[toeslist] US/Libya - largest seizure of foreign funds in US history + From Marcos to Gaddafi: Kleptocrats, Old and New
Riaz K Tayob
Marcus Baram HuffPost Reporting
Mar...@huffingtonpost.com<mailto:Mar...@huffingtonpost.com>
Libya's Billions Invested In U.S. Private Equity, Big Banks
First Posted: 03/ 1/11 05:38 PM Updated: 03/ 1/11 10:02 PM
NEW YORK -- U.S. President Barack Obama's executive order freezing
$30 billion in assets of Muammar Gaddafi, his family and the Libyan
government could impact several U.S. banks and private equity firms,
including Goldman Sachs, Citigroup, JPMorgan Chase and the Carlyle
Group. The Obama administration described it as the largest seizure
of foreign funds in U.S. history.
The oil-rich country's sovereign wealth fund, the Libyan Investment
Authority, controls at least $70 billion in fixed assets and reserves.
It has invested the bulk of its money in European banks and businesses,
including Dutch-Belgian bank Fortis, Italian bank Unicredit, the
Pearson publishing empire, Italian defense firm Finmeccanica SpA,
an oil-production sharing agreement with BP and even a slice of the
Italian soccer team Juventus.
In the wake of the Bush administration's lifting of sanctions against
Libya in 2004, following Gaddafi's agreement to give up weapons of
mass destruction, American businesses and private equity firms also
came flocking to the North African country to court government and
LIA officials. As The Huffington Post reported last week, a broad
coalition of U.S. oil companies, defense manufacturers and businesses
lobbied the U.S. government to repair relations with the longtime
international pariah and to take advantage of business opportunities
in the country.
The secretive Libyan Investment Authority has reportedly invested
hundreds of millions of dollars in Goldman Sachs Asset Management
funds, including a loan fund designed to invest in new hedge funds
set up by the Kuwait Investment Authority. Goldman Sachs already
has a relationship with Libya -- in 2008, Goldman was the first
U.S. bank to get a contract with the country following the removal
of sanctions, when it was hired by Libya's central bank to provide
information on its behalf to credit rating agencies. A spokesperson
for Goldman Sachs did not return calls seeking comment.
The Libyan government, including LIA, has also banked with Citigroup,
according to several sources familiar with the matter. A spokesperson
for Citigroup declined to comment on the bank's interactions with
the Treasury Department's Office of Foreign Assets Control, which
is in charge of carrying out Obama's order regarding Libyan assets.
JPMorgan Chase reportedly handles much of the LIA's cash and some
of the Libyan central bank's reserves. The summer after then-Secretary
of State Condoleezza Rice visited Gaddafi in 2008, LIA gave "mandates
to some of the international banks, including JPMorgan to manage
their funds in the interbank money markets, according to Vanity
Fair.
The LIA fund's general consultant has been Mercer Investment
Consulting, a unit of Marsh & McClennan, the global risk consulting
and advisory firm. A spokesperson for Marsh declined comment. The
fund set up a $2 billion investment fund with the Qatar Investment
Authority to invest in Libya, Qatar and Western markets, which could
complicate the effort to freeze the LIA's assets.
Story continues below Advertisement
Two years ago, the Carlyle Group's co-founder and managing director,
David Rubenstein, and Blackstone chief executive Steven Schwarzman
traveled to the Libyan capital of Tripoli to help celebrate the
wedding of Mustafa Zarti, the deputy director of the LIA, in a
massive tent set up on the outskirts of the city, reported the
Financial Times. And when Gaddafi's son and longtime likely successor,
Saif al-Islam, visited New York in November 2008, Schwarzman hosted
a lunch for him at the Blackstone CEO's Park Avenue apartment. The
younger Gaddafi was also honored on that trip by Carlyle's retired
chairman, former defense secretary Frank Carlucci, who hosted a
dinner for him in a private room at the City Club.
Thanks to the efforts of Rubenstein, who first traveled to Libya
in 2006, the Carlyle Group received funds from the LIA. A spokesman
for Carlyle declined comment. A spokesman for Blackstone told The
Huffington Post, "We have no investments in Libya. They have no
investments with us."
In addition, several U.S. banks each manage up to $500 million of
the secretive fund's assets, according to a 2010 diplomatic cable
obtained by WikiLeaks that reveals details of a January meeting
between the LIA's Mohamed Layas and the U.S. ambassador in Tripoli
at LIA's office overlooking the Mediterranean.
"We have $32 billion in liquidity, mostly in bank deposits that
will give us good long-term returns," Layas told the ambassador,
according to the cable.
"He explained that several American banks are each managing $300-500
million of LIA's funds ... He noted that LIA's primary investments
are in London, in banking and residential and commercial real
estate."
LIA has placed several hundred million dollars of assets with FM
Capital Partners, a London-based firm set up in 2009 by former
Merrill Lynch and JPMorgan asset manager Frederic Marino, according
to an FM Capital statement and British news reports.
The LIA has historically shunned investing in the United States due
to concerns that politics overly complicate U.S. market movements.
"The only market which is unfortunately not a pleasant market is
the United States. It's a very active market, but it is full of
politics and unpleasant actions. In Europe, politics is not very
much interfering in trade," Libya's former prime minister Shokri
Ghanem told Bloomberg TV in 2008.
But the LIA's Layas was upbeat about the prospects for U.S. deals
during a recent visit to Washington, where he met with U.S. company
representatives and the Export-Import Bank. "Some of the advantages
that Layas saw the U.S. having over European competitors for contracts
in Libya are the weakness of the dollar compared to the euro, as
well as U.S. access to more advanced technology," according to the
WikiLeaks cable, which also revealed Layas' claims that the LIA had
turned down investment opportunities in schemes run by jailed
financiers Allen Stanford and Bernie Madoff.
The LIA is unusually secretive compared to other sovereign wealth
funds, analysts say, and it is difficult to sketch a more complete
list of U.S.
companies that have received the fund's assets. Several months ago,
during the bankruptcy proceedings of Boston Generating LLC, it was
revealed in court documents that the power conglomerate had contacted
the LIA about selling the fund some of its assets. And another of
Gaddafi's sons, Al-Saadi, invested $100 million in a movie production
fund, Natural Selection, that is producing "The Ice Man: Confessions
of a Mafia Contract Killer," starring Mickey Rourke, Bloomberg News
reports.
About $300 million of the LIA's investments were handled by the
now-defunct financial-services firm Lehman Brothers, but the LIA's
Layas claimed that the fund had "a legal disagreement with Lehman
Brothers due to a major investment that was 'mismanaged.'"
And though the fund prefers to invest in commercial property and
real estate in London, it has not done the same in the United States,
according to Geoff D. Porter, a political risk and security consultant
specializing in North Africa and the Sahara. "In general, U.S.
investors are wary of the Libyans and Libya is wary of the U.S. --
they don't want their assets attached just like Americans are wary
of political risk in Libya," Porter said. "Most firms, such as
Blackstone, are well aware of the reputational risks and are wary
of the LIA."
Ibrahim Warde<http://www.huffingtonpost.com/ibrahim-warde>
Adjunct Professor, Tufts University
Posted: March 1, 2011 05:17 PM From Marcos to Gaddafi: Kleptocrats,
Old and
New<http://www.huffingtonpost.com/ibrahim-warde/gaddafi-mubarak-fortune_b_829
390.html>
After the fall of long-time autocrats comes the hunt for their
hidden loot.
The wealth of former Tunisian president has been estimated at $7
billion, which pales in comparison with that of his Egyptian
counterpart, at least if we are to believe the chant of crowds:
"Oh, Mubarak tell us where you got 70 billion dollars." Libyan
dictator Muammar Gaddafi may be the wealthiest of all, since he is
said to control over $150 billion.
Those numbers are no doubt exaggerated as well as imprecise, for
they may or may not include the fortunes amassed by extended families
and a more or less extensive network of cronies. Even if we remove
a zero or two from these estimates, the amounts accumulated following
long political tenures are likely to be quite substantial and the
fight for their recovery will by waged on a variety of fronts,
political and legal.
The preoccupation with the recovery of illegally acquired wealth
began following the near-simultaneous ousting of two notorious
kleptocrats, Ferdinand Marcos of the Philippines and Jean-Claude
Duvalier of Haiti in February 1986. Another spurt of interest in
the whereabouts of dictators' loot occurred in the late 1990s after
the overthrow of Mobutu Sese Seko, President of Zaire (now the
Democratic Republic of the Congo), and the sudden death of Nigerian
dictator Sani Abacha. This is when the notion of "politically exposed
persons" (or P.E.P.) appeared in the anti-money laundering apparatus.
Financial institutions were instructed to enhance the monitoring
of accounts belonging to political figures and their entourage,
considering their possible involvement in bribery and corruption.
But soon after September 11, 2001, the "financial war on terror"
took center stage. The easiest way to seize the money of an individual,
a group or a country was to find a link to terrorism. When following
the collapse of Iceland's banking system, British Prime Minister
Gordon Brown attempted to recover funds lost by British citizens
in failed Icelandic banks, he used anti-terrorist laws - effectively
designating Iceland as a terrorist state - to freeze that country's
assets in the United Kingdom.
Those "politically-exposed persons" who were on the right side of
the war on terror, among them Ben Ali, Mubarak, and Gaddafi, were
implicitly exempted from financial scrutiny (though their domestic
enemies, particularly among Islamic organizations, were not) at a
time when their economic policies, or in the case of Gaddafi the
price of oil, provided them with unprecedented opportunities for
personal enrichment.
In the old days, kleptocrats simply looted their countries' coffers
and siphoned off the proceeds of foreign aid. Central banks functioned
as their personal piggybanks. The favorite destination of ill-gotten
wealth was Swiss bank accounts. Despite massive efforts to find
hidden assets (which included pressure placed on Switzerland by the
United States to loosen its bank secrecy laws), only a tiny part
of the alleged loot of Marcos, Duvalier, Mobutu, Abacha and others
has been located. This is due to a number of factors: the initial
figures may have been grossly exaggerated; considerable "leakage"
occurred during the laundering process, with countless intermediaries
taking their cut; and the process of hiding the wealth was opaque
as well as ingenious. In most instances, long-drawn litigation
involving multiple claimants is still going on.
In many respects, Muammar Gaddafi is one of those old-fashioned
kleptocrats.
At least until 2004, when British Prime Minister, acting on behalf
of the "international community" offered him "the hand of friendship,"
he had a free rein in running the financial affairs of his oil-rich,
sparsely populated, country. The hollowed-out political system and
the relatively recent appearance of foreign investors and international
organizations explain the near absence of the apparatus that has
come to define the new kleptocracies.
Both Ben Ali and Mubarak have shunned the antics and idiosyncrasies
of traditional despots in favor of a technocratic style. Although
some of the old practices persist (it is rumored that Ben Ali and
his wife, prior to fleeing Tunisia, helped themselves to 1.5 ton
of gold worth $60 million from the central bank), the new kleptocrats
got rich primarily by taking advantage of "business opportunities"
in a system they tightly controlled. And with their wealth and
connections, they could afford the best legal and financial advice
on investing and shielding their fortune.
The new kleptocrats moved their economies further away from state
control and integrated them in the global economy, earning in the
process the encouragement and praise of the international financial
community.
Privatization transferred state monopolies, Russian-style, to a new
class of oligarchs. Foreign investment and financial liberalization
worked to the advantage of a new elite centered around the ruling
dynasties. In the words of a U.S. embassy cable revealed by WikiLeaks,
"Seemingly half of the Tunisian business community can claim a Ben
Ali connection through marriage, and many of these relations are
reported to have made the most of their lineage." In Egypt, the
emblematic figure of economic modernization was Gamal Mubarak, the
one-time heir apparent, who made his career not in politics but in
investment banking and private equity.
Political repression was the flip side of these policies. Democracy
would threaten those cozy arrangements. Also, the investment community
craves stability and predictability, and the long-time rulers of
Tunisia and Egypt provided both, in spades. The national security
argument provided the necessary cover--as well as a justification
for defense expenditures with their rich potential for commissions
and kickbacks.
Ibrahim Warde is an adjunct professor at the Fletcher School of Law
and Diplomacy, Tufts University. He is author of The Price of Fear:
The Truth behind the Financial War on Terror (University of California
Press).
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