Long-awaited auditor report slams governance at Lebanon central bank


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A forensic audit of Lebanon’s central bank found evidence that $111mn in “illegitimate commissions” had been paid from one of its accounts — transactions it said “appear” to be related to a scheme at the centre of the probes into its ex-governor in Lebanon and several European countries.

The report from Alvarez & Marsal also described an institution mired in opaque practices, bad governance and lacking adequate risk management measures, with recently departed governor Riad Salameh exerting “largely unscrutinised authority”.

When Lebanon’s economy imploded in 2019, international donors demanded a forensic audit of the Banque du Liban before it would send aid and loans to the crisis-hit country. 

After pushback from the government, the BdL and some political leaders, A&M was tasked by the government in 2021 to conduct a forensic audit of the central bank’s accounts and practices. It did this despite severe delays, constraints and attempts to obfuscate information, the report noted.

The Financial Times has reviewed a copy of the report, which covers the years 2015-2020 and was recently handed to government officials.

Riad Salameh was governor of Lebanon’s central bank for 30 years © Joseph Eid/AFP/Getty Images

Lebanon’s currency has slumped 98 per cent against the dollar amid the four-year economic meltdown, while its banks have imposed punishing haircuts on depositors’ withdrawals, pushing many people into poverty.

Salameh stepped down on July 31 after 30 years running the BdL. Once praised as a financial whizz, he has been subject to intensifying scrutiny, dogged by allegations of corruption and financial mismanagement at the central bank.

He faces judicial investigations in Lebanon while both France and Germany have issued warrants for his arrest. This week Salameh was sanctioned by the US and UK, who accused him of engaging in “unlawful practices” which enriched himself, members of his family and his associates.

Salameh has strenuously denied all allegations against him, insisting his wealth stems from his previous job as an investment banker and from family inheritance.

In written responses to FT questions, Salameh disputed A&M’s findings, calling them “subjective views”, and said there was “never misconduct” during his tenure. He said the actions of the BdL, including the commissions in question, were “governed by” decisions taken by the Central Council, the bank’s main governing body, which were lawful.

The BdL said its acting governor was ready “to fully co-operate with the [Lebanese] judiciary and furnish any requested information”.

A&M’s report scrutinised Salameh’s “financial engineering” scheme, an unconventional monetary policy which the central bank relied on to boost its foreign currency reserves.

Starting in 2015, Salameh began incentivising commercial banks to lift their dollar deposits at the BdL with unusually high interest rates of up to 12 per cent, using those increases to buy more public debt. Critics, including the World Bank, have decried it as a Ponzi scheme that triggered one of the worst economic depressions in history. The BDL maintains the policy was lawful.

A&M said the central bank disguised losses equal to $76bn via the scheme. This was one of multiple accounting inconsistencies A&M found, adding that the BdL’s policies “failed” to meet basic accounting standards. Instead, it routinely inflated its balance sheets and showed no losses.

The full extent of its accounting practices “were not disclosed,” the auditors wrote, one of several instances where the central bank did not co-operate or withheld information.

Auditors noted a “lack of overall good governance and risk management arrangements”. They also criticised the governor’s “unconstrained” power and the “ineffective” Central Council which “fell significantly below the minimum standards of good governance found in central bank practices internationally”. 

For the past two years, prosecutors in Lebanon and at least six other countries have investigated Salameh, some family members and close associates over allegations they embezzled more than $300mn from the central bank from 2002-2015.

They allege that this was done through commissions paid to Forry Associates, a company owned by the governor’s brother, Raja Salameh. These funds were then allegedly laundered via a maze of offshore entities, banks and real estate investment companies. Raja Salameh has denied all allegations against him.

A&M said it had identified $111.3mn in “illegitimate commissions” paid between 2015-2020, from an account being scrutinised in the probes. This would appear to be a “continuation of the commission scheme under investigation by the Lebanese and international prosecuting authorities.”

A&M said it had “identified no records to confirm that a service was actually performed to justify commission payments”.

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Lisa Holden
Lisa Holden
Lisa Holden is a news writer for LinkDaddy News. She writes health, sport, tech, and more. Some of her favorite topics include the latest trends in fitness and wellness, the best ways to use technology to improve your life, and the latest developments in medical research.

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