Legal Briefing- July 2020

Government

July 17th marked 20 years since Bashar Al-Assad became President of Syria. His first decade in power was associated with unprecedented economic liberalization and private sector investment while his second decade was overtaken by an internationalized conflict and economic hardship.

Parliament

Syrians headed to the polls to elect the third Parliament since the passage of the Constitution of 2012. It was also the third parliamentary vote since the outbreak of the conflict. 250 MPs were elected, half of whom are laborers and farmers. A new Prime Minister is also expected to be appointed. Following the parliamentary elections, 62% of the People’s Assembly is comprised of new MPs. A number of outspoken MPs from the 2016-2020 Parliament lost their seats. Subsequently, President Bashar Al-Assad issued Decree 208/2020 formally listing the 250 winners of the parliamentary elections who will sit in the People’s Assembly as required by the Electoral Law and after the Supreme Constitutional Court has considered appeals by defeated candidates.

Finance

Prime Minister Hussein Arnous sent a circular to the Minister of Finance and the Governor of the Central Bank calling on them to take the necessary steps to resume lending and credit transactions.

The Prime Minister’s Office directed all ministries to submit their statements of account for the past six months, taking into consideration the allocations of each ministry as per the national budget for 2020.

The Monetary and Credit Council, the governing authority of the Central Bank, amended Resolution 17/2020, thereby adjusting the annual minimum interest rates on cash deposits denominated in US Dollars and Euros, which shall be 3.5% and one percent respectively.

Pursuant to the Monetary Law and the approval of the Council of Ministers, Prime Minister Hussein Arnous issued Resolution 46/2020 requiring Syrian citizens to exchange the equivalent of $100 (US) into Syrian Pounds upon their entry into Syria at any of the ports of entry. With respect to the official exchange rate, reference shall be had to the rate utilized by the Customs Directorate and the aviation sector. Persons under the age of 18 years along with taxi and truck drivers are exempt from this condition.

Al-Wataniya Microfinance, which is affiliated with the Syria Trust for Development and began operations in 2012, plans to raise its ceiling on loans to individuals with limited incomes to SYP 20 million from SYP 5 million after obtaining approval from the Central Bank. Following the recent launch of its branch in Aleppo, it will focus on development projects and initiatives in rural Aleppo, including the areas that were previously outside of government control, while cooperating with local bodies such as the Aleppo Chamber of Industry.

The Noor Microfinance Foundation, which is affiliated with Rami Makhlouf, invited its shareholders to attend an extraordinary general assembly meeting to discuss and approve a number of items on its agenda, including the liquidation and dissolution of the company.

More Syrian banks are signing up to the electronic payment system launched in April, which facilitates payments of utility bills by subscribers.

Monetary

Although the unofficial value of the Syrian Pound appreciated by approximately 35%, there has not been a correlating drop in the prices of goods across markets. Several factors have led to the improvement in the value of the Syrian Pound according to economists, including election spending, raising the remittance rate to SYP 1,250 per US Dollar, increasing remittances from Syrians abroad in anticipation of the Eid Al-Adha holiday, the issuance of certificates of deposit by the Central Bank, and the harsher penalties deterring dealings in foreign currencies.

Commerce

In a bid to lower prices for consumers, the Federation of Syrian Chambers of Commerce launched an initiative to reduce the prices of basic goods in order to meet profit margin rates of no more than five percent. Price bulletins are expected to be issued for this purpose.

Syria’s exports promotion agency clarified the conditions that local companies must meet in order to obtain support to export their products, including their registration with the agency and the rule that at least 40% of the components of their products must originate in Syria.

The Minister of Internal Trade and Consumer Protection requested the Customs Directorate not to clear the imports of basic goods until the importer submits documentation to the Ministry to ensure compliance with the rule of selling 15% of the goods to the public sector at cost.

The Minister of Economy and Foreign Trade sent a directive to the Customs Directorate, the Directorates of Economy and Foreign Trade in Damascus and the remaining provinces, the Syrian Investment Authority and the Industrial Cities Authority pertaining to import licenses. Accordingly, the validity periods of import licenses concerning industrial and commercial goods have been reduced to six months from one year from the date of their issuance, which may not be extended. For previously issued import licenses, they will expire in early September. The directive issued by the Minister of Economy and Foreign Trade was endorsed by the Prime Minister’s Office and the Economic Committee affiliated to the Council of Ministers.

In light of rising prices and the increased cases of COVID-19, the shopping markets during Eid Al-Adha witnessed less than usual activity.

The General Establishment for Free Zones is auctioning off seven duty free markets across the country following the termination of investment agreements with companies affiliated to Rami Makhlouf. The terms include investments for a period of five years, which are renewable.

Industry

The Council of Ministers requested the Ministry of Finance to issue executive regulations for the provision of loans in support of production, especially for small and medium-sized enterprises, and to reactivate stalled industrial projects.

The Ministry of Industry is calling for a law to specifically regulate the textile industry, which would also include the corporatization of public sector textile establishments to convert them into state-owned companies governed by the Commercial Code and the Companies Law.

A factory that manufactures paper was inaugurated by the Minister of Industry in the Sheikh Najjar Industrial City in Aleppo. It is expected to produce 150 tons of paper per day and ease reliance on imports.

The Syrian Investment Authority agreed to license a cement production project with a capacity of 1.5 million tons annually in accordance with the Investment Law, which will provide the investor with tax incentives, relief from import controls, and the right to repatriate profits. As opposed to potential investors applying to the Syrian Investment Authority to obtain tax, import and profit repatriation incentives under the Investment Law, the Syrian Investment Authority has started to advertise opportunities on its own initiative and offer them to would-be investors.

A member of the Damascus Chamber of Industry asserted that many manufacturers are reducing the prices of their products by at least 15% to 20% while suggesting that high prices are caused by merchants down the supply chain such as the wholesalers or retailers selling their goods.

Agriculture

The Director of the Syrian Grains Establishment revealed that a contract for the importation of 200,000 tons of wheat from Russia has been signed and will be implemented this year.

The General Manager of the Syrian Grains Establishment revealed that Iran has started to implement contracts for the construction of three new mills in the provinces of Deir Ez-Zor, Hassakeh and Raqqa.

The General Foreign Trade Organization is willing to sell up to 100,000 tons of barley harvested by the state-owned General Feed Establishment in Hassakeh and potential bidders must provide a bond amounting to €100,000 or €1 per ton of barley if only for a partial purchase.

The government agreed to include loans to the agricultural sector in its Interest Rate Support Program.

Telecommunications

The Minister of Internal Trade and Consumer Protection revoked the trade license of Al-Wasil, a private joint stock company, which was affiliated with Syriatel.

Transport

The Executive Committee of the Governorate of Aleppo chaired by the Governor of Aleppo approved the implementation of 11 road projects in rural Aleppo in areas that were previously outside of government control.

Tourism

The Ministry of Tourism ratified six investment contracts, including the Nirvana Complex in Damascus, with an aggregate value of approximately SYP 320 billion.

The Supreme Tourism Council issued a resolution exempting tourism projects damaged by conflict from building permit fees.

Syrian Airlines halted its relationship with a Lebanese tourism company that provided services facilitating the trips of Syrians via Beirut following several complaints of poor coordination and mistreatment of Syrian travelers at Beirut Rafic Hariri International Airport.

Property

The Governorate of Damascus revealed that the residents of the districts of Yarmouk and Qaboun, which are set for rezoning in accordance with the Municipal Zoning Law provided for in Legislative Decree 5/1982, will not obtain alternative housing relief due to a lack of financing. Rather, they will receive property rights in their respective districts in the form of shares once the rezoning of both districts is implemented.

Public Procurement

Prime Minister Hussein Arnous called on public sector entities to speed up the process to compensate contractors in accordance with the Public Procurement Law to remedy the inflationary pressures suffered by them on construction projects.

Energy

The Council of Ministers called on the Ministry of Electricity and the Ministry of Petroleum and Mineral Resources to achieve a higher level of fairness in its electricity rationing program as far as the distribution of electric power across the country is concerned. The electricity rationing program has been applied by the Ministry of Electricity across Syria over the years to protect the electric networks from breakdowns caused by high electric loads, especially during the peaks of the winter and summer months. The electricity sector in Syria consumes 85% of natural gas produced locally, which is equivalent to supplies of approximately 13.6 million cubic meters per day. The fertilizer plants on the other hand are supplied with 1.2 million cubic meters of gas per day. As for the Ministry of Industry and the Ministry of Petroleum and Mineral Resources, they share the remaining 1.5 million cubic meters of gas per day for the purposes of manufacturing products. The Ministry of Electricity for its part requires 21 million cubic meters of gas per day in order to secure electricity for 24 hours per day during winter but it only receives 11 million cubic meters per day according to the General Electricity Transmission Establishment. The Ministry of Petroleum and Mineral Resources supplies the daily needs of fuel for power stations, which are less than the demands for gas. 75% of the power stations operate on gas while the remaining 25% operate on fuel according to the Ministry of Electricity.

Employment

During the first half of 2020, 150 formal violations of the Employment Law 17/2010 were accepted and registered by the Ministry of Social Affairs and Labour while total fines imposed on the concerned businesses amounted to approximately SYP 20 million. The Ministry also accepted a number of requests by employers to cease operations at their businesses during the onset of the COVID-19 pandemic, thereby shielding them from potential legal liability towards their employees.

Workers employed in Tartous Port are reportedly refusing to accept payments of their salaries by the Russian operator Stroytransgaz due to disagreements concerning their allowances.

Education

The Minister of Higher Education issued a resolution containing new regulations for the appointment of the boards of trustees of private universities. For its part, the Higher Education Council set in place new mechanisms for the admission of students to private universities.

Health

The pharmaceutical industry claims that current manufacturing output is more than enough to cover local demand and that exports should be facilitated to generate foreign currency earnings. Syrian pharmaceutical products apparently reach 17 countries compared to 45 before the war.

President Bashar Al-Assad issued Legislative Decree 14/2020, which exempts the importation of raw materials utilized for the manufacture of pharmaceutical products from customs duties, taxes and other fees for a period of one year starting at the beginning of August.

The number of COVID-19 cases are reportedly on the rise in Syria, presumably after restrictions on the movement of persons were lifted and due to the illegal entry of individuals into Syria through unauthorized border crossings, thereby bypassing the requirement for PCR tests.

The Ministry of Health reportedly amended its treatment protocol for COVID-19 by replacing hydroxychloroquine with dexamethasone in Syrian hospitals to reduce the risk of death in advanced cases of the disease. It is only being made available by prescription.

10 tons of medical supplies were sent by India and arrived in Syria.

The government is facilitating the return of Syrian citizens abroad through the Syrian-Lebanese border crossing. However, they will have to undertake the PCR test to check for COVID-19 at designated hospitals in Lebanon prior to entering Syria.

The Ministry of Health designated health facilities where Syrian citizens and residents currently in Syria will have to undergo the PCR test for COVID-19 before traveling overseas. The procedures put in place are exclusively for persons traveling via Beirut Rafic Hariri International Airport and the test will cost $100 (US). However, Syrian citizens shall pay this fee in Syrian Pounds at the official Central Bank rate. Lebanese authorities are permitting Lebanese citizens, persons holding valid residency permits in Lebanon and those wishing to transit to other countries via Beirut to enter Lebanon from Syria as long as they carry a PCR test certificate from an accredited Syrian health facility.

Judiciary

The Commercial Court of First Instance in Damascus imposed a judicial custody order in accordance with the Civil Code over Cham Holding, a leading company affiliated with Rami Makhlouf. The judicial custodian was named and will be paid SYP 5 million per month. The Court granted the interim order following a motion filed by one of the shareholders of Cham Holding alleging embezzlement of funds that should have been paid into the account of Cham Holding but were not and which date back to 2015.

The Ministry of Justice is calling on judges, lawyers and court staff to wear masks, sterilize their hands frequently and practice social distancing after four cases of COVID-19 were discovered among judges and court staff.

International

Syria and Iran signed a new agreement to enhance military cooperation between both countries.

The US issued another round of sanctions under the Caesar Act and other related legislative authorities against persons, entities and properties in Syria.

Amazon will pay $134,523 (US) to the US Treasury Department to settle potential civil liability claims arising from violations of US sanctions after supplying goods and services to customers located in sanctioned countries, including Syria, from November 2011 to October 18, 2018.

Although the US can impose secondary sanctions on foreign persons that deal with sanctioned persons or sanctioned activities, US law also imposes civil and criminal liability, separate from sanctions, on foreign persons where they induce US persons to break US sanctions law. If a foreign individual or entity provides services to a sanctioned individual or entity, that could potentially open them up to secondary sanctions under the International Emergency Economic Powers Act or additionally in the case of Syria, the Caesar Act. If that foreign individual or entity uses the US financial system for example to provide services to a sanctioned individual or entity, that is deemed inducement – inducing a US bank unknowingly to break US sanctions by providing services to a sanctioned individual or entity. If a US person is induced to unknowingly break US sanctions, then the foreign individual or entity who induced the US person to unknowingly break US sanctions not only faces potential secondary sanctions but also civil and criminal liability under US law. The foreign individual or entity would be civilly liable towards the Office of Foreign Assets Control (OFAC), which is a part of the US Department of the Treasury. The foreign individual or entity would be liable to pay OFAC damages for inducing the US person. The foreign individual or entity would also be criminally liable towards the US government and may face prosecution by the applicable US Attorney’s Office, which falls under the jurisdiction of the US Department of Justice. Possible penalties include imprisonment, a fine or both. The US Attorney’s Office may waive prosecution by entering into a deferred prosecution agreement with the foreign individual or entity whereby the latter will pay the Department of Justice a monetary penalty in exchange for not facing a trial and possible imprisonment. The foreign individual or entity therefore faces two potential causes of action for inducing a US person to break US sanctions, one civil and one criminal, under the International Emergency Economic Powers Act and is liable towards OFAC and the Department of Justice respectively.