Banque du Liban in Hamra, Beirut. (Credit: PHB)
This article was originally published on March 29, 2024 in French in L'Orient-Le Jour.
In recent days, the case of the suspicious transactions conducted by the Banque du Liban (BDL) during the tenure of its former governor, Riad Salameh, through financial companies has resurfaced. The former central bank chief completed his last term at the helm of the institution at the end of July 2023, after 30 years in office, and is the subject of several investigations, including some initiated in Europe for financial offenses he denies.
In an article published this week, the daily newspaper Nida al-Watan reports on a "report prepared by the international forensic accounting firm Kroll on the operations between the BDL and Optimum Invest (OI), which has been (recently) disclosed to European media and competent authorities for investigation" into such matters.
This report was commissioned by OI from Kroll after the Beirut-based financial company was implicated in two suspicious operations in the report commissioned by the Lebanese state from another international audit firm, Alvarez & Marsal (A&M), which was mandated by the Lebanese government.
The operation, which began in September 2023, resembles an in-depth investigation tracing all transactions involving OI over a given period from 2014 to 2022, according to details provided by OI in a statement published on its website. It aims to absolve the financial company of responsibility for the disputed transactions it executed on behalf of the BDL. Kroll, a firm specializing in forensic audits, was initially the Lebanese government's first choice for auditing the BDL's accounts before its candidacy was dismissed for debatable reasons in 2020. The A&M report is, however, incomplete, with the BDL having refused to provide all the requested information at the time of the audit. According to a source familiar with the matter, it is quite likely that OI engaged Kroll "in good faith."
What OI says
The audit commissioned by OI from Kroll specifically targeted several types of transactions conducted between the BDL and OI, including back-to-back transactions (legally distinct but economically linked sale and purchase transactions) and Repos (repurchase agreements where one party sells securities to another with the commitment to repurchase them at a later date at an agreed price).
According to OI, Kroll delivered its findings on Nov. 13, 2023, highlighting that the two concerned transactions were commissioned by the BDL and were in line with a "strategic decision of its central council."
"OI executed these transactions according to the detailed written instructions based on agreements concluded transaction by transaction via a properly drafted contract by the BDL," the company writes.
These are generally the financial engineering operations identified in the Alvarez & Marsal report. According to the firm, they were carried out by the BDL via OI with the explicit goal of "creating commissions to be paid to third parties." A&M’s conclusions were highlighted in a report published during the winter by Toufic Gaspard, an economist and former BDL collaborator from the 1980s. The BDL conducted at least two operations in 2015-2016, which involved selling Lebanese Treasury bonds to OI and then immediately repurchasing them for a total premium of $36 million. These transactions were carried out well before OI was acquired by Libank (Levant Investment Bank) in 2020.
Based on the findings of the audit conducted by Kroll, OI states that it earned "negligible" brokerage fees for each transaction, totaling $11,695, with $7,963 for the transaction recorded in December 2015 and $3,732 for the one in June 2016. The company argues that these amounts were "insignificant" compared to the "volumes traded" and were even lower than the fees typically charged for comparable transactions. "OI had no legal or contractual competence to investigate or be informed about the use of the proceeds from these transactions commissioned by the BDL," the company further defends. It adds that Kroll found no wrongdoing on its part in executing these two transactions.
What Nida al-Watan says
We contacted OI, which invited us to formally request a copy of the report. Nida al-Watan, which claims to have reviewed it, states that the report reveals the existence of 45 transactions instead of the two noted by A&M.
It further adds that these transactions would have been concluded with two signatures: Salameh for the BDL and Antoine Salameh, a close associate of the former governor, for OI. They would also have been approved by Pierre Kanaan, who led the legal affairs department at the BDL.
The daily continues by indicating that the audit particularly focused on transactions that took place between 2015 and 2018 and revealed that commissions were paid to third parties, which Optimum claims to know nothing about. It confirms that the transactions were conducted on direct instructions from the BDL, as OI highlights.
Nida al-Watan further states that "the BDL was accustomed to granting credit lines to the company to buy securities and financial instruments (Treasury bills, certificates of deposit...) and to repurchase them later at different prices." The mechanism is provided for by Article 102 of the Monetary and Credit Code, which stipulates that "the BDL may grant current account loans in the form of credit lines for 12 months, renewable if necessary for one time, provided that they are secured by commercial obligations with a maturity not exceeding one year, gold, foreign currencies, or securities."
The same article states that "the central council may, in exceptionally serious circumstances or in cases of extreme necessity that may compel it to respond to urgent economic needs to maintain loan stability," deviate from the basic rules governing the granting of these loans.
Finally, among other key points highlighted by Nida al-Watan is the fact that "the percentage of commissions (resulting from price differences or premiums)" on the reported transactions varied "between 25 and 239 percent, with an average reaching 100 percent"; and the fact that "the total amount of credit lines identified by Kroll is about LL13 trillion, or about $8.6 billion at the former official exchange rate of LL1,507.5 to the dollar, while the commissions amount to about LL12 trillion ($8 billion)."
The daily concludes that all these elements suggest the existence of suspicions about the legitimacy of at least some of these transactions, but without clearly establishing a link.
