Libya Tribune

As factions face off in war-torn Libya, money slips through sanctions.

By Giulia Paravicini

Six years after Gaddafi’s death, his regime’s frozen funds in Brussels are generating tens of millions of euros in interest for mystery beneficiaries, despite international sanctions.

A POLITICO investigation into €16 billion of the Libyan dictator’s assets held in Belgium discovered big, regular outflows of stock dividends, bond income and interest payments.

Legal documents, bank statements, emails and dozens of interviews point to a loophole in the sanctions regime.

While Gaddafi’s wealth is meant to be held in trust for the Libyan people until the war-shattered country stabilizes, interest payments flowed from frozen accounts in Brussels to bank accounts in Luxembourg and Bahrain over recent years, documents reviewed by POLITICO show. Belgium’s finance ministry says such payments are legal.

The interest goes to accounts belonging to the Libyan Investment Authority (LIA), the country’s sovereign fund, which was founded in 2006 to invest Gaddafi’s oil wealth.

LIA now lies at the heart of a turf war between rival claimants in Libya, and it’s not clear who runs the agency or gets any of the funds sent to its accounts.

The Libyan Investment Authority’s funds are locked in at least four bank accounts managed by Euroclear, a financial institution headquartered in Brussels.

Following a NATO-led intervention that toppled Gaddafi, who died in October 2011, civil war has reduced Libya to a hydra-headed set of competing administrations governed by rival strongmen, in an environment still destabilized by Islamist militants.

Those divisions are mirrored in the battle to control LIA. Two groups purport to be the official government: a U.N.-backed one in Tripoli, and another in the eastern port of Tobruk, which is backed by the army. Both factions have appointed bosses of the sovereign fund.

To complicate matters further, there are two competing chairmen in Tripoli, who are locked in disputes over who is the legitimate chief.

POLITICO contacted the investment authority’s lawyers, consultants, a former head of LIA and current claimants to be its chairman. None was able to specify which, if any, of the rival claimants to LIA was able to access the millions in interest payments from Belgium.

International powerhouse

As anti-regime protests that started in Tunisia spread to Libya, Egypt and Syria — in a series of political upheavals across the region that came to be known as the Arab Spring — countries across the world, including the U.S. and the EU, froze the fund’s assets in accordance with a U.N. resolution in March 2011.

The U.N. sanctions targeted assets of the Gaddafi regime, including about $67 billion of LIA’s assets, primarily invested with banks and fund managers across Europe and North America.

An earlier package of measures in February had introduced an arms embargo and travel bans against prominent members of the regime.

In Europe, national governments are responsible for enforcing these sanctions. The 28 EU governments held a meeting in October 2011 that interpreted the sanctions as being applicable only to the original frozen assets, not the interest earned after September 2011.

Creditors across Europe ranging from Prince Laurent of Belgium, the king’s brother, to an Italian dairy company have unsuccessfully attempted to wrest back some of the money they say is owed to them by the Libyan state from LIA coffers.

Under Gaddafi’s rule, LIA (and its LAFICO subsidiary) had become a formidable international player and purchased assets in strategic companies, especially in Italy and Britain, including in the carmaker Fiat, the soccer club Juventus, Royal Bank of Scotland, and Pearson, the then publisher of the Financial Times.

The Libyan Investment Authority’s funds are locked in at least four bank accounts managed by Euroclear, a financial institution headquartered in Brussels.

According to copies of Euroclear statements from 2013 seen by POLITICO, the frozen funds invested in shares before 2011 had risen in value to €14 billion. Those stocks included holdings in big Italian companies such as the oil giant ENI, the bank Unicredit and the engineering company Finmeccanica, among others.

A further €2 billion was held in a current account, according to the statement reviewed by POLITICO that was dated November 29, 2013.

Interest windfalls

It is unclear whether other EU countries are allowing the interest to flow out as Belgium does, but officials linked to LIA said that interest flows from the fund’s assets around the world were frequent, and large.

Mohsen Derregia, who was appointed chief executive of LIA in 2012 and lasted a year in the post, confirmed in a telephone interview that interest flowed from Gaddafi’s frozen assets during his time at the helm.

He said the fund received about $630 million between April 2012 and April 2013, from the combined (supposedly frozen) assets around the world. He said that he could not specify how many of those millions came from Belgium.

He was fired from his post by the government in Tripoli of then Prime Minister Ali Zeidan in the spring of 2013, he said.

Abdul Magid Breish, who served as chairman of LIA from mid-2013 until June 2017, and still claims to be the legitimate head, also said that there was nothing illegal about interest payments.

Breish is now locked in legal battles to assert his claim to LIA after the Government of National Accord in Tripoli appointed its own chairman, Ali Hassan Mahmoud, in 2016.

While little has been resolved between the factions and violence still persists between militia on the ground in Libya, what is clear is that interest from LIA’s billions in Belgium is going to someone.

Belgium’s finance ministry insists that the interest payments are legal, and that no special authorization had to be given.

In an email exchange from the fall of 2013 between a Euroclear employee and the Belgian finance ministry, a Euroclear official writes that funds from these accounts had been “released” to an HSBC account in Luxembourg belonging to LIA and to several other LIA accounts at the Arab Banking Corporation, a bank headquartered in Bahrain, whose main shareholder is the Libyan Central Bank.

As part of that exchange, Philippe Cloetens, a compliance official at Euroclear, informed Belgian officials that interest and dividends worth €28 million covering a period of September 2011 to October 2013 had been credited to the HSBC account, and that funds would continue to be “released.” His email is dated December 6, 2013.

You should note that starting in December 2013, the interest received by this account will be released once a month, as is already the case for the three other accounts blocked,” Cloetens wrote in the email.

Another email from Cloetens to a Belgian finance ministry official dated October 24, 2012 said that interest payments were “released” to the Bahrain accounts, but the sums were not given.

Cloetens referred all questions to Euroclear’s spokesperson, who said: “Euroclear’s policy is to respect and to be in full compliance with all applicable laws and regulations.”

HSBC and the Arab Banking Corporation in Bahrain declined to comment.

To be continued.

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Giulia Paravicini – Reporter @ POLITICO Europe — covering security, terrorism and fraud.

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