The announcement of New York-based auditing company Alvarez-Marsal to pull out of Lebanon, due to its inability to obtain crucial information and documents from the Central Bank to conduct the audit, was a big blow to those hoping for accountability in a country already tainted by corruption and detrimental financial problems. In his televised address on the 77th anniversary of Lebanon’s Independence, President Michel Aoun expressed his disappointment over the failure of the auditing initiative, promising he will not “back off” until the financial audit is imposed, adding that “Lebanon is a prisoner of corruption, political scheming and external dictations”.
It was very well known, right from the beginning, that the conditions under which the selected auditing firm would work, were more important than the audit itself. The fact that the Central Bank has decided to withhold the requested information by the auditing company, citing Bank Secrecy (Article 151 of Code of Money and Credit, which prohibits any current or former BDL employee, in any capacity whatsoever, from providing information related to BDL clients), embodies what President Aoun alluded to in his speech. According to Justice Minister Mrs. Marie-Claude Najm, the Bank Secrecy Law “does not apply to forensic audits or to governments and central bank accounts,” expressing there are “huge gaps” in the Central Bank’s accounts, and the forensic audit will reveal why Lebanese people lost their deposits and where they went.
The forensic audit is particularly essential as the caretaker government failed to make progress in talks with the International Monetary Fund (IMF) for a bailout, due to inaction on reforms and a domestic dispute over the size of financial losses. Ideally, the Parliament must amend the bank secrecy law (or temporarily suspend it) in order to track funds transferred abroad or integrate the government’s financial rescue plan. For instance, if the BDL transferred $50 million to a bank to provide subsidized loans, a forensic audit would find out whether the bank met the eligibility and due diligence requirements and who the beneficiaries of the funds were.
President Aoun has consistently pushed for the audit to be performed, even if it meant going against Article 151 acquiring the accounts of public servants, government officials, and their relatives, as well as a wider circle of influential or politically exposed persons, although Minister Najm stated that there was no justification for Central Bank Governor Riad Salameh not to provide all the information needed to the auditing Company as all this data will only be in the possession of the state, as Alvarez-Marsal will not share the information with a third party.
All the international communities are saying that Lebanon will not get any financial assistance without reforms and forensic auditing, and with deep concerns that the Parliament will drag its feet on this issue and may not be able to take a united stand on the temporary suspension of the Banking Secrecy Law, Lebanon is at risk of losing a major opportunity for a bailout. “If we want statehood, then we must fight corruption,” reminded President Aoun on November 22, “and this begins by imposing the forensic financial audit”. In the context of BDL’s financial engineering or bond issuance and subscriptions, the forensic audit traces financial transactions and identifies possible legal infringements, for the International Monetary Fund (IMF) and other international entities, the challenge is to determine the exact amount of financial losses. But for public opinion, the issue is whether there has been embezzlement, money laundering, corruption, insider trading, and so on.
Imposing forensic auditing is Lebanon’s promising (and possibly unique) chance to fight corruption, ensure accountability, and prosecute illicit enrichment. President Aoun is vehemently striving to commit to forensic auditing, going against the political elite—many of them are notorious warlords—and decades-long political conspiracies and external influences.
by Marlene Sabeh