The Sentry
Turning the Tables on the Kleptocrats
While international players have been vocal in their public criticism of the corruption and criminality of Libya’s ruling elite, their actions have done little to ameliorate the growing trends of kleptocratic accumulation.
The incumbent leaders’ stranglehold on the state provides clear evidence that Libya is deteriorating rapidly and heightens the likelihood that the troubled nation will remain a volatile security environment and potential source of broader instability.
A more effective international policy should result in greater resistance to kleptocrats and should not assume that political deals based on guarantees provided to Libya’s self-serving elites will bring stability, credible elections, or the prospect of accountable governance.
In short, foreign states committed to promoting a more stable Libya should use their policy levers to support inclusive Libyan state building rather than continuing with attempts at elite-level peacebuilding.
Any international challenge to the main kleptocrats comes with some risks of renewed armed conflict, as those leaders are committed to protecting their existing interests and privileges. But given the current acceleration of theft and institutional damage, the alternative is still more dangerous to Libya’s prospects. It is also more difficult to reverse.
There are opportunities within existing policy frameworks to make such shifts, such as the US’s 2022 commitment to prioritizing Libya as a key country within the scope of the Global Fragility Act, which provides a means of developing interagency alignment over how peace and stability may be sought.
This can only be achieved if the US tangibly demonstrates that its traditional focus on counterterrorism no longer overrides all other criteria, such as the fight against corruption.
Opportunities such as this will also require the broader engagement of Western state agencies tasked with overseeing illicit finance policy, such as the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN), as well as the UK Foreign, Commonwealth and Development Office, the UK Treasury’s Office of Financial Sanctions Implementation, and the European Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union.
The private sector, all too often neglected in discussions of corruption and criminality in Libya, also has a role to play in increasing the costs for kleptocrats, as their proceeds and enablers in many cases reside on foreign shores. Greater focus on the banking sector, in particular, is required.
International engagement should focus on increasing the deteriorating checks and balances in the Libyan state system, thereby increasing the cost of profiteering from corruption and crime. Systemic change is required in Libya, and four key policy objectives should be at the heart of such change.
1. Lift the veil of complicity, both domestic and international.
Political leaders and state officials engage in horse-trading with their rivals, dividing public offices and access to budgets in return for claimed commitments to upholding “stability.”
Many armed groups do provide the day-to-day security that the Libyan public needs, yet they simultaneously engage in corrupt and criminal activities, as well as human rights abuses against any Libyans who oppose those activities.
Together, these kleptocrats have consolidated their control over the state’s resources and risen to dominate Libya’s thriving illicit markets. Increasingly, the distinction between armed groups and political leaders is harder to draw.
This is illustrated by the fact that both ministers of interior of the competing governments have obtained their positions on the basis of the strength of their connections to armed formations, who are reported to have engaged in the illicit sector.
The truth is that such actors have become the Libyan state, making it extremely difficult for the Libyan public to express its concerns or effectively protest against its kleptocratic rulers.
The Libya policy of Western nations currently involves no meaningful pressure on the kleptocrats most responsible for the expansion of corruption and organized crime. When it comes to security and order, the prioritization of migration management and counterterrorism has led major Western nations to tolerate some of the kleptocrats’ worst abuses.
Libya’s main illicit activities are disregarded in exchange for cooperation on these priorities. On a political level, the opacity of regional powers’ engagement has reinforced kleptocratic accumulation by legitimizing deals among the very elite poised to benefit from potentially corrupt or illicit practices.
More broadly, it is necessary to lift the veil of complicity by exposing the kleptocrats’ practices and applying pressure to change their calculus. The US, UK, EU, and other like-minded governments should be creative and proactive in considering all available tools of pressure.
The issuance of advisories by the US, UK, and European governments to highlight the risk of exposure to fraudulent practices—particularly when it comes to correspondent banking—should be considered for the sectors of the Libyan economy identified in this report. Financial regulators in these jurisdictions should also ensure that the relationships of Libyan state institutions and the banking entities they own are at arm’s length.
Magnitsky-style sanctions regimes,378 as well as visa bans passed through separate legislation, should also be developed and targeted at the leaders involved in corrupt activity.
To date, the international community has used sanctions against individuals and assets connected to Qadhafi, as well as against alleged human rights abusers. These sanctions have been applied via the UN and replicated at the country level in US, UK, and EU sanctions, displaying coherence within the international response. However, they have proven ineffective, in no small part due to a lack of strategic application and the unwillingness to target prominent actors.
The effort to gain consensus over targets has played a role here: it is easier to reach agreements over the targeting of lower-level actors.
There is, however, an opportunity to build on the September 2018 UN designation of a Libyan national for “engaging in any action that may lead to or result in the misappropriation of Libyan state funds.” Such a designation is tailor-made for the Libyan context and should be used to pursue network sanctions against prominent Libyan kleptocrats.
This would send kleptocrats a message that their foreign assets will be subject to freezing, complicating their efforts to travel and spend their illicit gains on foreign shores. Importantly, it would also likely lead to enhanced due diligence by financial institutions.
The optimal route to pursue such sanctions would be through the UN Security Council. However, should this not prove possible, the US, UK, and EU, along with other like-minded governments, should strongly consider developing their own sanctions.
Here, the August 2023 listing of the former Lebanese Central Bank Governor for diversion of the bank’s funds for personal gain by the US, UK, and Canada provides a positive precedent that state officials are not beyond the reach of punitive measures and that such sanctions can be developed at the country level.
2. Shift away from the current extractive governance system.
Libya’s growing kleptocracy engages—sometimes violently—in disputes over state resources via control of state institutions and competition for control of licit and illicit markets.
The current structure of the state encourages and incentivizes such rent-seeking and the entrenchment of patronage-based politics. Libya must therefore reform the state’s institutions to escape the cycle. However, 12 years after the overthrow of Qadhafi, there is still no sociopolitical consensus as to how the country should be governed. International mediation has continued to pursue a bargain among the political elite presently in power rather than develop a more inclusive process that lets a larger portion of the population influence the manner in which the nation should be governed.
This would involve removing the monopoly over decision-making that Libya’s kleptocrats currently enjoy. This could be done by hosting town hall meetings across the country to engage and solicit support for a political process or by making a fresh attempt to hold a so-called “national conference” bringing together different societal groups to make decisions on the country’s political roadmap.
Support for the development of governance reform is a necessary building block in peacemaking efforts. The ongoing governance dispute cannot be seen as a justification for inaction. International efforts to reunify institutions must continue to be supported.
Direct assistance to state institutions, facilitated through multi-donor vehicles like the cross-ministry Recovery and Peace Building Assessment, should be predicated on clear benchmarks for institutional reform that outline progress during specified periods.
One critical benchmark of future support to the CBL could be the closure of all off-budget accounts held by state-owned entities, bringing them under a national treasury single account.
This would make it harder for Libya’s kleptocrats to mask their accumulation. The international community—both bilateral donor governments like the US and UK, as well as multilateral institutions such as the World Bank and the International Monetary Fund (IMF)—should work with Libyan authorities on these benchmarks and help to ensure compliance.
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The Sentry is an investigative and policy organization that seeks to disable multinational predatory networks that benefit from violent conflict, repression, and kleptocracy.
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