The international drive to freeze the Libyan regime’s foreign assets is running into stiff resistance in many parts of the world, allowing Moammar Kadafi to dig into a vast hoard of cash that has helped him cling to power as he battles rebel forces.
Although the United States and the European Union have blocked access to more than $60 billion in Libya’s overseas bank accounts and investments, other nations have done little or nothing to freeze tens of billions more that Kadafi and his family spread around the globe over the last decade, according to U.S., European and U.N. officials involved in the search for Libyan assets.
Kadafi has moved billions of dollars back to Tripoli since the rebellion began in mid-February, the officials said. The totals are not clear, in part because investigators believe the Libyan ruler made significant investments in companies and financial institutions that shield his identity.
Kadafi’s ability to skirt sanctions has undermined the Obama administration’s attempts to force his ouster after four decades in power. And his access to ready cash has hampered efforts to persuade his top aides and military commanders to defect as the conflict drags on, officials acknowledged.
The case is a cautionary tale about the limits of sanctions as a tool of foreign policy. It recalls former Iraqi dictator Saddam Hussein’s successful efforts to circumvent international sanctions, as well as Iran’s apparent ability to defy United Nations resolutions by leveraging trade ties to Third World allies.
Several countries that have developed strong economic ties to Libya, including Turkey and Kenya, along with several other African nations, have balked at carrying out the freeze, which was mandated by U.N. Security Council resolutions in February and March, the officials said.
Three of the world’s largest economies — India, China and Russia — have resisted U.S. and European efforts to expand the sanctions. They cite concerns that such action could halt payment to their own industries, suppliers or citizens who had worked in Libya.
Other countries with no apparent political or economic ties to Tripoli have made no attempt to identify or block access to Libyan assets, the officials said. In some cases, the governments may lack the technical capability to trace hidden assets.
So far, “only a handful” of governments have reported back to the Security Council enforcement committee, which oversees the sanctions, that they have blocked access to Libyan assets, according to a Security Council diplomat who spoke on condition he not be identified because of the sensitivity of the issue.
“We’ve done pretty well,” the diplomat said. “But when you’re dealing with somebody as sophisticated as Kadafi, with such sprawling commercial interests, this has been an uphill struggle.... It’s been hard.”
Under U.N. rules, governments don’t have to report their efforts to comply with sanctions for 120 days, which will mean late June. A panel of experts, now being organized, then will start “naming and shaming” countries that have failed to comply.
The four-month delay “is a major weak flank in the system,” the diplomat said. “And Kadafi, once bitten by [sanctions], understands the system.”
A White House spokesman declined to comment Saturday. But it’s clear that the lack of uniform action has hampered a global effort that initially seemed destined for success.
Shortly after the anti-Kadafi uprising erupted, U.S. officials found $34 billion in Libyan deposits, most of it in a single U.S. bank. President Obama quickly signed an executive order to freeze the funds, citing a “serious risk” that Kadafi, members of his family or senior government officials would misappropriate the money. EU officials soon found and froze as much as $30 billion more.
But then the trail apparently went cold.
“The fact of the matter is that Libya will still be able to draw on funds from banks that are simply outside the reach of the United States, the European Union and certain other countries that have blocked funds,” said Victor Comras, a top sanctions enforcement official at the State Department until 2001 and then at the U.N. until 2004.
Kadafi was a global pariah for decades because of his involvement in terrorist attacks. U.N. sanctions were dropped only in 2003, and U.S. sanctions a year later, after he scrapped a nascent nuclear weapons program.
Afterward, the Libyan strongman still took special care to hoard reserves of cash and gold in Libya. The International Monetary Fund reported in February that Libya has foreign reserves of $104.5 billion, enough to pay for imports for three years.
After the uprising began, Kadafi shifted money in national accounts so rebels based in eastern Libya couldn’t draw from bank branches there. It is one reason the Transitional National Council, ostensibly in control of the opposition-held zone, has pushed the West to make the frozen funds available to it.
In recent years, Kadafi also structured investments abroad in ways that enable him to quickly reclaim them, officials and analysts say. Investigators searching for his assets are still struggling to unravel the complex web of investments he built around the world.
Some were relatively easy to find. The country’s sovereign wealth fund, the Libyan Investment Authority, had invested in major European banks and businesses, including the Dutch-Belgian bank Fortis, Italy’s UniCredit banking giant, Britain’s Pearson media empire, Italian defense firm Finmeccanica and an oil-production agreement with BP. It even owned a stake in an Italian soccer team, Juventus.
Other lucrative investments turned up in Southeast Asia and the Persian Gulf, where Libya controls 60% of Bahrain’s Arab Banking Corp.
Other investments have proved harder to track, or to freeze.
Investigators say Kadafi has invested at least $5 billion since 2006 in African oil companies, pipelines, telecommunications firms, hotels, refineries and real estate.
The investments were motivated, in part, by “a desire to promote specific Libyan foreign policy objectives, or by the personal interests, desires and whims of the Kadafi family,” said Ronald Bruce St. John, a veteran Libya analyst based in New Mexico.
In Kenya, the government has yet to freeze Libyan assets. They include Libya Oil Kenya Ltd., a major oil and gas distributor, and Nairobi’s posh Laico Regency Hotel.
Zimbabwe, led by Kadafi’s longtime ally Robert Mugabe, is not expected to comply with the freeze, a European diplomat said. Kadafi has a stake in the Commercial Bank of Zimbabwe, and investments in tourism and real estate, and has helped prop up Mugabe’s brutal regime for years, analysts say.
Turkey has supported the international coalition arrayed against Kadafi, including deploying warships and planes to enforce the arms embargo and providing humanitarian aid. Yet Turkey has $17 billion worth of private investment in Libya’s economy, and Libya has had sizeable investments in Turkey as well.
Turkey “wants to preserve those economic interests,” said Bulent Aliriza, a specialist on Turkey at the Center for Strategic and International Studies, a nonpartisan think tank in Washington.
Russia and China have frozen some Libyan assets. But they and India balked at Western proposals at the Security Council to add more Libyan individuals and organizations to the list of those whose assets must be frozen. The proposals would seize the assets of some Libyan-owned oil companies with links to the three.
Diplomats say the resistance in New Delhi, Moscow and Beijing stems partly from economic concerns, but also from political doubts about the viability of the rebellion and the NATO-led military efforts against Kadafi. All three nations abstained on the Security Council’s votes to sanction Libya.