The twisted tale of the Lebanese Canadian Bank

An old conflict and a lazy press corps

You thought it was over, didn’t you? Assuming you remember the rise and demise of Lebanese Canadian Bank, from its ascendance in the 1990s until it was struck by US allegations of terrorism finance and money laundering (for Hezbollah) in 2011. Executive trusts that you also know of the subsequent investigations and negotiations. They resulted in the exoneration of the bank’s senior government from American wrath by 2013, but the price was steep. All of the bank’s assets were sold to Societe Generale de Banque au Liban (SGBL), some LCB employees were “made redundant,” the LCB public identity was dissolved and LCB’s board and all shareholders agreed to a settlement of over $100 million on condition of no admission of guilt. The settlement itself clearly states that the US and all concerned parties agreed to the settlement simply so that the sales and purchase agreement of LCB could be finalized. And that was supposed to be the end of this anti-Lebanese affair, at least with regards to LCB.

However, the story resurrected last year in civil courts as far away as New York and Dubai, and allegations spread across financial and general media – with a little help from a notorious public relations company.

The latest is a court case seeking $128 million in damages from LCB’s external auditors Deloitte and Touche for supposedly failing to detect money laundering. Behind the various judicial measures, which entailed court challenges of LCB that were rebuffed by the Lebanese judiciary, is one group of former shareholders, anchored by the Nest Group and its chairman Ghazi Abu Nahl.   

In essence, this is a story with three angles: an age-old dispute over money, the concerningly long reach of the United States and the credulity of the Lebanese press.

The first angle is the simplest, a dispute that may be over money or driven by plain old animosity among alpha males. It is a personal or business dispute, the type of which financial and commercial courts in all jurisdictions decide on every day, which raises the question why Abu Nahl felt the need to hire a PR firm, turning a personal matter into international news. It is not a dispute deserving of special scrutiny, neither by the existence of competing statements nor by its size, which is modest in comparison with other banking cases such as the threat of a $14 billion demand by the US Department of Justice currently hanging over Deutsche Bank.

Ambition and gullibility

The twist is that the last suit wasn’t filed against LCB but instead accused famed auditors Deloitte and Touche (Middle East) of breaching their due diligence. Even that is not a particularly spectacular affair, however, when compared with celebrity trials such as the ones against Oscar Pistorius or OJ Simpson (or the upcoming divorce of Brangelina). And even if one had the audacity to embrace a personal theory about the guilt or innocence of DT (ME), it would be up to the court to issue a judgement.

The second angle is of greater concern: often employing linguistic imperialism (see the original treasury department accusation against LCB from 2011), US authorities wield the power to destroy the corporate reputations of small banks or inflict lasting damage to someone’s personal repute globally. The potential for abuse is worrisome, as the ability to assail reputations does not end with the Americans. Accusations re-hashed and again levelled against LCB by Abu Nahl in US court copy-pasted incendiary language from the first – politically minded – press statement against the bank by the American authorities.

The third angle is probably the most irritating: gullibility of journalism in Lebanon. There is no denying that local media has failed to cast a critical eye by adopting statements that are partisan and designed to inflame – seen in the reports on the Abu Nahl action against Deloitte. It is the prerogative of any party to a dispute to curry the language to its favor. In this case, the claimant relied on the expert services of PR company Bell Pottinger, which has already fought public opinion battles for Arab clients (including Bashar al Assad’s wife and the parties involved in Saudi weapons acquisitions in the United Kingdom, according to news reports) and has a gained a reputation of not shying away from unsavoury clients as long as they can pay handsomely.

[pullquote]To swallow the Bell Pottinger line so completely shows an underestimation of the banking sector’s reputation that behooves no business journalist in Lebanon[/pullquote]

It is not a great leap to assume their press statement would be designed to aid their clients, and that news reports based solely on it would benefit them. But it is galling, as well as professionally disappointing, to see that Lebanese newspapers failed to understand how one-sided the statement was. For example, The Daily Star replicated the press release close to 90 percent with substandard analysis, apparently swallowing the story hook, line and sinker.

The reputation and integrity of the Lebanese banking sector and of Banque du Liban (BDL) are under attack when allegations of misconduct are replicated without basic scrutiny. Information on this case (including court files) are free and easy to find online. At the very least, any news outlet or wire service interested in running Bell Pottinger’s press release should have wondered: why was a firm with a history of questionable clients hired? Or why did Nest agree to the settlement when Abu Nahl believed LCB’s management guilty? And if it is a case of mud being slung, there’s plenty of information online suggesting both that Abu Nahl has made ethically questionable business decisions in Algeria, and that he has his own longstanding business relationship with an American designated “terrorist” Ahdam Tabaja.

To swallow the Bell Pottinger line so completely shows an underestimation of the banking sector’s reputation that behooves no business journalist in Lebanon.

Dodgy jurisdiction

On December 14, 2015, Abu Nahl filed suit against Abou Jaoude and other top LCB brass in New York southern district court. This case document alleges that Georges Zard Abou Jaoude, Mohammed Hamdoun, Ahmed Safa and other defendants “designed, coordinated, and implemented” an international money laundering scheme that operated to Hezbollah’s benefit and lined their own pockets.

The complaint further alleges that Abou Jaoude and Hamdoun “actively mislead Nest Group” about the state of their compliance efforts and that BDL did not discover reporting failures at LCB or “turned a blind eye to it”. In Point F of their complaint, Abu Nahl and Nest Group speak of the BDL’s “complicity” in the supposed money laundering scheme. Similar language was used in voicing their allegations against DT (ME), where, according to Nest Group’s press release, the Dubai International Finance Centre court was chosen to preside because it followed international standards.

For their part, LCB’s managers are highly dismissive of Abu Nahl’s case. They argue the New York action is meaningless, as the US court has no jurisdiction. They also question why the case against Deloitte is being heard at the DIFC, pointing out that the DIFC courts say they have “exclusive jurisdiction over any civil or commercial case when it relates to the DIFC”. The Deloitte office in Dubai is several metro stops away from the DIFC, at Emaar Square, according to the company’s website.

It may simply be that the DIFC was chosen because the case brought by Abu Nahl against LCB in Lebanon was decided against him, added Hamdoun. Bell Pottinger, the PR firm representing Abu Nahl, eludes to that in an email statement made to Executive saying: “the main argument advanced [for jurisdiction in DIFC] will be that the claimants could not get a fair trial in Lebanon.” LCB’s Hamdoun, however, goes further, refuting that Abu Nahl’s claim for compensation had any merit because he allegedly invested in 2007 when the bank’s valuation stood at $180 million, but received the reward from the bank’s asset sale to SGBL in 2011 which provided the shareholders with $580 million, double the bank’s equity. “He made four times his money,” he said.

[pullquote]The only factors in common between the court cases in the United States and in Dubai are their origin with Abu Nahl and the lack of jurisdiction in both courts, according to LCB[/pullquote]

The only factors in common between the court cases in the United States and in Dubai are their origin with Abu Nahl and the lack of jurisdiction in both courts, according to LCB. Its managers are also suspicious that Abu Nahl might be looking to sue BDL, pointing to the wording of his claim as the sign of this intention.

Seeking to illuminate Abu Nahl’s character from their perspective, LCB managers highlighted actions against an Algerian bank under his chairmanship that were taken by said country’s supervisors (widely reported in the Algerian press). LCB produced ample documentation to support their point of view, including information on the bank’s board minutes from the time period in question saying that 96 percent of board decisions were unanimous. In the end, however, Abou Jaoudeh confided that his only aim in relation to the various court actions brought by Abu Nahl was “not to hear about him anymore”.

There are always two sides

The PR agency hired by Abu Nahl conveyed that their client would not be available to answer any questions and be subjected to scrutiny. Bell Pottinger did respond to questions about why Nest Investments representative Nasser Althani, when sitting on the LCB board, had not raised his vote in opposition to official board notes and minutes with a statement. This confirmed that: “Sheikh Nasser Althani was appointed the Chairman of LCB Audit committee.” However, the statement claimed that other board members were representing majority shareholders “with whom the minority shareholders battled with to improve corporate governance processes”. This clearly contradicts Abou Jaoude and the board documents Executive obtained.

Bell Pottinger further claims that: “Sheikh Nasser raised repeated concerns, which are documented in a series of reports, minutes and notes he produced in his role as Chairman of the LCB Audit Committee and which he provided to LCB’s Board of Directors. Unfortunately, many findings remained outstanding due to a concerted lack of management cooperation and response.”

However, when Executive asked for evidence such as references to board minutes or dates of board meetings that would support this claim, a Bell Pottinger employee responded that such evidence could not be provided at the current stage of proceedings, citing unspecified legal reasons and restrictions. “We’ll be more than happy to [provide these] when it is formally considered as evidence in the case,” she wrote.

With Abu Nahl’s refusal to go on record along with a number evasive statements about the evidence of Althani’s purported interventions, Executive was not provided with enough material to evaluate or even adequately depict Nest Group’s and Abu Nahl’s side of the story. On top of this, another evasive PR answer was given to our question about how Abu Nahl’s longstanding personal relationship with Nest Contracting shareholder Adham Tabaja was altered when the latter was included in the US list of “Specially Designated Nationals” – a list of alleged money launderers, criminals and terror suspects.    

Executive was given the LCB side of the case in three meetings during the last weeks and was provided with both board records and character evidence about the personae dramatis. Of the three detailed questions Executive sent Bell Pottinger, they dodged all but one (whether Abu Nahl plans to sue the central bank next), which they answered with one word: “No.”

In the years between 2000 and 2013, Executive has interviewed George Abou Jaoude repeatedly about Lebanese Canadian Bank and his other business activities, most in real estate and development. We have no x-ray vision or other super-human abilities to read minds. However, from the information available we see that Abou Jaoude and his colleagues have a point to defend both their assets and their honor against questionable court attempts where not even jurisdiction is fully proven.

The case stinks and hiring a PR company suggests putting it in the headlines might be more important than arguing in a courtroom. In the magazine’s humble opinion, it would be better if the affair was finally laid to rest and learned from by all participants and stakeholders, including Abu Nahl, US officials and local media. It’s rare that a journalist remembers to ask ALL the right questions, but it’s shameful when they don’t bother asking one.

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

Matt Nash

Matt is Executive's Economics & Policy Editor. He has been reporting on Lebanon since 2007 with a focus on oil and gas, policy and legal matters.