Neo-colonial Libya Seeks to Free Up Sovereign Fund But Banks Face Risks
By MARA LEMOS STEIN
Wall Street Journal
Jun 15, 2016 6:00 am ET
The Libyan Investment Authority isn’t only pursuing its interests through legal action against top global financial firms, but also lobbying the United Nations Security Council to soften an asset freeze on its funds to halt their declining value.
The LIA’s actions are sending a clear message to financial institutions eager to engage in business with the multi-billion dollar fund: tread carefully, said compliance and sanctions experts. Not only has the LIA become very litigious, but the licenses to transact with the conflict-torn and financially-sanctioned African nation are hard to get and quite restrictive, they said.
“When dealing with LIA assets, financial institutions need to tread very carefully,” said a London-based attorney who specializes in sanctions. The latest U.N. review of Libyan sanctions in March didn’t add any flexibility to the restrictions imposed in 2011, he said. What’s more, there are still rival claims of leadership over the LIA, so firms need to ensure they are in transactions with an organization that is legitimate.
At the same time the LIA is taking Goldman Sachs Group and Societe Generale to court in London claiming that undue influence by the investment banks led to losing trades for the fund, it is seeking access to its frozen funds, which have dropped around 14% in value as an unintended consequence of the tough sanctions.
Assets managed by the LIA stood at approximately $67 billion at the end of 2012, but have decreased to between $55 billion and $60 billion, according to the latest report by a U.N. expert panel on Libya. In a letter to the Security Council dated March 21, the permanent representative of Libya said that in 2014 alone, the value of LIA’s asset base had real losses of $721 million, and missed the chance of earning an additional $1.6 billion to $2.3 billion because it couldn’t “properly” invest in “conservative investments with competitive interest rates.”
The asset freeze was meant to safeguard the LIA funds from improper use and dissipation during the revolution following the toppling of Colonel Moammar Gadhafi’s regime in 2011 and the unrest that ensued. But there are no provisions under the sanctions for the reinvestment or movement of funds, thus much of the money sits in non-interest paying accounts. In addition, there are no provisions for reinvestment of dividends or maturing securities, nor for movement of funds allocated to low-performing managers, but the U.N. sanctions allow for the payment of management fees for the assets that are, in fact, rendered unmanageable.
“The LIA doesn’t want the sanctions lifted across the principal investments; it wants the ability to manage returns from investments, to take dividends and reinvest them to work harder for the Libyan people,” said Claire Davidson, a partner at Davidson Ryan Dore and spokesman for the LIA, in London. “The original sanctions were designed to be protective and for the benefit of all Libyans, not punitive. Five years on and they are nothing but,” she said.
In the letter, Ambassador Ibrahim Dabbashi requested a “resolution provision that will explicitly permit the movement of funds between frozen accounts and the closing and opening of accounts, so that the value of LIA assets may be protected and returns can be maximized, during the time that they remain frozen.”
After years of unrest and chaos, during which parts of the oil-rich country fell into the hands of terrorist factions, a new U.N.-backed unity government called the Government of National Accord is making slow progress in establishing its authority, so when the U.N. renewed its Libyan sanctions on March 31, it also kept the LIA assets frozen.
“It is difficult to see any significant change being made until the U.N. is satisfied that the unstable situation of the country has really come to an end, whether through the GNA or otherwise,” said Roger Matthews, a senior lawyer in Dechert LLP’s international trade and government relations practice in London.
Libya’s formal request to access and manage its frozen assets will continue to be reviewed on a regular basis, and in its latest report, the Security Council affirmed “its readiness to consider changes, when appropriate, to the asset freeze at the request of the Government of National Accord.”
Write to Mara Lemos-Stein at mara.lemos-stein@wsj.com
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| Libyan oil installations on fire after counter-revolution. |
Wall Street Journal
Jun 15, 2016 6:00 am ET
The Libyan Investment Authority isn’t only pursuing its interests through legal action against top global financial firms, but also lobbying the United Nations Security Council to soften an asset freeze on its funds to halt their declining value.
The LIA’s actions are sending a clear message to financial institutions eager to engage in business with the multi-billion dollar fund: tread carefully, said compliance and sanctions experts. Not only has the LIA become very litigious, but the licenses to transact with the conflict-torn and financially-sanctioned African nation are hard to get and quite restrictive, they said.
“When dealing with LIA assets, financial institutions need to tread very carefully,” said a London-based attorney who specializes in sanctions. The latest U.N. review of Libyan sanctions in March didn’t add any flexibility to the restrictions imposed in 2011, he said. What’s more, there are still rival claims of leadership over the LIA, so firms need to ensure they are in transactions with an organization that is legitimate.
At the same time the LIA is taking Goldman Sachs Group and Societe Generale to court in London claiming that undue influence by the investment banks led to losing trades for the fund, it is seeking access to its frozen funds, which have dropped around 14% in value as an unintended consequence of the tough sanctions.
Assets managed by the LIA stood at approximately $67 billion at the end of 2012, but have decreased to between $55 billion and $60 billion, according to the latest report by a U.N. expert panel on Libya. In a letter to the Security Council dated March 21, the permanent representative of Libya said that in 2014 alone, the value of LIA’s asset base had real losses of $721 million, and missed the chance of earning an additional $1.6 billion to $2.3 billion because it couldn’t “properly” invest in “conservative investments with competitive interest rates.”
The asset freeze was meant to safeguard the LIA funds from improper use and dissipation during the revolution following the toppling of Colonel Moammar Gadhafi’s regime in 2011 and the unrest that ensued. But there are no provisions under the sanctions for the reinvestment or movement of funds, thus much of the money sits in non-interest paying accounts. In addition, there are no provisions for reinvestment of dividends or maturing securities, nor for movement of funds allocated to low-performing managers, but the U.N. sanctions allow for the payment of management fees for the assets that are, in fact, rendered unmanageable.
“The LIA doesn’t want the sanctions lifted across the principal investments; it wants the ability to manage returns from investments, to take dividends and reinvest them to work harder for the Libyan people,” said Claire Davidson, a partner at Davidson Ryan Dore and spokesman for the LIA, in London. “The original sanctions were designed to be protective and for the benefit of all Libyans, not punitive. Five years on and they are nothing but,” she said.
In the letter, Ambassador Ibrahim Dabbashi requested a “resolution provision that will explicitly permit the movement of funds between frozen accounts and the closing and opening of accounts, so that the value of LIA assets may be protected and returns can be maximized, during the time that they remain frozen.”
After years of unrest and chaos, during which parts of the oil-rich country fell into the hands of terrorist factions, a new U.N.-backed unity government called the Government of National Accord is making slow progress in establishing its authority, so when the U.N. renewed its Libyan sanctions on March 31, it also kept the LIA assets frozen.
“It is difficult to see any significant change being made until the U.N. is satisfied that the unstable situation of the country has really come to an end, whether through the GNA or otherwise,” said Roger Matthews, a senior lawyer in Dechert LLP’s international trade and government relations practice in London.
Libya’s formal request to access and manage its frozen assets will continue to be reviewed on a regular basis, and in its latest report, the Security Council affirmed “its readiness to consider changes, when appropriate, to the asset freeze at the request of the Government of National Accord.”
Write to Mara Lemos-Stein at mara.lemos-stein@wsj.com
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