Financial Crime World

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CORRUPTION ROCKS LEBANON’S FINANCIAL INSTITUTIONS

Lebanon, once known as the “Switzerland of the Middle East,” has been plagued by corruption at its highest levels. The country’s banking industry has been accused of funneling millions to terrorist organizations, including Hezbollah.

The Economic Crisis

In 2019, a spending binge initiated by the Bank of Lebanon (BDL) pushed up debt and led to a near-total collapse of the Lebanese economy. Foreign lenders demanded reforms, but rival factions pointed fingers at each other instead.

  • The World Bank ranked the Lebanese economic collapse as one of the worst in 150 years.
  • Over 80% of citizens were plunged into poverty.
  • The value of the Lebanese pound dropped by 98% against the US dollar.

The Aftermath

In 2020, Prime Minister Hassan Diab resigned after a devastating port explosion killed hundreds and left 300,000 homeless. He blamed “a system of corruption … deeply rooted in all the functions of the state.”

Banks Under Scrutiny

The Bank of Lebanon (BDL) has been accused of selling dollars at a preferential exchange rate to benefit importers and the public. However, when this effort yielded no tangible benefits, questions were raised about where the money went.

  • In 2020, United for Lebanon, an association of attorneys, sued BDL governor Riad Salameh, Société Générale Bank of Lebanon (SGBL) CEO Antoun Sehnaoui, and four main exchangers for “money laundering crimes.”
  • The group alleged that the defendants had violated a cabinet decision to back the Lebanese pound.

A Judicial Upheaval

Appellate public prosecutor Ghada Aoun filed criminal charges against Michel Mecattaf, who allegedly laundered millions through his bank. However, Salameh refused to attend a scheduled hearing and is now wanted by Interpol for financial crimes in six European countries.

  • The US and Canada have also sanctioned Salameh.
  • He is accused of transferring $330 million from the BDL to purchase luxury real estate in Europe between 2002 and 2015.

Hezbollah Ties Exposed

SGBL is at the center of a lawsuit filed by families of victims of Hezbollah terrorism. The banks are accused of providing extensive support to the terrorist organization, including financial services.

  • Magistrate Judge Taryn Merkl is awaiting receipt of bank records from the Lebanese government by April 14, 2024.

A Hero for Exposing Corruption

Public prosecutor Ghada Aoun has been a thorn in the side of corrupt officials. She was the first to apply Lebanon’s 1953 Illicit Enrichment Law and exposed hidden ties and infractions in government agencies.

  • For her efforts, she was targeted by organized smear campaigns.
  • Her work has helped expose ties between Lebanese banks and Hezbollah that are now being litigated in the US.

Lebanon’s Challenge: Establishing a Rule of Law

Sixteen years ago, Michael Young wrote that Lebanon’s chief challenge was figuring out how to hand power over to broader governance structures. Today, the country still struggles with fractionalization and corruption.

  • The rule of law must prevail if Lebanon is to recover from its own wounds.