The Salameh Papers: Full coverage here
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 month and 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.
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.
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".