An Overview of Law No.1 of 2013 Regarding the Prohibition of Interest-Based Transactions In Libya
There is no dispute on the inviolability of riba “usury” and no opposition to the enactment of a Law prohibiting usury, if on professional and practical terms. The ongoing discussions regarding the application of the Law have become a real concern for companies and banks, given the workforce potential and practical capabilities currently available in Libya. The time required for its implementation should have been taken into consideration when enacting the law in a way that does not prejudice existing interests and stable legal statuses, especially with the Law having approved the immediate and retroactive applications of its provisions, i.e., from the start of 2013 for natural persons and the beginning of 2015 between legal persons.
The questions that arise and should be addressed to the Libyan Legislator are; Were the circumstances/status of the Banks and Companies operating in Libya even taken into thought? And if the capability and impact of the Libyan Economic System in general and the Banking System in particular in carrying out such a reform within the period granted were considered? , Which will and have suffered unsecured financial losses.
A Law that will expose the Libyan State’s money to a fundamental legal problem as any revenues acquired from interests is, in the eyes of the Law, illegal amounts and money attained from the crime of dealing with usury; these amounts will also include the funds not yet due, due to the retroactivity of the Law itself on the past. This is, of course, a loophole on which foreign countries or institutions may base their claims to deprive Libya of the benefits of its funds deposited abroad, especially those of the Central Bank, the Libyan Investment Authority, and the Libyan Foreign Bank, as well as the rights of the National Oil Corporation.
Let’s look at Islamic Countries such as Malaysia and Bahrain, even though they are ahead in building a base for dealing with Islamic Financial Instruments by two or more decades. They still adopt both traditional and Islamic Banking Systems, which is why Libya should adopt the same approach, mainly as it lacks the cadres and financial tools for such modernization or legislative reform.
The process of passing this Law by show of hands in 2013 and on-air explains the dimensions and background of the existence of this Law, which did not take into account the negative effects of the application, particularly the economic effects on State Institutions.
In other words, the funds of; the Central Bank of Libya, estimated at 100 Billion USD, the Libyan Investment Authority, estimated at 15 Billion USD, deposited at the Central Bank of Libya, 3 Billion in deposits called Fixed income, and 5 Billion USD between so-called derivatives, swaps, and options, all rely on an international interest rate system that generates revenues, especially the finds of the Central Bank of Libya, and the Libyan Foreign Bank.
The question that arises is. What is the legal adjustment of these interests in riba-based transactions-i.e., profits- for deposits and investments dependent on the investment and financial categories referred to in Law No.1 of 2012? Are they Illegal? Do they consist of a crime? If so, the legal offense would be borne by these institutions, represented by their chairman and boards of directors, with criminal convictions, and the Public Prosecution headed by the Office of Attorney General shall need to file a criminal case against them. This issue will become more complicated if the view of the “Mufti” in the State of Libya is taken, who may not be aware that Libya’s money returning from oil is invested mainly through the Central Bank, the Foreign Bank, and the Libyan Investment Authority with an interest-rate system.
The foreign party, whether a Bank or an Investment Fund, may claim against the payment of such profits to the Libyan Institutions building on the fact that these institutions are based in Libya and were established according to the Libyan Laws-even with an agreement on the validity of another Law on the contracts – considering it to be a breach of Law, since the payment of interests is considered a crime; the Law was enacted retroactively. The limitation periods in criminal cases do not apply in Libya.
The problem is compounded by the inconsistency between the validity of Law No.7 of 2015 issued by the House of Representatives on postponing the entry into force of Law No.1 of 2013 for five years until 2020 and the Supreme Court Ruling of 2014 on revoking the 11th paragraph of the 7th amendment to the constitutional declaration of 2011, with no enough clarification from the Supreme Court ruling No. 6-467 dated 16-06-2019, on the enforceability and application of these Laws. However, in this ruling, the Libyan Supreme Court seems to be accepting only law no.1 of 2013 to be in enforce as well as permits to carry on with a ‘delay fine’ under article 229 of the Libyan civil code without being forbidden by law no.1 of 2013, as an interest. All in the light of the Constitutional Vacuum, the ongoing political divide, and the non-completion of the terms of the Political Agreement.
Where do we stand before the Law and Sharia concerning Libya’s Foreign Funds?