VZCZCXRO4238
PP RUEHBC RUEHDH RUEHKUK RUEHROV
DE RUEHTRO #0010/01 0101121
ZNR UUUUU ZZH
P 101121Z JAN 10
FM AMEMBASSY TRIPOLI
TO RUEHC/SECSTATE WASHDC PRIORITY 5653
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHTRO/AMEMBASSY TRIPOLI 6204
UNCLAS SECTION 01 OF 03 TRIPOLI 000010
SIPDIS DEPARTMENT FOR NEA/MAG, INL, SCT, AND EEB; DEPT. OF JUSTICE FOR AFMLS, OIA, AND OPDAT; DEPT OF TREASURY FOR
FINCEN
E.O. 12958: N/A
TAGS: KCRM EFIN PTER SNAR LY
SUBJECT: LIBYA: 2009 INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT (INCSR) MONEY LAUNDERING AND FINANCIAL CRIMES REF:
STATE 114960 TRIPOLI 00000010 001.2 OF 003
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.
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