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Lebanon - Corruption

There is rampant corruption when dealing with the public sector. 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.

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Page last modified: 08-02-2015 18:54:08 ZULU