Business associations oppose
fund repatriation ruling

First public clash between

monetary authority and private sector

The Association of Banks (ABL), Association of Industrialists (ALI), and the Beirut Traders Association (BTA) have each sent letters to the Central Bank (BDL) objecting to Circular 154 which requires banks to “urge’ their depositors that have transferred significant funds abroad since July 2017 to repatriate 15 percent of the funds, and 30 percent from major bank shareholders and top management, as well as politically exposed people.

INDUSTRIALISTS

ALI considered that the circular contains measures that will have negative repercussions on the economy and will put additional strains on the already suffering industrial sector. ALI objected to urging importers to transfer from abroad the equivalent of 15 percent of the aggregate amount of the letters of credits that they opened in any of the past four years, and to deposit these funds in a special account and block them for five years. It said that these conditions should not apply to companies that transferred funds to pay suppliers or to honor other commitments abroad. It said that the circular breaches the Code of Obligations and Contracts, the Code of Money and Credit, as well as the Penal Code. It asked BDL to suspend the implementation of the circular, and added that it is considering all legal possibilities to appeal and void the circular.

TRADERS

BTA said the circular should not apply to companies that transferred funds to pay their suppliers or to honor other commitments abroad, including payments to tax authorities.

BANKERS

ABL has expressed concern to BDL amidst confusion in the banking sector regarding the circular with some banks welcoming it and others holding reservations. ABL said there are serious gaps in the methods of implementation of the circular, which necessitate amending it or canceling it.

The circular places on the banks the obligation to “urge” the clients referred to in the circular to deposit an amount equivalent to 15 percent of the sums transferred abroad in a special account. When does the bank consider that it has fulfilled the obligation of "urging", is it through a warning or in another way? How are the sums transferred abroad calculated? Does the circular apply to all transfers regardless of their intended use? Is the calculation based on the balance of the transfer account in case the client had previously transferred money from abroad? Does the circular apply to holders of fiduciary deposits, non-resident accounts, as well as accounts held by companies or associations? Does it include purchases and transfers of movable assets and transfers that have taken place in payment of expenses such as the price of a property or similar expenses?

When the transfer exceeds $500,000, is the client obligated to return only 15 percent of the amount exceeding this ceiling or 15 percent of the entire amount? How is the circular applied to transfers from joint accounts, and to accounts that have been closed and whose owners are no longer clients of the bank? Can a client deposit in the private account funds from another bank account inside Lebanon?

The category encompassing major shareholders, top bank management, and politically exposed people needs a precise definition.

The circular requires the banks to adopt a legal framework to enhance their clients’ confidence in recovering their deposits, whatever the circumstances. If the bank has granted a pledge to the customer to keep the equivalent of the client’s deposit with its foreign correspondents, and to guarantee it, then when could the bank consider that it has given the client what allows the strengthening of their confidence. What if the client is not satisfied? How will the bank be able to benefit from the deposited liquidity if it is subject to special guarantees that restrict its usage of it?

Any party that fails to implement this circular risks being subject to the measures and penalties stipulated in the Anti-Money Laundering Law. Should the bank that did not urge its customer to repatriate the transferred funds be concerned with this stipulation, or also the client who did not respond to the bank’s urging? Is the non-complying client subject to these measures and penalty, the client who did not comply even if the transfers were the result of ‘clean’ money that has been verified that is not a product of corruption or tax evasion or any act considered money laundering? Does the circular create a criminal offense resulting from mere failure to implement it? A client may refuse to comply with the circular, arguing that the authority of the Central Bank deals with regulating bank operations, and has no authority over clients. How will this penalty be exercised when the client is under no obligation to return the money, but only an obligation for the bank to “urge” for that? How will these measures and penalties be applied against non-resident depositors?

The circular mandates the supervisory commissioners to verify the proper implementation of the circular and inform the head of the Special Investigation Commission about the details of the operations they suspect conceal money laundering. Is the failure of the bank or the client to implement the circular considered as money laundering, or is it limited to reporting the money laundering cases stipulated by law? In this case, what is the benefit of this stipulation given the already existing anti-money laundering law?

The banks are concerned that the circular will undermine what remains of client confidence in the banking sector, as it obliges them to return money that they transferred in accordance with the provisions of the laws in force by exercising their most established right to act within the framework of a free economic system. What makes matters more difficult is that the scope of application of the circular goes back to July 2017, making it difficult even to accuse them of trying to ‘smuggle’ their money abroad, at a time when they chose not to benefit from the prevalent high interest rates during that period.

Assuming that some clients have been urged to return 15 percent of their transfers to Lebanon, how can they be assured that no new circular will be issued in the future that raises this percentage? How can it be justified that there are accounts that are differentiated from others in terms of guaranteeing the return of the deposit, as there is concern that deposits in accounts other than private accounts are considered to have become officially unsecured?

Banks also fear inequality in the application of this circular, as importers are obligated, for example, to transfer from abroad sums that they may no longer possess, especially since they are not exporters, and that the money they transferred was intended to pay for imported goods, at a time when clients who transferred amounts smaller than $500,000 are exempted.

Banks are concerned about the possible resignation of members of their board of directors, especially independents, who had agreed to continue despite the difficult conditions that the country and the banking sector in particular, are going through. Banks fear that non-resident clients will file lawsuits abroad against banks and others under the pretext (justified or not) that they are being forced under threat to transfer money to Lebanon. Banks are also especially concerned by the possible reaction of foreign correspondents to the circular’s presumption that the transfers are concealed money laundering operations including the repatriated part.