Legal Briefing – October 2019

Monetary

• Sources confirmed that the US Dollars deposited into the Lira Intervention Fund by Syrian businesspersons, which reached $1 billion (US) initially, would be pumped into the local foreign exchange markets. As a result, the value of the Syrian Pound started to appreciate in the early days. US Dollars were being sold through the Fund at a rate of SYP 625 to the US Dollar in the first phase. The Fund priced the US Dollar at SYP 615 in the second phase of its intervention. The price eventually decreased to SYP 603 and SYP 600 while the unofficial rate remained around SYP 610. There was constant concern that buyers from the Fund would sell their US Dollars at the unofficial rate to profit from the difference. It was predicted that the value of the Syrian Pound would consequently appreciate to SYP 500 to the US Dollar though this forecast never materialized as the local currency suddenly depreciated.
• During a meeting of the Damascus Chamber of Industry, merchants and manufacturers agreed to pay 10% of the value of import licenses that they receive into the Lira Intervention Fund. In return, the Fund announced it would launch a new initiative whereby it intends to finance imports using 10% of its deposits. As such, traders who obtained import licenses from October 15th and those who deposited 10% of the value of their import licenses would be able to purchase US Dollars from the Fund at the rate of SYP 600.
• Foreign exchange companies were allegedly not serving customers under the pretext of a lack of US Dollars in the market but sources suggested that the real reason was due at first to the SYP 50 difference between the unofficial price for the US Dollar and the Lira Intervention Fund rate.
• Despite the efforts of the Lira Intervention Fund, the value of the Syrian Pound continued to drop meaning it was more lucrative to convert foreign exchange into local currency. In this respect, money transfer businesses allegedly refrained from processing remittances worth more than SYP 300 thousand on the pretext that there is a limited supply of Syrian Pounds to covers all transfers.
• Sources within the Syrian government expect the US Dollar exchange rate to reduce by approximately SYP 100 once salaries increase and the oil and gas fields in northeastern Syria return to government control, though the latter condition is in doubt for the time being.
• Debates continue as to which monetary policies would best counter the effects of inflation and improve the value of the Syrian Pound. Syria’s banks currently have excess liquidity of cash but are hesitant to loan it out to businesses for a number of reasons. Past history filled with defaulting debtors swayed the banks to adopt conservative lending practices from 2012 to 2018. Lack of loans further fueled economic stagnation and inflation as businesses did not have much cash to stimulate production. As a result, imports grew in size. There are calls on banks to now employ their excess liquidity constructively by increasing loans to manufacturers in order to boost exports. Such a move would improve Syria’s balance of payments, thus leading to an appreciation in the value of the Syrian Pound. However, another theory being considered by monetary policymakers is to restrict loans further in order to limit the supply of Syrian Pounds in the market thereby leading to its appreciation against the US Dollar. Policy formulation by the Central Bank is still being debated.
• Banking sources revealed that the Central Bank is adopting a monetary policy to strengthen the value of the Syrian Pound against the US Dollar by reducing the number of loans granted by banks and preventing large withdrawals of deposits denominated in Syrian Pounds. The objective is to counter the effects of inflation by reducing the supply of Syrian Pounds in the market, which should in theory help the local currency to appreciate against the US Dollar. Raising interest rates on deposits alone is not having the desired effect.
• A Syrian MP is frustrated with the pace the government is moving on with respect to the issuance of three major laws that could help improve the value of the Syrian Pound. They include one devoted to the local currency, the Investment Bill that should in theory attract much needed foreign exchange, and uniform taxation legislation to increase the funds of the Public Treasury as opposed to 26 different tax laws that are circumvented by evaders.

Finance

• At the Islamic Business and Finance Awards 2019 ceremony held in Dubai, Al-Baraka Bank Syria won the award for Best Sustainability Initiative.
• President Bashar Al-Assad submitted the draft 2020 national budget to the People’s Assembly for a vote. It allocates SYP 4 trillion in government spending for the upcoming year.
• Although the Central Bank apparently ordered freezes on the accounts of a number of well-known businessmen, it has reportedly revoked its earlier decisions.

Taxation

• The tax system faces scrutiny following reports of top personnel shifts in the Directorate of Finance in Damascus. The Minister of Finance deplored attempts by tax officials to facilitate evasions by taxpayers and stated that substantial tax reform is long overdue after 50 years.
• The Eurasian Economic Union, which comprises Russia and four other countries, granted Syria a 25% customs deduction on its exports. The four other countries are Belarus, Armenia, Kazakhstan and Kyrgyzstan.
• Minister of Finance Maamoun Hamdan explained that the Health Insurance Bill will include provisions for the establishment of a health insurance company with a capital of SYP 4 billion that could be partly financed from stamp duties collected on alcohol and tobacco products. Sources in the Ministry of Finance had however revealed that the proposed excise tax on tobacco products was under review and that no final decision regarding its introduction had yet been taken. In the end, an official source in the Ministry of Finance confirmed that there will be no excise tax on tobacco products or any other taxes on consumer items.
• Syrian manufacturers are demanding an increase in customs duties on imported goods in an effort to protect national industries.
• The government is setting up a committee to investigate and identify tax evaders on a large scale. The Director of the General Commission for Taxes and Fees admitted that tax evasion in Syria is mainly caused by a failure to implement the billing system and the fact that a number of traders declare the prices of their imports at a much lower figure than is actually the case.

International Trade

• The crisis in Lebanon affected the Syrian economy because it disrupted the importation of goods into Syria from Lebanon, the closing of banks in Lebanon meant that Syrians could not access their deposits, and remittances by Syrians living in Lebanon to their families slowed down.
• Syria and Russia are to engage in a barter arrangement in the supply of wheat products between the two countries as an alternative to cash payments for imports.
• Prime Minister Imad Khamis issued a resolution reverting automobile transit fees between Syria and Jordan to the same rates as in 2003 after they were raised by five times late last year. All other additional transit charges were also revoked in accordance with the resolution.
• More than 413,000 automobiles have crossed the Syrian-Jordanian border at Nassib since it reopened one year ago with more than 322,000 vehicles entering Syrian territory.
• The Syrian-Iraqi border that reopened recently is only witnessing passenger traffic so far. With respect to commercial traffic, the slow process of visa issuances to truck drivers is reportedly holding up the transport of goods between both countries. A source revealed that Iraq is canceling the requirement for Syrian truck drivers to obtain Iraqi visas before crossing the border.
• The Damascus Chamber of Industry is not too optimistic about the reopening of the Syrian-Iraqi border crossing at Abou Kamal as Syrian exports to Iraq have now been largely replaced by Chinese, Iranian and Turkish goods since Syrian factories faced challenges during the war. Industrialists suffer from labor shortages, power outages, outstanding debt obligations, the high cost of raw materials, difficulty exporting goods and so forth. There are suggestions to reactivate the Greater Arab Free Trade Agreement which abolishes customs duties on goods.
• In a bid to boost exports, the government has extended its resolution to reduce port fees by 75% on Syrian agricultural goods destined for overseas markets from the ports of Lattakia and Tartous for a period of one year.
• A Chinese grant to Syria includes rice and sugar products.

Commerce

• The Ministry of Internal Trade and Consumer Protection is obliging importers and producers of 12 basic goods to report to the Directorate of Pricing in the Ministry the relevant costs involved in order for the latter to impose administrative pricing on the items accordingly.
• The new Consumer Protection Bill is expected to increase fines and penalties on businesses that do not adhere to quality standards in the sale of goods, commit fraudulent acts, engage in monopolistic practices and so forth. The current Law issued in 2014 was deemed insufficient.
• Merchants are urging the People’s Assembly during deliberations on the new bill governing the Federation of Syrian Chambers of Commerce to stop conditioning membership in the Chambers on hiring employees and registering them with the General Establishment for Social Security. Some merchants especially those who work in retail industries do not require employees and rather rely on family members so they regard this rule as burdensome as they seek to maintain membership in the Chambers. Chamber membership is a prerequisite to importing goods into Syria. Elections to the Chambers of Commerce were delayed due to this rule which was issued last year and caused confusion. There are concerns that membership numbers will start to dwindle and the Chambers will lose lobbying influence in the years to come if this rule remains in force.
• The Ministry of Economy and Foreign Trade denied that any decision has been taken to restrict imports to merchants or companies registered with the Chambers of Commerce in the first and second classes and only after they have deposited $100,000 (US) in a bank. The Ministry clarified that it was only a proposal made by a private company but that no decision in this respect has been made. According to the Law governing the Federation of Syrian Chambers of Commerce, which is currently being amended, every merchant or company that wishes to register with a chamber is categorized according to five classes depending on the size of each establishment. Merchants or companies categorized in the fifth class pay the least amount of fees.
• A merchant revealed that traders are leaving the importation business and turning to the real estate sector because they are finding it difficult to secure financing facilities. There is concern that a declining number of traders increases the risks of monopolistic practices.
• The World Bank’s Ease of Doing Business Index for 2020 ranked Syria in 176th place out of 190 countries assessed. Out of the Arab countries, Syria only outperformed Libya and Yemen and came close to Iraq’s position. In 2011, Syria ranked in 144th place out of 183 countries.

Corporate

• Al-Badia Cement Co. listed on the Damascus Securities Exchange with an initial price of SYP 868 per share.
• Two investors from Syria and Kuwait incorporated a company named Eastern Energy LLC with a share capital of SYP 5 million to undertake oil and construction services.
• An investor in Marota City has incorporated a construction company called Trillium Co.
• Cham Holding announced its intention to sell the shares of four shareholders in a public auction after they failed to pay the fifth installment of their shares.

Industry

• According to the Minister of Economy and Foreign Trade, a list of 80 goods will be presented as part of the import substitution program currently being undertaken by the government to stimulate local manufacturing in order to wean off imports.
• Syrian and Chinese investors set up a manufacturing plant in the Adra Industrial Park to produce 1.2 million water taps a year. The project obtained an investment license pursuant to the Investment Law and will be eligible for incentives including tax and customs duty exemptions.
• The Executive Bureau of the Lattakia Provincial Council granted administrative licenses to eight industrial establishments in the province.

Construction

• The Russian company Stroy Expert delivered the first consignment of construction materials and equipment to the Ministry of Public Works and Housing as part of efforts to rehabilitate the stock of public sector construction companies that were affected during the war.
• The Katerji Group is reportedly negotiating with the General Establishment for Cement and Construction Materials to invest SYP 200 billion in a state-owned cement plant near Aleppo to produce three million tons a year in exchange for an agreed share of the revenues generated.

Real Estate

• The Local Administration and Urban Development Committee in the People’s Assembly began deliberations on the new bill to replace the Real Estate Investment Law 15/2008, which applies to megaprojects usually with a size of at least 250,000 square meters.
• Prime Minister Imad Khamis requested that the General Housing Establishment, the Regional Planning Commission and the General Commission for Real Estate Development and Investment offer up small real estate development zones that host affordable homes to potential investors.
• MPs in the People’s Assembly referred the bill sanctioning the dissolution of the General Federation of Housing Cooperatives to the Constitutional and Legislative Affairs Committee for its input to ensure its provisions comply with the Constitution. If approved, the bill will then be sent back to MPs for a further submission to the Local Administration and Urban Development Committee for review before it is presented to MPs for a final vote. The General Federation of Housing Cooperatives cautioned that the bill liquidating it risked being deemed unconstitutional due to fears of unfair expropriation and further warned that the assets of cooperatives do not legally pass to the Ministry of Public Works and Housing. Moreover, some MPs in the People’s Assembly are criticizing the bill to dissolve the 58-year old body as unconvincing and unconstitutional while instead calling for its reform. Syria has approximately 2,500 housing cooperatives operating under the umbrella of the General Federation with nearly a membership of 1 million subscribers. The proposal now appears to be that only the General Federation and its branches in the provinces will be dissolved while the cooperatives will continue to exist under the oversight of the Ministry of Public Works and Housing.
• The Governorate of Damascus announced the first phase of the plan to resettle former residents of informal areas located in what is today Marota City. An area designated for alternative housing is reportedly being prepared for construction.

Maritime

• An emerging business personality working in the telecommunications, security and other sectors has obtained a shipping agency license from the Ministry of Transport to represent ship owners and charterers in Syrian ports. The latest investment is part of his growing conglomerate.
• Greek businessmen on a visit to Damascus called for the establishment of a maritime line with Syria.

Tourism

• An investment agreement pertaining to the Safir Hotel in Homs worth SYP 830 million and covering a period of two years has been signed between Homs City Council and Syrian Arab Hotels and Tourism Co., the latter chaired by the Assistant Minister of Tourism.

Telecommunications

• A former Minister of Economy and Foreign Trade resigned from the Board of Directors of Syriatel as well as from its Audit Committee.
• The Council of Ministers considered a bill to exempt debtors who have not paid their bills to the Syrian Telecommunications Company from interest payments if they satisfy their obligations.

Transport

• The Syrian Investment Authority licensed a transport project worth SYP 20.5 billion under the Investment Law involving buses and minibuses operating on electric power.
• Damascus Provincial Council agreed to impose a SYP 250,000 fee on every car specifically licensed to transport across international boundaries when they switch routes such as where a car licensed to travel to Lebanon instead reroutes to Jordan.
• The Ministry of Transport requested the People’s Assembly to review the new Motor Vehicles Bill which amends and increases the taxes and fees on automobiles as stipulated by Legislative Decree 117/1961.

Energy

• The Ministry of Electricity issued three licenses to local corporation Nafori Co. headquartered in Al-Nabk in the province of Rural Damascus to generate solar power for a period of 25 years in accordance with the Electricity Law 32/2010, which encourages private investments. Syria’s shift towards renewable energy sources stems from two keys factors, including the inability to regularly import electricity generators due to the international sanctions regime imposed on Syria and the high amounts of foreign exchange required for such imports.
• The state-owned Popular Credit Bank has granted more than 100 loans to promote solar power in the four months since this type of loan was launched in June this year.
• According to the Ministry of Electricity, an upcoming regulation will oblige all new residential buildings to be installed with thermal insulation and solar heating systems.
• The Council of Ministers approved a 2030 electricity strategy that will be dependent on renewable energy sources and which seeks to save €750 million a year.
• The Ministry of Petroleum and Mineral Resources will be looking for investors in the coming period to help rehabilitate and operate the oil and gas fields in Raqqa, Hama and Homs after they came back fully under government control.

Employment

• One million laborers chose 20,000 representatives to the various trade union organizations during the 27th electoral session in October. All organizations are overseen by the governing body the General Federation of Trade Unions.

Education

• The People’s Assembly voted on a bill governing the objectives and functions of the Ministry of Higher Education, including by renaming it as the Ministry of Higher Education and Scientific Research. Following its approval, the new Law will replace Legislative Decree 143/1966.

Health

• According to the Assistant Minister of Health, there are 96 licensed pharmaceutical factories in Syria with 92 currently in service and covering 90% of local market demands. The main challenge that manufacturers face is with respect to the importation of raw materials.

Culture

• After years of closure, Aleppo National Museum reopened its doors to visitors.

Local Councils

• The Minister of Local Administration and the Environment appointed a provisional Executive Bureau to manage the affairs of Lattakia City Council until the next local elections. In August, the Council was dissolved by President Bashar Al-Assad for failure to discharge its duties.

Constitution

• MP Ahmad Al-Kuzbari was named as Co-Chairman of the UN-sponsored Syrian Constitutional Committee representing the government’s side. Furthermore, the Syrian government published the names of its representatives who travelled to Geneva to participate in the deliberations.
• During votes on constitutional provisions, the Constitutional Committee will use the mechanism of a 75% majority approval among all members where a consensus cannot be established. Each bloc comprising the government, the opposition and civil society holds one-third of the votes. During the inaugural meeting, the UN Special Envoy for Syria Geir Pedersen was flanked by the two Co-Presidents of the Constitutional Committee Ahmad Al-Kuzbari MP representing the government’s side and Hadi Al-Bahra of the opposition.
• President Bashar Al-Assad commented on the Constitutional Committee during his interview with local media outlets, stressing that the outcomes it might produce later would be used as a launching pad to attack and strike at the structure of the Syrian state. He added that there will surely be an attempt to direct the work of the Committee in a certain direction but that the Syrian state is fully aware of this intention and will prevent it from materializing. He went on to explain that his government is “fully aware of the game [the West] is going to play. They aim to weaken the state and transform it into a state which cannot be controlled from within and, consequently is controlled from the outside. The game is clear, as is happening in neighboring countries”. Politically, he referred to the work of the Committee as being part of the Sochi process and had nothing to do with the so-called Geneva process. Rather, Geneva was only the geographic location of the meetings but nothing more.

Public Sector

• A specialized committee overseeing public sector reform proposed a number of options for public establishments including restructuring, conversion to holding companies, offering them for public subscription, mergers, divestments, liquidations, public-private partnerships, etc. A corporatization process whereby a public sector establishment is converted into an incorporated company with its own legal personality and no longer subject to its own designated rules but rather the Commercial Code and the Companies Law was suggested, similar to the example of Syrian Arab Airlines.
• Prime Minister Imad Khamis criticized the slow process of moving forward with public-private partnerships as they are a key source of economic growth at a time when the state’s financing capabilities are under pressure. He advised various ministries to propose projects that could attract investments from the private sector and would be subject to execution under the Public-Private Partnership Law issued in 2016. A Syrian MP has warned that if the government pursues implementation of the Public-Private Partnership Law, it risks a bigger economic crisis in the years to come because it will lose a lot of revenues from the assets which it transfers to the private sector to manage.
• The Financial Disclosure Bill is currently under review by the Ministry of Administrative Development. While discussing it, President Bashar Al-Assad commented that “many people were asking why state officials were not being asked about their assets and how they were acquired.  To do so would require a legal framework and that is what we are doing at the moment with the Financial Disclosure Bill”.
• On the subject of exemptions provided for in laws that grant discretion to public officials, President Bashar Al-Assad held that “our laws give far-reaching authorities and allow for many exemptions granted by public officials. I talked about setting up a committee to amend the laws and in particular revoking exemptions. That is why we started by focusing on the exemptions given to the President of the Republic”. “We used to have so many exemptions without any controls, including in employment and other areas. Our laws are full of loopholes which need to be fixed by passing new laws.  We are focusing on the Anti-Corruption Bill”. He went on to suggest that the media should lead the dialogue around this type of reform. His rationale was that even though the state brings in legal experts to study the flaws in legislation, they alone do not necessarily have the vision.

Lawyers

• The President of the Bar Association and MP Nizar Al-Skeif revealed that the new Legal Profession Bill regulating the rights and obligations of lawyers will be submitted to the Council of Ministers for review. The current Law dates back to 2010.
• A new arbitration center has been launched in Syria called the Siraj Al-Cham Local and International Economic, Administrative and Civil Arbitration Center bringing the number to 60 institutions as the legal profession aims to develop a culture of alternative dispute resolution.

Judiciary

• A judge in the Civil Court of First Instance in Damascus denied that any judicial provisional attachment orders had been imposed on the movable and immovable assets of well-known businessmen in Syria who have recently been rumored to be under financial investigation. A judicial provisional attachment differs from a provisional attachment imposed by the Minister of Finance in that the former can only be pursued when a lawsuit is with the courts whereas the Minister of Finance can impose a provisional attachment for suspicion of wrongdoing. Following an attachment order by the Minister of Finance, the Central Supervisory and Inspectorate Agency conducts an investigation into the concerned individual’s activities. After the issuance of its conclusions, the state has eight days to file a lawsuit against the individual.

Crime

• Police in Tartous addressed more than 100 cases of cybercrimes this year so far.
• A new bill pertaining to the smuggling of persons imposes harsher penalties on perpetrators convicted of such crimes.
• According to President Bashar Al-Assad, one of the most important constitutional provisions is the protection of private property. He added that there were many expropriations of properties belonging to terrorists but that they have not become state property because there are no court decisions to this effect. He asserted that in the private sector, all those individuals who squandered public funds were asked to return them because the objective was to retrieve the monies without necessarily being vindictive. Emphasis was placed on avoiding prosecutions and court litigations that drag on for years. He confirmed that many of them expressed a willingness to do so.

US Withdrawal

• Following the initial withdrawal of US forces from northeastern Syria, the Syrian Arab Army entered and took control of the cities and towns of Hassakeh, Raqqa, Tabaqa, Qamishli, Manbij, Ain Issa and the border city of Ain Al-Arab, which is also known as Kobani just to name a few in the first days as per the agreement reached with Kurdish non-state YPG/ SDF actors. On the highway to extend government authority, the Army even passed alongside the exiting US Army. Following on from the American shift in policy, British and French forces started their withdrawal from the province of Hassakeh in northeastern Syria into Iraq. Days later, President Bashar Al-Assad visited soldiers on the frontline in Idlib to brief them on the recent developments.
• US President Donald Trump called on President Bashar Al-Assad and the Syrian Arab Army to protect the Kurdish people in northeastern Syria in the face of Turkey’s invasion following the withdrawal of US troops from the region. Despite the US withdrawal from northeastern Syria, President Donald Trump confirmed that “a small footprint of United States forces will remain at [At-Tanf] Garrison in southern Syria to continue to disrupt remnants of ISIS”.
• Not long after announcing his withdrawal, President Donald Trump reversed course and sent several hundred US troops back into Syria. They arrived in convoys comprised of military vehicles under the protection of helicopters via the northeastern province of Hassakeh presumably to seize the oil fields as admitted earlier by the US President. According to President Trump, there is no need to keep US troops in Syria except to “protect” the oil fields as he put it. He said he may want to make a deal with ExxonMobil to tap Syrian oil reserves. Doing so would be in violation of Syrian law, international law and even US law unless in the last case, he lifts US sanctions on Syria to a considerable degree.
• President Donald Trump’s mixed record on Syria includes 1) banning Syrian refugees from entering the US; 2) cutting off rebel support; 3) withdrawing the bulk of US troops despite continuous flip-flops on the issue; 4) bombing Syria; 5) increasing sanctions, including imposing secondary sanctions on Syria’s petroleum sector; and 6) recognizing Israeli sovereignty over the Golan Heights.
• The core results of the Russian-Turkish discussions in Sochi included the withdrawal of the Kurdish non-state YPG/ SDF forces from the 32-kilometer “safe zone” along the Syrian-Turkish border and their disarmament. Their withdrawal will be overseen by the Syrian Arab Army and the Russian military police. The YPG/ SDF forces will also withdraw from the towns of Manbij and Tel Rifaat. Joint Syrian-Turkish patrols will be established up to 10 kilometers deep into Syrian territory from the border. Turkey pledged to adhere to the 1998 Adana Agreement on cross-border operations. Moreover, the Syrian Arab Army is set to establish 15 checkpoints along the border with Turkey for the first time since 2012.
• The Trump Administration initially imposed sanctions on Turkey in response to its military intervention in Syria, targeting the Ministry of Energy and Natural Resources, the Ministry of National Defense and three ministers while leaving the door open to additional measures. Following Turkey’s incursion into northern Syria, the US threatened secondary sanctions on any individual and/ or entity involved in Turkish activities in Syria while the EU took measures to restrict arms transfers to Turkey. In response to the Syrian-Russian-Turkish agreed framework for northern Syria involving joint patrols and the withdrawal of the YPG/ SDF, US President Donald Trump instructed the Office of Foreign Assets Control, which is linked to the US Department of the Treasury, to lift sanctions against the three Turkish ministers and the two ministries due to the establishment of a ceasefire in northeastern Syria, claiming an American victory despite the absence of the US from the talks in Sochi.
• Switzerland will reportedly amend its sanctions regime against Syria to facilitate humanitarian access following the launch of Turkish military operations.
• President Bashar Al-Assad clarified that not holding talks with the Israelis was not necessarily linked to their occupation of Syrian territory but rather because Syria does not recognize the existence of Israel, which distinguishes the circumstances in which talks are held with Turkey.

International

• Following his meeting with Syrian Foreign Minister Walid Mouallem at the UN, Czech Prime Minister Andrej Babis called on the EU to open lines of communication with Syria in order to resolve the crisis in the country instead of imposing unilateral coercive measures against it. The Czech Republic is the only EU member state that kept its embassy in Damascus open throughout the war in Syria.
• Tajikistan’s Ambassador to Kuwait visited Syria and expressed his country’s desire to enhance relations with Syria on various levels, including an exchange of delegations, reactivating the agreements inked between the two countries and following up on their implementation.
• Syria participated in the 11th Arab-Austrian Economic Forum in Vienna.