What you need to know about the Fransabank case

The judge of Beirut’s Enforcement Department, Mariana Anani, ordered on Wednesday the seizure of “all assets, shares and properties” of Fransabank. Below is what you need to know about the case and what is at stake for depositors.

What you need to know about the Fransabank case

A man walks past a Fransabank premises in Beirut on March 8, 2022. (Credit: Aziz Taher/Reuters)

The news came as a bombshell: On Wednesday, Beirut’s Execution Court judge, Mariana Anani, ordered the seizure of all “assets, shares and properties” of Fransabank, one of Lebanon’s largest banks in terms of deposits before the crisis, as well as “all assets of its branches, including safes and funds.” Later, the seizure of a single safe would also be placed on the table.

This decision was part of a lawsuit between the bank and one of its customers demanding that his deposit be given to him in dollars and not in bank checks.

In another statement on Thursday, the bank said its branches, which were temporarily shut on Wednesday, were open again, with cash operations being limited due to the sealing of its main safe. Fransabank also said it had appealed the judgment, which it described as "abusive."

Another judicial order was made on Friday, requesting to “remove the seal from the seized safe,” to carry out “an inventory of its contents and seize an amount equal to the value of the debt, subject to the enforceable seizure [order] if the safe contains cash.”

In what context does this court ruling arise? What distinguishes it from other legal actions already launched in Lebanon? What are the possible consequences? L’Orient-Le Jour takes stock of the legal case.

The context

The judicial decision was rendered in favor of an Egyptian client of the bank, Ayad al-Gharabaoui Ibrahim.

Married to a Lebanese woman, the man, who lives and works in Lebanon, filed a lawsuit in January after the bank refused to allow him to withdraw some of his savings, amounting to almost $35,000 according to Fransabank, which he needed for a health emergency.

"Mr. Ibrahim asked to be allowed to withdraw about $10,000 for medical expenses. The bank refused and instead gave him a bank check for the value of his deposit, which he signed for, but with reservations, at the notary public. Then he closed his account and that of his wife," explains a source from United for Lebanon, an alliance of lawyers and activists, led by Rami Ollaik, Gharabaoui’s lawyer, who along with the association Cry of the Depositors were supporting the plaintiff in the process.

Both groups have been regularly involved in various cases defending the rights of depositors in the wake of the banking crisis.

Fransabank Group is headed by Adnan Kassar, former Minister of Economy (2004-2005), who, with his brother Adel, is one of the main shareholders of the banking institution.

The judicial order issued by Anani requires Fransabank to pay the customer his deposit in cash, which the bank has refused to do. The order provides for an enforceable seizure of assets to allow the creditor to be paid through the sale of the debtor's property.

"This is the first time, to my knowledge, that an enforcement judge has taken such an advanced decision," lawyer Fady Mahfouz, an expert in commercial and banking law, told L’Orient-Le Jour.

The reaction of the Association of Banks in Lebanon (ABL) was not long in coming. In a statement issued on Wednesday, it urged the cabinet to intervene to "speed up the implementation of decisions that would put an end to the various procedures targeting banks and to push Lebanon to finally adopt legislation allowing its banking sector to face the crisis, including the vote of a law establishing a formal capital control.”

After meeting on Friday to discuss launching a strike to push for the adoption of such a law, the ABL announced a two-day “warning strike” to be held on Monday and Tuesday.

Judge Anani's decision comes against a backdrop of increasing judicial pressure against major financial players in Lebanon.

In mid-March, the General Prosecutor at the Mount Lebanon Court of Appeal, Judge Ghada Aoun, froze the assets of five major banks in Lebanon and those of the members of their boards of directors, as part of a series of cases she has been dealing with over the past few months, notably targeting Riad Salameh, the governor of the central bank, and his entourage.

On Thursday, she ordered the arrest of Raja Salameh, the governor's brother, as part of an investigation into suspicious BDL transfers of more than $330 million.

Critics of the judge, who is known to be close to the presidential camp, suspect that her actions serve a political agenda.

But the governor and his entourage are also subject to a series of legal proceedings in Switzerland, France, Luxembourg and Liechtenstein.

Prime Minister Najib Mikati, for his part, maintains his unwavering support for the banking sector and its leaders.

"What is happening with the banks is unhealthy and these actions are dangerous and risk damaging what remains of confidence in the sector," he said at the cabinet session on Wednesday, criticizing Ghada Aoun, without naming her.

In January, he had half-acknowledged that he had intervened to request the suspension of the search of five banks as part of the investigation into Riad Salameh conducted by Jean Tannous, the deputy prosecutor at the Court of Cassation.

The legal framework

Since October 2019, more than $100 billion of deposits have been blocked in the Lebanese banking system, which is totally paralyzed by the country’s liquidity crisis.

Faced with the influx of customers demanding the transfer of their deposits abroad or their payment in cash, banks have often resorted to giving out bank checks denominated in foreign currency and drawn on one of their accounts at the Banque du Liban. Since BDL does not have a cash counter, clients are then forced to deposit checks in another bank in Lebanon.

At best, the process amounts to shifting the problem to another bank: that is, the client ends up with a bank check that they can only cash in Lebanese pounds, at an exchange rate far below the market rate. In the worst case, if no other bank accepts the check, which is often the case, the depositors are simply deprived of a bank account.

The case of Ibrahim is, thus, far from being an exception.

In such a case, in order to recover a debt, two options are generally possible, explained Professor Nasri Diab, a lawyer specializing in financial and banking law, to L'Orient-Le Jour.

"Either the creditor has an enforceable title in hand or, [for instance], a legal act that allows him to directly obtain forced execution on his debtor's assets (such as a paper instrument, a check, etc.), in which case he can apply directly to the execution department and obtain an enforceable seizure on his debtor's assets,” he said, ,“or the creditor does not have an enforceable title, and he must then go to the judge on the merits and bring a lawsuit to prove the existence and the eligibility of the debt. It is the judgment that would then be considered as a writ of execution against the debtor.”

However, it is the first time in Lebanon in this type of procedure that the first option was chosen.

"We went directly to the enforcement judge, which saved us from lengthy trials. The judge then ruled that bank checks were not a valid method of payment," explained Ollaik, Ibrahim's lawyer.

According to the lawyer, this decision is based on several provisions of the Lebanese Code of Obligations and Contracts, which governs contractual obligations, and the Code of Money and Credit, which regulates bank checks.

"According to article 444 of the Commercial Code, for example, the remittance of a cheque for payment, accepted by a creditor, does not imply substitution. In consequence, the original claim remains, with all the guarantees attached thereto, until the said cheque has been paid." Ollaik said.

For his part, Mahfouz said, "According to article 850 of the Code of Civil Procedure, the judge of execution can request within 20 days the execution of the enforceable title: that is to say either the payment of the debt, or the seizure of the assets.”

However, this is not the first judgment in favor of depositors in Lebanon, as Diab reminded.

"Different types of legal actions have already been taken in different types of cases: civil actions on the merits, summary actions, criminal complaints; for refusal of the bank to transfer funds abroad, for refusal to hand over cash, for abusive closing of accounts, etc. Some actions have already been successful before the Court of Cassation, and the latter has already issued rulings [in matters of summary proceedings]" he said.

Foreign courts have issued similar rulings: Two decisions on the merits have been rendered in Europe. In the United Kingdom, SBGL and Bank Audi were ordered to return a deposit of several million dollars and pounds sterling to a Lebanese-British plaintiff.

A French court, for its part, ordered Saradar Bank to return $2.5 million in deposits to a Syrian woman residing in France. However, this does not mean that the jurisdiction of foreign courts is systematic.

"They rely on Article 17-c of the Brussels 1 bis Regulation [a regulation dealing with court jurisdiction in litigation in the European Union], which allows a consumer residing in the European territory to sue his professional co-contractor before a court located where the plaintiff is domiciled. We cannot generalize this solution, there is no automaticity, and each case must be analyzed according to its own specificities," a lawyer explained.

The consequences

Fransabank can either agree to pay its client, in which case the seizure of the property ceases immediately, or it can continue to refuse.

"If necessary, an expert assessment will be made to evaluate the value of the goods before they are sold at auction. The sum will be returned to the depositor and the seizure [order]will be lifted," Mahfouz explained.

More generally, "even if this decision has no 'jurisprudential' value, being rendered in first instance and in matters of enforcement, it could nevertheless be a sign of new developments to come," Diab said.

"Depositors were afraid to go to court and have their accounts closed. This is a taboo that is beginning to be broken," Ollaik commented.

This is a snowball effect of which the banking community is well aware.

"This kind of decision will increase the pressure on the banks," explained a source in the sector, who also criticized the viability of the solution. On Friday, another major bank in the country, BLOM Bank, was targeted by Judge Bassem Nasr in Tripoli. L'Orient-Le Jour was able to consult both decisions.

"It is not a tenable solution for all depositors. It is unfair because it relies on a first-come, first-served basis: the banks will only be able to provide enough liquidity for about 2 to 3 percent of real dollar deposits, after which they will be forced to close down. Nor will liquidating the assets allow depositors to get their money back, 80 percent of which was placed with the BDL."

Beyond the viability of the decision, it's a way for the initiators of the procedure to keep the pressure on.

"This is a first step to put pressure on the government so that it finally puts in place a roadmap to allow depositors to recover their money," said a source in United for Lebanon.

This article was originally published in French in L'Orient-Le Jour.

The news came as a bombshell: On Wednesday, Beirut’s Execution Court judge, Mariana Anani, ordered the seizure of all “assets, shares and properties” of Fransabank, one of Lebanon’s largest banks in terms of deposits before the crisis, as well as “all assets of its branches, including safes and funds.” Later, the seizure of a single safe would also be placed on the table.This decision...