Global Policy Forum

by Vernon Silver

The Muammar Qaddafi seen worldwide after the Pan Am flight 103 bombing trial ended on Jan. 31 was a familiar character: Qaddafi the dictator, ranting against the guilty verdict and suggesting that the judges commit suicide.

Then there was the Qaddafi the world didn't see: Qaddafi the investor.

The same day, the Libyan leader held a 90-minute meeting in his tent in Tripoli with Saudi Arabian billionaire Prince Alwaleed bin Talal. Qaddafi, whose country is North Africa's biggest oil producer, had $6 billion to invest and was looking for ideas.

The prince suggested value stocks. They agreed to build a hotel together in Tripoli, and Qaddafi invested $22 million for a 13 percent stake in the prince's Middle East Hotels Co.

``His country is rich,'' says Alwaleed, 44, a nephew of Saudi King Fahd who says he's worth about $20 billion. ``They are really good investors.''

The Libyans are also sponsors of terrorism, according to the U.S. State Department. Though no American government official has publicly linked Qaddafi's regime to the Sept. 11 terrorist attacks in the U.S., Libya remains on the department's list of state sponsors of terrorism, which means the country is subject to sanctions.

U.S. State Department

The State Department holds the Libyan government responsible for sponsoring several attacks that killed hundreds of people during the 1980s, including the Pan Am bombing, in which 271 people were killed over Lockerbie, Scotland, in 1988.

Like Osama bin Laden, the Saudi exile suspected by the U.S. of masterminding the terrorism of Sept. 11, Qaddafi has managed to thwart U.S. sanctions that aim to cut Libya off from the world's financial markets.

Mohamed Ali El Huwej, Qaddafi's money manager, tells Bloomberg News he has developed a system for making global investments -- using minority stakes, shell companies and interlocking share holdings -- that won't attract the attention of U.S. authorities. He calls it ``financial engineering.''

In a series of interviews in Tripoli in September, Huwej explained Libya's investment strategy.

Libya's $8 Billion

The country has a total portfolio of $8 billion, Huwej says, including 5 percent of Banca di Roma SpA, Italy's fourth-largest bank; $1 billion in U.K. real estate; and stakes in 72 companies in more than 45 countries, many of which do business in the U.S.

Libya also has stakes in more than 100 banks with offices from New York to Hong Kong, to Ouagadougou, Burkina Faso. The web of share holdings Qaddafi has created over the past 15 years or so shows how easily terrorists can evade embargoes and sanctions and move their money around the globe.

The U.S. imposed sanctions on Libya in 1986 -- and those strictures remain in effect. Americans who do business with the regime face up to 10 years in prison and fines of up to $250,000.

President George W. Bush in April renewed sanctions on non-U.S. oil companies that invest in Libya, including barring the violator from bidding on U.S. contracts and borrowing more than $10 million a year from U.S. banks.

Terrorism

``American citizens died directly as a result of Libyan terrorism,'' Secretary of State Colin Powell said at a news conference in May, when asked about mending relations with Libya.

``The Libyan government owes compensation to the families of the victims, and the Libyan government has to accept responsibility for its actions. Until the Libyan government does that, it will be difficult for the United States to participate in constructive engagement with Colonel Qaddafi and his regime.''

Other governments have been more forgiving of Libya. In July 1999, the U.K. restored diplomatic relations, which it had severed in 1984 after a Libyan embassy employee in London fired on protesters gathered outside, killing British police officer Yvonne Fletcher. Libya signed a statement condemning terrorism and agreed to help the U.K. investigate Fletcher's murder.

The United Nations suspended, but didn't eliminate, sanctions in April 1999, after Libya turned over the Pan Am bombing suspects.

Verdict of Scottish Court Then, in January of this year, three Scottish judges, sitting at a special court in the Netherlands, convicted one Libyan security agent in the Pan Am bombing and acquitted another. They sentenced Abdelsbaset Ali Mohmed al-Megrahi to at least 20 years in prison.

``Libya is not sponsoring in an active fashion, even indirectly, any terrorist groups now,'' says Magnus Ranstorp, deputy director of the Centre for the Study of Terrorism and Political Violence at the University of St. Andrews in Scotland. ``Libya has done a lot to divest itself from its historic past throughout the 1990s, because it came under scrutiny.''

The country has publicly condemned terrorism, including the Sept. 11 attacks. ``It's our humane duty to stand side by side with the American people despite our political conflict,'' Qaddafi said, calling the attacks ``terrible.''

Resolving the Pan Am Case

The U.S. government is negotiating with Qaddafi about how to resolve the Pan Am case -- for which Libya denies responsibility -- and get UN sanctions lifted rather than just suspended, says Richard Boucher, a spokesman for the State Department.

In addition to banning air travel and arms sales to Libya, the UN sanctions ordered member nations to freeze Libyan assets. The UN left it up to member countries to interpret which assets to freeze and how to do so and had little power of enforcement.

``Sanctions are rarely ever completely tight,'' says Ranstorp.

For the past 15 years, Qaddafi the investor has successfully played cat and mouse with the U.S. Treasury, amassing scores of stakes in companies around the world.

Many of the biggest are in Italy, Libya's former colonial power, and elsewhere in Europe. Only about $800 million of Qaddafi's money is invested in Africa and the Arab world.

The man plotting this strategy for the Libyan leader is Huwej, chairman of Libyan Arab Foreign Investment Co., known as Lafico, and the Libyan Consulting Board for Foreign Investment. Huwej, 52, manages Qaddafi's money abroad.

The Man in a Suit

At the meeting with Alwaleed in January, Qaddafi wore a red gown, dark robe, round cap and a crimson scarf over his shoulder. The prince wore a gray robe with gold trim and a red-and-white-checked head covering. Huwej was there, too, in a dark suit, tie and glasses.

A Tripoli native with a management degree from Arthur D. Little Institute in Boston, Huwej knows that he's on another U.S. blacklist, one compiled by the U.S. Treasury's Office of Foreign Assets Control (OFAC) that names people and organizations with which it's illegal for Americans to do business.

``My name is at the top of the list,'' Huwej says in an interview at Lafico's Tripoli offices, laughing. ``You talk to me, it's a fine of $250,000. OFAC taught me a lot of lessons. When we move, they follow us.'' Huwej insists that the U.S. unfairly demonizes Libya with baseless propaganda.

Welcome in Europe

Even while the UN sanctions ordered Libya's assets frozen, many European countries welcomed Libyan investments. Roughly 90 percent of what Huwej calls Lafico's liquid holdings -- a total of $6 billion -- are in European companies. An additional $1 billion is made up of interests in overseas banks held largely by Lafico's sister company, Libyan Arab Foreign Bank.

Libyan-connected banks with offices in New York include Arab Banking Corp. and Spain's Banco Atlantico SA. The Treasury doesn't include these banks in its banned list because the stakes Libya holds are small.

Now Huwej wants to invest directly in the U.S., where all of Qaddafi's assets -- a total of about $1 billion, largely deposits belonging to Libyan Arab Foreign Bank -- have been frozen since 1985. ``Merrill Lynch, we are ready for you,'' Huwej says, only half joking.

Strange Ambition

It seems like a strange ambition for a country whose postage stamps commemorate ``American aggression,'' which has a museum that displays a purported piece of a downed U.S. Central Intelligence Agency plane and whose music videos on television show a fist crushing a fighter jet with U.S.A. painted on the side.

Then again, Qaddafi already owns minority stakes in several banks with offices in New York, Texas and California.

Qaddafi had been investing in Europe for several years when the U.S. included Libya in its first list of terrorist countries, published in 1979. In 1981, President Ronald Reagan banned most U.S. travel to Libya, citing assassination threats on U.S. officials. That same year, Qaddafi created Lafico with $1.5 billion of capital. In 1982, Reagan banned Libyan oil imports and required licenses for most U.S. exports to Libya.

Qaddafi As Liability

By the mid-1980s, Qaddafi had become a liability for his European investment partners. Chief among them was Fiat SpA in Italy. Qaddafi had spent $415 million in 1976 for almost 10 percent of the struggling carmaker, after Chairman Giovanni Agnelli visited Libya to propose the investment, Huwej says.

In 1986, Reagan blocked Fiat, which by then had two Libyans on its board, representing a stake that had grown to 14 percent. from bidding on U.S. government contracts. The same year, Libya agreed to leave, for a price. Fiat's parent and investors had paid $3.1 billion for the stake.

Meanwhile, terrorist attacks linked to Libya continued. On Dec. 27, 1985, gunmen backed by Abu Nidal -- a Palestinian radical based in Libya -- attacked the Rome and Vienna airport lounges, killing 19 people, including five Americans. Pan Am flight 103 exploded on Dec. 21, 1988. A year later, French UTA flight 772 blew up over Niger, killing 171 people.

Investing in Lonrho

Qaddafi and Huwej, meanwhile, were expanding their reach. The same year the UN imposed sanctions, they paid 177 million pounds ($256 million) for a third of British company Lonrho Plc's Metropole hotel chain.

Lonrho's board ousted Chairman Roland ``Tiny'' Rowland in 1994, in part because the company's shares fell after he did business with Qaddafi. In June 1996, Lonrho bought back the stake, paying the Libyans $389 million, which was double the market value at the time.

In November 1997, Libyan Arab Foreign Bank, a unit of Libya's central bank, bought the stake in Banca di Roma in a sale of state-owned shares, paying $400 million. ``Chairman Cesare Geronzi met with Qaddafi, and he offered it,'' Huwej says.

Asked whether the sale contravened sanctions on Libya, Banca di Roma Chief Executive Officer Giorgio Brambilla said, ``We had absolutely no concerns about this.''

Legal Conduit

Banca di Roma didn't violate economic sanctions, because the stake was sold through Libyan companies rather than the Libyan government, he said. Though they were spottily enforced, the sanctions did limit Libya's room for maneuver in some countries. Libya's U.K. bank accounts were frozen, for instance, and funds such as dividends from the Metropole stake could not be transferred to Libya.

``The inability to access the world economy hurt,'' says Lisa Anderson, dean of the School of International and Public Affairs at Columbia University in New York.

That is why Lafico works to avoid detection when it makes investments, Huwej says. In everything it does, Lafico is aware the U.S. is watching.

Huwej sometimes avoids doing business under Lafico's name. A farming company in Egypt owned by Lafico is registered there as simply Agriculture Investment Co., he says.

Small Stakes

Another strategy is to keep stakes small or indirect, particularly in banking companies. Though bank investments are a small slice of Libya's holdings, they're among the most scrutinized by the U.S.

Access to banks means access to money -- and the ability to move it around the world.

A U.S. Treasury Department chart on Libya's international banking connections traces 103 firms and their partial or indirect ownership by the Central Bank of Libya.

Americans are prohibited from doing business with companies the Treasury designates as Libyan controlled.

Generally, these are companies that are more than a third owned by Libya, though the Treasury doesn't have a specific threshold. It takes other factors, such as management, into consideration.

Only 28 of the 103 companies make the blacklist. For instance, UBAE Arab Italian Bank SpA, based in Rome, isn't on the U.S. blacklist. It's 44 percent owned by Libyan Arab Foreign Bank, yet counting the 12 percent held by Banca di Roma, 56 percent is linked to Libya.

Park Avenue Connection

Another bank that doesn't make the blacklist is Arab Banking Corp., which is 27 percent owned by the Central Bank of Libya. The bank has offices on New York's Park Avenue. In Washington, it throws some of the biggest parties at meetings of the International Monetary Fund and the World Bank.

In 1999, the bash, attended mostly by foreign bankers, was nine blocks from the White House at the Park Hyatt hotel. Shrimp, oysters and clams were heaped around ice sculptures in the shape of the bank's ABC logo. The bar served alcohol, which is prohibited under Islam and is contraband in Libya.

The Bahrain-based company offered guests slices from a roast lamb stuffed with rice and displayed on a table with its head still attached. A harp quartet played ``The Battle Hymn of the Republic'' and ``Everybody Loves Somebody.''

European Bank Partners

Libya has forged partnerships with some of Europe's biggest banks, including HSBC Holdings Plc. Libyan Arab Foreign Bank owns 25 percent of London-based British Arab Commercial Bank, which is 47 percent owned by HSBC, Britain's largest bank.

HSBC was a BACB founding shareholder in 1972, and HSBC executives and the chairman of Libyan Arab Foreign Bank sit on the board of BACB, which is a correspondent bank of Al- Shamal Islamic bank, founded by Osama bin Laden.

``BACB is a U.K.-licensed bank and regulated by the U.K. authorities, who are aware of the share holding by the Libyan bank and satisfied with it,'' says Richard Beck, an HSBC spokesman in London. BACB specializes in trade and project financing in the Arab Mediterranean area.

Libya created the bank network because it feared that oil revenue would be hit by sanctions, says Columbia's Anderson. ``Most of what they spend their time on -- because they think they'll be frozen -- is how to park money,'' she says. ``They're not really investing.''

Unusual Money Manager

Huwej, who joined Lafico as chairman in 1987 without any money management experience, doesn't behave like a typical investment manager. He declines to disclose Lafico's performance goals or average returns.

Huwej also refuses to list Lafico's investments, saying the U.S. Treasury doesn't need to know the details. A Treasury spokeswoman, Tasia Scolinos, says the department won't divulge U.S. knowledge of Libya's investments. The Treasury doesn't want Libya to know how much it knows, she says.

Among the investments Huwej is willing to name are 45 percent of Oilinvest Group, whose main asset is Italy's Tamoil Italia SpA; 6 percent of Groupe ONA SA, Morocco's largest company; 16 percent of Olcese SpA, a century-old Italian cotton company; and 48 percent of Malta's Corinthia Palace Hotel Co.

Maltese Stake

Corinthia owns and manages 18 hotels in the Czech Republic, Gambia, Hungary, Malta, Portugal, Tunisia and Turkey.

Lafico took the stake in the early 1970s, and Corinthia's lawyers are petitioning the U.S. to remove the company from its blacklist, says Alfred Fabri, Corinthia's company secretary in Malta.

``This is a Maltese company, a Maltese-managed company, and hopefully, the U.S. Treasury will understand,'' Fabri says.

In addition to its 48 percent stake, Libya holds two of five board seats. ``We have a good relationship with Lafico,'' Fabri says. Huwej occasionally attends shareholder meetings, though he leaves most matters to Corinthia's directors, Fabri says.

Another long-standing investment is $1 billion of U.K. real estate, most of which is in London's financial district. Huwej declined to name properties. Experts on Libya say they were probably acquired in the 1970s, when many oil producers bought buildings in financial centers.

In September 1999, Lafico bought a 16 percent stake in Milan-based Olcese, which supplies cotton fabric to clothing makers Lacoste, Benetton Group SpA and Giorgio Armani SpA, according to Alessandro Viotti, a spokesman for Olcese. He declined to comment on the Libyan investment.

Desert Headquarters

Lafico has 300 employees, with 100 working outside Libya in such places as Rome, Athens and Malta and most others at its headquarters in Gharyan, a desert town 85 kilometers (53 miles) south of Tripoli. Huwej comes to Lafico's office only for meetings.

The headquarters is located on the 10th floor of one of five matching concrete towers that define the coastline and are featured in patriotic music videos on state TV.

As is the custom in many Arab offices, porters bring guests and executives tea or coffee, served here in white china with blue and gold trim. Women, some covering their hair with silk scarves, answer phones.

The conference room is decorated with a model of an office complex Lafico owns in Casablanca and framed posters of Corinthia hotels. Libya's Investment Strategies

Libya has two general investment strategies, Huwej says. It buys shares of state companies sold off by European governments, and it buys into companies Huwej thinks he can turn around.

``Sometimes we enter in privatizations of strong companies, and sometimes we take over something we can improve,'' Huwej says, wearing a beige safari-style shirt with buttoned front pockets and shoulder straps. ``We concentrate now on Europe.''

Banca di Roma is one such privatization. The 1986 takeover of Amoco Italia, now Tamoil, was a turnaround. Libya gained a distribution network for its main export when it took over the bankrupt company, which last year had a profit of 3.69 million euros ($3.35 million) on revenue of 2.45 billion euros, according to Tamoil's audited annual report.

European Refineries

Tamoil owns refineries in Geneva, Hamburg and Cremona, Italy, and has 1,700 retail outlets in Italy with a 5.2 percent market share. It's the main subsidiary of Oilinvest Group, a Dutch corporation that's 45 percent owned by Libya.

Lafico also buys stocks, bonds and options, Huwej says. Trading is the method he uses most in his decentralized system to anonymously move money.

The money managers, working for the most part outside Libya, use ``90 percent of the big European banks'' to manage investments, Huwej says.

Huwej has to worry less about hiding his footsteps in Europe since Qaddafi repudiated terrorism. ``The Libyan money now is more liquid,'' Huwej says. ``Now, we can invest in any European country. The only problem is the U.S.''

Alwaleed says Libya has changed its ways. ``Libya is being rehabilitated,'' he says. ``The vision of Libya as a threat is not right.''

Image Problems

The prince has his own image problems in the U.S. After touring the World Trade Center site and giving New York a $10 million check, he issued a press release stating that the U.S. should address the issues that ``led to'' the attacks, such as the U.S. position on a Palestinian state. Mayor Rudolph Giuliani rejected the donation.

Alwaleed expects to do more deals with Qaddafi in the future, U.S. sanctions or not. ``I'll make him a value investor,'' says the prince, who's known for buying beaten- down shares he considers good values, including big U.S. companies like Citigroup Inc., Apple Computer Inc. and AOL Time Warner Inc.

First, the prince and the dictator may want to see how the war on terror goes.

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