Western allies move cautiously on Libyan assets

The Obama administration and allied governments have begun a quiet effort to prevent their latest move to strengthen Libyan rebels from backfiring and delivering a huge cash windfall to Moammar Kadafi.

This month, the United States and dozens of other governments recognized the dominant Libyan rebel group as the legitimate government of Libya. The move was intended to open the way for the Transitional National Council to collect billions of dollars that have been frozen since March under United Nations Security Council resolutions.

But U.S. officials, allies and the rebels now fear that lifting the freeze to give the rebels access to the funds could also allow the Kadafi government to get its hands on some of the money that oil-rich Libya has invested around the world. If so, the cash could give an important boost to the Kadafi regime at a moment when it appears to be running out of funds to pay its mercenaries and other costs of the 5-month-old civil war.

“It’s important to keep the money under close control,” said Ali Aujali, the rebels’ envoy to Washington. “This is a very delicate issue; we can’t afford to let Kadafi and the regime have access to the money.”


A senior U.S. official, who declined to be identified because of the sensitivity of the issue, said the administration “shares those concerns.”

Most of the Kadafi regime’s foreign investments are in the West, including about $34 billion in the United States and almost as much in Europe. Many Western governments are committed to the rebels and are likely to do what they can to ensure the money ends up in rebel hands.

But Kadafi invested money widely, including in countries that are more sympathetic to him in sub-Saharan Africa and Asia, and there are fears that those governments might — intentionally or unintentionally — release money to his regime.

Not all the details of Kadafi’s investments are known, but it is clear that he invested in the Persian Gulf, Southeast Asia and Africa, as well as the United States and Europe, with smaller assets in Russia and China, officials say. Libya reported to the International Monetary Fund early this year that it had total foreign reserves of $104 billion.

Some African rulers have personal loyalties to Kadafi, and the asset freeze was unpopular in many parts of the world: Russia, China and India, among other countries, objected, saying they wanted Libya free to use the money so it could pay its debts to businesses in their nations.

Most of the world’s governments still recognize Kadafi as Libya’s legitimate ruler, and he still has an extensive diplomatic corps looking after his interests.

Kadafi has made it clear he is keenly interested in getting the money back.

Spanish officials disclosed this month that Kadafi had asked the government there to release about $143 million worth of frozen assets, including real estate in the pricey Costa del Sol region. Spanish authorities resisted, saying Kadafi needed to take up the issue at the United Nations.


One challenge facing the rebels and the governments that support them is persuading the Security Council’s sanctions committee to lift the freeze in a way that guarantees the money will go to the rebel group.

The Libyan war has become increasingly controversial at the Security Council. Russia, China, India and Brazil, among others, have complained that NATO governments have exceeded their U.N. mandate in the campaign against Kadafi’s forces, and have objected to France’s decision to arm the rebels.

A senior Western diplomat said it could be complicated to obtain the kind of new resolution that the West and the rebels want.

“Some countries are a bit more reluctant to move in that direction and might resist,” said the diplomat, who declined to be identified, citing the rules of his mission.


The sanctions committee, which comprises all 15 members of the Security Council, acts only if there is unanimous agreement.

And even if the council adopts the kind of resolution the rebels want, some countries may not implement it as the rebels would like.

Each country with Libyan assets would need to take legal action to judge who is entitled to receive the money, by passing a law or setting up a commission to sort through competing claims.

If the authorities simply lifted the freeze, “there would be a free-for-all from everyone who thinks they have a claim to the money,” said Victor D. Comras, who was a top sanctions enforcement official at the State Department and the U.N. “There could be 1,000 lawsuits.”


Though authorities in the United States and Europe would probably move carefully to ensure that the money went to the rebels, other countries “may have far different procedures, and they may have different sympathies,” Comras said.

The rebels fear that if Kadafi officials see any legal loopholes, “they will do everything they can to get their hands on assets, to sell them and send the money back to Tripoli,” said Aujali, the rebel envoy.

Another fear is that members of Kadafi’s regime, sensing that his government may not be around long, may try to steal the money for themselves.

U.S. officials, though eager to help the rebels raise cash as soon as possible, are making no promises on how long unfreezing the assets may take because, as one put it, “there’s a lot of moving pieces here.”