LIST OF PROPOSALS FOR LEGAL MEASURES IN PILLAR 1 OF EXECUTIVE’S ECONOMIC ROADMAP
The disadvantages of absolute banking secrecy increasingly outweighed legitimate interests
FISCAL POLICY
Measure 1.1.1 Improve deliberation and adoption of state budgets.
Measure 1.1.6 Launch work on a new, progressive tax policy and remove tax loopholes for offshore companies.
Measure 1.2.1 Unify and stabilize the exchange rate and incentivize initiatives that would increase foreign direct investment.
Measure 1.2.10 Mandate for all companies benefiting from public funds to be listed on the BSE with a 51 percent float.
Measure 1.2.11 Legislate and incentivize companies to facilitate trading of corporate debt contracts to allow for foreign currency investments to encourage exports.
BUILD CAPACITIES
Measure 2.1.2 Legislate and implement a census for Lebanon.
Measure 2.4.1 Further modernize existing laws pertaining to competition, antidumping, intellectual property, antitrust, small and medium-sized enterprises, quality-enhancing, bankruptcy and insolvency, code of commerce, and the building code.
Measure 2.4.2 Create legislation that would allow for small debts recovery. Measure 2.4.4 Introduce e-government solutions and improve omni-channel access to governmental procedures, such as customs, to reduce red tape on import and export trade procedures.
Measure 2.4.6 Create a trade and finance program and restructure all trade debts. Measure 2.4.7 To bolster the private sector, make sure that capital control laws still allow businesses of all sizes to maintain and grow their operations, allowing for international transactions when necessary, to keep Lebanon’s industries, services, and products relevant.
Measure 2.5.1 Complete and implement PPP legislation and empower independent oversight bodies that can contribute to the efficient delivery of services of PPPs, including the judiciary, regulatory bodies, and civil society.
STATE INSTITUTIONS
Measure 3.1.1 Develop new legislation to consolidate previous draft laws for decentralization at the municipality level.
Measure 3.1.2 Improve legislation for determining responsibilities and decentralization structures for levels beyond the municipality.
Measure 3.1.8 Ensure the implementation of whistleblower protection legislation and adequate mechanisms for reporting infractions.
JUDICIAL REFORM
Measure 4.1.1 Examine all current legislation on judicial independence and transparency as a concrete measure toward building a strong judiciary. Measure 4.2.3 Adopt laws to ensure the complete financial and administrative independence of the judiciary.
REGULATORY FRAMEWORKS
Measure 5.1.6 Develop new legislation to consolidate previous draft laws for the insurance sector to promote proper competition and better protect policy-holders. Measure 5.1.8 Fully implement Law 28 (2017) on access to information and coordinate a national plan for combating corruption. Implement the national corruption commission legislated in 2020. Design and empower regulatory frameworks that facilitate the definition and recapture of illicit gains by politically exposed persons and public servants on all levels.
Measure 5.1.9 Enhance competitiveness in the economy by passing legislation and measures to improve the doing business environment, as per Policy Priority 2.4: Enhance the Business and Investment Climate.
The law amending the provisions of banking secrecy went into force in October, denoted with its issuance in the Official Gazette. However, the history of banking secrecy in Lebanon goes back to the early days of independent statehood and the creation of the Central Bank. Lebanon Law No. 1/1956 on Bank Secrecy was adopted in 1956.
In essence, banking secrecy is an agreement between banks and the clients by which the client’s activities and details remain confidential and private. By enshrining it in law, the state guaranteed this privacy, enabling bank clients to hide their assets from all prying eyes. Article 2 of Lebanon Law No. 1/1956 prohibited banks in Lebanon from disclosing information about their clients such as their name or their funds to anyone whether it is a private individual or a public authority.
In the second half of the past century, the disadvantages of absolute banking secrecy increasingly outweighed legitimate interests of asset holders, as banking secrecy was a facilitation tool of tax evasion, illicit profits, money laundering, and terrorism finance. Banking secrecy was reviewed and sharply restrained in many jurisdictions. The banking secrecy accorded to account holders in Lebanon, however, was only modified in small ways around the turn of the millennium, in order to avoid full blacklisting of the country’s financial system by the Financial Action Task Force (FATF). It meant the law was not seriously challenged in Lebanon throughout the 2010s.
A WEAK BUDGET
Jinan Tfaily, a lawyer who specializes in public law, says that the liquidity crisis of 2019 was accompanied by local and international reports talking about the transfer of millions of dollars from Lebanon abroad, and all its owners benefited from the absolute banking secrecy law. Regarding the positive repercussions of lifting bank secrecy, Tfaily emphasizes that this issue constitutes a basic and pivotal starting point for the issue of inquiry and investigation in the context of operations to fight corruption and recover illegally acquired funds.
Access to bank accounts of suspected persons to conduct an approach, comparison, and confirmation of evidence on illegal enrichment (especially in the event that they own funds that their regular resources do not enable them to own) will according to Tfaily ensure that the issue of combating corruption does not remain just a populist slogan empty of content and without effectiveness or practical implementation.
Whereas adoption of a modified banking secrecy law works towards aligning Lebanon with international financial standards and is a step towards an IMF agreement, experience from changes in banking secrecy in European jurisdictions suggest that the process of recovering illicit gains and closing loopholes against outflows of corrupt holdings is at best arduous. Even in the best of circumstances, much time would be required to see this law’s efficacy in Lebanon. Numerous local observers furthermore consider it unfathomable that this law could in itself transform the opaque Lebanese financial system of the past, especially given the fact that the 2022 budget law, while adopted, has been put on the feet of the weakest clay.
Looking at this weakness of the budget from the perspective of its ability to support a fiscal reform path that is congruent with the conventional financial wisdom habitually promulgated by the IMF, and knowing that the IMF demands are still very far from being met – given how the Law
for Regulating and Restricting Financial Transfers (the Capital Controls law) and the Banking Restructuring Law have not been approved by time of this writing – it could neither shock any Lebanese observers in terms of content nor should it awe anyone in terms of candor that the IMF has expressed its strong irritation with the Lebanese process.
The evaluation of the progress made by Lebanese lawmakers in six months between the announcement of the staff-level agreement and the end of September of last year actually was a dressing down clad in diplomatic phraseology. “Progress has been made, but progress has been slow. Only few measures have been so far implemented and there is still progress on others,” Jihad Azour, director of the Middle East and Central Asia Department at the IMF, told a regional press briefing in October. Of course, since the IMF should never be mistaken for an institution that is isolated from geopolitics, this pill came with a sugar coating. “We encourage the authorities to accelerate and pursue those needed measures,” Azour added, in a manner not so different from the many reiterated, always well-intended, and persistently fruitless appeals of foreign governments and institutions for political action regarding an election, cabinet appointments, or overdue reforms.
Moreover, since the IMF comments last October, nothing new has been said or seen on behalf of Lebanon that could change this damning assessment in the least, although similar outcries over the slowness of the Lebanese process and diplomatic admonishments for this or that political and policy action did surface in the last quarter of 2022 and at the beginning of this year.
This means that in terms of the deal with the IMF and the urgency thereof, Lebanon is in a rolling checkpoint scenario, where it has to be asked at every hour if the legal action of 2022 was just slow, or devastatingly counterproductive. But the ultimate crack in the facade of the Lebanese state as a democratic enterprise, and deep fault-line threatening the people’s best interest requires answering the question if there were any redeeming factors that would make the Lebanese political powers that are into a reliable or calculable partner.
This question answers itself in the negative if the scope of consideration of legal omissions and lacking legislative actions is widened beyond the years of the Lebanese crisis that triggered the request for IMF assistance in 2020.
BUILD AND REFORM
It is worth recalling that the demands for budgetary discipline and fiscal fairness are key propositions of the Executive Economic Roadmap ( RM) and have been so since its first edition in 2018. As a matter of fact, the very first policy measure – 1.1.1 – proposed in the first of the magazine’s RM iterations has been the demand to “improve deliberation and adoption of state budgets.” The proposition ( proposed measure 1.1.12) to “Complete good- faith negotiations with the IMF to unlock technical assistance and financial support, around a credible economic recovery plan, and carry out all structural reforms that relate to the improvement of the fiscal performance of Lebanon under existing commitments,” has been an addition in response to the economic collapse.
The Build & Reform pillar of the Economic Roadmap actually emphasizes throughout its four agenda priorities the need for administrative reform, capacity building, effective, transparent, and consistent regulations, and judiciary independence.
The evaluation of the progress made by lawmakers between the announcement was a dressing down clad in diplomatic phraseology
These are needs for change that preexisted the economic crisis by many years. Only examining the Build & Reform pillar, proposed measures in the sectors of fiscal policy, capacity building, strengthening of institutions, judicial reform, and developing regulatory frameworks, actually include almost 20 recommendations involving legislative acts.
In conclusion, there can be no doubt that legislative actions just before and during the crisis years have been insufficient to ward off the economic crisis or deal with it in a quick and responsible manner. However, there is also no question that the track record of the Lebanese Parliament before the economic crisis was insufficient for answering the real needs of the productive sectors and steering the economy towards sustainable prosperity. These facts, which stand irrespective from the need to carefully examine any idea promoted by the IMF to Lebanon, should be reviewed carefully by anyone seeking a way out of the economic misery.