Prosecutors in Lebanon and Europe are investigating the longtime Banque du Liban governor, Riad Salame, for suspected money laundering and corruption. He’s also been blamed for the country’s financial crisis. But Salame claims he is a scapegoat. Writes Sam Brooke
Riad Salame is one of the longest serving central bank governors in the world. He has helmed the Banque du Liban for nearly three decades, joining it in 1993 after a career as an investment banker for Merrill Lynch in Paris and Beirut.
For years, Salame was portrayed as something of a miracle worker, helping establish relative economic stability after Lebanon’s 1975-1990 civil war. Annual inflation fell from a postwar peak of nearly 100 percent in 1992 to just 0.2 percent in 1999. By 2008, credit ratings agency Moody’s had upgraded Lebanon to “positive.” A year later, The Banker, an industry magazine, named Salame the Middle East’s “central banker of the year.”
But Salame’s record has faced growing scrutiny since Lebanon’s financial system imploded in late 2019. Critics have accused him of severe economic mismanagement, while investigations into suspected money laundering have brought European prosecutors to Beirut.
In just around three years, many of the gains seen under Salame have been wiped out. Lebanon’s currency has lost more than 95 percent of its value against the dollar, hundreds of businesses have shuttered, and thousands of jobs have disappeared while commodity prices continue to surge.
“Most Lebanese are suffering, even if some continue to make huge profits,” said Alia Ibrahim, co-founder and chief executive officer of OCCRP partner Daraj. “In most of Lebanon, the situation is one of the worst Lebanon has ever known.”
Why is Riad Salame blamed for Lebanon’s economic crisis?
In a glowing 2008 BBC News article, Salame claimed his “very conservative” monetary system had been “tested against wars, against instability, against political assassinations.”
Fast-forward to today, and many economists — and ordinary Lebanese — now blame Salame for the country’s spectacular collapse.
The World Bank has compared Salame’s fiscal regime to a “Ponzi scheme.” Under the system, the central bank injected U.S. dollars into the economy to maintain a favorable exchange rate for the Lebanese pound compared to the dollar. This kept down the price of imports, upon which Lebanon relies heavily, and helped buoy the country’s middle class.
The catch was that Lebanon’s trade deficit and high debt meant a constant stream of foreign currency was needed to pay off old debt and keep the system running. Dollars were lured into the system through high interest rates, which allowed Lebanese banks to make substantial profits by depositing dollars with the central bank. The banks meanwhile received a steady flow of dollars, largely from Lebanon’s expansive diaspora, who were also seeking high returns.
When Syria’s civil war broke out in 2011 — coupled with the economic fallout — the system was strained. From 2015, dollar inflows slowed noticeably. The following year, Salame introduced a $13 billion “financial engineering” scheme, providing state bonds to banks in exchange for the foreign currency they received from deposits. This allowed banks to offer even higher interest rates on dollar deposits — 9.7 percent by 2019 — while the national debt ballooned.
Then, in 2019, the stream of dollars dried up. By August, the pound’s black market price started to decline. Banks began blocking cash transfers abroad and imposed withdrawal limits. Amid the ensuing dollar shortages, the pound collapsed, crippling ordinary Lebanese who could not withdraw their rapidly devaluing deposits.
Salame has denied responsibility for the crisis. In a January 2021 interview with France 24, he claimed he was the victim of a political “campaign” designed to scapegoat him.
Why is Riad Salame being investigated?
While many Lebanese struggled, Salame had personal wealth hidden overseas. In August 2020, a joint OCCRP-Daraj investigation found that the governor’s offshore companies had invested in overseas assets worth nearly $100 million, including a $4.1 million luxury apartment in London. His son Nady was also able to send more than $6.5 million abroad while banking restrictions blocked ordinary citizens from accessing their savings.
Salame told OCCRP at the time that he had amassed “significant private wealth” before he became central bank governor and that he had broken no laws. But Lebanese and European investigators are looking into multiple money laundering and corruption accusations.
In November 2020, the Swiss attorney general’s office wrote to Lebanese authorities, claiming that Salame and his brother, Raja, had embezzled over $330 million of central bank money from 2002 to 2015.
The money was reportedly transferred from the central bank to a British Virgin Islands-registered firm allegedly controlled by Raja Salame, and then to the brothers’ Swiss bank accounts — including some $248 million into Raja’s personal account.
Since then, France, Germany, Liechtenstein, and Luxembourg have opened their own probes. In March 2022, authorities froze 120 million euros’ worth of assets in multiple countries “linked to the investigation of a money laundering case in Lebanon.” German prosecutors told OCCRP this was related to the Salame investigation.
British MP Margaret Hodge also reported Salame and his associates to the UK National Crime Agency in 2021 after the OCCRP revealed his vast holdings in the country.
In Lebanon, prosecutor Ghada Aoun charged the Salame brothers with illicit enrichment and money laundering in March 2022 in relation to transactions concerning apartments in Paris. In June, Lebanese authorities raided a Beirut property owned by Salame. Both brothers deny the charges.
The same month, prosecutor Ghassan Oueidat separately ordered Salame to be charged with money laundering, illicit enrichment, forgery and tax evasion. But the case has stalled amid political interference allegations and procedural objections made by the central bank governor’s lawyer in court.
Why is Salame still running Lebanon’s central bank?
In short, because Lebanon’s political system is paralyzed. Since shortly after gaining independence from France in 1943, the country has been run according to a delicate power-sharing arrangement, whereby official positions are allotted based on affiliation with one of the country’s various religious sects.
This system, which was rebalanced after the civil war, has been maintained even as it has come under increasing criticism for contributing to political dysfunction. Since President Michel Aoun’s term ended in October, for instance, parliament has repeatedly failed to elect a replacement.
Despite calls for his removal, Salame has also continued to enjoy public support from prominent figures including Prime Minister Najib Mikati and the long-serving speaker of parliament, Nabih Berri.
Salame’s current six-year term as central bank governor is set to end in July. In February 2023, he indicated he would step down at the end of his term, telling Saudi TV channel Asharq News he would “move to work outside the central bank”.
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