Breakthrough for Libya as UN eases sanctions to allow it to reinvest frozen cash

Libya has for the first time been allowed by the United Nations to reinvest proceeds from the $70 billion of assets bought with its oil wealth since sanctions were imposed in 2011.

The Libyan Investment Authority, the country’s sovereign wealth fund, had been seeking an easing of the sanctions imposed at the start of the uprising that overthrew Muammar Qaddafi’s regime. The aim of the sanctions was to freeze the LIA’s assets to prevent them falling into the hands of him or his supporters, and to preserve them to be used for the benefit of the Libyan people. They remained in place as the country descended into civil war.

But as Libya has entered a period of relative stability, the LIA has sought permission from the UN Security Council to be allowed to reinvest the returns from its assets, such as payouts from bond holdings, to maximise their value. The LIA has said a Deloitte audit showed the freeze had cost it some $4.1 billion in potential equity returns.

The Security Council has now voted to allow returns from frozen cash reserves to be placed in low-risk investments with what it describes as “appropriate financial institutions”. The outcome follows a period of turmoil for Africa’s largest sovereign wealth fund during which it had rival chairmen.

But reforms undertaken as order was restored to Libya mean the LIA now ranks 51st out of 100 sovereign funds for governance by SWF, an industry data specialist, up from 98th in 2020. The LIA said it “welcomes” the decision, which it said “reflects the high level of trust” it has been able to build, which has been coupled with “adopting international standards” for its operations.

The LIA has $29 billion in global real estate, $23 billion in deposits invested in Europe and Bahrain and $8 billion in equities spread over more than 300 companies around the world. It also has roughly $2 billion worth of matured bonds.

According to the Office For Sanctions Implementation (OFSI), UK businesses hold £11.53 billion ($14.1 billion) worth of frozen Libyan assets. Libya is the sanctioned nation with the highest value of frozen assets held by UK businesses. Britain’s UN ambassador Barbara Woodward described the UN resolution as “an important step, ensuring that the UN sanctions regime on Libya remains fit for purpose and in the service of the Libyan people.

“For the first time, the Libyan Investment Authority will be allowed to reinvest frozen cash reserves to safeguard the assets for the future benefit of the Libyan people,” said Ms Woodward. “This resolution comes at a critical juncture for advancing Libya’s security and stability.”

But it is unclear how the decision will affect property owned by the LIA and its subsidiaries in London, including Jardine House, an office block in a prime location in the financial district that has fallen into disrepair. The property is one of many snapped up by the LIA in the late 2000s as the UK reeled from a financial crisis and prize property began to look more reasonably priced.

These properties exist in legal limbo, with approval for even basic maintenance having to go through what critics say is an exhaustive and inflexible bureaucratic process, which it is argued has been causing the value of assets ostensibly owned in the name of the Libyan people to plummet.

Property advisers James Andrews manage three buildings for the LIA and managing director Jeremy Grey told The National that sanctions had cost the authority around £200 million [$257 million] in lost opportunities. The resolution was backed by 14 members of the Security Council, with only Russia abstaining, and other nations also expressed their support for the LIA’s funds to be used for the benefit of the Libyan people.

Angelika Hellweger, a sanctions and financial crime lawyer, told The National that the UN resolution was a “big step for Libya”, but that there was nothing in it that allowed for the maintenance of buildings. “This is the first time that they are getting to reinvest their assets, although it is in a very limited way, but it’s still a move in the right direction,” said Ms Hellweger, legal director at London's Rahman Ravelli law firm.

“As I read the resolution, there is nothing about the maintenance of buildings. I assume the FCDO (Foreign, Commonwealth and Development Office) will soon implement some additional legislation related to these investments," she said. “But they will be following the UN resolution so I don't see actually that suddenly there will be provisions for the buildings for upkeep and maintenance.”

Currently, the LIA has to obtain a licence from OFSI to manage its assets, both physical and financial, in the UK, but it has in the past been criticised for being too rigid in its approach. Mohamed Shaban, a British-Libyan lawyer who has in the past represented LIA subsidiaries and applied for licences, has been calling for an overhaul of the application of UK sanctions against Libya.

He told The National "that much more needs to be done to protect the value of the other assets in LIA’s portfolio" in the UK. Mr Shaban said there is an "urgent need to address how OFSI exercises its licensing powers" under the existing regulations.

"Given that there are £12 billion of Libyan funds frozen in the UK, it is of concern that, as far as I am aware at least, OFSI has not granted licenses permitting the LIA to manage their UK based assets in order to maintain capital value," he said.

"High value real estate, for example, is crumbling and losing its worth. OFSI must grant licenses to permit the LIA to refurbish and re let these assets, even if only to the extent that they preserve their freehold value, if not turn a profit."

Panama’s UN ambassador Eloy Alfaro de Alba said “the Libyan people are the ones who should enjoy the sovereign right to manage their resources, including their financial wealth”. He urged that sanctions be “targeted, with a clear and precise focus” against those threatening peace and stability in Libya.

Pakistan said the resolution reflected the original spirit of the sanctions imposed on Libya. “The Libyan people’s destiny should be in their own hands,” said its UN ambassador Munir Akram.