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Cablegate: Libya: 2009 International Narcotics Control Strategy Report (Incsr) Money Laundering and Financial Crimes

DE RUEHTRO #0010/01 0101121
P 101121Z JAN 10



E.O. 12958: N/A



1.Libya is not considered to be an important financial sector in the Middle East and northern Africa. The Libyan economy depends primarily upon revenues from the oil and gas sector, which constitute practically all export earnings and over 70 percent of GDP. The combination of oil revenues and a small population give Libya one of the highest per capita GDPs in Africa. Libya has a cash-based economy and large underground markets. Libya is a destination and transit point for smuggled goods, particularly alcohol and black market/counterfeit goods from sub-Saharan Africa, Egypt and China. Contraband smuggling includes narcotics, particularly hashish/cannabis and heroin. Libya is not considered to be a production location for illegal drugs, although its geographic position, porous borders and limited law enforcement capacity make it an attractive transit point for illegal drugs. Libya is a transit and destination country for men and women from sub-Saharan Africa and Asia trafficked for the purposes of forced labor and commercial sexual exploitation. While most foreigners in Libya are economic migrants, some are forced into prostitution, or forced to work as laborers and beggars to pay off their smuggling debts. Hawala and informal value transfer networks are present.

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2.The Libyan banking system consists of a Central Bank, three state-owned commercial banks, two recently-privatized banks, forty-eight national banks and a handful of privately-owned Libyan banks. Libyan banks suffer from a lack of modern equipment and trained personnel, and substantial investment in both will be required to bring Libyan banks up to international standards. Libyan banks offer little in the way of services for their customers, and most Libyans make little use of the banking system. Libyan Banking Law No. 1 of 2005 allows for the entry of foreign banks into Libya. Libya is not considered to be an offshore financial center. Offshore banks, international business companies and other forms of exempt/shell companies are not licensed by the Libyan government.

3.Libya's privatization of its public banks is proceeding as part of the Central Bank's efforts to modernize Libya's banking sector. In 2007, Sahara Bank was privatized and entered into an agreement with the French bank BNP Paribas in which BNP owns nineteen percent and has majority representation on the Board of Directors. The privatized Sahara Bank is embarking on a comprehensive modernization process, including the development of a consolidated information technology system and customer service training. Similarly, another formerly state-owned bank, Wahda Bank was privatized in 2007 in a deal that awarded a nineteen percent stake to Jordan's Arab Bank. Two other state-run banks, Umma Bank and Jamahiriya Bank, were merged in 2008 as part of the government's plans to privatize and consolidate its state-owned banks. The Central Bank continues to formulate a program of banking sector modernization and retains western consulting firms to assist in reforms. Libya is also cooperating with the IMF and World Bank by soliciting their advice and assistance for economic reforms. In general, training and resources are lacking for anti-money laundering awareness and countermeasure implementation. A considerable transition time is anticipated while Libya's banking system is reformed and gradually reintegrated into the international system following the lifting of UN and U.S. sanctions.

4.The Central Bank is responsible for the establishment of regulations relevant to combating money laundering and terrorist finance under the terms of Article 57 of Banking Law No. 1 of 2005. Money laundering is illegal in Libya, and terms and penalties are clearly laid out in Banking Law No. 2 of 2005 on Combating Money Laundering. This law does not make specific mention of drug-related money laundering. These crimes are dealt with under Libya's Penal Code, Criminal Procedures Law, and related supplementary laws. Penalties for money laundering under Law No. 2 include imprisonment (for an unspecified duration) and a fine equal to the amount of relevant illegal goods/property. An increased penalty is used if the malefactor participated in the predicate offense, whether as a perpetrator or accomplice. Penalties ranging from 1,000 to 10,000 Libyan dinars (approximately $770 to $7,700) are also imposed on persons withholding information on money laundering offenses, persons warning offenders of an ongoing investigation and persons in violation of foreign currency importation regulations. The offense of falsely accusing others of money laundering offenses is punishable by imprisonment of not less than a year.

5.Banking Law No. 2 directed the Central Bank to establish a Financial Information Unit (FIU). It also established a National Committee for Combating Money Laundering chaired by the Governor or Deputy Governor of the Central Bank. The National Committee includes representatives from the Secretariat of the General People's Committee for Finance and Planning, the Secretariat of the General People's Committee for Justice, the Secretariat of the General People's Committee for Public Security, the TRIPOLI 00000010 002.2 OF 003 Secretariat of the General People's Committee for Industry, Economy, and Trade, the Secretariat of the General People's Committee for Foreign Liaison and International Cooperation, the Customs Authority and the Tax Authority.

6.Libyan banks are required to record and report the identity of customers engaged in all transactions. Records of transactions are retained for a considerable (but indeterminate) period, although a lack of computerized records and systems, particularly among Libya's more than forty-eight regional banks and branches in remote areas of the country, preclude reliable record-keeping and data retrieval.

7.Libya's Banking Law No.1 forbids "possessing, owning, using, exploiting, disposing of in any manner, transferring, transporting, depositing, or concealing illegal property in order to disguise its unlawful source." The broad scope of the law, and its complimentary relationship to existing criminal law, extends the scope of money laundering controls and penalties to non-banking financial institutions. All entities, either financial or non-financial in nature, are required to report money laundering activity to Libyan authorities under penalty of law. The Central Bank is responsible for supervision of all banks, financial centers and money changing institutions. All banks are required to undergo an annual audit and establish an administrative unit called the "compliance unit" which is directly subordinate to the board of directors. The Central Bank's Banking Supervision Division is also responsible for examining banks to ensure that they are operating in compliance with law.

8.Libya established a Financial Information Unit (FIU) under the terms of Banking Law No.

2.The Central Bank is responsible for establishing and housing the Libyan FIU. According to the director of the FIU, the unit now has a staff of 15 and is an independent body that reports directly to the Central Bank Governor, who heads the National Committee for Combating Money Laundering. Libya has welcomed an offer by the U.S. Department of Treasury to provide technical assistance to the FIU and other government entities in 1) Combating money laundering, terrorist financing and other financial crimes; 2) Confronting organized crime and corruption; and 3) reorganizing law enforcement and financial entities to help them detect, investigate and prosecute complex international financial crimes.

9.The FIU is tasked to gather all reports on suspicious transactions from all financial and commercial establishments and individual persons. It is authorized by law to exchange information and reports on cases suspected of being linked to money laundering activities with its counterparts in other countries, in accordance with Libya's international commitments. All banks operating in Libya are required by law to establish a "Subsidiary Unit for Information on Combating Money Laundering" responsible for monitoring all activities and transactions suspected of being linked to money laundering activities. The FIU is responsible for reporting this information to the Governor of the Central Bank for appropriate action. However, given the limitations of the Libyan banking sector both in terms of human and technological resources and the lead time necessary to establish new internal mechanisms, these subsidiary units are either non-existent or nonfunctional in most cases. All entities cooperating with the FIU and/or law enforcement entities are granted confidentiality. Furthermore, anyone reporting acts of money laundering before they are discovered by Libyan authorities is exempted from punishment under the law (safe harbor). As in previous years, there is no reliable information on the number of suspicious transaction reports (STRs) issued in 2007, nor information on the scope of prosecutions and convictions on the part of Libyan government authorities.

10.It is illegal to transfer funds outside of Libya without the approval of the Central Bank. Cash courier operations are in clear violation of Libyan law. It is estimated that up to ten percent of foreign transfers are made through illegal means (i.e., not through the Central Bank). Libya is seeking foreign assistance to bring tighter control over these transactions; however, fund transfers by migrant workers (mainly from sub-Saharan Africa and Asia) are difficult for the Libyan government to monitor, particularly transfers by criminal organizations. Between 1.5 and 2 million foreigners are thought to live and work in Libya in violation of immigration laws. It is illegal for these workers to take cash out of the country; however, porous borders and limited law enforcement capacity enable some degree of smuggling and illicit transfer of goods and currency.

11.Informal hawala money dealers (muhawaleen) exist in Libya, and are often used to facilitate trade and small project finance. Libyan officials have indicated that they intend to require registration of all muhawaleen in the near future. Given the poor quality and limited reach of Libya's banking system, many Libyans and foreigners rely on informal mechanisms for cash TRIPOLI 00000010 003.2 OF 003 payments and transactions. This is done largely for practical reasons, as Libya's socialist practices and commercial rivalries among regime insiders discourage disclosure of income and business transactions. Until the recent revision of the tax code, rates of up to 80-90 percent encouraged off-the-book transactions.

12.Reportedly, there is no evidence of extensive money laundering or terrorist financing taking place in the Free Trade Zone (FTZ) in the city of Misrata. Misrata, 210 kilometers east of Tripoli, is currently Libya's sole operating FTZ. Projects in the free zone enjoy standard "Five Freedoms" privileges, including tax and customs exemptions. At present, the zone occupies 430 hectares, including a portion of the Port of Misrata.

13.Libya is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime and the UN Convention against Corruption. Libya is a party to all 12 of the UN Conventions and Protocols dealing with terrorism, including the International Convention for the Suppression of the Financing of Terrorism. However, Libya has not criminalized terrorist financing. The GOL has demonstrated some willingness to circulate UN and U.S. lists of terrorist entities; however, there are no indications to suggest that the GOL has made any effort to freeze, seize or forfeit assets of suspected terrorists or financiers of terrorism.

14.In 2006, the Department of State rescinded Libya's designation as a State Sponsor of Terrorism. The Government of Libya (GOL) should enact counterterrorist financing legislation and adopt anti-money laundering and counterterrorist finance policies and programs that adhere to world standards. Libya has joined the Middle East and North Africa Financial Action Task Force and regularly participates in the Task Force's conferences. Libya should continue to modernize its banking sector and adopt full transparency procedures. Tax reform should continue so as to shrink the underground economy. Working with the international community, the Libyan FIU and financial police should avail themselves of training. Appropriate entities should become familiar with money laundering and terrorist finance methodologies. In particular, Libyan law enforcement and customs authorities should examine the underground economy, including smuggling networks, and informal value transfer systems. The GOL should continue measures aimed at combating corruption in government and commerce. The Government should endeavor to provide statistics on the number of money laundering investigations, prosecutions, and convictions.

15.The Point of Contact for this report is Allison Lee (xxxxxxxxxxxx). CRETZ

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