Introduction

A forensic audit firm’s preliminary report on the Lebanese Central Bank’s accounts revealed “mismanagement” and fundamental gaps in the bank’s operating mechanism over a five-year period, mostly attributable to its former ruler Riad Salameh.

Sanctions Imposed on Riad Salameh

On Thursday, the US, UK and Canada imposed sanctions on Riad Salameh and his family on charges of illegal self-enrichment “by transferring hundreds of millions of dollars through shell companies to invest in the European real estate sector.”

Central Bank’s Financial Position Deteriorated

Alvarez-Marsal’s 332-page report, a copy of which was seen by Agence France-Presse on Friday, said “the central bank’s financial position deteriorated sharply” between 2015 and 2020.

Unconventional Accounting Policies

However, “this deterioration was not reflected in the balance sheet of the Central Bank, which is published as part of its annual financial statements, which were prepared in accordance with unconventional accounting policies”, allowing it to overstate the announcement of assets and profits and not show losses.

Importance of Forensic Examination

The forensic examination of the Bank of Lebanon accounts is an important step as it is one of the conditions set by the international community and the International Monetary Fund to help Lebanon emerge from the country’s ongoing economic collapse.

End of Salameh’s Mandate

Last month, the mandate of Salama (73 years), who headed the Central Bank for three decades, ended without appointing a successor due to disagreements between political forces in the country.

Accountability for Economic Collapse

Salame was considered the architect of financial policy during the post-Civil War economic recovery phase (1975–1990). However, in light of the unprecedented economic collapse since 2019, many pillars of the ruling class, including Salameh, have been held accountable for failing to manage the country’s successive crises. They were highly critical of Salama’s monetary policy as they accumulated debts.

Insufficient Control

Alvarez and Marsal considered financial engineering to be “expensive”. And it was pointed out that the authority of Salama, the main decision-maker, was not subjected to sufficient “control”.

Call for Strengthened Measures

He called for rapid steps to “strengthen management, control and audit measures to mitigate any further risks arising from mismanagement.”

European Investigations and Arrest Warrants

Two years ago, Salama found himself at the center of European investigations, which are suspected of illegal accumulation of real estate and banking assets, as well as misuse of public funds. Accordingly, a French judge in Paris and a public prosecutor in Munich issued two arrest warrants for Salama, which were circulated through Interpol. Two years ago, the Lebanese judiciary also launched a local investigation.

Relationship with Fore Associates

European investigations focus on the relationship between Banque du Liban and Fore Associates, which is registered in the Virgin Islands and whose economic beneficiary is the brother of former ruler Raja Salameh. Between 2002 and 2015, “more than $330 million in public funds is believed to have been misappropriated.”

Illegal Commission Payments

The company’s report stated that “there is evidence of $111 million worth of illegal commission payments (…)”, adding that “this appears to be a continuation of an investigated commission scheme” in Lebanon and elsewhere.

Resumption of Operations

And after he suspended his operations for about a year after the Banque du Liban refused to provide him with all the necessary documents under the pretext of bank secrecy, Alvarez and Marsal resumed operations in October 2021.