By Tim Eaton
The extraordinary story of Libya’s overseas investments and seemingly endless battles over their control.
PART TWO
Legal disputes enter the world’s courtrooms
Throughout all this, the LIA had been trying to bring legal proceedings in the UK courts against various international banks and asset management companies relating to the massive financial losses sustained by the LIA in the 2006-2010 period.
But the split complicated these attempts – how could solicitors in the UK court say they acted for the legitimate chair of the LIA when this position was contested?
Proceedings had begun in 2014 under Breish, who established a litigation committee directed by Ahmed Jehani to appoint solicitors and supervise the effort.
In November that year, Jehani secured agreement from all LIA directors to put the leadership dispute aside while legal proceedings played out. But differences then emerged over which further cases the LIA should seek to take to court and who should be overseeing the litigation committee.
As a result, Bouhadi initiated separate legal proceedings in the UK courts in 2015 to establish who should be the legitimate legal authority for the LIA, which led to a court-appointed receiver instructing legal action on behalf of the LIA. But these proceedings to determine whom should be recognised as the legal representative of the LIA in the UK were just the start of a long, drawn-out legal battle in the UK courts – which expanded to include other parties as rival governing authorities in Libya tried to make their own appointments to the LIA.
BDO Global became the court-appointed receiver and instructed law firms to take on two major pieces of litigation in 2015 on the LIA’s behalf, against Goldman Sachs and Société Générale (SocGen) who had both being vying for the LIA’s business in its early days. These cases revealed the extent of the failure of the investments made under Layas’ and Zarti’s watch.
Under the guidance of Goldman Sachs, the LIA made a $1.2bn investment in derivatives trades in 2007-8. The entirety of this investment was lost. Ali Baruni, advising the LIA on its investments at the time, claimed that LIA officials working with Goldman Sachs only had a ‘limited understanding’ of the products being suggested to them, and that this was demonstrated by disclosures made to the UK court. One email from a Goldman banker said that pitching to the LIA was akin to pitching ‘to someone who lives in the middle of the desert with his camels’.
Through its disclosures to the court, the LIA alleged Goldman Sachs exerted ‘undue influence’ on the LIA, in part by offering lavish corporate hospitality to LIA staff. Disclosures to the court show Goldman Sachs had underwritten all-expenses-paid trips to luxury resorts where prostitutes were said to have been present.
The disclosures suggested that Goldman Sachs had provided employment to Zarti’s brother, for which he was unqualified and was in seeming contravention of Goldman Sachs’ own hiring practices.
Goldman Sachs’ legal team denied any wrongdoing. The LIA lost its case, with the court finding that the hospitality provided was not as ‘unusual or remarkable’ as had been presented. The court concluded that undue influence had not taken place and that Goldman Sachs had not made excessive profits on the trades.
The second major case, involving SocGen, was a dispute over $2.1 billion in trades made between 2007-9. The LIA alleged in court that SocGen had paid $58.5 million to a Panama-based company owned by a Libyan businessman to secure the trades. This was denied by SocGen. The parties reached a confidential settlement – reported as totalling $963 million – which included an apology from SocGen and the funds were collected by BDO, the receiver.
Legal action in London was also brought by LIA subsidiary FM Capital Partners against its former CEO Frederic Marino. FM Capital Partners had been formed in London in 2009 by Marino in partnership with the LAIP, the majority shareholder. But in 2014, FM’s CEO Sufian Creui launched an investigation into the conduct of Marino after identifying what he perceived as the payment of abnormal fees and matters of concern in trades with, and the setup of, new investment vehicles in tax havens.
Creui stated he felt the company was a ‘compensation scheme under the guise of a business’ on his arrival with a ‘bloated staff and a lack of IT infrastructure’. Following his investigation, FM Capital entered into legal proceedings against Marino and won the case in 2018 when the UK courts found Marino to be ‘liable in breach of fiduciary duty, dishonest assistance, and bribery’. Marino’s appeal of the judgment was dismissed by the UK Court of Appeal.
The asset freeze and the rest of the iceberg
Back in 2011, following protests in Libya, the international community was quick to freeze assets it deemed could be used to fund the Gaddafi regime’s military campaign. UN Security Council Resolution 1970, passed on 28 February 2011, announced an asset freeze on specific members of the Gaddafi family.
This was then expanded in March to include designated assets and resources controlled by the Libyan authorities in Resolution 1973. These assets and resources were the LIA, LAIP, and LAFICO, along with those of the Central Bank of Libya and the Libyan Foreign Bank.
The freeze on the latter two was quickly lifted but the freeze on the LIA, LAIP, and LAFICO remains in place. In September 2011, Resolution 2009 eased the terms of the asset freeze so that only assets outside of Libya as on 16 September 2011 remain frozen.
The asset freeze has been an effective means of safeguarding the wealth of the Libyan people but it is not well understood in policy circles, with some assuming it amounts to a blanket freeze.
Two main issues have arisen – first, the freeze targets some LIA assets but not others and with no clear reasoning, meaning many of the LIA’s subsidiaries, and the subsidiaries of those subsidiaries did not have their accounts frozen.
Second, application of the freeze was uneven – and at times non-existent – in some jurisdictions which meant significant transfers of interest and dividends continued to be made.
Issue one: Subsidiaries
Subsidiaries illustrate the oddities of the terms of the freeze. For example, the LAIP is listed on the freeze but its subsidiaries, OilLibya (now known as Ola Energy), the Libyan Arab African Investment Company, and LAP Mauritius are not.
This matters because the UN Panel of Experts, citing LIA internal sources, reported in 2013 that the ‘opaque nature of the ownership structure of the subsidiary hierarchy [of the LIA] was also a deliberate move by the former regime to facilitate the laundering of funds embezzled from the State to personal assets abroad’.
While overall valuations of the LIA’s assets are hard to reach, a large proportion of them are held within subsidiaries, some as tangible assets such as buildings but others as liquid assets – which make them a focal point for competition for control and a potential source of funding.
The plight of LAP Green Networks, a subsidiary of LAP Mauritius, illustrates how management failures at within subsidiaries continued after 2011 despite the asset freeze.
By 2012, LAP Green Networks had invested more than $1bn in telecoms in six African states but was performing poorly.
In October 2015, Hassan Bouhadi announced the ‘strategic consolidation’ of LAP Green Networks’ own subsidiaries within the Libyan Post, Telecommunications and Information Technology Company (LPTIC), thereby transferring the assets out of the LIA. He justified the move on the basis it would consolidate telecommunications holdings under one specialized management team.
Bouhadi says he believes LAP Green Networks would have gone into administration had LPTIC not taken over its assets. But the move does raise questions: why should Libya’s state-owned telecommunications company be directly running telecommunications agencies in other states? Questions over due process also arise.
LPTIC says that the consolidation of LAP Green Networks into LPTIC was authorised by eastern authorities. Yet a search on the corporate register in Mauritius in November 2020 indicated LAIP remains the owner of LAP Mauritius (which had been the holding company for LAP Green Networks).
A search on the Dubai commercial registry indicated LAP Green Networks Dubai changed its name to LPTIC International Ltd, but not until January 2017 – some time after the supposed transfer of LAP Green Networks from LAIP to LPTIC.
LAP Green Networks is currently embroiled in a legal battle over its holdings. In 2012, Zambia nationalized Zamtel, 75 per cent owned by LAP Green Networks, allegedly without compensation, and the LIA claimed Zambia had sought to exploit instability in Libya to obtain the company.
A UK court did order Zambia to repay $380 million in 2017, but – as of 2018 – LAP Green Networks said Zambia had yet to do so. Receipt of these funds would be a significant influx of cash for, presumably, LPTIC.
The LAP Green Networks example illustrates how the LIA’s large unfrozen subsidiaries continue to function with limited clarity over their operating procedures and almost no public disclosures.
Issue two: Interpretations of the terms of the asset freeze
Differing interpretations of the asset freeze’s terms when processing payments for supposedly frozen LIA accounts came to the fore during the ongoing investigation into transactions involving the Belgian bank Euroclear.
LIA and LAFICO accounts in Euroclear were frozen in 2011 but the bank separated interest and other proceeds such as coupons and dividends from that point onwards, and these were made available to the LIA.
Documents provided by Euroclear to a Belgian parliamentary inquiry into the issue reportedly disclosed that €2.067 billion were transferred from Euroclear to LIA and LAFICO accounts in Luxembourg and Bahrain between 2011 and 2017, leading to important unanswered questions over what has happened to the funds.
The UN Sanctions Committee believes such payments should have been subject to the freeze as per the provisions of UN Security Council Resolutions 1970, 1973, and 2009.
But the Euroclear case also raises serious wider questions for the international community over how major financial institutions operating in European jurisdictions could adopt divergent interpretations of the asset freeze for seven years resulting in significant flows of cash. It is also notable that the change in policy from Euroclear did not come from any internal review process or regulatory decision but was a result of the process unleashed by evidence uncovered as part of the attempts by Prince Laurent of Belgium to recover funds he claimed were owed to him by Libya.
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Tim Eaton is a senior research fellow in the Middle East and North Africa Programme at Chatham House. His research focuses on the political economy of conflict in Libya.
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