Two bold steps: Lebanon's bid for financial rehabilitation gains momentum with new decisions

Report by Bassam Abou Zeid, English adaptation by Yasmine Jaroudi

Lebanon's Banque du Liban (BDL) has taken two major steps aimed at restructuring the country's troubled financial sector and regaining international trust, according to financial analysts following the matter.

The first move came with Circular 170, which bars local banks from directly or indirectly dealing with unlicensed entities or those under international sanctions, most notably the Hezbollah-linked Qard al-Hassan Association. The measure was welcomed by the U.S. Treasury Department, France's finance ministry, and several Gulf states.

While some in Lebanon dismissed the decision as a gesture to appease Washington, the issue gained traction after a Washington-based think tank, the Foundation for Defense of Democracies, pointed to possible links between Bank of the Middle East and Africa and Qard al-Hassan. 

Reports indicated that funds moving through the Lebanese bank had been routed to a correspondent bank in the United States, which flagged the transactions to the U.S. Treasury. Analysts said this episode underscored the rationale behind Circular 170.

The second step was a contract signed with K2 Integrity, a leading global firm specializing in anti-money laundering and counter-terrorism financing. The company has previously helped the United Arab Emirates exit the Financial Action Task Force's "gray list" and is currently working with Iraq to reform its cash sector and transfer liquidity to the Federal Reserve in New York.

Observers noted that the BDL was not obligated to disclose the agreement but did so to signal its commitment to tackling the informal cash economy, illicit finance, and corruption.

Together, the two measures represent a cornerstone of Lebanon's effort to reintegrate into the global financial system, exit the FATF gray list, and advance broader economic reforms, analysts said.