Lebanon’s Financial Risk in Focus: EU High Risk Third Country Listing, Timing, and It’s Consequences

30 JUN 2025
Risk

On June 10, 2025, the European Union officially added Lebanon to its list of high-risk third countries for anti-money laundering and counter-terrorism financing (AML/CFT) concerns. This designation, while expected in regulatory circles, came nearly eight months after the Financial Action Task Force (FATF) had placed Lebanon on its “gray list” in October 2024.

At first glance, the EU’s move might seem redundant. Many banks and financial institutions had already tightened their scrutiny of Lebanese transactions following FATF’s classification. But in reality, the EU decision introduces new legal obligations and reinforces Lebanon’s challenges in re-establishing its financial credibility.

Globally, a range of international and regional bodies are tasked with evaluating the effectiveness of countries’ AML/CFT regimes. At the center is the FATF, the intergovernmental body that sets global standards and conducts peer reviews of compliance. Supporting FATF’s work are several regional counterparts, such as the Asia/Pacific Group on Money Laundering (APG), the Council of Europe’s MONEYVAL, the Middle East and North Africa Financial Action Task Force (MENAFATF), and others, which assess jurisdictions within their respective regions using FATF’s methodology. Institutions such as the International Monetary Fund (IMF) and the World Bank also contribute through technical assessments, particularly in jurisdictions with limited capacity.

Among these networks, the FATF and the European Union carry the greatest weight when it comes to formal listings and their downstream effects. The FATF’s graylist signals strategic AML/CFT deficiencies that prompt global financial institutions to reassess risk. The EU’s list, while partly informed by FATF findings, carries separate legal consequences within the European single market.

This article addresses three critical questions to help clarify the meaning of the EU classification, its connection with FATF graylisting, and the practical consequences Lebanon is currently facing.

  1. What Is the EU High-Risk Third Country List, and Why Was Lebanon Added Now?

The EU maintains a list of countries it considers to have significant weaknesses in their anti-money laundering and counter-terrorism financing frameworks. The purpose is straightforward: to protect the EU financial system from external risks.

This classification stems from a technical risk assessment conducted by the European Commission. While the FATF’s findings play a role, the EU also assesses issues like judicial independence, enforcement of financial crimes, and transparency of ownership.

In Lebanon’s case, the European Commission completed its risk assessment back in October 2023. However, the formal decision to include Lebanon on the list was only finalized and published in June 2025. The delay is not unusual. The EU’s process involves internal consultations, legal drafting, and coordination among its institutions before any decision becomes official.

Importantly, the EU Delegation in Beirut clarified that this decision was based on structural and long-term deficiencies, not recent political developments.

  1. How Does the EU Classification Relate to the FATF Graylisting?

The FATF is an international body that sets and monitors global standards for preventing financial crime. By placing Lebanon on its graylist in October 2024, it signaled that the country faces significant shortcomings in its AML/CFT systems but has shown a willingness to address them.

While FATF graylisting has no legal force, it acts as a powerful reputational red flag. In response, many global banks voluntarily adjusted their risk frameworks, placing Lebanon under tighter scrutiny.

On the other hand, the EU classification has legal consequences inside the European Union. Banks, auditors, real estate agents, lawyers, and even cryptocurrency platforms must now apply enhanced due diligence when dealing with clients or transactions in Lebanon.

In short, FATF sounded the alarm, and the EU is now enforcing the evacuation plan.

  1. What Are the Implications of This EU Classification for Lebanon?

Although the FATF graylisting prompted early risk mitigation by many institutions, the EU designation adds a legal layer that cannot be ignored. All EU-based financial entities are now obliged to apply stricter controls on Lebanese-related dealings.

This includes more rigorous verification of ownership information, enhanced transaction monitoring, and the refusal of certain services in some cases. It also standardizes these requirements across all EU member states, ensuring a consistent level of scrutiny.

Beyond legal obligations, the EU move carries reputational weight. Being listed by both FATF and the EU signals a heightened level of risk to investors, multinational banks, and donor institutions. This could further limit Lebanon’s access to trade finance, international aid, and banking relationships, even beyond Europe.

Put simply, the FATF graylisting served as a global warning, while the EU listing translates those concerns into mandatory measures, at least within Europe. When both classifications align, the obstacles facing Lebanon only become more pronounced.

Beyond the Colors: How the FATF and EU Officially Classify High-Risk Jurisdictions

Despite widespread reference to “graylists” and similar color-coded terms, neither the FATF nor the EU officially classifies countries using color labels. Instead, these bodies rely on structured and evidence-based evaluation processes. The FATF conducts mutual evaluations and follow-up reviews to identify jurisdictions with strategic deficiencies in their anti-money laundering/countering the financing of terrorism (AML/CFT) frameworks. Countries that demonstrate a commitment to reform are placed under increased monitoring rather than labeled by color.

Body Official List Name Informal Color Term Criteria Used
FATF Jurisdictions under Increased Monitoring Graylist AML/CFT compliance gaps with action plan
FATF High-Risk Jurisdictions Subject to a Call for Action Blacklist Severe AML/CFT deficiencies & no cooperation
EU High-Risk Third Countries Blacklist Based on FATF + EU-specific risk factors

Similarly, the EU designates high-risk third countries through legally binding instruments, primarily delegated regulations, based on a combination of FATF assessments and its criteria. These criteria include the effectiveness of a country’s legal framework, institutional capacity, and transparency mechanisms. The resulting classifications are grounded in legal and regulatory analysis, not symbolic color codes, even if media or policy discussions often simplify them as such.

Conclusion

The EU’s classification of Lebanon as a high-risk third country is not a reaction to recent events but the outcome of a long, documented risk evaluation. While Lebanon has already been living under the shadow of FATF graylisting, the EU designation codifies those risks into binding obligations for European institutions.

To restore financial trust, Lebanon will need more than rhetorical promises. The path forward lies in concrete, transparent, and internationally verifiable reforms. Until then, Lebanon’s reintegration into the global financial system will remain uncertain and increasingly out of reach.

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