Lebanon contracts NY-based company to do forensic audit
Lebanon contracts NY-based company to do forensic audit
New York-based Alvarez & Marsal will conduct a forensic audit of the Lebanese central bank's accounts.
3 min read
Lebanon's currency has lost over 80 percent of its value since October [Getty]
Lebanon's government agreed on Tuesday to hire a New York-based company to conduct a forensic audit of the country's central bank accounts to determine how massive amounts of money were spent in the nation plagued by corruption.
President Michel Aoun's office said the government chose Alvarez & Marsal for the forensic audit. Two other companies, KPMG and Oliver Wyman, will be contracted to do traditional accounting audits of central bank accounts.
It comes as reports emerged that Lebanon's central bank boosted its accounts by $6 billion using risky measures during the build-up to the crisis, acccording to accounts viewed by The Financial Times.
The asset was said to be made for "seigniorage on financial stability" and its value determined by the governor "as deemed appropriate by him".
Two banking experts said they were alarmed by the reports and the measures might have disguised huge losses, contributing to the catostrophic nose dive of the Lebanese economy.
"This is too bizarre for words," Willem Buiter, an academic and central banking specialist, told the FT.
"It is just a way of accounting to artificially blow up the assets of the central bank and hide [its] massively negative net worth or capital. Many of the assets are inventions."
Lebanon's economic crisis, rooted in decades of corruption and mismanagement, deepened after nationwide protests against the political class erupted in October.
Banks have imposed informal capital controls, limiting the withdrawal of dollars, and the cash-strapped government defaulted on its sovereign debt in March for the first time.
The coronavirus lockdown that lasted three months threw tens of thousands of people into poverty and unemployment.
The move to name Alvarez & Marsal came after weeks of delays after other companies were not accepted because of alleged links to Israel, with whom Lebanon is at war.
The government had asked Lebanon's General Security Directorate to look into several companies, and Alvarez & Marsal was among those cleared.
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The government had been calling for a forensic audit into the central bank's accounts since March following the country's first ever default on paying back its massive debt.
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"This is a cornerstone on which reform can be built on," Prime Minister Hassan Diab was quoted as saying during a Cabinet meeting. "This will be a historic decision for Lebanon and will mark a radical change to reveal overspending and theft."
The announcement comes as talks between the government and the International Monetary Fund failed to make progress since they started in mid-May.
Two leading members of the Lebanese government team in talks with the IMF resigned in recent weeks over politicians' attempts to downplay losses at the central bank.
Aoun has been a strong supporter of a forensic audit but Lebanese media have reported that other politicians were opposed to such a move that could reveal parties that have been benefiting from corruption.
The IMF said in April that Lebanon's economy is expected to shrink 12 percent in 2020.
On Monday, a Lebanese judge ordered some of the assets of central bank Governor Riad Salameh be frozen. The decision, which is symbolic, came after a lawsuit filed by five lawyers who belong to an activist group known as "the people want to fix the regime".
The lawyers accused Salameh, who has held the post since 1993, of negligence and inciting people to withdraw their money from bank accounts and selling state bonds.
Since October, Lebanon's currency has lost more than 80 percent of its value, leading many to blame Salameh for the crash. Protests outside the central bank are not uncommon in Beirut's commercial district of Hamra.
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