Frozen Funds / Defrost Piracy

May 7 2011
last update May 22

Money is important. It helps you buy things. That's why people steal it, to buy neat things for themselves and their own selfish purposes. Sometimes they also steal, in part, to hurt someone they don't like, but that's another type of the same selfishness.

Below is the story so far of a recent very large theft of money and the plans to spend it, both aimed at illegaly destroying the government of a sovereign state and plunge it into chaos.

By February 26, it had become clear the Libyan protests had mobilized into a viable civil war, with over half the cities in rebel hands. U.S. president Obama that day announced the freezing of certain Libyan funds under its control - a record-setting quarantine of about $30 billion. The idea that you can just do that is still strange to me, but he did it. As one expert put it:

"Treasury hits a button and everything is frozen," according to Erich Ferrari, the founder of Ferrari Legal, a firm that specializes in trade sanctions. [source]

A February 28 follow up announces the freeze has happened and might expand. At this time, the impression given was that all of Libya - even the military - had mutineed, and only Gaddafi's family, "African mercenaries," and the personal funds that linked the two, stood in the way of an amazing adventure in free market reform - er - in people power freedom things.

But Obama knew it might be a rockier road than that, and this partial cutting of funds was just the beginning of an escalating push against the grain for that fleeting "utopian" image. And as the government stayed together and tried to push back, it proved one heck of a start. As Peter Dale Scott recently noted:

If the idea to attack Libya originated with France, Obama moved swiftly to support French plans to frustrate Gaddafi’s African initiative with his unilateral declaration of a national emergency in order to freeze all of the Bank of Libya’s $30 billion of funds to which America had access. (This was misleadingly reported in the U.S. press as a freeze of the funds of “Colonel Qaddafi, his children and family, and senior members of the Libyan government.” But in fact the second section of Obama’s decree explicitly targeted “All property and interests… of the Government of Libya, its agencies, instrumentalities, and controlled entities, and the Central Bank of Libya.”)

While the U.S. has actively used financial weapons in recent years, the $30-billion seizure, “the largest amount ever to be frozen by a U.S. sanctions order,” had one precedent, the arguably illegal and certainly conspiratorial seizure of Iranian assets in 1979 on behalf of the threatened Chase Manhattan Bank.

The European Union initially froze only the more narrowly defined evil Gaddafi clan funds. But on March 8, it was revealed, they agreed to follow Obama's lead, and expanded an existing freeze to cover, as Washington's did, all state funds. They just took the government's money, to ensure they couldn't pay employees or debts or purchase new supplies or feed people should a crisis break out, or anything.

Other nations followed suit (Australia on March 9, and so on), and the amounts blocked off grew steadily. Even the Swiss finally came on board, on May 5 announcing they had found 360 million Swiss francs ($418.4 million) of assets that, as al Jazeera put it, "were potentially illegal and belonged to either Muammar Gaddafi or his circle." But as they reported, deputy foreign minister Khaled Kaim said that the money was far less ("closer to $29 million"), and was the peoples' money, not the leader's.

"The money in bank accounts abroad is part of the investment portfolio of the government abroad," he told reporters. "If there is a single penny of the leader's money ... you are free to take it and to give it to anyone."

By the end of March, people on Capitol Hill had started wondering if all this handy frozen wealth could be thawed out and used to pay ourselves back for the expensive air war we'd just begun against the regime. But as CNN reported, duh, the answer was no.

The idea is that if Gadhafi falls, the next government will take control of the assets. "We will safeguard the more than $33 billion that was frozen from the Gadhafi regime so that it's available to rebuild Libya," Obama said on Monday. "After all, the money doesn't belong to Gadhafi or to us - it belongs to the Libyan people. And we'll make sure they receive it."

Once his conditions are met - a legally recognized replacement regime of his approval. And perhaps conditional to other things, like a nice finder's fee, commercial concessions, military basing ...

And then, maybe we don't even have to wait for that. Without funds now, the good guys might never even get to take over. So on May 5, two things happened. The Libyan people spoke up, insisting Gaddafi stay in power, and the rebels and NATO should go away. And European and allied leaders meeting in Italy to plan their exact opposite version on behalf of the same people. Among the points broached in the Libya script conference was a promise to give some of that money, soon, to the Libyan people (those who behaved well by taking up arms against the government, anyway).

The United States is trying to free up part of $30 billion it has frozen in Libyan assets so it can better support opponents of Moammar Gadhafi, U.S. Secretary of State Hillary Rodham Clinton told a conference Thursday on Libya.
[...]
Clinton said the Obama administration, working with Congress, wants “to tap some portion of those assets owned by Gadhafi and the Libyan government in the United States, so we can make those funds available to help the Libyan people.” [source]

They used to be able to take care of theselves, when the government had money and hadn't lost control of much of the country. And it's only getting worse.
Kadhafi regime hits out over rebel war chest
By W.G. Dunlop (AFP) – May 6

TRIPOLI — Moamer Kadhafi's regime reacted angrily Friday to a decision by world powers to provide funding to Libya's rebels, asserting that plans to tap assets frozen abroad were "piracy."
[...]
The fund, agreed at a meeting of the International Contact Group on Libya on Thursday, is intended to provide an emergency lifeline to the rebels, whose provisional administration has no source of financing to replace receipts from oil exports, which have come to a virtual halt.
It will initially receive international donations. Blocked assets -- estimated to be worth $60 billion (40 billion euros) in Europe and the United States -- are to be used at a later date.

The dates and manner and exact amounts, of course, are to be decided for "the Libyan people" by their great white guiding hands. For reference, at a unity and peacetime population of just over 6 million, this stolen amount of $60 billion is nearly $10,000 for each man, woman, and child on both sides of the civil war. And it's been locked away just to starve the government, and those who still rely on it, to force them all to surrender to the rebel hordes - the "people of Libya" who suffer the misfortune of being "outnumbered" - in Libya.

The funds made available are far less than the figure of up to $3 billion dollars that had been sought by the rebels, but their leader, Mahmud Jibril, said "it's a good start." Jibril said three billion dollars represent "a six-month budget."


French Foreign Minister Alain Juppe said the new fund could be up and running "within weeks." However, he said it would take longer to tap Libyan government assets frozen abroad under UN sanctions to secure a longer-term credit line sought by the rebels, as unblocking the assets "poses legal problems."

Yes, problems with laws - designed to prevent piracy just like this. Funny how we can talk abut it openly though, since everybody hates Gaddafi and wants to do whatever it takes to rinse away the foul taste. Enter the "complicated" thinking of lawyers, currently poring over how to avoid breaking the narrowest "word" of the law. As the Wall Street Journal reports:

To get frozen assets to the Libyan opposition is fraught with complexities. “It is a lot more complicated than saying we are going to unfreeze these assets and hand them over,” says Harriet Territt, a London-based lawyer at Jones Day.

The U.K., for instance, is keen to help address humanitarian needs, but needs to clear a number of complex obstacles, said a person familiar with the situation. “We’re considering a number of options to do this and we will see what is legally possible,” a spokesman for the U.K.’s Foreign Office said. [source]

Just keep humming and ignore the Gaddafi thugs when they almost seem to make sense:

Kadhafi's government was infuriated by the prospect of seeing funds it regards as its own being used to finance the rebels. "Libya still, according to the international law, is one sovereign state and any use of the frozen assets, it's like piracy on the high seas," Deputy Foreign Minister Khaled Kaim said. [source]

Update May 22: Please see Libya's Free Market Future for some later moves by rebel interlocutors to thaw out and access these funds.