Liberia

Political situation

Liberia has consolidated its post-war peace and enjoys a generally stable political environment, having come through a highly charged political period in 2012 owing to electoral unrest and the boycott of the 2011 elections by the opposition Congress for Democratic Change (CDC). The inauguration on 16 January 2012 of President Ellen Johnson Sirleaf, who won the November 2011 presidential run-off, and of Liberia’s 53^rd Legislature a week earlier, confirmed the country’s progress towards long-term peace and stability, despite 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 raised concerns about possible corruption, not least because Liberia has not yet put oil management measures in place. However, efforts are under way to reform Liberia’s Petroleum Law and develop an oil policy. The Government has been criticised for an apparent lack of transparency and accountability in its management of the local oil sector. In pursuit of transparency and accountability in the management of oil contracts, the Liberian Legislature has begun investigating the various oil-related contracts awarded.

As a post-conflict country, Liberia still faces the challenge of rebuilding institutions and infrastructure damaged by a war that lasted more than a decade. The African Development Bank has described post-war Liberia as a fragile state compared with its neighbours. Security in particular continues to face the potential challenge of regional crises spilling over into the country. For example, more than 100,000 refugees who fled the electoral crisis in Côte d’Ivoire in the first months of 2011 remained in Liberia’s south-eastern counties, putting pressure on food supplies in those areas. While public bodies such as the 4,000-strong Liberia National Police and the 2,000-strong army are still being trained by the United Nations and the United States, their conduct during the November unrest raised doubts about their readiness to take over from the United Nations Mission in Liberia (UNMIL). As a result, the UN peacekeeping mission, one of the largest ever deployed (8,000 personnel), remains in place until 2014. Good governance is steadily improving, although challenges remain. On the Mo Ibrahim Index of African Governance, the country ranked 34^th out of 52 African countries, with a score of 47 percent. The government has improved its effectiveness, transparency and accountability through public financial management reforms and the introduction of management information systems, but institutional capacity unfortunately remains weak.

Economic and financial situation

Liberia’s economy continued to expand, recording its eighth consecutive year of post-war growth. In 2011 the country exported its first iron ore since the conflict, and growth is projected to continue in 2012 and beyond, supported by rising exports of iron ore, rubber, timber and palm oil, as well as continued foreign direct investment.

Liberia has recorded solid macroeconomic gains under its recent Extended Credit Facility (ECF) supported by the International Monetary Fund (IMF). Economic growth has been robust; inflation has been largely contained; international reserves have been rebuilt; and external debt has been reduced. Growth has been driven by sound macroeconomic policies, higher investment and vigorous implementation of structural reforms. The short- and medium-term outlook remains favourable, though subject to considerable risks. After an initial post-war rebound, economic growth has averaged 7% a year since 2009 (mainly from non-mining activities before iron ore exports resumed at the end of 2011), while inflation has largely been kept in single digits. With the resumption of iron ore exports in 2011, GDP growth is estimated at nearly 9% in 2012, supported by strong growth in the mining sector and an expansionary fiscal policy to accommodate higher infrastructure investment. Fiscal reforms focus on containing current spending, particularly the wage bill, and on strengthening budget execution and controls through improvements in public financial management. Higher external borrowing limits will allow an increase in sound, growth-enhancing investment while maintaining debt sustainability. Measures are also planned to improve good governance and transparency, including financial oversight of state-owned enterprises, procedures to streamline capital spending, better project execution, and the creation of 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 rising. Following spikes in food and fuel prices in 2011 and early 2012, US dollar-denominated inflation fell below 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 capital imports financed on concessional terms and higher prices for imported food and fuel, which more than offset the increase in iron ore exports. Reserve coverage has remained relatively stable at about two and a half months of imports.

Liberia’s financial sector is largely 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. Remittance inflows in 2012 stood at USD 378 million, or about 31% of GDP. The country’s heavy dependence on these inflows is a source of concern, has AML/CFT implications and requires close monitoring.

In the financial sector, reforms have been implemented to improve stability and increase access to credit and financial services, including microfinance. The banking system is liquid and well capitalised, and credit growth has been strong over the past three years. Non-performing loans fell in 2011 but remain higher than in previous years and are numerous in the region. The Central Bank of Liberia (CBL) has responded by intensifying its targeted on-site credit examination cycle and supplementing it with more rigorous off-site supervision. The CBL is also helping commercial banks 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 the efforts that resulted in a new Commercial Code and the enactment of a law establishing a new commercial court in 2011, which should help improve the enforcement of financial contracts.

The CBL has moved ahead with new initiatives to develop financial intermediation, including for the unbanked, through a USD 5 million credit stimulus initiative for SMEs launched in November 2010 and another USD 5 million facility targeting the agricultural sector due to be launched in early 2012. It has also facilitated microfinance, and mobile banking services were introduced in September 2011. Government moral suasion keeps lending rates relatively low to support small and medium-sized enterprises, although this reduces bank profits. Nevertheless, these efforts improved Liberia’s Doing Business ranking for access to credit from 139^th in the 2011 report to 98^th in 2012.

The CBL is modernising the payment system and stepping up efforts to create a capital market, starting with a market for Treasury or central bank bills in 2012. A long-term capital market has not yet been established and there is no effective vehicle for contractual savings and collective investment apart from the National Social Security and Welfare Corporation. Sector income is concentrated in fee-based activities, while the legal and regulatory framework for secured lending is underdeveloped. The authorities need to improve the existing framework, as it poses AML/CFT risks to the economy.

In 2011, the government concluded negotiations on a Voluntary Partnership Agreement (VPA) with the EU to assure local and export markets that timber production is legal. The VPA should enable Liberia to improve forest management and introduce an independent auditor to strengthen monitoring and oversight of forestry activities.

Liberia was the first African country and the second in the world to become compliant with the Extractive Industries Transparency Initiative (EITI), and the first in the world to include the forestry sector in its reports. In 2011, it completed its 3rd EITI Report, covering payments made to the State by 121 mining, oil, agricultural and forestry companies between July 2009 and June 2010, compared with 64 companies in the 2nd report. It also published a report on incentives for EITI-compliant countries, using Liberia as a case study. In the 2011 Mo Ibrahim Index of African Governance, Liberia rose to 10th out of 53 countries on environmental policy, a substantial improvement from 37^th in 2006.

Prevalence of predicate offences

Liberia is among the West African countries targeted by South American drug cartels as a transit point to Europe and the United States, as recent seizures have shown. Another major challenge facing the country is the level of cash transactions in a dual-currency economy (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 business sector is still unregulated. State capacity is limited and does not allow crime to be fought effectively, given very porous borders.

The authorities are working hard to secure the adoption of a new AML/CFT bill that addresses the deficiencies identified in the country’s 2011 Mutual Evaluation Report. While the authorities are putting in place mechanisms to set up the country’s FIU, the Central Bank of Liberia (CBL) is currently responsible for receiving and processing suspicious transaction reports (STRs) from commercial banks. However, the CBL received no STRs from banks during the review period. Setting up the FIU and making it operational will depend largely on the enactment of the AML/CFT bill.

During the review period, 219 drug-related offences and 58 armed robberies were committed, and the suspects were arrested and handed over to the courts for prosecution. The quantities of drugs seized were 64.3 grams of cocaine, 0.66 grams of heroin and 386.4 grams of marijuana. However, there is no further information on how these cases were handled. This leaves us no option but to conclude that the criminal justice system is not effective either.

AML/CFT situation

Liberia’s AML/CFT system was evaluated in November 2010 and the Mutual Evaluation Report (MER) was adopted in May 2011. Major deficiencies emerged in Liberia’s AML/CFT system. In particular, the country had no comprehensive anti-money laundering legislation in place. In addition, Liberia has no Financial Intelligence Unit (FIU) and no legal framework to combat terrorist financing. The evaluation found that the implementation of AML/CFT measures meeting acceptable international standards in Liberia had not been effective. On the basis of the evaluation results, the Plenary placed Liberia under the Regular Follow-up process.

To address these deficiencies, the Liberian authorities set up two committees (the Inter-Ministerial AML/CFT Committee and the Inter-Agency AML/CFT Committee). The Inter-Ministerial AML/CFT Committee was tasked with ensuring an effective AML/CFT framework in Liberia. The Inter-Agency AML/CFT Committee was tasked with facilitating coordination and cooperation between the various agencies on the sharing of AML/CFT information at national level. In addition, the Inter-Ministerial AML/CFT Committee set up the AML/CFT Drafting Committee, which is responsible for following up the drafting and enactment of the AML/CFT Law in Liberia.

Liberia presented its first follow-up report in May 2012, which was subsequently discussed at the May 2012 GIABA Plenary held in Abidjan, Côte d’Ivoire. After a thorough review by the Plenary of the country’s progress against the MER recommendations, Liberia was kept under the Regular Follow-up process.

During the review period, the Inter-Ministerial AML/CFT Committee stepped up its efforts to finalise the draft AML/CFT Bill. To this end, the Drafting Committee held a series of drafting sessions under the coordination of the Inter-Ministerial AML/CFT Committee. As a result, the final version of the draft AML/CFT Bill was submitted to the Minister of Finance for transmission to the Ministry of Justice for final review. In July 2012, the AML/CFT Bill was presented to the President for subsequent submission to the Liberian Legislature for enactment. The Bill was submitted to the Liberian Senate, which passed it. The Bill was also submitted to the House of Representatives for adoption, and is expected to be passed by the House in January 2013.

In June 2012, the Director General of GIABA undertook an advocacy visit to Liberia. The aim of the visit was to persuade the authorities to speed up action to address the deficiencies and recommendations in Liberia’s mutual evaluation report.

In April 2012, the Inter-Ministerial Committee, in collaboration with GIABA, organised a stakeholders’ workshop on Liberia’s draft AML/CFT Bill (the Law). The workshop reviewed and discussed the draft AML/CFT Bill ahead of its submission to the National Legislature and raised stakeholders’ awareness of the danger posed by money laundering and terrorist financing in the West African region. In July 2012, the Committee also organised a two-day training seminar for compliance officers responsible for AML/CFT or related matters in insurance, money remittance and microfinance, as well as for NGOs, casinos and the regulatory and supervisory agencies responsible for monitoring DNFBPs.

Technical assistance

Liberia’s technical assistance needs for the effective management of its AML/CFT regime continue to centre on capacity building. The country needs technical support to step up the fight against transnational organised crime. This includes a training and mentoring programme for the judicial authorities and the specialised investigation and prosecution bodies dealing with AML/CFT matters, and substantial AML/CFT training for regulatory authorities. Other areas of intervention are advocacy and awareness-raising for key stakeholders; technical and financial support for an ML/TF risk assessment; and capacity building on how to conduct investigations and prosecute AML/CFT-related cases.

It is important to stress, however, that Liberia is a good example of a country with a low capacity to absorb technical assistance. For example, GIABA has made several offers of technical assistance, but Liberia was unable to accept them because it has no FIU. In particular, if Liberia does not set up the FIU and house it in suitable premises capable of accommodating AML/CFT analytical hardware and software, it risks losing this assistance. In addition, GIABA has supplied Liberia with a currency and contraband scanner for the airport, sponsored Supreme Court judges on a study tour, and organised a number of sectoral meetings and training programmes in Liberia to prompt a response.

Conclusion

The prospect of an effective AML/CFT regime operating in Liberia is not yet certain, despite the Government’s commitment during the visit of GIABA’s Director General and the attention drawn from the President, who promised to act quickly on the pending legislation. The adoption of the AML/CFT Bill by the Senate and its subsequent submission to the House of Representatives for adoption will further provide the legal instrument for an effective AML/CFT regime in the country. Despite engagement with the Central Bank of Liberia on preparing AML/CFT matters in the country, very little has been done to address the deficiencies. If the parameters of risk and deficiency deterrence and the measures of progress are applied to the case of Liberia, including the lack of anti-money laundering and terrorist financing legislation, weak AML/CFT supervision of the financial sector, the absence of an FIU, the lack of records of successful ML and TF investigations, prosecutions and convictions, and the lack of a mechanism to freeze and confiscate criminal assets in line with UNSCRs 1267 and 1373, it would be logical to conclude that Liberia is the country lagging furthest behind in AML/CFT efforts and that it presents the greatest ML and TF risks and vulnerabilities in the region.