Dirty money in the banking sector
| Pages | 527-542 |
| DOI | https://doi.org/10.1108/JMLC-11-2018-0067 |
| Date | 02 July 2019 |
| Published date | 02 July 2019 |
| Author | Reeda Al Sabri Halawi |
| Subject Matter | Financial risk/company failure,Financial compliance/regulation,Financial crime |
Dirty money in the banking sector
Reeda Al Sabri Halawi
Department of Criminal Law, Universiteit Leiden Faculteit der Rechtsgeleerdheid,
Leiden, The Netherlands
Abstract
Purpose –The purpose of this study is to analyzethe Lebanese anti-money laundering (AML) paradigm in
light of banking secrecy law.The phenomenon of money laundering that was first associated with the crime
of drug trafficking developed a lot since the early 1900s to become a major threat to the world’s economy
today. The fight against this ever-growingcrime, with multiple sources and origins, has been the centre of
attention of thebiggest countries in the world. Thus, the need forinternational AML standards was required,
by which countries must abide, to ensure an effectivefight against this crime. The issue of banking secrecy
regulations was important to study along with the AML framework as the principles of the first totally
contradictthose of the latter.
Design/methodology/approach –The scope of this study first entails a qualitative technique. It will
start with analysing existing legal provisions on money laundering and studying the AML framework
internationally and in accordance with the Lebanese banking system. For that, websites such as
GoogleScholar and HeinOnline were used to collect many scholars articles. Additionally, Laws,
Regulations and Directives have been examined for the purpose of establishing the legal basis for the
fight against money laundering. Moreover, an interview was conducted in 2018 with the Lebanese
Financial Prosecutor, which served as data related to the operations of the Special Investigation
Commission (SIC) in Lebanon, which is the Lebanese Financial Intelligence Unit. Second, quantitative
research has been done. Reports of the Association of Banks in Lebanon, Financial Action Task Force
Report and Annual Reports of the SIC of Lebanon have been used to gather information related to the
AML/combating the financing of terrorism framework, such as customer due to diligence provisions
and know-your-customer requirements and to collect statistics of suspicious reports.
Findings –The question of “How to balance the confidentiality of the Lebanese banking sector with the
interest of the internationalcommunity in the fight against money laundering?”was interestingto study, as it
turned out that the existence ofsuch professional secrecy does not affect the effective implementationof the
AML guidelines by banks and other financial institutions. This can only happen when there is a special
judicial organ to which banking secrecyis not opposable at any time, and which is the sole organ entrusted
with lifting off this professional secrecy and allowing the disclosure of information to the competent
authorities. Thus,the Lebanese banking system can ensure total compliance with the AML framework while
still adoptingbanking secrecy regulations.
Originality/value –The choice of Lebanon was compelling becauseof the special level of protection its
banking secrecylaw offers.
Keywords Banking secrecy, Money Laundering –Banking Secrecy –AML/CFT
Paper type Research paper
1. Introduction
The concept of money laundering first saw the light in the USA in the early 1930s. In
fact, the term money laundering initially originated in the 1920s with Al Capone and
Bugsy Moran’s Chicago’s launderettes, by giving a clean appearance to their dirty
money (Saltmarsh, 1990;Morcos, 2006). The development of the crime of money
laundering pushed the international community to enact anti-money laundering (AML)
standards for countries to adopt. The guidelines mostly address banks and other
financial entities, through which laundering of proceeds deriving from criminal
activities can occur.
Dirty money
527
Journalof Money Laundering
Control
Vol.22 No. 3, 2019
pp. 527-542
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-11-2018-0067
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
Nonetheless, adoptingthese AML standards was not easy to achieve in all countries, and
one important issue was the presence of banking secrecy regulations. Banking secrecy
requires total confidentiality of bank records and clients’information, which contradicts
with the AML framework. In fact, the AML regime requires banks and other financial
institutions to keep records of financial transactions, report suspicious transactions or
accounts, and most importantly,to disclose information to law enforcement officialsand the
judiciary when an investigation is conducted regarding those transactions. Thus, the
restriction on bankingsecrecy led many countries to abolish such laws.
None-withstanding, other countries such as Switzerland, Luxembourg or Lebanon still
adopt banking secrecy laws.A study of the Lebanese AML frameworkin the presence of the
Banking Secrecy Law of 1956 is interestingto conduct, due to the special level of protection
provided by this law, and to the special judicial organ responsible of conducting
investigations on accounts and transactionsrelated to money laundering, the unique organ
entrusted with liftingoff this professional secrecy. In fact, banking secrecy is one of the most
important principles on which the Lebanese banking sector relies ever as its law was
promulgated on 3 September 1956.All Lebanese banks operating under the Central Bank is
known as Banque du Liban (hereafter BDL) and branches of foreign banks located in
Lebanon, must abide by the law of 1956. According to this law,managers and employees of
these banks are bound by confidentiality over clients’names, accounts and transactions.
They cannot disclose any information to any individual or public authority unless
authorised by the client’s written statement or by law in specific circumstances.
Accordingly, banking secrecy was criticised as it can ease up the way to commit money
laundering activities by deposing proceeds resulting from illegal activities in banks while
hiding their source and the depositor’s identity from the public and the judiciary (Morcos,
2006). For this reason, Lebanon faced important international pressure, especially from the
USA, aiming at abolishing the banking secrecy law. However, knowing that banking
secrecy plays a crucial role in the development of the Lebanese economic sector, where
banks are the pillar of the country’s stability (Association of Banks in Lebanon, 2013), the
Central Bank of Lebanonand the Association of Banks in Lebanon enacted severallaws and
circulars that are binding to all banks and financial bodies, to keep up with international
standards on AML (Association of Banks in Lebanon, 2013). These legal provisions’goal
was to balance the confidentialityof the banking system while adopting AML regulations.
Looking at the development of the AML regime, from originallybeing a tool to fight the
crime of drug trafficking to its recent applicationto combat the financing of terrorism, it is
evident that this notion is persistently high on the political agenda today (Pieth and Aiolfi,
2004). Due to the inconsistent and different implementation of rules and insufficiency in
harmonising AML provisions on the national level,it is still questionable whether domestic
AML frameworks practicallymeet international standards (Pieth and Aiolfi,2004).I decided
to conduct this research on the effectiveness of the Lebanese banking sector in complying
with the AML framework, although banking secrecy is adopted. It is interesting to deeply
study the AML requirements and highlight the restrictions on banking secrecy in
countering such criminalactivities. The research question to be answeredis the following:
RQ1: How to balance the confidentiality of the Lebanesebanking sector with the interest of
the internationalcommunity in the fight against money laundering?
In the first part of this paper, the development of the Lebanese AML regime will be
analysed in light of the restrictionson banking secrecy. In addition, an emphasis will be put
on the level of protection offered by the LebaneseBanking Secrecy Law. In the second part,
the role of the Special Investigation Commission (SIC) will be analysed, as it is the only
organ to which banking secrecy is not opposable and that has the exclusive competence to
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