Legal Briefing- June 2020

Government

  • President Bashar Al-Assad dismissed Prime Minister Imad Khamis from his post, which he held since 2016, following deteriorating economic conditions and appointed Hussein Arnous as the new Prime Minister to lead the government at least until the parliamentary elections in July.
  • Prime Minister Hussein Arnous issued instructions to all ministers to exercise the powers granted to them pursuant to the laws and regulations in force to take the necessary decisions within their authority without referring back to the Council of Ministers for clarifications.
  • The Council of Ministers pushed forward the e-government program by approving the reduction of paper correspondences in governmental transactions.

Parliament

  • A Syrian MP called on then-Prime Minister Imad Khamis’ government to get a grip on the deterioration of the economic situation in the country caused by the depreciating value of the Syrian Pound or face a vote of no confidence in the People’s Assembly as mandated by the Constitution.
  • More Baath Party members began taking part in the process to directly nominate their candidates to stand in the parliamentary elections to the People’s Assembly in July through expanded conferences of the party’s branches throughout Syria.

Local Councils

  • The Council of Ministers approved a directive allocating SYP 9.35 billion to the Ministry of Local Administration and the Environment to distribute to local councils throughout the provinces to finance development projects and the provision of services.

Finance

  • The People’s Assembly approved amendments to the Foreign Exchange Law 24/2006 with respect to the receipt of international remittances in accordance with the controls and standards imposed by the Monetary and Credit Council and the licensing of further foreign exchange branches.
  • The Director of the Telecommunications Regulatory Authority, which also supervises postal services, announced a temporary suspension of the operations of five money transfer companies due to suspected irregularities following complaints referred to it by the Central Bank.
  • Prime Minister Hussein Arnous’ government is expected to back steps by the Central Bank to encourage people to use official channels to transfer hard currency at near-market rates after they were dissuaded from doing so due to the unfavorable fixed exchange rate for remittances. The government is pushing forward policies to encourage people to use regular banking channels and money transfer services to carry out financial transactions as part of attempts to help stabilize the exchange rate of the Syrian Pound.
  • The Central Bank called on all banks operating in the country to cease the granting of loans and credit facilities to customers until further notice. The directive is the second of its kind in 2020 after the first one was issued as part of the COVID-19 precautionary measures.
  • The Central Bank issued a circular to all the banks affirming that it was in their best interests to start imposing certain controls on the revolving credit facilities they offer to merchants to finance their purchases in order to ensure they do not abuse their provisions. Merchants can be granted revolving credit facilities for a duration between three to six months fixed with a credit limit. Merchants submit their invoices for the purchases of their stock to the banks, which provide credit to the value of the invoices and up to the credit limit.
  • The Central Bank announced its second issuance of certificates of deposit this year, which was held on June 18th. The certificates of deposit were issued to banks denominated in Syrian Pounds with a face value of SYP 100 million. The Central Bank collected SYP 74.3 billion through certificates of deposit subscribed to by eight out of 17 banks for a term of six months with an annual interest rate of 6.5%.
  • The Central Bank raised the official foreign exchange rate of the Syrian Pound to be sold by banks and foreign exchange bureaus to SYP 1,256 per US Dollar after it was previously around the SYP 700 threshold. There still remains a significant gap with the unofficial rate. Although the Central Bank issued the directive to banks and foreign exchange bureaus amending the list of imported goods to be financed at the rate of SYP 1,256 per US Dollar, main foodstuffs were excluded from the list based on a recommendation from the Economic Committee.
  • The Economic Committee affiliated to the Council of Ministers approved mechanisms for the provision of direct financial support for industrial exports. 10% support will be provided to manufacturers who directly export their goods and seven percent to intermediaries who export.
  • The government agreed to subsidize 25% of land freight costs for the export of agricultural products to Iraq and the Gulf region for a period of three months.
  • The Ministry of Economy and Foreign Trade proposed to the Council of Ministers a restructuring of its subsidies program, including a potential liberalization of prices, so that funds are better targeted to the people who need them as opposed to subsidizing goods in general.
  • Following a poll conducted by the Syrian Law Journal, a consensus emerged that assuming its public finances stabilize, Syria should consider abandoning its subsidy programs and instead opt for a Universal Basic Income system that guarantees a minimum income to citizens. Time and again it has been shown that the subsidy programs in place are open to abuses, especially since they enable middlemen profiteering at the expense of consumers.
  • The Governor of the Central Bank announced the official launch of the Loan Guarantee Corporation during the meeting of its general assembly.
  • Turkey began circulating its local currency in parts of northern Syria under its control, a move that may yet add further pressure on the value of the Syrian Pound, which will be less in demand by consumers in rural areas of Idlib and Aleppo as goods are priced in Turkish Lira.

Taxation

  • It appears that to raise public sector salaries, the government’s revenues would need to increase through tax reform and the adoption of a billing system to reduce tax evasion, as well as the passage of the Real Estate Sales Bill to tax property transactions at actual market rates.

Commerce

  • The unofficial rate of the Syrian Pound continued its decline against the US Dollar exceeding the SYP 3,000 threshold before appreciating again. The financial crisis in Lebanon, currency manipulators, international sanctions in general and looming concerns over the Caesar Act are all contributory factors. The sudden depreciation and fluctuations in the value of the Syrian Pound forced a number of businesses to temporarily close while they wait for the rate to stabilize before they restart sales to consumers. In response, the Ministry of Internal Trade and Consumer Protection threatened to pursue legal action against such businesses in the courts due to potential violations of the Consumer Protection Law.
  • The Federation of Syrian Chambers of Commerce has set August 27th as the date for when elections to the various chambers of commerce throughout the provinces will begin. They were originally scheduled for late 2018 but changes to the rules and legislation caused the delays.
  • The government decided to expand the list of goods permitted to be imported in an attempt to curb smuggling practices. Import controls have been imposed in order to limit demand for foreign currencies and hence, protect against further depreciation of the Syrian Pound.
  • With the aim of stabilizing markets, the new Minister of Internal Trade and Consumer Protection set a precedent, which is the first of its kind in 47 years, to initiate a meeting with the Damascus Chamber of Commerce rather than wait for the merchants to make the first approach. The Minister regarded traders as close partners in securing the necessary goods. He also emphasized that the state-owned ‘Syrian Trading’ is not a competitor but rather has a market share of around seven percent since its prices are 15% to 30% lower than the market rates.
  • Tough economic conditions are obliging some Syrian retailers to shutter their businesses and offer them up as investment opportunities to others though higher prices for rents and lower purchasing power among consumers are putting off many otherwise would-be investors.
  • During the previous Damascus International Fair last summer, a quota system was adopted that encouraged the importation of many types of goods from a range of countries by companies participating in the Damascus International Fair through a facilitated customs clearance process. The significant depreciation in the value of the Syrian Pound along with the financial crisis in neighboring Lebanon, which also increased pressures on the purchasing power of buyers, have made the sale of these goods in the local markets over the past year rather challenging. As a result, the Customs Directorate has started to equate unsold goods imported through the quota system during the last Damascus International Fair with smuggled goods and treat them accordingly as such with confiscation orders, which has in turn forced protests from merchants. Consequently, the Minister of Internal Trade and Consumer Protection announced that an extension of validity amounting to three months would be applied to the relevant customs declarations of the said goods in order to give more time for their sale and avoid confiscation orders.
  • The General Establishment for Free Zones terminated the investment agreements concluded with companies affiliated to Rami Makhlouf to manage and operate duty free markets across Syria, including at Damascus International Airport and the border crossings with Lebanon and Jordan.

Telecommunications

  • The Council of State Administrative Court granted judicial custody over Syriatel to the Syrian Telecommunications Corporation, represented by its Chairman, in accordance with the provisions of the Civil Code to guarantee the rights of the Public Treasury and Syriatel shareholders. The Syrian Telecommunications Establishment, currently known as the Syrian Telecommunications Corporation, entered into Investment Agreement No. 9 of February 11, 2001 with Syriatel to operate the country’s first mobile telephone network on a build-operate-transfer (BOT) basis. The BOT contract was converted into a license agreement as per License No. 1 of December 17, 2014 entered into between the Telecommunications Regulatory Authority and Syriatel.

Transport

  • An eighth private airline company has been licensed by the Ministry of Internal Trade and Consumer Protection though only two private carriers are currently operational – Cham Wings and Fly Damas.

Energy

  • As required by the Constitution, the People’s Assembly approved a bill that provides for the ratification of the oil and gas exploration and production contract in Block 12 in the Abou Kamal region that falls within the framework of Syrian-Iranian agreements. The contract is based on an economic agreement signed between Syria and Iran on March 16, 2015, whose returns aim to repay the long-term line of credit extended by Iran to Syria that dates from 2013 until 2019. Block 12 is comprised of 6,702 square kilometers.
  • The Council of Ministers deliberated on a bill to tighten penalties for electricity theft.

Property

  • The Ministry of Internal Trade and Consumer Protection ratified the dissolution of a joint stock company that was undertaking a development project in Marota City.
  • Prime Minister Hussein Arnous asked the Ministry of Finance, the Governorate of Damascus and the Board of Directors of Damascus Cham Holding to facilitate financing for the long overdue alternative housing projects for former settlers of Marota City prior to its rezoning.
  • The Damascus Provincial Council announced proposed zoning plans prepared by the General Corporation for Studies for the district of Yarmouk and the residential parts of the district of Qaboun. Concerned parties will now have an opportunity to voice their feedback.
  • The infrastructure works on the Haidarieh real estate development project in Aleppo entered its final stages.

Construction

  • The fact that the concerned public sector establishments that sell cement are offering it at a cheaper price than the private sector is causing concern that middlemen will exploit this situation by buying it from the public sector to sell at a profit at the expense of end users.
  • The state-owned General Housing Establishment observed slow progress in its construction projects due to the increasing prices of building materials. The fluctuating exchange rate of the Syrian Pound and the resulting inflation are impacting the construction industry in general.

Agriculture

  • The government launched a new agricultural program with the aim of investing in agricultural lands and providing support to farmers in order to increase output. The Ministry of Agriculture and Agrarian Reform is tasked with spearheading and coordinating this new initiative.
  • The Syrian agricultural sector has been facing pressures recently stemming from fires affecting harvests, competition for farmers’ produce between the state and Kurdish non-state actors, and pressures to restrict agricultural trade between state and non-state-controlled areas.
  • The Council of Ministers approved a directive increasing state purchase offers of wheat by SYP 25 per kilogram in the areas located far from the provincial centers in order to reduce transport costs borne by farmers.
  • The Council of Ministers approved a directive offering direct financial support amounting to SYP 9 billion to poultry breeders as part of the plan by the Ministry of Agriculture and Agrarian Reform to promote production and reduce the associated costs.

Employment

  • The Ministry of Social Affairs and Labour revoked Directive 2626/2020 dating back from March 19, 2020 during the COVID-19 situation. It suspended the registration of resignation letters of employees in the private sector provided for in Article 61 of the Employment Law 17/2010. Article 61 states that such resignations shall be deemed valid only when registered by employees with the Ministry directorate in the province. Resignations may be withdrawn in writing only once within one week of its acceptance by the employer, rendering them null and void.

Health

  • The Ministry of Health received two more batches of medical aid, which include personal protective equipment, from China to combat COVID-19 after the first package arrived on April 15th.
  • There is concern that drug manufacturers in Syria are growing more dependent on exports to foreign markets to realize bigger profit margins, unlike the case when they distribute locally, and that could increase potential shortages of pharmaceutical products available to Syrians.
  • During a meeting between then-Prime Minister Imad Khamis, the Minister of Health and the Minister of Economy and Foreign Trade, it was decided to finance imports of raw materials necessary for the pharmaceutical industry at the preferential rate of SYP 700 per US Dollar. Drug prices are capped by the Ministry of Health, which clarified that the pricing of pharmaceutical products will be determined according to the SYP 700 rate. Moreover, 11,800 branded pharmaceutical drugs are being priced. There are concerns that possible shortages of medicines in pharmacies may occur if pharmaceutical manufacturers stop supplying the local markets because the capped drug prices set by the Ministry of Health make production unprofitable due to the high costs of importing raw materials.
  • The Council of Ministers discussed a bill to exempt the importation of raw materials utilized in the pharmaceutical industry from customs duties and other import fees.

Arbitration

  • The Minister of Justice formed a committee comprised of five judges to review the Arbitration Law 4/2008.

International

  • The Caesar Act establishes the first formal mechanisms for deterring non-US persons from dealing with the Syrian government and the Syrian public sector. Up until now, the US sanctions program has officially prevented US persons – citizens, residents and companies – from Syria dealings. The entire framework of the US sanctions program against Syria dates back to 1979 when US arms sales were prohibited. The Syria Accountability Act followed in 2003 and was implemented through various executive orders starting in May 2004, which were ramped up in 2011 and beyond. The Syria Accountability Act and its executive orders, which barred US persons from trading and investing in Syria, must be read in conjunction with the International Emergency Economic Powers Act, which provides legal authority for US sanctions against foreign governments and persons. There are two types of sanctions: activities that are sanctioned and individuals who are sanctioned. If a US person undertakes a sanctioned activity, such as trading or investing in Syria, or deals with a sanctioned person, they open themselves up to criminal liability under US law. The legal situation is different for non-US persons. Practically speaking, the US does not see criminal liability under US law imposed on non-US persons as a sufficient deterrent to prevent their dealings with Syria. Rather than criminal liability, they face sanctioning. Prior to the Caesar Act, non-US persons faced Syria-related sanctioning as a result of an executive order issued in 2012 pursuant to the International Emergency Economic Powers Act, which mandated the levying of sanctions against non-US persons who dealt with sanctioned persons. The 2012 executive order provided for sanctions to be imposed on any non-US person who conspired to evade or undermine the US sanctions program against Syria – i.e. secondary sanctions. It is these laws that deter non-US businesses around the world from dealing with Syria. The US also used elements of the Iran sanctions program to deter the shipment of petroleum products from Iran to Syria by non-US persons. The Syria sanctions framework was enhanced by the US in December 2019 with the passage of the Caesar Act to put in place further mechanisms. The Caesar Act formally establishes new sanctioned activities but this time for non-US persons by deterring them from dealings with the Syrian government, the Syrian public sector, and the allies of the Syrian government operating in Syria. There are two main points to bear in mind. Firstly, the Caesar Act differs from the previous sanctions in that the US President is obliged to impose sanctions on non-US persons undertaking the said sanctioned activity. Under pre-Caesar Act legislation, the US President had some discretion to sanction non-US persons. The other point to bear in mind is that the Caesar Act will be applied to territories under the control of the Syrian government, meaning that northern Syria and northeastern Syria will technically be exempt. Informal trading networks by middlemen will therefore likely arise.
  • The Caesar Act 2019 became law in the United States after it was ratified by President Donald Trump in December 2019. Its provisions were first implemented on June 17th through the sanctioning of non-US persons who undertake any of the activities listed below. The Caesar Act lays down the mechanisms for the imposition of US secondary sanctions against Syria with respect to the governmental, public, military, aviation and oil sectors. According to the Caesar Act, the US Secretary of the Treasury may now determine whether reasonable grounds exist for concluding that the Central Bank of Syria is a financial institution of primary money laundering concern. Pursuant to the Caesar Act, President Trump may now impose sanctions against non-US persons if he determines that they knowingly support or deal significantly with the Syrian government, or members of the government or its allies in Syria. President Trump may now impose sanctions against non-US persons if he determines that they knowingly sell or provide significant goods or services that contribute to the Syrian government’s domestic production of natural gas, petroleum or petroleum products. President Trump may now impose sanctions against non-US persons if he determines that they knowingly sell or provide goods or services associated with aircrafts to any foreign person that are used for military purposes in Syria for or on behalf of the Syrian government. President Trump may now impose sanctions against non-US persons if he determines that they knowingly, directly or indirectly provide significant construction or engineering services to the Syrian government. Pursuant to the Caesar Act, President Trump has to now present a strategy to deter non-US persons from entering into contracts related to reconstruction in the territories controlled by the Syrian government and its allies for or on behalf of the Syrian government or its allies.
  • Not to be confused with the Caesar Act, the US Treasury Department’s Office of Foreign Assets Control recently announced the issuance of regulations to implement Executive Order 13894 relating to the sanctions imposed following Turkey’s incursion into northeastern Syria.
  • The Treasury Department and the State Department released 39 designations, of both individuals and entities, pursuant to the Caesar Act, Executive Order 13894, Executive Order 13573 and Executive Order 13582. Of the 39 designations, 15 were designated by the State Department under Executive Order 13894. 24 others were designated by the Treasury Department pursuant to Executive Order 13573, Executive Order 13582 and the Caesar Act. Only nine were designated pursuant to the Caesar Act. A number of the persons listed were already targeted under prior US sanctions legislation. It should be noted that a substantial number of the designations were not issued pursuant to the Caesar Act but rather to Executive Order 13894, which was issued in October 2019 following Turkey’s incursion into Syria. It provides wide bandwidth to impose Syria-related sanctions. The Caesar Act and Executive Order 13894 provide for the imposition of secondary sanctions against non-US persons. Secondary sanctions levied against non-US persons are derived from dealings with parties or sectors that are already designated as falling under primary sanctions. Both pieces of legislation allow the US government to levy primary sanctions against any non-US persons for undertaking certain designated Syria-related activities. Any person dealing with such parties could face secondary sanctions under the Caesar Act and Executive Order 13894. A party, whether under primary or secondary sanctions, loses access to the US markets and financial system because US persons are prohibited from dealing with them while other foreign businesses refuse to deal with them out of fear of similarly losing such access to the US.
  • Whereas secondary sanctions prior to the Caesar Act targeted those doing business with sanctioned Syrian parties, they required proof of such direct dealings by law. The threshold for the Caesar Act however is involvement in designated sectors of the Syrian economy. The involvement per se is defined in the Caesar Act as significant involvement by non-US persons with the Syrian government or key personnel of the Syrian government, or knowingly facilitating transactions in the petroleum, aviation and construction sectors in Syria. The effects of such US sanctions include consequences where in addition to sanctioned individuals, US persons are also prohibited from having deals with legal entities such as companies in which a sanctioned individual has an interest of 50% or more – i.e., a controlling stake if more.
  • The Treasury Department refrained from designating the Central Bank of Syria a financial institution of primary money laundering concern pursuant to the Caesar Act. Although the Central Bank was sanctioned by the US in 2011, a further designation as a financial institution of primary money laundering concern would in practical terms mean that US financial institutions must undertake additional and specific due diligence in order to ensure that the Central Bank cannot access the US financial system whether directly or through nested correspondent relationships.
  • The Lebanese company that operates the ATM machines of most banks in Syria ceased its services in the wake of the implementation of the Caesar Act while attempts to seek local solutions are being pursued.
  • Foreign Minister Walid Mouallem announced that Syria is willing to cooperate with Lebanon to face the new US sanctions posed by the Caesar Act if Lebanon shows the same willingness.