Banking secrecy article.

Banking secrecy article.

Author name: lawyer Janick Harrouk

BANKING SECRECY IN LEBANON

Overview of the Lebanese Banking Secrecy Law

In 1956 the Lebanese Parliament voted a law that implemented banking secrecy in Lebanon. At that time such law was considered as a great opportunity for Lebanon since it allowed to attract funds from the Gulf and Arab countries, and opened for the Lebanese people a period of economic prosperity.

The Lebanese banking secrecy was inspired from the Swiss banking secrecy but created its own specific system. Banking discretion is the most characteristic feature of the law and was one of the major reasons funds started to flow into Lebanese banks. Secrecy is considered a duty which all banks must observe and was created in the interest of depositors and the public who dealt with banks. It includes secrecy about banking operations that are made in Lebanon, whether by Lebanese banks or branches of foreign banks (Article 1 of the Law).

The information that is protected by banking secrecy includes banks books, operations and correspondence in favor of the bank’s clients.

The Directors, managers, and banks employees are bound by banking secrecy (Article 2 of the Law). They are prohibited from disclosing any information related to their clients to a third party or public authority (administrative, judicial or military). This information that should not be disclosed includes: clients ‘names, balance of funds held at the bank or any other clients’ personal information.

The secrecy applies also to lawyers, consultants, judges and experts that are able to have access to clients’ information during the execution of their jobs. The banking secrecy law has permitted the disclosing of protected information only in the following cases:

1. A written permission by the concerned client or his heirs.
2. A client that is declared bankrupt.
3. A legal action involving the bank and its client concerning banking operations.
4. An exchange of information between banks related to their clients debtor accountsin order to protect their investments.

The legislator not only restrained the cases in which banking secrecy could be ifted up but also adopted new measures in order to punish the infringement of banking secrecy. Indeed the violation of banking secrecy is considered as a crime punished under the Criminal Code by three months to one year of imprisonment and a person that is convicted of violating this law is prohibited from performing the profession of a banker or being a bank’s employee.

Pros and Cons of the Banking Secrecy Law

As mentioned above banking secrecy was at the beginning a great opportunity for Lebanon. In a region submitted to perpetual changes, Lebanon banking system appeared as strong and attractive to appeal funds from all around the world..

At the same time banking secrecy didn’t only have a positive impact on Lebanon. During the Lebanese civil war, banking secrecy helped arming and financing militias and warlords who generated fortunes from illegal revenues without being worried about anyone chasing the origin of their funds.

Banking secrecy was also used by Lebanese citizens for tax evasion purposes. It encouraged tax fraud and contributed to the weakening of public control. But one of the most essentials problems raised by banking secrecy in Lebanon and worldwide was that it contributed to the development of money laundering.

The exceptions to the Banking Secrecy Law

In 1994 the US ministry of Justice listed some countries that were used for money laundering. This list included countries like Switzerland, the Luxembourg, Panama, and UAE. These countries were pressured to adopt measures to fight money laundering and introduced some modifications to their banking system. Lebanon, like these countries, was also forced by international pressure to fight money laundering and to adopt new texts that modified its banking secrecy law.

Law 154/1999 to fight illicit enrichment

In 1999 the Lebanese parliament voted Law n°154 to fight illicit enrichment. This law defines illicit enrichment as being any illegal enrichment obtained by officials, executives of a public service and judges in the exercise of their function as well as their partners or their nominees who have contributed to the achievement of this crime. It encompasses in the notion of executors of public services, the presidency of the Republic, the presidency of the Chamber of Deputies, the presidency of the Council of Ministers, the Ministers, the Deputies, the

Presidents and the members of the municipal councils. This law considers as presumptions of illicit enrichment the direct possession by officials, executives of a public service and judges, or indirectly through partners or nominees, of goods and assets which value is incompatible with the income of these people and their lifestyle. It allows the lifting of banking secrecy on the bank accounts of the accused person.

However the said law added some conditions for its application that ended up making its implementation difficult to achieve. Indeed, the presentation of a legal lawsuit for illicit enrichment requires the deposit of a bank guarantee for an amount of 25 million of Lebanese Pounds and exposes the plaintiff in case the Court considers the plaint as abusive to the payment of a fine of a minimum of 200 million Lebanese Pounds as well as prison sentence ranging between three months to one year. It also authorizes the accused person found innocent of the incriminated facts to request for a compensation for the damages he would have suffered. The abovementioned penalties are substantial especially if compared to the penalties set by laws to punish other crimes and were set to discourage anyone from presenting such plaint.

Finally some constitutional provisions relating to the prosecution of the President of the Republic, members of the government and deputies limits the competence of the Beirut Court of Appeal to judge this crime.

Consequently the conditions added by the legislator for the implementation of law 154/1999 to fight illicit enrichment somehow ruined its application, and very few legal actions were presented that resulted in the lifting up of banking secrecy based on the application of the said law.

Creation of a Special Investigation Commission (SIC)

In 2001 and because of international pressures, the Lebanese parliament passed law n°318 to fight money laundering and terrorism and shortly after, Banque du Liban issued circular number 83 that outlines the regulations on the control of financial and banking operations for fighting money laundering in line with international standards concerning the combating of money laundering. A special investigation commission (SIC) was created that can require the lifting of banking secrecy in case of serious suspicions and evidences of money laundering.

The abovementioned law was amended in 2015, and parliament adopted Law n°44 for Fighting Money Laundering and Terrorist Financing. The article 1 of this law defining illicit funds was enlarged to include new offences such as corruption, bribery, trading in

influence, embezzlement, abuse of functions, abuse of power, and illicit enrichment, fraud, tax evasion, in accordance with the Lebanese laws. The article 2 extended the definition of money laundering to any act committed with the purpose of concealing the real source of illicit funds, or giving, by any means, a false justification regarding the said source, while being aware of the illicit nature of these funds (2.1) and transferring or transporting funds, or substituting or investing the latter in purchasing movable or immovable assets or in carrying out financial transactions for the purpose of concealing or disguising the such funds’ illicit source, or assisting a person involved in the commission of any of the offences mentioned in Article 1 to avoid prosecution, while being aware of the illicit nature of these funds (2.2).

For the purpose of implementing the abovementioned procedures, Banque du Liban issued regulations requiring banks and financial institutions to take at their own full responsibility the appropriate administrative and technical measures to provide SIC with the requested information.

However, since this commission is composed of five members who are appointed by the council of minister, many criticized its independency and accused the SIC of being controlled by politicians that can use it for their own advantage and to fight money laundry only when it suits them.

Amendment of Banking Secrecy Law

In October 2019 Mass protests against perceived government mismanagement and corruption erupted. Banking secrecy was accused of having helped public officials to steal the government money and hence to steal the assets of Lebanese people. Under the street pressure some officials declared that they wanted to lift up the banking secrecy from their personal accounts and asked other officials to do the same. After months of protests the Lebanese parliament voted on the 28th May 2020 a new text to lift banking secrecy for public officials including corruption or funding terrorism. The initial text presented to the deputies for voting empowered 3 authorities with the right to lift up of banking secrecy:

1. The judges in a judicial investigation or in a court case.
2. The central bank’s Special Investigation Commission (SIC)
3. A National Anti-Corruption Commission (still to be formed)

But the final draft of the text did not allow judges to independently order a disclosure, in a last-minute change made by the President of the Parliament making the law ineffective. Only the central bank’s Special Investigation Commission as well as a National Anti-Corruption Commission (still to be formed) are allowed to lift the secrecy on bank accounts.

Since the National Anti-Corruption Commission has not been created yet, and since the abovementioned law removed from the judges the right to lift up banking secrecy, only the central bank’s commission SIC is entitled to lift banking secrecy when there is the slightest suspicion of money laundering. However the appointment of the members of the commissions by the Council of ministers limits its independency towards politicians that the said commission is supposed to control.

Therefore it clearly appears that the modifications of banking secrecy law were useless and were only adopted in the context of mass protest and in order to calm the street. The law modifications do not allow a better fighting of corruption as it was presented. Worse, it removed from judicial authorities the right to fight corruption and money laundering charges and reinforced political interventions in the management of this problem which was the exact opposite of what the protesters where asking for.

Conclusion

Based on the above, it is clear that Lebanon didn’t need a new law to lift up banking secrecy, it only needed a better application of the existing law. The fight against illegal enrichment, money laundering, corruption and other crimes can be exercised by Courts in Lebanon. Instead of voting laws that reduce the power of judges and remove from them the ability to fight the abovementioned crimes it would have been wiser from politicians to stop intervening in the judicial process and to grant the judges the independence needed to be able to fight corruption, money laundering and crimes related to it.