Central Bank of Libya

P.O. Box 1103 Telegraphic Address: CBL - Tripoli - Libya

Ref: R M N / 804

Circular R M N No. (2016/2) Date: 28 Rabi' al-Awwal 1437 AH Corresponding Date: 7 January 2016 AD

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To: General Managers of Commercial Banks To: Heads of Temporary Administrative Committees of Commercial Banks To: General Manager of the Libyan Foreign Exchange Bank

Greetings...

Subject: Controls, Conditions, and Procedures Organizing the Opening of Letters of Credit.

Based on the provisions of Law No. (1) of 2005 AD concerning Banks and its amendments, And referring to Circular R M N No. (1) of 2013 AD, issued on 2/1/2015 AD, Which conveyed the decision of Mr. Governor of the Central Bank of Libya No. (1) of 2013 AD, concerning the regulation of foreign currency transactions and defining the powers to execute foreign remittances for various purposes.

And to Circular R M N No. (3) of 2015 AD, issued on 30/4/2015 AD, which conveyed the decision of Mr. Governor of the Central Bank of Libya No. (96) of 2015 AD, concerning setting controls to regulate the use of foreign currency for opening letters of credit and collection documents, and the conditions for opening letters of credit for import purposes from abroad.

And since the Central Bank of Libya emphasizes the necessity of avoiding certain deficiencies in the operational control systems of banks when opening letters of credit for the purpose of supplying goods and merchandise, by exercising due care and adhering to the controls in effect in this regard, and activating audit and internal control procedures, and supporting the foundations of accountability accounting in all stages and procedures of opening letters of credit to achieve the real benefits for which they were activated, and to limit manipulation of them and make them a means for smuggling funds abroad, without the entry of corresponding goods and merchandise at prices and approvals commensurate with the value of these transfers, we hereby conclude with you the instructions of the Central Bank of Libya, which approve the establishment of a mechanism to regulate the opening of letters of credit, according to the following controls, conditions, and procedures:

First: General Controls for Opening Letters of Credit:

1. Every bank must determine the bank branches it wishes to allocate to provide letter of credit services and link them to the unified banking system, taking into account the geographic distribution of all areas in Libya, and submitting a list thereof to the Banking and Currency Control Department.

2. Banks must ensure that when opening letters of credit, the ratio does not exceed 5% of the total amounts executed from the foreign currency allocated to the single entity from the budget allocated to the bank to cover letters of credit during the year.

3. Every bank must not open or renew any letter of credit except after obtaining prior specific approval from the Central Bank of Libya.

4. All banks must complete providing the requirements of the Libyan Credit Information Center related to adding the required data fields, including providing the necessary application interface to extract and transfer data from the core organizations of banks to the Center's system.

5. Every bank must, before dealing with any entity, including granting any credit facilities or opening letters of credit or issuing guarantee letters, inquire about them through the Libyan Credit Information Center, and if it is found that there are defaults against them, stop dealing with them until they submit what confirms the settlement of their status.

Second: Conditions for Opening Letters of Credit:

1. The cash coverage value for opening a letter of credit shall be 130% of the value of the credit, and the additional percentage shall not be released except after verifying the correctness and safety of the arrival of supplies, and fulfilling all customs, tax, and exchange fees according to the mechanism followed in this regard.

2. It is required to deal with correspondents in European Union countries, America, or Canada, or where the Libyan side holds a share in their shares, with correspondents abroad being fully bound by international customs and auditing standards approved by the central banks of these countries. The Letters of Credit Department must request the correspondent bank, via a separate message from the SWIFT message, to verify the correctness of the data related to the exporting company (beneficiary) abroad, specifically:

• Its financial solvency.
• The extent to which it practices the same activity and its expertise in that field.
• The absence of any legal reservations or suspicions of corruption or money laundering in its file.
• Verification that the applicant for the credit has no participation in this company.

3. The trading of goods documents is prohibited except through the correspondent bank appointed by the opening bank.

4. Submission of an original export declaration, which is stipulated in the credit request, and returned as part of the goods shipping documents, to be certified by the beneficiary in the exporting country, and authenticated by the competent authorities in that country according to the procedures followed.

5. Submission of an inspection certificate issued by one of the international inspection companies, approved by the bank to inspect the goods according to the contract concluded with it, in which the company commits to performing its duties according to recognized inspection standards, and that it bears legal responsibility for the inspection certificates issued by it in this regard. If the imported goods are food, medicines, or chemical materials, the inspection certificate must cover the conformity of the internal composition of the goods with the specifications written on them from abroad, and the expiration date written on them matches the actual expiration date.

6. Submission of a health certificate from the relevant authorities in the exporting country, certifying that the goods are free from radiation or harmful structures.

7. Submission of a certificate of origin for the supplied goods, authenticated by the Libyan Embassy or the legally competent authority in the exporting country.

8. Limiting shipping to organized global navigation lines, which have a database through which the progress of the carrier can be tracked.

9. Land shipping is not accepted except for goods manufactured in border countries, and the shipping must be from that same country.

Third: Procedures for Opening Letters of Credit:

1. When opening a letter of credit, separation of competencies and definition of responsibilities must be observed, by clarifying all stages that support the decision to open the credit.

2. The procedure for approving and accepting the proforma invoice is the responsibility of the Letters of Credit Department at the bank branch, as it is responsible for executing and documenting the decision to accept the proforma invoice, according to a form prepared by the bank for this purpose, indicating the reasons and criteria for acceptance or rejection, to be approved by the Department Head, along with the Branch Internal Audit Department. This stage must not exceed three days from the date of receiving the proforma invoice, observing the following:

• The proforma invoice must be issued by the exporting company. If the goods are food, medicines, cleaning materials, or mother and child supplies, and other goods of a sensitive nature, it is required that the source is the manufacturer or one of its authorized agents. The proforma invoice must include the following information:

  • All data related to the type, description, quantity, and weight of the goods or services to be supplied from abroad, according to the contract concluded with the foreign supplier, and the invoice must be part of the contract.
  • It must be explanatory and clear and detailed in describing the supplied goods, quantity, weight, and type.
  • Name of the manufacturing company, brand, and place of manufacture.
  • Specifications of the goods and their internal composition, regarding foods, medicines, chemicals, and other goods that are susceptible to manipulation, fraud, and change, especially goods purchased from free zones.

• Proforma invoices issued by general trading companies are not accepted.

• Authentication of the proforma invoice by the Ministry of Economy, and obtaining a guarantee statement confirming the achievement of the economic objectives intended from opening the credits, which are as follows:

  • The prices are commensurate with the specifications and type of supplied goods.
  • The goods are not prohibited and not harmful.
  • There is a balance in the quantities authorized to enter the country so that they correspond with the absorption capacity of the local market.

3. The request to open the credit must include a declaration by the bank to the effect that it does not accept any fundamental difference in the specifications, prices, quantities, and weights of the supplied goods or services.

4. Bank branches refer requests for approval to open letters of credit to the competent committee at the bank, according to a form prepared by the bank for this purpose, and attached to the credit opening request form, which is certified by the bank's customer, supported by the accepted proforma invoice, and includes all required documents.

5. The authority to approve the opening of the credit is through a committee formed by the bank for this purpose, which must include: Credit Management, Risk Management, Compliance, Internal Audit, including the management concerned with foreign operations, and other relevant departments, and exercising its competencies according to a clear mechanism that includes verifying the fulfillment of the following conditions:

• A complete file for the entity requesting the opening of the letter of credit at the Current Accounts Department, including all original and recent documents and papers related to the activity, including the Customer Identity Verification form (KYC).

• Filling in the data of the (KYC) form for the credit applicant in the banking system, in order to obtain a special number (CBL - CLIENTKEY), for legal entities and individuals, and updating the data contained therein whenever necessary.

• Not considering any request to open or cover a letter of credit for a bank customer who does not possess a special number for the banking system (CBL - CLIENTKEY).

• Filling in the credit opening request electronically by the bank, and referring it through the unified banking system, accompanied by a referral letter from the bank.

• The entity requesting the credit must have had its account opened at the bank for at least one year, taking into account the size of its activity and its deposit movements during the period, with a bank statement attached to the request.

• A commitment by the entity to conduct its dealings in the field of letters of credit with two banks from the banks that manage its accounts.

• The Current Accounts Department at the branch verifies the legal correctness of the company's establishment and the availability of all required documents for the company's announcement.

• Submission by the entity of an original and recent certificate addressed to the bank certifying the payment of all prescribed tax and guarantee fees by law.

• Submission of the Statistical Card issued by the Customs Authority, which must be original and valid.

• Complete data on fixed assets, including warehouses, administrative headquarters, and means of transport owned by the entity, authenticated by the external auditor regarding the validity of ownership documents. If they are rented, a rental contract issued by a contract drafter and authenticated by the Tax Authority must be provided with it.

• A statement of owned and rented warehouses for entities supplying meat, food, and medicines, and a certificate from the Food and Drug Control Center that the warehouses are equipped and suitable for storing these items.

• The national number of the entity's representative and members of the board of directors and shareholders, and bringing a certificate from the Information and Documentation Center at the Ministry of Labor certifying that the company's representative does not hold another position in the public sector.

• Verification that the entity's representative and board members have reached the legal age of majority.

6. The competent committee studying requests to open letters of credit issues a certificate stating that it has studied the file of the entity submitting the request to open the credit, and that it was found to fulfill all financial, legal, and administrative aspects, and there is no objection to opening the credit, and it must be approved by the General Manager of the bank.

7. The committee keeps a copy of the approval certificate for opening the credit in a file with the committee's secretary, who submits the original to the Letters of Credit Department at the bank branch.

8. The competent committee at the bank refers the credit requests it has approved to the Central Bank of Libya, to request coverage of their value in foreign currency, within the period specified by the decision of Mr. Governor No. (96) of 2015 AD, issued on 30/4/2015 AD.

9. The stage of external correspondence and its circulation is according to the legislation issued on the uniform principles and customs of letters of credit, and the interpretation of responsibilities and obligations in the letter of credit is subject to international commercial terms, with emphasis on including the main data of the proforma invoice within the SWIFT message data, and referring to it as part of it, which are:

• a- The invoice reference number.
• b- The invoice date.
• c- A specific description of the supplied goods.

10. Emphasizing to the appointed bank to verify documents to reject payment when it notices any fundamental difference related to weight, type, price, or specifications, so that the data contained in the proforma invoice is compared with the inspection certificate, health certificate, standard specification certificate, etc.

11. The bank must determine the name of the correspondent and the branch.

12. The bank must not deliver any documents related to the release of imported goods via letters of credit, except by an official referral letter issued by the bank and addressed to the Customs Authority. In the event that the bank delivers the documents to the customer or the customs broker to complete the release procedures of the goods at the Customs Authority, it is required that the delivered documents are true copies, and that they are referred with a referral letter from the bank to the Customs Authority and signed for receipt by the customer. In all cases, the documents are attached to Form No. (300) for each import operation, which must include a serial number, the transfer method, the shipment number and its value, and other main data related to the operation, and must be approved with an official seal.

13. The bank must not accept or receive any customs declarations that are not referred by an official letter issued by the Customs Authority and addressed to the bank concerning the release of the supplied goods, and the customs declaration must include the serial number of Form (300) referred by the bank to the Customs Authority.

For follow-up purposes, you are requested to submit a monthly report to the Banking and Currency Control Department, containing data on all letters of credit opened and approved to be regulated by the Central Bank of Libya, within a period not exceeding fifteen days from the following month. In case of non-compliance with submitting the reports on time, coverage requests for banks that have not complied with submitting the data on time will be stopped, and they will be notified of this. Also, foreign currency will be stopped on any bank that has not complied with conducting the necessary audit and prior and subsequent control on its customers, if it is discovered that there is manipulation of letters of credit and their use for purposes other than those for which they were opened, and the Central Bank will take legal action to apprehend those involved in such acts.

... And peace, mercy, and blessings of God be upon you.

Abdelhafith Matdou Tibil Director of Banking and Currency Control Department / Acting

To: Mr. / Deputy of the Court of Accounts Mr. / Head of the External Accounts Coverage Committee . Central Bank of Libya Mr. / Director of Accounts Department . Central Bank of Libya Mr. / Director of Banking Operations Department . Central Bank of Libya Mr. / Director of Legal Affairs Department . Central Bank of Libya Mr. / Head / Managers of Lists and Departments (Anti-Money Laundering - Combating the Financing of Terrorism) To the Deanship / Managers / General Managers of the Central Bank of Libya (Benghazi . Sabha . Al Bayda) To the Head of the Banking Wing and Budget Appeal

30/3/2016 AD. Abdulhamid

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