B. Recommendations
As a first step, the Security Council should consider reforming other elements of the LIA sanctions regime that curb its growth. Exemptions for the reinvestment of assets beyond those held in cash, provided that managers put the money in stable, low-volatility vehicles and the assets remain frozen, make sense.
Just as keeping LIA assets in billions of dollars of cash holdings was a sub-par solution, so, too, is maintaining holdings purchased before 2011 that no longer offer decent financial returns. As with the Council’s decision to allow the LIA’s frozen cash reserves to be invested, removing restrictions on other types of investment would require notification by member states to the Libya sanctions committee.
For its part, the LIA could propose reinvesting the holdings that are no longer performing well in conservative, low-risk vehicles. The Council, after all, is more likely to approve safer bets.
In this respect, the LIA could follow the example of the Guyana Natural Resource Fund, that country’s sovereign wealth fund, which invests its resources exclusively in the Federal Reserve Bank of New York – one of the twelve regional banks of the U.S. Federal Reserve System and historically known as a highly secure, reliable locus of investment.
Investing in the U.S. Federal Reserve has allowed the Guyanese fund to earn a stable interest rate of around 5 per cent per year, albeit without the potential rewards of a high-risk approach.
The LIA could explore other options that are considered safe in today’s financial environment and propose a reinvestment strategy to the Council. Demonstrating initiative and leadership in pursuing prudent financial plans would likely improve the Council’s perception of the LIA and make members more likely to greenlight the fund’s requests.
Another option for reinvesting the fund’s holdings in better-performing financial vehicles is through a pilot project that allows the LIA to co-manage assets with a responsible third party.
Such a vehicle could give the LIA more experience in responsible asset management while maintaining safeguards; build Council members’ trust and confidence in the LIA, if it proves to be a responsible steward of the pilot; and use interest payments to finance development projects that are desperately needed as poverty climbs in Libya and leaders fail to reinvest substantial oil profits in the country.
The obvious vehicle for such a pilot is a World Bank or UN multi-partner trust fund, a well-tested and effective channel. The private sector also has experience managing such funds, although its tendency to put profit over public interest probably rules out that option. Going through the UN or the World Bank has benefits given their neutrality, independence and experience in handling complex fiduciary responsibilities. These funds are typically guided by a steering committee that defines the fund’s overall strategy, which is unique to each case, and oversees investment and disbursement.
There are many examples of such funds, but two recent ones are worth highlighting as relevant to the Libyan case. A UN-managed fund designed for Venezuela, which never got off the ground due to political reasons, would have managed frozen assets derived from oil revenues and disbursed them to fund humanitarian aid and social and economic development projects.
Another UN fund for Uzbekistan is currently managing around $131 million in assets embezzled by the daughter of the country’s former president, Islam Karimov, and later seized by the Swiss authorities.119 The fund’s aim is to return the stolen assets to the Uzbek people through projects aligned with the UN development framework for Uzbekistan.
Developing a multi-partner trust fund for the LIA would probably require the investment authority to submit a proposal to the sanctions committee or the Security Council to ask the Secretary-General to establish such a fund. The risks for the UN involved in managing a fund for frozen assets, legal and otherwise, are not small.
The benefits of such a pilot, however, may make procedural hurdles and risks worthwhile. The LIA should also strive to take bold steps to build confidence in its abilities. Reinvigorating its efforts to comply with the Santiago Principles on sovereign wealth fund best practices, and producing credible and comprehensive financial statements, would increase Council members’ trust.
The LIA could make its annual reports and investment performance public, as other sovereign wealth funds do. Submitting regular, credible exemption requests to the Council, as well as licence requests to member states, would be another important step, even though the process is cumbersome. Better reporting is especially important in light of the Council’s disappointment with the quality of the LIA proposal submitted in 2024.
Over the long term, the Security Council should determine realistic avenues for ending the sanctions regime. Over the long term, the Security Council should determine realistic avenues for ending the sanctions regime, given that elections, reunification and political stability are anything but imminent. For good reason, officials are hesitant to lift sanctions while Libya is in disarray, and they do not want to be responsible for making a decision that opens the door to graft. Yet even if the Council adopts reforms that lessen sanctions’ effects on the LIA’s growth, the restrictions will keep imposing major costs on the fund.
At a minimum, the Security Council should take note of the contradictions of keeping in place a sanctions regime that no longer aligns with its original purpose, even as Libya’s problems continue. Member states should consider other forms of diplomatic pressure to encourage Libyan authorities to adopt best practices when it comes to managing the sovereign wealth fund.
If nothing is done to change the status quo, the implications of the Council leaving sanctions in place are likely to go beyond Libya. On a broader scale, if Security Council sanctions are quasi-permanent, and hang on far past the circumstances they were intended to address, the Council risks damaging the credibility of this important tool – and, indeed, of the Council itself.
Unfortunately, the Libya sanctions regime is not the only one that jars with its original purpose. The UN Security Council’s sanctions on the Afghan Taliban, established under UN Security Council Resolution 1988, offer another example. That regime sets out delisting conditions that have become moot, in effect, since the previous government in Kabul collapsed in August 2021. Other examples abound. The Council should learn the lessons from the Libya case and take steps to ensure that all its sanctions are fit for purpose.
VI. Conclusion
The UN should not miss the chance to make further reforms to the Libya sanctions regime. Even if there is no immediate resolution of the country’s political divisions, there are ways to ensure that increasing the fund’s size and protecting it from misuse are not mutually exclusive goals.
Carefully gauged steps to free the fund from restrictions that are lowering its potential value, shield it where possible from corruption and help it grow are feasible. Libyan authorities must do their part by shoring up the LIA’s credibility and transparency, such as by enhancing compliance with best practices for sovereign wealth funds and producing credible and comprehensive financial statements.
Over the long term, plans for winding down the sanctions regime will help enhance the credibility of Security Council sanctions and the Council more broadly. Building upon its moves in January 2025, the UN should do what it can to overhaul outdated sanctions as well as to ensure a brighter future for Libya.
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