The Bahrain-based Arab Financial Services (AFS) has become the latest regional financial institution to be identified as a specially designated national (SDN) of the Libyan government by the US Treasury Department. According to a directive issued by the department’s Office of Foreign Assets Control (OFAC) on 17 December, the region’s leading issuer of travellers cheques has therefore become subject to the US embargo and asset freeze instituted against Libya by former US president Ronald Reagan in 1986.

The OFAC action forced AFS to suspend on 20 December its dollar traveller cheque operations and its corporate charge card, which is also dollar denominated. Some respite for the company came on 4 January when it was announced that Visa International had received a special licence from the US authorities, allowing AFS dollar traveller cheques issued before 20 December to be honoured. The Visa format is used on the company’s travellers cheques.

The US treasury announcement came as a surprise to both AFS and the regional banking community. According to the company’s 1992 annual report, the most recent to be issued, direct Libyan shareholding in AFS amounts to only 11.26 per cent; Libyan Arab Foreign Bank holds an 8.26 per cent stake and Libyan Arab Foreign Investment Company (Lafico) 3 per cent. Tripoli also has an indirect share through AFS’ largest shareholder, the Bahrain- based Arab Banking Corporation, and the Abu Dhabi-based Arab Bank for Investment & Foreign Trade (Arbift – see below). The number of AFS board members representing Libyan interests has declined to three from four in the past 12 months. ABC president and chief executive Abdulla A Saudi is AFS chairman.

The action has again raised the question of what constitutes Libyan ownership in a particular institution or company. ‘Does it mean any organisation in which Tripoli holds a minority stake?’ says one financial source. ‘If it does, then how does this square with the fact that a company may be 70-80 per cent owned by non-Libyan interests?’

Sources close to AFS say that officials are making representations to OFAC to clarify the situation. In addition, the Bahrain Monetary Agency (BMA – central bank), which has defended the company, is reported to be addressing the problem.