Our new report illustrates how Libya appears to be losing millions of dollars annually through the fraudulent use of the LC system, run by the Central Bank of Libya. Despite being a vital factor in meeting Libya’s import needs, the appropriations system has been plagued by misuse, which our new evidence indicates its continuation.
Many of these letter of credit deals pass through “correspondent banks” in the heart of London, where weaknesses in anti-money laundering rules leave the UK banking system wide open to financial crime.
Drawing on interviews with confidential sources, financial information published on Facebook by the Central Bank of Libya, and our newly established database of nearly $ 2.5 billion in credit transactions from April to July 2020, we investigate how Libya spends its letter of credit money, how This system affected the balance of power between Libyan institutions and whether the anti-money laundering and counterterrorism due diligence measures in UK “correspondent banks” were strong enough to separate actual letters of credit from the proceeds of crime.
Main findings
The issuance of massive credits coupled with the source certificate indicates the ongoing financial crime in the Libyan letter of credit system, at a great cost to the Libyan public treasury. The rate of issuance of the letter of credit from April to July 2020 greatly exceeded the demand for some commodities.
For example, meat letters of credit for more than 13 weeks exceeded the value of meat imports registered in Libya for the duration of 2016, 2017 and 2018.
Questions about letter of credit governance extend to government procurement. We found out how a $ 110 million credit for electric turbines was transferred to an unrelated Emirati company through a change in the name of the contractor. Payment of funds through a Libyan bank in London began before the letter of credit was halted “on suspicion of corruption”.
Senior officials in the Central Bank of Libya hold board positions in commercial banks owned by Libya abroad, and this is a clear conflict of interest.
Most Libyan letters of credit enter the international financial system through the London-based ABC Bank, which is a commercial bank indirectly owned by the Central Bank of Libya and headed by its governor, Mr. Seddik Al-Kabeer.
We have uncovered serious loopholes in the UK’s anti-money laundering and terrorist financing laws for “correspondent banks”, which could render them ineffective in identifying trade finance fraud, conflict financing and other types of financial crime.
Continuous fraud in letters of credit to the private sector
Using open source investigation techniques, we created a searchable database of nearly $ 2.5 billion in private sector letters of credit approved between April and July 2020.
Comparing this with trade data from previous years, we see that Libyan public funds are flowing faster than related commodities, the most logical explanation is the continuous abuse of the system, on a large scale and at a great cost to Libyan public funds.
In November 2020, importers were required to use the letter of credit system, and the inclusion of a company or entity in the database is not in any way an accusation of any kind of actual or suspected wrongdoing or unlawful conduct.
However, the database allows for types of analysis that were previously not possible for the public and – generally – showing unlikely concentrations of letters of credit around specific sites and commodities.
We publish the database as a tool for analyzing the movement of funds through letters of credit, hoping that it will help Libyan civil society groups, journalists and citizens to track where the money is going, and to show the tremendous potential for transparency, if Libya builds on the Central Bank of Libya’s disclosures by making the letter of credit data available to the public in full According to the principles of open data.
Public sector letters of credit contain public funds in private hands
Documents seen by Global Witness show how $ 110 million for turbines were transferred to meet Libya’s energy needs into a recently merged Emirati company with a name identical to the original contractor between the US and South Africa.
The case illustrates not only the weakness of the appropriation system, but also how controlling Libya’s foreign currency has effectively given the Central Bank of Libya a major influence on how public authorities spend public funds.
This also has a wider link with the supervision and accountability of central banks around the world, with the re-emergence of capital and exchange controls, financial sector bailouts and Corona spending, which has led to a significant expansion of their balance sheets and transfers in many countries. Around the world, central banks are placing greater amounts of public funds in the hands of the private sector. Citizens have the right to know how their money is being spent.
How does letter of credit money enter the international financial system through London
The Central Bank of Libya has a network of commercial “correspondent banks” spanning five continents. The main broker of letters of credit appears to be the London-based ABC Bank, which is indirectly owned by the Central Bank of Libya, and whose head is none other than the central bank governor Seddik Al Kabeer himself.
