Beirut, Lebanon– Restructuring firm Alvarez & Marsal (A&M) has quit its contract to carry out a forensic audit of Lebanon’s central bank – a key demand of international donors – because it did not receive the documents it needed, the country’s caretaker finance minister, Ghazi Wazni, said on Friday.
Lebanon is seeking tens of billions of dollars in aid from donor nations and the International Monetary Fund (IMF) to help resolve a crushing financial crisis. But they said aid would only flow following a forensic audit of the central bank, known as the Banque du Liban (BDL).
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“I am personally completely shocked,” a Western diplomat told Al Jazeera on Friday.
In a phone interview with Al Jazeera, Wazni said A&M informed him on Friday that it had lost confidence it would ever receive the documents it needed from the central bank some two and a half months after it signed a contract to begin the audit.
Two weeks earlier, Wazni had announced a three-month extension to a deadline for BDL to provide A&M with all the information it needed. BDL had provided answers to fewer than half of A&M’s questions, citing Lebanon’s banking secrecy laws.
I’m surprised by their decision
“[A&M] said they were sure that in these three months they won’t get the documents to do their work and asked for the termination of the contract,” Wazni told Al Jazeera. “They should have waited because there were proposals in the works to lift the banking secrecy laws. I’m surprised by their decision.”
Nasser Saidi, a former vice governor at the central bank, said the decision likely came down to considerations over A&M’s image.
“Incredibly, this company cares more about its own reputation than Lebanon cares about its reputation,” Saidi told Al Jazeera. “They are professionals, they wanted to do a professional job, they were prevented from doing so and now we’re back to square one.”
He said BDL’s reliance on banking secrecy laws to withhold information was “a pretence” and that neither the central bank nor the finance ministry had “any willingness to undertake the forensic audit”.
now we’re back to square one
BDL’s claims have also been discredited by top political and judicial officials including the prime minister, justice minister and the prestigious Beirut Bar Association.
“I think the laws are fine,” Caretaker Justice Minister Marie-Claude Najm told Al Jazeera in late October. “We are talking about money of the people and the state – if you can’t investigate that, what can you do in a country? This would mean there are institutions above law and accountability.”
Najm and caretaker Prime Minister Hassan Diab have accused the central bank’s governor, Riad Salameh, who has held the office since 1993, of obstructing the audit to protect the interests of the country’s financial-political elite.
“Riad and the big boys behind him [killed the forensic audit]. As long as he’s there he’s protecting the system,” a financial source with first-hand knowledge of the process told Al Jazeera.
Too big to care
Lebanon’s deep financial crisis has its roots in decades of alleged corruption and mismanagement by a group of businessmen and armed faction leaders who entered government after the end of the country’s civil war in 1990.
In October 2019, the country was swept by massive protests calling for the removal of that ruling class, fuelled by the collapse of the country’s economy which led the currency to decouple from a two-decade-old US dollar peg.
The Lebanese pound has since lost more than 80 percent of its value against the greenback. Half of the population has fallen below the poverty line.
Yet despite this downward spiral, repeated attempts by Diab’s government to meet the conditions set by the international community have been trounced.
An attempt to endorse capital controls limiting transfers of money abroad – effectively an attempt to legalise measures already implemented by private banks at their own discretion – failed when Wazni withdrew the bill under directives from Speaker Nabih Berri, who appointed him.
Berri, who heads the Amal Movement, which holds the most Shia seats in the parliament, is a figurehead of the country’s old guard who has held his post since 1992.
The cabinet’s financial rescue plan – which sought to have banks and big depositors bear the brunt of the losses in the financial system, rather than small depositors – was held up by a so-called parliamentary “fact-finding” committee made up of MPs representing the elite, many of whom stood to lose from the plan themselves.
The plan was never implemented.
Now, it looks like the forensic audit is taking a similar path.
Why it seems that foreigners are more concerned about the well-being and fate of #Lebanon and its people, more alarmed by lack of action and procrastination than the country’s political elites?
— Jan Kubis (@UNJanKubis) November 20, 2020
It has faced obstruction since April, when it was approved by the cabinet. By July, no contract had been signed, at which point Wazni admitted that his backers – a reference to Berri – were against the audit.
Wazni then said that the issue was the alleged Israeli ties of Kroll, the renowned forensic auditing firm the cabinet had decided to retain for the job. So Kroll was tossed out, and in late July, the cabinet agreed once again to carry out the audit, this time with A&M, a firm not specialised in forensic auditing.
Wazni then signed the contract with A&M in September.
The outgoing finance minister told Al Jazeera that he believed “70 percent” of the contract could be implemented without an amendment to Lebanon’s banking secrecy laws – a stunning admission.
The company will now be paid $150,000 for services rendered. Wazni said he would be meeting with the president and prime minister on Saturday to decide the path forward.
Mike Azar, a senior financial adviser and expert on the Lebanese financial crisis, believes the audit not only would have uncovered potential crimes and fraud committed over decades, but allowed for a detailed diagnosis of what went wrong in Lebanon’s financial system.
“Losing the audit is a loss not just in terms of fighting corruption and potential crimes people deserve to know about … but also a very important part of any effective and optimal financial recovery plan to make sure the problems of the past are not repeated again, and to strengthen institutions,” Azar told Al Jazeera.
Saidi said: “We can still rescue Lebanon, but what’s incredible is that despite the willingness of the international community to help, and despite the IMF and the World Bank’s willingness to help, the leadership in Lebanon has effectively refused that help.”
The United Nations Special Coordinator for Lebanon, Jan Kubis, said as much in a tweet on Friday: “Why it seems [sic] that foreigners are more concerned about the wellbeing and fate of Lebanon and its people, more alarmed by lack of action and procrastination than the country’s political elites?”