Riad Salameh and the making of Lebanon's economic collapse

The farewell of Riad Salameh as the Governor of Lebanon's Central Bank could have been better.

Except for a small crowd of colleagues and journalists taking pictures of him to some background music, on 31 July, the last day of his mandate, Salameh left his 30-year-long tenure with a country burdened by a crippled economy and a tarnished reputation as the face of Lebanon's financial crisis.

Investigations into him and his associates extended across Lebanon and at least six European countries. In May, his face appeared on Interpol's website as a wanted person after arrest notices from Paris and Berlin. To top it off, he faced sanctions by the United States, United Kingdom, and Canada.

On 10 August, the three countries acted in joint coordination to impose sanctions on Salameh, whose corrupt and unlawful actions, "have contributed to the breakdown of the rule of law in Lebanon."

"Salameh left his 30-year-long tenure with a country burdened by a crippled economy and a tarnished reputation as the face of Lebanon's financial crisis"

"Salameh abused his position of power, likely in violation of Lebanese law, to enrich himself and his associates by funnelling hundreds of millions of dollars through layered shell companies to invest in European real estate," the press release reads.

In addition to Salameh, sanctions have also been imposed on four of his associates: his brother Raja, his son Nady, Salameh's former assistant Marianne Hoayek, and his former partner Anna Kasakova.

The sanctions against Salameh and his associates stem from investigations conducted against them in Lebanon as well as France, Germany, Switzerland, Belgium, the United Kingdom, and Luxembourg.

Salameh is subject to arrest warrants in France and Germany following investigations into allegations that he and his brother misappropriated about $330 million in public funds from the Lebanese central bank (Banque du Liban, BDL) during his tenure as governor.

These funds were allegedly used to acquire luxury properties across Europe, with the involvement of his associates. 

Despite being wanted in France and Germany, and having an Interpol Red Notice in his name, Salameh could not be extradited due to Lebanese law.

Salameh also faces charges of embezzlement and other financial crimes in Lebanon, despite his denial of any wrongdoing.

In an immediate response to the sanctions, Lebanon has frozen the bank accounts of Salameh and his associates and lifted banking secrecy laws on the accounts of all five individuals.

Karim Emil Bitar, professor of International Relations at the Saint Joseph University of Beirut, told The New Arab (TNA) that sanctions weren't imposed during Salameh's tenure as governor due to potential administrative complications for Lebanon's Central Bank.

"They could have harmed the central bank, creating significant problems for the entire Lebanese banking sector, particularly because these sanctions affect the relations between the BDL and the local banks," he said.

Hanin Ghaddar, Friedmann Fellow at the Washington Institute for Near East Policy, told TNA that the sanctions on Salameh and his associates were not intended to hurt the already fractured Lebanese economy and financial system.

"If the US imposed sanctions on Salameh when he was still governor, they might disrupt the already collapsing financial situation in Lebanon, causing harm to the system as a whole," she said.

Beyond the timing of the imposed sanctions, the significance lies in the message and symbolic value.

Sanctions on Salameh are important because they offer the Lebanese some kind of accountability for Salameh, who has been charged with corruption and financial crimes without taking responsibility for his actions, Sami Nader, political and economic expert and Director of Levant Institute for Strategic Affairs, explained to TNA.

 "[The sanctions] serve as a symbolic punishment against Salameh alongside a warning to other members of the political establishment"

"The Lebanese state lacks accountability and is controlled by a corrupt elite exploiting it for personal gain. Institutions meant to ensure checks and balances have been immobilised by this elite,” he said.

“External sanctions indicate widespread corruption and draw global attention to the crimes against the Lebanese population. The international community increasingly recognises this untrustworthy network involving high-ranking individuals who lead this system of corruption," Nader added.

“The established ruling elite is targeted, evident in the US, UK, and Canada's efforts against sanctions. The visibility of these crimes is now heightened.”

Ghaddar argues that sanctions also carry a political message to the Lebanese people, indicating that the international community is aware of the situation in Lebanon. They serve as a symbolic punishment against Salameh alongside a warning to other members of the political establishment.

This is a tactic the US has used before, Ghaddar explained. In 2020, Washington sanctioned former Minister Ali Hassan Khalil to send a message to Lebanon's Parliament Speaker and Shia party Amal Movement's leader Nabih Berri. The same year, it sanctioned Gebran Bassil, the head of the Christian Maronite party Free Patriotic Movement.

"It's basically targeting the business community of certain politicians or parties that are being harmful," she said.

Bitar explained that these sanctions serve as vindication for those who have criticised Riad Salameh over recent years. His defence was that he was being scapegoated due to his stance against Hezbollah. But with sanctions from the US, UK and Canada, he can no longer claim victimisation.

"Sanctions show that there is overwhelming evidence that he is indeed guilty of embezzlement, corruption, money laundering, falsification of documents in the eyes of the US authorities, and that he is being investigated by six European countries," he said.

Furthermore, sanctions show the Lebanese that, even if it's late, Hezbollah's claim about Salameh's US protection is false.

Over the last few years, Salameh lost US protections despite being esteemed as one of the most valuable governors. He earned recognition as the world's best central bank governor from Euromoney in 2006 and The Banker magazine in 2009.

However, his monetary policy and financial engineering scheme facilitated reckless government spending at the expense of the population and made him one of the most contentious figures in Lebanon.

"The US eventually recognised Salameh's role in Lebanon's economic collapse due to his support for an overspending, unproductive, and corrupt government that was depleting the reserves and depositors' money while also benefiting himself," Ghaddar explained.

While Salameh hasn't yet been imprisoned, his movements and travels are restricted, and he is under severe scrutiny by international institutions.

While evading sanctions may be difficult, Bitar explained that in Lebanon, with Salameh’s numerous associates, he may find loopholes.

"'Lebanon has forbidden Salameh from leaving the country as a means of self-protection of the ruling elite. They want to ensure their own protection'"

"I don't think Salameh's life will be completely affected. The ministers sanctioned by the US a couple of years ago still go on with their lives. But symbolically for the Lebanese people, the fact that Salameh has been sanctioned by his erstwhile protector is quite a symbolic victory," he said.

Nader suggests that Lebanon's decision not to extradite Salameh serves two primary goals: firstly, to shield Salameh himself; and, secondly, to safeguard others within the corrupt Lebanese system.

This caution stems from concerns that if Salameh were to leave the country, he might potentially divulge sensitive information that incriminates other corrupt officials and leaders.

"Lebanon has forbidden Salameh from leaving the country as a means of self-protection of the ruling elite. They want to ensure their own protection."

Dario Sabaghi is a freelance journalist interested in human rights.

Follow him on Twitter: @DarioSabaghi