Cleaning up Corruption in Lebanon’s Central Bank

Riad Salameh, the governor of Lebanon’s Central Bank (the Banque du Liban, or BdL), was once hailed as a “financial wizard” for his stewardship of the Lebanese banking system. But a flurry of recent investigations, led mainly by French and Swiss prosecutors, have implicated Salameh in a variety of corruption schemes. These investigations found, among other things, that Salameh illicitly moved over $300 million of public funds from the BdL into his brother’s company, Forry Associates, between 2002 and 2015 and that Salameh laundered millions in Europe through luxury real-estate purchases. And in March 2022, after Swiss prosecutors asked Lebanese authorities to carry out a separate investigation into embezzlement and money laundering by Salameh and his associates, a Lebanese district court judge charged Salameh and his brother with illegal enrichment and money laundering.

Though Salameh denies all allegations, many Lebanese citizens consider the accusations against him unsurprising. Indeed, if anything is surprising about the case against Salameh, it’s that he is being prosecuted in Lebanese courts. Government elites in Lebanon—including the BdL’s leaders—have long benefited from a culture of impunity. It is encouraging to see Lebanese prosecutors and courts taking steps to hold corrupt actors at the BdL accountable. But cleaning up the BdL, and ensuring that in the future cases like Salameh’s are detected early or prevented altogether, will also require more structural reforms to address the institutional and regulatory problems at the BdL that have enabled such corrupt practices. Three reforms to the BdL are especially important:

  • First, the Lebanese government needs to mandate a restructuring of the BdL’s Special Investigation Commission (SIC). Established in 2001, the SIC, which is comprised of nine members and chaired by the BdL’s governor, has many responsibilities, including conducting financial investigations, freezing accounts, referring suspicious transactions to judicial authorities, and pursuing money laundering cases. The fact that the BdL’s governor chairs the body designed to prevent corrupt financial practices is an obvious conflict of interest when the governor himself is the subject of an investigation. Indeed, during the investigation of Salameh’s alleged misconduct, the SIC—which Salameh, as governor, still chairs—has delayed handing over information, and complied with information requests only after several months of public pressure from Lebanese and international authorities. Eventually, Salameh agreed to recuse himself from the SIC’s handling of investigations related to the charges against him. But looking forward, the SIC needs to be reformed so that the BdL governor does not serve as the chair. Additionally, the other current members of the SIC should be replaced by new people who are not tainted by the BdL’s history of corruption. Other Lebanese government commissions, like the newly-formed National Anti-Corruption Commission or the Banking Control Commission of Lebanon, provide potential models for a reformed SIC. A reformed SIC should have similar levels of financial and administrative independence from the BdL’s leadership, and should be allowed to act on its own initiative or the basis of citizen complaints.
  • Second, the Lebanese government should reform its 1956 Law on Bank Secrecy, which currently prohibits bank officials and employees from revealing client names, assets, holdings, and transactions to any individual or public administrative, law enforcement, or judicial authority without the express approval of the SIC and Lebanese parliament, subject to only extremely narrow exceptions. This law makes it extremely difficult to investigate wrongdoing at the BdL, as the BdL can simply cite the banking secrecy law to stall or block the release of information (it has recently in 2019, 2020, and at least twice over the last year). In December 2020, the Lebanese parliament passed a law that temporarily lifted banking secrecy regulations to facilitate a forensic audit at the BdL, but the law was simply a stopgap measure and has already expired. Parliament needs to go further, amending the law such that bank secrecy can be lifted for investigations of all cases of public or private corruption, as well as all money laundering. (As it currently stands, the law exempts only money laundering cases involving drug manufacturing.) The law should also be amended to allow foreign authorities to obtain information pursuant to formal requests for judicial assistance. 
  • Third, the BdL should establish stronger internal controls, including independent internal audit committees, to further limit the risk of corrupt activity. Enforcing internal audit procedures on a regular basis would help uncover illicit activities, promote accountability, and improve awareness of widely accepted financial industry standards. Additionally, BdL officials at the BdL should be required to report suspicious activities to Lebanese authorities. These and other measures can help the BdL keep its house in order, promoting a long-overdue internal culture of transparency and accountability.

Reforming the BdL ought to be a high priority in light of Lebanon’s current economic crisis, which has been described as one of the “most severe crises globally since the mid-nineteenth century.” Since 2019, the Lebanese lira has lost more than 90% of its value, the Lebanese economy shrunk by 40%, and nearly 80% of the population percent now lives under the poverty line. A well-functioning economy and efficient financial market demand a corrupt-free central bank that maintains public confidence. Lebanese authorities must therefore act decisively to ensure not only that individual bad actors like Salameh are held accountable, but also that the BdL itself is transformed into an institution that can reliably serve the needs of its citizens, rather than a source of corrupt wealth for powerful elites.

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