Financial Crime World

Lebanon’s Central Bank Governor Riad Salameh: A Legacy of Economic Losses and Allegations

Economic Fallout from Riad Salameh’s Tenure Exceeds $72bn

  • Current state: Economic losses exceeding $72bn, three times Lebanon’s GDP in 2021
  • Allegations: Money laundering, fraud, embezzlement of public funds at home and abroad

Riad Salameh’s Tenure (1993-Present)

  • Tasked with rebuilding Lebanon’s banking sector, financing reconstruction projects, attracting investment, and encouraging Lebanese emigres to return
  • Strategy: Initiated high-interest rates, attracting deposits and remittances from the Lebanese diaspora and wealthy Arabs

Early Successes

  • Pegged Lebanese lira to US dollar for decades
  • Confidence in “winning strategy” remained strong
  • Provided financing for reconstruction projects

Faltering Approach (2011-2019)

  • Slowing remittances and foreign investment
  • Financial engineering program (2016) granting high returns on US dollar deposits
  • Designated as a “Ponzi scheme” in World Bank’s August 2022 report

The Breaking Point (2019)

  • Populist uprising toppled government, spooked foreign investors, and led to bank closures
  • Pandemic and port explosion further damaged economy
  • Lira plummeted to about 90,000 to the dollar on the black market

Governance and Accountability Issues

  • Questions regarding Salameh’s role in the financial crisis
  • Indictments for money laundering, fraud, and embezzlement in Lebanon and abroad
  • Ongoing investigations in Belgium, France, Germany, Liechtenstein, Luxembourg, and Switzerland
  • Speculation of Salameh being shielded by political interests

Future Implications

  • Economic recovery attainable but political will for reforms lacking
  • Uncertainty regarding Salameh’s future: justice overseas, staying in Lebanon, or continued power

Quotes

Nasser Saidi: “We were able to provide financing for reconstruction … create conditions to attract people back.”

Toufic Gaspard: “What function of any governor of the central bank? To preserve the stability of the currency and the banking sector. Both collapsed. What more can you say?”

IMF: “[BDL] had amassed significant losses, especially with the advent of the financial engineering operations, which involved quasi-fiscal activities such as subsidies in various sectors.”