A classified State Department cable said in 2009, "Libya is a kleptocracy in which the regime - either the al- Qaddafi family itself or its close political allies - has a direct stake in anything worth buying, selling or owning."
I am reprinting an article today from the New York Times where they lay out dozens of examples of how doing business in Libya meant partnering with a Qaddafi family official. Tens of billions of dollars were stashed in secret accounts by family members in preparation for the day when they may have to leave Libya. Rather than paraphrase I am going to reprint the article in its entirety.
Shady Dealings Helped Qaddafi Build Fortune and Regime
By Eric Lichtblau, David Rohde And James Risen
Barclay Walsh contributed research
The New York Times
WASHINGTON - In 2009, top aides to Col. Muammar el-Qaddafi called together 15 executives from global energy companies operating in Libya's oil fields and issued an extraordinary demand: Shell out the money for his country's $1.5 billion bill for its role in the downing of Pan Am Flight 103 and other terrorist attacks.
If the companies did not comply, the Libyan officials warned, there would be "serious consequences" for their oil leases, according to a State Department summary of the meeting.
Many of those businesses balked, saying that covering Libya's legal settlement with victims' families for acts of terrorism was unthinkable. But some companies, including several based in the United States, appeared willing to give in to Libya's coercion and make what amounted to payoffs to keep doing business, according to industry executives, American officials and State Department documents.
The episode and others like it, the officials said, reflect a Libyan culture rife with corruption, kickbacks, strong-arm tactics and political patronage since the United States reopened trade with Colonel Qaddafi's government in 2004. As American and international oil companies, telecommunications firms and contractors moved into the Libyan market, they discovered that Colonel Qaddafi or his loyalists often sought to extract millions of dollars in "signing bonuses" and "consultancy contracts" - or insisted that the strongman's sons get a piece of the action through shotgun partnerships.
"Libya is a kleptocracy in which the regime - either the al-Qadhafi family itself or its close political allies - has a direct stake in anything worth buying, selling or owning," a classified State Department cable said in 2009, using the department's spelling of Qaddafi.
The wealth that Colonel Qaddafi's family and his government accumulated with the help of international corporations in the years since the lifting of economic sanctions by the West helped fortify his hold on his country. While the outcome of the military intervention under way by the United States and allied countries is uncertain, Colonel Qaddafi's resources - including a stash of tens of billions of dollars in cash that American officials believe he is using to pay soldiers, mercenaries and supporters - may help him avert, or at least delay, his removal from power.
The government not only exploited corporations eager to do business, but willing governments as well. Libya's banks apparently collected lucrative fees by helping Iran launder huge sums of money in recent years in violation of international sanctions on Tehran, according to another cable from Tripoli included in a batch of classified documents obtained by WikiLeaks. In 2009, the cable said, American diplomats warned Libyan officials that its dealings with Iran were jeopardizing Libya's enhanced world standing for the sake of "potential short-term business gains."
In the first few years after trade restrictions were lifted - Colonel Qaddafi had given up his country's nuclear capabilities and pledged to renounce terrorism - many American companies were hesitant to do business with Libya's government, officials said. But with an agreement on a settlement over Libya's role in the Pan Am bombing over Lockerbie, Scotland, finally reached in 2008, officials at theUnited States Commerce Department began to serve as self-described matchmakers for American businesses.
At least a dozen American corporations, including Boeing, Raytheon, ConocoPhillips, Occidental, Caterpillar and Halliburton, gained footholds, or tried to do so. In May, the Obama administration and the Qaddafi government signed a new trade agreement, designed, according to Gene Cretz, the American ambassador to Libya, to "broaden and deepen our bilateral economic relations."
Libya became so flush with cash that Bernard L. Madoff, the New York financial manager who stole billions of dollars in a long-running Ponzi scheme, approached officials overseeing the country's $70 billion sovereign fund a few years ago about an "investment opportunity," according to a State Department summary of the episode in 2010. "We did not accept," a Libyan official reported.
Colonel Qaddafi, the State Department said, was personally involved in many business decisions. He worked with local "riqaba" councils, an oversight committee set up by the Libyan government to dole out business with foreign firms, and insisted on signing off on all contracts worth more than $200 million. He also learned how to hide money and investments in case sanctions were ever imposed again, as they recently have been.
Colonel Qaddafi and his family set up accounts in banks around the world that are in the names of members of Libyan tribes that remain loyal to his government, said Idris Abdulla Abed al-Sonosi, a member of the exiled Libyan royal family, who is familiar with many of Colonel Qaddafi's business dealings. (Some accounts may have been frozen by authorities, who have blocked access to tens of billions of dollars.) And Qaddafi relatives adopted lavish lifestyles - including posh homes, Hollywood film investments and private parties with American pop stars.
When Colonel Qaddafi was not making the decisions, one of his sons - whom he has anointed to run various sectors of the country's economy - often was.
Daniel E. Karson, executive managing partner at Kroll, a risk-consulting firm, recalled in an interview that an international communications company he represented tried to enter the Libyan cellular phone market in 2007. From the outset, Libyan officials made it clear that the foreign company's local business partner would have to be Muhammad Qaddafi, the eldest son of the Libyan ruler.
"We advised them they would have to go through Muhammad Qaddafi," said Mr. Karson, who declined to identify the client. "This was not going to be done on the basis of, as they say in retail, price, quality and delivery." Fearful of going into business with the Qaddafis, he said, the company made no investments in Libya.
Coca-Cola got caught in the middle of a fierce dispute between Muhammad Qaddafi and his brother Mutassim over control of a bottling plant the soda maker had opened in 2005, forcing it to shut down the plant for months amid armed confrontations, a diplomatic cable noted.
And Caterpillar, the Illinois machine maker, was about to finalize a lucrative deal in 2009 to provide equipment for infrastructure projects when Libya demanded the company become a partner with a state-owned company controlled by the Qaddafis, according to the State Department documents. Caterpillar resisted and was blocked by Libya from the work after intervention by American diplomats failed to break the impasse.
When Qaddafi aides demanded payment for the Lockerbie settlement from oil companies operating in Libya, a State Department cable in February 2009 reported, industry executives had indicated "that smaller operators and service companies might relent and pay." Several industry officials and someone close to the settlement, all speaking only on condition of anonymity, said the payments went through but declined to identify the businesses.
Other companies also struck costly deals with the government. In 2008, Occidental Petroleum, based in California, paid a $1 billion "signing bonus" to the Libyan government as part of 30-year agreement. A company spokesman said it was not uncommon for firms to pay large bonuses for long-term contracts.
The year before, Petro-Canada, a large Canadian oil company, made a similar $1 billion payment after Libyan officials granted it a 30-year oil exploration license, according to diplomatic cables and company officials.
The company also hired Jack Richards, a business consultant based in the British Virgin Islands and close friend of the Qaddafis, as their local agent to cement the deal, according to The Globe and Mail, a Canadian newspaper. Mr. Richards, who could not be reached for comment, reportedly used shooting trips to British royal estates to win the family's support.
The company also courted a Qaddafi son, Seif al-Islam. Petro-Canada sponsored an exhibit of his paintings - ridiculed by Canadian critics as "lurid" and a "triumph of banality" - after museums refused. A Montreal business, SNC-Lavalin, which won more than $1 billion in Libyan contracts, also sponsored the exhibit and a soccer team that hired another Qaddafi son, Saadi, as a player.
In Norway, two top officials at the state-run oil company quit in 2007 and came under government investigation after it was revealed the company had made more than $7 million in apparently illegal "consultancy agreements" with Libya.
Looking back on the decision in 2004 to resume business dealings, Juan Zarate, a former top White House and Treasury official in the administration of President George W. Bush, said that officials had believed then that the benefits of trying to rehabilitate Colonel Qaddafi outweighed the obvious risks. "It was a deal with the devil," Mr. Zarate said.
"The hope was that with normalization, Qaddafi would serve less as the mad dog of the Middle East and more as a partner," he added. "But I don't think this is the way anyone would have wanted it to work out."
I hope that article was an enlightening for you as it was for me. We all hear about the corruption in Arab countries but seldom hear the details. You may remember when Mubarak's wife and son fled Egypt several weeks ago they had over 100 large suitcases that were carried on the plane with them rather than being checked as baggage. That may have been the largest transfer of physical cash on the planet.
If Gaddafi is actively talking with U.S. officials about a safe exile as some suggest you can bet there is a provision in the deal for preventing claw back of funds. Some analysts believe he has more than $100 billion in assets outside Libya and that does not count the more than $100 billion that has already been frozen by other countries.
This newsletter is only one of the newsletters produced by OilSlick each day. The investment newsletter is also produced daily and contains the current play recommendations in the energy sector. Stocks, options and futures are featured. If you are not receiving the "Play Newsletter" please visit the subscribe link below to register.
Subscribe to Energy Picks Newsletter
See a list of our closed plays from 2010 here: Closed Positions
The OilSlick Newsletter is based on the expectations for global oil production of light sweet crude to peak and begin to decline in the 2012-2014 timeframe. I am calling this "Peak Sweet™" instead of Peak Oil. This is the point where global production of conventional light sweet crude supplies can no longer be supplemented by enough oil sands production, deepwater oil production, biofuels and natural gas liquids to offset the decline in existing fields. The roughly 6% annual decline of existing production due to depletion is larger than the rate of new discoveries and new production being added each year. The Peak Sweet™ countdown clock is ticking and time is growing short. Peak Oil will arrive shortly thereafter. Are you prepared?