Geopolitical Monitoring Report | August 12, 2022

Global

Lebanese gunman holds bank staff hostage to access his savings: DW

Background:

The gunman robbed the bank because he was unable to withdraw money from his savings to pay for his father’s medical bills due to the strict capital controls enacted by Lebanon’s central bank amid the growing economic crisis in the country. 

The incident ended after the gunman was given $35,000 from his savings to ensure his surrender.  Lebanon’s crisis stems from rising inflation, a high foreign debt load, and shortages of key staple products. The crisis has resulted in the Lebanese pound losing 90% of its value over the past year and prompted the country’s population to exchange local currency to foreign currencies in order to preserve their savings amid the rising inflation. 

Limits on withdrawals and exchanges into foreign currency were instituted by the country’s central bank as the country’s foreign currency reserves – which are essential in paying for imports – dwindled from $30 billion in 2019 to approximately $11 billion as of June 2022 due to account holders fleeing to safe-haven currencies. 

This rapid decline in foreign currency reserves mirrors the crisis in Sri Lanka, which saw the collapse of its government amid widespread civil unrest after a financial crisis drained its foreign currency reserve and left it unable to pay for fuel and food imports.. Unfortunately, Lebanon and Sri Lanka will likely only be the first countries negatively impacted by these types of crises and the civil unrest that is almost certain to be prompted by them. 

Countries that rely heavily on imports of food and energy, have large foreign debt loads, and suffer from chronic political instability are likely to suffer similar fate as Lebanon and Sri Lanka. 

Impact:

The gunman that held the bank in Lebanon hostage received widespread coverage and support on social media following the incident, as the public broadly sympathized with him due to his goals of accessing his own savings. 

Lebanon’s Central Bank President stated that this was not the first type of incident of this nature that has occurred and it highlights the widespread public anger over the fact that they cannot access their funds or transfer them into other currencies. These types of capital controls may also result in the increased use of cryptocurrencies as people seek safe havens from inflation and may view the volatile swings in the values of these assets to be preferable to the perpetually declining values of their native currencies. 

Naturally, increased usage of cryptocurrencies and platforms used to trade them by people from countries that are in dire financial straits will also increase the risk of cryptocurrency related scams and cyberattacks targeting these new users. In addition, the lack of foreign currency reserves has already led to Sri Lanka defaulting on its foreign debt for the first time in its history, Lebanon defaulting on its obligations last year, and an additional 12 countries being placed at risk of default.  

Finally, outright civil unrest will continue to be the largest threat in countries that institute capital controls or take other similar actions. This unrest is likely to target government buildings, financial institutions, and may target foreign firms that local populations may blame for the crisis. 

Mitigation:

Organizations operating in countries that are at a risk of severe financial crisis similar to that of Lebanon or Sri Lanka should continuously monitor for incidents similar to the Lebanon bank hostage crisis due to the potential that these incidents may inspire copycats, especially if the perpetrators demands are met. 

Social media will continue to fuel such incidents and ensure that your organization has effective open source intelligence capabilities in place to detect incidents that may serve as a prelude to broader civil unrest. In addition, it will also be essential to identify if the general public in these countries are placing blame on foreign firms that operate within their borders, as it could serve as a prelude for their organization being targeted. 

The emergence of cryptocurrencies has provided citizens in countries that have capital controls in place a new opportunity to evade them, but widespread use of this practice may result in government’s enacting new regulations and restrictions on these assets. Financial platforms that exchange cryptocurrencies should also be prepared for scams and cyberattacks that stem from the influx of new users from these countries. 

These incidents are likely to increase as economic conditions worsen. Investors should also be weary of any government and corporate bonds issued by countries that are in similar dire financial straits amid rising inflation, increased debt loads, and are heavily reliant on imports – especially food imports from Russia or Ukraine due to the ongoing conflict there. 

Early identification of the warning signs of financial crises and the unrest that typically follows them will ensure that organizations are prepared and able to navigate them successfully.

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