Lebanon Central bank accused of stalling tactics on critical audit

Audit of bank's finances are key requirement for bailout funds

A view of Lebanon's Central Bank building in Beirut. Reuters

Lebanon’s central bank has been given a three-month extension to hand over key documents for an external audit of accounts after missing the deadline on November 3.

But experts say the delay was an attempt to avoid scrutiny amid a financial crisis.

The International Monetary Fund and France, a long-time ally and former colonial power, have refused to bail out the cash-strapped country until major reforms are made and transparency improved.

One of the key requirements is an audit of the Banque du Liban.

So far, the institution has refused to open its books and account for the millions of dollars it controls on behalf of the state.

“In these three months, the Lebanese government will try to secure the documents that will allow the [auditing] company to carry out the contract,” caretaker Finance Minister Ghazi Wazni said on Thursday.

Mr Wazni was speaking before a meeting with President Michel Aoun, central bank chief Riad Salameh and the company contracted to carry out the audit, Alvarez & Marsal.

The November 3 deadline was set by Alvarez & Marsal, a Finance Ministry source told AFP.

The central bank on Wednesday pushed back against the government’s demands to hand over accounts.

It said doing so would violate “legally binding bank secrecy laws” and that the government would need to pass a law to lift anonymity of state accounts and expose the details “that it deems appropriate”.

But experts say the move is an attempt by the bank to avoid the oversight and prevent it from being blamed for a crisis in which lenders refuse to allow withdrawals of customers savings and the value of the Lebanese pound has plummeted over the past year.

“The BDL is essentially cutting all direct links with Alvarez & Marsal,” fiscal law expert Karim Daher said.

Mr Wazni signed a contract with Alvarez & Marsal on September 1, asking it to conduct a forensic audit of the central bank.

The Finance Ministry also hired two other international consulting firms, KPMG and Oliver Wyman, to conduct a financial and accounting audit of the central bank.

Caretaker prime minister Hassan Diab, caretaker justice minister Marie-Claude Najem and other officials have rejected the central bank’s claim that new laws are needed.

They say banking secrecy laws do not apply to public accounts.

“I warn against any attempt to subvert the forensic audit to prevent Lebanese from knowing the truth behind the disappearance of their savings,” Mr Diab said on Tuesday.

The bank is "muddying the waters", Lebanese economist and political analyst Sami Nader told The National.

“They were supposed to give the information the day before yesterday and they are now extending the delay to three months to dilute the problem.”

Financial expert and activist Dan Azzi said the reluctance to hand over accounts made it more imperative for the information to be disclosed.

“They’re clearly impeding the forensic audit because there’s something there they don’t want to disclose, which means that it’s even more needed,” Mr Azzi said.

“So many laws have been breached in Lebanon but suddenly they want to apply the law to its smallest detail.”

He was referring to the fact that Lebanese banks implemented capital controls in November 2019 without the approval of Parliament or the government.

Lebanon is suffering from its worst economic crisis. Dollars have disappeared in the past year from the local market, increasing the price of imported goods and causing the local currency to lose about 80 per cent of its value on the black market.

More than half of Lebanese are now living in poverty. Protesters, who took to the streets in hundreds of thousands in late 2019, widely blamed corrupt politicians for the crisis.

Mr Daher told The National  that the central bank was trying to "trick" the state into lifting banking secrecy laws on public accounts so that the same would be asked for private accounts later.

Once it starts its audit, it is highly likely that Alvarez & Marsal will try to trace suspicious banking transactions back to their sources, public and private.

“But the BDL will refuse, quoting banking secrecy laws regarding private accounts," Mr Daher said. "That will be a dead end.”

Lifting banking secrecy laws on private accounts would require a vote from Parliament, which is unlikely with its record of avoiding confrontation with the banking system since the crisis started last year.

If the government does not consider that bank secrecy applies to public accounts and Alvarez & Marsal proceeds with its forensic audit, then it will be able to pursue public funds wherever they go, even to private or corporate accounts.

“Obviously, evidence of corruption will not be found in state accounts but in the accounts of private persons who worked with the government and are covered by banking secrecy laws,” Mr Daher said.

Activists pushing for more transparency in Lebanon say the most common practice of state corruption is inflating public procurement to then provide substantial kickbacks to intermediaries.

Up to now, the government’s criticism of the bank has not encouraged it to co-operate with Alvarez & Marsal.

It remains unlikely that Prime Minister-designate Saad Hariri, who was nominated on October 22, will directly challenge the bank when his Cabinet is formed because of his long-standing ties with the Lebanese elite and banking system, Mr Daher said.

Mr Hariri is the son of late prime minister Rafik Hariri, who was premier when the council of ministers appointed Mr Salameh to lead the central bank in 1993.

Once lauded as one of the world’s top central bank governors for maintaining the economy in precarious times, Mr Salameh has fallen from grace with the country’s economic crisis.

“They control everything," Mr Daher said. "That’s why no MP presents a draft law to lift banking secrecy or if they do, it will never be voted.”

Parliament’s Vice President and veteran politician Elie Ferzli staunchly voiced his opposition to lifting banking secrecy in a speech on Wednesday.

“Think about Lebanon’s supreme interest,” Mr Ferzli said.

“What is the purpose of systematically destroying what remains of the confidence of the international community in Lebanon?”