Ali Noureddeen
Away from the media’s eyes, prosecutors from seven different countries met in The Hague to coordinate the judicial files in each of these countries regarding the suspect Riad Salameh and exchange information and evidence in their possession.
Salameh, the Lebanese who holds French citizenship and whose financial operations are tracked by investigators throughout Europe, is facing today charges ranging from embezzlement and money laundering in Switzerland, undermining the state’s financial standing, forgery and illicit enrichment in Lebanon, to criminal conspiracy and money laundering within a criminal organisation in France.
A few days ago in Luxembourg, the judicial authorities decided to file a new criminal suit to further investigate the source of his wealth, while the authorities continue to collect information about his bank transfers and his properties in Germany, the Netherlands and Belgium in preparation for conducting criminal prosecution against him.
Salameh, the subject of all these cross-border investigations, is not just an ordinary businessman or a private bank manager implicated in suspicious acts.
Riad Salameh has been Lebanon’s Central Bank governor since 1993, whose monetary and credit law gave him the most sacred of the sovereign, financial and monetary powers of the Lebanese state: creating cash, preserving the local currency value that determines the purchasing power of residents’ salaries and incomes, ensuring the integrity of the banking system, which contains the savings of residents and immigrants, and organising methods of payment on which the local economy and its productive sectors are based.
The sensitivity of these roles is what drives countries – including Lebanon – to surround Central Banks and their governors with exceptional independence to keep them away from politics and abuse of influence.
For all these reasons, the allegations against Salameh have unique dimensions, such as questioning the immunities usually granted by the law to Central Bank governors, especially in Lebanon, where the law gives him special legal and judicial impunity and extensive authorities to manage the bank affairs with minimal accountability.
Instead, these accusations are critical because the man is still benefiting from all these powers and immunities today, more than two years after the financial collapse that ousted the value of the local currency and bank savings, not to mention the bankruptcy of the state itself.
In other words, instead of bearing the responsibility for the monetary policies that contributed to this collapse, Salameh is still steering the helm of the Central Bank, dealing with the repercussions of the crisis, with many suspicious measures regarding the groups they serve and the way losses are allocated.
Salameh’s Background: an Adventurer in the Development Stage
Salameh became governor of the Banque du Liban in 1993, after a 20-year career in the financial markets and the stock exchange at Merrill Lynch, where he was known as a successful banker in managing the financial portfolios of investors in the institution.
Knowing this background seems necessary today to understand his performance as governor of the Central Bank later on. All the governors of the Central Bank who preceded Salameh in this position were jurists and lawyers, whose backgrounds prompted them to be strict and conservative in their decisions and keep away from policies that may involve risks to money deposited in the bank.
The Lebanese people remember former Central Bank Gov. Edmond Naim, who refused to squander these funds and excessively lend to the state to finance suspicious deals, even when the political authority threatened him physically.
In all cases, and unlike all the conservative governors of the Central Bank who preceded him, Salameh came from a completely different background: from the world of investments, stock exchanges, and shares, from the position of being responsible for the risks that could bring safe, quick and easy profit to his clients.
From this particular world, the late Prime Minister Rafic Hariri came to know him and admired his performance, then requested his return to Lebanon to take over Banque du Liban in 1993. Noting that Hariri himself joined the political life at that time, coming from the world of contracting and real estate projects in KSA, carrying his economic project for the post-Civil War era that ended in 1990.
Thus, the economic project of the state, whose design was supervised by Rafic Hariri, integrated with the banking regulations and monetary policies that Riad Salameh consolidated. Their names were inseparable during the reconstruction stage in the ’90s.
As a result, Hariri and Salameh’s fingerprints were mixed at that stage: from the real estate projects boom, even those that came at the expense of the city’s social fabric, the rapid growth of the banking sector, whose profits grew through excessive lending to the public sector with massive interests, and through real estate loans during the boom.
The public sector expanded spending on urban projects, which often squandered a lot of money, along with the quotation based distribution of these projects’ spoils on the sectarian leaders in the country.
The Financial System Architect Needed by Everyone
The state was progressing with a rapid growth policy after the end of the war. Still, it adopted fragile and dangerous rentier policies in the long run by encouraging easy profit achieved by banks, real estate speculation and inflating public debt at the expense of all productive sectors such as agriculture and industry.
For his part, Salameh was the ideal financial architect for a republic of this type. He allowed the banks to get involved in these risks by raising their investments in Lebanese public debt and real estate loans without accountability or supervision.
The major problem was that Salameh was inclined to take this kind of profitable risk. However, his role of monitoring and watching over the banking system required maintaining exceptional strictness to keep banks away from the adventures of the political authority in the rapid growth stage.
In all cases, the integration of Salameh’s role with the vision of the political authority was not limited to the banking sector. Still, this harmony included the monetary policies he adopted, which fueled the same rentier and fragile economic pattern. Exorbitant interest rates have prompted investors to stay away from productive investment and be satisfied with the interest rates granted to them by depositing their money in banks.
This also increased the cost of borrowing to fund productive projects, which kept the agricultural and industrial sectors away from benefiting from the liquidity available in banks. In short, the high-interest policy that Salameh consolidated only served to attract deposits to inflate the banking sector and lend to the state at a high cost.
For all these reasons, Salameh proved himself as a cunning architect of the Lebanese financial system, just as the political authority needs, with all its various divisions, regional loyalties, and sectarian affiliations. Despite the change in parties controlling the political scene for more than 28 years, Salameh maintained his position and renewed his term every six years due to the need of all parties for the financial role that he was able to play as governor of the Central Bank.
Even after the assassination of Rafic Hariri in 2005 and the subsequent withdrawal of the Syrian army from Lebanon, Salameh’s position on the Lebanese scene wasn’t affected in the least.
The factor Salameh most benefited from was the close relationship that he built with senior bankers and beneficiaries within the financial system. Those have always benefited from the considerable amount of profits provided to them by the economic system that dominated after the Civil War and whose monetary and financial policies were engineered by none other than Riad Salameh himself.
Because of the intersection of bankers and politicians’ interests, given that most of them are major depositors or shareholders in banks, Salameh’s close relationship with bank owners increased his influence within the political equation.
The most dangerous aspect of the financial model that Salameh’s policies perpetuated was the concentration of wealth in the hands of a few in society. Historically, about half of the Lebanese state’s revenues, derived from taxpayers’ money, were used to pay the public debt interests. Since the banks represented the primary lender to the state since the 1990s, the vast majority of these interests were poured into the accounts of major depositors and shareholders in the banking sector.
As a result of these policies, only about 2% of bank account holders own more than 60% of the funds deposited within the banking system. To understand the magnitude of the public debt impact on the concentration of wealth, it is sufficient to point out that the Lebanese state has accrued more than $87 billion in due interest since 1993. That resulted from public debt inflation, which is a cost that only the taxpayer will pay.
Suspicious and Ambiguous Remedies
When the Lebanese financial system experienced the scarcity of inward remittances between 2011 and 2019, the crisis was an excellent occasion to reconsider the entire existing model, especially considering the damage it inflicted on economic productivity and the fair distribution of wealth, not to mention the size of the expected collapse later, which happened in 2019.
But Salameh decided to take a risk and defend the same model with the same tools. Specifically, in 2016, the governor of the Banque du Liban launched what was known as financial engineering. It was ambiguous scheme operations that paid massive amounts of returns in local currency to commercial banks in exchange for transferring more depositors’ money in foreign currency to their accounts in the Central Bank.
Riad Salameh promoted these operations as a personal achievement. They contributed to increasing Banque du Liban’s foreign currency reserves, which allowed it to continue financing outward transfers and maintain the lira’s exchange rate.
However, experts, international institutions, and the IMF warned against these operations, which contributed to increasing the squandered sum of depositors’ money within the Central Bank, while commercial banks at that time benefited from the exceptional profits in return for investing depositors’ money in their accounts with the Central Bank. Once again, Salameh was going too far in his risks, with the mentality of a gambler.
Salameh: An Obstacle in front of Reforms
When the collapse occurred in 2019, Salameh opposed all the reforms that Lebanon needed to overcome the crisis and obstructed the criminal audit of the Central Bank budgets, which is supposed to determine the responsibilities of the collapse. Also, he did not agree to cooperate with the auditing company until a year and a half later, after it was assigned the task by the government.
He also resisted determining the losses of banks and the Central Bank rationally to remedy them and restore order to the banking sector. In this manner, the man obstructed all reform plans in all files, benefiting from his legal immunity as governor of Banque du Liban and the independence granted to him by the law.
In all cases, European countries soon began to open judicial investigations into his previous crimes, which he committed between 2002 and 2015. These investigations are focused today on searching for the sources of more than $330 million that were transferred to Swiss banks before they were allocated to assets and investments throughout Europe.
Practically, it seems that opening these files is related to the European countries’ efforts to pressure Salameh to step down after the discrepancies have grown between these countries’ vision of an economic solution in Lebanon and the bankers’ interests Salameh wants to defend. Thus, Salameh will have to spend the remainder of his term in the Central Bank surrounded by lawsuits abroad.