The AML Lebanese Scheme
As this is my first blog post, I decided to dive directly into the AML scheme impacting Lebanon. I hope that it will give you, the reader, some insight on what is going on around the world. The numbers and rates in this article are from the time of writing.
What is happening in Lebanon?
Lebanon recently declared bankruptcy and all the bank accounts have been frozen. You cannot get your money out, and if you do, it is limited to only a certain amount per month, in Lebanese pound only.
All accounts in dollars are completely frozen: you cannot get cash in dollars or transfer the money outside the country (this is an important point for the AML scheme).
If you want to get cash from dollar accounts, it can only be done by exchanging it at the official rate in Lebanese pounds (LBP). The LBP has devalued from 1,500LBP to 17,000 LBP for 1 USD and more on the black market in less than a year. The banks though, exchange dollars at the officially established rate by the Central Bank which is 1USD equivalent to 3,500LBP. So, a lose-lose situation.
Historical fact: the Lebanese pound has been pegged to the dollar since the end of the Civil War in 1990: 1 USD was equal to 1,500 LBP (approximately during all the period up till the bankruptcy). This pegging is the only reason why the LBP still exists, and most Lebanese have dollar accounts.
AML loves misery…
So how, as a normal citizen, can you get your dollars out from the banking system, since the Lebanese pound is worthless?
Some unscrupulous organizations provided a way to help people get their dollars, in cash, out of the Lebanese banking system….for a fee.
How you ask, when there is a total account freeze? Well:
- They contact you and tell you that they will give you a cash amount equal to 40% of the total dollars you hold in the bank. If you say yes, you get the cash immediately (even amounts above 100K USD in cash and even before proceeding to step 2).
- What they ask of you in return, is that you write them a banker’s check with all your dollars in your bank account (so 100% of the dollars you own) and they will take care of checking it in one of the countries in the Arabic peninsula.
With this scheme, you pay a 60% fee and get 40% of your dollars in cash. The other option, keeping your money in the Lebanese banking system, you lose 100%.
What would you chose to do if you were given those two options and have kids to feed?
Two questions I asked myself:
- How is it possible that certain organizations can extract dollars from the frozen accounts using banker’s checks, and transfer it outside of the country unnoticed? If they can do it, why can’t the man on the street?
- How is it possible that those organizations can give so much cash even before they get the signed check?
Clearly, this is a basic AML case with placement and layering. The real challenge for me is to comprehend how can this happen so easily: is there a way of identifying those funds before they support illegal organisations?
Detecting the scheme
Detecting this scheme or doing anything about it in Lebanon is fruitless. So my hypothesis is based on foreign banks Compliance departments.
What facts do we know?
- All bank accounts in Lebanon are frozen and no Dollars can go out of the Lebanese banking system, be it cash or transfers (only internal transfers can be done).
- Money is showing up in foreign banks, and the transfers originated from Lebanon (which is theoretically impossible).
This leads me to think of the following:
- Placement: even though we do not know where the cash came from for the initial payment, we have an important hint of how this money will be put back in the Lebanese banking system by the citizen who got some of it out: Lebanese banks are offering what they call “Fresh Accounts”. “Fresh Accounts” are provided by Lebanese banks as a service (the irony), where you can drop in your cash dollars and then you can move them anywhere in the world.
- Layering: To hide the origin of the money, there are probably shell companies that are transferring the money under the guise of business. So it will be critical to identify the types of business that are generating income which might not be compatible with what they do. Machine Learning can really help here.
- It cannot go unnoticed that there is a high likelihood that accomplices in Lebanese and foreign banks are facilitating this scheme. Like in the case of Rogue Trading, Machine Learning can help identify employees who are doing different processing than their peer group, or even themselves over period of time.
These red flags are worth looking for. The scheme is funding criminals and illegal organisations that are using this money to do more damage. Investigating Source of Funds should be the lowest hanging fruit to work with, but if you have any fund coming from Lebanon, in dollars, it is most likely laundered.