BEIRUT - An audit of Lebanon's central bank urged action to mitigate further risks from "misconduct" at the institution and says its former governor had "unconstrained" discretion as he pursued costly financial engineering policies.
The audit by accounting firm Alvarez & Marsal (A&M) also found evidence that "illegitimate commissions" of $111 million were paid from a central bank account from 2015 to 2020, saying this appeared to be a continuation of a scheme that has prompted investigations into ex-governor Riad Salameh at home and abroad.
The forensic audit was demanded by donor states after Lebanon was hit by a financial collapse that has frozen most depositors out of their savings since 2019, sinking the currency by 98% and fuelling poverty. The audit, a copy of which was reviewed by Reuters, covered a period from 2015 until 2020.
Salameh, who stepped down last month, defended the policies in written comments to Reuters. The central bank's media office told Reuters that "the concerned parties are not at the bank anymore." Fares Gemayel, media adviser to caretaker prime minister Najib Mikati, declined to comment, saying the report was meant to be "confidential."
Salameh, who left at the end of his latest term on July 31 after three decades in office, has denied accusations he abused his powers to embezzle Lebanese public money. France and Germany have issued arrest warrants for Salameh.
On Thursday, the United States, Britain and Canada announced sanctions against Salameh, accusing him of corrupt actions to enrich himself and his associates.
The A&M audit cited a "lack of overall good governance and risk management arrangements" at the central bank, also known as Banque du Liban (BDL), and called for improved oversight "to mitigate any further risk arising from BDL's misconduct".
In written comments to Reuters, Salameh said the qualification of misconduct was "arbitrary" and said the central bank had acted according to the law.
The bank's financial engineering siphoned off dollars from local banks at high interest rates from 2015 to help finance the heavily indebted state. The audit said BDL disguised losses equal to $76 billion from the engineering.
Critics described the policy as a "Ponzi scheme" as it depended on fresh borrowing to pay back existing debt. BDL has always said the operations were legal.
The audit said the central bank reported profits every year by transferring costs to its balance sheet, even in years "in which the actual losses were several billion dollars."
Salameh said there was "no hiding" of losses. It was published and in accordance with the accounting procedure approved by the central council and communicated to the government, he said.
Citing minutes of council meetings, the audit said "the governor monopolized the discussions and decisions". The council "fell significantly below the minimum standards of good governance found in central bank practice internationally".
Salameh said the council had found financial engineering to be the "best response to a deteriorating balance of payment" and that he had not "intervened" in decision-making on engineering.
The council comprises the governor, four deputies - and two senior government officials.
The audit said that four vice governors appointed in June 2020, specifically first Vice Governor Wassim Mansouri - who is currently acting as interim governor - tended "to challenge more the governor in his thinking".
The legal investigations into Salameh focus on commissions which the central bank charged commercial banks on the purchase of government securities, the proceeds from which went to Forry Associates, a company controlled by Salameh's brother Raja Salameh. The Salameh brothers deny diverting or laundering public funds.
European judicial officials suspect Salameh and his brother illegally took more than $300 million from the central bank between 2002 and 2015.
The A&M audit said it had identified payments over the following half-decade totalling $111.3 million to seven banks - one Swiss and six of them Lebanese - from a central bank account that has been a focal point of those probes.
"This appears to be a continuation of the commission scheme under investigation by Lebanese and international prosecuting authorities," the audit said.
It said it found no record of a service actually performed in exchange for the commissions and that the ultimate beneficiary could not be confirmed because BDL had removed details, citing a banking secrecy law.
Salameh said those commissions were done in a way "not to be a cost on BDL." He said his own personal account statements at BDL were provided to A&M and that "no funds belonging to BDL" ended up in his account.
(Additional reporting by Tom Perry; Editing by William Maclean)