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Lebanon - Corruption

There is rampant corruption when dealing with the public sector. Lebanon's former central bank governor, Riad Salameh, was arrested on 03 September 2024 following a judicial hearing in the capital Beirut. Salameh has been charged in Lebanon with financial crimes including money-laundering, embezzlement and illicit enrichment. He has denied all wrongdoing. The public prosecutor "arrested Salameh after questioning him for three hours on suspicions of embezzlement from the central bank exceeding $40 million", the official said, requesting anonymity as they were not authorised to speak to the media. It is the first time Salameh has appeared before Lebanon's judiciary since he left his post of 30 years at the end of July last year without a successor. Widely viewed as a key culprit in Lebanon's dramatic economic crash, Salameh faces numerous accusations, including embezzlement, money laundering and tax evasion in separate probes at home and abroad.

On 14 August 2023, the Central Bank’s Special Investigation Commission froze the assets and bank accounts of former Central Bank Governor Riad Salameh, his brother Raja Salameh, his assistant Marianne Howayek, his son Nadi Salameh, and Anna Kasakova, all of whom were sanctioned for involvement in corruption by several other countries. Riad Salameh attended two hearings by a visiting French judicial delegation between January 11 and 20. He failed to attend a hearing in Paris on May 9 where prosecutors planned to press preliminary fraud and money laundering charges against him. As a result, French prosecutors issued an arrest warrant for him on May 16. Salameh remained at liberty in the country as of the year’s end.

On 10 August 2023, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is designating the former governor of Lebanon’s central bank, Riad Salameh (Salameh), whose corrupt and unlawful actions have contributed to the breakdown of the rule of law in Lebanon. Salameh abused his position of power, likely in violation of Lebanese law, to enrich himself and his associates by funneling hundreds of millions of dollars through layered shell companies to invest in European real estate. OFAC is also designating four close associates of Salameh, including members of Salameh’s family and his primary assistant, who helped to conceal and facilitate this corrupt activity. The United States is taking this action alongside United Kingdom and Canada, partners who share the United States’ vision of a Lebanon that is governed for the benefit of the Lebanese people and not for the personal wealth and ambition of Lebanon’s elite.

“By using his position to enrich himself, his family, and his associates in apparent contravention of Lebanese law, Salameh contributed to Lebanon’s endemic corruption and perpetuated the perception that elites in Lebanon need not abide by the same rules that apply to all Lebanese people,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson.

On 07 August 2023, following political pressure by several members of parliament, the Ministry of Finance published the report of an independent forensic audit. According to the Associated Press, the report revealed years of misconduct by Riad Salameh and $111 million in “illegitimate commissions” taken by Salameh and his accomplices. On August 22, Public Prosecutor Ghassan Oueidat referred the report to the Special Investigation Commission, the financial prosecutor, and the appeals judge of Beirut’s criminal court. No additional actions were reported by year’s end.

On April 4, 2023, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated two Lebanese brothers — Raymond Zina Rahme and Teddy Zina Rahme — who used their wealth, power, and influence to engage in corrupt practices that contribute to the breakdown of the rule of law in Lebanon, thereby undermining Lebanon’s democratic processes to the detriment of the Lebanese people. At a time when the Lebanese people face significant economic distress, a dire energy crisis, and unprecedented political dysfunction, the Rahme brothers have used their business empire and political connections to enrich themselves at the expense of their fellow citizens. “Today’s action underscores the United States’ commitment to shining a light on corrupt actions, which continue to unjustly impact the Lebanese people,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson. “Now more than ever, the Lebanese government should implement desperately needed economic and political reforms.”

In 2017, the Rahme brothers secured a subcontract to import fuel for use by Lebanon’s state-owned national electricity utility, Électricité du Liban (EdL), and to import fuel on behalf of the Lebanese Ministry of Energy and Water in a bidding process widely reported to be corrupt. While contracted, the Rahme brothers imported tainted fuel, causing significant harm to Lebanese power plants. The Rahme brothers, through their UAE-based company ZR Energy DMCC, passed off their dangerously compromised fuel product by blending it with other fuels. While the Rahme brothers enriched themselves with this scheme, the Lebanese people suffered, and the country’s infrastructure further deteriorated. Power stations across Lebanon increasingly malfunctioned and daily electricity cuts increased.

Although the law provided criminal penalties for official corruption, the government did not implement the law effectively, and officials reportedly engaged in corrupt practices with impunity on a wide scale. The government continued to lack control over rampant corruption. There was limited parliamentary or auditing oversight of revenue collection and expenditures. Various government initiatives intended to limit corruption were not successful. The most common types of corruption included political patronage; judicial misconduct, especially in investigations of official wrongdoing; and bribery at multiple levels within the national and municipal governments.

Freedom House reported political leaders and government officials often operated behind closed doors, outside of state institutions, and with little regard for formal procedures. Authorities reportedly sometimes intimidated, harassed, or filed criminal defamation suits against journalists and others seeking to expose alleged government misconduct or corruption.

Media continued to report political interference stalled the investigation into the 2020 Port of Beirut explosion. On January 25, Prosecutor General Oueidat ordered the release of 17 individuals held in pretrial detention following the explosion; they had already spent more time in jail than if they had been tried and convicted. Long-standing vacancies on the Court of Cassation prevented the court from resolving former officials’ complaints against the investigating judge, accusing him of political bias. Disagreement between politicians and judges on what court should try elected government officials suspected of criminal activity also delayed the investigation.

In December 2014, Lebanon dropped nine places to 136th out of 175 in Transparency International’s annual survey on perceptions of public sector corruption, placing it alongside the likes of Nigeria and Kyrgyzstan. According to TI’s 2012 Corruption Perception Index (CPI), Lebanon ranked 128 out of 174 countries worldwide and 14 out of 21 MENA countries. Although this ranking represented an improvement of six spots in TI’s worldwide ranking compared to 2011, Lebanon remained among the top 50 most corrupt countries in the world.

TI noted that the country’s “deeply entrenched nepotism networks” made civil society efforts against corruption very difficult, while anti-corruption legislation exists but is not properly enforced. The LTA blames political paralysis for preventing the passage of various legal reforms (including draft laws against illicit enrichment, access to information, and whistleblower protection) on which the organization has been closely involved to combat corruption. The index measures the perception of corruption by public officials and politicians and focuses on corruption in the public sector, defined as an abuse of official power for private interests.

The International Finance Corporation (IFC) and the LTA signed an MOU on October 11, 2007, to establish the Institute of Directors (IoD, on Corporate Governance) in Lebanon, which became operational in 2010. The IFC provided a $250,000 grant for the institute, which will provide training courses on corporate governance, offer consultancy services, carry out research and educational activities, and organize awareness-raising private sector events in Lebanon and the MENA region. In 2011, the IoD launched a guidebook focused on Corporate Governance stories and solutions in the MENA region.

The four "Majalis and Sanadeeq" (Councils and Funds) under the Lebanese Prime Minister's office are widely known to be the epitome of patronage in Lebanese administration. These include the Council for the South (CFS), the Fund for the Displaced (FFD), the Higher Relief Council (HRC), and the Council for Development and Reconstruction (CDR). The 2009 budget battles in the Lebanese cabinet between PM Fouad Siniora and Speaker Nabih Berri over the Council for the South budget, which Siniora wants to eliminate, brought to light an underlying reality of the Lebanese political system: that political leaders, rather than state institutions, take responsibility and credit for services provided to their constituents, in some cases reaping financial benefit as well. The USG does not provide assistance through any of these institutions, though many other foreign donors do.

The patronage of the current Councils and Funds system is spread across the political spectrum, meaning it is in no politician's interest to dismantle it. Politicians may talk about reform, but they have no interest in seeing it come about. Yet the purpose of these funds is an open secret: each Lebanese is aware of what they are or what purpose they serve. The current system made the anti-corruption message of Michel Aoun -- who has not participated in the arrangement because he was in exile when it came about -- resonate with many voters, particularly Christians, who are keenly aware that they had never been direct beneficiaries of the system in the same way Sunnis, Shia, and Druze have.

Lebanese businessman and Hizballah publishing executive Hajj Salah Ezzeddine declared bankruptcy in August 2009 amounting to an estimated $1.195 billion. The news was disastrous for many Lebanese - mostly Shi'a -- investors. Ezzedine's case has been transferred to the judiciary which will decide whether the bankruptcy is technical or fraudulent. Many people were affected by the bankruptcy of the man known for his good deeds. Thousands of investors were stunned following the news of the bankruptcy; some were even admitted to hospitals. Investors expected and had been promised high returns, although many lacked receipts to prove their investments. Those who lost money were worried because of rumors that Ezzeddine did not possess enough real estate or cash cover his company's loss. Ezzedine had only $30 million worth of real estate and cash on hand. Ezzeddine ran companies involved in iron, oil, jewelry, mines, and recycling of abandoned ships, and he organized trips for the hajj. The apparent high confidence in Ezzeddine's credibility stemmed from his closeness to Hizballah and his zeal for offering assistance wherever needed.

Hizballah, generally regarded as the "cleanest" of Lebanon's political parties, was forced to defend itself in the aftermath of the financial collapse of Shia tycoon Salah Ezzedine, most of whose investors came from Hizballah-dominated communities. The Ezzedine scandal was a wake-up call for the organization and in particular for its leader, Secretary General Hassan Nasrallah, who had been physically cut off from his popular base for years due to Israeli threats. He responded by berating his inner circle for their moral laxness and instituted a review of the mid-level political leadership. Independent Shia politicians and political activists also view the scandal as a significant event that publicly exposed the gradual corruption within the organization that has been evident since 2006.

The Ministry of Tourism launched the Lebanese Observatory for Transparency in December 2012, which is aimed at fighting corruption, raising the level of transparency, and identifying achievements and practices in transparency that would constitute a role model for the community. The observatory hopes to attract Lebanon's youth to discuss and debate methods and policies that would help fight corruption and, therefore, raise confidence in the county's institutions and values.

Lebanon has laws and regulations to combat corruption, but these laws are not always enforced. According to Lebanese law, it is a criminal act to give or accept a bribe. The penalty for accepting a bribe is imprisonment for up to three years, with hard labor in some cases, and a fine equal to at least three times the value of the bribe. Bribing a government official is also a criminal act. The Central Inspection Directorate is responsible for combating corruption in the public sector, while the public prosecutor is responsible for combating corruption in the private sector. In April 2009, Lebanon ratified the UN Convention against Corruption. Lebanon is not a signatory to the OECD Convention on Combating Bribery.

Corruption is more pervasive in government contracts (primarily in procurement and public works), taxation, and real estate registration than in private sector deals. It is widely believed that investors routinely pay bribes to win government contracts, which are often awarded to companies close to powerful politicians. The MoF has implemented reforms aimed at enhancing transparency and fighting corruption including requiring taxpayers to file exclusively through mail and to pay through banks or Liban Post. In 2007, an automated document tracking system for taxpayers’ inquiries was implemented and a 24/7 call center was launched, as well as a service enabling taxpayers to handle the Built Property Tax transactions through Liban Post. In 2008, the Tax Procedures Code was ratified, unifying tax procedures, specifying deadlines for tax transactions and defining taxpayers’ rights and obligations.

The MoF launched a portal in 2010, providing access to economic, financial and fiscal information. E-registration and e-filing were launched but are yet to be implemented. The MoF also initiated the development and distribution of the tax calendar in order to increase taxpayers’ awareness of their rights and obligations. In 2011, the Revenues and VAT Directorates were merged at the MoF and the collection function was transferred to the regional tax offices. In August 2012, the MoF launched the Built Property Tax online service on its portal enabling inquiries for due Built Property Tax. Also, starting September 2012, taxpayers were able to register to the e-services through the MoF portal. These services are expected to decrease corruption in the tax sector.

On the customs front, and to ensure trade facilitation, transparency, and security, remote filing of manifests and declarations was introduced in 2011. A new version of the ASYCUDA WORLD software (Automated System for Customs Data) was implemented to fill the gaps of the previous version. Transit trade applications can also be now filled online. Work has begun for Lebanon’s Industrial Research Institute to submit its certificate of conformity online to further facilitate trade procedures Customs also established an Intelligence Unit to detect counterfeiting and fraudulent operations. Nonetheless, there were press reports in 2012 of corruption and bribery in the operations of Lebanese Customs at major facilities such as the Port of Beirut. Members of the business community reported that bribery was sometimes the only way to avoid lengthy and expensive delays in the processing of imported products at the ports. Lebanese Customs hopes to implement e-payment of customs operations in the near future, a step that many hope will help combat corruption.