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Sanctions weigh on Lebanon-Syria banking ties

Sanctions weigh on Lebanon-Syria banking ties

Banks in Lebanon are quietly implementing US and EU sanctions to avoid jeopardising international business. As a result, some Syrian money may be flowing to Russia or UAE.

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February 11, 2012 7:08 by



Lebanese banks which worked for years to build up business in neighbouring Syria have been quietly implementing U.S. and European Union sanctions against Damascus to avoid jeopardising their international operations, bankers and economists say.

This is despite close financial ties between the two countries, cemented by the opening of seven Lebanese banking affiliates in Syria after President Bashar al-Assad began liberalising the economy when he came to power 12 years ago.

Lebanese bankers insist they are not legally bound to implement the Western sanctions, which ban business dealings with dozens of Syrian officials and companies in response to Assad’s crackdown on pro-democracy protests. Lebanon has opposed an Arab League plan to slap sanctions on Damascus.

In practice, however, international pressure has been so heavy that Lebanese banks have not been able to ignore it. They risk damaging their ties with Western banks if they continue to do business with sanctions targets in Syria — and forced to choose, they appear at least for now to be sacrificing their Syrian links.

GOING BY THE SANCTIONS LIST
Lebanese central bank governor Riad Salameh told a banking conference in Beirut last month that no individual or institution on the US or EU sanctions lists could do business with Lebanese banks.

The banks “will not take any action in Lebanon or any of their branches abroad – especially in Syria – that could embarrass their correspondent banks abroad or put them in a position where they have breached regulations in their countries,” he said.

One senior Beirut banker, who declined to be named because of the sensitivity of the issue, said: “Banks here are definitely abiding by those sanctions. Whoever has an account here (on the sanctions list), I’m sure they’ve been closed.”

Many Syrians traditionally hold some of their money in Lebanon, and the unrest which hit Syria last March prompted local media reports – denied by bankers in Beirut – of billions of dollars flooding across the border into Lebanon.

Lebanon’s financial community, already shaken by U.S. government accusations last year that a Lebanese bank was linked to a money laundering network operating on behalf of Lebanon’s Hezbollah party, which is backed by Iran and Syria, has been anxious to avoid any more unwelcome accusations.

Syrians seeking to open accounts or deposit money in Lebanon are now treated warily — “as if they have the plague”, according to another Beirut banker.

REGIME’S ASSETS
The Lebanese banking sector, which includes regional players such as Blom, Audi and Byblos, is a crucial part of the country’s services-led economy.

Most Syrian affiliates of Lebanese banks, which are 51 percent Syrian-owned and are governed by Syrian legislation, have seen sharp falls in their assets and deposit bases since the start of the uprising in March.

“Before the crisis, the banks’ business plans included opening new branches, new clients, new projects, and expanding their loan books,” said one economist. “Since the crisis they have moved to risk management.”

A Western diplomat said he believed Lebanese banks were actively “stripping out Syrian regime assets” from their books, perhaps going beyond what was required by current sanctions because they felt a wider international embargo might follow.

The European Union has put more than 50 Syrian individuals on its sanctions list, along with firms such as the country’s largest commercial bank, state-owned Commercial Bank of Syria, its main mobile phone operator Syriatel, the largest private company Cham Holding, and Addounia TV channel.

NO ASSURANCE OF 100% COMPLIANCE FROM BANKS
The first Beirut banker said Lebanon’s banking association had met several times to stress the importance of abiding by the sanctions, though he added that no one could be sure of 100 percent compliance by all banks.

“Do we know every account? No, but we are putting pressure on all banks to make sure they are abiding by this,” he said. “Small banks I cannot control much, but the big banks really realise” the need for compliance.

The banking sector’s international reputation was damaged last February when the U.S. Treasury Department designated Lebanese Canadian Bank a “primary money-laundering concern”, claiming it was involved in a money laundering and drug-trafficking scheme.

Lebanon’s central bank responded that the bank complied with international anti-money laundering standards, but within a month announced the institution would be merged with the Lebanese subsidiary of France’s Societe Generale.

As Western sanctions escalated against Damascus, a senior U.S. Treasury official visited Beirut last November to stress “the need for authorities to protect the Lebanese financial sector from Syrian attempts to evade sanctions”.

Diplomats briefed on the visit said at the time that Washington had not highlighted any single bank as of particular concern. But they also said it was unlikely that any bank could be sure depositors were not acting as a front for sanctioned individuals or companies.

They also said that much of the money which left Syria for Lebanon since March may subsequently have been channelled to other countries.

“The increase in deposits (in Lebanon) has not been sizeable compared to the extent of the Syrian deposit withdrawal,” the senior banker said, adding that Syrian money may have ended up in Russia or Dubai.

Non-resident private sector deposits at commercial banks in Lebanon climbed to $21.3 billion last December from $18.3 billion in March, according to central bank data; the $3 billion increase was almost twice as fast as the rise of $1.6 billion over the previous nine months. Syria’s foreign exchange reserves are estimated to have shrunk by at least several billion dollars since last March as money has fled the country. (By Dominic Evans; Additional reporting by Alistair Lyon; Editing by Andrew Torchia) *image from usatoday.net



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