$25m Inquiry Casts Dint On Mop-Up Exercise -Immediate Forensic Audit Ordered, But Will Ever Come About?

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As chips have begun to fall where they ought to in the aftermath of the release of investigative reports from two separate teams, there seems to be comfortable public anxiety with the quality of the reports and Government’s swift wielding of punitive dragnets around probable culprits. Cynics and pundits’ attention is now turned to the US$25 million which Government redrew from the nation’s reserve at the Central Bank of Liberia to mop up excess local currency from the money market. The two reports—one from national investigative team and another from an international auditing firm—are unanimous in their conclusions that the mopping up exercise was marred by irregularities and discrepancies. The local version particularly reveals something fishy has happened, needing an immediate forensic audit to bring all the details of the exercise to the public glare. But will the Government muster the final courage and will there be sacred cows? The Analyst reports.

 

The Presidential Investigation Team – Technical Committee (PIT-TC) on Thursday, February 28, 2019 recommended a halt to the mop-up exercise being executed by the Technical Team of the Economic Management Team (TEMT) and the Central Bank of Liberia (CBL), saying that the Economic Management Team (TEMT) did not have a clear strategy and the Central Bank of Liberia deviated from conventional best practice which calls for the use of legitimate banking institutions (commercial banks) and licensed foreign exchange bureau of SALE AUCTION.”

The PIT-TC therefore ordered a forensic investigation of the entire mop-up exercise to be conducted without any delay, a recommendation which is similar to report by the Kroll Associates, Inc., an investigating team hired by USAID based on demands by the Liberian people to probe circumstances relating to the alleged missing 16 billion Liberia dollars.

But two separate investigations, the Presidential Investigation Team – Technical Committee probe and investigation by the Kroll Associates, Inc. hired by the United States Agency for International Development (USAID) to investigate the alleged missing 16 billion Liberian dollar saga discovered discrepancies in the process, saying that the mop-up exercise was conducted unconventionally.

 

The Unorthodox Practice of TEMT

In its report, Kroll Associates, Inc. reported that in July 2018, President George Weah announced that 25 million USD would be “infused” into the Liberian economy to “mop-up” excess Liberian dollar banknotes in an attempt to address the depreciation of the Liberian Dollar to the United States dollar thereby bringing into the picture what is now referred to as “USD Mop-Up Exercise”.

The International investigative report’s open-source research showed that President Weah mandated an Economic Management Team chaired by the Finance and Development Planning Minister Samuel Tweah and the CBL to implement the USD Mop-Up Exercise, and it was noted that the CBL said the USD Mop-Up Exercise involved CBL Banking Department representatives who are 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.

The report by the Kroll Associates, Inc. Powered by the USAID 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.

Kroll has 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.

The   Kroll investigation noticed discrepancies in Mopping Up Excess Liquidity.  Kroll who also reported on the controversial US$25m ordered from the country’s reserve to mop up excess liquidity from the Liberian money market: “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.

n 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 told the Kroll auditing firm that the USD Mop-Up Exercise involved CBL Banking Department representatives undertaking the physical purchase of LRD banknotes from local businesses. The Central Bank indicated that to Kroll & Associates that foreign exchange bureaus benefited from the exercise, with the seller being reimbursed for the value of purchased Liberian banknotes with new USD banknotes, although  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.

 

PIT- TC Account of Mop-Up

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.

Reports in the local media have quoted Minister Tweah as saying that the money put out by government to absorb excess liquidity of Liberian dollars on the market was given to money exchangers and related petty unregistered financial institutions, which explanation was shredded by robust public criticism.

The Presidential Investigation Team – Technical Committee in its report states that “Given the many discrepancies noted in the manner in which the mop-up exercise was conducted in relation to the infusion of the US$25 Million into the Liberian economy and the scope, time and financial resource limitations encountered by the PIT-TC, the investigation recommends that the TEMT and the Central Bank of Liberia put a halt to the exercise, and that a forensic investigation of the entire mop-up exercise be conducted without any delay.

The PIT-TC in Section 2.15 of its report explained that as of October 16th, 2018, the Central Bank of Liberia sold a total of US$14 million in exchange for a total of L$2,151,363,898.00 between the periods of July 17, 2018 to September 18, 2018.

“The technical team of the Economic Management Team (TEMT) did not have a clear strategy and the Central Bank of Liberia deviated from conventional best practice which calls for the use of legitimate banking institutions (commercial banks) and licensed foreign exchange bureau of SALE AUCTION,” the PIT-TC contended.

The government’s investigative committee furthered discovered that the TEMT and the Central Bank of Liberia carried out the sale of US Dollars directly to foreign exchange bureau and businesses in the marketplace.

The investigative team of the government maintained that there were no standard criteria set for the participation of foreign exchange bureaus and businesses in terms of their legitimacy (e.g. duly registered and/or tax compliance, etc.) nor due diligence associated with the direct sale in the marketplace, adding that the principle of Know Your Customer (KYC) was not observed throughout the mopped up exercise.

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.”

 

Kroll’s analysis-Vs-PIT-TC Recommendation

As the PIT-TC, the Liberian Government probe team calls for halt of the Mop-Up exercise, the Kroll& Associate’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.

Instead, Liberian dollar 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.

The approach taken by the CBL to implement the USD Mop-Up Exercise, whereby small teams of bank personnel directly purchased Liberian dollar banknotes from local businesses and foreign exchange bureaus in exchange for USD notes created an enhanced level of risk with respect to for purposes.

These purposes include potential misappropriation of banknotes, potential opportunities for money laundering and 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.

It is not clear whether President Weah would muster the final course to implement recommendations from the investigations, particularly as it relates to the US$25m which he ordered himself and handled by his trusted men.

Some pundits have been talking about the impossibility of doing so as requested by the investigative because for two reasons—first that the process is still ongoing in the face of the continued depreciation of the Liberia dollar against the US Dollar and second because the involved with the process are pretty seated in the kitchen cabinet of the President.

There are some analysts who have however warned against shield ‘sacred cows” in his attempt to bring logical conclusion to the money saga because it could undermine is fight against corruption and raise public dissent against his young government.

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