Analysis |

Hezbollah or the Bank: Who Will Rule Lebanon?

Two figures are competing to be 'the actual ruler of Lebanon,' One is Hassan Nasrallah, the secretary general of Hezbollah, and the other is Riad Salameh - the governor of Lebanon’s central bank

A photo of Dr. Zvi Bar'el.
Zvi Bar'el
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A demonstration in Beirut against the Central Bank and Governor Salameh, last year.Credit: HUSSAM SHBARO/Anadolu Agency via
A photo of Dr. Zvi Bar'el.
Zvi Bar'el

Two figures are competing for the title of “the actual ruler of Lebanon.” One is Hassan Nasrallah, the secretary general of Hezbollah, and the other is Riad Salameh, the governor of Lebanon’s central bank. The first has his own private army, an ethnic bloc of supporters, political partners in the government, protection and funding from Iran and the backing of Syria. The latter is “just” a central banker. Without any militias, weapons or a political base to rely on.

So where does Salameh, who has served continuously in his post since 1993, draw his power from? If Nasrallah is seen as the person who controls Lebanese politics, dictates the country’s internal and foreign policy, decides whether and when Lebanon will go to war – then Salameh controls the Lebanese economy. He decides what the dollar exchange rate will be, he builds – or more precisely, empties – the country’s foreign reserves, critically influences the state budget, and most of all, he knows very well the financial secrets of Lebanon’s political elite. He has in his hands the key to their downfall if he decides to expose their secrets. In the competition over the title of the most hated person in Lebanon, Salameh is the winner by far.

Salameh, 72, worked for two decades at Merrill Lynch before being appointed governor of the central bank. He is seen as being responsible for the deep economic crisis in Lebanon, for the horrible poverty, the destruction of the health and education services, the loss of control over the value of the Lebanese pound and depth of the corruption – of which he is one of its primary creators.

Salameh in Beirut, last year.Credit: MOHAMED AZAKIR/רויטרס

Last year, it seemed that this all powerful man was about to lose everything. The law enforcement authorities in Germany, France, Lichtenstein, Monaco – and Lebanon itself, opened an intensive investigation of Salameh on suspicions of money laundering of hundreds of millions of dollars, embezzling state funds and obtaining wealth illegally.

Last week, the Lebanese media outlet Daraj posted the document the Principality of Lichtenstein submitted to Lebanese legal authorities in which it requested to receive information on money transfers from Salameh’s accounts to accounts belonging to Taha Mikati, the brother of Lebanese Prime Minister Najib Mikati, in banks in Lichtenstein.

Federal prosecutors in Switzerland are also investigating suspicions of embezzlement of about $330 million, which was paid by the central bank in Lebanon to Salameh’s brother Raja, the owner of a company named Forry Associates registered in the Virgin Islands, as fees for signing up investors for the purchase of Eurobonds. It is suspected that $258 million of this sum was moved to Raja’s accounts in Switzerland, and then $207 million of this money was transferred to five accounts in his name in Lebanon.

Prosecutors in France are conducting a separate investigation against Salameh for money laundering through the purchase of luxury properties in Paris, which his brother is involved in too. At the same time, authorities in Switzerland and other countries have frozen about $120 million of assets belonging to Salameh.

Raja Salameh was arrested in in March in Lebanon and was released after a month on a record bail of 100 billion Lebanese pounds, or around $3.7 million at the market exchange rate. A month earlier, his brother the governor was summoned for questioning on his involvement in the affair - but he refused to appear three times. In June, the police raided his home and arrested him, but did not ring Salameh. When the security forces asked to conduct a search in the offices of the central bank, bank employees locked the doors and did not let enter the building – declaring a strike “in light of the actions of the security forces and prosecutors and the disrespect for the bank and its employees.”

At least for now, Salameh continues to run the bank and his legal defense at the same time, while Lebanon is hoping to obtain a loan from the International Monetary Fund of between $3 billion to $10 billion. But a central condition for approval of the loan is carrying out an in-depth investigation of the central bank’s actions and implementing economic and structural reforms of the Lebanese economy. The Lebanese government has twice invited outside investigations firms to examine the central bank’s operations – and twice these firms have withdrawn from the task because of a lack of cooperation on the part of the central bank and its governor. Lebanese President Michel Aoun may have asked the law enforcement authorities to do their jobs and arrest and bring Salameh to justice, but Aoun also knows that if Salameh were to fall, the information he might very well reveal could damage Aoun too.

President Mikati has his own good reasons to prevent such an investigation and a trial for Salameh. Mikati is a billionaire, who along with his brother Taha owns the M1 Group holding company – and their net worth is estimated at more than $5.1 billion. Mikati made his money on large construction projects he developed in Abu Dhabi in the late 1970s, and along with his brother they founded one of the largest construction companies in the Middle East. In 1982, the brothers founded their flagship firm Investcom, which invested in Middle Eastern countries, South Africa and West Africa. When Bashar al-Assad came to power in Syria in 2000, he granted Mikati the right to operate his telephone company in Syria for 15 years in reutrn for a share of the profits. In 2006, this company was sold to the MTN Group, the largest cellular company in South Africa, for $5.5 billion and 10 percent of MTN’s profits.

The suspicions now are that Mikati’s brother, and maybe even the president himself, are connected to Salameh’s money laundering network. This week, Mikati completely denied all the suspicions and any link between Salameh’s businesses and himself. In contrast, in Lebanon people are convinced that Mikati could not have made such a great fortune without the help of Salameh’s services. It is also worth mentioning that Salameh was at one time the economic adviser of former Prime Minister Rafiq al-Hariri, who was murdered in 2005 and who is the one that appointed Salameh to the position of central bank governor in 1993. Salameh’s friendship with the Hariri family did not end even after the suspicions against him came to light.

This fabric of corrupt connections explains at least some of the enormous difficulties in firing Salameh, and also in forming a stable government that can carry out major reforms that could put Lebanon back on the path to economic rehabilitation. Added to these difficulties now is the date of end of Aoun’s term, which falls on October 31 – without any candidate for replacing him anywhere in sight. Aoun may have already announced that he has begun sending his personal effects home from the presidential palace, but in the same breath he stated that the present government, even if the constitution authorizes it, is not entitled to carry out the president’s responsibilities if a replacement is not found for him by then and if a permanent new government is not yet established. Aoun will use every trick possible to remain in office – at last until a new and agreed upon government is formed – in other words, a government in which he can dictate at least a third of the appointments, which will not only guarantee that his legacy continues, but most important the appointment of his son-in-law, Gebran Bassil, as a senior cabinet minister.

Aoun, 88, has another important matter to finish before he retires. He hopes to “grant” Lebanon the maritime border agreement with Israel, and in doing so go down in history as the person who rescued the country from its economic crisis. An agreed upon draft version of the deal may not yet exist, and in Lebanon they are waiting for Israeli answers that the U.S. special envoy Amos Hochstein is expected to bring with him to Lebanon this weekend following his visit to Israel. The deputy speaker of the Lebanese parliament, Elias Bou Saab, made it clear on Tuesday that it seems things are moving in a positive direction, but warned against excessive optimism.

At the same time, a senior source in Lebanon told the Naharnet news website that he expected that if the Lebanese government adopts the responses Hochstein brings from Israel, Hezbollah will not act to oppose the agreement and will not try to block it – especially after the Greek oil and gas exploration company Energean, which operates the gas drilling platform of the Karish offshore natural gas field, announced that for now it was stopping its drilling efforts – at least until the middle or end of September.

Lebanese President Michel Aoun, last year.Credit: DALATI NOHRA/רויטרס

Aoun has tossed another hazy card on the table by announcing that the French oil company TotalEnergies, which signed an agreement with the government of Lebanon to drill a well in its waters, could help find a solution to the dispute. Aoun did not explain what TotalEnergies’ role could be in the mediation, but it seems he means a financial arrangement with Israel were the company to discover natural gas in the disputed maritime region. If this really is what Aoun meant, then it is possible to conclude that drawing the maritime border has reached its final stage and all that is left to do is reach a deal on dividing profits.

Hassan Nasrallah, secretary general of Hezbollah, last year.Credit: AL-MANAR TV / AFP

What is still not clear is whether Hezbollah will agree to fulfill Aoun’s wish and allow the Lebanese government to sign the agreement. The answer to this question depends on the concessions Hezbollah can obtain from Aoun over the formation of the new government. Nasrallah wants to preserve his veto power over cabinet decisions, and to do so he needs for at least a third of the cabinet members to be his supporters – as the constitution requires two-thirds plus one majority of the cabinet to approve key decisions such as the budget, declaring war or economic reforms. This is where Hezbollah’s political power lies, and it has systematically succeeded in holding on to the required number of cabinet ministers to approve – or block – cabinet decisions.

But, this power depends on the identity of the ministers the president appoints on his behalf. In other words, if Aoun aspires to reach an agreement on the maritime borders with Israel, start the flow of natural gas to Lebanon and receive loans from international financial institutions – then he must move quickly to approve the list of cabinet ministers that will grant Hezbollah political power. Aoun, who already has a list of candidates siting on his desk that Prime Minister Mikati has submitted to him, will now have to decide whether to expedite the process of forming the new government – in an attempt to save Lebanon – or whether to drag his feet so he can continue on in office even after the legal end of his term so he can force the parliament to appoint a successor according to his own wishes, even if this means further delay in signing the maritime border agreement with Israel.

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