IMF says ‘key deficiencies’ remain in Lebanon’s draft banking secrecy law

The International Monetary Fund has said there are still “key deficiencies” in the latest draft of Lebanon’s banking secrecy law, which was previously passed by Parliament but returned to the house for revisions by President Michel Aoun.

The assessment is the first time the IMF has publicly commented on Lebanon’s progress in passing reforms to unlock international assistance, since a staff-level agreement was reached in April.

The deal, which would potentially unlock a $3 billion aid package for the struggling country, is conditional upon an overhaul of Lebanon’s banking secrecy rules, the introduction of a robust capital control law  and a strategy for restructuring the banking sector, a forensic audit of the Central Bank, and the passage of the 2022 national budget.

To date, none of the reforms requested in order to unlock the IMF aid package have been passed.

Lebanon is in the throes of an acute financial crisis  that the World Bank says is one of the worst in the modern world. The downturn has pushed more than 80 per cent of the country’s population into poverty.

The nation’s currency has plunged in value by more than 95 per cent, while salaries have not kept up  with the severe inflation.

The state is struggling to maintain subsidies or import enough fuel to power state electricity. Most people with bank accounts are unable to withdraw the full value of their savings due to informal capital controls imposed by commercial banks.

The IMF assessment sent to Lebanese officials said that despite the deficiencies, the draft law represented a “substantial reform”.

The assessment called for the provision of banking data to additional government bodies, particularly the Central Bank of Lebanon, the Banking Control Commission, and the National Institute for the Guarantee of Deposits.

It recommended giving public prosecutors and investigative judges access to banking information, calling such access a “critical part of banking secrecy reform.”

The establishment of a bank account registry would be strategic to financial sector oversight, it said.

The IMF assessment also called for the return of a previously removed provision on the exchange of information between relevant authorities, specifying that it would allow for the “effective detection and investigation of illicit activity.”

The draft law, returned to Parliament on Wednesday by the president, will have to take the IMF’s evaluation into consideration.