Institution creation and the diversion of funds
One of the most effective approaches adopted by Libya’s kleptocrats has been to create new entities that are administratively independent from state institutions. Once established, these entities obtain their own trade financing and issue their own contracts, offering further means of capturing funds in exchange for subpar performance.
Armed group leaders have been particularly active in this field in recent years. A former government official noted that the Ministry of Interior has struggled to curtail the activities of armed groups operating under its aegis as a result of those groups’ establishment of independent—and largely autonomous—state entities.
Libyan state assets abroad have proven most vulnerable to plundering. The competition among networks of kleptocrats for control of the estimated $68.4 billion in assets of the Libyan Investment Authority (LIA) offers a perfect example of these trends in action. To this day, the LIA is unable to publicly produce consolidated accounts for the subsidiaries and holding companies that it owns and, at least theoretically, controls.
This means that the LIA’s overall portfolio and its true value remain unknown. Libyan officials possessing a high level of expertise on the LIA’s portfolios have quietly endeavored to take over chunks of the sovereign wealth fund’s assets, despite the continuing existence of a UN asset freeze instituted in 2011. The asset freeze could have been an effective means of protecting Libyan state assets, but it has been inconsistently enforced and even ignored in some jurisdictions.
Beyond this, a wide array of state-owned enterprises known for being cash-rich have come under significant pressure. In both the country’s west and east, the Libyan Post Telecommunications and Information Technology Company (LPTIC) has been a target for the diversion of funds by armed actors.
The informal component of Libya’s economy has expanded markedly since 2011.211 A subset of that growth has unfolded in the criminal realm as actors on the ground who previously held limited social and economic standing have translated their territorial control into wealth and power. The rise of these blue-collar actors has been a salient feature of the last decade and is still transforming Libya’s politics. Compared to the white-collar schemes, the blue-collar schemes of these new entrants are less reliant upon the financial resources of the state. For instance, arms trafficking continues to be a thriving activity in present-day Libya.
Diesel and gasoline
With the official domestic price of gasoline maintained at the equivalent of $.03 per liter—one of the cheapest prices in the world—Libya’s fuel subsidy program is subject to widespread abuse. It causes Libya’s National Oil Corporation (NOC) to import immense quantities of refined products from abroad, in addition to the fuel it refines domestically. Libya’s subsidy costs for gasoline, diesel, and other refined petroleum products amounted to about $7 billion. In 2022, those fuel subsidy costs exceeded $12 billion.
The volumes of fuel procured and distributed by the NOC far exceed the legitimate consumption within Libya. The gap is attributable to fuel smuggling, which sees a large proportion of both the imported fuel and the domestically produced fuel transferred illegally to neighboring countries. Several informal networks illegally divert billions of dollars’ worth of the fuel imports using a variety of techniques. Fuel flows in from Italy, as well as other countries such as Greece, Turkey, and Azerbaijan,228 through five principal points of entry: Zawiyah, Tripoli, Misrata, Benghazi, and Marsa al-Hariqa, near Egypt.
From there, a substantial chunk of the imported fuel is illegally rerouted into the parallel market to be sold at a much higher price than the official subsidized price of .15 LYD ($.03) per liter. While some of the diverted fuel is sold for profit inside Libya, the rest is re-exported illegally.233 Destination countries include Sudan, Chad, Niger, Tunisia, Albania, and Turkey. Depending on the geography and the circumstances, refined petroleum diverted from Libya’s fuel subsidy program is taken to these foreign markets using vessels, tanker trucks, or smaller vehicles.
The overall financial cost of Libya’s fuel trafficking industry allegedly hovered around $750 million per year for several years. But a key change occurred in autumn 2021: the NOC began using fuel-for-crude swap—or barter—transactions, which have enabled it to import fuel without requiring any dollar funding from the CBL. Thus, in 2022, the quantity of imported refined products increased by about 19% as compared to 2021.
The overwhelming majority of this spike was likely attributable to illicit trade, meaning that the fuel trafficking industry’s dollar size has surged.248 It is also a significant source of concern that, since the No-vember 2021 change, the fuel subsidy has been removed from the budget in CBL disclosures. Placing the entirety of the abnormally large subsidy program outside of the budget conceals a significant amount of state spending.
Although western Libya has retained its prominent role in the country’s fuel-smuggling sector, indications are that the bulk of the ongoing boom is concentrated in the eastern province. In September 2022, a revealing incident saw Albanian authorities stop a vessel sailing from Benghazi carrying approximately $2.2 million in marine gasoil. The name of the ship in question had been featured in a letter warning of increased fuel-smuggling activity in the port of Benghazi that had been leaked by an anonymous NOC official four months before the Albania seizure.
Another document, as well as indications from a senior Libyan official, suggest that Benghazi has indeed become the locus of more abnormal fuel movement compared to prior years. Amid this worrisome trend, the US government has expressed concern that the Wagner Group could tap into Libya’s hydrocarbon sector, given the group’s links to the Haftar family, which controls eastern Libya, including the ports of Benghazi and Marsa al-Hariqa.
A senior NOC official told The Sentry that he harbored similar concerns about Russian and other non-Libyan units potentially benefiting materially by capturing and diverting Libyan-funded fuel. The diversion of subsidized fuel should not deflect attention from several other forms of abuse likely plaguing the NOC, including rogue crude oil exports. It is likely that several billion dollars are stolen from the Libyan public every year via unreported exports of crude oil, as indicated by a knowledgeable source and a non-public watchdog report.
Several Libyans with expertise in the matter suspect that the phenomenon of missing oil export income might be growing in east and west Libyan oil terminals alike. These shifts in the oil sector may result from the prevalence of opaque bargains between Libyan factions in conjunction with the interference of some foreign states. In 2022, the UAE brokered a deal between the Haftar and Dabaiba families to agree to a leadership change at the NOC. However, since the new chairman took the helm, some Libyan outlets have alleged that Saddam Haftar siphoned large sums from the treasuries of NOC subsidiaries.
There are also lingering questions as to the precise allocation of 34.3 billion LYD (about $6.8 billion) in extraordinary funding received by the NOC from the CBL in 2022. If these concerns were to be corroborated, they would highlight how intra-elite arrangements pose an existential threat to Libya’s most vital economic institution.
Illicit scrap metal exports have burgeoned into a major concern for Libya, as various armed groups exploit their power, security provider status, and ostensible affiliation with the state to profit from the ransacking of public infrastructure.
These activities result in significant damage to still-functioning installations such as the Great Man-Made River,273 telecom cables, and several agricultural projects. Once collected, the raw materials are shipped abroad. An eyewitness from Kufrah told The Sentry about the theft of metal components from public infrastructure in southeastern Libya. He indicated that the Military Investment Authority had declared the equipment old and broken down before Brigade 106, a large armed unit linked to Haftar, transported the metal to Benghazi Port for export.
The same practice has been ongoing in western Libya, as well. Scrap metal stolen from public infrastructure is shipped to buyers—often based in Turkey—mainly via the ports of Misrata and Khums.
Although Libya has historically produced virtually no gold, its black market has long acted as an informal gold-trading platform, while local artisanal gold mines have slowly begun to emerge in the south of the country. Particularly since 2014, Libya has been used as a transit area toward places such as the UAE and, to a lesser extent, Turkey. Entities active in sub-Saharan Africa, including the Sahel, sometimes use Libya’s transport infrastructure—including its international airports—as they export gold to destinations outside the continent.
The utility of using Libya’s black market as an intermediary stop resides in the country’s state weakness, which makes it possible to maintain opacity, evade the payment of formal taxes, and elude any level of accountability. Two crucial points of transit are used to export gold on an illicit basis: the port and airports of the Misrata-Zliten-Khums area and those of Benghazi. The gold originates mainly from Chad, Niger, Burkina Faso, and Mali. In addition, gold mining has been slowly developing in
Libya itself, both in the southwest and the southeast. In ongoing efforts to kick-start the clandestine extraction of gold on Libyan soil, the involvement of non-Libyan actors is suspected.
The Sentry is an investigative and policy organization that seeks to disable multinational predatory networks that benefit from violent conflict, repression, and kleptocracy.