“Lebanon Debate” – Dr. Riad Asaad Hilal
The case of Emirati businessman Khalaf Al Habtoor against the Lebanese state has transformed from a mere financial dispute related to bank deposits and transfers, into one of the most serious investment cases facing Lebanon since the financial collapse. Al Habtoor, who has invested in Lebanon since the 1990s through huge hotel, real estate and tourism projects, announced his complete withdrawal from the Lebanese market after failing to transfer funds estimated at tens of millions of dollars, resulting from the sale of residential units in Dubai to Lebanese citizens in exchange for bank checks worth approximately 44 million dollars that were deposited in his group’s accounts with “Bloom Bank.”
But when he tried to transfer part of this money abroad, he ran into banking restrictions and prevented transfers, even though a large part of this money practically belongs to Lebanese and expatriate depositors whose deposits have been in Lebanese banks for many years. Here the case began to transform from a banking dispute into an international investment arbitration file, after Al Habtoor turned to the International Center for Settlement of Investment Disputes (ICSID) based on the Investment Protection Agreement signed between Lebanon and the Emirates.
What makes the case very sensitive is that arbitration before ICSID does not only have a political or media nature, but may lead to huge rulings and compensation that directly affect the image of the Lebanese state before investors and global markets.
But behind the headlines related to the $44 million or the nature of the money and whether it is “Fresh Money,” hides a much more complex legal battle. The issue is not limited to a dispute with a banker or direct financial losses, but rather relates to a larger question: Did the Lebanese state fail to protect the foreign investor and provide the legal and financial environment that it promised for decades?
And this is precisely where the danger of the file begins. Because international arbitration bodies do not only look at contracts and numbers, but also study the behavior of the state, the rhetoric of its officials, the monetary and economic policies it used to attract investors, and then how it dealt with them after the collapse.
Al Habtoor does not present himself as an ordinary bank depositor, but rather as a strategic investor who entered Lebanon based on a complete economic model promoted by the Lebanese state itself: Lebanon as a stable financial, tourism, and services center open to Arab and Gulf capital.
Hence, the White & Case team may try to build the case on a very important legal concept in investment arbitration known as “Legitimate Expectations”, that is, the investor’s right to rely on the legal and financial environment provided to him by the state when making a long-term investment decision.
In this context, phrases such as:
“The Lebanese banking sector is the most robust,”
“Deposits are safeguarded,”
And “the lira is fine.”
These are not just passing media or political statements, but rather elements that may be used to prove that the state encouraged investors to keep their money and investments inside Lebanon before the financial system collapsed chaotically.
To understand the seriousness of this point, it is sufficient to return to some international arbitration precedents. In famous cases against Argentina after the 2001 crisis, ICSID bodies looked not only at contracts signed, but also studied the economic policies and official rhetoric used by the state to attract investors. In the CMS Gas case, for example, the arbitration panel considered that investors based their decisions on implicit promises of monetary stability and the peg of the currency to the dollar, before the state radically changed the rules of the game during the crisis.
In other cases against Mexico and Ecuador, “legitimate expectations” were treated as an essential part of investment protection, meaning that the investor relied not only on the provisions of the law, but also on the image that the state presented of itself and the regulatory environment that encouraged him to invest long-term.
Here the Lebanese situation may become more sensitive. Since the reconstruction phase in the 1990s, led by the martyr Prime Minister Rafik Hariri, through the Paris 1, 2, 3, and CEDRE conferences, all the way to the long speech by the former Governor of the Bank of Lebanon, Riad Salameh, about “the stability of the lira” and “the strength of the banking sector,” an entire official narrative was built that aimed to consolidate Lebanon’s image as a safe environment for investments and deposits.
The matter may not be limited to local statements only, as the arbitration panel can also return to the reports of the International Monetary Fund, the World Bank, and international credit ratings before and after the crisis, to compare the image that was presented of the Lebanese banking sector with the reality that emerged later after the collapse. During the years preceding the crisis, the Fund had gradually warned of the fragility of the Lebanese financial model and the inflation of the banking sector and its excessive reliance on external flows and financial engineering, which may open a sensitive debate about whether the state knew the extent of the risks and yet continued to market the image of stability.
But on the other hand, the Lebanese state has an important point of defense that may become a main axis in the conflict. You might say that when Al Habtoor accepted Lebanese bank checks in 2020 in exchange for the sale of real estate in Dubai, he knew that the Lebanese banking system was effectively collapsing, and that banking restrictions were known globally at the time.
Here, an opposite legal concept known as “Assumption of Risk” appears, meaning that an investor who decides to conduct financial operations within a high-risk environment cannot later claim that he was completely surprised by the results.
However, White & Case may respond to this by saying that what happened in Lebanon was not just a natural market crisis, but rather the result of a regulatory, supervisory and sovereign failure for which the state bears direct responsibility. Here the file changes from:
“An investor lost in a collapsed market,”
to me:
“A country that has failed to protect the legal and financial framework it committed to providing.”
The most dangerous thing is that Al Habtoor’s team may not focus only on direct losses, but rather on what is known as “creeping expropriation,” meaning that the state did not officially confiscate the investment, but through banking restrictions, preventing transfers, and the collapse of the ability to use funds, it made the investment gradually lose its economic value.
The most dangerous weakness for Lebanon may be institutional rather than financial. International arbitration looks negatively at the absence of clear legal solutions. If the arbitration panel is convinced that Lebanon:
• The Capital Control Act has not been formally passed;
• He did not develop a clear plan to restructure the banking sector.
• He did not specify a fair legal mechanism for distributing losses.
• Leaving restrictions imposed in a discretionary and unregulated manner,
It may be considered that the state allowed a chaotic legal environment that harmed investors.
Specifically here, the file becomes more dangerous than just an individual case. Because any harsh ruling or any negative legal merits may become a precedent that encourages other investors and funds to use the same international agreements against Lebanon.
For this reason, the real fight is not just about $44 million, nor even about $1.7 billion, but about a much bigger question:
Is what happened in Lebanon considered merely an economic collapse whose risks are borne by the markets, or a sovereign breach of obligations to protect foreign investments?
In the end, the Al Habtoor case may not just be a dispute over stranded funds, but rather the first real international test of whether the Lebanese collapse will be viewed as a normal financial crisis…or as a complete sovereign failure to protect investment and confidence.
