Due diligence is never a commodity in Lebanon

By Scott Lane (Hong Kong) & Amani Allan (Jordan), The Red Flag Group®

Lebanon like many Middle East countries is endowed with enormous investment opportunities. The attractive opportunities stem from the openness of the business culture and the variety of available ventures. However, companies must not be blinded by this vast investment potential and bypass the well-founded fact of the limited local compliance knowledge. The concept of compliance has been a challenge in Lebanon. This is a crucial factor that needs to be addressed by any party doing or intending to do business in the country to avoid hefty fines or reputational damage.

Therefore, before taking your business to Lebanon, you should be wary of the various issues that can pose compliance risks to your business. Local knowledge and compliance risks awareness are needed around the ever-changing leadership of the country and its relationship with its neighbours.  The country is certainly undergoing some political turmoil and combined with its already complex compliance apathy will likely be a very complex environment.

Political connections and sanctioned entities: Political connections in Lebanon have a huge influence on private businesses. It is common for public officials to have interests in private companies, which exposes private companies to corruption and bribery as some of the public officials tend to award state contracts to private companies they have interest in. Additionally, Lebanon is home to a US sanctioned group, Hezbollah. Business persons associated with Hezbollah come from various backgrounds and religious groups. Using business fronts is common in Lebanon, and many businesses act as trust funds for Hezbollah. It is therefore important to look at the true beneficiaries of the business, the principals and their families and their connections back to Hezbollah. For companies that sell their products through resellers and distributors, it is especially important to know where the business owners are and where your product is being sold. It is possible that your products are being bought for distribution inside Lebanon but might end up in another country unknown to you.

Rampant corruption and bribery: Incidents of corruption and bribery are common in Lebanon, and because of political patronage or connections, local regulators are reluctant to initiate investigations against erring parties. If not properly checked, this exposes prospective investors to corruption which could adversely affect their reputation and leave them liable for prosecution in their home countries.  In Lebanon’s underworld, offering bribes is considered as a gesture to get things done quicker by circumventing existing laws. Therefore, compliance officers need to be aware of this and implement appropriate remedial measures.

Market monopoly: Many industries in Lebanon are monopolised and controlled by certain business persons or families. Such groups control most industries so they can easily collude and fix prices for certain products. If you’re trading in such a market, you need to ensure that your products are not part of the cartels. This is because once consumers are aware of this, they will shun your product which can affect your brand and damage your reputation. It is important to know whether your partners in Lebanon have a history of collusion.

Financial misconduct and terrorism financing: Some financial institutions in Lebanon are not allowed to transact with international entities because of their ties with Hezbollah. As such, you need to be aware of such financial institutions and dully check before working with any of these entities. Checks can be done by extensive screening of subscribed and proprietary databases.  With all forms of organised crime, the criminals don’t advertise themselves and hide behind various layers of companies and connections.  The key is to drill deep into their operations and at the same time push upwards through the organisation to their shareholders and beneficiaries.

Non-compliance with international and local laws: Many Lebanese companies and businesses have limited knowledge of the FCPA and UK Anti-Bribery Act. This increases your risks when doing or considering doing business in the country. The concept of compliance is rather unfamiliar in Lebanon, which increases your risk exposure. Most companies do not understand the value of having a compliance framework or a code of conduct and ethics.

Minimise your risks through strong compliance standards.

To minimise risk exposure in Lebanon, you need to:

  • conduct enhanced due diligence on all your prospective and existing Lebanese third parties
  • routinely repeat due diligence on your business partners, resellers, distributors, suppliers
  • help your third parties build and implement international best practices and compliance programmes, as well as raising awareness of their necessity
  • conduct regular integrity and compliance screening of all your third parties through ongoing monitoring
  • undertake regular in-depth checks and audits on your Lebanese partners
  • review the financial positions of your third parties periodically to ensure that they are financially stable
  • periodically assess their business activities and review their policies and procedures to ensure that they are compliant with applicable laws and regulations

If you are unable to handle some of these steps’ tasks to minimise your risk exposure, we have Lebanese staff and country experts to help take care of your compliance burden in the country.   

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