The cautionary tale of Riad Salameh

The downfall of Lebanon’s former central bank governor Riad Salameh is nearly complete. Earlier this month, Lebanese authorities arrested the former financial wunderkind on charges of embezzlement, money-laundering, and fraud — the latest in a string of global corruption accusations against him.

Salameh was once a trusted partner of the United States, hailed by Lebanese and foreigners as a financial wizard, a genius who shepherded Lebanon through the stormy waters of global financial crises, and even as an ideal presidential candidate. His ignominious downfall must serve as a cautionary tale and give Washington pause before choosing to work with seemingly pro-western Lebanese partners.

Former Lebanese Prime Minister Rafik Hariri appointed Salameh as the governor of the Banque du Liban (BdL) — Lebanon’s central bank — in 1993. Salameh had previously worked at Merrill Lynch and was hailed by the global banking sector as a trusted steward of Lebanon’s financial system.

Salameh’s apparent financial prowess earned him the accolades of reputable American publications, politicians, and even a seat on the International Monetary Fund’s Board of Governors. Having become virtually synonymous with Salameh’s reputation, U.S. officials also accorded the BdL considerable confidence and leeway in overseeing regular financial dealings between the U.S. and Lebanon while countering financial crime.

This confidence extended, in some cases, even after Lebanon’s economy collapsed and Salameh’s personal corruption came to light. In 2020, then-U.S. Ambassador to Lebanon Dorothy Shea said it was “a mistake to demonize or scapegoat any one person,” adding that Washington “worked very closely with [Salameh] over the years, and he enjoys great confidence in the international financial community.”

Salameh is not the first Lebanese figure in whom Washington has placed misguided hopes. The list goes back to Lebanon’s inception and includes figures like Bachir Gemayel who promised during Lebanon’s civil war to transform the country into a functional and committed ally of the U.S. and Israel. Those hopes were dashed by Bachir’s assassination.  But immediately after his election as president, Bachir signaled he was succumbing to Lebanon’s status quo, and these expectations would have likely failed regardless due to his mendacity.

American optimism revived with the rise of Rafik Hariri to the premiership in the 1990s. Hariri gained Western and American favor for his ostensible fiscal acumen, having earned a reputation as a smart businessman and financier of Lebanon’s post-civil war reconstruction. Washington also trusted that Hariri genuinely believed in the values of the emerging post-Cold War liberal order. This enthusiasm over Hariri swelled after his February 2005 assassination. He became posthumously mythologized as a Lebanese nationalist opponent of Syrian domination and a counterweight to Hezbollah.

However, Hariri’s relationship with Assad’s Syria and Hezbollah was more complex. He had spent the decade preceding his premiership currying favor with the Assad regime, for which Lebanon’s post-civil war Syrian hegemons granted him the coveted post. Once in power, Hariri underwrote Lebanon’s post-civil war economy with domestic borrowing, remittances, and foreign debt — of which he granted Syria a substantial cut to remain in Damascus’ favor. This stabilized the Lebanese economy in the short term and provided Syria with quiet but was unsustainable in the long run.

Hariri similarly sought to quiet Hezbollah’s opposition to his policies by cutting them in on the financial corruption. In 1996, he made the group partners in the Elyssar Project to redevelop south Beirut — which received 164.5 billion Lebanese pounds through 2005 for ventures that never materialized. Moreover, Hariri — like every Lebanese prime minister since 1989 — defended “the resistance.” His October 2000 Cabinet’s policy statement even lauded their alleged expulsion of Israel from south Lebanon. Hariri was also personally friendly with Hassan Nasrallah, famously buying the Hezbollah Secretary-General orthopedic shoes.orthopedic shoes.

After Hariri’s assassination, Washington transferred its enthusiasm from Hariri to the March 14 Movement — the alleged Lebanese sovereigntist, pro-Western alliance that emerged after Hariri’s death. That too failed to deliver on Washington’s hopes or the alliance’s own its promises of fundamentally reorienting Lebanon.

Salameh was another such exemplary figure for Washington. But like Bachir and Hariri, the myth of Salameh eventually shattered. His fiscal prowess and integrity burst with Lebanon’s 2019 economic collapse — although the signs of his mismanagement and corruption were present all along.

During his tenure at the BdL, Salameh ushered Lebanon’s economy through domestic turmoil and global financial meltdown. However, the vibrancy of Lebanon’s banking sector was built on an intricate scheme that Salameh designed to compensate for growing fiscal deficits — which ballooned when the country failed to pass a budget between 2005 and 2017. Salameh also pegged the Lebanese pound at 1,507 L.L. to the dollar — a move that rested on Hariri’s feverish governmental overborrowing and on an illusion that Lebanon had sufficient exports to justify the peg.

Moreover, far from sanitizing the BdL’s financial dealings, Salameh presided over a central bank that liaised with Hezbollah. As late as mid-2021, the BdL granted a money transfer license to Hezbollah-financier Hassan Moukalled. Within a year, Moukalled’s company, CTEX — a Hezbollah financial front company — obtained significant market share within Lebanon’s currency transfer sector and was reportedly collecting millions of U.S. dollars for the BdL. Meanwhile, CTEX was also providing U.S. dollars to Hezbollah institutions and recruiting money changers loyal to the group.

Today, Salameh is the target of multiple European investigations. In 2021, Switzerland opened a probe into his practices after a human rights organization claimed that he had laundered at least $330 million between 2002 and 2015 through his brother’s brokerage. French authorities opened a separate investigation into allegations that Salameh had laundered millions more through luxury real estate. Paris also issued an international arrest warrant against Salameh in May 2023, which was followed by two Interpol red notices.

Months later, the United States, United Kingdom, and Canada jointly sanctioned Salameh and three of his associates. Announcing the designations, the U.S. State Department explained that Salameh “used his office to engage in a variety of unlawful self-enrichment schemes” and that he “and his co-conspirators placed their personal and financial interests and ambitions above those of the Lebanese people.”

The reverberations of Salameh’s record extend beyond his personal corruption. While abusing his position of power to enrich himself, Salameh also failed to crack down on systemic corruption in Lebanon, allowing a permissive environment for financial crime to fester. In the coming weeks, the Financial Action Task Force (FATF) — an international financial crime watchdog — is expected to place Lebanon on its “grey list” of countries with insufficient anti-money laundering and counter-terror financing practices.

Washington’s persistent support for unreliable Lebanese interlocutors stems from the belief that backing Lebanese institutions, and institutionalists like Salameh, will help advance key U.S. objectives in Lebanon — namely, bolstering the Lebanese State, curtailing the country’s political dysfunction, and encouraging long-needed economic and structural reforms. The most critical goal, however, is countering Hezbollah, the most powerful proxy of Washington’s key regional adversary: Iran.

In reality, supporting figures like Salameh who are perceived to be on “our side” has the opposite effect. The historic U.S. approach erroneously presupposes that Hezbollah is the primary source of Lebanon’s ills, rather than the most egregious manifestation of an inherently dysfunctional system. That dysfunction stretches back to Lebanon’s independence. Lebanese figures like Salameh and the corruption they foster create and perpetuate the fertile ground from which Hezbollah sprang and derives longevity.

David Daoud is a Senior Fellow at the Foundation for Defense of Democracies (FDD) focusing on Israel, Lebanon, and Hezbollah. Natalie Ecanow is a Research Analyst at FDD.