With Lebanon's banking secrecy suspended, A&M resumes its audit

20 August 2021 Consultancy-me.com 4 min. read

Eight months after withdrawing from the engagement, global management consulting firm Alvarez & Marsal is set to resume its review of Lebanon’s central bank. 

Lebanon’s central bank has been under scrutiny for months now, after allegations surfaced that the bank had played a central role in the financial corruption which has been plaguing the Mediterranean country for years. In recent years however, the situation went from bad to worse.

According to reports released last year, the central bank – backed by the political establishment and financial services sector elite – setup a Ponzi scheme that provided huge interest rates (of up to 15%) on savings, with the capital attracted from borrowers used to finance the pegging of the Lebanese Lira to the US dollar (at $1 = 1,500LP). Behind the scenes, the scheme benefitted the country’s elite class, who could enjoy decadent lifestyles off their interest income. 

Lebanon’s parliament has suspended banking secrecy for one year

Making matters worse, when the scheme crashed in the third quarter of last year, plunging the country into financial meltdown, and banks were forced to shut their doors to not face a bank run, the central bank facilitated billions in international transfers from the elite including high ranking officials – at a time when Lebanese people were unable to access their money (which still is the case).

Understanding the mismanagement

In a bid to gain insight into the potential (but well-documented) mismanagement, the international community – led by the International Monetary Fund – requested Lebanon to conduct an independent audit on its central bank accounts. While Lebanon’s politicians have long resisted the move, the international community upped its pressure by linking billions worth of financial support to the execution of the audit. 

With effect, because in the summer of 2020, two weeks before the devasting blast in Beirut’s harbour, the Lebanese government announced that it had hired Alvarez & Marsal to conduct a “full forensic auditing of all the central bank’s accounts”. At the time, back then Primer Minister Hassan Diab said the audit would serve as a “significant advance towards exposing the size of financial crime.” 

Alvarez & Marsal’s work nevertheless never took off. Facing classical ways of delaying and even blocking progress (for example: the bank withheld much data and refused to provide access to certain accounts), Alvarez & Marsal saw no other option but to pull the plug from the project

In refusing to hand over (certain) data, the central bank pointed at the country’s banking secrecy laws. This roadblock has now been removed, after the Lebanese Parliament passed a law lifting banking secrecy on BDL’s accounts for one year in order to enable the forensic auditing without hindrances. 

This Wednesday, the Finance Ministry formally confirmed the re-launch of the audit, and that Alvarez & Marsal has agreed to resume its duties. According to local newspaper The Daily Star, the ministry will sign the contract with the consulting firm in a few days and will pay $150,000 for its services. 

Founded in 1983, Alvarez & Marsal is one of the globe’s top consulting firms when it comes to financial advisory and forensic work. The consultancy gained global fame when it was appointed a lead consultant to the wind-down of Lehman Brothers during the 2008 global financial crisis, and has since grown to a player with over 5,000 consultants worldwide. In the Middle East, the firm has offices in the UAE and Saudi Arabia. 

Caretaker Finance Minister Ghazi Wazni said that Alvarez & Marsal has received all the requested data and documents from Banque du Liban, noting that the firm will send a team to the Finance Ministry to work closely with officials and staff. The consultancy has also been given “the full power” to question any staff from Banque du Liban, including long standing governor Riad Salameh. 

Alvarez & Marsal will provide its first preliminary report mid-October. The full engagement is expected to take six months.

For Lebanon, this will be the first time in its history that the government has requested the assistance of an independent external firm to conduct a forensic audit of its central bank.