[allAfrica.com]  [Africa_2004]


New UN Panel Report Out

The Analyst (Monrovia)
ANALYSIS
December 20, 2004
Posted to the web December 20, 2004

-Found NTGL Incapable Of Basic Reforms
-Records Rampant Financial Impropriety
Pursuant to Resolution 1549 (2004) on Liberia, the United Security Council
established a Panel of Experts to "assess compliance with sanctions imposed on
arms, diamonds, timber, and the travel of individuals, as designated by the
Committee, who are deemed a threat to lasting peace in the region; sources of
financing, such as from natural resources, for the illicit trade of arms; steps
by the National Transitional Government of Liberia (NTGL) to establish an
effective Certificate of Origin regime for diamonds consistent with the
Kimberley Process; steps by the NTGL to establish control over timber producing
areas and to ensure that government revenues are not used to fuel conflict but
for legitimate purposes for the benefit of Liberians; observations and
recommendations, including, inter alia, how to minimize any humanitarian and
socio-economic impact of the above sanctions; and, assess compliance with the
freezing of all financial assets and economic resources owned or controlled by
Charles Taylor and his associates, as designated by resolution 1532 (2004)."
Having worked in Liberia and concluded its assessment between August and
November 2004, the Panel has finally presented its findings to the UNSC for
debate and decision. The Analyst's Staff Writer brings you major highlights of
the Panel's findings.
Humanitarian Situation
"As Liberia struggles to recover from the repercussions of a protracted civil
war, the majority of its citizens continue to suffer a great deal from a
dysfunctional economy, characterized by widespread financial improprieties by
government officials, extremely low economic growth, a high foreign and
domestic debt burden, and soaring unemployment estimated at over 80%," said the
UN Panel of Experts in its comment on the humanitarian and socio-economic
status of Liberia one year into transitional rule.
According to the report released on December 8, 2004, the soaring unemployment
and the decline in subsistence agricultural activities, causing food shortages
in the rural communities have all contributed to a situation whereby the coping
mechanisms of Liberia's poor remain drastically undermined.
"The ongoing return of thousands of Liberians from asylum, corresponding with a
growing influx of refugees fleeing from the deteriorating political and
security situation in neighboring Ivory Coast threaten to overburden an already
dire humanitarian situation in rural Liberia," the Panel of Experts which
consisted of a timber expert, Arthur Blundell (Canada); a civil aviation
expert, Atabou Bodian (Senegal); an expert with Interpol investigative and arms
experience, Damien Callamand (France); a diamond expert, Caspar Fithen (United
Kingdom of Great Britain and Northern Ireland); and an expert on humanitarian
and socio-economic aspects, Tommy Garnett (Sierra Leone). Mr. Bodian was
designated as the Chairman of the Panel. Assistance on financial matters was
provided by a consultant, Rajiva Sinha (India) noted further.
Illicit Mining In Nimba, Lofa counties
The reports said even though the NTGL continues to demonstrate commitment
towards satisfying the requirements of the United Nations Security Council
necessary for the lifting of the current embargo on the export of Liberian
rough diamonds, its efforts remain hampered by a lack of funding to complete
the Kimberley Certification Scheme process and institutional capacity to stop
the uncontrolled and oftentimes illegal mining of diamond in rural Liberia..
While some of this mining is licensed by the Ministry of Lands, Mines and
Energy, according to the report, much of it is illegal, and recent reports
indicate that production from these mines is being smuggled on to the
international market via neighboring countries.
"Given that former combatants are now returning to the rural areas in search of
work, and the fact that the government lacks the functional capacity to control
illegal mining, violations of the United Nations Security Council embargo on
the export of Liberian diamonds are set to increase in the short to medium
terms," the Panel report emphasized.
It said there were active mining activities ongoing in Gbapa and Bahn in Nimba
County, along the Lofa River between Weisua and Lofa Bridge, and in Cape Mount,
Bomi, and Gbarpolu counties.
"The site at Gbapa identified by the Panel in its September interim report is
now highly developed and constitutes a sizeable, 'Class B' alluvial diamond
mine. The Panel made a ground visit to the site in late October. By then the
laterite overburden had been complexly removed and a number of deep, well cut
pits had been sunk up to 15 metres down to the underlying layer of alluvial
gravel. Significant quantities of gravel had been extracted which were in the
process of being sieved and concentrated in a well structured washing facility
located close to the mine.
At least five wide-bore water pumps were being used to keep water levels in the
pits to a minimum in order to enable at least 150 diggers to continue to work
efficiently. The mine is run by a company called 'Jungle Waters', owned by a
local businessman, which used a D6 caterpillar earthmover to cut a 3 kilometer
road into the surrounding bush to open up the site," the Panel noted.
It said when it informed the Ministry of Lands, Mines and Energy of this
development immediately after the ground assessment was made, the ministry
promised to take immediate action to curtail the operation but that that did
not happen because the mine owner argued that he is in possession of a valid
mining license and claimed that any diamonds extracted from the site will be
kept in a safe until such time as the United Nations embargo on the export of
rough diamonds is lifted.
Even though the Panel conceded that it found no concrete evidence of the
diamonds being extracted, it is convinced that so much money must be exchanging
hands between the miners, dealers and exporters both inside Liberia and Sierra
Leone where the Kimberly Certification Scheme has matured and could be abused
for handsome fees to export diamonds illegally through either Sierra Leone or
Guinea, or directly to Europe or the Middle East.
Impotence or Lack of Political Will?
As late as November 11, 2004, according to the Panel, mining was still ongoing
with the authority unable to do anything to protect the nation's resources.
"The Panel had hoped that, at the very least, the operation may have been
scaled down after intervention by the Ministry of Lands, Mines and Energy. As
such, an aerial survey of the mine was undertaken on November 11. However, it
was found that mining at the site was continuing apace, indicating that the
Ministry of Lands, Mines and Energy is currently finding it extremely difficult
to assert any degree of control over the diamond industry in the interior.
Moreover, national political machinations may well be providing the owners of
some of the bigger mines with a degree of protection from government action or
investigation," the Panel noted.
The Panel said it discovered during investigations that the owner of the Gbapa
mine was also running another large mine close to Bahn, about 8 kilometers to
the south of Gbapa.
Other areas where mining was actively ongoing are the Lofa River basin between
Weisua and Lofa Bridge.
"Around 16 medium sized alluvial mines were identified and photographed. A
number were serviced by either one or two water pumps and were mostly mined by
between 15-20 diggers," said the Panel's report, adding, "Many of these
diamonds are passing through Sierra Leone, particularly those which bear the
characteristics of goods originating from the Kamakwie region in northern
Sierra Leone."
UN Assistance, But Meanwhile notwithstanding the flagrant violation of its
mandate on diamond trade, the United States has expressed an interest in
providing some of the funding required by the Government of Liberia for the
acquisition of equipment and the establishment of those bureaucratic structures
necessary for full Kimberley compliancy.
But noted the Panel: "However, the Government of Liberia has yet to produce an
accurate costing of its needs for achieving full Kimberley compliancy. While it
has produced lists of equipment and outlines of necessary infrastructural
development, it appears to be experiencing difficulty in achieving an actual,
accurate financial costing of its outstanding requirements.
The Government of Liberia is however close to reaching an agreement with an
international consultancy company that would conduct independent valuations of
diamonds for export duty purposes, according to the Panel.
In order to assist remedying its weakness in terms of finance and security, the
Panel recommends, "that UNMIL be given the authority to assist the Government
of Liberia in asserting its control over its diamond producing regions until
such time as Liberia is ready to participate in the Kimberley Process and
United Nations sanctions are lifted. UNAMSIL gave similar assistance to the
Government of Sierra Leone as part of its successful attempts to legitimize and
assert its control over the diamond industry of that country."
Financial Mismanagement
"The first full year budget of the NTGL did not give any sign of macro-
economic policy orientation. NTGL has misplaced priorities in the budget with
52% allocations for personnel expenditure and 15% for Security Service Sector,
at a period when UNMIL is primarily responsible for national security, instead
of allocations for health, education, water, and roads," says the Panel's
report.
The Panel which said it verified its information through what it called "high
evidentiary standards" noted that the NTGL has not yet prepared the accounts
for the previous two budgets.
"Between February [and] June 2004, the Ministry of Finance allowed excess
expenditure of US$8.6 million without any allotments from the Bureau of
Budgets.
Neither was any supplementary budget prepared nor any approval of the NTLA
obtained. There were large variations between the purposes for which amounts
were sanctioned by the Legislative Assembly and the purposes for which the
funds were actually spent," the reports say.
Leaking Revenues
"In addition to unapproved excess spending, it appears that the NTGL is
tolerating substantial leakage of revenue. The Panel documented three major
sources: loss of customs duties, loss of taxation on petroleum imports, and
loss of revenue from the sale of iron ore," the Panel noted, adding that most
of the revenue generating parastatals/units have not been audited, adding that
the prime instrument of accountability in the government - the office of the
Auditor General - has been made ineffective by restricting the funds and other
resources by successive governments.
Quoting NTGL's Governance Reforms Commission (GRC) the Panel disclosed that the
NTGL had accorded misplaced priorities in the 2004/2005 budget with 52% of
allocations for personnel expenditures and 15% for the Security Service Sector-
despite UNMIL being primarily responsible for national security.
The GRC noted, according to the report that the security allocation could have
been reduced by at least 50%, and the money allocated instead for social
services such as health, education, water, and roads.
"Further, the budget appears unrealistic with respect to expected revenue. In
the last five years, revenue of the Government of Liberia has never exceeded
$85 million, even when there were no sanctions on export of timber and
diamonds. For July 2004 - June 2005, the NTGL has estimated revenue of US$ 80
million, largely on the buoyant revenue collections during the last budgetary
period February - June 2004," it notes.
Customs duties The report said even though the government of Liberia has a
contract with BIVAC to inspect goods into the country, such inspection have
been severely restricted due to a variety of exemptions and waivers given to
two-thirds of the traffic at the Freeport of Monrovia.
"Among the major items for imports that have been granted exemptions: rice,
vehicles and petroleum products. As regards exports, all rubber and iron ore
exports continue to have exemptions. Not only is this a loss in tax revenue,
but it is an international security concern as these un-inspected containers
could be carrying any cargo," the Panel said.
On account of its suspension, the Panel noted, it tried in vain to obtain
copies of contracts for import of rice and vehicles, and the export of rubber
and iron ore from the Ministry of Commerce, Ministry of Land, Mines and Energy
and the General Supply Agency.
"The NTGL has suffered a large loss in revenue between March - June 2004 due to
reduction of sales and turnover tax (cumulative 19 cents per gallon) on the
import petrol and diesel, despite a rise in price of only 8 cents per gallon
Furthermore, oil importers were given undue benefit of at least $1 million when
their margins were increased from 9 cents to 25 cents per gallon... This
benefit was granted even though LPRC had not assessed the importers losses,"
the report noted.
Sale of Iron Ore
"Although the international price of ore of similar quality, i.e., more than
64% iron (Fe) content, was in excess of $40 per metric ton (MT), the NTGL sold
700,000 MT in January 2004 to Shandong, a Chinese company, for $10 per MT. In
addition to the low price, all taxes and duties were waived," the Panels said
of the iron deal which the NTGL has denied.
An examination of the contract indicates that no transparent tendering system
was followed, and the initial proceeds from the sale of the iron ore were not
deposited in the CBL, as prescribed by Executive Order No. 2.
Lack Of Government Accounts
"The Panel reiterates earlier findings that the financial data supplied by
government agencies is not necessarily accurate or reliable. The Ministry of
Finance has not been audited by any independent agency. Further, the NTGL has
not prepared the accounts for the previous two budgets (October 2003 - January
2004 and February - June 2004). Thus, it is impossible for a reader to compare
the actual receipts with that of projected revenues and actual expenditures
against allocations made in the budget approved by the NTLA. This is a
significant flaw in the internal financial control system of the NTGL and must
be rectified immediately," the Panel said.
An example of the flaw, according to the Panel, is that even though the
Liberian International Ship & Corporate Registry (LISCR) transferred
US$11.34 million to the Government of Liberia on account of tonnage taxes,
corporate fees and registration and name change fees between October 2003 -
October 2004, the annual accounts of the registry has not been audited since
2001.
Substantial excess expenditure during February-June 2004 "Despite the lack of
audits, there is evidence of insufficient control over government finances,"
said the report.
The report also noted: "According to the budget performance report (BPR)
submitted by the Chairman of the NTGL to the NTLA, between February - June 2004
the NTGL spent $23.1 million against revenue of $29.2 million.
"Accordingly, the BPR claimed a surplus of $6.1 million and stated that the
surplus would be carried to the next fiscal year. In fact, the surplus should
have been even greater ($8.6 million), because the BPR stated that only $20.1
million in expenditures were allocated. That is, the various ministries/
agencies spent $2.5 million without any allotments from the Bureau of the
Budget (BOB). Normally, no expenditure should be made without issue of an
allotment." It observed that in fact, a surplus of US$8.6 million does not
exist, nor even $6.1 million.
"Analysis of the Ministry of Finance consolidated revenue and expenditure
statement for February to June 2004 indicates that the BPR's expenditure of
$23.1 million is incorrect. Actual expenditures were $29.2 million. It appears
that the Ministry of Finance, which is under the control of LURD, ordered
increased expenditures of $8.6 million, nearly one-third of total expenditures,
without issue of an allotment letter from BOB, and perhaps without even
informing the Chairman of the NTGL. No supplementary budget was prepared and no
approval of the NTLA was obtained prior to the increased spending. In the
absence of any economic plan, it is not clear how priorities were fixed at the
time of distribution of funds among the departments and which authority/agency
took upon itself the role of the NTLA. It is further not clear from the
financial statements whether all departments exceeded their budgetary
allotments or only few departments," it said.
According to the report, foreign travel was more than ten times budgetary
estimates. Thus, there was no semblance of budgetary control in the functioning
of the National Transitional Government of Liberia.
Off Budget Borrowings
"In addition to these unallocated expenses, the Panel investigated several
instances of transactions that were neither reflected in the budget of the NTGL
nor in the revenue and expenditure statement furnished by the Ministry of
Finance," the Panel said.
It then disclosed that in July 2004 the NTGL borrowed $3 million from the
Central Bank of Liberia without making any disclosure about the transaction.
"The Government continued the practice of Taylor regime of entering into
transactions with private individuals for off-budget borrowings. On behalf of
the NTGL, in April 2004, George Haddad paid $225,000 to FIDC to revoke their
contractual rights to the abandoned iron ore in Buchanan. This allowed the NTGL
to sell the ore the FDA obtained vehicles from Africa Motors and Prestige
Motors on credit. The Ministry of Finance continues to adjust the $10 million
loan made in 1998 by the Taylor Government with West Oil businessman Basma. In
addition, under past administrations, the Government of Liberia obtained loans
and debts from various multilateral agencies, such as the World Bank, IMF, ADB,
USA, EU, and other countries, and this debt is estimated to be $3.5 billion,"
it noted.
Panel's Recommendations
Based on the above, the Panel has recommended the repeal of the 1972 law to
make the office of the Auditor General an autonomous body reporting directly to
the National Assembly; that the accounts of the Registry for the years 2001,
2002 & 2003 should be audited so that the revenues received from the
registry could be matched with the funds accounted by the NTGL.
The Panel also recommended that a thorough inquiry by an independent agency be
conducted to determine a) how money was withdrawn from the Government accounts
without proper allotment letters from BOB, and b) which departments were
involved, which authorities spent in excess of budgetary allocations, and the
basis on which the funds were allotted. This is necessary to prevent the
recurrence of such expenditures in the future.
More than that, the report called for the review of concessionaire involvement
in Liberian politics, review concession contract for application of revocation
clauses (without getting into field verification), examine concessionaire
compliance with community obligations under the concession contract (mainly
accounting evidence of compliance with education and health obligations),
examine concessionaire compliance with financial obligations, and examine
concessionaire compliance with applicable labor laws (mainly payroll as per
accounting books).
Meanwhile, the Panel has discovered that despite encouraging economic
projections by various institutions, including the IMF in early 2004, the vast
majority of Liberians remain poverty stricken as the country still faces
monumental development challenges related to: weak and disunited institutions
of governance, human rights and the rule of law; destroyed capital and social
infrastructure; national and sub-regional insecurity; increasing prevalence of
HIV/AIDS; slow pace of economic and social reforms; unfavorable environment for
private sector development; resettlement of IDPs, returnees and refugees; and
United Nations sanctions on diamond and timber exports, according to the Panel,
most officials of NTGL

   

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