* Lebanon banks insist under no legal obligation
* But heavy foreign pressure on them to obey sanctions
* Sector already shaken by money-laundering accusation
* Foreign deposit growth in Lebanon accelerates
* But some money may be flowing on to Russia, Dubai
BEIRUT, Feb 8 (Reuters) - Lebanese banks which worked
for years to build up business in neighbouring Syria have been
quietly implementing U.S. and European Union sanctions against
Damascus to avoid jeopardising their international operations,
bankers and economists say.
This is despite close financial ties between the two
countries, cemented by the opening of seven Lebanese banking
affiliates in Syria after President Bashar al-Assad began
liberalising the economy when he came to power 12 years ago.
Lebanese bankers insist they are not legally bound to
implement the Western sanctions, which ban business dealings
with dozens of Syrian officials and companies in response to
Assad's crackdown on pro-democracy protests. Lebanon has opposed
an Arab League plan to slap sanctions on Damascus.
In practice, however, international pressure has been so
heavy that Lebanese banks have not been able to ignore it. They
risk damaging their ties with Western banks if they continue to
do business with sanctions targets in Syria -- and forced to
choose, they appear at least for now to be sacrificing their
Syrian links.
Lebanese central bank governor Riad Salameh told a banking
conference in Beirut last month that no individual or
institution on the U.S. or EU sanctions lists could do business
with Lebanese banks.
The banks "will not take any action in Lebanon or any of
their branches abroad - especially in Syria - that could
embarrass their correspondent banks abroad or put them in a
position where they have breached regulations in their
countries," he said.
One senior Beirut banker, who declined to be named because
of the sensitivity of the issue, said: "Banks here are
definitely abiding by those sanctions. Whoever has an account
here (on the sanctions list), I'm sure they've been closed."
Many Syrians traditionally hold some of their money in
Lebanon, and the unrest which hit Syria last March prompted
local media reports - denied by bankers in Beirut - of billions
of dollars flooding across the border into Lebanon.
Lebanon's financial community, already shaken by U.S.
government accusations last year that a Lebanese bank was linked
to a money laundering network operating on behalf of Lebanon's
Hezbollah party, which is backed by Iran and Syria, has been
anxious to avoid any more unwelcome accusations.
Syrians seeking to open accounts or deposit money in Lebanon
are now treated warily -- "as if they have the plague",
according to another Beirut banker.
REGIME'S ASSETS
The Lebanese banking sector, which includes regional players
such as Blom, Audi and Byblos, is a
crucial part of the country's services-led economy.
Most Syrian affiliates of Lebanese banks, which are 51
percent Syrian-owned and are governed by Syrian legislation,
have seen sharp falls in their assets and deposit bases since
the start of the uprising in March.
"Before the crisis, the banks' business plans included
opening new branches, new clients, new projects, and expanding
their loan books," said one economist. "Since the crisis they
have moved to risk management."
A Western diplomat said he believed Lebanese banks were
actively "stripping out Syrian regime assets" from their books,
perhaps going beyond what was required by current sanctions
because they felt a wider international embargo might follow.
The European Union has put more than 50 Syrian individuals
on its sanctions list, along with firms such as the country's
largest commercial bank, state-owned Commercial Bank of Syria,
its main mobile phone operator Syriatel, the largest private
company Cham Holding, and Addounia TV channel.
The first Beirut banker said Lebanon's banking association
had met several times to stress the importance of abiding by the
sanctions, though he added that no one could be sure of 100
percent compliance by all banks.
"Do we know every account? No, but we are putting pressure
on all banks to make sure they are abiding by this," he said.
"Small banks I cannot control much, but the big banks really
realise" the need for compliance.
The banking sector's international reputation was damaged
last February when the U.S. Treasury Department designated
Lebanese Canadian Bank a "primary money-laundering concern",
claiming it was involved in a money laundering and
drug-trafficking scheme.
Lebanon's central bank responded that the bank complied with
international anti-money laundering standards, but within a
month announced the institution would be merged with the
Lebanese subsidiary of France's Societe Generale.
As Western sanctions escalated against Damascus, a senior
U.S. Treasury official visited Beirut last November to stress
"the need for authorities to protect the Lebanese financial
sector from Syrian attempts to evade sanctions".
Diplomats briefed on the visit said at the time that
Washington had not highlighted any single bank as of particular
concern. But they also said it was unlikely that any bank could
be sure depositors were not acting as a front for sanctioned
individuals or companies.
They also said that much of the money which left Syria for
Lebanon since March may subsequently have been channelled to
other countries.
"The increase in deposits (in Lebanon) has not been sizeable
compared to the extent of the Syrian deposit withdrawal," the
senior banker said, adding that Syrian money may have ended up
in Russia or Dubai.
Non-resident private sector deposits at commercial banks in
Lebanon climbed to $21.3 billion last December from $18.3
billion in March, according to central bank data; the $3 billion
increase was almost twice as fast as the rise of $1.6 billion
over the previous nine months. Syria's foreign exchange reserves
are estimated to have shrunk by at least several billion dollars
since last March as money has fled the country.
(Additional reporting by Alistair Lyon; Editing by Andrew
Torchia)
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