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Libya’s Sovereign Fund May Hold Key to Country’s Civil War
With rival governments in Tripoli and Tobruk still at odds, control of the $67 billion fund could prove decisive to nation’s fate.
Four years after the death of Muammar Gaddafi, chaos reigns in Libya as an internationally recognized government vies for power with a rival Islamic faction and radical groups including Islamic State control parts of the countrys vast territory. Away from the civil war battlefields, an equally important struggle is taking place over control of the nations $67 billion sovereign wealth fund.
Hassan Bouhadi, former secretary of the board of trustees of the Libyan Investment Authority, claims control of the sovereign fund on behalf of the House of Representatives (HoR), the internationally recognized government. The HoR decamped to the eastern city of Tobruk in 2014 after Islamists rejected the results of the countrys June 2014 elections and seized the Tripoli airport. Abdulmagid Breish, a former LIA chairman was forced out over his Gaddafi regime connections, has staked a competing claim on the funds with the support of the Islamist-led General National Congress (GNC), which controls much of the countrys western half from Tripoli. The two men are facing off in the English High Court in a case that could determine who gets the money and, with it, the upper hand in Libyas civil war.
Much of the LIAs portfolio remains frozen under international sanctions imposed to prevent looting after the fall of Gaddafi, but control of the fund still carries great weight in the countrys ongoing power struggle. The LIA holds money, and what makes Libya tick is essentially patronage, the ability to dispense money to keep certain militias and groups in line, says Diederick (Dirk) Vandewalle, an associate professor of government at Dartmouth College and Libya specialist. Only money can provide that.
When the security situation in Tripoli began to dissolve last year and the House of Representatives fled to Tobruk, Prime Minister Abdullah al-Thani was quick to appoint new leadership at the LIA. In October 2014 his administration sacked then-chairman Abdulrahman Benyezza and replaced him with Bouhadi, who had served as secretary of the board of trustees from 2012 until he was appointed to the board of directors, which oversees management of the fund, in February 2014.
We report to the internationally recognized, democratically elected HoR, Bouhadi, whose office is in Malta, told Institutional Investor in a recent telephone interview. This protects governance.
In Tripoli, meanwhile, Breish sits in the LIAs offices and is recognized as the sovereign funds chairman by the GNC. Breish had been appointed chairman in June 2013 but was forced out a year later and replaced by Benyezza because of an investigation under the Political and Administrative Isolation Law, which barred Gaddafi-era officials from holding government positions. After Breish successfully appealed the decision, the Tripoli government agreed to comply with the judgment. He reclaimed his office in May 2015. I simply had a handover ceremony from the person who was there, says Breish, referring to Benyezza. Its the same person I handed over to a year ago, and that was it.
The contested leadership of the LIA has parallels in many of Libyas leading economic and financial institutions. Everybody was trying to maximize their position, so anybody who was even borderline suspected of being potentially disloyal to one side or another was simply dismissed, Dartmouths Vandewalle says. Thats certainly the way Tobruk tried to re-create all of the central institutions. Today the Central Bank of Libya, National Oil Corp. and Libyan Post Telecommunications and Information Technology Co. are all caught up in the tug-of-war between the rival Tripoli and Tobruk governments.
Although Breish traces his authority to the GNC, he insists he answers to neither government and is preserving the LIAs independence for the good of the Libyan people. The government in Tripoli has set up a board of trustees, but my involvement is to stay clear of both governments, he tells II.
Breish has some 95 employees, who stayed in the Tripoli office after the board of directors left for Tobruk last year. He maintains they have resumed normal business or, as normal as possible considering the asset freeze and that the security situation in the capital has improved. For the past year we havent experienced any problems, he says, but he adds that there are a few kidnappings around the periphery of Tripoli and clashes between gangs.
Most of the staff may have stayed in Tripoli, but Bouhadi has recreated the LIAs departments in Malta and contends they are sustaining operations. Both sides have been meeting with financial institutions and foreign governments to assert their claims to legitimacy. Bouhadi states his bluntly: How can you protect Libyan assets if youre not part of the internationally recognized government?
The confusion threatened to derail the LIAs lawsuits against Goldman Sachs Group and Société Générale seeking $3.3 billion in damages over derivatives trades made between 2007 and 2009. The suits, filed in January 2014 under Breishs leadership, allege that the banks sold complex instruments that the fledging fund didnt understand, resulting in billions in losses.
After the LIAs leadership split into rival factions in 2014, Benyezza and Bouhadi agreed to a truce to let three London-based LIA employees, dubbed the litigation committee, pursue the lawsuits with the funds U.K. law firm, Enyo Law. By February the litigation committee was found to be telling some of our stakeholders, banks and lawyers that they should be dealing with Tripoli and not Tobruk, says Bouhadi. So the board took the decision to relieve the three people on the litigation committee, and we told the litigator to report directly to the board. Unable to determine the LIAs leadership, Enyo dropped the case in April.
When Breish returned to the LIAs Tripoli office in May, he agreed with Bouhadi to make a joint application to the High Court to appoint a receiver, or trustee, to instruct the lawyers on the LIAs behalf until the rival claims to the funds authority were resolved. The judge appointed global accounting firm BDO as receiver in July, and Enyo Law went back to work. The trial for the Goldman Sachs case is slated for June 2016; the case against Société Générale is due to return to trial in early 2017. BDO and Goldman declined to comment on the current state of the litigation. SocGen did not return calls requesting comment.
As the court approved the receivership only as a temporary fix, Bouhadi, Breish and their respective legal teams returned to the High Court in October to start the process of determining which side has authority in the U.K.
Since the civil war began, Britain has avoided taking sides in the conflict and has kept open channels of communication with Tripoli. The judge ordered that the question of which government the U.K. considers legitimate be put to the Foreign & Commonwealth Office. If the FCO does not take a stance, when Bouhadi and Breish return to court in the spring a judge will decide based on four criteria: the constitutional basis for the government, control of territory, dealings with the U.K. and in marginal cases, the extent of international recognition that it has as the government of the state. The FCO declined to comment on the case.
The case would be dismissed if Libya unified, but that seems unlikely. Although representatives of the Tobruk and Tripoli governments signed a United Nationsbrokered power sharing agreement on December 17, neither side has rallied a parliamentary majority to back the deal. Moreover, implementation of the plan could be obstructed if the countrys many militias are not brought in line. Before the signing ceremony, the International Crisis Group, a Brussels-based nongovernmental organization, warned that rushing to establish a new government without first securing domestic support and addressing security concerns would strengthen hardliners and condemn the government to irrelevance.
In the absence of a durable peace agreement, the U.K. government will likely have to pass judgment in the LIA case. A victory in London could be more important to Libyans than any gunfight over turf. Both sides realize very clearly that whoever controls the funds of LIA, which will be decided very likely in London, will very likely control Libya in the future, says Dartmouths Vandewalle.