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 
(LeeAJ2@state.gov). 
CRETZ