The Dubai International Finance Centre Courts (DIFC Courts) has ruled that a claim against accountancy firm Deloitte and Touche (Middle East) (DTME) concerning the audits of the collapsed Lebanese Canadian Bank (LCB) should proceed to trial.

The ruling follows a claim submitted on 19 July 2016 by a group of minority shareholders of LCB against DTME and its regional partner, Joseph El Fadl.

The claim was filed on behalf of Nest Investments Holding SAL, and a group of other minority shareholders who held a combined 24 percent stake in the bank. It alleges Deloitte & Touche in Lebanon, as agent for DTME, breached its duties as LCB’s auditors by failing to address compliance with Lebanese reporting laws, and by failing to address losses caused to LCB through related party transactions. This led to a failure to report LCB’s true financial position “or to disclose various illicit activities, including, but not limited to money laundering and terrorist financing”, the claim states.

Deloitte had applied to strike out the claim, arguing that DTME was not the correctly named defendant and that the correctly named defendant should have been Deloitte Lebanon. However, the judge ruled that there was sufficient evidence of ‘agency’ (ie. that Deloitte Lebanon acted as DTME’s agent in Lebanon) for the claim to proceed against it. However, the claim against the partner, Joseph El Fadl, was dismissed.

In a statement sent to Zawya via email, a spokesperson for Deloitte & Touche (M.E.) said: “On February 13, 2018, the Dubai International Financial Centre (DIFC) court issued a judgement on the suitability of the jurisdiction in a case filed by a group of claimants representing minority shareholders of the Lebanese Canadian Bank (the Bank) against Deloitte & Touche (M.E.) (the Firm) and a partner. The Firm and the partner have never entered into any contractual services relationship with this group of claimants.”

“The claim against the partner has been correctly rejected by the DIFC court,” the statement added.

DTME went on to argue that the claim against it was without merit, and that it will “vigorously resist any attempt to pursue the claim”.

A spokesperson for Nest Investments said in a press statement that “the allegations against DTME 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 DTME be heard and answered in a competent court.”

In 2011, the US Department of the Treasury identified LCB as a ‘financial institution of primary money laundering concern’, stating that it facilitated the money laundering activities of an international narcotics trafficking and money laundering network. Its action led to LCB’s banking licence being revoked by Lebanon’s Central Bank , Banque du Liban, in the same year.

(Reporting by Nada Al Rifai; Editing by Shane McGinley and Michael Fahy)

(nada.rifai@thomsonreuters.com)

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© ZAWYA 2018