into tangible results.