Lebanese Banks Sacrifice Privacy for ‘Efficiency’

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The problem here does not lie in the pretext invoked by the US authorities, but rather in the mechanism that allowed them to detect and confiscate the funds. (Photo: Marwan Tahtah)

Published Monday, March 4, 2013

Lebanese banks could soon implement a global banking communication system that would allow third-parties – like the US government – access to its financial data.

In 2012, a Dutch businessman found out that his money transfer to a German counterpart, made through a German bank, had been appropriated by the Americans. While the sum of $26,000 was not huge, this incident had many implications regarding the extent of Washington’s reach in the world of “counter-terrorism.”

To justify the move, US authorities claimed the funds in question were intended as payment for a shipment of Cuban-imported cigars. Since the communist island state is subject to a US embargo, the Dutch businessman had broken US law.

The problem here does not lie in the pretext invoked by the US authorities, but rather in the mechanism that allowed them to detect and confiscate the funds. Indeed, this was only possible because they can manipulate the ‘secure’ interbank system operated by Belgium-based SWIFT, or Society for Worldwide Interbank Financial Telecommunication.

Starting in 2001, the US administration launched a foreign espionage program targeting SWIFT databases and transactions as part of its global “war on terror.” The scheme remained secret until 2006 when exposés ran in The New York Times, The Wall Street Journal, and The Los Angeles Times.

The newspapers revealed that the program was a joint initiative by the US Department of the Treasury and the Central Intelligence Agency (CIA). The program would later lead to the arrest of key members of al-Qaeda, such as Riduan Isamuddin (known as Hambali) in 2003, and other suspects involved in money laundering.

SWIFT denied all involvement in, or knowledge of the Terrorist Finance Tracking Program (TFTP). A Euro-American controversy ensued over the program’s legitimacy until the issue was settled following extensive visits by US officials, including Vice President Joe Biden in 2009.

Monitoring Lebanese Bank Transfers

This background is necessary to understand developments that may soon arise in the Lebanese banking system, where all the data belonging to bank customers carried by SWIFT codes would be accessible.

Nearly two years ago, the Lebanese Central Bank (BDL) began implementing an ambitious project to improve the efficiency of interbank transactions and communications.

The project has three components: a real-time gross settlement system (RTGS) intended to facilitate interbank communication; a check-clearing system intended to make check transactions more efficient through electronic processing; and PAYGOV, a solution for streamlining government payments electronically.

The BDL’s program is crucial for improving efficiency. Global institutions such as the International Monetary Fund have often complained that Lebanon’s banking system was technologically behind its counterparts in the Middle East and North Africa region.

Nevertheless, one possible red flag in the new solutions is that they will adopt SWIFT’s system. This means that all the data transfers – from information about the salary of a Lebanese Army general in the North to a bill for a landline subscriber in the South – would be accessible to a third party. In other words, confidentiality would be breached.

An informed source told Al-Akhbar, “If the proposed measures are implemented through the SWIFT service, then the data belonging to many Lebanese individuals – whether private sector checks and transfers, or public sector salaries and official bills – would be accessible.”

What’s puzzling here is that Lebanon already has a secure internal electronic network in place. The network was set up in the 1990s to serve the same purposes of BDL’s proposed SWIFT-based system.

According to the same source, the Lebanese network cost tens of millions of dollars to create. The source remarked that recently there were voices in BDL urging that the SWIFT-based system be abandoned in favor of this more secure intranet.

In addition to exposing private data to a third party, BDL’s system imposes additional costs on the system’s users, as SWIFT collects high fees that will ultimately be charged to the customers and clients. For example, the fee charged by the company to process a single check is a whopping $2.

Experts and former officials purport that there are two possible justifications for the BDL’s decision. Either the Central Bank’s management is afraid to rely on its own network or the BDL does not fully appreciate the size of sovereign risks arising from its measures.

The second possibility, they stress, would be a real dilemma.

This article is an edited translation from the Arabic Edition.

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