Lebanon seeks to undermine the “cash economy”

Lebanon Seeks to Redirect the Cash economy

Lebanon, a country where cash and monetary economy has thrived in recent years, seems on the path to redirect its course. The change was spearheaded by the Lebanese Minister of Justice and Central Bank Governor, but has nevertheless received condemnation from some actors, including Hezbollah.

Central Bank Measures and Circular 170

Prior to 2019, Lebanese have relied primarily on banks to undergo most of their financial transactions. However, the crisis that has unfolded since then, including local currency depreciation and the loss of trust in the banking sector, have elevated the dollar-based cash economy in the country. The consequences of this unhealthy and alarming phenomenon have been detrimental. The monetary economy has facilitated tax evasion and money laundering, hindered economic growth and recovery as well as diminished the control and influence of the Central Bank (due to the weakening of the banking sector). Just last year, the Paris-based Financial Action Task Force (FATF) downgraded and placed Beirut on its “grey list,” thus adding it to a list of over 20 countries under “increased monitoring.” The decision was taken due to rising concerns over money laundering and illicit terrorist financing caused by the prevailing cash-based economy.

Banque du Liban (BDL), Lebanon’s central bank, issued a directive barring funds linked to Lebanese entities under international sanctions from entering the country’s formal banking sector. Governor Karim Saeed issued Circular No. 170, declaring that the purpose behind its decision is to “prevent the entry of any funds, directly or indirectly, originating from Lebanese entities or organizations subject to international sanctions, particularly those issued by the U.S. Office of Foreign Assets Control (OFAC), into the legitimate Lebanese banking sector.” The significance of this decision is its targeting of Hezbollah-affiliated financial institutes, namely the “al-Qard al-Hassan” (founded in 1982). As the group is a U.S.-designated Foreign Terrorist Organization (FTO), its institutions are heavily sanctioned, prompting it to rely considerably on cash economy and evade bank transactions. The circular thus criminalizes any dealings with an institution affiliated with the aforementioned group, which was inconceivable just one year before.

Justice Ministry Actions and Hezbollah Response

As previously outlined, Lebanon has been a haven for illicit financing and money laundering. This was facilitated by shell and illegal companies (subject to sanctions) managing to carry out legal transactions through agents or intermediaries in front of some notaries, thus bypassing international sanctions and pursuing their activities normally. From here, many believe that Hezbollah’s activities were facilitated by this phenomenon.

The mentioned gaps and loopholes have prompted the Lebanese Minister of Justice Adel Nassar to issue Circular No. 1355. The latter requested notaries, when organizing powers of attorney and transactions, to verify that all parties involved are not listed on national and international sanctions lists, refrain from organizing transactions if otherwise, and to inform the Ministry of Justice and the Special Investigation Commission about the matter. Aside from the benefits that this decision has regarding the undermining of illegal financing, it has nevertheless raised controversy for its potential prohibition of some sanctioned politicians from running in the upcoming elections. Additionally, some have even raised concerns regarding the circular’s legality, claiming that Nassar has exceeded the limit of his authority as a cabinet minister.

Hezbollah’s Secretary-General Naim Qassem publicly voiced the group’s condemnation towards both circulars, No. 170 and No. 1355. He accused the governor and minister of being “an employee of America” and “a judicial officer for America” respectively, thus calling on the Lebanese Cabinet to “put an end” to them. Hezbollah views these decisions as another form of blockade that is being imposed on it. Since the November 2024 ceasefire agreement, the group has accused various local and international actors of trying to lay a strangling siege in the group itself and its affiliated institutions.