Friday, February 25, 2011

WikiLeaks: Gadhafi Stashed $32 Billion in Cash in Foreign Accounts

Theunis Bates
Libyan leader Moammar Gadhafi has signed dozens of multibillion-dollar deals over the past decade with foreign firms eager to exploit his country's vast oil and natural gas reserves. So where has all that money gone? Not to ordinary Libyans, around one-third of whom are thought to live in poverty.

Instead, Gadhafi and his family appear to have been quietly siphoning off the country's riches and investing them abroad. According to a confidential cable penned last year by the U.S. ambassador to Libya, the regime's secretive sovereign wealth fund (an investment vehicle for Gadhafi and his cronies) has stashed at least $32 billion in cash in foreign financial firms -- with several U.S. banks each holding up to $500 million each.

That diplomatic dispatch, released by anti-secrecy site WikiLeaks, details a meeting between Gene Cretz, the U.S. ambassador to Libya, and Mohamed Layas, head of the Libyan Investment Authority (LIA), in Tripoli in January 2010. Layas wanted Cretz to encourage U.S. firms to invest in Libya's health and tourism sectors. To underline the safety of such an investment, he stated: "We have [$32 billion] in liquidity ... mostly in bank deposits that will give us good long-term returns."

Layas added that "several American banks are each managing $300-500 million of LIA's funds" and moaned about being "entangled in a legal disagreement with Lehman Brother's due to a major investment that was 'mismanaged.'"

Although Gadhafi and company pumped money into that failed investment bank, Layas said they sensibly turned down approaches by two Americans linked to notorious Ponzi schemes -- Bernie Madoff and Allen Stanford.

The Gadhafi family hasn't restricted its investments to financial institutions. As of 2009, according to the Sovereign Wealth Fund Institute, the LIA had accumulated $70 billion in assets, including substantial stakes in numerous European bluechip firms. The LIA owns 2.6 percent of Italian lender UniCredit (worth about $1.3 billion), 2.01 percent of Italy's biggest defense and aerospace firm, Finmeccanica (about $105 million), and 7.5 percent of Juventus soccer club ($17.5 million).

Meanwhile in Britain, the sovereign fund snapped up 3.01 percent of publisher Pearson, which owns the Financial Times (at today's market rates, that stake is worth nearly $400 million), as well as several prime pieces of London real estate. LIA spent $258 million on a retail center in the capital's main shopping district in June 2009, and that December paid $190 million for an office block opposite the Bank of England.

All of these investments were originally intended to only enrich the Gadhafi clan. But they could end up benefiting the whole nation. The United States and European Union governments are now considering freezing the dictator's foreign assets. That move should prevent the colonel and his family from draining the fund, which would instead be inherited by the next Libyan government.

Sven Behrendt, managing director of Geneva-based consultancy Geoeconomica, told Reuters that the new administration could cash in some of the fund's assets and use the money to invest in Libyan companies that will create much needed jobs at home. "Can we turn Gadhafi's political toy into a long-term oriented sovereign wealth fund which benefits future generations?" he said. "It's possible."

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