A Lebanese bank accused by the U.S. of money laundering for smugglers tied to the militant Hezbollah group is merging with an affiliate of France's Societe Generale as a way to restore confidence, Lebanon's Central Bank governor said.
Riad Salameh told the local LBC TV Thursday night that the Lebanese Canadian Bank SAL will merge with the local Societe Generale in Lebanon.
The Lebanese Canadian Bank had been put up for sale after the U.S. Treasury Department designated it last month as a "primary money laundering concern," claiming it helped launder up to $200 million a month for a Lebanese-based drug smuggling organization with ties to Hezbollah.
Salameh did not disclose the value of the deal, but media reports have said the bank would likely be sold for $500 to $600 million. There was no immediate comment from either bank Friday.
The Treasury Department and Drug Enforcement Administration had said the smuggling ring is run by alleged drug kingpin Ayman Joumaa and has provided financial support for Hezbollah, which the U.S. designated a terrorist organization in 2001.
The DEA's special operations division agent in-charge, Derek Maltz, said the group laundered proceeds obtained by smuggling tons of cocaine from South America to Europe and the Middle East via West Africa.
The Lebanese Canadian Bank had denied the U.S. charges, and Salameh had stood by the bank, saying LCB abides by all national and international regulations.
Still, the accusations triggered concerns in Lebanon that Washington would begin targeting the banking sector as a way to exert pressure against Hezbollah.
Salameh traveled to the United States last week for talks with U.S. Treasury Department and State Department officials on the subject. Following the visit, he said he received reassurances that that the banking sector would not be targeted.
Salameh, in Thursday's interview, however, confirmed that the decision to merge had come at the request of the U.S. Treasury as a way to restore confidence in the bank. He said Societe Generale has pledged to keep all LCB employees.
Lebanon is famed for its banking secrecy laws. Officials have also taken pride in the ability of the country's banks to whether the global financial meltdown, citing their strict lending standards and high liquidity.
Salameh said last month that bank deposits increased 10 percent in 2010 to reach $110 billion or about three times the country's gross domestic product.
The LCB, which is headed by a Maronite Christian, was Lebanon's 9th largest by the end of 2009 with assets worth $5 billion.