The Lebanese Banking Secrecy Law: An in-depth exploration and its evolution until date
Background
The Lebanese Banking Secrecy Law (Hereinafter “The Law”) was first enacted on 3/9/1956, at a time when Lebanon was emerging as a major financial center in the Middle East.
The Law prohibits banks from disclosing any information about their customers or their accounts to anyone, without the customer’s express consent. This includes information about the customer’s identity, account balances, and transactions. The Law applies to all types of bank accounts, including personal accounts, business accounts, and investment accounts, individual accounts, joint accounts.
The Law was seen as a way to attract foreign investment and to protect the privacy of customers.
The Law’s exceptions
Article 2 of the Law outlines specific conditions under which information related to clients, their funds, or any relevant matter may be disclosed. Such disclosure is permissible if (i) the client or their heirs provide written consent, (ii) the client is declared bankrupt, (iii) a lawsuit is underway between the bank and the client concerning banking operations.
Furthermore, according to Article 7 of the Law, banks are exempt from professional secrecy when judicial authorities request information in the context of illicit enrichment lawsuits.
Key Amendments to the Law over the years
The Law has been amended several times. In 1975, the Law was amended to allow banks to disclose information about their customers to the Lebanese government in cases involving terrorism or drug trafficking.
The law No. 159/1999, (updated in October 2020) criminalizes illicit enrichment and prohibits banks from invoking bank secrecy under the Law in cases where investigations related to illicit enrichment are conducted by the relevant judiciary. Additionally, it mandates public officials to submit a financial declaration that includes their assets and those of their families.
On April 20, 2001, the Anti-Money Laundering Law No. 318/2001 (“AML”) came into force, (subsequently amended by the Law No. 44/2015) upholding the Law’s strict standards for financial confidentiality. Lebanon enacted AML Laws mandated banks to conduct due diligence on their customers and report suspicious transactions. This somewhat pierced the traditional banking secrecy, but it was necessary for Lebanon to align with international banking standards.
Recent pressure for reform
In recent years, there has been growing pressure on Lebanon to reform its banking secrecy laws.
The Law was amended by the law No. 306 of 28 October 2022, This amendment (i) exempt certain individuals from the application of banking secrecy provisions under specific conditions. Additionally, (ii) expands the scenarios where the invocation of banking secrecy is not permissible and (iii) introduces sanctions for non-compliance with information disclosure requirements outlined in the Law, ending Lebanon’s era of extensive banking secrecy.
The key achievements of the 2022 amendments
The Law No. 306 was implemented in response to the demands of the International Monetary Fund (IMF) that played a crucial role in strengthening the reform process.
As result of these amendments, the judiciary gained the authority to bypass additional administrative processes and obtain information directly from banks, allowing them to lift banking secrecy.
Likewise, the local tax authorities have the capability now to detect instances of tax evasion by correlating the statements they receive with bank account information.
The key achievement of this new law is the removal of banking secrecy for several specific groups of individuals. These include, among others, public officials, elected representatives, political leaders, presidents, and directors of political associations, chairpersons and board members of banks, their current and former executive directors, as well as auditors, chairpersons and board members of companies that oversee or own media outlets, and civil society organizations.
The remaining shortcomings of the Law
However, instead of extending the exemption of application of the banking secrecy, to include all relatives of certain high risk individuals, the exemption operates in an unjustifiably selective manner. As a matter of fact, it includes relatives of specific groups like public officials and association presidents but not others, such as those associated with banks or media outlets.
Importantly, the amendment to the Law avoids exempting from the application of the banking secrecy, businesses owned by the affected individuals and any associated shell entities.
It is imperative to implement further substantial amendments that would grant the judiciary and tax authorities access to bank data as part of their respective sovereign powers.
Once again, despite complex legal mechanisms designed to obstruct this approach some progress has been made, but significant obstacles persist.
Conclusion: The importance of further substantial amendments
The amendments to Lebanon’s banking secrecy law in 2022 represent a crucial step forward in addressing the challenges facing the nation’s financial sector. By enhancing anti-corruption measures, improving transparency, and emphasizing international cooperation, Lebanon is seeking to rebuild trust and promote accountability. The path ahead may be fraught with challenges, but these changes are essential for Lebanon’s financial recovery and its future on the global financial stage. Balancing the scales between privacy and transparency is the key to a successful transition and a brighter economic future.
Yasmina Al Amm
Senior Associate
11/11/2023
For personalized guidance regarding the banking secrecy law, please do not hesitate to contact our team by sending an email to: attorneys@omlfirm.com.
DISCLAIMER: This blog post does not constitute legal advice, and no attorney-client relationship is formed by reading it. Additional facts or future developments may affect the content of this blog post. Before acting or relying upon any information within this newsletter, please seek the advice of an attorney.