Member States : Republic of Liberia
|Republic of Liberia|
Liberia consolidated its post-war peace and enjoyed a generally stable political environment during 2012, having weathered a highly charged political period due to election-related disturbances and an electoral boycott by the opposition Congress for Democratic Change (CDC) in 2011. The inauguration of President Ellen Johnson Sirleaf, winner of the November 2011 presidential run-off, on 16 January 2012, and of Liberia’s 53rd Legislature a week before, confirmed the country’s progress towards long-term peace and stability, albeit with disagreements between the ruling Unity Party and the opposition.
At the same time, the Government’s announcement of the discovery of offshore oil in Liberia has raised concerns about potential corruption, not least because Liberia is yet to put in place oil management measures. However, efforts are ongoing to reform Liberia’s Petroleum law and formulate a petroleum policy1. The Government has been criticized for its perceived lack of transparency and accountability in managing the country’s oil sector. In its quest for transparency and accountability in the management of oil contracts, the Liberian Legislature has commenced investigation into the various oil contracts awarded.
As a post-conflict country, Liberia is still faced with the challenges of rebuilding its institutions and infrastructures that suffered from more than a decade-long war. Post-war Liberia has been characterized by the African Development Bank as a fragile state along with its neighbours. Security, in particular, continues to face the potential challenge of regional crises spreading into the country. For example, more than 100,000 refugees who fled from Côte d’Ivoire’s election crisis in early 2011 remain in Liberia’s south-eastern counties, exerting pressure on food reserves in those areas. While state machineries such as Liberia’s police force of 4,000 and army of 2,000 personnel are still being trained by the UN and USA, their performance during the disturbances in November raised doubts about their readiness to take over from the United Nations Mission in Liberia (UNMIL). As a result the United Nations Peacekeeping Mission, one of the largest peacekeeping missions ever (8,000 strong) is still maintaining its presence until 2014. Overall governance has been improving though there are still challenges to overcome. The country has been rated by the Mo Ibrahim Index in terms of overall governance as the 34th out of 52 African countries, scoring 47 percent. The government has improved its efficiency, transparency, and accountability through public financial management reforms and the introduction of information-management systems, but institutional capacity is still weak.
Economic and Financial Situation
The Liberian economy continued its expansion, recording its eighth consecutive year of post-war growth. The country exported its first iron ore since the conflict in 2011, and growth is projected to continue in 2012 and beyond, buoyed by increasing export of iron-ore, rubber, timber, and palm-oil, and continuing foreign direct investment.
Liberia made strong macroeconomic gains under the recent Extended Credit Facility (ECF) arrangement, supported by the International Monetary Fund (IMF). Economic growth has been robust; inflation has been largely contained; international reserves have been built up; and external debt has been reduced. Growth has been underpinned by sound macroeconomic policies, higher investment, and vigorous implementation of structural reforms. The short- to medium-term outlook remains favorable, although subject to considerable risks. Following an initial post-conflict boost, economic growth has averaged 7% a year since 2009 (mostly from non-mining activities before the resumption of iron ore exports in late 2011), while inflation has been largely contained at or near single digits. With the resumption of iron ore exports in 2011, GDP growth is estimated at close to 9% in 2012, supported by strong growth in the mining sector and expansionary fiscal policy to accommodate a scaling up of infrastructure investment159. Fiscal reforms focus on containing current spending, particularly the wage bill, and strengthening budget execution and controls, through improvements in public financial management. An increase in external debt limits will allow a scaling up of critical growth-enhancing investments while maintaining debt sustainability. Measures are also planned to further improve governance and transparency, including financial oversight of state-owned enterprises, streamlining procurement procedures, improving project execution, and establishing a natural resource revenue unit at the Ministry of Finance. Financial sector reforms focus on reducing vulnerabilities and improving access to credit.
Foreign direct investment is increasing. Following hikes in food and fuel prices in 2011 and early 2012, U.S. dollar-denominated inflation declined to under 4 percent by the end of June and is expected to remain in single digits through end-2012. The trade deficit has widened since 2010, reflecting concession-financed capital imports and rising food and fuel import prices, which more than offset the increase in iron ore exports. Reserve coverage has remained relatively stable at about 2½ months of imports.
The Financial sector of Liberia is mainly dominated by banks. The 8 deposit money banks account for about 90% of the sector’s total assets valued at 27.1% of GDP in 2010. Remittances inflows in 2012 amounted to USD378 million, which represents about 31% of GDP. The country’s overreliance on remittances inflows is cause for concern and also has AML/CFT implications and needs to be closely monitored.
In the financial sector, reforms were implemented to improve the sector’s stability and to increase access to credit and financial services, including the microfinance sector. The banking system is liquid and well capitalized, and credit growth has been strong for the last three years. Non-performing loans decreased in 2011, but are still higher than in previous years and high for the region. The Central Bank of Liberia (CBL) has responded to this by intensifying the cycle of on-site targeted credit examination and complementing this with more rigorous off-site surveillance. The CBL is also assisting commercial banks to strengthen their internal risk-management guidelines and has required them to adopt international financial reporting standards (IFRS) by the end of 2012. The CBL led efforts to develop a new Commercial Code and a law to establish a new commercial court in 2011, which should improve the enforcement of financial contracts.
The CBL has progressed with new initiatives to expand financial intermediation, including to the unbanked, through a USD 5 million credit-stimulus initiative to SMEs launched in November 2010 and another USD 5 million facility targeted to the agriculture sector expected to be launched in early 2012. It also facilitated microfinance, and mobile banking was introduced in September 2011. Moral suasion by the government maintains relatively low lending rates to serve the small and medium enterprise sector, although this constrains the profitability of banks. Nevertheless, these efforts have improved Liberia’s Doing Business access to credit ranking from 139th in the 2011 report to 98th in 2012.
The CBL is modernizing the payments system and intensifying efforts to develop a capital market, which will be led by the commencement of a treasury-bill or central-bankbill market in 2012. The market for long-term capital is not yet developed and there are no effective vehicles for contractual savings and collective investment aside from the National Social Security and Welfare Corporation. The banking sector’s income is concentrated in fee-based activities while the legal and regulatory framework for collateralized lending is underdeveloped. The authorities need to improve on the existing framework as they pose AML/CFT risks to the economy.
In 2011, the government completed negotiations on a Voluntary Partnership Agreement (VPA) with the EU to assure local and export markets that timber has been legally produced. The VPA is to help Liberia improve its forest management and introduce an independent auditor to strengthen monitoring and oversight of forestry activities160.
Liberia was the first African and second worldwide country to be compliant with the Extractive Industries Transparency Initiative (EITI), and first worldwide to include the forestry sector in its reporting. In 2011, it completed its 3rd EITI Report, which covered payments made to the government by 121 mining, oil, agriculture, and forestry companies between July 2009 and June 2010, compared to 64 companies in the 2nd report. It also released a report on incentivizing EITI-compliant countries using Liberia as a case study. In the 2011 Mo Ibrahim Index of African Governance, Liberia ranked 10th out of 53 countries on environmental policies, a marked improvement from 37 in 2006.
Prevalence of Predicate Crimes
Liberia is among the West African countries that have been targeted by the South American drug cartels as a transit point to Europe and the US as evidenced by recent seizures. Another major challenge that the country faced is the level of cash transaction in a dual currency economy (both the US dollar and the local currency are used interchangeably). The financial system is rudimentary with weak payment system infrastructure. The country will however, benefit from an ongoing payment system infrastructure project that the AfDB is implementing in the region. Regulatory and supervisory challenges continue unabated. The Non-Financial Businesses sector remains unregulated. There are limited state apparatuses to combat crime with very porous borders.
The authorities are battling to pass a new AML/ CFT bill taking into consideration the deficiencies identified in the country’s Mutual Evaluation report of 2011. While the authorities are putting mechanisms in place to establish the country’s FIU, the Central Bank of Liberia (CBL) is currently responsible for receiving and processing Suspicious Transaction Reports (STRs) from the commercial banks. However, there were no STRs received by the CBL from banks during the review period. Establishing the FIU and making it operational will largely depend on the enactment of the AML/CFT bill.
During the review period, there were 219 drug related and 58 arms related crimes committed and those involved were arrested and forwarded to the Court for prosecution. The quantities of drugs involved were 64.3 grams of Cocaine, 0.66 grams of Heroin and 386.4 grams of Marijuana.However, there is no further information with regard to the prosecution of these cases. This leaves one with no option but to conclude that the criminal justice system is also not effective.
Liberia’s AML/CFT system was evaluated in November 2010 and the Mutual Evaluation Report (MER) was adopted in May 2011. There were significant deficiencies in the AML/CFT system in Liberia. In particular, the country did not have an approved comprehensive anti-money laundering legislation. Moreover, Liberia does not have a Financial Intelligence Unit (FIU) and there is no legal framework to combat the financing of terrorism. The evaluation revealed that implementation of AML/CFT measures of acceptable international standards in Liberia was not effective. Based on the findings of the evaluation, the Plenary placed Liberia on the Regular Expedited Follow-Up process.
In addressing the above deficiencies, the Liberian authorities established two committees (AML/CFT Inter-Ministerial Committee and AML/CFT Inter-Agency Committee). The AML/CFT Inter-Ministerial committee was charged with the responsibility for ensuring an effective AML/CFT regime in Liberia. On the other hand, the AML/ CFT Inter-Agency Committee was responsible for enhancing coordination and cooperation among various agencies relative to AML/CFT information sharing in the country. Additionally, the AML/CFT Inter-Ministerial Committee constituted an AML/CFT Drafting Committee and this committee was charged with the responsibility for following up on the formulation and enactment of the AML/CFT Law in Liberia.
Liberia submitted its first follow-up report in May 2012, which was subsequently, discussed at the May 2012 GIABA Plenary held in Abidjan, Cote d’Ivoire. After a careful review by the Plenary of the progress made by the country relative to its MER recommendations, Liberia was maintained on the Regular Expedited Follow-Up process.
During the period under review, the AML/CFT Inter-Ministerial Committee intensified efforts to ensure the completion of the Draft AML/CFT Bill. To this effect, the Drafting Committee held series of drafting sessions under the coordination of the AML/CFT Inter-Ministerial Committee. Consequently, the AML/CFT Draft-Bill final version was submitted to the Finance Minister for onward submission to the Justice Minister for a final review. In July 2012, the AML/CFT Bill was submitted to the President for subsequent submission to the Liberia Legislature for enactment. The Bill was submitted to the Liberia Senate and was passed by that august body. The bill has also been submitted to the Lower House for concurrence. The Bill is expected to pass through the Lower House in January 2013.
In June 2012, the Director General of GIABA undertook an advocacy visit to Liberia. The visit was to persuade the authorities to expedite actions to address the deficiencies and recommendations of the mutual evaluation report of Liberia.
In April 2012, the Inter-Ministerial Committee in collaboration with GIABA organized a Stakeholders’ workshop on the Draft AML/CFT Bill (Law) of Liberia. The workshop reviewed and discussed the Draft AML/CFT Bill for submission to the National Legislature and sensitized stakeholders about the danger posed by money laundering and terrorist financing in the West Africa region. In July 2012, the Committee also organized a two-day training seminar for compliance officers responsible for AML/CFT issues or related activities in insurance, remittances, microfinance, NGOs, Casinos and regulatory and supervisory agencies tasked with supervising and monitoring DNFBPs.
The technical assistance needs of Liberia to effectively manage its AML/CFT regime continue to hinge on capacity building. The country requires technical support to step up the fight against transnational organized crime; training and mentoring for judicial authorities and specialized investigating and prosecution entities handling AML/CFT issues; and substantive training on AML/CFT to regulators. Other areas of intervention include: advocacy and sensitization of key stakeholders; technical and financial support on the ML/TF risk assessment survey; capacity building on how to conduct the survey and prosecute AML/ CFT related cases.
It is however, important to point out that Liberia is one of the countries whose absorptive capacity for technical assistance is low. For instance, GIABA has made several technical assistance offers but Liberia could not take advantage of these due to the absence of a FIU. In particular, if Liberia does not establish the FIU and locate it in a suitable place that can accommodate the AML/CFT analytical hard and software, it stands the chance of losing this assistance. Over and above these, GIABA provided Liberia with a currency and other contraband scanner at the airport and sponsored Justices of the Supreme Court on a study tour and has organized a number of sectoral meetings and training programs in Liberia to motivate some action.
The prospect for the effective operation of an AML/CFT regime in Liberia is still not certain despite the commitment made by Government during the Director General’s visit to the country and bringing the matter to the attention of the President, who gave the assurance of quick action on the pending legislation. The passage of the AML/ CFT Bill by the Senate and its subsequent submission to the Lower House for concurrence will further give the legal tool for an effective AML/CFT regime in the country. Despite engagement with the Central Bank of Liberia on the pending AML/CFT issues in the country, very little has been done to address the deficiencies. If the parameters for deterring risks and deficiencies, as well as measuring progress are applied in the case of Liberia, including the lack of legislation against money laundering and terrorist financing, weak financial sector AML/CFT supervision, the absence of a FIU, the lack of records on investigation, successful prosecution and conviction of cases of ML and TF, the lack of mechanisms to freeze and confiscate criminal assets in accordance with the UNSCRs 1267 and 1373, it would be logical to conclude that Liberia is the most backward in AML/CFT efforts and may present the highest risks and vulnerabilities for ML and TF in the region.