The Lebanese central bank’s refusal to provide full data for a forensic audit may force consultancy Alvarez & Marsal (A&M) to walk away or wait for a new cabinet to salvage the review, a key condition for foreign aid, two sources close to the matter said.
Banque du Liban (BDL) said in a statement on Wednesday that it had provided its own accounts to the turnaround specialist hired by Lebanon this year, but that it should be the government that submits full state accounts to the audit.
“This would spare the central bank from violating legally binding bank secrecy laws”, it said.
Caretaker Prime Minister Hassan Diab said on Tuesday the BDL had provided 42% of the information required and criticized it for citing legislation and banking secrecy as a justification.
The sources said the central bank was using banking secrecy as an excuse to withhold information needed for the audit, which has been requested by the International Monetary Fund and donors that have been pressing Lebanon to tackle endemic waste and corruption to exit a financial meltdown.
Earlier on Wednesday, caretaker Finance Minister Ghazi Wazni met with James Daniell, a managing director at A&M, and discussed “options regarding the (audit) contract which will be taken within the next 24 hours”, the ministry said.
The sources said the options include putting the audit on hold until the formation of a new government that could unlock the information, or cancelling the contract.
Prime Minister-designate Saad 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.
The finance minister had sought an opinion from the justice ministry on whether banking secrecy applied to the audit, one of the sources said.
“Referring to the finance minister’s letter that included the justice ministry opinion that ‘banking secrecy under Lebanese law does not apply to government or central bank accounts’..., the central bank points out that it submitted its own accounts to the finance ministry,” the BDL statement said.
Nafez Zouk, lead economist and emerging markets strategist at Oxford Economics, said that the banking secrecy law needed to be amended or temporarily suspended for the audit to happen.
