Lebanon's banking future: BDL enlists US firm to tackle unregulated economy, Hezbollah-linked cash flows

Report by Bassam Abou Zeid, English adaptation by Yasmine Jaroudi

Within the U.S. Department of the Treasury, two specialized teams are closely monitoring the financial situation in Lebanon. 

One is focused on the country's ongoing negotiations with the International Monetary Fund (IMF), while the other is dedicated to addressing the country's unregulated cash economy, particularly efforts to curb funding for groups that Washington classifies as terrorist organizations, including Hezbollah.

According to informed sources, the U.S. possesses detailed data on individuals and entities dealing with Hezbollah-affiliated financial institutions, notably the Qard al-Hassan association. This data includes names, sectarian affiliations, geographic distribution, and money flows related to the mortgaging of personal jewelry to obtain loans from the group. 

The sources indicate that some of these funds are deposited in Lebanese banks as fresh dollars and are subsequently transferred to correspondent banks in the U.S. or Europe. This has raised alarm among foreign institutions, which may consider halting transactions with Lebanese banks due to the risk of indirect exposure to funds linked to Hezbollah.

In response, the Banque du Liban (BDL) has signed an agreement with K2 Integrity, an American financial intelligence firm with former U.S. Treasury officials among its ranks, to evaluate and regulate Lebanon's cash economy.

K2 Integrity is expected to categorize Lebanon's cash economy into three risk levels. 

The green category includes funds stored in homes; these are not subject to confiscation but will be encouraged to be returned to the banking system under new, strict compliance rules enforced using artificial intelligence. 

The yellow category consists of funds entering the country without clear documentation; for this, technical equipment will be installed at airports, ports, and border crossings to verify their source and amount. 

The red category includes funds linked to Hezbollah, al-Nusra Front, ISIS, drug trafficking, arms trade, and human smuggling. These funds will be aggressively targeted to prevent both inflows and outflows.

The sources conclude that Lebanon faces a clear crossroads: either it transforms into a destination for legitimate investment and financial trust, or it risks becoming a hub of corruption and terrorist financing.