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Banking secrecy law exposed to intense international pressure

Machnouk said the Beirut conference was evidence of the capital’s revival.(The Daily Star/Mohammad Azakir)

BEIRUT: The head of the World Union of Arab Banks Thursday urged international financial organizations not to adopt new legislation that would further compromise banking secrecy in Lebanon.

Speaking at a three-day conference on regional banking, Joseph Torbey noted that geostrategic problems in the region, along with sanctions imposed on Iran and Syria, have already compelled the Lebanese financial and banking sector to comply with increasingly strict U.S and European regulations. As a result, he urged Arab countries to ensure they were aware of the international protocols and exercised transparency to protect their financial and banking systems.

Lebanon’s banking sector is renowned for its 1965 banking secrecy law, which restricts banks from revealing client names or account information. Torbey pointed to the measures that have been taken in line with the secrecy law to prevent foreign accounts from laundering money into the country, including recent legislation that has led to the appointment of a higher commission to investigate money-laundering operations.

In 2001, Parliament passed Law 318, which allows banking secrecy to be revoked if a client is suspected of money laundering or embezzlement. It has not, however, signed the 2010 Arab Convention to Combat Money Laundering and Terrorism Financing, which was signed by 18 other regional states.

Torbey urged international and regional organizations “not to impose [additional] legislation, because Lebanon’s banking sector can’t handle it.”

He added that Lebanon would respect international agreements but could not blatantly violate its own banking secrecy laws, which he described as a main feature of the sector’s success, pointing out that if Lebanon lost money invested from abroad, it would head toward an economic crisis.

In spite of intense international pressures, Torbey said: “ Lebanon had not signed any decision on tax evasion because we can’t release [client] information.”

However, he said banks abide by regulations issued by the Financial Action Task Force and the IRS in order to allow those organizations to identify their U.S. account holders and to disclose the client’s names and account balance information.

The pressure on Lebanon’s banking sector is clear. The U.S. Treasury constitutes “the biggest device controlling the financial sector,” said head of the World Union of Arab Banks Wissam Fattouh, as it controls the currency used in 65 percent of international trade.

“Any transaction using the dollar passes through U.S regulations. ... We hope one day we won’t have to deal with U.S currency,” he added.

The union head pointed out that the Financial Action Task Force has a MENA division with compliance officers that ensure banks abide by international laws regulating the financial sector. These officers conduct assessment tests for the state’s central bank and financial institution and deliver evaluation reports on the bank’s compliance with international protocol.

“A failure during assessment will put the bank on an [international] non-compliance list,” said Fattouh.

Interior Minister Nouhad Machnouk praised the fact that the conference was being held in Beirut and expressed his beliefs that it was “a good indicator that the capital is being revived.”

Machnouk said an increase in the net value of the financial sector from $7 billion to $166 billion since 1990 had proved that “ Lebanon has one of the most advanced banking industries in the region.”

 
A version of this article appeared in the print edition of The Daily Star on June 13, 2014, on page 5.

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Summary

The head of the World Union of Arab Banks Thursday urged international financial organizations not to adopt new legislation that would further compromise banking secrecy in Lebanon.

Lebanon's banking sector is renowned for its 1965 banking secrecy law, which restricts banks from revealing client names or account information.

The pressure on Lebanon's banking sector is clear.

The union head pointed out that the Financial Action Task Force has a MENA division with compliance officers that ensure banks abide by international laws regulating the financial sector.


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