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Banks’ secrets in the safe

International transparency reforms no threat to Lebanese accounts

by Executive Staff

“The banking secrecy of the past must come to an end,” said British Prime Minister Gordon Brown at a press conference marking the end of the G-20 summit in London on April 2. “We are engaging in a deep process of restructuring our financial system for the future.”

The following day newspapers around the world headlined Brown’s end-to-bank-secrecy quote, which no doubt pleased the average reader who blames the international financial sector for the current global crisis.

Lebanon continues to uphold strict bank secrecy laws, and the news raised questions as to what extent the G-20 meant business and how the decision may affect the country’s key banking sector.

The United States (US) and several European Union (EU) states in recent months have pressured traditional banking centers such as Switzerland and Liechtenstein to relax banking secrecy laws following a series of financial scandals.

Beirut goes only so far

“The banking secrecy in this country is not designed to hide illegal money,” Lebanon’s Economy and Trade Minister, Mohammad Safadi, said at an April conference in Beirut. “What has been happening in the world is that tax evasion is becoming a major issue in the United States and Germany in particular. Our laws are clear: we are willing to cooperate on money laundering issues but not on anything else.”

Dr. Makram Sadr, secretary general of the Association of Lebanese Banks, agreed that the current problems between the EU, the US and Switzerland have mainly to do with matters of tax evasion, or financial transactions related to criminal terrorist activities. According to Sadr, the G-20’s call to end bank secrecy should be seen strictly in that context.

“We are not a tax haven, we are not like Jersey,” Sadr said. “We have no offshore banks or financial institutions, and we have no intention of becoming a tax haven, so we are not really targeted by the G-20 decision.”

According to Sadr’s bank association, the Lebanese banking sector consists of 55 active commercial banks and 12 specialized banks. It employs more than 17,000 people in 872 branches, and manages the equivalent of $90 billion in assets. Foreign banks have 11 branches in Lebanon or hold equity stakes in local banks.

The O.E.C.D. blacklisted four banking culprits: malaysia, costa rica, the philippines and venezuela

The ultimatum

The final G-20 communiqué calls upon the international community to take action against “non-cooperative jurisdictions,” including tax havens: “We stand ready to deploy sanctions to protect our public finances and financial systems,” the communiqué reads. “The era of banking secrecy is over. We note that the Organization for Economic Co-operation and Development (OECD) has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information.”

On April 2, the OECD published a report on the progress tax havens have made in implementing the international agreement that standardizes the exchange of tax information.

The report essentially distinguishes between tax havens that have signed and implemented the standard, countries that have signed, those who have not yet implemented it, and countries that have done none of the above.

The four blacklisted culprits — Malaysia, Costa Rica, the Philippines and Venezuela — signed up soon after the report’s publication and now feature on the so-called grey list: countries that signed, but did not implement the international standard. Lebanon, nor any other Arab country, is included on the list.

“The G-20’s call for bank secrecy does not target Lebanon, as Lebanon is not mentioned on the OECD list,” said a senior source at the Lebanese Central Bank. “In addition, Lebanon will not be targeted as it has adopted Law 318.”

In April 2001, the Lebanese parliament passed Law 318 which criminalizes money laundering and established the Special Investigation Unit (SIC), an independent legal entity within Lebanon’s Central Bank. The SIC has the exclusive right to lift banking secrecy upon request of international organizations such as Interpol, the US’s FBI or other foreign governments.

Lebanon’s was even praised by the International Monetary Fund (IMF) in March for the country’s “strict financial regulation and oversight that shielded banks from exposure to troubled international banks, structured products, and wholesale financial markets.”

The IMF did praise Lebanon again in the fund’s latest report issued on April 17. The report mentioned nothing about tackling the country’s bank secrecy laws.

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