A second brokerage firm that had close dealing with Lebanon’s central bank has been put under the microscope for what auditors have described as “extravagant” irregularities, “breach of trust”, “conflicts of interest” and “irregular transactions”.
The questions raised about Optimum Invest SAL, a Lebanese brokerage firm established in 2004 with which the central bank signed a non-exclusive contract, are detailed in two reports, a forensic audit of the bank released last monthand a 2015 audit, whose findings are disclosed here for the first time.
It follows revelations about Forry Associates, a brokerage firm owned by the brother of former central bank governor Riad Salameh. The firm is suspected of being a shell company created with the sole intention of siphoning off more than $330 million from the bank.
Investigators found that the intermediary levied a 0.38 per cent commission each time a commercial bank bought financial instruments from the central bank, without performing actual services in exchange.
Riad Salameh is the subject of two arrest warrants and an Interpol red notice. The US, UK and Canada have also imposed sanctions on him in connection with the accusations against him, which he and his brother, Raja Salameh, have repeatedly denied.
According to the two audits:
Optimum engaged in transactions flagged as "highly irregular" with the central bank, seemingly continuing the Forry "commission scheme“, resulting in an additional $111 million in "illegitimate commissions”.
Optimum helped to "manipulate" the financial statements of Lebanese commercial banks to conceal their losses, while generating generous fees for itself.
Optimum significantly "overcharged" its clients, mostly Lebanese banks. Although the report does not specify where the extra funds generated from these inflated financial instruments went, it identifies several "conflicts of interest" involving Optimum's management, which are well-connected within the financial sector and certain Lebanese bankers.
Optimum did not respond to inquiries regarding these findings.
A Lebanese senior judicial source told The National that they were actively looking into the file to open a case against the broker.
For decades, Lebanon maintained the facade of having a robust banking sector, with its foundations rarely questioned. The abrupt and devastating economic crisis that began in late 2019, marked by financial losses exceeding $70 billion, a collapsed local currency and largely insolvent banks, caught many off guard.
But the mounting pressure for increased scrutiny of irregularities within the Lebanese financial sector is gradually uncovering pieces of the puzzle behind what the World Bank has described as one of the worst financial crises in more than 150 years.
Antoine Kassis. Photo: Optimum Invest
’Extravagant‘ misconduct
Optimum's 2015 audit was conducted by the Capital Markets Authority's (CMA) financial control unit, an independent regulatory body that focuses on financial market practices in Lebanon.
The report has come to light after claims of strong resistance within the CMA to release it to the relevant authorities.
"The audit was repeatedly sent to the CMA but was consistently replaced by shorter, sanitised versions lacking incriminating conclusions," a source told The National.
The 260-page document, obtained by The National, resulted from document reviews, on-site audits and meetings with key stakeholders, including Optimum chairman Antoine Salame, a distant relative of Riad Salameh, and head of trading Antoine Kassis.
The report, which examined trading activity between banks, mainly Lebanese and Optimum, revealed a series of "extravagant" examples of misconduct, including irregularities in swaps, where Optimum acted as an intermediary between banks.
Auditors suspected that, if this is the case, the swaps – agreements in which one party exchanges the value of an asset with another – were realised at "fictitious prices" to conceal banks' losses.
In essence, these transactions allegedly helped Lebanese banks to "cook the books" by reporting trades at higher prices than their actual market value, all the while generating generous fees for Optimum.
Auditors noted that neither Mr Salame nor Mr Kassis had shown "any remorse" for their participation in these transactions, which had "major repercussions on the industry at large”.
The auditors also claim that Optimum "double-charged clients' fees" by adding spreads beyond their initial agreements.
This practice, known as a double-dipping scam, involved Optimum selling overpriced financial instruments to Lebanese banks.
One of the aggrieved clients is the Caerus Fund, managed by Mr Salame and which was described as another form of "extravagant breach of trust”.
A lingering question is how bankers became involved in transactions detrimental to their institutions, and what became of the profits generated from these actions.
The auditors uncovered "conflicts of interest" as they found that Mr Salame had close business partnerships with people who worked in the securities business.
They included several Lebanese bankers, a senior director at the central bank and secretary of the CMA board, Raja Abou Asli.
Lebanon's Central Bank Governor, Riad Salameh, greets employees on his last working day as the head of the Central Bank in Beirut, Lebanon, 31 July 2023. EPA
Mr Abou Asli did not answer The National's inquiries regarding concerns of "conflicts of interest", which were raised by auditors regarding a limited liability company, New Edge Properties, registered in Florida, which the central bank director owns in partnership with Mr Salame.
Mr Salame declined to comment to The National.
"Such business partnerships put the participants in a conflict of interest, vis-a-vis their actual responsibilities with the firms, which they work for," the auditors said.
The auditors recommended that refunds were issued to all clients.
Neither compensation nor any form of sanctions against Optimum have been enforced, sources said.
'Continuation of the commission scheme’
However, the tableau remains unfinished. The CMA audit stopped in 2015 and did not scrutinise the central bank's trading activity with Optimum.
This is despite the fact the bank is Optimum's biggest client, consisting of 98 per cent of its asset under management. The CMA audit therefore solely focused on the remaining 2 per cent, primarily involving transactions with Lebanese banks.
Why was the central bank not included in the auditor's investigation?
The CMA did not reply to a request for comment, but the fact Lebanon's financial watchdog was led at the time by Riad Salameh, who left his position as governor of the central bank at the end of July, might offer an answer.
The central bank's forensic audit, which covers the period from 2015 to early 2020, provides an insight into some of the transactions with the bank that were flagged as "irregular".
International auditors Alvarez & Marsal discovered that bank sold financial instruments to Optimum only to repurchase them at higher prices immediately.
As both the central bank and Optimum did not reply to our requests for comment, the economic rationale behind these transactions remains uncertain.
The additional premium was then directed to a commission account – the same account allegedly used by Forry to funnel public funds into European property tied to Riad Salameh and his relatives.
“This appears to be a continuation of the commission scheme under investigation by Lebanese and international prosecuting authorities,” the auditors wrote.
The ultimate beneficiaries of these commissions are unknown due to the absence of comprehensive data provided by the central bank.
Optimum's website shows it is currently operating and was acquired in June 2020 by LIBANK SAL (Levant Investment Bank SAL). It says it is committed to "a high sense of ethics in dealing with all stakeholders" and is dedicated to "laws and regulations".
Mr Kassis, who did not respond to our requests for comment, is still listed as a member of the board of directors.
This is despite the recommendation from the 2015 audit, which "based on the gravity of their misconduct", suggested sanctions including industry bans for the chairman and the head of trading, emphasising that they are "are neither fit nor proper to act in their current capacity".
Electric scooters: some rules to remember
Riders must be 14-years-old or over
Wear a protective helmet
Park the electric scooter in designated parking lots (if any)
Do not leave electric scooter in locations that obstruct traffic or pedestrians
Solo riders only, no passengers allowed
Do not drive outside designated lanes
Pharaoh's curse
British aristocrat Lord Carnarvon, who funded the expedition to find the Tutankhamun tomb, died in a Cairo hotel four months after the crypt was opened. He had been in poor health for many years after a car crash, and a mosquito bite made worse by a shaving cut led to blood poisoning and pneumonia. Reports at the time said Lord Carnarvon suffered from “pain as the inflammation affected the nasal passages and eyes”. Decades later, scientists contended he had died of aspergillosis after inhaling spores of the fungus aspergillus in the tomb, which can lie dormant for months. The fact several others who entered were also found dead withiin a short time led to the myth of the curse.
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
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The burning issue
The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
The low down on MPS
What is myofascial pain syndrome?
Myofascial pain syndrome refers to pain and inflammation in the body’s soft tissue. MPS is a chronic condition that affects the fascia (connective tissue that covers the muscles, which develops knots, also known as trigger points).
What are trigger points?
Trigger points are irritable knots in the soft tissue that covers muscle tissue. Through injury or overuse, muscle fibres contract as a reactive and protective measure, creating tension in the form of hard and, palpable nodules. Overuse and sustained posture are the main culprits in developing trigger points.
What is myofascial or trigger-point release?
Releasing these nodules requires a hands-on technique that involves applying gentle sustained pressure to release muscular shortness and tightness. This eliminates restrictions in connective tissue in orderto restore motion and alleviate pain. Therapy balls have proven effective at causing enough commotion in the tissue, prompting the release of these hard knots.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Dubai works towards better air quality by 2021
Dubai is on a mission to record good air quality for 90 per cent of the year – up from 86 per cent annually today – by 2021.
The municipality plans to have seven mobile air-monitoring stations by 2020 to capture more accurate data in hourly and daily trends of pollution.
These will be on the Palm Jumeirah, Al Qusais, Muhaisnah, Rashidiyah, Al Wasl, Al Quoz and Dubai Investment Park.
“It will allow real-time responding for emergency cases,” said Khaldoon Al Daraji, first environment safety officer at the municipality.
“We’re in a good position except for the cases that are out of our hands, such as sandstorms.
“Sandstorms are our main concern because the UAE is just a receiver.
“The hotspots are Iran, Saudi Arabia and southern Iraq, but we’re working hard with the region to reduce the cycle of sandstorm generation.”
Mr Al Daraji said monitoring as it stood covered 47 per cent of Dubai.
There are 12 fixed stations in the emirate, but Dubai also receives information from monitors belonging to other entities.
“There are 25 stations in total,” Mr Al Daraji said.
“We added new technology and equipment used for the first time for the detection of heavy metals.
“A hundred parameters can be detected but we want to expand it to make sure that the data captured can allow a baseline study in some areas to ensure they are well positioned.”
