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The National
22-04-2025
- Business
- The National
Lebanon could seek $1bn in damages in foreign courts over country's largest financial scandal
The Salameh Papers: Full coverage here Lebanon could claim up to $1 billion in damages through foreign courts in relation to the country's largest financial scandal, known as the Forry case, in which hundreds of millions of dollars in public funds were allegedly embezzled and invested in real estate abroad, a former Lebanese prosecutor has told The National. The compensation could include $330 million allegedly misappropriated from Lebanon's central bank since 2002 by its disgraced former governor Riad Salameh, as well as interest accrued over more than two decades, former judge Jean Tannous said. The funds could offer some relief for the cash-strapped country, which has been grappling with a crippling economic crisis for over five years, with its political and financial elite showing little willingness to reform a paralysed banking sector or address financial losses estimated at $70 billion. 'This would require the state to intervene actively in foreign proceedings, prove the public origin of the funds, and assert its rights under international asset recovery mechanisms,' Mr Tannous said. The Forry case, named after a shell company owned by the former central bank governor's brother that was allegedly used to embezzle funds, is the subject of investigation by several European countries, including France, Luxembourg, Germany and Switzerland. In Lebanon, Mr Tannous led a high-stakes investigation spanning 18 months into the former central bank governor and his entourage, facing consistent political interference. He resigned from the judiciary in 2022. In a rare interview, Mr Tannous outlined lessons to be learnt from Lebanon's biggest money laundering scandal, which stretched from the coffers of the central bank to luxury real estate in Europe and the US. Mr Salameh, who is currently detained in Beirut over a separate embezzlement scandal, was once seen as the linchpin of Lebanon's financial sector. He is now widely blamed for the country's economic collapse, as the architect of a national-scale Ponzi scheme that collapsed in 2019. Mr Salameh, and his brother, who is alleged to have assisted him in setting up a slush fund at the Banque du Liban, have repeatedly denied any wrongdoing. Mr Tannous said Lebanon is yet to take decisive steps to recover assets abroad allegedly bought with public funds. While the Lebanese state is legally recognised as a victim in the Forry case, any recovery of the misappropriated funds from abroad is not guaranteed, even in the event of a conviction. Lebanon has joined some foreign proceedings, including in France and Switzerland, as a civil party – a move that paves the way for asset recovery. But Mr Tannous said the state has failed to appoint legal representation for the Lebanese state in Switzerland, which 'can limit the impact' of court decisions. Lebanon has also filed a complaint against HSBC in Switzerland, accusing the bank in its first legal action against a foreign lender of ignoring red flags and enabling the transfer of hundreds of millions of dollars in suspected embezzled funds from the central bank. HSBC is among several international banks where the Salameh brothers held accounts allegedly used to move public funds out of Lebanon. 'Lebanon must broaden its local criminal investigations to include all foreign financial institutions potentially involved – not just in Switzerland, but also in France, Luxembourg, Germany, the UK, and the United States,' Mr Tannous said. 'Without that, even the most clear-cut embezzlement risks ending in impunity and unrecovered losses.' Setting up an international money laundering scheme is not a one-person job. The Forry scandal has exposed fault across the board – from international banks and audit firms to the central bank itself. 'Any potential criminal activity at BDL inevitably points to a network of internal complicities,' Mr Tannous said. 'Years of unchecked authority concentrated in the person of the governor, combined with paralysed internal governing bodies, particularly the central board. Legal and compliance departments were reduced to bureaucratic formalities, and internal controls failed to assert any real authority.' Mr Salameh's unchecked authority and the central bank's weak internal governance, which were glossed over as long as Lebanon's financial system appeared stable and dollars kept flowing, were sharply criticised in a 2023 forensic audit. Karim Souaid, the new central bank governor who took office in March, has pledged to combat money laundering and terror financing. 'These intentions must quickly translate into tangible reforms, including the reactivation of internal governance structures such as the central board, compliance, and audit units with full authority,' Mr Tannous said. 'Most critically, the long-standing system of political interference, which allowed the placement of relatives and affiliates of political figures in key positions, must be dismantled through strict conflict-of-interest rules, merit-based hiring, and institutional transparency,' he added. Despite the scale of the crisis and the embezzlement allegations, there have been no significant staff changes at the central bank to date. 'Any individual working at BDL can be held criminally responsible if it is proven that they took part in financial crimes,' Mr Tannous said. These include serious offences such as breach of trust, abuse of power, aiding embezzlement, money laundering, or hiding evidence, he added. 'Even choosing to do nothing in the face of clear wrongdoing may be considered criminal negligence.' The election of former army chief Joseph Aoun as Lebanese president and the appointment of international jurist Nawaf Salam as prime minister, ending more than two years of political vacuum in the country, have renewed hopes for reform and accountability. Mr Tannous said the Lebanese public is watching whether judicial investigations will move forward without political interference and whether accountability will be achieved. 'The Forry case revealed how the concentration of power, institutional opacity, and the absence of independent oversight mechanisms can foster systemic abuse, entrench corruption, and reinforce impunity,' he said. 'Despite the magnitude of this scandal, no meaningful lessons have been drawn yet.'
The National
04-02-2025
- Business
- The National
Lebanon files lawsuit against HSBC in Switzerland over Riad Salameh embezzlement case
The Salameh Papers: Full coverage here Lebanon has filed a lawsuit against HSBC in Switzerland, in its first legal action against a foreign bank related to a corruption case involving former Lebanese central bank governor Riad Salameh. Helene Iskandar, head of state litigation, told The National she filed the lawsuit on January 14. Switzerland's Attorney General opened an investigation into Mr Salameh in 2020 for aggravated money laundering. Judicial documents allege Mr Salameh siphoned at least $330 million from the central bank through commissions paid into the account of his brother's company, Forry Associates Ltd, at HSBC Private Bank Switzerland. The funds then followed a complex path through different countries and accounts to pay for luxury properties in the EU and US for Riad Salameh and his relatives, according to European investigators. Lebanon alleges that HSBC Switzerland failed to conduct proper due diligence on the origin of the funds. In June, Switzerland's banking regulator – the Swiss Financial Market Supervisory Authority, Finma – accused HSBC Private Bank Switzerland of breaching money-laundering rules in relation to Riad Salameh's case and ordered measures to be taken. The regulator found the bank failed to properly assess the origin, purpose or background of the assets involved, despite a series of high-risk transactions that were insufficiently documented. Finma banned HSBC's Swiss private bank from entering into new business relationships with prominent public figures in July 2024. It accused the bank of failing to notify authorities about the transactions despite money laundering risks. HSBC did not reply to The National 's request for comment. Riad Salameh and his brother, Raja, have denied any wrongdoing. Since Switzerland opened an investigation into Riad Salameh, at least six other countries, including Lebanon, France, Germany, Luxembourg, Belgium and Lichtenstein, have launched corruption investigations against him. Asked about Lebanon's lawsuit, the Office of the Attorney General of Switzerland said it would not provide "any further information" as it concerned ongoing criminal proceedings on suspicions of aggravated money laundering in connection with the embezzlement of funds from the Banque du Liban, Lebanon's central bank. Red flags Judicial documents seen by The National highlight a series of red flags concerning Forry Associates and the flow of funds around the company. According to the minutes of Raja Salameh's hearing before the Lebanese judiciary, Forry was established in 2001 in the Virgin Islands 'on the advice of HSBC Bank in Geneva', which handled the 'incorporation procedures' and opened a bank account for the company. Under an irregular agreement with Lebanon's central bank, Forry collected a 0.38 per cent commission from Lebanese commercial banks between 2002 and 2015 – without their knowledge or providing services – each time they bought financial instruments from the central bank. In 2015, HSBC requested an additional copy of the Forry contract, which was signed by Raja Salameh, despite him not being one of Forry's directors – making the contract legally non-binding, according to investigators. The contract presented to HSBC differed from the one signed in 2002 by the central bank governor and a Forry representative named Kevin Walter, who investigators have been unable to identify or locate. Twelve years after that contract was signed, and hundreds of millions of dollars in commissions later, the anomalies eventually raised red flags. HSBC refused to process two transfers from the central bank to Forry, totalling $7 million, which it then returned to the central bank. According to the Lebanese investigation into Riad Salameh, the funds were then transferred to lawyer Michel Tueni to be delivered to Forry. Mr Tueni could not be reached for comment on the rationale behind the transfers. 'After this incident, Forry no longer received bank transfers from Banque du Liban and the company was dissolved in 2016,' Jean Tannous, a former judge who was in charge of the Lebanese investigation, wrote in a note. HSBC waited until September 2020 to file a report, four years after closing the accounts in light of various red flags. Raja Salameh told investigators the company's closure was unrelated to HSBC's restrictions, saying it shut down due to a 'drop in business activity' in 2015. That same year, however, Lebanon's central bank launched a 'financial engineering' scheme, which led to an increase in transactions between the central bank and Lebanese banks. Once praised as one of guardians of the banking sector, Riad Salameh, who led the central bank from 1993 until 2023, has been under intense scrutiny since the collapse of the Lebanese economy in 2019. He has been in custody in Lebanon since September over a separate case involving embezzlement and the manipulation of financial statements, linked to the Lebanese broker Optimum Invest SA. According to Banque du Liban's forensic audit, Optimum used similar mechanisms to Forry to allegedly siphon off public funds through commissions between 2015 and 2018. Optimum began dealings with the central bank in 2015, the same year Forry ceased its operations with the regulator. Riad Salameh is alleged to have embezzled at least another $42 million from the central bank through Optimum.
