Banking in Libya: a dangerous game?

As the London financial consultant boarded his Afriqiyah Airways flight at Gatwick, he expected just another business trip to the newly rehabilitated Gaddafi-era Libya.

Thanks to Prime Minister Tony Blair’s opening up of relations with the dictator, London-to-Tripoli had become a well-trodden route for British execs seeking oil or access to the money resulting from it.

Not all of these businessmen had the Libyan people’s best interests at heart, as a series of legal disputes trundling through the courts in London are now alleging.

In particular, investment banks and hedge funds, mainly in London and Paris, who allegedly persuaded the country to invest the impoverished nation’s oil money in financial products. In some cases, these triggered instant profits of millions of pounds for the banks, but left the Libyans nursing losses in the billions.

We are not naming this adviser, a derivatives expert, for reasons that will become apparent. But he was appalled how naïve officials in the country’s sovereign wealth fund had been persuaded by smooth London bankers to invest the country’s money in high risk products that they clearly did not understand.

The Libyan Investment Authority had begun to get wise to the situation after discovering that investments it had bought from Goldman Sachs’ London office were far more risky than they had realised.

They hired the adviser to take an independent look at other investments they had been persuaded to make by western bankers. “It was an exciting opportunity,” says the consultant. “It meant I could put right the wrongs that so angered me, while also bringing in some revenues for my business.”

His contract, seen by The Independent, stipulated that he would act on behalf of the LIA for an initial six months, working out of its offices in Tripoli for five-day stints every other week.

It was on the very first of these trips, over the turn of March and April 2009, that a LIA staff member had nudged him to a peculiar clause in the small print of a deal with the investment bank Société Générale.

SocGen had sold Libya an investment for $1bn whose true value, the LIA now alleges, was just $680m. Why on earth would the LIA agree to such a deal?

It could have been the mere naivety and awe in which it held Europe’s top bankers. Its bedazzlement with Goldman Sachs, for example, came after the bank allegedly treated LIA employees to luxury stays in Morocco with girls laid on.

But perhaps there was more. For the paragraph on the SocGen contract that was pointed out to the consultant said a third party had been paid as part of the deal for services in “structuring and advising” the product.

This, the consultant realised, was most peculiar. Why would SocGen – with its teams of some of the world’s cleverest derivatives experts in London, Paris and New York, have paid a third party (called Leinada and based in Panama) to advise it on such a deal?

The consultant began asking questions. Who and what was Leinada? How much had it been paid? What services did it carry out? Why had he, an experienced expert in such financial products, never heard of it, and why was it based in the secretive haven of Panama?

Digging deeper, he learned the sums paid by SocGen to Leinada numbered in the tens of millions of dollars. But he could fathom no reason what the money could have been for. No legitimate reason, that is.

On the second of his fortnightly trips, in mid-April, he raised with the LIA management the prospect that Leinada looked like corruption – a payment to somebody in return for the LIA investing in SocGen. He told his clients, advised them to take action, and returned to London.

A fortnight later, in line with his new routine, he was back on a plane to Tripoli for his third week at the LIA, ready to continue his research as usual.

Having checked into his hotel, he headed out for the LIA’s offices on the 22nd floor of the Burj al-Fateh – one of the clutch of Dubai-style skyscrapers that nowadays lend an incongruously affluent skyline to the warring state.

But this time was different. As he headed to the desk the LIA kept reserved for him in the open plan office, one of its top executives – with whom he had struck up a decent working relationship – pulled him aside. His face bore an unusually grave expression.

“You have to go. Get out of Libya as soon as you can,” he said. “Otherwise I cannot be responsible.”

The adviser was stunned. “What do you mean, ‘responsible’?”

“For your safety,” came the reply. “They don’t want you here any more.”

The consultant, not knowing who “they” might be, but knowing the reputation for violence of the Gaddafi-run regime, fled.

Stories were rife at the time of how a Goldman Sachs banker, Youssef Kabbaj, had been given such an aggressive rollocking by the LIA’s boss in Tripoli that the bank’s HQ back in London’s Fleet Street had organised an emergency security detail to escort him out of the country.

The consultant – a sole operator – had no such back-up. He cancelled his hotel and fled to London on the next flight.

The Independent knows the identity of the LIA manager who delivered the violent threat but is not naming him as he is believed to be under criminal investigation. In later years, he went on to work for a UK multinational, where his online CV says he is still employed in the Middle East.

The consultant continued an occasional dialogue with him as he hoped to return to the LIA and resume his contract. But, as notes of one of these conversations seen and verified by The Independent show, the veiled threat of violence remained: “Bad idea… They do not want you here… I have passed on the message… I will not be responsible…”

With many of the main players at the LIA from that time still in powerful positions in the country, the consultant has never been back.

Next week sees the first stage of a case in London’s High Court in which the post-Gaddafi LIA is suing SocGen over the very type of findings the London consultant uncovered.

The LIA claims the bank helped funnel bribes worth tens of millions of dollars to associates close to Muammar Gaddafi’s son Saif. It claims this was done through the payment of $58m to the Panama company Leinada. It says the payments were made by SocGen entities between February 2008 and July 2009, which, if true, suggests they continued even after the consultant blew the whistle.

The $1.5bn lawsuit goes further: it claims Leinada was controlled by Walid Giahmi – a childhood friend of Colonel Gaddafi’s son Saif and part of his inner circle while they lived in London between 2003 and 2008. The Leinada payments, the claim states, were made by SocGen to encourage the LIA to invest “through the payment of bribes, and/or the making of intimidatory threats, to representatives of the LIA.”

A SocGen spokesman said: “The allegations of the LIA are groundless and Société Générale will defend its interests as firmly as possible in the context of these proceedings.”

A Leinada spokesman has previously denied any wrongdoing.