WSJ: UK Judge Adjourns Tug-of-War Case over Libyan Sovereign Wealth Fund


Decision might be ‘premature’ if solution can be reached in Libya

March 7, 2016, by Simon Clark and Marget Coker
Full article available here.

 

A British judge adjourned a case Monday in which he was asked to decide who is the rightful leader of Libya’s $67 billion sovereign wealth fund.

The Libyan Investment Authority, or LIA, is the subject of a power struggle between two competing chairmen, Hassan Bouhadi and AbdulMagid Breish. The LIA was created during the regime of Moammar Gadhafi, who was killed in 2011.

The judge in the High Court in London— William Blair, brother of former British Prime Minister Tony Blair—said it would be “premature” for him to make a decision after the U.K. Foreign and Commonwealth Office sent a letter March 3 saying it expected Libyan officials to give news on the leadership of the fund in the “coming weeks.”

“There may be clarification of the leadership of the LIA,” the judge said. “In those circumstances, the court considers that it would be premature today to decide the issues before it.”

The dispute between the rival chairmen risks delaying litigation against Goldman Sachs Group Inc. and Société Générale SA., which are accused of losing hundreds of millions of dollars of the sovereign wealth fund’s money through mismanagement. The banks have denied the allegations.

Some of the LIA’s allegations against the banks have statutes of limitations, meaning that a longer delay could cut Libya’s chances of legal recourse.

The adjournment won’t affect the proceedings being brought against the banks, the judge said.

The power struggle at the sovereign wealth fund reflects the wider political fragmentation in Libya. The country is divided between two rival administrations based in Tripoli and Tobruk. Mr. Breish led the LIA before the rival governments emerged in 2014, and the litigation against the banks began under his tenure.

Mr. Breish argues that his authority still holds while the political power struggle continues in Libya. Mr. Bouhadi, who is based in Malta, says the internationally recognized government based in the eastern city of Tobruk approved him taking over the fund.

In the midst of the squabbling, however, the United Nations announced a new unity government combining political leaders from both camps, but that body has yet to take power or clarify the chain of command at state-run entities including the LIA.

The March 3 letter from the Foreign and Commonwealth Office said that the British government “hasn’t recognized as the Government of Libya either the ”Tobruk government“ or the ”Tripoli government.””

The British government’s “highest priority” is to support the U.N.’s efforts to create a unity government, the letter said. A cabinet of ministers is being put together by Fayez Serraj, the letter said. Mr. Serraj said on Feb. 25 that he will “clarify” the leadership of the LIA as soon as possible after the cabinet is approved, which is expected to occur “within the coming weeks,” according to the letter, which was seen by The Wall Street Journal.

Mr. Breish’s lawyer said in court that the judge should wait for this announcement about the new leadership. Mr. Bouhadi’s lawyer said that the unity government doesn’t yet exist and so the Tobruk government is the rightful government for now.

Maintaining the unity of the LIA and other key institutions including the central bank and the national oil company is vital if Libya is to have a chance of becoming a functioning state, according to the International Crisis Group, a Brussels-based nonprofit organization that works on conflict resolution.

“Libya’s economic conditions could turn sharply for the worse, as rival authorities vie to control rapidly shrinking national wealth,” the group wrote in a December report titled “The Prize: Fighting for Libya’s Oil Wealth.”

“Poor economic management already causes some shortages of fuel and basic goods; a wider economic crisis like a sudden, uncontrolled devaluation of the dinar, would severely harm millions,” the report said.

The LIA was created in 2006 to manage income from Libya’s oil fields—the largest in Africa—after the country was removed from the U.S. government’s list of state sponsors of terrorism. Its assets were valued at $67 billion in 2012. Most of the assets are currently frozen by U.N. and European Union sanctions. They include cash, equities, bonds, private-equity funds, hedge funds and hundreds of companies.