Beirut, Lebanon – Riad Salameh’s term as governor of Lebanon’s central bank is coming to an end after 30 years amid charges at home and abroad of money laundering, fraud and embezzling public funds.
As the 73-year-old’s term ends on Monday, Lebanon’s financial losses stand in excess of $72bn, more than three times its gross domestic product (GDP) in 2021, according to the World Bank.
Salameh’s leadership of Banque du Liban (BDL) left the country with the dubious distinction of being one of the world’s worst economic crises in modern times.
A tarnished end to a governorship that started in 1993 at the request of then-Prime Minister Rafic Hariri.
‘Winning strategies’ fail
The economist was tasked with rebuilding Lebanon’s banking sector after the civil war, financing the reconstruction of destroyed cities, attracting funding and, crucially, luring back the millions of Lebanese who fled the conflict.
To do that, Salameh offered high interest rates, attracting deposits and remittances from the vast Lebanese diaspora and wealthy Arabs – and winning him accolades.
The Lebanese lira stood pegged at 1,507 to the US dollar for decades, and confidence in Salameh’s “winning strategy” continued.
“It was a period of rapid expansion in the Lebanese banking sector. We were able to provide financing for reconstruction … to create the conditions to attract people back,” says Nasser Saidi, who became Salameh’s first vice governor at BDL in 1993, and was later minister of economy and trade and minister of industry.
Salameh’s strategy began showing cracks in 2011 as remittances and foreign investment slowed. Protests against the country’s sectarian system led to violent clashes between factions and the instability was worsened by civil war breaking out in neighbouring Syria. The country started to spend more than it received.
So Salameh launched a financial engineering programme in 2016, which involved banks offering one-of-a-kind high returns on US dollar deposits to maintain foreign currency reserves, essentially bailing out struggling banks.
“This was not approved by the government, it was not approved by parliament, and it was not even approved by the central council of the BDL. Here was Riad Salameh giving gifts to the banks, to the banks’ shareholders,” says Saidi.
The programme was kept alive by depleting the bank’s own reserves, with the World Bank describing it as a “Ponzi scheme” in an August 2022 report.
Eventually, Lebanon’s financial system exploded in 2019.
In October 2019, a popular uprising toppled the government of Saad Hariri, spooking foreign investors. Banks ran out of dollars to pay depositors and closed their doors – many remain closed.
The pandemic and the explosion at the Beirut port were blows to an already sinking ship. The lira went down with it, sliding to about 90,000 to the dollar on the black market.
Who benefitted?
“What is the function of any governor of the central bank?” asks Toufic Gaspard, Lebanese economist and former adviser at the International Monetary Fund (IMF).
“To preserve the stability of the currency and more important, preserve the stability of the banking sector. The two collapsed, what more can you say?”
The IMF said BDL “accumulated large losses, especially with the advent of the financial engineering operations” through quasi-fiscal operations – like subsidies on construction, tourism, education, fuel, and medicine.
“All of this is government work, not to be done by the central bank, but … governments and politicians were very pleased to have a central bank financing things they should have found resources for,” says Saidi.
“Along with the politicians and others, the banks were beneficiaries. So you have this combination of support of the major beneficiaries and that’s why he remained in power for so long,” he adds.
But recently, Salameh was charged with money laundering, fraud and embezzlement to the tune of $330m in Lebanon and abroad.
He had also been charged in Lebanon with illicit enrichment. According to the Lebanese prosecutor general, Salameh is suspected of transferring illicit funds from BDL to Lebanese actress Stephanie Saliba, who has also been charged. In addition, Salameh been charged with forgery, money laundering and tax evasion.
He is being investigated for embezzlement by prosecutors in Belgium, France, Germany, Liechtenstein, Luxembourg, and Switzerland. The inquiry looks into whether Salameh used his brother’s brokerage firm, Forry Associates Ltd, to charge hidden commissions on BDL’s dealings which were then invested in real estate across Europe.
In May, Interpol issued two separate red notices against Salameh at the request of France and Germany.
French prosecutors charged him with “criminal association with a view to commit offenses”, organised money laundering, and “aggravated tax fraud”, while Germany is charging him with “jointly committed money laundering, money laundering on a repetitive and gainful basis”, according to Interpol’s website.
But Salameh remained in power, despite calls to remove him.
Prime Minister Najib Mikati was suspected of protecting Salameh for his own political interests, angering the Lebanese people further.
Salameh had harnessed enough power and support to become quasi-untouchable. He was in charge of the top body for monitoring money laundering and controlled the audits made on BDL accounts, most of which were never published.
In an interview with local broadcaster LBC, Salameh denied any wrongdoing.
“I believe … the central bank monetary policies contributed to establishing stability and economic growth,” he said.
He declined Al Jazeera’s requests for comment.
‘Unless you change the rules of the game’
It is unclear what will happen to Salameh next.
Facing arrest overseas, he will likely stay in Lebanon, where the law does not allow extradition, to face his legal battles. He has said he will appeal the Interpol notices.
In the last weeks, Salameh has appeared before the courts but few Lebanese believe this will result in any answers, given Lebanon’s highly politicised judiciary.
One of the investigating judges, Ghada Aoun, was accused of bias and dismissed from the case in May shortly after charging Salameh.
“They’re punishing me for doing my job,” she told reporters at the time. Aoun is involved in several other corruption cases involving major banks and even PM Mikati.
Gaspard says economic recovery is possible, but that Lebanon’s problem is the lack of political will to implement solutions. “The authorities have not done anything … they don’t want to,” he says.
Saidi also says he “sees no appetite in the political class for reforms”.
The former minister, who once returned to Lebanon to rebuild because he “believed in the future”, doesn’t think people will come back this time.
“Unless you have a change in the rules of the game, political reform, banking sector reform, economic reforms, why would they come back?”
