L$16b, US$25m Swallowed Up in Colossal Discrepancies – USAID-Hired Firm Finds CBL Afoul with Laws

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The long awaited report on investigations over what was thought to be missing billions, generating national and international uproar, is now out. The firm, Kroll, contracted by the United States Government to carry out a scoping exercise, has released its report with findings of colossal discrepancies in the handling of the contracting, printing, distributing and mopping up exercises carried out by the Central Bank of Liberia and the Economic Management Team.

Though the report does not contain recommendations, the discrepancies found speak volumes about probity in the Liberian money economy, leaving untold sums of offshore monies at stake and unaccounted for. The Analyst has been looking at the Kroll report.

Well in the midway of the first year of the administration of President George Manneh Weah, reports that containers of newly printed Liberian banknotes nearly took the nation amok particularly as the news media and the public scavenged over the reports with suspicions and emotions.

The President set up a government investigative team that comprised both public and private integrity institutions. As if that was not enough, the President asked the international community to help in unraveling what appeared to be misery over the alleged missing L$16 billion.

 

US Embassy Announces Release of Report

Yesterday morning, the United States embassy near Monrovia broke the news that the report by its contracted auditing firm had released the report.

In a release, the Embassy he U.S. Embassy it was pleased to release an Independent Review Report  prepared by Kroll Associates Inc. regarding allegations of the disappearance of new Liberian Dollar banknotes.

“The U.S. Embassy sponsored this Report on the condition that we, as the client of Kroll, release the Report publicly,” the release noted. “In October 2018 the U.S. Embassy, in response to a request to the international community from the Government of Liberia and Liberian civil society groups, began the process, through the United States Agency for International Development (USAID), to commission an Independent Report by a firm with expertise in forensic investigations. The firm chosen was Kroll Associates Inc., (Kroll) a division of Duff & Phelps, LLC. Their mandate was to research matters stemming from allegations in the press that a container of new Liberian Dollar (LRD) banknotes had “gone missing” upon arrival in Liberia.”

This Embassy forewarned that, amongst other things, the “Report does not include information that: 1) contains legally restricted and/or commercially sensitive information; 2) would identify individuals who are neither elected nor appointed; or 3) could impinge on the security of Liberia’s banking system, including descriptions of bank security systems. Kroll also provided the Government of Liberia with a technical security assessment of the CBL and security-related recommendations. To protect the integrity of CBL operations, we will not release this security-related information.”

 

Colossal Discrepancies Swallow L$16b

The USAID-hired firm, Kroll, revealed in its report that it identified discrepancies at every stage of the process for controlling the movement of banknotes into and out of the CBL during the Independent Review. These discrepancies, Kroll said, were found in getting the Legislature’s approval for printing new banknotes; the procurement and contracting of Crane AB; the shipping of new banknotes to Liberia; the delivery of new banknotes to the CBL, and; the movement of funds within and out of the CBL’s vaults.

Kroll indicated it identified the key findings during its investigation, based on the documents provided during the scoping phase of work.

The internationally acclaimed auditing firm noted: “The CBL ordered new currency totaling LRD 15.0 billion from Crane Currency in two tranches in 2016 and 2017. Communications between the CBL and the Legislature indicate that there was no clear or consistent strategy driving the process to circulate new banknotes from inception to conclusion. As a result, this raised the risk of unintended negative economic effects, including high inflation and the rapid depreciation of the LRD.”

The firm also indicated that Legislature approval was granted on May 17, 2016 for the CBL to print new banknotes totaling LRD 5.0 billion; however, Crane AB was awarded an initial contract on May 6, 2016 by the CBL to print new banknotes totaling LRD 5.0 billion, eleven days before the Legislature approval was granted.

According to Kroll, the Liberian Legislature’s approval was not granted in the same manner as 2016 for the CBL to print a second tranche of new banknotes totaling LRD 10.0 billion in 2017.

“Crane AB was awarded the second contract in June 2017 by the CBL to print new banknotes totaling LRD 10.0 billion, four weeks before two officials from the Legislature requested that the CBL replace all legacy banknotes,” Kroll reported further, revealing that  the CBL procured the services of Crane AB for both contracts without adhering to its own internal tendering policies for procurement.

The actual value of new banknotes printed by Crane AB to Liberia totaled LRD 15.506 billion, therefore new banknotes totaling LRD 0.506 billion were printed by Crane AB above the initial contractual amount of LRD 15.0 billion, the auditing firm revealed.

Kroll said records provided by Crane AB and its logistics company provided a documentation trail for new banknotes totaling LRD 15.506 billion having been shipped by Crane AB. Records also show that Private and Confidential 8 the CBL paid Crane AB for new banknotes totaling LRD 15.506 billion. However, delivery documentation provided by the CBL indicated that Crane AB printed and shipped a greater quantity of banknotes to Liberia.

“Of the new banknotes printed and shipped by Crane AB totaling LRD 15.506 billion, the CBL had injected new banknotes totaling LRD 10.146 billion into the Liberian economy without removing from circulation (and destroying) the equivalent quantity/value of legacy banknotes,” the firm reported.

 

Discrepancies in Mopping Up Excess Liquidity

Kroll also reported on the controversial US$25m ordered from the country’s reserve to mop up excess liquidity from the Liberian money market.

The firm said: “Under the direction of the Minister of Finance, the President’s Economic Management Team conducted a separate USD 25.0 million exercise to ‘mop-up’ excess LRD banknotes with USD banknotes. At the time of Kroll’s review, this resulted in LRD 2.3 billion (USD 15.0 million) being purchased by the CBL from local businesses and foreign exchange bureaus, in an attempt to address the depreciation of the Liberian Dollar. This action was undertaken by the CBL without a clearly documented strategy.”

Kroll’s independent counts of the physical cash balances in each of the CBL’s three operational vaults could not be reconciled with the CBL’s corresponding financial accounting records.

In July 2018, President George Weah announced that USD 25.0 million would be “infused” into the Liberian economy to “mop-up” excess LRD banknotes in an attempt to address the depreciation of the Liberian Dollar.

According to the report, the CBL advised Kroll (the auditing firm) that the USD Mop-Up Exercise involved CBL Banking Department representatives undertaking the physical purchase of LRD banknotes from local businesses and foreign exchange bureaus, with the seller being reimbursed for the value of purchased LRD banknotes with new USD banknotes. Kroll was not provided with documentation setting out how the USD Mop-Up Exercise was structured or implemented, or which organizations were targeted by the CBL.

The term “mop-up” was used extensively in CBL documentation to describe the exchange of LRD banknotes with USD banknotes.

Kroll said it reviewed documentation that showed an order was placed on July 10, 2018 to draw down funds totaling USD 20.0 million from the CBL’s Federal Reserve Bank of New York account to fund the USD Mop-Up Exercise.

The date of the order (July 10, 2018) was made several days in advance of the Board of Governors decree (July 16, 2018). It is not clear if the draw down was made earlier than approval was provided for the USD Mop-Up Exercise.

Kroll’s analysis of information provided by the CBL identified that LRD banknotes totaling LRD 2.3 billion (USD 15.0 million) were purchased for the USD Mop-Up Exercise between July 2018 and October 2018.

Kroll was informed by the CBL that the remaining USD 5.0 million was put into circulation as part of normal banking operations, and not retained for continuance of the USD Mop-Up Exercise.

According to a CBL Board of Governors decree dated July 16, 2018, the purchased LRD banknotes should have been sorted and “sterilized” by the CBL prior to recirculation for a minimum period of one year.8 Instead, LRD banknotes totaling LRD 1.2 billion (USD 7.8 million) of the total banknotes removed from circulation as part of the USD Mop-Up Exercise have subsequently been reintroduced back into circulation within six months. The CBL has not provided Kroll with evidence that the Board of Governors had authorized the banknotes to be reintroduced back into circulation before the period of one year had elapsed.

Kroll revealed further: “The approach taken by the CBL to implement the USD Mop-Up Exercise, whereby small teams of bank personnel directly purchased LRD banknotes from local businesses and foreign exchange bureaus in exchange for USD notes, created an enhanced level of risk with respect to: i) potential misappropriation of banknotes, ii) potential opportunities for money laundering and iii) potential execution of transactions with illegal businesses. Consequently, there is a risk that significant funds were unaccounted for by the CBL, and Kroll therefore recommends that this matter merits further understanding.”

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