The international community has ratcheted up pressure on Lebanese banks for alleged involvement in money laundering activities and helping Iran and Syria evade international sanctions. This week, the New-York based United Against Nuclear Iran (UANI) launched a campaign urging American and European banks to divest from Lebanon's bond market due to a state-sponsored money laundering scheme to 'wash' Iranian and Hizballah illicit monies." Although the banking sector is facing increasing challenges, the Lebanese Banking Association (LBA) hit back at the NY-based group, challenging it to demonstrate proof of the alleged dealings and affirming that the banks have been vigilant and cooperative.

The newest report by UANI claims that the Lebanese government has been supportive of illicit money transactions, and that, subsequent to laundering, Lebanese commercial banks buy sovereign debt, making the country appear more financially stable that it actually is. Four financial firms, Austrian Erste-Sparinvest, Finnish Bank Aktia, US-based Eaton Vance and Ameriprise Financial ditched Lebanese securities after the release of the report.

Since the start of the Syrian uprising, the US and European Union have been pressing Lebanon to cut its transactions with Syrian depositors, especially those blacklisted by the international community. Lebanese banks immediately responded by applying strict measures on such transactions, to the point of reducing businesss transactions with Syrian counterparts. According to Salameh, Lebanese banks operating in Syria and those with Syrian assets have decreased their operations by 40 percent over the past 15 months.

In Dec. 2011, a New York Times report  accused the Lebanese Canadian Bank (LCB) of involvement in money laundering for an international cocaine ring with ties to Hezbollah. LCB was blacklisted by the Treasury and subsequently acquired by the Lebanese subsidiary of a European bank, Societe Generale de Banque Au Liban (SGBL). Last week, four Lebanese individuals and three entities were designated by the U.S. Treasury for allegedly supporting the same money laundering network.

In Lebanon, Secretary-General of the Association of Banks Makram Sader was adamant in his denial of those claims. Far from media campaigns, he said, US officials have been commending Lebanon for its cooperation. Indeed, some of the measures that the banks have taken, according to head of the Central Bank Riad Salameh, include preventing exchange houses from conducting third-party operations, requesting capital increases, and imposing training on exchange houses.

Lebanese bankers have indeed been struggling with domestic challenges and international campaigns - and trying to safeguard the reputation of the financial sector, known to be among Lebanon's most robust economic sectors. Lebanon's banking sector contributes 35% of GDP and holds over 60% of the government's debt. Last week, Chairman of Byblos Bank François Bassil confirmed that banks have become more vigilant in light of the reports. What's more harmful for bankers, investors and private sector companies, he argued, was political instability.

Given the nature of the investigations and the banking secrecy law in Lebanon, it is difficult to ascertain the truth of the reports. However, in order to address these concerns adequately, the US government must work hand in hand with the Lebanese banking sector to ensure it is able to crack down on such transactions. The US Administration must be careful not to further undermine stability in a fragile region where much is being done to prevent a spillover from Syria and where US tax dollars are being invested in supporting the building of state institutions. The Lebanese banks, on the other hand, should provide greater transparency, prove that any failures are individual and not systemic and must make their case both in Lebanon and to international policy circles.