The Libyan government signed an agreement Wednesday setting up a $2.7 billion fund for families of the 270 victims of the 1988 Pan Am bombing — a key step to lifting U.N. sanctions against Libya.

The agreement setting up an escrow account at the Bank for International Settlements in Switzerland was reached after an 11-hour session in London. The bank, which is headquartered in Basel, Switzerland, and known as the BIS, confirmed earlier Wednesday it was asked to manage an escrow account “from which claimants will be compensated.” Libya will pay up to $10 million for each victim, lawyers have said.

Under the deal, U.N. diplomats said the Libyan government would start transferring the $2.7 billion into theescrow account immediately and complete the transaction Thursday.

The Libyan government then would send a letter to the Security Council saying it met the conditions for lifting sanctions — by taking responsibility for the bombing, renouncing terrorism and paying compensation to the families, the diplomats said.

The United States and Britain also would send letters to the council saying they believe Libya has met the requirements to have sanctions lifted and Britain would circulate a draft resolution doing so, the diplomats said.

Friday is the target date for sending the letters, circulating the draft resolution and holding a meeting at the State Department with victims’ families, the diplomats said.

The compensation deal calls for Libya to pay each victim’s family $4 million when U.N. sanctions against Libya are lifted, another $4 million when the United States lifts its own sanctions against the country, and $2 million when Libya is removed from the State Department’s list of countries sponsoring terrorism, said Mark Zaid, an attorney representing more than 50 relatives of victims.

After Libya deposits the money in Switzerland and sends its letter to the Security Council, “we expect the U.N. Security Council to enter a resolution lifting the U.N. sanctions against Libya which will trigger the payment of $4 million per case to our New York trust account,” Kreindler and Pounian said in their e-mail to family members.

A Security Council resolution passed in 1992 banned arms sales and air links to Libya to try to force Gadhafi’s government to hand over two Libyans indicted for the Pan Am bombing over Lockerbie, Scotland. After the men were handed over for trial in April 1999, the council suspended sanctions indefinitely.

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