Banks face myriad difficulties in trying to return corrupt Gaddafi money
By Martin Coyle
LONDON, Aug. 30 (Thomson Reuters Accelus) – Banks face enormous legal and logistical challenges as they try to repatriate the billions of pounds worth of frozen Libyan assets invested in the war-torn North African state, according to industry officials. The process could take years to resolve even though the United Nations has already unfrozen some $1.5 billion in humanitarian aid which will be sent to the country.
The fears follow the overthrowing of Colonel Gaddafi’s dictatorship by rebel fighters and the formation of Libya’s National Transitional Council (NTC) in Tripoli. It is estimated that as much as $120 billion of Libyan assets are sitting in bank accounts worldwide, including up to $17 billion in the UK alone. UK foreign secretary William Hague said yesterday that it might take a while to repatriate frozen Libyan assets. The U.S. and South Africa last week struck a deal that will see $1.5bn of frozen money released for humanitarian aid by the U.N. The South African government initially had concerns about money being sent to the NTC, which it does not recognise. Diplomacy has smoothed over this, however.
Alan Bacarese, special counsel at Peters & Peters, the London law firm, pointed to the difficulties that Austria had recently in trying to return money frozen by U.N. sanctions to the rebel forces in Libya. He said that the Vienna government wanted to hand over some €1.7 billion but was faced with the thorny question of who exactly to return the money to. Banks will face this dilemma even after the U.N. reverses its sanctions against Libya.
Bacarese, who was previously head of legal and case consultancy at the International Centre for Asset Recovery in Basel, Switzerland, said that usually a central bank would be the recipient of the repatriated money — not a rebel group that has just overthrown a government.
“That isn’t going to chime in these days of enhanced due diligence. Banks and, indeed, governments, depending on where the assets are held and how, have got to ensure that they are returned to the right organisations. Of course, if they don’t, and they return it to the Central Bank of Libya in Tripoli, which at the moment is the subject of one of the targeted sanctions, they could be technically in breach of the sanctions. They are really caught until the sanctions are lifted,” he told Thomson Reuters.
Bacarese pointed out that although much of Colonel Gaddafi’s money was likely to be corrupt, plenty of legitimate money could be entwined with the dirty cash. Elaborate offshore vehicles and trusts would have been used to hide the origins of the money and these could take years to unwind, he said.
“There might be chunks of the money they can directly link to Gaddafi himself but as we found with [former Nigerian dictator] Sani Abacha and we found with [ex-Philippines leader] Ferdinand Marcos they use fairly complex corporate structures to launder the proceeds and it is very difficult to untangle them,” he said.
LEGAL ACTION LIKELY
Bacarese predicted a spate of legal challenges to the movement of funds back to Libya. He pointed to UK court cases brought by corrupt Nigerian state officials trying to prevent their money being returned to Africa. General Abacha died in 1998; his family and associates are estimated to have looted some $3 billion from Nigerian state coffers.
Bacarese said that although there was often overwhelming evidence that such officials had been involved in corruption the legal process was long winded. “None of the money that is the subject of sanctions is going to move anytime quickly. Much more problematic is where it is going to and who is it going back to,” he said.
Robert Palmer, a campaigner at anti-corruption body Global Witness, said that the issue with the Libyan Investment Authority (LIA), the country’s sovereign wealth fund, was clearer. Banks would know whose customers’ assets had been frozen. The problem lay with other Libyan investment vehicles which are vaguer about their ownership. There is even less clarity in Africa and the Middle East about what does and does not constitute Libyan money, he said.
“Governments outside the EU and the U.S. have been less determined in implementing the U.N. freezing sanctions,” he told Thomson Reuters. Earlier this year, Global Witness published a leaked document detailing how the LIA held nearly $65 billion worth of assets, including more than $1 billion with HSBC.
Palmer said that it was unlikely that the frozen Libyan money would be unlocked in one go and handed directly over to the NTC and that there would be checks and balances to ensure that the money did not find its way back into the hands of Gaddafi or his cronies. The lifting of sanctions could also cause some money to slip under the radar. “If you lift the sanctions it means that smaller pots of money that governments are not aware of will be able to be liquidated and moved,” he said.
Palmer said that the way transactions were structured meant it would be very difficult for institutions to identify assets that dictators controlled. Gaddafi is believed to have used the son-in-law of his daughter to hide his assets and the fact that his name was unknown helped Gaddafi hide and control these assets. Palmer called for cooperation between any new Libyan government and the authorities in the U.S. and UK to identify and return stolen assets. He added that banks still needed to apply enhanced due diligence measures on entities from the region even after their removal from government sanctions lists. “Just because it is no longer subject to sanctions doesn’t mean you are free from your anti-money laundering (AML) obligations, or the AML risk,” he said.
Zia Ullah, a partner at Pannone in Manchester, said that banks would err on the side of caution when dealing with Libya. “You might find that people will not do anything without the approval of regulators. This would be on top of [any] resolution,” he told Thomson Reuters.
Ullah said that banks would want specific regulatory approval for every money transfer to the country. He said that the situation was challenging for banks which needed to understand who they are dealing with. “Who are the authorised representatives of the NTC going to be? How are the banks going to get comfort that they are in fact dealing with those authorised representatives?”
Ullah said that there might be room for Britain’s Financial Services Authority (FSA) to take control for distribution of the funds although there has been no precedence for this. He said that the regulator could completely “de-risk” the situation for institutions. “If I was sat at Barclays now and I had frozen a couple of billion worth of assets my primary concern would be to find out who I am dealing with and who has given me the authority to deal with them?”
Ullah added that banks would want cast-iron guarantees from the UK Treasury before returning funds to the country. Otherwise they could find themselves subject to myriad legal challenges from Gaddafi and his sons even if they are captured. They are bound to argue that some of the funds are legitimately theirs, he said. Despite this, banks needed to take extreme care in dealing with funds from Libya.
“Go beyond enhanced due diligence — you need to be very, very careful,” he said.
The British Treasury’s Asset Freezing Unit (AFU) is responsible for the implementation of any UK sanctions legislation. It has reminded banks that at present Libyan assets remain frozen, but has said it would work closely with institutions if and when this changes. The FSA has been in touch with UK institutions regarding Libya and has said that it would help firms meet their regulatory obligations if and when the current sanctions regime is reversed. It has a memorandum of understanding with the AFU and has been in close contact with officials.
(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete (http://accelus.thomsonreuters.com/solut ions/regulatory-intelligence/compliance- complete/) provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.)