Shareholders of collapsed Lebanese bank take Deloitte to court in Dubai

06 March 2018 Authored by

A coalition of minority shareholders from collapsed Lebanese Canadian Bank (LCB) will have their case against Deloitte heard in Dubai, in a landmark court ruling in the UAE. The Big Four firm was the auditor for LCB, while over £160 million was laundered to sources which included Hezbollah-linked groups.

A Dubai International Finance Centre (DIFC) Court judge has ruled that a group of former minority shareholders from liquidated LCB have a “real prospect of success”, and should proceed to trial with their claim against Deloitte. The milestone ruling is not only the first audit negligence case to be heard by the DIFC Courts, but it also extends the potential liability of DIFC-regulated bodies to the acts or omissions of foreign agents based in other jurisdictions.

The action stems from the bank’s collapse, following the US Treasury Department’s October 2011 statement identifying it as “a financial institution of primary money laundering concern”. The Treasury Department also leveled major accusations at LCB management which implied links to officials of Hezbollah, which the US considers to be a terrorist organisation. This included transactions to a subsidiary in Gambia, partially owned by a known Lebanese Hezbollah supporter.

Shareholders of collapsed Lebanese bank take Deloitte to court in Dubai

Overall, the Treasury’s financial crimes enforcement network (FinCEN) found that nearly £166 million of illicit funds were laundered through LCB’s accounts while Deloitte was its auditor. Now, a claim brought by Nest Investments SAL, subsequently alleges that the professional services giant failed in its duties as auditor, by allowing the firm’s relationship with LCB senior management and the majority of shareholders to become compromised. Nest also claims the firm failed to adhere to Deloitte’s high global standards on integrity, professionalism and objectivity.

A spokesman for the claimants said that they were pleased with the Court’s decision to allow the hearing, stating, “The allegations against D&TME are serious in nature – involving complicity in money laundering and terrorist financing through the Lebanese Canadian Bank. The defendant plays a prominent role in the Middle East audit market and remains the auditor in liquidation at the bank. It is therefore particularly important that the allegations against Deloitte be heard and answered in a competent court.”

However, the court did dismiss the action proposed against Joe El Fadl, Deloitte’s global financial services group lead in the Middle East. Both Deloitte and El Fadl had applied to the DIFC Courts, requesting that the case be struck out on jurisdictional grounds.

The bank was based in Lebanon and had been audited there for nearly 20 years by Deloitte’s Beirut office. However, the minority shareholders argued that a Beirut hearing would not allow for a fair hearing, because of political biases – the nation struggles with satisfying a wide range of ethnical groups – and had therefore decided to lodge their claim in the DIFC Courts, against the regional firm since the DIFC regulated both Deloitte and El Fadl.

In response to the claims, Deloitte pointed out that the firm and El Fadl had never entered into any contractual services relationship with the group of claimants, stating, “The claim against the partner has been correctly rejected by the DIFC court.”

The accounting and consulting firm added, “The claim against the firm is without merit and the judgment revealed fundamental deficiencies in the claim. For example, it is not reasonably arguable that DIFC law governs the claim and the claim is based entirely on DIFC law. The firm will continue to vigorously resist any attempt to pursue the claim.”

Meanwhile in Lebanon's management consulting market, the government tapped American consulting giant McKinsey & Company to support the country's policy makers with revamping its economy as the country struggles to overcome crippling levels of unemployment and debt.