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U.S. Banks Hold Billions In Frozen Libyan Assets, Out Of Rebels' Reach

Libyan leader Muammar Qaddafi at the opening of an African heads of state summit in Addis Ababa in February 2009
Libyan leader Muammar Qaddafi at the opening of an African heads of state summit in Addis Ababa in February 2009

WASHINGTON -- As the battle against the Libyan government of Muammar Qaddafi nears its three-month mark with little sign of abating, rebel forces say they need more than just NATO military assistance.

In the besieged city of Misurata, a focal point of the rebel effort, the fighting is still heavy and residents are desperate for food, medicine, and basic necessities.

With Misurata in mind, UN aid chief Valerie Amos has called for a pause in hostilities in Libya to help ease the humanitarian crisis and called on the Security Council to ensure that all parties respect international law.

NATO's mission to protect civilians began almost two months ago, but government troops are still launching attacks and the rebels are still asking the international community for more help.

And by "help" they mean money: for weapons, supplies, medicine, and food. The oil-producing country has billions of U.S. dollars, euros, pounds sterling, and no doubt other currencies stashed abroad in foreign banks, but much of that money has been frozen in response to the crisis and the brutality Tripoli has shown against its own citizens.

"Not a day goes by that I do not see pro-Qaddafi forces using violence against men, women, and children," NATO commander Lieutenant General Charles Bouchard said on April 26, adding, "Not a day goes by that I don't notice that pro-Qaddafi forces are shielding themselves with men, women, and children. Our mission is to bring an end to that."

Seeking Cash And Legitimacy

The cash-poor rebels got some good news last week. At a May 5 meeting of the Libya Contact Group -- which includes the United States, European powers, and Middle Eastern countries -- a fund named the Temporary Financial Mechanism was set up to "provide a transparent channel for short term support" to the main rebel group, the Interim Transitional National Council.

Kuwait stepped up first, pledging $180 million, and other members of the contact group are expected to follow suit. But the donated amount probably won't approach the $2 billion-$3 billion the Interim Council says it needs to succeed against Qaddafi’s forces.

More than 10 times that amount is sitting in U.S. banks, frozen by an executive order President Barack Obama issued on February 25.

According to Stuart Levey, now with the Council on Foreign Relations but who was then the undersecretary of the Treasury for terrorism and financial intelligence, Obama's order froze more than $32 billion worth of assets belonging to Qaddafi and some of his sons as well as Libyan government assets from the central bank, Tripoli's sovereign wealth fund, and the Libyan Investment Authority, among other entities.

On its website, the Libyan Interim Transitional National Council says it "derives its legitimacy from the decisions of local councils set up by the revolutionary people of Libya on the 17th of February." But so far only a few countries -- Qatar, Italy, France, Maldives, the Kuwait, and The Gambia -- have officially recognized it as the legitimate government of Libya.

In early April, the council sent a representative to Washington to ask for the same recognition. Ali Suleiman Aujali met with Obama administration officials and told the Treasury Department that the council needed "immediate access to the Qaddafi regime’s frozen assets" in the United States.

In appearances at influential Washington think tanks, Aujali -- who was Tripoli's ambassador to the United States before he defected to the rebels' cause -- told standing-room-only audiences that if the White House officially recognized the interim council, billions in frozen Libyan assets could start flowing to the rebel cause, raising the chance of success.

A Question Of Authority

Not so fast, according to Washington lawyer Erich Ferrari. The founder of Ferrari Legal, a Washington law firm that specializes in international sanctions on foreign assets, said he doesn't see the freeze being lifted even if the transitional council does win official recognition from Washington, because the risk for the United States is too high.

"Let's say that he gets his wish and they transfer all the funds to him -- well, what happens if Qaddafi remains in power? And maintains control?" Ferrari said. "Then you've given all the assets of the government of Libya to what essentially at that point is still a nongovernmental organization, although they have received recognition from the United States in that scenario. So you have this transitional council with all this money that actually does still belong to Libya."

Under that logic, the opposition fighters have little chance of getting their hands on U.S.-based Libyan government assets while the fighting is raging.

Hal Eran, who spent eight years in the Treasury Department's Office Of Foreign Asset Control and is now in private practice in Washington, said the U.S. government isn't going to grant official recognition to a group of opposition fighters -- even ones they support -- just because of financial need.

"In the U.S. context I don't think the need [by] this provisional or transitional government for funds will drive the recognition decision -- it's sort of the tail wagging the dog," Eran said. "I think there are going to be other, more important factors that are considered before the United States decides to recognize any group or transitional council in Libya."

But even under the scenario where the rebels topple Qaddafi, assume control in Tripoli, and Washington officially recognizes a new interim government -- as it did in Kyrgyzstan in 2010 when opposition forces forced Kurmanbek Bakiev from power -- the Libyan assets wouldn't necessarily be turned over immediately.

The new government, Eran said, would first have to prove that it is firmly in control and running things -- they'd have to have their own people installed in banks and nationally owned companies and demonstrate that they would use the unfrozen assets to carry out the work of the new government.

Even then, Qaddafi could fight the decision in court, arguing that he is still the legitimate leader.

And what of Qaddafi's personal assets if he fled into exile?

"I think those funds would be unblocked, but there would be legal action by the new Libyan government to attach those funds, to seek to recover those funds," Eran said.

"If...unblocking were to occur then there could be litigation in the courts with respect to that money in Qaddafi’s account, because [the new leaders] could say, 'Look, this was stolen from the Libyan treasury, these are not his funds, they need to come back and be repatriated to Libya and be made available for benefit of Libyan people.'" he added.

So the new government could also fight a decision it didn't like in court.

Oil Sales Beginning

What's clear is that President Obama had the legal authority to freeze the assets and he has the legal authority to unfreeze the assets. What isn't clear is under what circumstances he would actually do that.

Officials from the Treasury Department say they are "discussing" ways to help the rebels. But in the meantime, the opposition forces' urgent financial needs have been partly answered by Qatar, which set up a trust fund to facilitate the sale of crude oil. Oil production is under way in the eastern, rebel-controlled areas of the country.

Last month, China was reported to have bought the first batch of oil from the rebels, and as of this week nearly 1 million barrels had been sold, earning the rebels -- and their cause -- around $100 million.

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