Suspension of watchdog raises new worries for accountability in Beirut’s finance sector
Member of financial watchdog’s board says supervision is critically important at time of economic crisis
Lebanon has suspended its monitoring authority for capital markets in the latest crisis to engulf the country.
A meeting is to be held today to explore financing options for the Capital Market Authority in response to dissent from within the organisation.
Walid Kadri, a member of its board, said the suspension marked a “dangerous turning point” that has left the financial sector without a major supervisory authority.
The CMA board last month voted to suspend the authority.
“The financial reasons put forth for the suspension are not acceptable,” said Mr Kadri. “There is enough financing for 2024 from the contributions of the institutions we licence.”
Lebanon’s financial sector collapsed in 2019, causing losses in excess of $70 billion, pushing banks into insolvency and destroying the local currency.
Many Lebanese have called for greater accountability.
The CMA had played a major role in investigating some of the irregularities in the sector linked to its collapse. The authority’s Financial Control Unit exposed irregularities related to Optimum Invest, a broker closely associated with Lebanon’s central bank. Former central bank governor Riad Salameh is accused of embezzling millions from the Lebanese financial system to build a property empire.
Some fear the suspension of the CMA could prevent those responsible for the crisis being held accountable.
Mr Kadri said the suspension coincides with an increase in unlicensed institutions providing financial products and asset management services on the black market – which would thrive without oversight.
“Many of these companies ultimately end up misappropriating clients’ funds,” he said.
Other industry insiders maintain that the decision is purely driven by financial considerations and is intended as a temporary measure until a solution to find additional funding is identified.
“The essential thing is to exert pressure to secure adequate funding to effectively sustain the institution, but there is no point in keeping an empty shell … that is not able to do its job,” a source told The National.
But Lebanese lawyer Karim Daher said this decision is part of a “general settlement” regarding financial crimes in Lebanon.
Suspending the CMA “eliminates a crucial path for exposing all the wrongdoings committed”, he told The National.
Lebanon has suspended its monitoring authority for capital markets, a decision that was described as “dangerous” by a member of the agency’s board.
“It’s a dangerous turning point: the financial sector will find itself lacking a major supervisory authority,” Walid Kadri of the Capital Market Authority told The National.
The decision is not final. A meeting is scheduled for today to explore financing options for the CMA in response to such dissent from within.
The CMA board voted to suspend the institution at the end of December.
Employees were given the option to take unpaid leave for at least six months or resign by tomorrow, while board members were expected to retain their positions.
“The financial reasons put forth for the suspension are not acceptable,” said Mr Kadri. “There is enough financing for 2024 from the contributions of the institutions we license.”
The quorum for the CMA board is four out of seven members, which comprises government-appointed independent members and permanent positions, including its chairman, the governor of the Banque du Liban. Decisions are reached by a majority vote.
The CMA’s Financial Control Unit, the body responsible for investigations and audits, played a leading role in exposing irregularities at Optimum Invest, a broker associated with Lebanon’s central bank.
In its audit, the CMA accused Optimum Invest of “extravagant” irregularities in transactions with commercial banks.
Optimum Invest “forcefully” rejected the “baseless allegations” concerning its transactions with the Banque du Liban uncovered in an audit conducted by Alvarez & Marsal, stressing their “commitment to compliance with applicable laws and regulations”. It did not comment on the CMA report.
The revelations follow the scandal at Forry Associates, a brokerage suspected of siphoning off more than $300 million from the central bank.
Arrest warrants have been issued by France and Germany for Riad Salameh, the former central bank governor on charges of money laundering, while the US and the UK have imposed sanctions on him and his relatives. Mr Salameh denies the accusations.
“It’s obvious that the suspension is not a matter of financing or resources. For me, the real reason remains unclear,” Nadine Abdelnour, the secretary general of CMA told
The National.
Mr Kadri pointed out that the suspension coincides with an increase in unlicensed institutions providing financial products and asset management services on the black market – which would thrive without regulation.
He said the decision might favour vested interests at the expense of the public.
“Many of these companies ultimately end up misappropriating their clients’ funds,” Mr Kadri said.
Other insiders believe the decision is purely driven by financial considerations and is intended as a temporary measure until a solution to find additional funding is identified.
The employees’ low salaries, which have been greatly diminished by hyperinflation and are now a few hundred dollars a month, have prompted the departure of many qualified professionals from their positions, a source close to the CMA said.
This is the case within the financial investigation unit, the CMA’s core competency, where only one employee remains, the source said.
“The essential thing is to exert pressure to secure adequate funding to effectively sustain the institution, but there is no point in keeping an empty shell and maintaining an institution that is not able to do its job,” the source said.
The source said the decision would be reversed if financing was found. Otherwise, the board would maintain essential functions, such as receiving files, while preserving current data, allowing for a quick restart when funding permits.
For Lebanese lawyer Karim Daher, the decision to suspend the CMA “eliminates a crucial path for exposing all the wrongdoings committed”. “The CMA can take regulatory measures against banks and financial institutions and impose sanctions in case of violation, while also claiming damages and penalties. I have personally received many requests from investors affected by banks’ misconduct, which I have redirected to the CMA or pool of specialised lawyers,” said Mr Daher.
Yet, accountability for the economic downturn, which has left Lebanese depositors unable to get to their life savings, remains elusive.
In troubled Lebanon, some vested interests may simply do as they please, damaging the welfare of their clients