Al-Farsi: Letters of Credit in Libya; Where Does Each Party’s Responsibility Begin and End?

Ayoub Al-Farsi, a member of the Central Bank’s Monetary Policy Committee, wrote an article in which he stated:

Addressing the issue of letters of credit, which drains foreign currency reserves, begins with identifying the parties involved and holding each one accountable for its responsibilities.

The process of importing goods through letters of credit in Libya involves a series of procedures, with responsibilities distributed among several entities. These begin with the Ministry of Economy and Trade, which is responsible for regulating commercial activity and licensing companies, followed by commercial banks, which deal directly with companies and open letters of credit. The process then involves the Central Bank of Libya, which provides foreign currency to banks to cover their customers’ requests, followed by customs authorities and regulatory bodies at border crossings, and finally the entities responsible for monitoring goods and prices in the domestic market.

It is important to distinguish between these areas of authority and define each entity’s responsibilities at every stage.

1. Ministry of Economy and Trade: Regulating Commercial Activity and Licensing Companies

Responsibility begins with the Ministry of Economy and Trade and its affiliated entities responsible for commercial registration and licensing, as these bodies regulate commercial activity and establish the legal framework governing import and trade activities.

Under applicable legislation and regulations, their responsibilities include registering and licensing companies and commercial establishments, defining the activities they are permitted to conduct, and verifying that they meet the legal requirements necessary to operate.

Accordingly, a company applying to a bank to open a letter of credit should have already fulfilled the requirements for its establishment, registration, and licensing with the relevant authorities. Its legal and commercial documents must also be valid under the applicable legislation.

2. Commercial Banks: Customer Relations and Opening Letters of Credit

Once a company has established its legal and commercial standing, responsibility shifts to the commercial bank with which it deals.

The commercial bank opens the customer’s account, receives the application to open a letter of credit, verifies compliance with applicable banking requirements and regulations, and is responsible for examining and verifying the submitted documents in accordance with the procedures and rules governing banking operations and letters of credit.

Therefore, the direct relationship with the importing company, acceptance of its application, completion of the documentation required to open the letter of credit, and verification of those documents are primarily the responsibility of the commercial bank serving the customer.

After completing these procedures, the commercial bank forwards the foreign-currency coverage request to the Central Bank of Libya in accordance with the approved mechanisms and regulations.

3. Central Bank of Libya: Providing Foreign Currency to Banks

At this stage, the Central Bank of Libya acts as the monetary authority responsible for managing foreign currency and regulating its use.

The Central Bank does not deal directly with the importing company when a letter of credit is opened. Instead, it deals with the commercial bank, which submits a coverage request on behalf of its customer.

The Central Bank’s responsibilities include establishing the general framework and regulations governing the use of foreign currency, receiving coverage requests submitted by banks, and providing the foreign currency required to cover approved letters of credit through the authorized mechanisms, against settlement of their value in Libyan dinars.

It is therefore necessary to distinguish between the commercial bank’s responsibility for its relationship with the customer and the procedures and documentation involved in opening a letter of credit, and the Central Bank’s responsibility for providing foreign-currency coverage to the commercial bank and supervising it within the scope of its banking mandate.

4. Customs Authority and Border Agencies: Verifying the Arrival of Goods

Once a letter of credit has been opened and the goods have been shipped, the process moves into a separate stage that differs entirely from the provision of foreign currency.

Responsibility for verifying that goods have physically arrived in Libya and entered through official border crossings lies with the relevant authorities operating at those crossings, primarily the Libyan Customs Authority.

Customs authorities handle the procedures relating to the shipment, verify the information and documentation within their remit, and record the entry and release of goods in accordance with applicable legal procedures.

Consequently, physically tracking the arrival of goods and verifying their entry into the country are not field responsibilities of the Central Bank of Libya. They fall under the jurisdiction of the relevant border authorities.

5. Relevant Regulatory Authorities: Product Safety and Compliance with Standards

Ensuring that imported goods are safe and comply with approved specifications and standards falls under the responsibility of the relevant technical and regulatory authorities, depending on the type of product.

These include the National Center for Food and Drug Control, which oversees products within its jurisdiction. Its responsibilities include inspection, testing, analysis, and taking the prescribed measures to determine whether products comply with applicable requirements and standards before they are permitted to enter circulation, in accordance with its mandate.

Accordingly, opening a letter of credit or providing foreign currency to import a product does not, in itself, establish that the product is safe or compliant with applicable standards. That responsibility belongs to the relevant technical authorities.

6. Monitoring Goods and Prices in the Domestic Market

Once goods have entered the country, been cleared, and reached the market, another stage begins, involving domestic trade, pricing, and on-the-ground monitoring.

Responsibility at this stage returns to the relevant executive and regulatory authorities. These include the Ministry of Economy and Trade, which regulates commercial activity and oversees matters within its remit relating to prices, profit margins, and the circulation of goods, as well as the Municipal Guard, which conducts field inspections, enforces regulations, and monitors shops and warehouses for compliance with applicable legislation and decisions.

Security authorities and the relevant prosecution bodies are also responsible for investigating smuggling, fraud, monopolistic practices, and economic crimes whenever there is suspicion of a violation or criminal offence.

Conclusion

When discussing letters of credit, it is important not to assign responsibility for an entire chain of procedures to a single entity when several institutions have overlapping but distinct mandates.

The Ministry of Economy and Trade and the relevant registration and licensing authorities are responsible for establishing the legal framework within which companies conduct commercial activities. Commercial banks are responsible for their relationships with customers, ensuring that the requirements for opening letters of credit are met, and examining submitted documents in accordance with applicable regulations. The