Alvarez & Marsal findings: Forensic audit report reveals lack of transparency and mismanagement at BDL

A comprehensive forensic audit report conducted by Alvarez & Marsal has shed light on significant issues within the Banque du Liban (BDL), which can be summarized in three main points: lack of transparency, concealment of losses, and unilateral decision-making.

The report exposes a rapid deterioration in the financial state of the BDL, which went from having a surplus of $7.2 billion in foreign reserves in 2015 to incurring losses exceeding $50 billion by 2020.

However, this dire situation was not accurately reflected in the BDL's financial statements, which, according to the forensic audit, overstated asset valuations and profits to a significant extent.

The auditing firm criticized the complex financial engineering employed by former BDL Governor Riad Salameh to attract high-interest deposits, which incurred a hefty cost of LBP 115 trillion, approximately $76 billion at the exchange rate of LBP 1500 to one USD. 

The report also highlights that the execution of these policies by the governor was often secretive and personalized, leading to a lack of accountability. Alvarez & Marsal concluded that the BDL's accounting practices had failed.

The audit further emphasizes that the Central Council should have been actively monitoring and discussing these operations. 

Nonetheless, minutes from the council meetings reveal that Governor Salameh exerted considerable control over discussions and decisions.

In addition, the audit exposed financial improprieties related to the company "Forry," owned by Raja Salameh, the former governor's brother. According to the audit, unauthorized commissions amounting to $111 million were disbursed to the company.

During an ongoing financial deterioration at the BDL, extravagant expenses were reportedly incurred for purposes not necessarily aligned with the institution's financial stability.

Around LBP 30 billion, approximately $20 million at the exchange rate of LBP 1500 to one USD, were allocated by the BDL as aid and donations to various entities. 

Additionally, $7.6 million was disbursed as sponsorships to multiple companies, organizations, festivals, and associations.

Over LBP 2 billion, approximately $1.4 million in cash, was directed to the governor for travel expenses and conference attendance.

Approximately LBP 6 billion, roughly $3.86 million, was spent renting an office for the Central Bank in Paris.

Notably, substantial funds were allocated for furnishing the governor's office in the Financial Market Authority building and executive directors' offices, totaling $1 million, along with artwork and decorations valued at LBP 2.7 billion, approximately $1.78 million.

Alvarez & Marsal's observations revealed numerous questionable transactions, with invoices for different agreements totaling LBP 331 billion, approximately $200 million. Many of these transactions lacked clear direction or purpose.