The parliamentary finance and budget committee gave its approval to the approval of the law establishing a formal capital control. As a reminder, an informal capital control had been put in place by the Association of Banks in Lebanon in November 2019 following the shortage of foreign currency.

The new text is still expected to be approved by parliament in a vote expected to take place in the coming days.

Speaking at the end of the meeting of this committee, the deputy Ibrahim Kanaan considered that the restrictions put in place by the banks were justified by the exceptional circumstances which followed the demonstrations of October 17, 2019. They were aimed at preserving the value of the Lebanese pound. However, a legislative text was made necessary today because of certain legal procedures, considering that “individual property is guaranteed by the Constitution” and that it was also a question of putting in place common rules between banks.

He also called on the Hariri III government had failed to act in accordance with the law and accused the measures advocated by Prime Minister Hassan Diab of having worsened the monetary and economic situation following the announcement of the state of default. Ibrahim Kanaan, however, stressed that the Diab government had made it possible to speed up the adoption of this law.

Concerning the regularity of this text, the deputy recalls the case law in the matter adopted in particular in 1967 following the Intra Bank crisis and that various countries, such as Cyprus, Greece or Egypt have adopted similar measures.

Other laws such as the one establishing a student dollar remain applied in a discretionary manner, at the goodwill of the banks. Other circulars of the Banque du Liban are also not respected by the Lebanese banks.

However, the establishment of capital controls is the responsibility of Parliament and not of the Central Bank.

The capital control law (according to MP Ibrahim Kanaan)

Transfers abroad are prohibited, regardless of the nature and type of account, and exceptions are specified:
at. For what is permanent: such as the accounts of international financial institutions, international and regional organizations and foreign embassies on the one hand, and fresh money that has been deposited in banks and not transferred abroad after the October 17, 2019
on the other hand,
b. For what is of an urgent and conditional nature: such as education costs, taxes, fees and financial obligations due to foreign official authorities, and costs of subscriptions and applications on the Internet. The maximum limit for the total of these expenses has been set at 50 thousand US dollars.

Internal withdrawals are authorized as follows:
In Lebanese pounds, an amount between 15 and 20 million pounds (excluding deductions from the wages and salaries account) and the decision is left to the General Assembly.
In foreign currency, between $ 400 and $ 800, and the discount to the general assembly in view of the data required by the Banque du Liban to be submitted before the plenary session of the House of Representatives, to rule on cases according to the figures that will be presented.

It is prohibited to transfer accounts from the Lebanese pound to foreign currencies unless sufficient cash cover is available from the relevant bank, provided that the Banking Supervision Commission ensures that such cover is available.

In order to ensure that the implementation of the capital control law is not subject to any attribution, as was the case with the student dollar law, the proposed law identified six measures that ensure mandatory implementation and good:
at. setting up a transfer centralization unit, setting up a decision-making mechanism on requests, defining an administrative complaints framework, determining the penalties to be imposed on the offending bank.
b. And its legal basis, specifying the sanction framework with indication of a decision deadline, the law of judicial control: A centralized transfer unit will be established with the Banque du Liban to study the requests referred to it by the banks concerned. in order to prevent the bank from profiting, and its decision commits the bank if it is in the interest of the transfer applicant.
vs. If the decision of a central transfer unit rejects the transfer request, the transfer applicant may file a complaint with the Central Council of the Bank of Lebanon, whose decision is considered binding if it is in the applicant’s interest. transfer.
d. If the decision of the Central Council of the Banque du Liban is not in the interest of the transfer applicant, the latter can take legal action.
As for the sanctions imposed on the bank which contravenes the provisions of the law with regard to withdrawals or transfers, they are provided for by article 208 of the Monetary and Credit Law which amounts to removing the offending bank from the list of banks.
As for the valid reference for pronouncing the sanctions of Article 208 of the Monetary and Credit Law, it is the supreme banking authority, which has set a period of two weeks to rule on the violation.
As for the right of judicial appeal, it is exercised on the decisions of the Central Transfer Unit and the decisions of the Central Council of the Bank of Lebanon, which are rendered against the transfer request, because it is the weaker party. the contractual relationship between the bank and the depositor.

Regarding the content of the proposed law, it should be noted that any legislation on capital controls:
The issue of ongoing court reviews regarding financial transfers and withdrawals needs to be addressed. The bill stipulates that requests related to these reviews are subject to its provisions, which will expedite their decision given the reluctance of the judiciary to do so.-E
It must be temporary and exceptional because it affects foundations protected by the constitution.
Therefore, the bill stipulates that the deadline for its implementation is one year, subject to reduction by government measure if the circumstances which necessitated its issuance are lifted.

The measures provided for by the proposed law remain incapable of developing permanent solutions unless they are accompanied by political stability.
One of its first demands is the formation of a government which deals with the problem in an efficient and dignified manner, and carrying out structural reforms within the framework of a clear and integrated plan which puts the national economy on the path of recovery. restoration of the elements of its vitality, and its launch, and the exit of the country from its crisis.

The MP believes that the Finance and Budget Committee encountered many obstacles, including:

1. The explosion of the Port of Beirut and its impact on the construction of parliamentary offices, and consequently on the work of parliamentary committees due to the limited number of meeting rooms,

2. The Corona epidemic, the injury of some colleagues, and the difficulty of remote meetings to study a bill of this importance,

3. the lack of information and statistics necessary to study the impact of the law, if approved, on economic, financial, monetary and social conditions.

4. Conflicting information provided by banks.
On April 21, 2021, the Association of Banks indicated that the cap on transfers abroad to cover urgent and conditional expenses (education – taxes, fees and financial obligations – subscriptions and Internet applications) should be $ 20,000 at place of $ 50,000 fixed by the committee. That this cap should be 10 thousand US dollars.
For its part, the Banque du Liban refrained from providing any precise and clear information, with the exception of the information provided by the Banking Control Commission on transfers abroad to cover the costs of studies during the years 2019 and 2020.
However, although this affected the completion of the study of the bill with the necessary speed, it did not prevent the committee from determining to complete it, knowing that the banks apprehend the withdrawals and their volume. in Lebanese dollars and pounds, and that they are interested in the law on the control of capital to protect them from prosecutions brought or which could be brought against them, and that the Bank of Lebanon wishes that the decision relating to monetary affairs be entrusted alone, and that it exercises it by decisions and circulars that it issues for this purpose.
The Banque du Liban had previously prepared a draft resolution at the end of 2019 to this effect and had asked the government to authorize it to issue it, but this was not possible because the government does not have the power to organize capital controls to delegate that. authority, and today it is issuing a new decision that begins to be implemented from July 1, 2021. Monthly cash withdrawals in foreign currencies are permitted.

Therefore, due to the lack of information necessary to make the appropriate decision, the Committee set two ceilings for monthly bank withdrawals in Lebanese pounds (20 million pounds and 15 million pounds), and between 400 and 800 dollars for withdrawals, and left the General Assembly to make the appropriate decision regarding each of them.

The deputy recalls that additional steps are necessary before the entry into force of the law. This should be presented to the Administration and Justice Committee, then to joint committees in the event of an amendment to the current text, and then to the general assembly of Parliament.

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