Revealed: How investigators say Riad Salameh conducted central bank embezzlement operation

Judicial documents seen by 'The National' exposed an alleged central bank scheme that allowed governor to make millions of dollars

A broker with no clients, a contract that does not legally exist and an alleged middleman who took his secrets to the grave: judicial documents obtained by The National expose the mechanisms that allowed Lebanon's central bank chief Riad Salameh to allegedly profit from transactions between the regulator and local lenders.

The scheme, which resulted in the alleged embezzlement of $330 million dollars from Banque du Liban, began on April 6, 2002, when BDL signed a contract with Forry Associates Ltd, a company registered in the Virgin Islands and owned by the governor's brother, Raja Salameh.

Forry was supposed to act as an intermediary between the central bank and commercial banks in the purchase and sale of financial instruments such as Eurobonds, Lebanese Treasury bills and certificates of deposit.

Under the contract terms, Forry would earn a broker’s fee of up to 0.38 per cent of the value of transactions between BDL and the lenders.

But European and Lebanese investigations suspect that Forry was a vehicle designed to siphon money from the central bank by collecting commissions without providing any actual services in exchange.

Once lauded as one of the best central bankers in the region, Riad Salameh has been under intense scrutiny since the collapse of the Lebanese economy in 2019, with many blaming his monetary policies for the country's financial woes.

Since 2020, there have been at least six European probes amid suspicion that Forry's commissions were laundered from Lebanon and used by the governor and his entourage to buy luxury European property through successive, multilayered operations.

In 2021, Lebanon opened a parallel investigation led by Judge Jean Tannous.

A central bank representative did not respond to The National’s request for comment.

The Salameh brothers have previously denied any wrongdoing, with Riad claiming his wealth was lawfully acquired through investments he made before he was appointed BDL Governor in 1993.

Here are the details of the scandal shaking up Lebanon's financial world:

A 'legally non-existent contract'

The investigations claim the existence of two different contracts between Forry and the central bank. The original one was signed in 2002 by the Governor and a representative of Forry called Kevin Walter.

Who exactly Mr Walter is remains a mystery as investigators have not been able to identify or locate him.

His identity “does not appear in any document provided to the HSBC bank”, where Forry had its account in Switzerland, wrote the French judge leading the case, Aude Buresi, in an attachment order.

Raja Salameh said in his evidence to Mr Tannous in 2021 that Mr Walter was “an employee of Forry” who “lived in Europe and not in Lebanon”.

However, he was unable to specify the country in which he resided.

In 2015, HSBC requested an additional copy of the contract, which was signed, this time, by Raja Salameh.

According to the French judge investigating the case, to be legally binding, the contract could only be signed by one of Forry's directors.

Neither Raja Salameh nor Kevin Walter appear on Forry's list of directors, which means that “Riad Salameh engaged the BDL with a company under the terms of a legally non-existent contract”, the French judge wrote.

A broker with no clients

Under its contract with BDL, Forry was asked to find investors to buy BDL's financial products.

However, investigators could not locate a list of clients that Forry introduced to the central bank.

Questioned on the matter by Mr Tannous, Raja Salameh said that he did not know Forry's clients as his role was “only logistical”, without explaining what that entailed.

The Governor's brother is alleged to be the sole owner of Forry.

Raja Salameh claimed that the actual middleman between the clients and the central bank was a man named Abdo Jeffi, a former banker who died in 2016.

According to him, Mr Jeffi was the only person who could have attested to Forry's activities.

Nevertheless, his name does not appear in any Forry documents and The National has not seen any evidence of his involvement.

During the search of Forry's premises in Beirut in 2021, Lebanese investigators found that the company, which does not have a broker’s licence, had no employees, no fixed telephone line and not even papers with a letterhead.

With no clear activities and empty offices, Forry seems to only exist on paper.

Secretive operations and shady transfers

Lebanese banks were unaware that they were paying commissions to a company allegedly owned by the governor's brother as BDL did not identify who would ultimately receive commissions.

In one contract between BDL and a Lebanese bank, whose contents were made available to The National, the bank agreed to allow BDL to deduct a commission equal to three eighths of 1 per cent of the transaction size, but Forry was not mentioned. Reuters found the same to be true in four similar contracts.

When asked during his interrogation why the banks claim they never heard of Forry, Raja Salameh said that “question should be addressed to the central bank”.

At the central bank, the Forry payments do not appear to have been subject to customary internal controls and oversight.

“No administrative body was monitoring the process of payment to Forry,” wrote Mr Tannous in a summary note.

According to his investigation, knowledge of payments to Forry was limited to the Governor and BDL's Department of International Operations.

Its director would deposit the money in a special account at BDL and periodically make transfers to Forry's Swiss account at HSBC when requested by Riad Salameh.

Moreover, European investigators detected irregularities in the transfers made to Forry, as some of the commissions appeared to exceed the contracted 0.38 per cent ceiling.

They compared the value of Forry commissions to the value of financial products issued by BDL, based on supporting documents provided by Riad Salameh, and found that at least $30 million could not be justified.

They also found irregularities in the outgoing transactions from the company.

“The operation of the Forry bank account does not in any way correspond to that of a company: there are no salary payments, no rent or invoice payments … All debit transactions were made to Raja Salameh and Riad Salameh, via his brother or offshore companies,” wrote the French judge in the attachment order.

The 'off balance' trick

Riad Salameh would sign the transfer instructions to Forry with a note that such funds are “outside the funds of the Banque du Liban”, the Lebanese investigation alleges.

“It is necessary to affirm that all the commissions (...) were paid by the financial institutions,” the Governor stressed in a letter to Mr Tannous, implying that no public funds were embezzled.

Mike Azar, an expert on Lebanon's financial system and former economics professor at Johns Hopkins University School of Advanced International Studies in the US, told The National that “claiming that these commissions don’t constitute embezzlement of public funds but only kickbacks from banks does not strike me as a particularly strong defence”.

“Forry provided no services yet generated $330 million of profits that would otherwise have gone into BDL’s coffers — that’s public money,” he said.

These anomalies raised red flags at HSBC in 2015 when the bank refused to process transfers worth several million to Forry.

“After this incident, Forry no longer received bank transfers from Banque du Liban and the company was dissolved in 2016,” Mr Tannous in the summary note.

Raja Salameh said the closure had nothing to do with the HSBC restrictions and claimed that the company was closed due to “the drop in the pace of work in 2015”.

However, this was the same year BDL was ramping up its so-called financial engineering transactions, which led to a massive increase in the volume of transactions between the regulator and Lebanese lenders.