Depositor lawsuits against banks: the price of inaction

From the “Manoukian affair” to that of Fransabank, via yesterday’s decision by the Association of Banks to declare a two-day strike, recent times have obviously been very “rich” in financial news. With each of these news, reactions as sharp as contrasting on the part of the general public and the main interested parties, the depositors: some welcoming the first signals of a long-awaited justice, others seeing in it the announcement that “the worse is yet to come”, when it is not both at the same time.

Almost all note that the foundations of the temple are constantly crumbling, if not collapsing, and that the Lebanese have to put up with it as best they can. It’s the good old Lebanese “resilience”, which favors median solutions rather than extreme solutions – a reflex that is quite understandable in this country of a thousand fateful extremes. The same is true when courageous initiatives are launched, like that also this week of the Union of Professional Orders to demand the application of banking laws to clean up the sector. Here again, many protesting voices, among the bankers but also their aggrieved customers, brandish the banner of revolt against “those who want to put the banks into bankruptcy and make us lose our deposits”, as we have heard here and there. No doubt the latter are still subjugated by the magic tricks of David Copperfield of the Central Bank – who succeeded in making them believe that their deposits are still in his vault or, at best, have been returned to their banks. How can we be surprised when the latter, who knows the Lebanese accommodation syndrome better than anyone, had laconically declared during a press conference in November 2019 “that depositors will eventually get used to the devaluation of the currency (and therefore correlatively to the loss of their purchasing power).

Criminal default

“You can break the laws without them shouting”, used to say, as a connoisseur, Charles-Maurice de Talleyrand-Périgord. And that is precisely what the various public authorities of this country have been trying to do for more than two years at least, by action or omission. As proof, on November 1, 2019, a large number of Lebanese banks were de facto in a situation of default and cessation of payment (as defined by Law No. 2/67 on bankruptcy) or, at best, in “ a state that did not allow them to continue their activity” (Law No. 110/91 on guardianship). In both cases, emergency measures provided for by the laws in force were necessary and had to be adopted in addition to fair and effective capital controls.

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But instead, the authorities have knowingly been reluctant to do so – starting with the Central Bank and its governor, who had to transfer the files of the said establishments to the special banking court, according to the aforementioned texts. The latter would thus have divested the managers of the said establishments and seized their assets as a precaution, pending the outcome of the investigations that he would then have initiated to determine their responsibilities. A new provisional management – ​​comprising representatives of creditors and depositors – would also have been appointed, to ensure the continuity of activities (without discretion or favouritism) and the restructuring of the establishment. And all this with the support of the BDL and the National Deposit Guarantee Institute (INGD) – which is financed by the state and the banking sector and provides minimum coverage for depositors.

Instead, the monetary authority allowed the situation to deteriorate in the interest of a tiny minority and only tried to cushion the shock by means of circulars (n° 151, 154, 158, 161… to name a few) only from April 2020 – even though the “mass had already been said” and the assets largely consumed.

Faced with this failure, which was as criminal as it was “deliberate” (to quote the World Bank), the Council of Ministers should therefore have assumed its hierarchical responsibilities and taken the necessary measures with regard to the monetary authority. In other words, it had to, and still has to, to dismiss the governor of the BDL and, where applicable, the vice-governors from their functions for “gross negligence in the exercise of (their) functions” (article 19 of the Currency and Credit Code), insofar as these faults have led to the collapse of the currency and the deterioration of the economic and inancial situation. Failing this, the Parliament, supposed to control the action of the executive in the “name of the people”, was in turn to assume its role by politically sanctioning the governments which succeeded one another by a vote of no confidence. However, not only have parliamentarians failed in this duty of control, but many of them have knowingly conspired with the famous “banking party” in order to defeat any attempt to adopt an objective plan to end the crisis, as in the case of the famous “Diab plan”, in May 2020.

Discharge announced

And the people in all this? What reaction to this succession of failings and incompetence? Unfortunately, he remained cautious, impervious to change, seeming mired in a “Stockholm syndrome” which will probably lead him to renew next May the legitimacy of the leaders who have despoiled him over the decades. Such was indeed the initial objective of the current politico-financial class, which will have succeeded, with disconcerting aggressiveness and patience, in letting the storm pass and then regaining the initiative and imposing its views to the detriment of the general interest. .

With no doubt, to crown it all, a general and definitive discharge to clear the ruling class and its acolytes of any responsibility vis-à-vis the financial abuses committed over the past two years, as they have already tried to do , without success, at the time of the examination of the last law proposal on the control of the capital last December. Either the reissue, on the financial level, of this fatal amnesty law which had already cleared some of them, three decades ago, of their war crimes.

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Quite the opposite, in short, of the examples and emergency measures adopted by other countries having had to face similar or similar financial situations. Iceland, to cite just one example, thus used the strong method to save its economy during the global financial crisis of 2008. As its bloated banking sector collapsed, the state at the time provided its unlimited guarantee of domestic deposits and carried out several strong emergency measures: immediate application of capital controls, restriction of imports to what is strictly necessary, divestiture and judgment of political, monetary or financial leaders guilty of abuses or mismanagement , etc He then made the actors of the debacle bear the losses (politicians, shareholders and bondholders) and not his spectators. He also placed financial institutions under his direct supervision through a parliamentary vote, with the right to merge, restructure or put them into gradual liquidation, which avoided letting them suddenly go bankrupt. But this tour de force in terms of civic-mindedness has also been on the economic level: in less than five years, economic activity and employment have recovered; the country has returned to the debt market; and young Icelanders have therefore emigrated less and have been able to contribute to the return of national growth…

“A la carte” restitution

This example, like many others, such as those of Cyprus, Greece, or Albania, which have experienced misfortunes similar to the various fortunes, shows how much healthier it is sometimes to rebuild oneself than to live before leaving. In the absence of an urgent collective procedure under the control of the institutions (or of what is left of it) and applying similar measures, the banking sector is going inexorably to its certain loss, and the deposits to permanent oblivion.

At the international level, cases such as the Manoukian trial in England or the “Midani” case, lost last December by the Saradar Bank in France, have already enabled certain depositors residing in Europe to benefit from the protection of Community law on consumption (which Lebanese residents naturally do not benefit from). In Lebanon, the Fransabank affair or, in a completely different register, that of Abdallah el-Saï – who had been able to recover his assets by force in an agency in the Bekaa and had been released with his property by the courts in last February – also illustrate to the extreme the recovery of “à la carte” deposits that is taking shape. No one can doubt that in such a context, the most affluent, the most powerful or the most “boosted” will carve out the lion’s share, leaving only small crumbs or nothing at all to other local depositors. And this all the more unfairly as they would be granted, in addition to the capital deposited, the exorbitant interest which had been paid to them at the time of the Ponzi pyramids – in the absence of “clawback” (recovery of the undue as part of a plan) to cushion and better distribute losses. All we will have left then are the tears shed to erase the scribble of a very dark page in our history.

Karim Daher is a lawyer, lecturer in tax law at USJ and president of the Lebanese Association for Taxpayer Rights and Information (Aldic)

From the “Manoukian affair” to that of Fransabank, via yesterday’s decision by the Association of Banks to declare a two-day strike, recent times have obviously been very “rich” in financial news. With for each of these news, reactions as clear as contrasting on the part of the general public and…

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