In Lebanon, the dangers of a cash economy: “400,000 dollar housing paid for in cash”

In front of Elie’s small exchange office in Dekouané, in the suburbs of Beirut, customers line up on the sidewalk. “Next!” says his security guard, staring at each new person. With his gun in his belt in full view, this puny man wants to be taken seriously. The glass that separates the counter from his boss and the customers alone could not deter thieves… Because behind the plexiglass, Elie is shuffling wads of Lebanese pounds and dollars, which he passes through his banknote counters.

In a few years, money changers like him have become neighborhood moguls. The Lebanese pound lost almost 98% of its value, exceeding the symbolic bar of 100,000 pounds for the dollar in March, against 1,500 before the crisis. The largest pound note is now worth as much as the smallest US dollar note.

Walking around with 30 million on you…

Mireille, in her thirties, came to change 300 dollars. She leaves with nearly 30 million Lebanese pounds in denominations of 100,000, divided into three packages tied with a rubber band. “I don’t even take a purse anymore, it doesn’t fit in there,” she shrugs. Long considered the pillar of the Lebanese economy, the banking sector no longer inspires confidence in depositors, on whom it imposes, since the start of the crisis at the end of 2019, an informal control of capital. Today, cash reigns supreme in the local economy, whether it’s filling up at a gas station or buying a new car from a dealership. Even online food or clothing delivery platforms mostly deal with cash on delivery. While contactless payments have become commonplace everywhere else in the world, the Lebanese have returned to counting small denominations.

The pound remains the currency most used in daily transactions, with only 20% of the population having access to dollars. And yet, in recent months, payments made in US currency have increased, especially since supermarkets decided to display the prices of their products on the shelves in dollars in early March, following in the footsteps of restaurants and hotels.

This situation accentuates inequalities and threatens the stability of the country. “The generalization of cash in the economy feeds the inflationary loop which nibbles the meager incomes of the working classes on a daily basis, explains Sarah Hariri Haykal, economist and associate professor at Saint-Joseph University in Beirut. On the one hand because it increases the demand for money and contributes to the swelling of the money supply, in Lebanese pounds in particular, and on the other hand because it stimulates the consumption of goods and services – because we have to get rid of cash as quickly as possible and people have no incentive to save.”

$400,000 apartments paid for in cash

In Lebanon, it is not uncommon to see a banknote counter near the cash register in small traders, or to come face to face with billboards offering promotions on safes. At the entrance to some major cities in the south of the country, there are even money changers on the sly ready to meet the demand of motorists in a hurry.

The phenomenon has even reached sectors formerly covered by the banking system in the last six months. “This is the first year that I have seen real estate sales in cash. Before, we didn’t talk about cash, whereas today it’s common, we put the notes on a table and count them” , says Guillaume Boudisseau, real estate agent in Lebanon since 2005 within the Ramco agency. The profile of these local buyers differs. There are those who, no longer trusting their bank, keep their cash at home in a safe, and others who brew cash through their activities (catering, tourism, gas stations, etc.). “They cannot transfer their money abroad, and fly back and forth with 15, 20, or 30,000 dollars each time, that would arouse suspicion. They find themselves obliged to invest on the spot”, advances the real estate professional, for whom the demand is for apartments from 200,000 to 400,000 dollars. “ABeyond this amount, the seller is a little more fearful about where the money comes from and how to keep it,” he says.

The acceleration of this cash economy constitutes a real danger, since it could transform this small country into a hub for money laundering and the financing of terrorism. “While Mr. and Mrs. Everybody don’t have access to their stranded deposit in the bank, there’s a lot of money pouring in. It can be very dangerous, and we’re not the only ones worried. of this situation”, supports a Lebanese security source. “If it continues like this, Lebanon will attract all the mafias in the region,” said a Western diplomat.

More questionable transactions are said to be proliferating. Before the crisis, large sums from Lebanese expatriates in Africa flowed into Lebanese banks. “These people continue to generate a lot of money that they cannot keep in some unstable African countries. So they send it by suitcases and ‘recycle’ it in luxury real estate”, explains a Lebanese financier who asked the ‘anonymity. These transactions exceeding one million dollars are carried out through unscrupulous banks which “do not always seek to know the color”.

While the Lebanese state is an absent subscriber, it is the United States that plays the role of policeman by regularly sanctioning people or entities suspected of financing Hezbollah, supported by Iran. Last January, a stockbroker, Hassan Moukalled, and his two sons were blacklisted by the US Treasury, accused of having “facilitated the financial activities of Hezbollah”.

More recently, on April 18, no less than 52 people and entities in Lebanon, the United Arab Emirates, South Africa, Angola, Côte d’Ivoire, Democratic Republic of Congo, Belgium, the United Kingdom and Hong Kong have also been sanctioned as part of a campaign against a vast network international money laundering and tax evasion. They are linked, according to the American authorities, to Nazem Ahmad, a Lebanese-Belgian diamond merchant and collector of works of art, born in Sierra Leone, also accused of financing Hezbollah.

Lebanon at the heart of drug trafficking

These funds, which are becoming increasingly opaque due to the proliferation of cash, are conducive to strengthening Hezbollah on the political scene. A dominant place which is at the center of the heavy dispute between Saudi Arabia and Lebanon, but not only. The Gulf monarchies accuse this country of having become a stronghold of drug trafficking. With the boom in the production of captagon (a drug from the amphetamine family), neighboring Syria has become a leader on the world market, making the land of Cedars its transit platform. Cargoes of tens of millions of dollars, camouflaged for example in crates of cocoa or pomegranates, transit through Lebanon and are sometimes seized in Jordan or Jeddah.

This illicit trade continues to proliferate, as evidenced by the photos published almost every week by the Lebanese General Security on its Twitter account, showing traffickers arrested and loot seized. These high-profile operations have increased due to pressure from Riyadh on Beirut. Based on large-scale captagon seizures alone, the market value of trafficking in 2021 was estimated to be ‘nearly €5.1 billion’, a year-on-year rise of €2 billion, according to a report of the American think tank New Lines Institute.

This drift, which testifies to the decay of Lebanese institutions and economy, is not about to change in the current context. Only a credible restructuring of the financial system, in order to “rehabilitate it and enable it to support the economic recovery”, as the International Monetary Fund regularly reminds us, would make it possible to get out of this economy in cash. However, politicians and a large part of the bankers continue to remain deaf to these calls, leaving the field open to all the traffic which plunges this country a little more each day into the abyss.