European law could force release of Lebanese savings

Nijmeh*, a Lebanese citizen living with her family in the UK, has her life savings in a bank in Lebanon.

Now, with Lebanon's once well-respected banks at the heart of an economic collapse in the country, she and many thousands of others have been cut off from their deposits, as banks prevent withdrawals.

Read more: Lebanon faces its worst crisis since the civil war

Multiple requests for access to their money for rent and medical costs have been evaded or ignored, she said. She asked DW not to use her real name as she feared punitive reactions from her bank as others DW spoke to said they had experienced. "We don't have justice, it's like the mafia is controlling everything," she said.

Depositors around the world have been attracted by Lebanon's high interest rates. But critics have called the banking system's methods a Ponzi scheme designed to bring in foreign currency that banks with low liquidity now have little ability to pay back out.

But an English High Court ruling this week has given her and many others hope. Under European Union consumer law, the court ruled it has jurisdiction to sue Lebanese banks in the UK rather than Lebanon, in an extraordinary case that could have ramifications across the EU and for Lebanon's banks.

Underestimating European consumer law

On Tuesday, a judge ruled that UK resident Bilal Khalifeh could have his case demanding the return of his $1.4 million (€1.2 million) in savings held in Lebanon's Blom Bank S.A.L. heard in England.

In his own account of the trial in the Lebanese daily An-Nahar, Khalifeh said his overriding emotion was one of anger. "Anger that I had been forced to spend a considerable sum of money to get one of Lebanon's largest banks into court, because they were refusing to allow me to access my own life savings."

"The ruling has widespread implications because this part of consumer law has Europe-wide application," Khalifeh's lawyer Joseph McCormick, a partner at law firm Rosenblatt, said.

McCormick used Article 17 of what is known as the "recast" Brussels I Regulation to argue for English jurisdiction in the case. The policy behind the regulations recognizes that consumers are often the weaker bargaining party, McCormick said. Contracts that assume any disputes should be resolved where the service provider is based are deemed unfair because it is costly and more difficult for the consumer, therefore this regulation tries to restore some balance.

Lebanese banks may have underestimated the extent of consumer protection legislation in Europe, McCormick said. "My sense is that Lebanese banks are firefighting and obviously have a lot of other problems," he said. "But I suspect this is now much higher up on their list of problems."

A spokesperson for the non-profit Association of Depositors in Lebanon said they have had dozens of hopeful enquiries regarding the ruling and the implications for many of its 27,000 members could be "huge." Ibrahim Harb said the group is working with individuals to bring cases in France and elsewhere and is organizing a group action by the end of the year.

Some 400,000 Lebanese live in France, the UK, Germany and Scandinavia. Recent Lebanese central bank statistics show that around 20% of its commercial banks' deposits are held by non-residents, but the International Monetary Fund has disputed this figure, noting that it does not account for dual-residents.

Lebanese banks could have their European operations curtailed or the European assets of their owners frozen if they don't comply with future judgements, Harb said.

'The value of the check is not the value of the deposit'

But whether any European court can compel banks to transfer depositors' funds out of Lebanon is questionable.

In response to the ruling, Blom Bank sent a statement to DW citing the judge's comments that it was not obliged to make an international transfer to Khalifeh. "Instead the judge explained that under English law, the Bank would generally be entitled to pay the customer in Lebanon where he holds his account — which we have already offered to do."

This offer often takes the form of a bank check, according to Lebanese lawyer Jad Kobeissi, who is representing clients in similar cases both at home and in Europe.

But that check cannot be used abroad and if cashed in Lebanon will lose 65% of its value due to an exchange rate which is in freefall, Kobeissi said. "The value of the check does not reflect the real financial value of the deposit," Kobeissi said. "Secondly, the European court will have to apply Lebanese law to assess whether checks issued by a Lebanese bank extinguish these claims."

Lebanon is still working on establishing capital control laws — in their absence Kobeissi and others argue that freezing deposits is illegal. If a law is passed allowing banks to control deposits this way, it would make it more difficult for the banks' overseas assets to be seized, Kobeissi said.

Other depositors DW spoke to said cases brought in Lebanon often grind to a halt due to interference by powerful bankers and politicians.

Read more: Lebanon faces race against time to avoid financial collapse

Lebanese at home lose out

While the ruling may be good news for Lebanese depositors living in Europe, it does little for many others in Lebanon who have had their savings locked up or wiped out.

The moral question of whether willfully blind bankers offering high interest rates or depositors oblivious to risk are the bigger profiteers is not clear, the editor of Lebanese finance magazine Executive, Thomas Schellen, said.

"That depositors are succeeding in court and sell the ruling as win for the Lebanese consumer is therefore at best a claim that, by my estimate, will not reflect the financial realities of 95%-97% of the Lebanese population," Schellen said.

But a rise in cases brought against Lebanese banks abroad could put some pressure on them to change at home as well.

"I expect we'll see some kind of collective, group cases being brought judging by the sheer number of enquiries we've had since bringing this case," Khalifeh's lawyer McCormick said. "People are desperate, they are looking for a ray of hope."

*Name changed to protect her identity.