“Capital Control” cannot be implemented before fair compensation

The Lebanese National Bloc Party criticized what it considered to be “elastic powers” given to the Central Bank and commercial banks in the “Capital Control” draft law. The Bloc warned that the validity period of the procedures was too long, and does not include representatives of the sectors concerned in the decision making process.  In a statement, the National Bloc stressed that it was unconstitutional to “access private property” unless it was after “paying a fair compensation”. The Bloc also warned of the government’s failure to create a rescue plan to reduce the deficit, which will lead the International Monetary Fund to impose harsh conditions.

Below is the full statement:

The government is preparing to propose a law to legalize “Capital Control”, which has been in place since October 2019, in an attempt to salvage the Lebanese economy that was destroyed by the corrupt ruling system over the past 30 years.

We have the following notes on the draft law that was brought forward by the ministry of Finance:

  1. There are some illogical elastic powers given to the Central Bank and commercial banks to implement this law. The Central Bank has in the past financed the successive budget deficits with the funds of its depositors, something that is out of its jurisdiction. The commercial banks have also invested 70% of their deposits in one bankrupt client, namely the government, a fact that contradicts the simplest rules of financial risk management to safeguard the depositors’ funds. It is not permissible to make these two parties (the Central Bank and commercial Banks) the only ones responsible for deciding on which sectors and what budgets they are to receive in hard currencies. Representatives from the concerned sectors should be included in the decision making process. The private sector in Lebanon is the one that creates jobs and wealth that lead to tax revenues: part of the tax revenues should be redistributed to provide a minimum level of protection and social justice.
  2. The time frame for these procedures seems to be three years with the possibility of making it shorter. These procedures, however, are unconstitutional even if they are approved through a law. It would be prudent to respect the spirit of the constitution by stating that these measures are temporary and to give them a very brief time frame that may be extended if need be.
  3. The draft law does not mention the negative repercussions of “Capital Control” having been applied randomly since last October. The Custodian and Clearing Center of Financial Instruments for Lebanon and the Middle East (MIDCLEAR), a part of Bank du Liban”, issued a memo on October 6, 2019 allowing for “exceptional new measures”. The “Cash and Credit” law in its articles 70, 174 and 175 also allows these procedures in addition to what is stated in some accounts opening contracts. Regardless of the points listed above, the “Capital Control” law remains unconstitutional based on the introduction of the constitution specifically paragraph (f) and article 15 thereof. These procedures have been already challenged in front of Beirut and Nabatyeh Judges based on Articles 249 and 293 of the Obligations and Contracts Law.

Therefore, based on the “public benefit” mentioned in Article 15 of the constitution, it is not permissible to “access private property” or have a right to dispose of it by any public authority unless it was after “paying a fair compensation”.

As for the commercial banks, they have acted discriminately towards depositors in the matter of foreign transfers, and therefore have violated the contracts they have signed and have violated the principle of equality, and can consequently be sued. If it turns out that there are some bankers who notified some of the depositors of the realistic "Capital Control" at the time, then this is considered as "privileged undisclosed information" according to Law No. 170 of August 17, 2011, and then the penal sanctions mentioned therein must be applied.

  1. Lebanon is an active member of the “International Monetary Fund” and must respect its laws. The “Fund” can impose its conditions on the “Capital Control” operation based on the third paragraph of Article VI of its regulations. In case the government does not initiate a rescue plan to decrease the deficit by limiting the gates of waste, tax evasion, and dismantling reserves, then the “Fund” will impose its own conditions that may include taxes and fees that will hurt the middle and poor classes of society.
  2. In view of the ramifications of “Capital Control” on the economy and the development of the country, the banks must move internal loans and lower the interest rates. There are services and consumer products that Lebanon will not be able to import anymore. Through lessening the financial burdens of production sectors, those sectors can provide alternatives and create jobs to those who have lost them, as well as decrease the need for hard currencies.


political positions