The increasingly contentious issue of complicity of some Lebanese banks in terrorist financing and money laundering tied to Iran, Syria and Hezbollah was the topic of discussion at a panel hosted at the Aspen Institute on Wednesday, September 19. Mohammad Chatah, Former Minister of Finance and Senior Foreign Policy Advisor to Former Prime Minister Saad Hariri, argued that Lebanese banks are risk-averse and conservative in their transactions, while Daniel Glaser, Assistant Secretary for Terrorist Financing at the U.S. Department of Treasury, cautioned the Lebanese banking system is being used by Iran, Syria and Hezbollah. The panel, titled "Banking on Credibility: Lebanon's Financial Sector Amidst Sanctions and Regional Instability", also featured Mohannad Aama, Managing Director at Beam Capital Management, and was moderated by Jay Solomon, Chief Foreign Affairs Correspondent at the Wall Street Journal.
 
Solomon outlined the importance of Lebanon's financial sector, which is roughly three times the size of the country's GDP. After noting how Lebanon has traditionally served as a financial safe haven for the region, Solomon sketched out new concerns related to recent increases of dollars in Lebanese banks, Hezbollah's ability to evade financial regulation and enforcement, the ability for Iran and Syria to exercise influence, and the tension inside the Obama administration regarding the wisest policy going forward.
 
Chatah emphasized the uniqueness of Lebanon's banking sector with one quarter of the nation's workers living outside of the country. He explained that the diaspora puts its money in Lebanese banks due to the institutions' risk-averse conservatism. Chatah reminded participants of the exceptionally safe policies of Lebanese banks, which require a minimum of 30% liquidity and a separation between commercial and investment banking. Admitting that challenges did exist, he said that Lebanon had ratcheted up regulations even higher.
 
However, he voiced fear that the U.S., in going after Iran, might take overly aggressive action and trigger a crisis of confidence in Lebanon's financial sector and devastate its economy. He advised, "If there is a bee you're trying to get rid of and it lands on your neighbor's forehead, you don't shoot that bee."

Assistant Secretary Daniel Glaser, while admitting that the Lebanese banking sector is resilient and a source of stability for the country, warned that its secrecy has created a permissive environment attractive to illicit finance. In order to combat money laundering and terrorism finance problems, the US government is working with Lebanese officials. While the U.S. can provide information and follow-up, Glaser noted that the Lebanese government needs to do everything it can to prevent the financial system from being abused by Hezbollah or Iran.
 
Mohannad Aama said that the US government had devoted resources toward enforcing sanctions and recently seized $150 million from the Lebanese Canadian Bank, sending a clear message to its Lebanese counterparts. Aama noted that the majority of Lebanese banks are small to medium size institutions and largely family-owned. Such banks self-regulate, he noted; they strive to be in compliance with US requirements because they risk so much by running afoul of US regulations. He and the panelists agreed that full compliance is necessary for the continued healthy operation and reputation of one of Lebanon's most thriving economic sectors.
 
The event can be watched here.