Imagine you just inherited $160 billion. Now imagine that United Nations sanctions, unilateral sanctions, and layers of property law stand between you and your money. Now imagine that most of that money is tied up in investments and property, so that you can’t get to it right away. Now imagine you’re at war.
As Libyan rebels take control of Tripoli, the pressure to release the frozen assets of Muammar el-Qaddafi's regime is rising. Libya’s Transitional National Council argued on Wednesday that it urgently needs at least $5 billion of the money to fund stabilization efforts, the Financial Times reported.
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According to officials from Germany to Qatar, the estimated $160 billion in frozen assets now belong to the rebels and should be diverted to them as quickly as possible. The United States wants “to give back to the Libyan people, managed by the legitimate governing authority, the Transitional National Council, their own money,” State Department spokeswoman Valerie Nuland told reporters earlier this week.
Easier said than done.
The negotiations over the Qaddafi regime’s holdings are especially complex because so many layers of national and international law are involved, according to financial sanctions experts who work with the U.N. They anticipate long, tedious legal struggles.
Let’s start with the two layers of sanctions that need to be lifted: The United Nations Security Council resolution, and then the unilateral and multilateral sanctions put in place by various U.N. member nations.
To release funds without waiting for U.N. permission would be a violation of international law. Officials from the United States, United Kingdom, and Germany have stressed that they would prefer to move through U.N. channels. But U.N. channels are slow moving.
The United States was granted a humanitarian exemption to the asset freeze from the U.N. sanctions committee on Thursday, after seeking such an exemption for weeks. The measure will allow $1.5 billion in U.S.-held liquid assets to be diverted in aid to Libya, and responds to requests for aid the TNC itself submitted to Secretary of State Hillary Rodham Clinton earlier this month.
The U.N. resolution, according to those who've seen it, outlines conditions for the Libyan opposition to meet in order to get the money that's easiest to transfer: the Libyan government's own cash and investment portfolios. The resolution will tap funds belonging to the Central Bank of Libya, the Libyan Investment Authority, the Libyan Foreign Bank, the Libyan African Investment Portfolio, and the Libyan National Oil Corporation.
There's no specific reference to bank accounts controlled by Qaddafi.
Lifting the U.N. sanctions, or rewording the U.N. resolution to allow the transfer of frozen assets to the TNC, would be a complicated diplomatic and legal issue, according to U.N. diplomats.
“We would prefer for the U.N. Sanctions Committee to take action,” but if negotiations fail, the U.S. will “find ways to do this unilaterally,” Nuland said this week.
Treasury itself said last month's recognition of the TNC as the legitimate governing authority in Libya helped pave the way toward making some of the frozen assets in the United States available to the Libyan opposition, but legal issues remain.
American sanctions against the Qaddafi regime remain in place, and all property and interests in property of the Qaddafi regime and others sanctioned by Treasury remain blocked.
Once banks get the go-ahead to transfer the funds, the real fun begins. We’re talking mixed portfolios of assets, held by a range of entities from individuals to state agencies. Of the estimated $37 billion held by the United States, only $3 billion is considered liquid. Most of the money is caught up in securities investments.
Perhaps the biggest hurdle: making the legal argument that the money no longer belongs to Qaddafi and his cronies, and that it belongs to the TNC instead. Should the assets go back to the original owners, or to somebody else? Financial sanctions experts say the transfers will need to stand up to challenges in a variety of courts around the world.
Nuland called Qaddafi a “criminal” on Wednesday, offering his tyranny as justification for taking his property rights away.
Politically and practically, the fragility of the Transitional National Council is also cause for concern.
“The world will be looking to the TNC to make sure they use this money for the good of the Libyan people,” Nuland said of the proposed $1.5 billion transfer. She stressed that the United States has confidence in the interim governing body.
Yet Washington's request to the U.N. betrays a reluctance to transfer the money to the TNC. Of the $1.5 billion to be transferred, one-third will go to private companies to pay the TNC’s existing nonmilitary fuel bills, and one-third will go to U.N. aid organizations. The final $500 million will go to a fund set up by the Libya Contact Group of donor nations for the TNC's use. In order to access the third set of funds, the TNC will need to bring itemized receipts to the fund's steering board. It will not be receiving any money upfront.
Notably, even as the TNC requests urgent funds, it’s offering a $2 million bounty for Qaddafi himself.
The Qaddafi regime’s assets “are not ours” to spend, said Anthony Cordesman, a national security expert at the Center for Strategic and International Studies. “Once a government is legally recognized as inheritor, we have no right to hold the money.” The real debate, Cordesman said, is whether the United Nations and the international community can negotiate better terms of transfer.
“We will be led by the desires of the Libyan people,” Nuland told reporters, even as she admitted the TNC’s request for the frozen assets will be complicated. Call it the “fog of frozen assets,” she joked.