Italian NGO Accuses Libya’s Letter of Credit System of being Abused

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Posted – 23rd July 2021

In 2018, a letter of credit (LC) worth $490 million dollars was issued in Libya to buy electricity turbines that would help solve the country’s power shortages, but the situation has yet to change in the country.

According to a report published by ‘Ilfattoquotidiano’, a non-governmental organization that deals with corruption and human rights, the money from the letter of credit was diverted to the bank accounts of an Emirati company established shortly before, and with the name almost identical to that of the original contractor.

In December 2015, the eastern Libyan authorities GAEREL finalized a $490 million dollar contract with the US-South African contractor USP & E, which would have delivered, installed and provided training for 15 emergency 25MW gas turbines. Although the contracting process was criticized by the Libyan Audit Bureau, a contract was signed on 27 December 2015 in the city of Al-Bayda. By the time an LC was issued in November 2018, however, this was a vastly different deal.

Following a January 2017 amendment, USP&E would now deliver three Siemens SGT800 turbines for just over 166m Libyan Dinars (approximately $118m). In 2018, the LC went to a company called “USPE-LY” based in Ras El-Khaimah.

Despite its near-identical name, USPE-LY was and is not part of the USP&E corporate group. It is owned by Jan Herre and Omar Allam, two former representatives of USP&E who helped negotiate the 2015 deal, but with whom USP&E cut ties in May 2016, over a separate matter.

When Herre and Allam’s relationship with USP&E broke down, they allegedly sought to take the contract with them through their own company.

Ilfattoquotidiano spoke with executives of both companies. USP&E executives allege the contract was fraudulently “hijacked”, maintaining that USP&E is the correct contractor and that the 2017 amendment was agreed without their knowledge or their approval. Herre and Allam claim the deal was restructured through USPE-LY to comply with Libyan tax laws, and with approval from Libyan authorities. They also claim USP&E was no longer able to implement the project, a claim strongly denied by USP&E.

“The militias control the branches of some banks. You can see it from the flow of money,” – a source tells Ilfattoquotidiano. “The larger the amount of money in letters of credit that passes through that particular branch, the more likely it is that it is controlled by the militias. And it is no coincidence that these branches are usually located in the suburbs. There is less control there”, he added.

But the problem of the abuse of LC’s remains in Libya, “since 2016 we have been asking the Libyan authorities to create a more transparent and controlled system, but, evidently, there has never been the political will to do so. If you are in the Central Bank of Libya (CBL) or the government and you have people who are making a lot of money through a criminal system, changing it is really difficult because they will do everything they can to stop you, including potentially getting rid of you, ” Jonathan Winer, former Special Envoy of the United States to Libya from 2013-2017 explains to Ilfattoquotidiano.

The report gives the example of Bank ABC’s European operations, based in London.

It describes the bank as “the key intermediary for LC’s” supporting Libyan imports but says the UK’s legal framework for anti-money laundering only demands banks carry out due diligence on the partner bank, not the companies actually paying and receiving funds.

Bank ABC says it also checks company registration, shipping routes and bills of lading, but Global Witness says identifying fraudulent LC’s using those methods “would be challenging, to say the least”.

The report also expresses concern that Bank ABC is “indirectly owned” by the CBL and chaired by central bank governor Al-Siddik Al-Kabeer, a situation described as “as a striking conflict of interest”.

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