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Asset freeze on Libyan wealth fund at least keeps it safe

Smart sanctions may well put the Libyan people’s money at risk

Libyan-Investment-Authority man in bank in Libya Reuters/Ayman al-Sahili
A man withdraws money from a bank employee in Misrata, Libya, earlier this month. The funds of the Libyan Investment Authority have been frozen for 13 years

In October it will be 13 years since the final downfall of the Gaddafi regime in Libya, and 13 years since the Libyan Investment Authority became the object of international sanctions.

In that time it is only London lawyers – certainly not the Libyan people – who have been the main beneficiaries of the fund’s considerable resources.

The $68 billion fund, plagued by questionable management and opaque structures, was founded in 2006 under the Gaddafi regime. It is a victim of the civil war that keeps Libya country divided. 

In 2011, in the days following the start of the revolution that toppled Gaddafi, the UN Security Council issued resolution 1970. This imposed sanctions on the Libyan Investment Authority (LIA), primarily to prevent the regime from gaining access to its funds.  

In September of that year, after the Gaddafi regime collapsed, the security council refined the sanctions, maintaining a freeze on the LIA’s assets.  

The hope was that a stable, elected government could be established. The asset freeze was highly unusual for the UN, because it aimed to help rather than hinder its target. Its aim was to prevent misappropriation and misuse of assets by politicians and management during a period of political uncertainty.

After 2014 it became difficult to judge who was in charge in Libya. Battles developed over most of the leading state institutions such as the Central Bank of Libya, the National Oil Corporation and the Libyan Post, Telecommunications and Information Technology company. 

The LIA was not immune from the infighting. This led to court cases in the UK, with four parties each claiming to be the chairman of the LIA. 

In 2020 an English court decided in favour of Ali Mahmoud Hassan, although that decision has subsequently been thrown into doubt by Libyan courts.

The litigation in the UK proved hugely costly. As a result of the disputed chairmanship, a receiver and manager were appointed. Money was paid out from these funds to the different law firms acting for the individuals who claimed to be chairman. 

The official Audit Bureau of Libya has found that between July 2015 and December 2021 almost $424 million was distributed for legal fees and related costs.  

For the most part, this has achieved nothing. Millions of dollars of the Libyan people’s money has been wasted on expensive London lawyers for little or no benefit to Libya.

In 2019 Ali Mahmoud Hassan was arrested on corruption charges by the authorities in Libya. In 2022 a warrant for his arrest was issued in Belgium as part of a criminal investigation into embezzlement and money-laundering involving €2 billion of frozen funds belonging to the LIA. 

The LIA operates an opaque and unwieldy structure, with more than 500 subsidiary companies. Some of these pay additional remuneration to the directors of the LIA, a conflict of interest that is contrary to Libyan law. 

A large proportion of the LIA’s total value is held via subsidiary companies, so that, to be meaningful, the LIA’s financial statements need to include the subsidiaries.  

In September 2023 the UN Panel of Experts on Libya stated: “The Libyan Investment Authority cannot comply with the International Financial Reporting Standards because it is not in a position to deliver consolidated financial statements. 

“The Authority’s relation to its subsidiaries continues to be problematic with regard to the implementation of the asset freeze measure, and a conflict of interest among its management increases the risk of diversion of assets.”

Because of weak management and poor accounting, the LIA has had to employ an outside firm, Deloitte, to estimate the value of its assets. At the end of 2019, Deloitte said that these were worth $68 billion.  

This included substantial cash balances in Libyan dinars, which will have lost much of their value after 2019 as a result of the devaluation of the Libyan currency.  

The LIA claims that it has lost more than $4 billion as a direct result of the sanctions imposed in February 2011. It has repeatedly asked the UN Sanctions Committee to permit a “smart sanctions” regime, under which the LIA would be able to manage the proceeds of investments that have matured and are currently held in cash.  

The history of the LIA, combined with the current question marks over conflicts of interest, the lack of consolidated accounts and indeed the lack of basic supporting reports needed for proper financial statements, suggest that smart sanctions may well put the Libyan people’s money at risk, and that the current asset freeze, although onerous, has helped to keep the assets safe for the future.

Salem Maiar is a consultant in Libyan natural resources, finances and geopolitics

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