An ATM placed at the entrance of the Banque du Liban, in Beirut. (Credit: Philippe Hage Boutros)
The Beirut Bar Association, which has been fighting for the Lebanese depositors’ rights in the face of illegal de-facto haircuts, is now targeting a recent Banque du Liban (BDL) decision regarding banks’ and financial institutions’ capitals.
“The Beirut Bar Association, represented by its president Nader Gaspard, presented on March 6, before the Council of State, an appeal to request the annulment of the intermediate Circular 659,” Jean Tabet, a managing partner in the firm Tabet Law, told L’Orient-Le Jour.
According to Tabet, BDL’s decision to enact Circular 659 is tantamount to “excess of power, abuse of right, and violation of the constitution and of the regulatory laws in force, in a way that harms depositors and the national economy.”
The measure was adopted on Jan. 20, 2023, 10 days before BDL officially shifted to the new official peg of LL15,000 from LL1,507.5 to the dollar amid the collapse of the national currency.
The text of the circular addressed the impact of the new exchange rate on how banks calculate their balance sheets and offered banks five years to regularize their negative and deficit “open foreign currency position” as of the end of 2022.
Tabet, who played a pivotal role in drafting the appeal, said circular No. 659 is merely part of “countless circulars” issued by BDL in an attempt to mend the situation.
However, these circulars have been “arbitrary” and “unfounded” and have only worsened the country’s current crisis.
The appeal aims to halt the circular’s implementation, a decision that the Council of State is expected to make within a month.
Once the initial phase is complete, during which BDL’s perspective will also be taken into account, the Council of State will review the case in detail, which could result in the circular being either revoked or upheld.
Four articles
Tabet stated that the Bar Association has substantiated its claims with legal references and factual and technical evidence gathered from expert testimonies in the fields of banking, finance, money and politics.
“We have complete faith that the Council of State will make a fair and unbiased decision by examining the case thoroughly. Its verdict would establish a precedent for similar cases and the irregularities in BDL’s circulars and decisions issued since April 2020, which aim to sustain an unjust, unbalanced and artificial system, will be exposed,” he added.
According to Tabet, Circular No. 659 comprises four articles that modify the two fundamental decisions, No. 6568 of April 24, 1997 and No. 6939 of March 25, 1998.
In summary:
· The circular grants banks a five-year time frame to regulate their negative and deficit “open position in foreign currencies” as of Dec. 31, 2022, in a progressively declining manner, in violation of the laws and regulations. Tabet, like numerous experts who have commented on the Lebanese crisis, believes that banks have been in “cessation of payment for more than three years” — a claim that is refuted by the Association of Banks in Lebanon.
· The circular also permits banks to calculate rights and subscribed capital of their shareholders based on an exchange rate equal to LL15,000 to the dollar, which is now “obviously fictitious,” and enables them to increase their capital based on the same exchange rate.
· The circular text prohibits “the distribution of dividends to the holders of registered shares for the financial years 2019, 2020, 2021 and 2022.”
“It is likely to raise concerns about the real existence of net profits, given that banks have refused to repay the deposits and amounts owed to depositors in their original currency and full value for all these years.”
· The circular provides banks and financial institutions, until the end of 2023, with the option to revalue all their assets and property (both real estate and financial) located in Lebanon or abroad, using the current parallel-market exchange rate (approximately LL110,000 to the dollar at the moment). Additionally, it would let them use the Sayrafa rate for foreign exchange transactions, which is close to the parallel market rate. Tabet argues that this maneuver will enable a significant part of the capital gain to be added to the shareholders’ equity base as a value distribution. However, there are no specifics on the procedure and BDL is the only authority to oversee this process.
No response from BDL yet
According to Tabet, BDL refrained from declaring the banks bankrupt or unable to continue their activities, despite their proven insolvency. Instead, BDL indirectly provided the bank managers and owners with a means to increase their equity and cover the losses and deficits caused by systemic structural and directional problems, which were a direct result of their own negligence and mismanagement.
The lawyer also highlighted the banks’ failure to follow the fundamental principles of the laws in force — especially those of prudence and diversification — and their complete absence of liquidity.
Tabet added that the means of capital increase adopted by BDL are both illusory and suspicious. He said that . He said that they “will only worsen the crisis in the banking sector rather than solve it.”
For Tabet, Governor Riad Salameh has abused his power by adopting this decision, which is strikingly illegal.
“The decision aims to cover the financial gap at the expense of depositors and give a false impression of solvency to the banks to prolong their current governance,” Tabet said.
He added that the decision is an attempt to avoid the application of laws in force that provide for the divestment and replacement of banks and the seizure of their property while determining responsibilities and compensation.
Although the mentioned grievances are only part of the appeal, it is yet to be determined if the Council of State will consider the arguments presented. Salameh, who was recently questioned by European judges for financial malpractice, has not publicly responded to the appeal filed by Beirut’s lawyers.
This article was originally published in French in L'Orient-Le Jour. Translation by Sahar Ghoussoub.