Between June and September 2010 the Libyan state oil fund deposited over $ 1bn with HSBC, according to a document leaked to Global Witness and published today. The deposit brought the balance with the British bank to $ 1.42bn, up from $ 292.7m three months earlier. The document also reveals the total assets managed by the state oil fund – Libyan Investment Authority (LIA) – swelled from $ 54bn to $ 64bn in the space of three months.
The information, contained in a Management Information Report for the LIA dated 30 September 2010, follows a report for the previous quarter, dated 30 June 2010, that Global Witness published earlier this year. On releasing the document, Global Witness called for new laws requiring banks and investment funds to disclose all state funds they manage.
“Banking secrecy laws still mean that citizens are left in the dark about how their own state’s funds are managed,” said Robert Palmer, a campaigner at Global Witness. “We can’t continue with a situation where information about how a state handles its assets is only made available once a dictator turns violently on his own people and information is leaked,” continued Palmer.
According to the document, the LIA held $ 1bn in an “HSBC Liquidity Acct.”, $ 395m in HSBC Luxembourg, and a final $ 2.9m in an unidentified account.
In addition to detailing the LIA’s cash deposits, the September document includes a damning assessment of the performance of six of the externally managed funds with which the LIA had invested $ 1.7bn. The LIA was unhappy with the high fees and weak performance of NotzStucki, Permal, Palladyne, BNP, Credit-Suisse and Millennium Global Investments funds, which all performed badly against an industry benchmark of world stock prices. According to the document, the accounting firm KPMG advised that the LIA’s investment in ‘alternative funds’ – such as those listed above – was too high relative to other investments.
The LIA, for example, had invested $ 300m with a fund called Palladyne, which the Wall Street Journal has reported was managed by the son-in-law of the head of Libya’s state-owned oil company. The management report states that 45% of these funds were held in cash and comments that “to date we have paid in excess of $ 18m in fees, for losing us $ 30m”. It is not clear when the initial investment with Palladyne was made or who this fee structure was benefitting.
Key changes between the June and September investment positions include:
- $ 1bn of share purchases, including $ 500m of UniCredit and $ 360m of ENI.
- The cash and deposits held by the LIA increased by $ 570m in total.
- Unlike the June document the September document lists the assets of two LIA subsidiaries: $ 7.8bn held with the Libyan Investment Development Fund and $ 122m with the Libyan Norwegian Fertiliser Company. The listing of these subsidiaries could explain the majority of the increase in the LIA’s assets between June and September.
- Two new structured products: $ 200m with Italian bank UniCredit (of which the LIA was a shareholder) and $ 144m with CFP Fund.
Global Witness believes two actions are required from governments, beyond the sanctions that have already been imposed.
The first is that banks and investment houses must be required by law to disclose state funds that they manage. This would cost nothing and would allow citizens to hold their leaders accountable for management of state revenues.
The second is that banking regulators must do a thorough investigation to ensure that banks holding Libya’s state funds have done appropriate checks – known as due diligence – to prevent transfers from state funds to accounts personally controlled by Gaddafi and his cronies.
Whilst HSBC was not able to comment on the specific account details, a spokesman told Global Witness, “HSBC has stringent policies and procedures for countering bribery and corruption in all the jurisdictions in which it operates. These apply to dealings with government entities, private organisations and individuals”.
Notes to editors
- According to the Wall Street Journal, the American Securities and Exchange Commission is currently investigating whether Goldman Sachs violated bribery laws by offering to pay Palladyne a $ 50m fee, after Goldman lost the LIA over a billion dollars. Goldman stated: “We are confident that nothing we did or proposed was or could have been a breach of any rule or regulation”.
- HSBC’s U.S. division is currently under investigation for possible violations of anti-money laundering rules. Media reports have suggested that HSBC may be fined up to $ 1billion for not doing enough to curb the flow of dirty money.
- In a dictatorship where one individual, or a small cabal, exercises almost complete power over the state, there is a very thin dividing line between state and personal investments, and this was the case in Libya. According to the Prosecutor of the International Criminal Court, “Gaddafi makes no distinction between his personal assets and the resources of the country.” As such it is essential that financial regulators investigate whether the banks that held LIA funds did enough to ensure that state funds were not been diverted for the Gaddafi family’s personal benefit.
- In its 2009 report Undue Diligence Global Witness revealed how $ 3 billion of Turkmenistan’s gas income was at Deutsche Bank in Frankfurt under the effective personal control of then-president Niyazov. Deutsche Bank and the German regulator, BaFin, brushed off our concerns saying these were ‘state accounts’. However we had been told by a former chairman of the Central Bank that this money was treated by Niyazov as his ‘personal pocket money’.