Implications of Sanctions on the Syrian Banking Sector and Alternative Policy Responses

Executive Summary

The overthrow of the Assad regime in December 2024 and the formation of a transitional government have opened an unprecedented historical window to reassess the existing sanctions frameworks on Syria. The European Union responded immediately by lifting and amending a wide range of sanctions—particularly those targeting the banking, energy, transportation, and reconstruction sectors—thus paving the way for Syria’s reintegration into the global economy. Similarly, the United Kingdom’s delisting of major state-owned entities, including the Central Bank of Syria and the Commercial Bank of Syria, has set a highly significant precedent in this new phase of sanctions review.

For its part, the United States initially granted limited and short-term exemptions for the banking sector. However, in May 2025, the Trump administration announced its intention to pursue a comprehensive “cessation of sanctions” on Syria to give the country “a chance to excel and achieve great growth.” This announcement was followed by the issuance of General License 25 (GL 25), which formally authorizes financial transactions involving the Syrian transitional government, the Central Bank of Syria, Syrian banks, state institutions, and state-owned enterprises. In parallel, the U.S. Secretary of State issued a 180-day waiver under the Caesar Act to ensure that secondary sanctions would not obstruct investment or hinder the provision of electricity, energy, water, and sanitation services, as well as to facilitate humanitarian efforts.

This report rigorously evaluates the extent to which banking sector sanctions have contributed to the deterioration of Syria’s financial system and explores practical pathways for reintegrating the country into the international financial system. It also examines how banking restrictions have disrupted essential services such as remittances, savings, and cross-border transactions, leading to the rise of informal networks (such as hawala), which carry significant risks related to money laundering and terrorist financing.

1. Historical Background and Legal Evolution of Banking Sanctions

Sanctions targeting Syria’s banking sector have evolved over two decades, serving as a primary instrument for Western governments to exert economic pressure. Although the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003 laid the political foundation for some punitive measures, it did not directly address banking services.

Legally binding U.S. restrictions on financial services emerged later through Executive Order 13582, issued in August 2011, which explicitly prohibited the export or provision of any financial or banking services to Syria. Prior to that, the USA PATRIOT Act had enabled preliminary measures against Syrian banks. In the early 2000s, the United States designated the Commercial Bank of Syria (CBoS)—the country’s largest state-owned bank—under anti-money laundering and counter-proliferation provisions. In March 2006, the U.S. Financial Crimes Enforcement Network (FinCEN) issued a final rule prohibiting U.S. financial institutions from opening or maintaining correspondent accounts for or on behalf of the Commercial Bank of Syria, directly or indirectly.

The most severe blow to the domestic banking system came with the enactment of the Caesar Syria Civilian Protection Act in June 2020. The Caesar Act imposed stringent secondary sanctions, effectively prohibiting non-U.S. financial institutions from engaging with the Syrian government, the Central Bank, or state-controlled banks. These measures created a climate of regulatory fear, prompting global banks and companies to completely sever ties with Syria to avoid legal and financial risks.

2. Key Findings of the Economic and Banking Impact Assessment

2.1 Loss of Correspondent Banking Relationships

Sanctions severed the links between Syrian banks and the global financial system. This total isolation deepened the country’s financial marginalization and deprived domestic banks of the ability to settle international payments or provide standard trade finance facilities.

2.2 Rapid Expansion of Informal Financial Systems

With formal banking channels blocked, much of Syria’s economy shifted toward unregulated alternatives such as cash-based hawala networks. This transition significantly reduced financial transparency and made it increasingly difficult for both domestic and international actors to monitor financial flows or effectively combat financial crime.

2.3 Widening Gap Between Regime-Linked and Independent Entities

Paradoxically, comprehensive sanctions disproportionately harmed relatively independent private financial institutions that sought to comply with international standards. In contrast, banks and networks closely tied to warlords and the former regime demonstrated greater resilience due to political protection and informal circumvention mechanisms. This dynamic led to wealth concentration and weakened the integrity of the formal private sector.

2.4 Collapse of Banking Confidence and Erosion of Deposits

Years of instability, inflation, and coercive administrative interventions eroded public trust in the domestic banking system. Today, most Syrians prefer to hold savings outside banks and rely heavily on cash transactions and foreign currencies.

3. The Current Legal and Political Dilemma

Despite the historic exemptions granted under U.S. General License 25 (May 2025) and the freezing of Caesar Act enforcement, the international financial system remains highly reluctant to re-engage with Syria. This reluctance is driven by overcompliance (risk-averse behavior by correspondent banks) and the overlap between lifted economic sanctions and still-active counterterrorism sanctions.

The central dilemma lies in the fact that the head of the transitional government, Ahmad al-Sharaa, and the group he previously led (Hay’at Tahrir al-Sham) remain listed under international counterterrorism sanctions, including UN Security Council Resolution 1267 and U.S. Executive Order 13224. This legal contradiction places international banks and development institutions in a difficult position: they are officially permitted to engage with Syrian state institutions, yet internal compliance frameworks prohibit any activity that could be interpreted as providing material support to designated individuals or entities.

Additionally, Syria’s continued designation by Washington as a State Sponsor of Terrorism represents both a legal and symbolic barrier, preventing the country from accessing full financial assistance and technical support from institutions such as the International Monetary Fund and the World Bank.

4. Proposed Solutions and Roadmap for Reviving the Banking Sector

First: Recommendations to the Syrian Transitional Government and the Central Bank of Syria

1. Adopt Minimum Global Compliance Standards:
2. The Central Bank of Syria must require all public and private banks to adopt the Wolfsberg Transparency Principles as an initial step toward rebuilding risk management systems, governance frameworks, auditing processes, and customer due diligence.
3. Re-engage with the Financial Action Task Force (FATF):
4. Syria should actively pursue removal from the FATF grey list by requesting an on-site evaluation and hosting the long-overdue peer review mission, alongside developing a time-bound compliance roadmap.
5. Deposit Mobilization Incentives:
6. Introduce flexible and competitive banking incentives, including attractive interest rates and stable lending conditions, to encourage citizens to deposit their savings within formal financial channels and improve liquidity for investment and credit.

Second: Recommendations to Western Governments and Sanctions Authorities

1. Remove Remaining Banking Sanctions Without Expiry Dates:
2. Short-term exemptions discourage long-term investment planning by foreign private sector actors.
3. Establish Alternative European Payment Channels:
4. European governments should create financial pathways entirely independent of the U.S. financial system (no U.S. nexus) to avoid extraterritorial sanctions, relying on state-backed banks and sovereign guarantees from institutions such as the European Central Bank and the Bank of England.
5. Facilitate Direct Technical Dialogue:
6. Enable the deployment of compliance officers, legal advisors, and risk specialists from major Western banks to Syria to clarify due diligence requirements and jointly explore practical engagement solutions with local banks.

Third: Recommendations to the United Nations and the World Bank

1. Establish Neutral and Independent Escrow Accounts:
2. Given that full restoration of traditional banking channels may take years, the UN and World Bank should lead the creation of secure, independently monitored financial mechanisms to channel reconstruction and early recovery funds transparently and efficiently.
3. Leverage International Models:
4. Apply a model similar to the Afghanistan Special Trust Fund established in 2021 by UNDP and the World Bank, enabling the delivery of essential funding outside direct control of sanctioned executive authorities, thereby supporting civilian recovery without granting unconditional political legitimacy.

Conclusion and Future Outlook

Syria’s successful transition toward economic stability and inclusive growth depends fundamentally on the ability of its banking sector to reconnect with the global financial system. The current moment represents an exceptional opportunity for policymakers and investors alike. The exemptions granted under General License 25 create a significant opening for forward-looking financial institutions to develop innovative financing solutions—provided they adhere strictly to governance standards and robust due diligence.

Maintaining the freeze on formal financial channels will only benefit black markets and shadow networks. In contrast, revitalizing the formal banking system remains the most reliable path to repatriating national capital and initiating a genuine reconstruction of Syria’s emerging economy.