Lebanon extends deadline to submit data for forensic audit, says Finance Minister

Reuters , Thursday 5 Nov 2020

Lebanon's plight worsened after it defaulted on its huge foreign currency debt in March following years of financial engineering by the central bank to help fund the government

Ghazi Wazni
FILE PHOTO Lebanon's Finance Minister Ghazi Wazni gestures as he speaks during an interview with Reuters in Beirut, Lebanon March 12, 2020 REUTERS

Lebanon's caretaker Finance Minister Ghazi Wazni announced on Thursday a three-month extension of a deadline to provide all data required for a forensic audit of the central bank after it declined to submit some information, citing bank secrecy laws.

The caretaker prime minister and three sources familiar with the matter have said that Banque du Liban (BDL) was withholding information needed by restructuring consultancy Alvarez & Marsal to begin the audit, which is a key demand for foreign financial assistance to help Lebanon exit a financial meltdown.

"In these three months, the Lebanese government will try to secure the documents that will allow the company to carry out the (audit) contract," Wazni said in a televised news briefing following a meeting with Lebanon's president, the central bank governor and an Alvarez & Marsal official.

Prime Minister-designate Saad al-Hariri, named last month, has been trying to navigate Lebanon's sectarian politics to form a cabinet to bring in reforms needed to tackle the country's worst crisis since its 1975-1990 civil war, including banking paralysis, a currency crash and spreading poverty.

Lebanon's plight worsened after it defaulted on its huge foreign currency debt in March following years of financial engineering by the central bank to help fund the government.

BDL, whose role has faced close scrutiny since the financial crisis came to a head in October 2019, said in a statement on Wednesday that it had provided its own accounts for the audit, but that it should be the government that submits full state accounts to "spare the central bank from violating legally binding bank secrecy laws".

Acting Justice Minister Marie Claude Najm said in televised remarks on Thursday that the bank secrecy law "does not apply to forensic audits or to government and central bank accounts".

"The cabinet decision (for the audit) is obligatory for all and primarily the central bank, which must provide all the documents required," she said.

"There is a huge gap in the central bank's accounts ... We want to know why people lost their deposits and where they went," she said.

Mass demonstrations erupted last year against the political elite, many of them aging warlords, whom protesters accuse of pillaging the country. Banks have also been a target after freezing savers out of their dollar deposits amid a hard currency liquidity crunch.

President Michel Aoun on Thursday stressed the need for the government to commit to the audit, the presidency tweeted.

The International Monetary Fund (IMF) and donors including France have pressed for the audit to tackle endemic waste and corruption. The caretaker government failed to make progress in talks with the IMF for a bailout due to inaction on reforms and a domestic dispute over the size of financial losses.

One source told Reuters that parliament may need to amend the bank secrecy law or temporarily suspend it.

Without doing so, a senior banker said, it would be difficult to track funds transferred abroad or implement the government's financial rescue plan.

Deputy parliament speaker Elie Ferzli said in remarks carried on state news agency NNA on Wednesday that he opposed lifting the bank secrecy law for the audit. 

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