Lebanese Republic

With its high literacy rate and propensity to produce leading legal talent, Lebanon has established itself as an important commercial hub within the Middle East. GC talks to industry specialists within the banking, finance and insurance sectors to uncover the challenges and opportunities faced by in-house legal professionals in Lebanon.

Lebanon in the 21st century represents an evolving nation that has had to overcome major political and commercial challenges. Situated in the Levant on the easternmost part of the Mediterranean Sea, Lebanon serves as a busy economic and cultural centre for the region, but one that is underpinned by a relatively small legal market. But, in-house counsel have been playing an important role behind the scenes in supporting businesses across a variety of industries.

It's a no-brainer

High literacy rates, coupled with low operating costs – at least compared to other Middle Eastern countries – have allowed Lebanon to cultivate a thriving business community of both local and foreign corporations. Capitalising on Lebanon’s potential, consulting giant PwC runs its Middle East legal headquarters from Beirut.

‘It is unusual to have multinational enterprises and multinational companies base their legal teams in Lebanon. That's an unusual thing, even though it has worked really well for PwC,’ says Fayez Khouri, general counsel, Middle East at PwC.

‘The majority of legal work conducted by PwC revolves around countries like the UAE and Saudi Arabia. Lebanon is a very small chunk of the work that is being done.’

Being based in one country while also being asked to serve many others can be challenging. Using Lebanon’s capital as a base, Khouri often spends time travelling between the UAE, Saudi Arabia and the UK, and managing a team of 12 people across the Middle East has given rise to its own set of challenges.

‘The difference working in the Middle East is you are working with so many different types of laws. As a legal team, we operate within 17 different legal jurisdictions. Although we cover 12 territories, some territories, like the UAE, have several different jurisdictions.’

While being located in a hub serving many jurisdictions can be difficult, it also means that the human resource available is high quality and oftentimes abundant.

‘Lebanon is reputed for the quality of its human resources, especially in the banking industry,’ says Maya Abboud, head of legal compliance at Banque Libano-Française.

‘The high level of education plays an important role. We are a multicultural country, we speak three languages and we have a huge amount of diversity. This is why many investors see Lebanon as a hub for their business. The banking and finance industry has always been a reliable partner to these investors.’

Another factor making Lebanon an attractive business centre is location: geographically, Lebanon is very well connected to the rest of the Middle East, sitting along the eastern shore of the Mediterranean Sea.

‘First, Lebanon’s geographical location is considered by many investors as an ideal strategic hub. It is said to be the gate to the Middle East, especially in matters of international trade,’ explains Abboud.

‘The link to other countries, flight-wise, is very good. People can fly back and forth if they need to – from an financial point of view it makes sense, from a talent point of view it makes sense,’ adds Khouri.

A confluence of factors make Lebanon’s prospects as a commercial hotbed for the region – both in the near and further future – promising ones. The port of capital Beirut connects Lebanon, Syria, Jordan, Iraq and Iran to the wider Middle East and the world beyond – an already critical shipping nexus, which will be of increasing importance with the eventual reopening of Syria for business and the flow-on effects of China’s Belt and Road Initiative both adding to the port’s necessity.

Does size matter?

The Lebanese legal market is a smaller market compared to other Middle Eastern countries, and, as a result, the in-house legal sector is also significantly smaller.

‘What is unique is that there are not as many multinational in-house lawyers as there would be if you were in Dubai or Riyadh or other GCC (Gulf Cooperation Council) cities,’ says Khouri.

Being based in Lebanon has not slowed down legal operations. The in-house legal team at PwC has still successfully serviced the Middle East whilst being located in a smaller legal market. Instead, what have been challenging are the differences in laws within Lebanon and the Middle East compared with other legal markets, such as the UK.

‘In the Middle East, you are much more of a generalist. A lot of concepts that exist in England do not actually exist in the Middle East. For example, the concept of indemnity is not as common here. We can argue about having it in, or having it out, and what are the repercussions of having it in, or having it out. But, in the Middle East, the concept of indemnity does not really exist,’ says Khouri.

There are a plethora of legal concepts in English law that are yet to be addressed within the Middle Eastern regulatory framework. From a legal perspective, this presents a barrier for in-house counsel working across several jurisdictions. But those who we spoke to for this report say that the region is moving towards implementing stricter and more thorough rules and regulations for businesses to follow.

The devil is in the detail

Khouri believes the key to managing auditing regulations across different jurisdictions is for in-house counsel to be up to date and at the forefront of any regulatory changes. At PwC, audit work is at the core of the business, making compliance a key consideration – and one which must be done to high international standards.

‘The auditing profession is highly regulated, so we have to always be very mindful of what the regulators are saying, and what they are doing, and how they monitor the work we do. That opens us up to a significant amount of inspection and supervision,’ says Khouri.

‘If something should go wrong with one of our clients where we have done an audit, we need to be at the forefront of trying to supply information to regulators.’

The trend toward higher regulation is seen throughout the Middle East, and Lebanon is no exception. For instance, the global movement surrounding the need for more transparency and compliance within the banking and financial sector has gained significant momentum in Lebanon. Abboud’s role as head of legal compliance at Banque Libano-Française reflects a shift in banking process:

‘The central bank of Lebanon requires banks and financial institutions to have a compliance department, which should include a legal compliance division,’ explains Abboud.

‘This trend is not specific to Lebanon, it is widespread across the world. Whenever you have a sector with growing regulations at a very fast pace, you need to be able to handle them properly. You need specialists with a legal background in order to understand and interpret the laws and regulations and work on their proper implementation. That is why the profession is evolving very, very fast.’

In such an active regulatory environment, process becomes key. As general counsel at PwC, Khouri has the responsibility to implement systems that ensure compliance with regulations and allow for requests from regulators to be met quickly and easily.

‘If you know you are going to be asked to produce documentation by a regulator, you have to be very organised: you need to know where all your documentation is kept; you need to be able to access it; you need to have a set-up where you can review the documentation to ensure you are sending the right documentation to the regulators,’ says Khouri.

‘You need to be very internally aware of where things are and who the right people within the organisation are to assist you with getting that information.’

Insuring the future

The rise of stricter compliance regulations throughout the insurance industry reflects this shift in priorities.

Relative to the size of the country, the insurance and reinsurance industry in Lebanon is surprisingly active.

‘The Lebanese market is ranked as the 70th largest insurance market in the world with a penetration rate of 2.36%, which does constitute a very good performance knowing that Lebanon is only the 112th country in the world in terms of population,’ says Robert Habchi, claims and legal manager at Nasco Re Holding.

Nasco Re Holding is a leading insurance broker in Lebanon and in the Middle East and Northern Africa. Having started his reinsurance career six years ago, Habchi has overseen a surplus of insurance claims.

‘I believe that we have entered into an era in which compliance is starting to dominate our field with strict regulation at all levels, from internal auditors through to the expectations of clients and partners,’ says Habchi.

‘Compliance is becoming further important, particularly in light of the ongoing environment in the Middle East, suffering from regular political crises.’

The Lebanese insurance and reinsurance sector is a very mature industry. There are 51 insurance companies licensed in Lebanon, says Habchi. Therefore, adapting to new industry trends is essential to staying competitive.

‘If you want to survive in such a fierce and competitive environment, you have to question yourself, and adapt to our modern world.’

Team effort

The Middle East as a region does not operate in isolation. As well as grappling with the drivers of regulatory change that come from within the region, in-house counsel based in Lebanon are also required to react to global trends and issues. One of the most significant in recent times has been the introduction of the General Data Protection Regulation (GDPR). Coming into force in 2018, the GDPR is a regulation protecting the privacy of European citizens. It also includes the transfer of personal data outside of the EU.

‘Most recently, the introduction of the GDPR in Europe has been important. Even though it doesn't have a direct effect on the Middle East, there are aspects of it that we need to pay attention to,’ says Khouri.

‘The world is a very small place, it’s not country by country anymore – you are dealing across borders and across jurisdictions. So I think the introduction of the data protection regulations has brought about a lot of changes. We have had to change our standard form contract, we have had to change our policy.’

The effects of the GDPR on Lebanese business practices are a reflection of the rise of digitalisation within the country. In-house counsel in the region are required to adapt to these changes, especially when undertaking cross-jurisdictional activity.

A job to be done

In-house counsel across a variety of industries in Lebanon play an important role in supporting big business. As legal systems evolve, legal advisers remain at the forefront of changing regulations and industry practices. Yet the legal market is still relatively small in Lebanon.

When observing legal practices from a broader view point, Habchi observes key similarities throughout the Middle East.

‘The main difference, I would say, would be on the “emotional side” of Middle Eastern individuals, who have a certain sense of developing personal relationships, with a specific need to meet face to face with their interlocutor.’

The reliance on personal relationships and connections is an important consideration for in-house counsel operating within the Middle East. Yet as the industry continues to change at such a rapid pace, there will always be a place for skilled and talented in-house lawyers within Lebanon. n