Implications of the Financial War on Libya


Charles Goredema, Programme Head, Organised Crime and Money Laundering Programme, ISS Cape Town Office

In the last two months, the world has witnessed the rapid escalation of a campaign to unseat the regime led by Muammar Gaddafi in Libya. Despite several denials, it is clear that the primary objective of the military maneuvers currently underway in that country is regime change. Apart from direct aerial bombardment being co-ordinated by the North Atlantic Treaty Organization (NATO), Gaddafi’s army also faces an assault from the shores of the Mediterranean Sea. Furthermore, his government is slowly but surely being deprived of the resources on which it would be expected to rely to sustain itself. The multi-dimensional aggression ostensibly draws its legitimacy and authority from two successive directives from the United Nations Security Council, namely Resolutions 1970 (2011) and 1973 (2011). The resolutions purport to authorize measures that impose restrictions on arms purchases, on the flight of aircraft, and on the movement of certain officials. Finally, they direct the freezing of assets connected to named officials and institutions.

This article does not discuss the overall merits of the anti-Gaddafi war in Libya. It confines itself to the implications of its financial aspects, specifically for African countries but also in general. Paragraph 17 of Resolution 1970 directs all member states to:

‘freeze without delay all funds, other financial assets and economic resources which are on their territories, which are owned or controlled, directly or indirectly, by the individuals or entities listed in annex II of this resolution or designated by the Committee established pursuant to paragraph 24 below, or by individuals or entities acting on their behalf or at their direction, or by entities owned or controlled by them, and ………. (to) ensure that any funds, financial assets or economic resources are prevented from being made available by their nationals or by any individuals or entities within their territories, to or for the benefit of the individuals or entities listed in Annex II of this resolution or individuals designated by the Committee;’

The Resolution created a Sanctions Committee to oversee its administration and implementation. Resolution 1970 was followed three weeks later by Resolution 1973 (2011), paragraph 19 of which broadened its reach to assets owned or controlled by ‘……..the Libyan authorities, as designated by the Committee, or by individuals or entities acting on their behalf or at their direction, or by entities owned or controlled by them, as designated by the Committee’. The Committee is authorized to regularly extend the list of designated Libyan authorities, individuals or entities against whom sanctions will be applied. The Security Council initiated the process by naming certain individuals, including Colonel Gaddafi himself, his immediate family and his military commanders. Resolution 1973 also created a special Panel of Experts to assist the Committee. The list of individuals and entities also includes the Libyan Central Bank, the Libya African Investment Portfolio (LAIP) and the Libya National Oil Corporation (LNOC). All three are major investors within Libya and beyond, with collective investments in Africa worth an estimated $10 billion. LAIP includes the Libya Arab African Investment Corporation (LAAICO), a business company with interests that span all parts of Africa.

LAAICO has a presence in at least 25 African countries, in diverse sectors from hotels & real estate, industry, agriculture, trade to mining and telecommunications. It conducts business in Benin, Burkina Faso, Central Africa Republic, Chad, Comoros, Congo, Democratic Republic of Congo, Eritrea, Ethiopia, Gabon, The Gambia, Ghana, Guinea, Kenya, Liberia, Madagascar, Mali, Niger, Nigeria, Rwanda, South Africa, Togo, Uganda, Zimbabwe, and Zambia. Certain countries, such as Uganda, are home to almost $1 billion worth of Libyan owned or controlled assets. The Libya Central Bank is reported to be among the Africa Development Bank’s largest investors. It stands to reason that the most significant assets that will be affected by the two Resolutions comprise investments of Libya’s sovereign wealth fund. The justification for classifying them as ‘poisoned assets’ is cryptically given as ‘Under control of Muammar Gaddafi and his family, and potential source of funding for his regime.’

The impact of temporary confiscation will be loss of revenue to shareholders, whether or not they are connected to the Gaddafi regime. In terms of paragraph 27 of Resolution 1973, none of them has recourse to law to be compensated. Some of the Libyan investment has been undertaken in partnership with local entrepreneurs. Any local investment in enterprises dominated by Libyan assets can be expected to be frightened off by the wave of directives from the Security Council. On the other hand, these enterprises are unlikely to receive further capital from Libya under current circumstances, even if that is somehow permissible. For instance, it is feared that Uganda Telecom Limited, 69% of which is Libyan owned, will not get badly needed capital. (DW – WORLD.DE Deutsche Welle, 24 March 2011 accessible at http://www.dw-world.de/dw/article/0,,14940564,00.html)

In addition to the contagion effect to be precipitated by the Resolutions are the procedural complications that will arise in their implementation. Many countries have no experience of running an asset tracking and confiscation system outside the criminal justice process. The latter is relatively simple, as it is conditional on conviction. The confiscated article is identifiable by reference to the crime, and its disposal is determined by the court at the instance of the prosecution or the victim. There is usually no intention of maintaining or managing the article – if it is to be sold, the price is not of much consequence. The assets envisaged by the UN Resolutions present an entirely different set of challenges, especially where no single institution carries the mandate to determine their fate. In some countries, such as Kenya and Zimbabwe, asset forfeiture is usually handled by the Attorney General. In others, the central Bank has an influential say, especially regarding seizures in the financial sector. One wonders what model of asset seizure the Security Council has in mind, and what it would recommend regarding the management of seized assets, such as hotels. Where, for instance should they conduct their banking operations after their usual bank accounts have been frozen?

Furthermore, with a few exceptions, the larger assets belong to the Libyan state, which holds them in trust for the Libyan people. They cannot simply be disposed of with impunity without jeopardizing future relations with Libya. The Sanctions Committee, and its Panel of Experts, is consequently likely to encounter a great deal of confusion and lethargy in many parts of Africa. Many will want to see a speedy termination of the conflagration in Libya. In the wake of the speedy seizure of assets connected to Libya in western countries, questions will again be raised as to the double standards that still hold up the recovery of proceeds of corruption and large scale plunder by delinquent political leaders in Africa.