Member Case Study: K2 Intelligence FIN – The Libyan Investment Authority (LIA) and Gaddafi’s frozen legacy

Member Case Study: K2 Intelligence FIN – The Libyan Investment Authority (LIA) and Gaddafi’s frozen legacy

Sabrine Hassen, Associate Managing Director, K2 Intelligence FIN

K2 Intelligence Financial Integrity Network (FIN) is an industry-leading investigative, compliance, and cyber defence services firm founded in 2009 by Jeremy M. Kroll and Jules B. Kroll, who is credited with originating the modern corporate investigations industry. Their clients frequently include financial institutions, law firms, hedge funds and private equity firms, and private and sovereign clients seeking to recover assets as well as public entities and private companies in a variety of sectors including energy, mining, real estate and construction, education, and technology.

An expert in compliance related projects in Emerging Markets with a personal tie to Libya herself, Invest Africa Insights sat down with Sabrine Hassen, Associate Managing Director at K2 Intelligence FIN.

Could you briefly outline your experience in Libya and why you were there?

In my previous role, I was one of the first investigators to go into Libya after the collapse of the Gaddafi regime, in fact four days after he was killed. My team had been mandated by the National Transitional Council (NTC) to carry out an assessment of the destination of funds from donor nations seeking to rebuild the country. The country newly formed ministries of heath and housing mandated us again for similar work, largely on the basis of the success of our earlier work. This kind of on the ground investigations halted in 2015.

What is the status of compliance-related investigations in Libya today?

Libya appears to have halted or should I say put on hold most “domestic” compliance related work since 2015. However, compliance and dispute work around the Libyan Investment Authority continues in Europe but not much in Africa, where it owns multiple assets including hotels, energy plants, telecommunications companies and safari parks.

Very little is reported or known about LAICO or LAP compliance lead investigations, while LIA’s international legal disputes have been widely reported in the media.

Can you explain the background of the Libyan Investment Authority (LIA) and the Libyan African Investment Company (LAICO)? Why were they set up and what do they do?

The LIA manages assets worth more than US$64 billion and has invested in 55 countries. Over the past two years, its structure has fractured, leading to a split into two parallel authorities: one in Malta, and another in Tripoli. Other subsidiaries of the LIA include the Libyan Arab Foreign Investment Company (LAFICO), the Long-Term Investment Portfolio (LTP), and the Libyan Local Investment and Development Fund (LLIDF).  The LIA has nearly 550 subsidiaries and frozen cash accounts in the form of long-term investments in a number of Libyan institutions. 50% of these investments are in the form of funds and portfolio investments while the other half is managed by the LIA itself, and this consists of cash balances and deposits in foreign banks, investments in bonds and instruments of steady revenues. It must be mentioned that these figures have not been confirmed as there is no formal documentation.

The aim of the LIA was to invest Libyan money abroad and in various fields in order to develop and diversify the national economy’s resources and to achieve the best revenues to support the national economy. 80% of these investments are in the sectors of real estate, services, telecommunications, energy, and mining. 9% is in agriculture.

What was unclear was the specifics of these assets. Gaddafi had bought them not for business purposes but mainly to garner political loyalties amongst his own government and indeed other political leaders in Africa and further afield; as such they have remained elusive, even to this day.

What was Gaddafi’s reasoning for creating the LIA and the LAIP?

Gaddafi established the LIA in 2006 as a means to streamline and sharpen Libya’s investments abroad, which at the time were around US$60 billion. Its investments were so far-reaching and extensive, that one could assume that Colonel Gaddafi wished to prop up and promote Libya’s economy as a destination of choice for foreign investment.

However, this was more likely to have been a vanity project, something that would make Gaddafi appear to be an international statesman and a pan-African leader. Additionally, Gaddafi sought the support of the African Union (AU), and as such, at one point he claimed to have been one of the AU’s five main donors.

Critics of Gaddafi state that the dictator was hoarding Libya’s vast oil wealth away from ordinary Libyan citizens. He is even accused of having spent some of the money to pay mercenaries from Africa to put down any rebellions in his own country.  Some sources suggest that the creation of the LIA was actually the brainchild of Gaddafi’s son, Saif al-Islam.

Saif would travel regularly to European capitals and spend lavishly, leading many to praise him as the person that would liberalise and privatise Libya for wealthy shareholders around the world.

The LIA and the Libya African Investment Portfolio have been subject to a partial asset freeze since 2011. Can you explain why this step was taken and what it meant for the company?

As I’m sure our audience knows, it is very hard to freeze assets in Africa. One of the biggest challenges that Libya faces is the possible acquisition/nationalisation of its investments in some African countries. For example, in Cote d’Ivoire, the government announced that three mobile phone companies would be nationalised, among them was the LAP Green, a company owned by the LAP. The LAP is now at the heart of a “turf war” between the opposing sides in the Libyan conflict – the Government of National Accord (GNA) and the Libyan Army.

When the 2011 Arab Spring began, the EU and the US froze the LIA’s assets in accordance with a UN resolution. Creditors have attempted to get back some of the money owed to them by the Libyan state from the LIA, however, this has been unsuccessful.

What do you think the likelihood is of these assets being unfrozen?

I have continued talking to people on the ground who anticipate that LIA assets will not be unfrozen straight away even with a newly unified government. There will be some time until European authorities are satisfied that the funds will not go to some corrupt politicians.

What we know is that the Libyan Sovereign African Funds have not been frozen and therefore it would be very easy for the new Libyan government to use some of those assets to rebuild the country. That move needs to be monitored carefully to make sure the wealth is redistributed wisely and for the benefit all of Libyans.

The main focus of the Libyan government should be now to demonstrate to EU authorities that they are correctly managing the pool of assets they are responsible for in Africa in a correct and transparent manner. That they have re-invested the assets available to them which in turn will help their cause and unfreeze “the bigger fish”, i.e. the US$68 billion in assets currently frozen.

What do you think that the risk of a further asset freeze?

I think there could well be a further asset freeze, but as I was telling you earlier, this will be tricky to implement given the opacity surrounding asset tracing in this case. It would be fair to say that in the case of LAP, foreign governments have also played a part in worsening transparency. Some assets are clearly identifiable, but others are not. Identifying the missing assets is the key here, which will prove to be quite costly and time-consuming.

How can K2 Intelligence FIN assist businesses in the region confronted with this kind of risk factor including asset freezes? 

K2 Intelligence FIN specialises in helping clients identify, trace, and recover assets around the globe. Our asset tracing pursuits run the gamut: from funds shielded through complex corporate structures, to embezzled assets of former heads of state, to millions or billions misappropriated by schemers. We combine traditional asset tracing and recovery methods with the latest technology advancements to help our clients identify and recover attachable assets, uncover sophisticated embezzlement schemes, identify key relationships, and maximize the likelihood of recovery and the most desirable outcome for our clients.

We support our clients throughout the process of asset tracing and recovery: beginning with determining the overall extent and location of subjects’ assets up to and including the attachment of those assets once legal proceedings are initiated

Our methodical approach includes asset mapping, asset recovery strategy and continued recovery support.

For more information on K2 Intelligence FIN, please visit their website via the button below: https://www.k2intelligence.com/

Sabrine also took part on Invest Africa Insights’ webinar, examining North’s political and economic outlook in light of COVID-19. You can watch the full webinar recording here: https://youtu.be/CYdX2nAkLpQ