In Focus: The Central Bank of Libya's Recent Circular No. (2) - A Blueprint for Foreign Exchange Regulation

Introduction:

On February 1st 2024, the Banking Supervision and Regulation Department of the Central Bank of Libya (CBL) published Circular No. (2) of 2024, outlining the regulatory controls it is imposing to govern foreign currency transactions. The Circular was sent out to the General Managers of all the banks currently licensed to operate in Libya and is effective immediately. Circular No. (2) of 2024 represents an important step by the CBL to closely regulate the purchase of foreign currency for the purpose of opening a Letter of Credit (“LC”) for all goods and services that are legally permitted to be imported, and for personal purposes.

It should be noted that before the imposition of the new regulatory controls, the Banking Supervision and Regulation Department of the CBL published Circular No. (23) of 2023. They informed the General Managers of Libyan banks that the CBL had observed a number of violations of previous circulars and regulatory controls regarding the opening of LC’s, in addition to a failure to undertake the necessary AML/CFT due diligence. To enhance the supervision and regulation of the banks, the CBL requested that they establish specialized committees to study and review requests to open LCs.

In Circular No. (2) of 2024, the CBL referenced this request made to the banks in 2023, before issuing its instructions on new controls concerning foreign exchange dealings. This letter provides a comprehensive summary of the new regulatory controls. The CBL divided the controls into three segments, covering LCs, personal use and finally general controls. The details of the controls imposed are outlined below.

Controls regulating the purchase of foreign exchange for the purpose of opening LCs:

In Circular No. (2) of 2024, the CBL has stated clearly that banks are empowered to make informed decisions on LC requests for all commodities and services that can be important legally. This is on the condition that there is a valid CBL Bank Code (CBL Key/Client Code). Furthermore, the banks must undertake the due diligence to ascertain the validity of the information provided by the party requesting the opening of an LC. Only when the foreign exchange to cover the LC has been purchased, can the bank issue a notification that an LC has been opened.

There is a cap on the value of a single LC. The caps differ for each type of LC, whereby:

-????????? The cap on a Service LC is $2,000,000.00, or its equivalent in other currencies.

-????????? The cap on a Commercial LC is $3,000,000.00, or its equivalent in other currencies.

-????????? The cap on an Industrial LC is $7,000,000.00, or its equivalent in other currencies.

There is a prohibition on the splitting up of LCs so as to import industrial goods that exceed the aforementioned cap. In cases where the value of the LC exceeds the cap, such matters need to be presented to the Banking Supervision and Regulation Department in order to get their prior approval.

The CBL has authorized banks to open back-to-back LCs. They are obligated to return the value of the LC to the CBL if the LC is not opened within 15 days from the purchase of foreign exchange. In addition, the initial invoice needs to be certified and issued by the exporting or manufacturing company or certified agent. Also, at the very least, the invoice should include information related to the type, weight, amount, price, service and country of origin, etc. Furthermore, the beneficiary’s bank account abroad needs to be in the same country where the initial invoice was issued from. It is permitted to make payment to the account of the parent company.

The value of the LC is to be covered in full by the available balance in the account when requesting the opening of the LC. The CBL has prohibited the granting of credit facilities in all forms for the purpose of covering the LC, from the date it is opened.

Any bill of lading used for an LC cannot be accepted if the ‘bill of lading date’ and ‘shipped on board date’ precedes the notification of the LC. An exception is made for LCs for bulk cargo, whereby the bills of lading can be accepted up to ten (10) days before the notification of the LC.

Payment for the value of the traded documents for the LC is settled after thirty days from the date of receiving the documents from the beneficiary. This provision should be included in the SWIFT message (MT700) sent when opening an LC.

Importers are obligated to provide original customs declarations that show the entry of the goods into Libya through official channels. Such declarations must be provided to the banks within two (2) months of receiving the documents. Banks must inform the Banking Supervision and Regulation Department when there is any failure to provide such declarations.

The entities that request the opening of the LCs must provide an insurance document on the imported goods to the bank that had opened the LC. Additionally, they must submit an inspection certificate issued by an inspection company that has obtained a valid CBL code. Furthermore, they must provide certificates for tax payment and social security dues. The copies of the certificate must be original and up to date, covering the year prior to the opening of the LC.

Finally, the CBL has made clear that requests to open LCs cannot conflict with decrees issued by competent authorities regarding the identification of goods prohibited from being imported or exported.

Controls governing the purchase of foreign exchange for personal use:

The CBL has created an online platform to sell foreign currency for personal use. Only after all the requirements outlined on the platform are fulfilled can the sale of foreign exchange take place. The CBL has outlined in detail the controls for making such purchases. They have authorized the Banks to make decisions on the selling of foreign exchange for personal use.

The sale of foreign exchange is finalized using the National ID Number for every Libyan citizen above the age of 18 years. The CBL has stated that the amount of foreign exchange that can be sold to an individual from all the banks that operate in Libya cannot exceed $4,000.00, or its equivalent in other currencies. This threshold may change in the future.

Additionally, the sale of foreign currency to individuals is conditional on them managing a bank account at the bank they intend to purchase the foreign exchange from. The bank account must cover the value of foreign exchange sold at the time of the transaction.

The foreign currency purchased by individuals for personal use can be used via the following means:

-????????? The issuance and loading of cards (Visa and/or MasterCard).

-????????? The opening of foreign exchange accounts to deposit the foreign currency purchased. It can be transferred to other accounts (individuals and legal entities).

-????????? Both individuals and legal entities are permitted to purchase foreign currency that is available in the bank accounts of other citizens. They can accrue foreign exchange without limit within the Libyan banking sector. This is conditional on the use of the foreign exchange in adherence with the specified uses outlined in this circular.

Finally, the foreign currency can also be transferred via money transfer service providers such as MoneyGram or Western Union (if such services are available at the individual or legal entity’s bank). The commission charged by the bank for these services, must be limited to amount agreed between the bank and the money transfer service provider (MoneyGram or Western Union). The CBL has expressly indicated that citizens should not bear any additional commission or costs.

General Controls:

The CBL has reminded Banks to comply and adhere to the AML/CFT regulations outlined previously in Circular No. (5) for the year 2018. Crucially, from the time when the documents are submitted to the counter clerk, the CBL expects Banks to carry out the necessary due diligence by enforcing the three lines of defense via the Compliance Department, Internal Audit and the responsible bank committees.

The CBL restated the importance of the Bank’s Compliance Units. Such units have a vital role in ascertaining the soundness of the procedures related to the amounts deposited into the accounts of the entities requesting the opening of LCs, whereby they should determine whether it is proportional to its capital and volume of activity.

The banks are obligated to undertake the necessary due diligence to ascertain the validity of international shipping documents via the ICC International Maritime Bureau`s network, to reduce the risks associated with entities providing fraudulent documents regarding the value of LCs that exceed $500,000.00 or its equivalent in other currencies. The Bill of Lading should include the IMO ship number along with the ship name that contains the goods. Additionally, it should include the LC number and initial invoice number.

Finally, when requesting the settlement of the LCs covered by the CBL, the Bill of Lading must be attached along with the Swift message for opening the LC. A request letter must also be attached to the Covering Bank, which should include the payment to be covered, alongside the documents transmitted through the coverage platform.

Finally,The CBL’s Circular No. (2) of 2024 is a comprehensive and detailed description of the new regulatory controls that they have put in place to deal with foreign exchange transactions. The controls were in force at the time of the reopening of foreign exchange purchase system for commercial and personal uses. They have now been in place for over a month. Zahaf and Partners Law Firm continues to closely monitor developments and will provide updates when and where necessary. For specialized legal advice, contact us via our email [email protected] or on our website www.zahaflaw.com?

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