For more than a decade, Lebanon’s central bank paid commercial banks charges when they purchased government assets without disclosing that the majority of those payments went to a company managed by the banking regulator’s governor’s brother.
According to Reuters, four contracts between Banque du Liban (BDL) and a Lebanese commercial bank, from from 2004 to 2014, show that the bank agreeing to pay three-eighths of a percent commission on purchases of government certificates of deposit worth millions of dollars.
According to two senior executives in the finance industry, such contracts were standard for commercial banks making such deals at the time.
Forry Associates, a company managed by Raja Salameh, the brother of central bank governor Riad Salameh, is not mentioned in the contracts. Mr Salameh told Reuters in November that his company eventually earned such commissions. Raja, his brother, was unavailable for comment.
Mr Salameh, 71, told Reuters that Forry’s “sole job was to accumulate all these commissions and fees and disburse according to the orders,” without clarifying what those instructions were.
According to Mr Salameh, the commissions were transparent and sanctioned by the central bank’s board of directors, and no one complained at the time.
According to BDL spokesman Halim Berti, the central bank’s board of directors could not answer questions regarding its choices because only the governor was authorized to speak on behalf of the banking regulator.
In Europe and Lebanon, inquiries into the commissions and where they went are underway.
According to a letter delivered to Lebanese officials last year by the Swiss attorney general, the Salameh brothers may have illegally taken more than $300 million from BDL in this way between 2002 and 2015, laundering some of the money in Switzerland.
According to Reuters, the Swiss attorney general’s office is investigating suspicions of “aggravated money laundering relating to alleged embezzlement charges to the prejudice of BDL.”
Mr Salameh acknowledged that commissions like those in the contracts seen by Reuters were paid to Forry. He denies embezzlement, claiming that none of the commission funds came from the central bank, which is a publicly held entity.
The commissions were put into a “clearing account” at the central bank, he told Reuters, and then paid to Forry. He stated that he recruited the audit company BDO Semaan, Gholam & Co to investigate the situation.
Mr Salameh told Reuters in November that the auditor’s assessment revealed that “no cash belonging to BDL flowed into this account.” He refused to show Reuters the report.
BDO Semaan did not respond to a request for comment. The commissions were to be paid to BDL, according to the contract conditions.
“We authorise you to deduct a commission of 3/8 of 1%,” three contracts written in Arabic and printed on paper carrying the central bank’s letterhead state. Forry is not referenced in any of the contracts.
Five people with firsthand knowledge of such contracts who now or previously held significant positions in the Lebanese banking sector told Reuters they had never heard of Forry before the Swiss probe was disclosed last year.
Mr Salameh explained that BDL’s partnership with Forry, which began in 2002, was not exclusive. He said that six other companies provided comparable services to the central bank. He refused to name the companies when asked by Reuters.
It is not uncommon for central banks to collect charges on some transactions, according to experts. The fee money, on the other hand, normally flows straight to the central banks to assist them in supporting operations and reducing their reliance on government funding.
They argue that sending commissions to other parties would be unusual and would contradict the purpose of levying such fees.
“These are certainly public monies,” said Mike Azar, an expert on Lebanon’s financial system and former economics professor at Johns Hopkins University in the United States. “If the commission wasn’t given [to Forry], the central bank would have received a better deal” by getting the fee itself.
For the past 29 years, Salameh has served as the governor of Lebanon’s central bank. Since the country’s financial crisis, public scrutiny of him has risen.
Many blame him for the collapse and following plummet in the value of the Lebanese pound, which has practically impoverished most Lebanese citizens. He was once highly regarded for his handling of the banking system.
Salameh has rejected culpability, accusing politicians for decades of wasteful expenditure, which he claims he oversaw.
Some of Lebanon’s most important figures, including Parliament Speaker Nabih Berri and Prime Minister Najib Mikati, continue to back him.
In November, Lebanese prosecutor Jean Tannous told Reuters that Salameh was being investigated for misappropriation of public funds, unlawful enrichment, and money laundering. His probe, however, has met with opposition.
Commercial banks have refused to provide Tannous with account information that he wants to use as evidence, citing the country’s financial confidentiality regulations from the 1950s. Tannous was advised by the banks to seek such information from the central bank’s Special Investigation Commission (SIC), which is led by Salameh.
For this report, Tannous declined to comment. A request for comment from the SIC was not returned.
According to correspondence seen by Reuters between Lebanon’s top prosecutor Ghassan Oueidat and a member of Eurojust, the EU criminal justice agency that organized the meeting, Mr Tannous was barred from attending a Paris meeting of European prosecutors in January aimed at coordinating and sharing information on Mr Salameh.
Mr. Oueidat and Eurojust did not respond to requests for comment.