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Fraudulent Libyan Letters of Credit Money Enters International Financial System via London

A shocking report by Global Witness has revealed that Libya’s Letters of Credit (LC) system is riddled with fraud, with millions of dollars flowing out of the country every year through a network of correspondent banks in London.

Weaknesses in Anti-Money Laundering Rules

The investigation found that the majority of LCs issued by the Tripoli Central Bank of Libya are being processed through ABC International Bank PLC, a commercial bank indirectly owned by the Central Bank of Libya and chaired by its Governor, Saddek Elkaber. This dual role has raised serious concerns about conflicts of interest and the independence of Bank ABC’s due diligence in processing Libyan LCs.

Governance Concerns

The report highlights weaknesses in anti-money laundering rules that leave the UK’s banking system vulnerable to financial crime. It also raises questions about the governance of the LC system, which is used to channel Libya’s oil dollars into importing essential goods such as food and medicine.

“Libya’s letters of credit system has been abused on a huge scale, and it’s the Libyan public who are paying the price,” said Colin Tinto, Senior Consultant Adviser at Global Witness. “We’re calling for greater accountability and transparency in the system to ensure that public funds are being used effectively.”

Growing Trend of Central Banks Acting as Conduits

The report also warns about the growing trend of central banks acting as conduits for direct handouts of cash, which has accelerated during the COVID-19 pandemic. This raises concerns about the oversight and accountability mechanisms for central banks.

Recommendations

• Public authorities across Libya should prioritize financial transparency in their peace dialogue, starting with foreign exchange disbursement systems such as LCs.
• The UK government should strengthen due diligence standards in London’s correspondent banks to prevent fraudulent LCs from entering the international financial system.
• The Central Bank of Libya should publish LC data according to open data principles and show the end destination of all LC money.

Global Implications

The report highlights a growing global tension between central bank independence and oversight, as central banks increasingly act as conduits for direct handouts of cash in support of national economies. This trend raises concerns about the oversight and accountability mechanisms for central banks worldwide.

Key Findings:

• The majority of LCs issued by the Tripoli Central Bank of Libya are processed through ABC International Bank PLC.
• The dual role of Governor Saddek Elkaber raises concerns about conflicts of interest and the independence of Bank ABC’s due diligence in processing Libyan LCs.
• Weaknesses in anti-money laundering rules leave the UK’s banking system vulnerable to financial crime.
• The governance of the LC system is opaque, making it difficult to track where public money is going.
• Central banks worldwide are increasingly acting as conduits for direct handouts of cash, raising concerns about oversight and accountability mechanisms.

Recommendations:

• Public authorities across Libya should prioritize financial transparency in their peace dialogue, starting with foreign exchange disbursement systems such as LCs.
• The UK government should strengthen due diligence standards in London’s correspondent banks to prevent fraudulent LCs from entering the international financial system.
• The Central Bank of Libya should publish LC data according to open data principles and show the end destination of all LC money.