By Lincoln Brown - 04/26/13 12:00 PM EDT
In the arduous struggle to achieve stability in the Middle East, the West cannot afford to jeopardize a single strategic advantage. It cannot turn its back on those whose survival is critical to Western security. It must not undermine its friends.
Lebanon is one such friend that continues to prove its commitment to Western interests even amid recent insupportable attacks on the integrity and soundness of its financial institutions. The West must reject those attacks; its leaders in the private sector as well as the public sector are most well-advised to appreciate the conspicuous role Lebanon plays as a vanguard of free market enterprise, compliant banking practices and counter-terrorist initiatives.
In fact, the aggressive steps that Lebanon’s government and its banks have taken to assure full transparency and bolster rigorous anti-money laundering measures represent a gold standard for financial institutions anywhere in the world. In turn, the nation has emerged as a role model for democratic values in the Middle East.
The benefits of such a role model in terms of global security are obvious. Conversely, the dire consequences of allowing Lebanese credibility to be undermined, of its diminished capacity as a Western bulwark in the Middle East, are equally obvious.
No doubt there are reasons for misperception and misunderstanding. Hezbollah has a strong presence in Lebanon even as Syria disintegrates and Iran pursues nuclear power. Yet it is Hezbollah’s very presence that has further motivated Lebanon’s government and banks to go the extra mile in safeguarding our institutions, and in lending our strength to the anti-terrorist agenda.
The situation in Syria further underscores Lebanon’s commitment. Lebanese banks have been described in the Western media as “quietly implementing multilateral sanctions ... motivated by a desire to avoid jeopardizing international banking relationships.” They have reduced lending in Syria to such an extent that the credit conditions under which President Bashar Assad operates have been markedly degraded. Meanwhile, Lebanon has no relationship with Iran and supports all sanctions imposed on that country. There is only one Iranian bank branch in Lebanon, a mere shell operation debarred from international wire transfers.
The very nature of Lebanese banks encourages the most scrupulous risk management. Most began as closely held family enterprises in a business culture that was always averse to highly speculative, much less illegal, investments. This endemic conservatism is buttressed by voluminous laws and regulations specifically intended to interdict money laundering. In 2012, for example, Basic Circular No. 126 was passed, compelling Lebanese banks to implement strict Know Your Customer practices and to require full compliance with the laws and regulations governing correspondent banks abroad.
The Special Investigation Commission, an independent financial intelligence unit, drives the enforcement engine. All Lebanese banks are regularly audited and evaluated by the commission, as well as by international firms such as Ernst & Young, PricewaterhouseCoopers, Deloitte and KPMG.
The world has certainly taken note. In June 2000, the Financial Action Task Force, an international standard-setting body, included Lebanon among other countries — Israel, for one — that had not imposed adequate anti-money laundering regimes. The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) was likewise critical.
Lebanon transformed the environment in a mere two years. After the passage of stronger anti-money-laundering provisions, task force classified Lebanon as compliant with its standards while FinCEN advised global banks to relax scrutiny of Lebanon even as it extolled the “significant reforms” enacted in the 2000-2002 period.
Lebanon’s banking secrecy law has also caused confusion. It precludes disclosure of account information; the original intent was to protect wealthy depositors from unjustified public attention. In any event, safeguards are securely in place as the law bans confidential international wire transfers. Indeed, the very issues that have given rise to doubts about Lebanon as a trustworthy financial partner should, properly contextualized, only increase the confidence of foreign watchdogs and correspondent banks.
Yet fringe groups have lobbied the world’s largest financial institutions to sever ties with the Lebanese banks. Consider what would happen if such action were taken. The Lebanese economy would be savaged, creating new opportunity for terrorism to incubate. It would also send absolutely the wrong message to financial institutions throughout the global marketplace that their good deeds might also not go unpunished.
No doubt the malaise that has settled on some major banks in the West has fed the temptation to act first and think later. If some correspondent banks were not grappling with their own reputational and legal issues, it’s easy to imagine them peremptorily dismissing the calls to disengage. Post-2004, however, anything’s possible.
The stakes are all the higher in light of what the Lebanese economy — largely driven by the nation’s banks, which hold 40 percent of the public debt — has accomplished. From 2000 to 2010, real output in Lebanon increased by an impressive 5.3 percent and, while growth has now slowed, an additional 8.25 percent after 2010. Oil, tourism, real estate – capitalism is contagious.
Alas, so is terror. In the mortal combat between the two, Lebanon’s leadership is indispensable.
Lincoln Brown is the program director at KVEL Radio in Utah. He hosts “The Lincoln Brown Show” every weekday morning.