The Banking Executive Magazine - February 2022

Level Up Forensic Skills of Arab Banks for Supervision, Saudi Central Bank (SAMA), motivated the importance for Arab banks to up level their skills in various forensic areas to combat fraud and corruption. The event focused on key topics including: • Strengthening Anti-Bribery, Cor- ruption Practices and mitigating Sanctions • Anti-bribery and Corruption (ABC), a growing pillar of financial crimes mitigation strategies • Understanding the complexity of sanctions on a global and regional basis • Continuing the integration of sanc- tions and AML regimes • Increasing the need for shared fi- nancial crime risk management models • Identifying, investigating, manag- ing, monitoring & reporting vulner- able corruption areas • MENA FATF – Scope, Objective, Methodologies and Recommenda- tions • The US Anti-Money Laundering Act (AMLA) of 2020 & AMLD6 Closing Remarks by Dr. Muhammad Baasiri, Chairman of the US-MENA PSD initiative emphasized the impor- tance of forensic audit in Arab banks. FORENSIC AUDIT IN LEBANON Lebanon is resuming a long-awaited forensic audit to shed light on the fi- nancial disaster that mired the coun- try in a crippling economic collapse. Lebanese President Michel Aoun signed a decree on September 1, 2021, to allocate 4.9 billion Lebanese lira ( € 2.7 million, $3.2 million) to global professional serv- ices firm Alvarez & Marsal (A&M) with the purpose of resuming an audit of Lebanon's central bank (Banque Du Liban, BDL). A&M ceased the forensic audit in November 2020 due to obstruction and lack of cooperation from the BDL, with the latter hiding behind a banking secrecy law. The Lebanese Parliament lifted the law with respect to BDL only in December 2020, fol- lowing pressure from President Aoun. In August 2021, the Ministry of Fi- nance (MOF) paid A&M a break fee of $150,000, according to local newspaper The Daily Star. To date, nobody has been held ac- countable for the economic collapse in Lebanon. The forensic audit can potentially help clarify what exactly happened to the Lebanese economy and who is to be prosecuted. Unlike a financial audit, the forensic audit is a much deeper analysis that aims to discover illegal operations, fraud, forgery, embezzlement of pub- lic funds and transfers outside the country. The forensic audit of BDL is vital for the future of Lebanon, it allows the country to assess economic and fi- nancial damages. It has an essential role in uncovering systematic corrup- tion and holding individuals ac- countable for mismanagement and wrongdoing. It is functional as a pre- requisite to get access to interna- tional aid and regain the trust of private investors. However, the audit faces several hurdles that may threaten its progress. While the forensic audit is just one of a laundry list of necessary reforms and accountability measures for Lebanon to adopt, it is among the most crucial for a number of reasons. A forensic audit of the Central Bank would allow Lebanon to accurately assess its economic and financial damages that left the country on life- support. The audit would also play a key role in uncovering systematic corruption and efforts for accounta- bility. Uncovering transactional informa- tion through the forensic audit and disclosing data about financial losses, looted and mismanaged funds, and the benefactors and cul- prits behind these malicious prac- tices can help with all of the above. The main obstacle to conducting the forensic audit is Lebanon’s banking secrecy laws which bind banks to “absolute secrecy” of the personal in- formation, assets, and other informa- tion of their clients and their accounts. The forensic audit of the Central Bank and other state entities brings these laws back into the fore- front, which today appear to be more of an obstacle to justice than an asset to the country’s decimated economy. After their passage in 1956, Lebanon’s secrecy laws attracted money from the region’s wealthiest, turning the tiny country into a bank- ing hub long dubbed the “Switzer- land of the Middle East.” Lebanese banks became the ideal place to stash wealth secretly and safely, mak- ing the banking sector a key eco- nomic pillar for the country. The legal framework that once brought in copious wealth into the country has however turned into a major obstacle in achieving mean- ingful anti-corruption and trans- parency reforms. Though economic experts and even some officials have argued that this is a misinterpreta- tion, these laws have been used as an excuse to decline to disclose key financial data for the forensic audit. In fact, the Central Bank declined to disclose 57 percent of the requested documents for the forensic audit, cit- ing banking secrecy laws. The international community has given Lebanon a list of economic and administrative reforms that it says are crucial to making the coun- try’s economy viable again, includ- ing a forensic audit of the Central Bank. BUILDING FORENSIC CAPACITIES FOR ARAB BANKS To keep pace with modern manage- ment concepts, multi-levels and ownership separation from manage- ment there is an urgent need for strong internal and external auditing systems so as to maintain and protect public finance as a goal for all coun- ISSUE 158 FEBRUARY 2022 the BANKING EXECUTIVE 13