Global: Forensic Audit Exposes Misconduct and Unlawful Commissions in Lebanon’s Central Bank

A comprehensive forensic audit conducted by a New York-based company has brought to light years of misconduct involving Lebanon’s central bank’s former governor and the revelation of $111 million in “illegitimate commissions,” as stated in the report released by the company.

This development adds another chapter to the ongoing saga involving Lebanon’s former central bank governor, Riad Salameh, aged 73. Salameh concluded his three-decade-long tenure as governor last month under the shadow of investigation and accountability for his role in his country’s economic crisis.

The 331-page report authored by Alvarez & Marsal, obtained by The Associated Press, was submitted to the parliament on Friday. The forensic audit was a significant requirement from the international community and the International Monetary Fund (IMF), which had progressively lost confidence in Lebanon due to its ongoing crisis.

A contract between Lebanon’s government and Alvarez & Marsal was signed in September 2021 for the audit. However, the process encountered subsequent delays. The audit’s scope encompasses the period between 2015 and 2020, coinciding with Lebanon’s economic downturn that commenced in October 2019.

Alvarez & Marsal highlighted the central bank’s “unwillingness to grant direct access to its systems and facilities for the audit,” which significantly hindered and prolonged the audit process.

The report specifically delves into the practice of “financial engineering,” initiated in 2015. This mechanism allowed local banks to attract foreign dollar deposits, then prompting these banks to deposit the dollars back into the central bank. In return, the banks were offered interest rates higher than international market standards.

The report noted that this “financial engineering” approach had proven to be expensive for the central bank. Over time, Lebanon’s central bank experienced a shift from a foreign currency surplus of $7.2 billion by the end of 2015 to a shortage of $50.7 billion by the end of 2020. This was fueled by a significant 119% rise in foreign currency-denominated deposits, largely driven by the central bank.

Recently, the United States, United Kingdom, and Canada imposed sanctions on Salameh and his close associates, citing corruption allegations. Additionally, France, Germany, and Luxembourg are pursuing investigations into Salameh and his associates for alleged financial crimes, including illicit enrichment and money laundering. Interpol notices were issued for Salameh in May by Paris and Berlin.

The report also underscores the existence of “illegitimate commissions” amounting to $111 million during the 2015-2020 period. These commissions are currently under scrutiny by both Lebanese and international prosecutors. This aspect appears to be referencing the involvement of the former governor’s brother, Raja Salameh.

It has been reported that the Lebanese central bank engaged Forry Associates Ltd., a brokerage firm owned by Raja Salameh, to handle government bond sales, resulting in commissions of $330 million to the firm.