UK-backed agreement to end blockade of Libyan oil exports could lead to corruption probe

Jim Armitage
The Libyan Audit Bureau says billions from oil sales is lost in corruption: Reuters

A British-backed agreement to end a blockade on oil exports from Libya could result in a major corruption purge in Tripoli’s central bank and national oil company, The Independent has learned.

Corruption is endemic in Libya’s vital oil industry, and is cited as a major cause of hardship in the country, adding to the chaos that leaves a third of people below the poverty line and contributing to the European migration crisis.

War-torn Libya is split between east and west. Under an uneasy equilibrium, oil, which is produced largely in the mineral rich east, is sold through the state national oil company in the west.

The UN-approved system was designed to protect Libya’s crucial oil wealth from falling into the hands of its warring factions.

However, claiming oil revenue was being funnelled into western militias attacking his forces, eastern Libyan strongman General Khalifa Haftar stopped oil shipments from ports under his control, effectively shutting down the nation’s oil industry.

The decision came amid fierce fighting last month, between Mr Haftar’s self-declared Libyan National Army and rival militia, at the ports.

Faced by rising oil prices amid looming sanctions on Iranian oil, US president Donald Trump warned he would take legal action against those responsible for the stoppage.

The warning was seen as a veiled threat to Mr Haftar’s powerbase by the United States, whose might left him with little choice but to comply.

Mr Haftar’s usual allies – France, Egypt and the United Arab Emirates – refused to back him, and last week Mr Haftar agreed to hand over the ports to the Tripoli-based national oil corporation.

The decision triggered a sharp drop in the oil price as the agreement heralded the return of Libya’s daily output of 800,000 barrels of crude oil.

Mr Haftar’s lifting of the blockade followed a meeting in Rome of representatives of foreign ministries from the US, Italy, France and the UK.

However, despite his apparent capitulation, according to sources close to the Libyan authorities, as part of the deal, the international governments present agreed there should be a wide-ranging corruption probe under the auspices of the United Nations.

Sources in the UK foreign office said this was not a “firm” agreement, but Libyan sources said “everyone around the table said it was a good idea”, particularly citing France, the UAE and Egypt as being in favour.

The Libyan parliament has now written to the UN formally requesting the probe. Any investigation could be widespread and take in the involvement of politicians, businessmen, western oil companies and traders operating in the country, as well as the country’s central bank.

All of Libya’s oil has to be sold through the national oil company in Tripoli, with revenues going directly to the central bank.

Critics in the Haftar camp have long claimed the money is being stolen or funnelled to extremist Islamic groups.

The Libyan Audit Bureau has suggested that money from oil sales is lost in corruption to the tune of millions, if not billions, of dollars, with militias in Tripoli, as well as politicians and businessmen, the prime suspects.

Mr Haftar has held fire on the central bank governor, Saddek el-Kaber, and has been trying for years to have him ousted.

It’s positive that the issue of state-corruption has come under attention as it is a problem that has been growing exponentially, and a new agreement on the distribution of oil revenues is an essential step towards securing meaningful peace in Libya

Tarek Megerisi, visiting fellow and Libya expert at the European Council of Foreign Relations

Libyan sources said that, at the meeting held in Rome, Mr Haftar’s side laid out 11 allegations of corruption and abuse of power in the central bank, which they said needed to be investigated.

These include claims officials have been profiting by manipulating the official and black market exchange rates, and abusing their power to authorise who can get letters of credit in foreign currency.

Foreign currency exchange is a potential way of making fast, illegal profit because the official rate of one dollar to about 1.4 dinar is far lower than the black market rate of 6-10 dinar.

Letters of credit are supposed to be used for companies to import goods, but are mainly used these days for currency fraud. The Audit Bureau reported that in 2016 letters of credit fraud totalled $5bn. While they are issued by local banks, they are authorised by the Central Bank.

According to critics, much of the authorisation is done by corrupt officials acting alone, although Mr Haftar’s associates blame Mr El-Kaber for failing to prevent their actions. Mr El-Kaber did not respond to requests for comment by email, phone or via his personal assistant.

Eastern Libya’s House of Representatives – seen as being loyal to Mr Haftar – tried to remove Mr El-Kaber in 2014 but he refused to leave, citing the cherished independence of the central bank from political interference.

The House of Representatives has been angered by his refusal to release funds for spending.

Mr El-Kaber has previously blamed the Libyan governments of using the central bank as a “scapegoat” for their own misdeeds and accusing them of lying to the Libyan public.

He has also accused armed militias of waging a media war on him, using “corrupt money”. In 2017 he accused politicians of “honeyed promises”, adding that he had been silent when faced with allegations of wrongdoing “so that Libyan bloodsuckers do not exploit any of these statements”.

The Independent was unable to contact him for comment.

Tarek Megerisi, visiting fellow and Libya expert at the European Council on Foreign Relations, said: “It’s positive that the issue of state corruption has come under attention as it is a problem that has been growing exponentially, and a new agreement on the distribution of oil revenues is an essential step towards securing meaningful peace in Libya.”

But, he added, it was important that any probe examines the structural issues that have allowed Libya’s oil revenues to be exploited so brazenly.

Any new deal, he said, “must not simply be a new agreement on who is allowed to steal from the state, but one that protects state spending from predation”.

Libyan sources close to the meeting claimed Mr El-Kaber had lost the backing of his allies in neighbouring countries, or the international corruption investigation would not have been given the nod.

The Libyan government is still awaiting a response from the UN to its request.