Top US consultancy withdraws from 'crucial' central bank work

26 November 2020 Consultancy-me.com

Alvarez & Marsal has exited its role as consultant to Lebanon’s central bank, after a sustained standoff saw the financial institution withhold data citing bank secrecy. Even meeting with Lebanon’s President could not break the impasse, and the news has jeopardised Lebanon’s seek of a bail-out from the international community following the country’s protracted economic collapse this year.

Lebanon has spent the past year in a state of deepening crisis. The nation’s central bank’s pegging of the value of the Lebanese lira to the US dollar, at the rate of roughly $1 = 1,500LP, had meant that despite multiple socio-political, economic and security challenges, the Lebanese economy managed to succeed.

However, the success of what has been described widely as pyramid-scheme was living on borrowed time. When the scheme collapsed late last year, a collapse in confidence swiftly rendered the lira worthless, and left huge swathes of the population unemployed.

Top US consultancy withdraws from 'crucial' central bank work

The pegging was managed by the central bank borrowing from private banks, who depended on depositors attracted by huge interest rates of up to 14%. As a result of this, when the system did collapse, it collapsed quickly, and brutally. Currently, the lira’s exchange rate lapsed to 9,000 lira to the dollar, and with Lebanon heavily dependent on imports for its local economy, the news has seen consumption levels nosedive.

While the government largely managed to keep its earlier exchange rate of 1,500 to the dollar, very few people have access to that rate, barring the politicians and business elite who led the economy to meltdown in the first place.

International support?

As a result of the continued economic mismanagement centring around political corruption, the international community has collectively baulked at the billion-dollar funding Lebanon asked for in bail-out funds. Talks quickly stalled with the International Monetary Fund (IMF), as Lebanon’s establishment is hesitant to push through reforms that are coupled to loans and grants.

In a bid to comfort the international community, as well as shed light on alleged financial misconduct by key public figures and bankers, in September leading US consultancy Alvarez & Marsal was flown in to conduct a forensic audit on the nation’s central bank, the Bank of Lebanon.

Unfortunately for Alvarez & Marsal, and the people of Lebanon themselves, the situation swiftly descended into farce, as the consultancy was routinely blocked from carrying out its responsibilities.

Pulling the plug

James Daniell, a Managing Director at Alvarez & Marsal, even held a meeting with Lebanon’s President Michel Aoun, as well as caretaker Finance Minister Ghazi Wazni, over the situation, after the central bank refused to hand over information key to investigating the case. Experts from the firm believed that the central bank had handed over less than half of the documents required to proceed with the audit, and set a deadline of November 3rd to provide further information to no avail.

The central bank meanwhile stood by its claims that provisions of Lebanon’s Code of Money and Credit and the Banking Secrecy Law barred it from releasing all of its information. November saw a parliamentary bloc submit a proposed law to temporarily lift the bank secrecy law solely for the audit – however, no date has been set for a session on the proposed law.

With the nation’s financial and political bureaucracy seemingly closing ranks to hamstring further investigation, and talks with the President yielding no further leverage to break the deadlock, Alvarez & Marsal opted to resign its contract with the country’s interim government. Placing yet more doubt as to whether Lebanon will be able to attract a bailout from the IMF.

In a statement from the government, Finance Minister Wazni confirmed Alvarez & Marsal’s decision to quit over “uncertainty it would receive the information” it sought. Disappointed by the news, Lebanon’s Caretaker Prime Minister (until a successor forms a new government), who has criticised the central bank for citing bank secrecy to withhold data, tweeted: “The wall of corruption is very thick and very high... Today they felled the forensic audit.”

Indeed, according to many, the entire process resembles yet another shrewd tactic from the Lebanese government to buy time. Early this year, the government hired Kroll to conduct the audit, but just when the consultancy was set to commence its work, the Duff & Phelps subsidiary saw its mandate removed because of its alleged links with Israel, with whom Lebanon is at war. Now, more than ten months down the line, the case still finds itself at square one.

Beirut blast

Meanwhile, Lebanon is still recovering from a disastrous explosion in Beirut’s port that compounded the nation’s misery. The detonation of almost 30,000 tonnes of unmonitored ammonium nitrate killed roughly 200 people in the Lebanese capital, wounding 6,000 more – as the blasts sent shock waves racing from Beirut’s industrial waterfront, into the densely populated residential and shopping districts.

According to a study by strategy consulting firm Strategy&, the damages totalled more than $20 billion – further deepening Lebanon’s need for financial support.