BEIRUT: For more than a decade, Lebanon's central bank charged commercial banks in the country commissions when they bought government securities without making clear that the bulk of those commissions went to a company controlled by the brother of the central bank's governor, according to documents seen by Reuters.
Four contracts between Banque du Liban (BDL) and a Lebanese commercial bank seen by Reuters, dated from 2004 to 2014, state that the bank entering into the contract agreed to pay 3/8 of 1% commission on purchases of government certificates of deposit worth millions of dollars. Such contracts were standard for commercial banks making such purchases at the time, two senior executives in the finance industry told Reuters.
The contracts seen by Reuters make no reference to Forry Associates, a company controlled by Raja Salameh, brother of central bank governor Riad Salameh. That company ultimately received such commissions, Riad Salameh told Reuters in an interview in November. His brother, Raja Salameh, could not be reached for comment.
Forry's "only job was to gather all these commissions and fees and redistribute according to the instructions," Riad Salameh told Reuters, without specifying what these instructions were. Salameh said the commissions were transparent and approved by the board of the central bank, and that no one raised any complaints at the time.
Halim Berti, a spokesman for BDL, told Reuters the central bank's board could not respond to questions about its decisions, as only the governor was authorized to speak on behalf of the bank.
The commissions, and where they went, are the subject of investigations in Europe and Lebanon.
Swiss authorities suspect the Salameh brothers may have illegally taken more than $300 million in this way from BDL between 2002 and 2015, laundering some of the money in Switzerland, according to a letter the Swiss attorney general sent to Lebanese officials last year, which was seen by Reuters.
The Swiss attorney general's office told Reuters it is conducting a criminal investigation into suspicions of "aggravated money laundering related to alleged embezzlement offences to the detriment of BDL," but declined to comment further for this story.
Salameh said such commissions as those in the contracts seen by Reuters were paid to Forry. He denies embezzlement, saying none of the commission money belonged to the central bank, a publicly owned institution.
He told Reuters that the commissions were paid into what he called a "clearing account" at the central bank, and then subsequently paid to Forry. He said he hired the audit firm BDO Semaan, Gholam & Co to look into the matter. The auditor's report found that "no funds belonging to BDL went into this account," Salameh told Reuters in November. He declined to show the report to Reuters. BDO Semaan declined comment.
However, details of the contracts seen by Reuters, which have not previously been reported, show that the commissions were to be paid to BDL. Three contracts, written in Arabic and printed on paper bearing the central bank's letterhead, state: "We authorize you to deduct a commission of 3/8 of 1%," where "you" refers to the central bank. In none of the contracts is Forry mentioned.
Five people who hold, or recently held, senior positions in the Lebanese financial system and had direct knowledge of such contracts told Reuters they had never heard of Forry until the Swiss investigation was reported last year.
Salameh said BDL's relationship with Forry, which started in 2002, was not exclusive. Six other firms performed similar services for the central bank, he said. Asked by Reuters, he declined to name those firms.
INVESTIGATION HITS RESISTANCE
Experts say it is not unusual for central banks to charge commissions on some transactions. But the fee money usually goes direct to the central banks to help them fund operations and reduce their reliance on public funding. Sending commissions to third parties would be unusual and defeat the purpose of imposing such fees, they say.
"These are clearly public funds, because if the commission wasn't paid" to Forry, "the central bank would've gotten a better deal" by receiving the fee itself, said Mike Azar, an expert on Lebanon's financial system and former economics professor at Johns Hopkins University in the United States.
Salameh, 71, has been governor of Lebanon's central bank for 29 years. Public scrutiny of him has increased since the country's financial collapse in 2019. Once highly regarded for his stewardship of the banking system, he is now blamed by many for the collapse and the subsequent plunge in the value of the Lebanese pound, which has effectively impoverished most Lebanese people. Salameh has denied responsibility, blaming politicians who he says oversaw decades of profligate spending.
Salameh still has the support of some of Lebanon's most powerful politicians, including Parliament Speaker Nabih Berri and Prime Minister Najib Mikati.
Lebanese prosecutor Jean Tannous told Reuters in November he was investigating Salameh on suspicion of embezzlement of public funds, illicit enrichment and money laundering. But his investigation has run into resistance.
Commercial banks have refused to give Tannous access to account information he has been seeking to use as evidence, citing the country's 1950s banking secrecy laws, according to four people familiar with the investigation. The people said the banks told Tannous to ask for such information from the central bank's Special Investigation Commission (SIC), which is headed by Salameh himself.
Tannous declined to comment for this story. The SIC did not respond to a request for comment.
Lebanon's top prosecutor, Ghassan Oueidat, stopped Tannous from attending a Paris meeting of European prosecutors in January designed to coordinate and share information on Salameh, according to correspondence seen by Reuters between Oueidat and a member of Eurojust, the European Union criminal justice agency organizing the meeting. Oueidat and Eurojust declined to comment.
(Reporting by Samia Nakhoul and Timour Azhari in Beirut Editing by Tom Perry and Bill Rigby) ((Timour.Azhari@thomsonreuters.com))