Libya's sovereign wealth scandal: An opaque and secretive operation that mimics the country's divided politics

The Libyan Investment Authority, Libya's sovereign wealth fund, also took Societe Generale to court. Its case against SocGen appeared to be stronger than its attempts to recoup its losses in its case against Goldman Sachs, aided by a subpoena issued by the Securities and Exchange Commission (SEC) of the US Department of Justice (DoJ) suggesting transgressions of the Foreign Corrupt Practices Act.

LIA's claim, submitted to the High Court's Queen's Bench Division in London on 26 March 2014, focused on five investments to the value of $2.1 billion which had crashed almost immediately after they were signed.

Like the Goldman Sachs deals, the SocGen deals were also signed in quick succession. Chris Wright, Asia editor at Euromoney, attributes this to the working environment at LIA at the time: "The very top level, from Seif al-Islam al-Gaddafi onwards, were saying 'let's get going, let's put this money to work, let's be powerful in the world'."

And so they did, spending big and fast: Permal for 300 million euros was signed in November 2007, SG Optimizer for 1 billion euros in March 2008, Crossroads for 300 million euros in May 2008, and Strategic Equity for 500 million euros in October 2008. (The SG Optimizer trade was later restructured in July 2009).

All five deals were equity derivatives and structured products.

This time round, LIA's claim argued fraud. LIA focused on intermediaries who were reportedly close associates of Seif Gaddafi, who were alleged to have received approximately $58 million, for an "introduction to the market".

One of these intermediaries is a Libyan figure who can only be identified as Person B after successfully acquiring through the English courts an anonymity order known as a confidentiality club.

Confidentiality clubs are relatively recent schemes, often traced back to 1979 when several individuals asked for their identities to be protected from the The Church of Scientology for fear of harassment, abuse, or blackmail.

Today, courts grant confidentiality clubs where there is sufficient reason to restrict information because of the risk to the safety of an individual, their relatives, or property, if their identity is revealed. 

Person B, described as once being the right hand of Seif al-Islam Gaddafi, is accused of receiving a bribe to the value of $20 million, and has claimed that identifying him would put his relatives residing in Libya at "risk of life and limb." It is all too easy to point to the instability gripping Libya at the moment - the political breakdown, the reign of militias, the lack of the rule of law - and claim it is a failed state unable to protect citizens from being kidnapped for ransom. 

An initial order granting confidentiality was given in February 2015 by Justice Hamblen, and amended very slightly by Justice Teare in 2016 on the basis of an expected 30 individuals (known as the "alphabet individuals" because of the practice of referring to them by a letter of the alphabet after having their anonymity granted) and several tens of documents to be included under the confidentiality club's remit.

However, during the course of the two years leading up to the trial the order "ballooned" - a word used in a later court session - to include 150 alphabet individuals and tens of thousands of documents. 

The case was postponed several times, and was finally scheduled for Tuesday 2 May 2017. On that Tuesday morning it was postponed until the following day. "The judge is still reading," explained a civil servant at the Commercial Court where the session was due to be held. On Wednesday, it was postponed again until the next day. But before the court session opened on Thursday morning, SocGen published a press release announcing that they had reached a "confidential settlement" with LIA.

I have never seen a case where there has been such wide ranging steps taken to protect individuals' identity

As part of the settlement they agreed to compensate LIA for nearly half of its losses: 1 billion euros. In return, LIA dropped all charges against the intermediaries. When the court sat and the settlement was announced, Justice Teare congratulated both parties on the degree of cooperation shown. 

Eleven days later, a court session was held to discuss the storage and disposal of anonymised evidence now that the case was settled. The full scale of the confidentiality club applied in the LIA vs SocGen & Ors was revealed.

"Unheard of," says litigator Nicloa Boulton. "I have never seen a case where there has been such wide ranging steps taken to protect individuals' identity from being identified in proceedings," she explained. "The general rule in the English courts is proceedings are open, there has to be a very good reason for them not to be. And actually judges are very careful not to shut proceedings to the public unless they absolutely have to. It's quite unusual."

One of the reasons behind the expansion of the confidentiality order lies with Person B's decision to submit all his disclosures - 11,000 pages of them to be precise - into the confidentiality club, whole. During the court session it emerged that Person B had said that going through all the documents to redact anything that might identify him was "too bothersome" an exercise. So he decided to just submit everything into the confidentiality club instead.

This effectively meant that LIA couldn't even ask any potential witnesses about any of the 11,000 documents without getting prior approval from the court to do so. 

Andrew Hunter QC, representing Person B, refused to comment.

Both may yet face prosecution attempts by the Attorney General in Tripoli, but no such steps have yet been taken. In the current political climate no such steps seem likely either. For some, the prolonged failure of the state may be welcome. 

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London's entanglement in LIA's story extends beyond the court cases disputing the trades. It has become involved in the administration of LIA itself. 

Like a microcosm of Libya's modern politics, LIA's leadership has also become a matter of dispute. Abd al-Majid Breish, who took charge of LIA in 2014, was suspended later that year by a newly set up post-revolution Integrity Committee, while his previous role, as an official under Muammar Gaddafi, was investigated.

The rival Tobruk-based government quickly formed its owned board of directors for LIA, and in September 2014 it announced it was to be headed by Hassan Bouhadi. 

Bouhadi, young, well-spoken, and polished, headed to Malta. There he set up a rival office for LIA in the upscale St Barbara's Bastions. The offices take up a three-storied ornately decorated building overlooking the Mediterranean, right across from the Fort of Saint Angelo. The narrow street is lined with aged olive trees. Yachts and fishing boats share the blue waters right at its doorstep.

Bouhadi's parallel Malta base also expanded to include offices for LIA's two biggest subsidiaries: LAIP and the Libyan Foreign Investment Company (LAFICO). The LAIP offices are also located in an upscale neighbourhood, right on Valetta's Waterfront Marina, and LAFICO occupies a new build in San Gwann. The three locations boast a few security cameras each. 

When the Integrity Committee investigation concluded in April 2015, clearing Breish from any links or association to Gaddafi in April 2015, Bouhadi refused to cede ground. Breish turned to Tripoli's courts to reinstate him, and they ruled in favour of his legitimacy as chairman of LIA.

Bouhadi refused to accept the judgement of the Tripoli-based court. He pointed out that the government he represented - the Tobruk-based House of Representatives - was the one recognised by the international community, not the Tripoli-based General National Congress.

If his government was recognised by the international community, then so too must his leadership of LIA. 

Two leaders, two very different claims to legitimacy. LIA became effectively non-operational, and this affected its investments as well as its court cases against Goldman Sachs and SocGen (still ongoing at the time). Enyo Law, the firm representing LIA, walked out of court claiming conflicting guidance from the two disputing leaderships.

Without clear leadership and chain of command, everything risked being lost. 

Bouhadi and Breish decided to take the dispute between them to London. In May 2015 they agreed to make a joint application to the English courts to request the appointment of a receivership to oversee the claims against Goldman and SocGen to prevent them from lapsing. Or in other words, they agreed to outsource the management of Libya's sovereign wealth fund. 

On 9 July 2015, Justice Flaux ordered the appointment of BDO UK as receivers. According to the firm's website, they provide "tax, audit and assurance, advisory and business outsourcing services to companies across all sectors of the economy". BDO have access to LIA's accounts, they make decisions regarding the court cases, pay the legal fees, and withdraw money for their own fees and any charges they incur. They are also represented by the PR firm Osbourne & Partners, and have refused to comment. 

What accounts exactly do BDO have access to? No one gives a clear answer to this question. There are several options. They could be the cash accounts held by The Central Bank of Libya, The Libya Foreign Bank, and others, such as ABC Bahrain. These total around $21 billion, according to the Libyan Audit Bureau's 2015 report. 

Of the $21 billion in cash accounts, around $886 million is frozen under UN sanctions imposed after the revolution, close to $19 billion is in deposits maintained since the early days of LIA, and $1.5 billion is in cash earnings, or profits, generated since the UN announced a freeze of LIA's assets.

These monies are the most readily available funds. The same report identifies a $385 million discrepancy between the actual accounts and the receipts available for various withdrawals. Was some of this money used to set up the parallel Malta base? 

Breish insists Tripoli has control over the majority of LIA's assets. He accepts that the Malta offices have "some money they have acquired from some institutions" (though he refuses to name which) and returns to confirm that it is Tripoli that controls most assets.

Not everything should be shared with the public. This is part of the populism.

LIA's money at the Central Bank of Libya, he says, is all accounted for. When pressed, he says that when he met with the Libyan Audit Bureau he raised the issue of the monies and assets acquired by the Malta base, and that they are currently investigating this. 

Bouhadi refused to comment. He agreed to an interview then changed his mind. He said that there was no logic to opening up investment decisions to public scrutiny.

"Not everything should be shared with the public," he said. "This is part of the populism."

The Libyan Audit Bureau's 2016 and 2017 reports are increasingly more reserved with details. 

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Sufi stories lend themselves to being used out of context. 

One such story, told out of context, goes like this: "There was once a little boy who pulled apart a fly, and when he had a heap of wings, thorax, head and legs, asked, 'But where is the fly?'"

Much about the dismembered companies and assets forming LIA lie in obscurity. Those that are discovered are emblematic of the whole from which they are severed. 

A five-star hotel in Tunisia, purchased in 2008 by LAICO, a subsidiary of LAIP, was closed down for renovation in 2010. The hotel's re-opening was initially delayed by the renovation works themselves - coincidentally, they also cost nearly $2 million more than estimated, according to the Libyan Audit Bureau's 2014 report.

But even after the works were completed, the hotel became a victim of the tug of war between the Tripoli and Malta based groups. Seven years on, the hotel is yet to re-open.

In the chaos following the 2011 uprising, a building owned by LAFICO on the Champs Elysees in Paris, housing the entertainment retailing company FNAC, and estimated to be worth 250 million euros, has suffered two attempts at having its registry papers forged - to be then re-sold by the forgers.

The issue is still in legal limbo and while the would-be forgers have not gained clear ownership of the building, LAFICO has not received any of its rent dues either, estimated to have so far exceeded 40 million euros. And just to demonstrate how complex the web of ownership and management is: the building is owned by a LAFICO subsidiary named La Compagnie des Exploitations Réunies (CER) which has assigned Bluebird Investments (also located in Paris) to run the investment.

Bluebird is headed by Mohamed Mossadek Ageli, who is based in Milton Keynes, in the UK, where he runs another LAFICO subsidiary, Sabina. 

Incidentally, a previous director at Sabina, Ahmed Ammush, today heads the LIA rival office in Malta. He is 31 years old. He did not respond to requests to interview. During a visit to the offices the receptionist said Ammush had left for Friday prayers and she did not know whether he would return - it was already late into the afternoon.

She also could not confirm or deny whether LIA had a press officer who could speak to us. She said LIA had no brochures or booklets introducing their investments, or themselves. 

So, where is the fly? 

Dr Deena Dajani is a researcher and writer based in London.

Parts of the research informing this article appeared in documentary form on Alaraby Television on 4 September 2017. The documentary was co-directed by the author with Ikbel Tlili and can still be watched online