Rogue Bank – CBL Lied, Over Printed, Hid Money & Overpaid

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    The United States government’s sponsored investigation into allegations regarding the disappearance of $15billion Liberian dollar leaves the Central Bank of Liberia’s image destroyed as a rogue entity that used systematic schemes to undermine the Liberian economy. Its handling of the printing of new currency was fraught with anomalies and the 2018 US$25million “mop-up” exercise flawed and lacking accountability.

     The Report

    Kroll has identified discrepancies at every stage of the process for controlling the movement of banknotes into and out of the CBL during the Independent Review, including: the Legislature 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’s Independent Review has identified the following key findings, based on the documents provided during the scoping phase of work:

    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.

    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.

    Legislature 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.

    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.

    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 the CBL paid Crane AB for new banknotes totaling LRD 15.506 billion. However, delivery

    Review 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.

    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)3 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.

    The aforementioned key findings are summarized in more detail in the subsequent sections below.

    3.2 Summary of key findings

    3.2.1 Discrepancies in Legislature approval and Contract approval for new banknotes

    Legislature approval for new banknotes totaling LRD 5.0 billion

    On May 17, 2016 the Legislature granted approval for the CBL to print new banknotes totaling LRD 5.0 billion. The Legislature approval was provided in a document titled ‘Senate Resolution #002’.

    Senate Resolution #002 sets out the denominations, quantities and amounts of the new banknotes to be printed, and states that the printing of new banknotes was to “…address the acute shortage of Liberian Banknotes on the market and the corresponding financial crisis associated with it that could border on the national security of the country.”

    However, Kroll has established that the CBL entered into a contract with Crane AB on May 6, 2016 to print new banknotes totaling LRD 5.0 billion: eleven days prior to the CBL receiving full Legislature approval to print new banknotes.

    Legislature approval for new banknotes totaling LRD 10.0 billion

    Following on from the May 2016 Legislature approval to print new banknotes totaling LRD 5.0 billion, the CBL requested in May 2017 that the Legislature approve a second request to print new banknotes totaling LRD 10.0 billion.

    The Legislature did not grant approval for the CBL to print new banknotes totaling LRD 10.0 billion.

    Instead, a letter dated July 19, 2017 from Honorable Mildred Sayon, Chief Clerk of the House of Representatives, and Nanborlor Singbeh Sr., Secretary of the Senate, provided an instruction to the CBL to “…replace the legacy notes completely with newly printed banknotes” but with a clear caveat that the CBL provide the Legislature with details of the quantity and denominations of the new banknotes “…prior to the printing” of the new banknotes.

    The CBL did not provide the Legislature with details of the quantity and denominations of the new banknotes prior to the printing and shipping of new banknotes.

    Notwithstanding the lack of Legislature approval, the CBL proceeded to enter into a contract with Crane AB on June 12, 2017 to print new banknotes totaling LRD 10.0 billion: four weeks prior to the letter dated July 19, 2017 from the Legislature.

    3.2.2 Discrepancies in the CBL process to procure Crane AB

    Kroll was not provided with adequate supporting documentation to demonstrate that the CBL adhered to its internal tendering policies in the procurement of the external banknote manufacturer Crane AB.

    Despite CBL Management stating in Board of Governors meeting minutes that two other vendors also submitted proposals to print and supply new banknotes, Kroll has only been provided with limited email correspondence that does not demonstrate that either company had an opportunity to submit a formal proposal for services, and it appears that a competitive procurement process did not take place.

    CBL Management subsequently explained to Kroll that due to the urgency for new banknotes, the CBL did not follow its own internal tendering policies for the procurement of Crane AB. The explanation of urgency for new banknotes provided by CBL Management was inconsistent with letters sent several months prior to the initial procurement of Crane AB. A letter dated December 2015, sent by the then Executive Governor Joseph Mills Jones, and a letter dated February 2016, sent by the then Acting Executive Governor Charles Sirleaf, to the then President of Liberia, Ellen Johnson Sirleaf, set out that new banknotes were urgently required. Therefore it is possible that the CBL could have commenced preparations to complete a competitive procurement process several months before Crane AB was contracted to print new banknotes in May 2016.

    3.2.3 Discrepancies in quantity/value of new banknotes shipped by Crane AB to Liberia

    Kroll’s analysis of shipping documentation provided by Crane AB (i.e., those records detailing the physical movement of new banknotes from the point of manufacture in Sweden, to either the Freeport of Liberia or Roberts International Airport in Monrovia) has confirmed that the company ultimately printed new banknotes totaling LRD 15.506 billion: this equated to the over-printing of new banknotes totaling LRD 0.506 billion more than the contractually agreed quantity/value.

    The first contract in May 2016 for LRD 5.0 billion included a clause that permitted a fluctuation in the actual quantity of banknotes delivered of -/+1.5% for each denomination, subject to side letters being mutually agreed between the CBL and Crane AB. The actual overall variance in the quantity of banknotes shipped was 5.11%. No formal side letters were provided by Crane AB or the CBL to show that the over-printing of new banknotes was mutually agreed between the two parties.

    The second contract for LRD 10.0 billion did not have any fluctuation clause.

    Documentation shows that the CBL did pay for the printing of all new banknotes totaling LRD 15.506 billion.

    3.2.4 Discrepancies in quantity/value of new banknotes delivered to the CBL vaults

    The mandate for Kroll’s Independent Review was in part prompted by Liberian and international media reports covering the alleged disappearance of the new banknotes, which included allegations that a container of new banknotes shipped by Crane AB to Liberia and subsequently delivered from either the Freeport of Liberia or Roberts International Airport to the CBL was missing.

    Kroll’s analysis of delivery documentation provided by the CBL (i.e., those records detailing the physical movement of new banknotes from the Freeport of Liberia or Roberts International Airport to the CBL) records that new banknotes totaling LRD 15.506 billion were received at either the CBL Headquarters reserve vault (hereafter the “HQ Reserve Vault”) or at an additional reserve vault at the former National Housing and Savings Bank (hereafter the “Waterside Reserve Vault”).

    The CBL Internal Audit Department provided Kroll with delivery documentation in the form of CBL Internal Audit Memorandums (hereafter “IA Memorandums”) and appended Crane AB packing lists. The Crane AB packing lists were used by the CBL Internal Audit Department to reconcile the receipt of new banknotes from either the airport or seaport into the CBL reserve vaults.

    The IA Memorandums stated that Crane AB printed and shipped new banknotes totaling LRD 15.506 billion, yet the appended Crane AB packing lists provided to Kroll by the CBL indicated that Crane AB printed and shipped new banknotes totaling LRD 17.450 billion, a difference of LRD 1.944 billion. The issue specifically related to an IA Memorandum dated December 10, 2017 which stated new banknotes

    totaling LRD 1.173 billion were delivered to the CBL, whereas the appended Crane AB packing lists stated new banknotes totaling LRD 3.117 billion were shipped to the CBL, the same LRD 1.944 billion difference.

    The CBL Internal Audit Department subsequently explained that the Crane AB packing lists provided to Kroll were communicated by Crane AB in draft format for the purposes of preparing customs documentation. The CBL Internal Audit Department also stated that certain IA Memorandums may have included appended draft format Crane AB packing lists in error.

    The CBL Internal Audit Department commented that owing to a series of shipping delays in December 2017 the Crane AB packing lists provided to Kroll were therefore not reflective of the actual value of new banknotes delivered to the CBL which totaled LRD 15.506 billion. Crane AB has categorically stated that new banknotes totaling LRD 15.506 billion were printed and shipped to Liberia.

    As noted in Section 2.6, the overall accuracy and completeness of the CBL’s internal records was considered to be inadequate. Nonetheless, there was an inconsistency in shipping records provided by Crane AB stating that new banknotes totaling LRD 15.506 billion were shipped to Liberia, compared to the Crane AB packing lists appended to IA Memorandums provided to Kroll by the CBL, which indicated that new banknotes totaling LRD 17.450 billion were delivered to the CBL.

    3.2.5 Discrepancies in payments made by CBL for over-printing of new banknotes

    In December 2016 the CBL made a supplemental payment of       to Crane AB for the over- printing of 4,250,000 pieces of new banknotes for the first contract, equivalent to the contractual rate in relation to the original order (i.e.,   per banknote).4 It was not clear whether CBL Board of Governors or Legislature approval was required for the additional payment made by the CBL to Crane AB.

    In March 2018 the CBL made a payment of     to Crane AB for the over-printing of 2,730,000 new banknotes for the second contract.5 The supplemental payment for the over-printing of new banknotes for the second contract was calculated without deducting the cost of 750,000 new LRD 20 denominated banknotes which were not delivered to the CBL (contract quantity 50,000,000 banknotes, actual quantity printed 49,250,000 banknotes).

    The cost of printing 750,000 banknotes at the contractual rate (i.e.,         per banknote) was : this amount therefore represented an over-payment by the CBL to Crane AB.6 Again, it was

    not clear whether CBL Board of Governors or Legislature approval was required for the additional payment made by the CBL to Crane AB.

    3.2.6 Discrepancies in the intended purpose of new banknotes

    First contract for LRD 5.0 billion The first contract in May 2016 for LRD 5.0 billion received Legislature approval to address a shortage

    of LRD banknotes on the market, and for the new banknotes to be “infused” into the Liberian economy.

    As of December 2018, the CBL had circulated all of the new banknotes printed in relation to the first contract (including the over-printed new banknotes), of which LRD 3.759 billion had been injected into the Liberian economy without removing from circulation and destroying the equivalent quantity/value of legacy banknotes. Table 1 summarizes this information.

    Table 1: Summary of new banknotes from first contract for LRD 5.0 billion injected into economy

    Second contract for LRD 10.0 billion

    As of December 2018, the CBL had circulated LRD 9.302 billion (or 90%) of the new banknotes from the second contract for LRD 10.0 billion (including the over-printed new banknotes), of which LRD 6.387 billion had been injected into the Liberian economy without removing from circulation and destroying the equivalent quantity/value of legacy banknotes. Table 2 summarizes this information.

    Table 2: Summary of new banknotes from second contract for LRD 10.0 billion injected into economy

    Notwithstanding the lack of clear Legislature approval in 2017 to print new banknotes, the letter dated July 19, 2017 from the Legislature to the CBL stated that all legacy banknotes (whether mutilated or good-quality banknotes) should be replaced with new banknotes in the Liberian economy. The CBL reiterated this intended purpose in a Board of Governors resolution (‘Resolution No. BR-06-/2017’) which stated that “The Legislature has expressed to the CBL, through its letter dated July 19, 2017, its

    Description

    full consent for the printing and subsequent issuance of new L$ bank notes; the simultaneous replacement of all legacy L$ banknotes; and the introduction of L$ coins in lower denominations”.

    The CBL did not use all the new banknotes for the intended purpose of replacing all legacy banknotes with new banknotes.

    Therefore, new banknotes totaling LRD 6.387 billion from the second contract for LRD 10.0 billion were injected by the CBL into the Liberian economy without Legislature approval. Combined with the new banknotes totaling LRD 3.759 billion from the first contract injected by the CBL into the Liberian economy, it is possible that new banknotes totaling LRD 10.146 billion were injected into the Liberian economy in total.

    Despite repeated requests from Kroll, the CBL has not provided an explanation as to which individual(s) within the organization, or the Government of Liberia, approved the injection of the new banknotes into the Liberian economy, without effectively removing from circulation the equivalent quantity/value of legacy banknotes.

    Kroll has sought to obtain information from the CBL regarding the end recipient of the new banknotes (e.g., commercial banks, Liberian Ministries etc.) however the CBL has not been able to provide this information. Consequently, there is a risk that significant funds were (and remain) unaccounted for by the CBL, and Kroll therefore recommends that this matter merits further understanding.

    3.2.7 Discrepancies in relation to the USD “Mop-Up” Exercise

    In July 2018, President George Weah (hereafter “President 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 (hereafter the “USD Mop-Up Exercise”).7

    Kroll’s open-source research showed that President Weah mandated an Economic Management Team chaired by the Honorable Samuel Tweah, the Minister of Finance and Development Planning, and the CBL to implement the USD Mop-Up Exercise.

    The CBL advised Kroll 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.

    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.

    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.

    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.

    3.2.8 Discrepancies in Kroll and Internal Audit reconciliations of vault balances

    The CBL Headquarters house four vaults: the HQ Reserve Vault for storing new banknotes not yet put into circulation; and three operational vaults, for managing day to day requirements for banknotes.

    The process for maintaining documentation for the physical movement of new and legacy LRD denominated and USD denominated banknotes within the CBL were based on handwritten forms used to document banknotes into and out of the operational vaults, without checks and balances to independently verify accurate data entry.

    The issue was compounded by the CBL not having the specialist electronic systems in place to provide access to real-time management information (i.e., software that enabled the CBL to record and produce details of all financial transactions). Therefore, the process to record the movements of banknotes in and out of the operational vaults was susceptible to error and/or intentional falsification. As a result, key operational reports were not available without significant manual manipulation of data by the CBL Banking Department.

    Kroll has undertaken independent counts of the physical cash balances in each of the CBL’s three operational vaults. Kroll was unable to reconcile the quantity/value of legacy banknotes stored in the operational vaults with the CBL’s corresponding financial accounting records.