DANGEROUS SITUATION IN LEBANON REQUIRES INCREASED VIGILANCE ABROAD FOR TERRORIST FINANCING CONTAINED IN FUNDS TRANSFERS

Chaos appears to be the order of the day in Lebanon this month, and I am not referring just to the pathetic economic situation. A number of terrorist organizations are on the move, and you can bet that there will be, or already is, increased terrorist financing in progress, to supply their needs. Compliance officers at international banks who customers typically send funds to lebanese financial institutions, or NBFIs, should be on alert for new and unusual money laundering tricks of the trade, in efforts to fund their activities.

What's happening inside Lebanon? Nothing good to report:

(1) Hezbollah, which dominates every aspect of Lebanese life, and has a huge standing army forever poised to attack Israel, has been taking small actions at the frontier to taunt its neighbor to the south. Given that the Islamic Republic of Iran basically funds all of Hezbollah's military budget, expect some imaginative terrorist financing from third countries. Any incident could precipitate another war with Israel.

(2) The recent Hezbollah incident, where a truck loaded with ammunition overturned in an area populated by a Lebanese group that is opposed to the specially designated terrorist organization, and violence involving fatalities ensued, things already tense have heated up. The ineffective Lebanese Army had to act as a referee between the feuding parties, to keep the peace. 

(3)An internal armed conflict , between rival Palestinian groups, within the confines of a refugee camp, indicating a power struggle between factions allied with Gaza-based Hamas, and the Palestinian Authority's military "wing," confirms that these terrorist organizations are competing for political, as well as military, power among Palestinians.

(4) Public announcements, from prominent Israeli military leaders, already apprehensive over Hezbollah's estimated trove of 150,000 missiles and offensive weapons, reminding lebanon that any new war with Hezbollah will result in the total destruction of Lebanese infrastructure, which includes the brick-and-mortar downtown Beirut banking sector. The effect of that upon not only the country's economy, but upon a major wartime increase in terrorist financing from abroad, will be immense. Iran will pull out all the stops to support its ally, and at increased risk to the world's banks, who will be in the middle of it all.

Therefore, any and all transfers into Lebanon, even those which have been deemed legitimate in the past, must now be subject to serious scrutiny. Terrorist financiers have been known to co-opt normal financial pipelines, through the payment of large bribes, and by the delivery of physical threats from their clients, to take over normal routes. Everything is on the table, and enhanced due diligence is the minimum level of compliance that you must consider, for risk management purposes. 

Frankly, some banks may choose to redline (prohibit) most transactions, and your executives would be justified should they do so, even in the face of the country's humanitarian needs, given the dire financial situation of a large portion of its urban population. It's a tough call I agree, but Country Risk regarding Lebanon is at its highest level in recent memory; Conduct yourselves accordingly.