Following the Money in Libya

"Libya’s collapse has damaged its sovereign wealth along with its ability to function as a country."

LONDON. Muammar Gaddafi may have had many shortcomings, but grant him this: there was only one of him. When the Libyan Investment Authority was set up in 2006 to manage the country’s new oil wealth, it faced plenty of challenges, not least the idiosyncratic wishes of the Brotherly Leader and Guide of the Revolution of Libya as to where the money should be invested. But at least there was no doubt about who was ultimately in charge.  By contrast, today uncertainty seems to define the LIA, with two competing leaders each maintaining that they run the fund. Libya’s new unity government, announced on October 9, has put the leadership dispute into sharp focus.

“LIA should be above Libyan political infighting,” AbdulMagid Breish told the National Interest. “We’re responsible for the assets of the Libyan people. Institutions such as LIA, the Libyan Central Bank, and the Libyan Oil Corporation should not represent one side or the other.”

Yet Breish, appointed chairman and CEO of the LIA – which is also referred to as LIA, pronounced Leah –for a three-year term in 2013, is seen as representing one side. After Libya’s transitional General National Congress parliament left office in 2014 to make way for the newly elected House of Representatives, Breish stepped aside (his opponents argue he resigned) while his links to the Gaddafi regime were investigated. The investigation was required by a law that applied to all officials who has served under the Colonel. Breish says a court decision this April reinstated him, whereupon he replaced interim head Abdurahman Benyezza.

But in the meantime, militias had overrun Tripoli and Libya’s government had fallen apart, causing the – majority -liberal – House of Representatives to decamp to the city of Tobruk near the Egyptian border, where it set up a new government. Last year the Tobruk government also appointed a new head of the LIA, Hassan Bouhadi, who set up office in Malta’s capital, Valetta. Since April, Libya has thus been in the bizarre situation of presiding over Africa’s largest sovereign wealth fund but having two men who both claim to be its boss. Meanwhile, the General National Congress – which is predominantly Islamist – continues to sit and like the House of Representatives runs a chunk of the country.

“Breish and Bouhadi debate operational versus legal control,” explained Patrick Schena, an assistant adjunct professor at Tufts University’s Fletcher School of Law and Diplomacy and co-head of the Fletcher Network for Sovereign Wealth and Global Capital.  “The former is in Tripoli and claims operating access to sanctions-exempt assets.  The latter, the appointee of the international-recognized government, is in Malta.  Who is formally in charge remains the subject of some legal dispute.” Indeed, Breish says he signs off on transactions involving the around 15 percent of the LIA’s assets that are not frozen, though Bouhadi is allowed to do the same. (Bouhadi was not available for an interview, but the Valetta side provided his perspective.)

While 15 percent may sound negligible, it’s a large chunk of money given that the LIA has assets of $67 billion. The sheer size of Libya’s sovereign wealth makes the conflict between the LIA’s competing heads all the more significant – and all the more nerve-racking for the Western companies it has invested in. Among the LIA’s assets: $20 billion in bonds and a one percent ownership of the Italian oil giant ENI; two percent of the Italian aerospace company Finmeccanica; 7.5 percent of the Italian bank UniCredit; two percent of Fiat; 7.5 percent of the soccer club Juventus, as well as stakes in Pearson, RBS, and Russian oligarch Oleg Deripaska’s aluminium empire Rusal. The power struggle has led to unusual situations such as a recent visit by Bouhadi to Italy, where he discussed cooperation with economy minister Pier Carlo Padoan even as Breish maintains that he alone pulls the purse strings. As for the frozen assets, Bouhadi proposes a “smart unfreeze” of assets while Breish says they should remain frozen, arguing that unfreezing them while Libya is in turmoil would be risky.

Two competing heads, mostly frozen assets: Libya’s collapse has damaged its sovereign wealth along with its ability to function as a country. “Functionally the LIA has lost relevance due to its disputed leadership and frozen asset pool,” explained Schena. “Its international import today, to the extent it is relevant, might be most attributable to its outstanding legal proceedings against Goldman Sachs and Société Générale and their implications for other asset owners.

Indeed, while Breish and Bouhadi seem to have permanently locked horns over who’s the boss, they have teamed up in a lawsuit filed in London against the two megabanks.   Negligence and poor advice by the banks cost the LIA a whopping $3.3 billion during the uprising that toppled Gaddafi, the LIA’s two factions contend. The LIA had filed the suit during Breish’s initial tenure, but the case stalled after the power struggle began and the London law firm involved complained of conflicting instructions from the two heads. The two sides have also been engaged in litigation against each in London. On October 9, the judge turned down an application by the Valetta branch for expedited recognition.

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