WASHINGTON — Although Libya's government and state oil sector are the targets of global sanctions, the U.S. Treasury Department has exempted from them a financial institution that's almost 60 percent owned by the Libyan Central Bank. The Treasury Department on March 4 granted the Arab Banking Corporation an exemption to President Barack Obama's executive order authorizing sanctions on Libyan businesses. Last December, the Libyan central bank upped its ownership stake in that bank to 59.3 percent.
"It is business as usual at Arab Banking Corporation," the Bahrain-based bank says on its website in a bulletin published on March 6. The note states that the company is regulated in Bahrain_ a U.S. ally in the Persian Gulf — and that the Kuwait Investment Authority, the overseas investment arm of the Kuwaiti government, another U.S. ally — owns a 29.6 percent stake in the bank.
The exemption from sanctions angered Sen. Bernie Sanders, an independent from Vermont and frequent critic of the Federal Reserve. In a Thursday letter sent to Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner, Sanders alleged that the exemption "raises a number of critical questions" and suggested it might be aiding the regime of strongman Moammar Gadhafi.
"Why would the U.S. government exempt the Arab Banking Corporation from economic sanctions when it is primarily owned by the Central Bank of Libya? How many U.S. Treasury securities does the Arab Banking Corporation currently own?" Sanders asked in the letter. "How much money has the Federal Reserve lent to the Arab Banking Corporation since December 1, 2010?"
One reason Sanders asked about Fed lending to the bank is that data released as part of last year's legislation that revamped financial regulation showed that the Fed provided it at least 45 emergency low-interest loans during the U.S. financial crisis in 2007 and 2008. At that time, Libya's central bank had a one-third stake in Arab Banking Corporation, and the Fed was lending to foreign and domestic banks alike to try to stabilize the global financial system.
Fed officials had no immediate response to the Sanders letter, released late Thursday. A Treasury Department official, requesting anonymity in order to speak freely, said that the exemption sought to prevent "undo disruption to third-party commerce."
While Libya's central bank retains its majority ownership stake, the Arab Banking Corporation cannot do business with any Libyan government institution, the Treasury official said, and the central bank can't liquidate its stake since it has been sanctioned by the United States and European Union.
