Since March, 2020, Lebanon has struggled to commence a forensic audit of its Central Bank. The audit is considered a prerequisite for receiving economic aid from the international community or a bailout from the International Monetary Fund (IMF). It has also been pushed for by the United Nations, France, and the United States.
Yet, Lebanon has failed twice at conducting the audit with two different companies: Kroll, the first company hired by the Lebanese government to do the audit, reportedly did not receive key political backing back in July. The other firm, Alvarez & Marsal, quit in late November after the Central Bank failed to disclose more than half the requested documents, citing banking secrecy laws.
One week later, the parliament endorsed a forensic audit of the Central Bank as well as all ministries and public administrations to reaffirm the country’s commitment to conducting the audit. By late December, Lebanon decided to contact Alvarez & Marsal once again to conduct the audit. That contract has not been signed yet.
The country’s fragile economy meanwhile hangs in the balance, with about half the population living in poverty. The international community has been urging Lebanon to pass and implement a handful of reforms as a condition for any much-needed economic aid.
While the forensic audit is just one of a laundry list of necessary reforms and accountability measures for Lebanon to adopt, it is among the most crucial for a number of reasons.
Unraveling decades of widespread corruption?
A forensic audit of the Central Bank would allow Lebanon to accurately assess its economic and financial damages that left the country on life-support. The audit would also play a key role in uncovering systematic corruption and efforts for accountability.
Lebanon’s ruling political parties and authorities have for years expressed their intent to combat corruption and implement new accountability mechanisms to address a wide variety of nefarious financial practices, including large-scale and systematic illicit profiteering and deliberate mismanagement of public funds.
In April 2020, the Lebanese government estimated that some $7-8 billion in looted funds had been “unlawfully smuggled out of Lebanon.” Fast forward to January 2021: the Swiss authorities are investigating an alleged $400 million transferred by Central Bank Governor Riad Saleme and his brother from the Central Bank to Switzerland.
Resolving these issues, as well as restoring looted public funds, are demands not only anti-government protestors have made, but also ones that the United Nations, IMF, and World Bank have deemed crucial. Lebanon’s ruling parties have all expressed their support of a forensic audit, but the finer details remain unclear.
Uncovering transactional information through the forensic audit—and disclosing data about financial losses, looted and mismanaged funds, and the benefactors and culprits behind these malicious practices—can help with all of the above.
Like anything else, authorizing the forensic audit is not a cure-all for Lebanon’s widespread corruption, mismanagement, and reprehensible financial practices. There are a handful of legislation and mechanisms, such as passing a legal framework to establish an independent judiciary, that are also part and parcel of meaningful structural reforms. However, and much like the Access to Information Law which is still not fully implemented to this day, any step forward in paralyzed Lebanon should be welcomed at this point.
The secret elephant in the room
The main obstacle to conducting the forensic audit is another reason why the audit is so crucial: Lebanon’s banking secrecy laws—which bind banks to “absolute secrecy” of the personal information, assets, and other information of their clients and their accounts. The forensic audit of the Central Bank and other state entities brings these laws back into the forefront, which today appear to be more of an obstacle to justice than an asset to the country’s decimated economy.
After their passage in 1956, Lebanon’s secrecy laws attracted money from the region’s wealthiest, turning the tiny country into a banking hub—long dubbed the “Switzerland of the Middle East.” Lebanese banks became the ideal place to stash wealth secretly and safely, making the banking sector a key economic pillar for the country.
The legal framework that once brought in copious wealth into the country has however turned into a major obstacle in achieving meaningful anti-corruption and transparency reforms. Though economic experts and even some officials have argued that this is a misinterpretation, these laws have been used as an excuse to decline to disclose key financial data for the forensic audit.
In fact, the Central Bank declined to disclose 57 percent of the requested documents for the forensic audit, citing banking secrecy laws. Alvarez & Marsal held meetings with top Lebanese officials, including President Michel Aoun, but were unable to make a breakthrough. Central Bank Governor Raid Salemeh was adamant, insisting that he was complying with the law—and the audit eventually fell through.
Back to square one, there have been talks about voting in parliament to lift banking secrecy laws and enable the forensic audit to take place without obstructions. Though the country’s ruling political parties have all expressed their willingness to do so, their attempt to lift banking secrecy has thus far been stalled.
In late May, the parliament did vote to lift banking secrecy laws for current and former political officials for anti-corruption investigations. That development however permits access to necessary information only to a currently non-existent Anti-Corruption Commission and the Central Bank’s Special Investigative Committee—the members of both entities are appointed primarily by the government, weakening their viability as accountability mechanisms.
Anti-corruption and transparency efforts will remain futile as long as the accounts of public institutions, political officials, and contracted private sector remain shrouded in secrecy.
No audit, no aid?
Lebanon is currently one of the most indebted countries in the world with an unproductive economy and currency that has lost roughly 80 percent of its value.
Already on the receiving end of developmental and security aid from a handful of states and international organizations, the Syrian conflict and the subsequent refugee crisis in 2011 resulted in a rise of aid coming into Lebanon and other host countries.
But a more reserved approach for providing aid to Lebanon has been adopted over the past few years. Despite numerous efforts to unlock aid, UN Special Coordinator for Lebanon Jan Kubis and others have stood firm in denying any economic assistance without reforms. Even after the Beirut port explosion, the government has only received in-kind aid for their humanitarian response, whereas financial assistance went to UN agencies and other international organizations.
The international community has given Lebanon a list of economic and administrative reforms that it says are crucial to making the country’s economy viable again, including a forensic audit of the Central Bank.
But the demand for a forensic audit of the Central Bank became far more verbalized after roughly two months of lackluster IMF talks hit a dead-end in early July. The Lebanese government and Central Bank had not even agreed on the extent of the losses of the cash-strapped country—and whether Lebanon is bankrupt in the first place. Since then, the IMF and the United Nations have been more vocal about the matter to simply understand the extent of the country’s dire economic situation and to evaluate Central Bank’s policy and operations.
Furthermore, these reforms—with the forensic audit now being a key prerequisite—are mandatory for Lebanon to unlock billions of dollars in aid, including pledges made in 2018 of over $11 billion in mostly loans for infrastructure projects, an IMF bailout ranging between five to nine billion dollars, as well as about $300 million pledged following the devastating Beirut port explosion last August.
While the forensic audit on its own is not the sole solution to Lebanon’s rampant and endemic corruption, it is absolutely necessary. Without the crucial information it would obtain, most anti-corruption efforts will be blocked by smoke and mirrors—much like the inner workings of Lebanese government and financial institutions.