Lebanon’s KYC crackdown: Will money transfers survive the deadline?

Source: Nidaa al Watan

The recent circular issued by the Central Bank of Lebanon (Banque du Liban) regarding the update and adoption of the “Know Your Customer” (KYC) model for cash operations and money exchange transactions in non-banking financial institutions did not come out of nowhere. It aims to address gaps in the operations of certain institutions, such as money transfer companies and licensed exchange offices. International organizations have repeatedly urged Lebanese authorities to regulate and tighten oversight of these institutions, which some entities have exploited to facilitate money laundering. A recent example is the closure of Wish Money accounts used by the Wata'awanu (Help Each Other) association, in compliance with Circular 170, signaling potential closures when the new circular is implemented and client data updated.

Although most money laundering occurs in unlicensed institutions or, more recently, through digital currency trading, addressing the gaps in licensed institutions and enforcing robust compliance standards is the first step in meeting international requirements. It is a necessary step for Lebanon to improve its reputation in anti-money laundering efforts. Oversight of unlicensed institutions will remain a parallel or subsequent phase.

Like banks, which have long-established compliance departments to monitor KYC and anti-money laundering (AML) practices, money transfer companies, electronic wallet providers, and exchange offices are now required to implement these standards. They must report detailed information on cash transactions equal to or exceeding $1,000 to the Central Bank within two days of the operation.

Notably, some money transfer and electronic wallet companies already have compliance departments that monitor both cash and electronic transactions, closing suspicious or high-risk accounts and preventing illicit activities aimed at concealing the true source of funds or beneficiaries. The Central Bank now seeks to enforce this oversight more broadly. In contrast, other money transfer companies and exchange offices knowingly allow suspicious transactions, raising questions about the sources of funds. A source from a money transfer company noted that some individuals routinely transfer small amounts, sometimes under $50, to multiple beneficiaries without verifying sender or recipient identities, occasionally using forged IDs. The company’s compliance department detected this unusual pattern and closed the accounts. The source added that larger suspicious transactions are prevented in reputable companies but continue unmonitored in others.

Questions remain: Will the new Central Bank circular ensure full compliance with anti-money laundering standards? Do all money transfer and exchange institutions have the capacity to establish compliance departments like banks, or will the Central Bank and the Banking Control Commission assume this role? Could the circular lead to account or electronic wallet closures?

Sources involved in the decision indicated that the Central Bank is racing against time to impose international AML standards in a short period, aiming to remove Lebanon from the “grey list.” This step is the first in a long-term plan to link all electronic transactions under a single system controlled by the Central Bank, including electronic wallets, a project currently under development requiring time and technical setup. In the meantime, the latest circular aims to collect all data and documents on individuals and entities conducting money transfers to or from Lebanon. The Central Bank will initially audit this information to apply compliance standards, as the institutions themselves lack compliance departments and cannot track suspicious or high-risk transactions. Sources anticipate gradual training for these institutions to handle compliance checks according to international standards once the necessary systems and electronic platforms are in place.

Adopting KYC and completing the required forms will make all operations through money transfer companies or exchange offices formally legitimate, similar to banks. Those who use unlicensed institutions, however, will be viewed with suspicion, exposing both themselves and the institution to risk.

Exchange association

Sources within the Exchange Association affirmed that only a few days remain before the circular’s implementation, yet there is still no clear mechanism for compliance. The association has consulted the Banking Control Commission and the Central Bank’s Special Investigation Unit, which responded that meetings will be held in the next two days to develop a mechanism and send clarifications to the institutions required to implement the circular.

The sources emphasized their support for measures that organize operations and restore transparency to the sector but stressed that the short timeline and lack of clear procedures pose challenges, especially since employee training on new programs is required, an added burden the exchange offices cannot currently bear.

While the association is ready to implement all required measures and complete the RF1 form, sources warned that clients may turn to unlicensed operators if asked for extensive documents, as they would avoid the cumbersome procedures that banks impose.

The circular also mandates that collected forms, information, and documents be sent via email within two days. However, it remains unclear whether this applies only to transfers to and from Lebanon or also to regular exchange operations. Moreover, completing this procedure requires modern electronic systems and programs, which are not yet in place.