Corrupt central bank governor allegedly helped push Lebanon’s economy off the cliff

On July 31, 2023, Riad Salameh retired from a 30-year tenure as the governor of Banque du Liban (BdL), the central bank of Lebanon. Instead of a retirement party and a flattering press release detailing his time at BdL, 16 days later, Wassim Mansouri, Salameh’s successor, froze Salameh’s bank accounts after the U.S., Britain and Canada had imposed sanctions on him for “contributing to the breakdown of the rule of law in Lebanon” following decades of alleged corruption. The international coalition contends that several close to Salameh helped him funnel $330 million in funds from BdL through shell companies to invest in European real estate and illegally amass a fortune. Interpol has issued “red notices” for him — requests to law enforcement worldwide to locate and provisionally arrest him. Also, at least seven European authorities, including French and German prosecutors, have created arrest notices for him.

Lebanese authorities confiscated his Lebanese and French passports in May 2023 to prevent Salameh from fleeing Lebanon, but as of publication his whereabouts were reportedly unknown. (See “Judiciary confiscates passports of Lebanon’s central bank chief after French arrest warrant,” by Bassem Mroue, Associated Press, May 24, 2023 and “Did Salameh leave Lebanon? His agent: ‘If you know, tell me’,” Farah Mansour, Al-Modn, Sept. 23, 2023.)

“By using his position to enrich himself, his family, and his associates in apparent contravention of Lebanese law, Salameh contributed to Lebanon’s endemic corruption and perpetuated the perception that elites in Lebanon need not abide by the same rules that apply to all Lebanese people,” said Under Secretary of the U.S. Treasury for Terrorism and Financial Intelligence Brian E. Nelson in August of last year.

(See “The world’s worst central banker retires,” The Economist, July 31, 2023; “Lebanon Freezes Accounts of Former Central Bank Governor,” by Liz Alderman, The New York Times, Aug. 16, 2023; and “Joining Partners, U.S. Treasury Sanction Former Central Bank Governor of Lebanon and Co-conspirators in International Corruption Scheme,” U.S. Department of the Treasury, Aug. 10, 2023.)

Collapsing Lebanese economy

The World Bank said Lebanon has endured one of the “top 3 worst economic and financial crises since the mid-nineteenth century.” That marks a sad decline for a country that was once touted as the Switzerland of the Middle East. Even during the 2008 global financial crisis, Lebanon drew media attention for being an oasis of stability amid the global economic turmoil. And Salameh took much of the credit for the country’s economic resiliency, earning him the nickname “the magician.” However, since 2019, Lebanon’s economy has collapsed, which resulted in the Lebanese pound (lira or LBP), once pegged at 1,500 to the U.S. dollar since 1997, losing 98% of its value and plummeting to the current 90,000 to the dollar trade value. Annual inflation has soared over 100%, averaging 171.2% in 2022, and gross domestic product has contracted by 39.9%. (See “The world’s worst central banker retires,” The Economist, July 31, 2023.)

Lebanon’s economic collapse has shone a spotlight on how BdL, and the policies spearheaded by Salameh, were engineered to funnel millions for illicit gains under the banner of economic reform. [See “Lebanon Economic Monitor: Lebanon Sinking (To the Top 3),” World Bank Group, Spring 2021; “Explainer: Lebanon’s financial meltdown and how it happened,” by Edmund Blair, Reuters, June 17, 2021; “Lebanon: Normalization of Crisis is No Road to Stabilization,” World Bank Group, May 16, 2023; “Lebanon ‘immune’ to financial crisis,” by Natalia Antelava, BBC News, Dec. 5, 2008; and “Lebanon is experiencing a tourism boom,” by The Economist, Aug. 24, 2023.]

‘Financial engineered’ Ponzi scheme

Indeed, experts have frequently described the country’s financial system, designed in part by Salameh, as a type of Ponzi scheme that depended on fresh money to pay existing creditors and that hid the true nature of the risks involved. (See “Lebanon Public Finance Review: Ponzi Finance?” World Bank Group, July 2022 and “In Lebanon, a renowned central bank governor faces attack,” by Tom Arnold, Reuters, Nov. 15, 2019.)

Salameh’s appointment in 1993 was unprecedented because unlike previous central bank governors, he came from the world of finance. Salameh had been an investment banker with Merrill Lynch who’d managed the portfolio of Rafic Hariri — Lebanon’s first post-civil world prime minister and, at the time, one of the richest individuals in Lebanon. (See “‘The magician’: Riad Salameh and the plundering of Lebanon,” by Raya Jalabi, The Financial Times, Aug. 19, 2023.)

Hariri tasked Salameh with stabilizing the lira to attract foreign inflows from neighboring countries and Lebanese migrants abroad, which was key to Hariri’s reconstruction strategy. In 1997, the lira was formally fixed to the U.S. dollar (USD), so the USD became the dominant currency for bank deposits, while the lira was used for public expenditure. A constant inflow of the USD was required to pay interest on public debt, maintain the peg and cover the cost of subsidies on imports, such as fuel. This would’ve helped create a sense of stability in post-civil war Lebanon. However, various impediments would remain unresolved, including an inadequate tax regime, inefficient public expenditures and an excessive dependency on imports, which all lead to a current account deficit and a subsequently overvalued lira. (See “The Origin of the Crisis in the Lebanese Banking Sector,” by Alain Bifani, Hoover Institution, Stanford University, 2021.) This mandate for a constant flow of the USD to support the currency peg was strained by regional political instability in 2011, particularly the Syrian conflict, and tumbling oil prices in 2014, which reduced foreign currency inflows.

In an attempt to staunch the outflows of vital foreign currency reserves, bolster market confidence and in turn maintain the currency peg, Salameh established in 2016 what he called “financial engineering.” Through a complex series of financial operations and debt swaps, BdL effectively offered Lebanese banks double digit returns to place dollars at BdL. (See “Part II of Crisis in Lebanon: Buildup of Interrelated Challenges,” by Junko Oguri, Yale School of Management, Sept. 21, 2020 and “‘The magician’: Riad Salameh and the plundering of Lebanon,” by Raya Jalabi, The Financial Times, Aug. 19, 2023.) This in turn encouraged local banks to offer high rates to attract dollar deposits, which largely came from locals and the Lebanese diaspora that has long supported the domestic economy through hard-currency remittances. Lured by substantial profits, Lebanese banks also shifted most of their foreign currency liquidity from correspondent banks abroad into BdL, which eventually held two-thirds of Lebanese bank deposits. The strategy helped replenish the central bank’s foreign currency reserves. Banks deposited more than $24 billion at BdL between late 2017 and early 2019, according to the International Monetary Fund (IMF). (See IMF’s 2019 Article IV Consultation for Lebanon.)

The problem was that BdL used the hard currency reserves to cover a whole host of rising costs. Not only did those reserves finance the country’s widening trade deficit, but they helped maintain the lira’s precarious peg to the dollar and funded the government’s increasingly large fiscal deficit in part through the purchase of Eurobonds. (Some of those Eurobonds also found their way onto the balance sheets of the commercial banks through swaps that were part of Salameh’s financial engineering.) That’s not to mention all the interest and principal BdL owed to the commercial banks. According to a 2019 working paper by think tank Triangle, BdL had issued some $60.82 billion in U.S. dollar-denominated certificates of deposits to commercial banks, which it eventually had to pay back. (See “Lebanon’s Financial Crisis: Where Did the Money Go?” by Mike Azar, LCPS, April 30, 2020 and “Lebanon’s Financial House of Cards,” by Sami Halabi and Jacob Boswall, Triangle, November 2019.)

This delicate balancing act was only possible when BdL had access to consistent flows of U.S. dollars through the commercial banks and other sources, but the fresh inflows of hard currency began to dry up as foreign donors and investors lost confidence in the government’s ability to deliver the necessary reforms to put the economy on a sustainable footing and after a tax on WhatsApp calls sparked protests against the country’s elites. Gross reserves at the central bank fell from a peak of around $36.8 billion in October 2017 to $10.4 billion in December 2022, according to the IMF. (See “Explainer: Lebanon’s financial crisis and how it happened,” by Edmund Blair, Reuters, Jan. 23, 2022; “Lebanon: 2023 Article IV Consultation - Press Release,” IMF, June 29, 2023; and “Gross International Reserves Held by Central Bank for Lebanon,” St. Louis Fed.)

By 2019, BdL faced a liquidity problem that worsened during the COVID-19 pandemic and eventually resulted in the country’s first-ever default on March 9, 2020, when the country failed to repay a $1.2 billion Eurobond — a setback that Lebanon had never encountered, even during its 15-year civil war. Commercial banks, unable to access their deposits at BdL imposed strict capital controls to prevent deposit outflows by Lebanese depositors who saw their standards of living plummet against the lira freefall. (See “For the first time, Lebanon defaults on its debts,” The Economist, March 12, 2020.)

Money laundering and embezzlement allegations

As the Lebanon economy collapsed, BdL, its policies and Salameh came under scrutiny. A turning point came on Nov. 27, 2020, when Swiss authorities submitted a request for mutual legal assistance under the ambit of the United Nations Convention against Corruption to their Lebanese counterparts to investigate Salameh and his younger brother, Raja Salameh, on suspicion of money laundering and embezzlement of funds via the Swiss banking system. [See “À l’attentiondes autorités compétentes de la République du Liban Par l’intermédiaire du Département Fédéral de Justice et Police (DFJP),” Nov. 27, 2020 and “Swiss probe Lebanon’s central bank chief over alleged $300m embezzlement,” by Chloe Cornish and Sam Jones, The Financial Times, April 24, 2021.]

Upon receiving the Swiss judicial cooperation request, Lebanese authorities initiated their own probe. This has been followed by investigations in Lebanon, France, Germany and Luxembourg. (See “US, UK, and Canada sanction Lebanon’s former central bank governor over corruption allegations,” by Kareem Chehayeb, AP, Aug. 10, 2023.)

Central to the probe was Forry Associates Limited, a shell company created in the British Virgin Islands owned by Raja through which Salameh funneled $333 million from the BdL between 2002 and 2016. On April 6, 2002, Forry reportedly executed a brokerage contract signed by Salameh on behalf of BdL and CEO of Forry, Kevin Walter. Salameh maintains that BdL’s central council, which Salameh chaired (see “About BDL” ), authorized him to contract Forry to act as an agent to market financial products, including purchases or sales of financial instruments, such as certificates of deposit between BdL and commercial banks. In turn, Forry reportedly earned a broker’s fee of up to 0.375% of the value of each transaction. (See “What we know so far about Riad Salameh’s Swiss money laundering probe,” by Lynn Sheikh Moussa, Beirut Today, April 15, 2021 and “Revealed: How investigators say Riad Salameh conducted central bank embezzlement operation,” by Nada Maucourant Atallah, The National.)

According to a Financial Times article citing a Lebanese judge’s summary note and other sources, the brokerage contract was never shown to council members at the BdL, though Salameh has maintained that Forry had a legitimate contract with the central bank. The same article cites Salameh saying that he handled transactions to Forry himself through a subordinate. Commissions from several banks reportedly went to a clearing account opened at BdL, and then they were routed to Forry’s HSBC account in Switzerland, of which Raja was the beneficial owner. BdL contracted with one Lebanese bank to pay 3/8 of 1% commission on the purchase of certificates of deposits, but the contract made no mention of Forry, and senior executives at local banks said that they’d never heard of the brokerage firm until Swiss authorities opened an investigation into the matter, according to a Reuters report. (See “‘The magician’: Riad Salameh and the plundering of Lebanon,” by Raya Jalabi, The Financial Times, Aug. 19, 2023 and “Contracts show Lebanon’s central bank obscured recipients of commissions,” by Samia Nakhoul and Timour Azhari, Reuters, Feb. 20, 2022.)

Forry hit trouble in 2015, around the same time Salameh was implementing his financial-engineering plans, when HSBC Switzerland detected irregularities. When HSBC demanded a copy of the brokerage contract, Raja provided a version with marked discrepancies from the BdL original, including Forry’s address and the replacement of Kevin Walter’s signature with Raja’s. The bank refused to process those transfers and shuttered the account; Raja dissolved Forry in 2016 because of a “drop in the pace of work in 2015,” according to an article in The National. (See “Revealed: How investigators say Riad Salameh conducted central bank embezzlement operation,” by Nada Maucourant Atallah, The National, Feb. 1, 2023.) Judicial investigators have been unable to identify or locate Kevin Walter, a broker license or a list of clients.

Forry’s HSBC account received around $326 million via 310 transactions between April 2002 and October 2014, from BdL and were marked as “commissions” or “fees,” according to the Swiss authorities. Much of that money, about $248 million, was almost immediately transferred to an HSBC account under Raja Salameh’s name, and of that amount, $207 million was transferred to five different Lebanese banks under his name and titled “private expenses,” according to the Swiss authorities. The embezzled funds were disguised through a complex layering process where the funds were transferred through multiple bank accounts, offshore companies and trusts in Switzerland, Panama, the U.S. and the U.K. and linked to real estate acquisitions in Paris, New York and Germany. [See “Forry Associates: How Lebanon’s Central Bank Governor Embezzled Public Funds,” by Ali Noureddine, Fanack.com, Feb. 13, 2023; “À l’attentiondes autorités compétentes de la République du Liban Par l’intermédiaire du Département Fédéral de Justice et Police (DFJP),” Nov. 27, 2020; and “Lebanon’s Offshore Governor,” by Hazem Ameen and Alia Ibrahim (Daraj.com) and Tom Stocks, Riad Kobaissi and Rana Sabbagh (OCCRP), Aug. 11, 2020.]

European investigators are also looking into multiple family members and close associates who they allege assisted Salameh in his scheme to defraud the BdL. Chief among them is Marianne Hoayek, a former assistant to Salameh at the BdL; Marwan Kheireddine, chairman of Lebanon’s Al-Mawarid Bank (AM Bank) and the former minister of state between 2011 and 2013; and Anna Kosakova, Salameh’s romantic partner for over two decades, who’s also accused of money laundering. Kosakova owned and managed several European real-estate management firms that purchased office space in Paris, part of which was rented to the BdL. (See “France names Mother of Salameh’s daughter as suspect in Central bank probe,” Ya Libnan, Dec. 6, 2022.)

Hoayek is being investigated for money laundering after receiving funds from Forry in 2008 and 2013. She began working at BdL in 2003 as an intern and progressed to senior executive adviser in 2020. (See “Riad Salameh’s assistant faces European investigators in Beirut,” by Nada Maucourant Atallah and Jamie Prentis, The National News, April 27, 2023; “French prosecutors name bank chairman a suspect in Lebanese central bank probe,” by Layli Foroudi, David Gauthier-Villars and Timour Azhari, Reuters, April 8, 2023; and “French Prosecutors Name Ukrainian Suspect in Lebanese Central Bank Probe,” by David Gauthier-Villars, Reuters, U.S. News, Dec. 5, 2022.)

Kheireddine is accused of allowing Salameh to process fund transfers through AM Bank. Bank statements showed Salameh’s accounts at AM Bank ballooning from $15 million in 1993 to more than $150 million by 2019, according to Reuters. (See “French prosecutors name bank chairman a suspect in Lebanese central bank probe,” by Layli Foroundi, David Gauthier-Villars and Timour Azhari, Reuters, April 8, 2023 and “Former French central bank governor investigated over Riad Salameh ‘embezzlement’ scandal,” by Nada Maucourant Atallah, The National, July 27, 2023.)

Audit reveals wrongdoing

Late last year, an audit by consulting firm Alvarez & Marsal (A&M) allegedly revealed more evidence of corruption and poor management at BdL between Jan. 1, 2015, and Dec. 31, 2020. The 330-page audit goes into great detail about the BdL’s financial-engineering operations and the commissions funneled through what A&M calls a “consulting account.” Below are some of its findings. (See “Preliminary Forensic Audit Report Banque du Liban,” Alvarez & Marsal Middle East Limited, Aug. 7, 2023.)

• A&M highlights an account in the records of the BdL titled “consulting” whose International Bank Account Number, or IBAN, is referenced as a source of payments to Forry, and contains 27 debit and eight credit entries. A&M says that the account holders or the ultimate beneficiaries of this account are unavailable as BdL removed the beneficiaries’ name fields, citing banking secrecy laws. (See pages 94 and 95 of audit.)
• The 27 debit entries totaling $111.3 million were made from April 22, 2015, to Sept. 9, 2019, to six Lebanese banks including AM Bank and one HSBC Private Bank (Suisse) SA. Based on BdL’s records, A&M was unable to confirm whether a service was actually performed to justify commission payment. (See pages 96 and 97 of audit.)
• A&M found eight credits booked to the consulting account totaling $92.97 million between Jan. 31, 2015, and Dec. 31, 2020. BdL created two credits totaling $35.9 million when it carried out financial-engineering transactions with Optimum Invest SAL, a Lebanese brokerage firm established in 2004 with which the central bank signed a nonexclusive contract. This was “explicitly to create commissions to be paid to third parties,” according to the audit. (See page 99 of audit and “Broker used by Riad Salameh’s Lebanon central bank accused of ‘extravagant’ irregularities,” by Nada Maucourant Atallah, The National, Sept. 6, 2023.) BdL also sold treasury bills to Optium and repurchased them at a higher price, whereby the additional premium was transferred from another BdL account and credited to the consulting account.
• Three credits totaling $43.45 million comprised commissions charged to banks “to credit a credit balance that could be used to offset the costs of financial engineering,” according to the audit. (See page 103 of audit.)
• Three credits accounted for $13.6 million from another BdL account as payment transfers received from AM Bank. (See page 103 of audit.)
• The BdL’s central council partly approved the credits, but the central bank governor set their amounts and destinations. (See page 105 of audit.)
• A&M identified no records confirming that a service was performed to justify some of the commission payments. BdL at the time had provided no further documentation or explanation for the book entries and transfers in and out of the consulting account. (See page 24 of the audit.)

Will justice be served?

Several steps have been taken internationally to provide some restitution. In 2022, the European Union Agency for Criminal Justice Cooperation (Eurojust) announced the seizure of $130 million in assets linked to Salameh’s wealth, including bank accounts and real estate in Germany and France valued at 44 million euros. Another 36.5 million British pounds in real estate assets tied to the Salameh family were seized in the U.K. at the request of the French judiciary, while European authorities also froze bank accounts in Luxembourg and France worth 13.3 million euros. (See “France, Germany and Luxembourg seize assets of Lebanon’s central bank chief,” France 24, March 29, 2022; “European investigators arrive in Beirut for corruption probe,” by Raya Jalabi, The Financial Times, Jan. 16, 2023; and “More than £36m in UK property seized in Riad Salameh money laundering probe,” by Nada Maucourant Atallah, The National, July 27, 2023.)

In addition to the coordinated U.K., U.S. and Canada sanctions on Salameh, Raja and their associates, the U.K. government utilized for the first time the Global Anti-Corruption Sanctions regime against individuals involved in corruption in Lebanon. (See “UK, US and Canada sanction Lebanon’s former Central Bank Governor Riad Salameh and close associates,” GOV.UK, Foreign, Commonwealth & Development and Lord Ahmad of Wimbledon, Aug. 10, 2023 and “EU seizes $130m assets linked to money laundering in Lebanon,” Aljazeera, March 28, 2022.)

Lebanon opened an investigation in January 2021 after Switzerland made a request for judicial cooperation. The judiciary appointed Judge Jean Tannous to lead the preliminary investigation, which has encountered hurdles, including political intervention. Tannous was forced to suspend his investigations on four Lebanese banks at the behest of the then Prime Minister Najib Mikati to the public prosecutor, Ghassan Oueidate. Mikati has publicly defended Salameh, stating “you don’t change officers during a war.” (See “Groups lodge complaint against Swiss banks involved with Riad Salameh,” by Sunniva Rose, The National, Feb. 25, 2022.)

Furthermore, BankMed, one of the four Lebanese banks that Tannous asked for details on Raja’s accounts, accused Tannous of gross misconduct. The primary point of contestation was the varying interpretations of Lebanon’s bank secrecy laws. Lebanese banks argued that only the country’s Special Investigation Commission (SIC), which Salameh chaired, could lift banking secrecy. In January 2022, the public prosecutor Oueidate stopped Tannous from attending a meeting with European prosecutors investigating Salameh. After the conclusion of an 18-month preliminary investigation in Lebanon, Oueidate referred Salameh’s case to the Beirut public prosecutor Ziad Abou Haidar who declined in June 2022 to prosecute Salameh because of the case’s political sensitivity. However, on Feb. 23, 2023, the Lebanese public prosecutor Raja Hamoush charged Salameh, Raja and Marianne Hoayek, with money laundering, embezzlement, tax evasion and forgery. (See “Court ruled unfit to judge arrest warrant against ‘fugitive’ Riad Salameh,” by Maan Barasy, NOW Lebanon, Sept. 7, 2023.)

Perhaps the biggest challenge to the Lebanese investigations has been lawsuits that Salameh has filed. On Aug. 29, 2023, Salameh failed to appear before an indictment and opted to lodge three appeals against the three judges heading the indictment chamber. (See “Lawsuit freezes Lebanese investigations into Riad Salameh,” by Naija Houssari, Arab News, Aug. 29, 2023 and “Riad Salameh’s lawyer files action against indictment chamber,” by Claude Assaf, L’Orient Today, Aug. 29, 2023.) (This tactic, based on Lebanon’s post-civil war policy of impunity, has been used and abused by officials linked to the investigation into the Port of Beirut explosion on Aug. 4, 2020, where 218 individuals were killed. Since the tragedy, no one has yet been held accountable.) Oueidate has accused the investigating judge of “rebelling against the judiciary and usurping power” after resuming the inquiry after a 13-month suspension because of political resistance. (See “Beirut blast: Lebanon prosecutor charges judge leading investigation,” by Anna Foster and David Gritten, BBC, Jan. 25, 2023.)

Possibility of Lebanon’s collapse

The Salameh saga continues to unfold, as acting BdL governor Wassim Mansouri emphasized that the Lebanese state may collapse in the absence of reforms. (See “Lebanon’s scorned central bank chief Riad Salameh steps down,” by Adam Lucente, July 31, 2023, Al-Monitor.) “Every day we waste without drafting laws, losses increase as well as the possibility of a state collapse,” Mansouri says. In countries with weak state institutions, fraud permeates the private and public sectors, which fosters an environment where the lack of effective oversight and regulation leads to largely unfettered authority, and undetected and unpunished fraudulent activities. These factors, plus fragmented regulatory oversight, corruption and excessive bureaucracy — supplemented by a political system that requires power to be shared among Lebanon’s diverse religious factions — allowed Salameh to override BdL’s independence as a central banking authority and its internal controls, and fully control its public function to misappropriate public funds for his illicit enrichment. (See “Lebanon’s interim central bank chief vows not to lend money to government, calls for economic reform,” Yalibnan, Aug. 25, 2023.)

For years, Lebanon will bear the burden of an unprecedented economic depression caused in great part by corruption, unchecked authority and illusionary public oversight.

[See “A&M audit: poor oversight led to years of corruption and mismanagement at Banque du Liban” at the end of this article.]

Fadi Makdessi is a KYC analyst at Credit Suisse, part of the UBS group,  in North Carolina. Contact him at F.Makdessi@outlook.com.

Rayan Mohamed, CFE, is a KYC assistant vice president at Credit Suisse, part of the UBS group, in North Carolina. Contact him at alagbari@yahoo.com.

A&M audit: poor oversight led to years of corruption and mismanagement at Banque du Liban

Critics have blamed an acute lack of transparency and oversight at Banque du Liban (BdL) as one of the main reasons behind the corruption and financial shenanigans allegedly perpetrated by Lebanese central bank’s former president Riad Salameh.

A recent audit by consulting firm Alvarez & Marsal (A&M) underscored how a lack of oversight was central to Salameh’s dominance of BdL. The A&M audit draws attention to Salameh’s “unscrutinized authority” and BdL’s ineffective internal and external audit functions. A&M says that it saw little evidence of proper risk management controls and that the central council (see “About BDL”) was an ineffective governing body that failed to challenge Salameh’s decisions. (See “Preliminary Forensic Audit Report – Banque du Liban,” Alvarez & Marsal Middle East Limited, Aug. 7, 2023.)

This obfuscation extended to how the central bank reported its financials. A&M notes that full audited financial statements were never made public from 2015 to 2020, and BdL only provided a summary balance sheet. Without full financials, experts struggled to see the full extent of BdL’s problems. According to Reuters, an International Monetary Fund memo drawn up for the Lebanese authorities in April 2016 showed there was a $4.7 billion hole in the country’s reserves, but that fact was never made public. (See “Before Lebanon’s current financial crisis, central bank faced a $4.7 billion in reserves – IMF memo,” by Sami Nakhoul, Reuters, Oct. 28, 2021.)

The way BdL accounted for “seigniorage” — the profit generated from the value of money creation minus the cost of its production — has also come under scrutiny. In 2020, critics slammed how in 2018 BdL recorded seigniorage as an asset to help bolster its balance sheet and hide holes in its books. Audits that year were reportedly signed off by EY and Deloitte. (See “Lebanon: Central bank chief inflated assets by $6bn in 2018,” Al Jazeera, July 23, 2020.) A&M criticized BdL’s use of the concept as “at best unconventional and controversial.”

During the Lebanese probe, EY highlighted that Salameh excluded the consulting account from the “scope of the audit” because of “confidentiality.” (See “Embezzlement at the Lebanese central bank: Did auditors overlook alleged fraud?” by Nada Maucourant Atallah, The National, May 15, 2023.)

Since the collapse of the Lebanese economy, IMF has called for an overhaul of how the BdL is held accountable to the public. It also still sees shortcomings in the country’s banking secrecy law. This law, passed in 1956, prohibits the disclosure of client names, assets or facts to an individual or the public, e.g., judicial or administrative authority. (See Banking Secrecy Law of Sept. 3, 1956.)

Lebanon passed anti-money laundering laws in 2001 and 2015, which ostensibly enabled the lifting of bank secrecy. But the IMF has said that amendments to the banking secrecy law have failed “to address outstanding critical weaknesses” and access to critical data. (See “Lebanon: Staff Concluding Statement of the 2023 Article IV Mission,” IMF, March 23, 2023.)

Recent laws created the Special Investigation Commission (SIC), which established Lebanon’s Financial Intelligence Unit (FIU) within BdL. Yet while the SIC is supposed to be an independent, legal entity, it still reports to BdL’s governor. (See Fighting Money Laundering Law No. 318 of April 20, 2001 and “In brief: banking regulatory framework in Lebanon,” March 15, 2023, Abou Jaoude & Associates Law Firm, Lexology.)