On 30 August, a joint parliamentary committee in Lebanon postponed discussions over a controversial capital controls law that would limit the flow of foreign capital in and out of the country.
The proposed law is the latest of several versions passed by the parliament over the last year, but the body has now suspended its discussions until the government settles on a fully-fledged reform plan.
It aims to legalise and standardise banking restrictions put in place at the beginning of the economic crisis in 2019. A capital controls law is also one of the prerequisites to unlock the International Monetary Fund’s (IMF) recovery package to assist cash-strapped Lebanon financially.
However, the latest draft of the law is widely considered the least desirable version as it could worsen the economic conditions of Lebanese depositors. Dozens of protesters gathered in front of the parliament building during the discussions on the draft capital control law, calling for fair legislation.
Since late 2019, Lebanon's commercial banks have imposed their own capital controls by setting withdrawal and transfer limits. As a result, depositors can only withdraw their US dollars in the local currency at an inflated rate, losing money to the bank due to the devaluation of the Lebanese pound.
Since then, a multidimensional financial and economic crisis has erupted across the country, trapping over 80% of the Lebanese population under the poverty line.
Protesters who gathered in front of the Parliament to protest against the proposed law in late August argued that it is too late now, given the economic situation. They also added that the draft would favour commercial banks at the expense of depositors.
Karim Asfahani, a history teacher present at the demonstration, told The New Arab that his father had lost all of the money he had saved in the bank after working for 40 years.
"It is too late for a capital controls law now, and the most dangerous part is that it legalises the robbery of the people by the banks and doesn't protect depositors that lost their money," he said.
The fight for a fair capital controls law has affected more than just bank depositors.
Yasmina Ballout, a lawyer attending the demonstration, explained that even if the current draft of the law doesn't affect her personally as she does not have a bank account, she opposed it because it breaks the law and will limit people’s ability to get back the money they lost.
"I am paid in cash at the parallel market rate, which opens the risk for money laundering," she said.
Criticisms of the draft law also raise concerns about how the law would be implemented and who would be tasked with overseeing it.
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Dina Abou Zour, a lawyer and member of Lebanon's Depositors Union, explained to The New Arab that the draft would give power to a committee that has to be established, made up of the Minister of Finance, the governor of the central Banque du Liban (BDL), and two experts appointed by the prime minister.
However, the minister of finance is widely seen to have failed to fulfil his duties over the past three years, while BDL's governor Riad Salameh has been sued both in Lebanon and Europe. The experts appointed by the government, meanwhile, may hamper a fair implementation of the law.
"We refuse such a draft law. It should be drafted and modified by the Parliament. Such power in the hands of the committee has implications on how to implement the law," Abou Zour said.
One reason the draft law is seen as unfair is because it differentiates between deposits in bank accounts opened before 17 October 2019 and new foreign currency deposits in bank accounts opened after the start of the economic collapse, also known as "fresh money deposits”.
According to Abou Zour, such a differentiation is not legal as depositors should be treated equally, and it would give the committee the power to increase or decrease the withdrawal amount.
Furthermore, the exchange rate included in the draft bill is pegged on the Sayrafa exchange platform established by the BDL and considered by many as illegal as only the Parliament should have the power to set a new exchange rate and force banks and individuals to abide.
Another aspect of the draft law widely criticised is the de-facto "amnesty" granted to commercial banks. Several private depositors have recently filed lawsuits against Lebanese commercial banks to gain access to money locked in their deposits. But the draft law would block the prosecution of any pending cases against commercial banks, and the chances of accessing money would vanish.
"This move would remove power from the judiciary and give it to the committee and BDL, the only entities able to file lawsuits against those commercial banks that don't abide by the capital controls law," Abou Zour said.
The Lebanese public also argue that the draft law won't benefit people if it is issued without a comprehensive reform package, which should include a banking resolution law, unification of the exchange rate, and budget law.
Najat Aoun Saliba, one of the 13 independent MPs elected in the 2022 elections, told The New Arab that the capital controls law is protecting the banks at the expense of the depositors, who have already lost money.
"The draft law has to be revised because the committee has too much power, and it needs to be coupled with the banking secrecy law. We really need to know the numbers that we are talking about. We have to know the budget of BDL before we think about a capital control law," she said.
The banking secrecy law is another piece of the intricate mosaic of efforts to revive the country's economy, as it is one of the preconditions issued by the IMF to unlock the $3 billion financial assistance package.
The law would allow certain authorised entities to trace the operations and transactions of banks and financial institutions to track the country's flow of money. While the draft law was passed by the parliament in July, the IMF stated that it did not meet the required international standards. Lebanon's President Michel Aoun sent the draft back to parliament in late August to modify the text.
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Abou Zour believes that politicians are deliberately trying to issue laws that will meet the minimum standards of the IMF while protecting themselves.
"We need to know the numbers, the excel sheets of the commercial banks and the BDL. We cannot make a capital controls law without knowing this information," she said.
A lack of regulations on capital controls since 2019 created a situation in which commercial banks ruled over the lives of many Lebanese citizens amid the government's inaction. This led to multiple exchange rates, inequality among Lebanese, and skyrocketing prices due to the rampant inflation that surged to 211% in May of this year.
Protesting in front of parliament, Hanin Haidar explained that she withdrew all her money from the bank when the exchange rate was between 5,000 and 6,000 Lebanese pounds.
"Now that the exchange rate in the parallel market is over 30,000 Lebanese pounds per US dollar, I have to look for jobs paid in US dollars and not use banks. In fact, I have two jobs now paid in both US dollars and Lebanese pounds," she said.
Another protestor, Marwan Rai, told The New Arab that the draft law on capital controls would affect small depositors, while it is unlikely to impact big depositors and bankers.
"This draft law doesn't respect our money. I am paid at the rate of 8,000 Lebanese pounds per US dollar. I work to be able to eat," he said.
Dario Sabaghi is a freelance journalist interested in human rights.
Follow him on Twitter: @DarioSabaghi