After U.S. recognition, Libyan rebels still without funds

Despite its decision to grant diplomatic recognition to Libya’s rebels, the Obama administration is struggling to find ways to provide them with the $34 billion in frozen Libyan assets held in U.S.-controlled bank accounts, officials say.

Administration officials held at least two meetings this past week to explore ways to release the money, which the opposition Transitional National Council says it urgently needs to pay salaries and buy critical supplies. But the funds are ensnared in a thicket of legal regulations.

So far, State and Treasury department officials have identified only a small fraction of the vast Libyan holdings — estimated by some officials to be as little as a few hundred million dollars — that can be quickly freed, according to current and former officials familiar with the talks.

The administration is studying a variety of options to work around the obstacles. One, which could be put in place in weeks, would allow the frozen funds to be used as collateral for loans made to the rebels by other countries, such as Persian Gulf oil states, officials say.

“Our goal is to get more funds flowing to the TNC as quickly as possible,” said a senior administration official, speaking Saturday on the condition of anonymity to discuss internal deliberations. “We always understood there were going to have to be additional steps beyond recognition. But recognition was a necessary first step.”

The difficulties over releasing the money are the latest in a series of frustrations for the rebel group, which had hoped diplomatic recognition would free up billions of dollars in assets that had belonged to Moammar Gaddafi’s government. TNC officials say they need the money to keep the transitional government afloat and press their five-month-long fight.

Secretary of State Hillary Rodham Clinton announced July 15 that the United States would recognize the TNC as Libya’s government, following months of legal wrangling over whether Washington could grant recognition to a group that does not control large swaths of the country.

One obstacle to releasing the money is that much of it was seized under legally binding sanctions imposed against the Gaddafi government by the U.N. Security Council. Unfreezing such accounts would require a consensus vote of the U.N. sanctions committee, according to one senior European diplomat, who spoke on the condition of anonymity.

That presents two risks for the Obama administration: The committee includes countries that are skeptical of NATO’s military campaign in Libya, such as Russia and China.

In addition, said the senior official, “You don’t want to set a precedent that compromises other sanctions regimes,” such as those against Iran.

Although the rebels hailed Clinton’s announcement, the opposition group is still waiting to see many of the benefits. On Friday, the TNC’s representative in Washington was waiting for word on when he could move into the empty Libyan Embassy.

The representative, Ali Aujali, met with State Department officials this past week to implore them to unfreeze some of the assets. “The money is really needed in Libya, badly needed,” he said. “I think the Americans recognize this is very important.” He said the U.S. diplomatic recognition “will help many other countries to change their position” on providing money to the TNC.

Officials with the transitional council have said they are not seeking the immediate handover of all $34 billion in frozen assets. But Aujali said at least $4 billion was needed.

The TNC signed a contract in May with the lobbying powerhouse Patton Boggs to help it win U.S. diplomatic recognition and gain access to the frozen funds. The contract allowed fees of up to $50,000 a month but also stipulated that Patton Boggs would not seek payment until the council was on sound financial footing.

U.S. and Libyan officials say there are a host of other complications in turning over the frozen assets to the rebels. Libya’s financial holdings are widely dispersed among financial institutions, some of which are subject to the laws of foreign governments.

And bankers will probably move cautiously because of the fear of lawsuits.

“All these institutions want assurances that they’ll be protected,” said a second U.S. government official, who also insisted on anonymity to describe internal discussions. “This is something that is going to take some time.”

The Obama administration is considering issuing a license that would allow American banks in the United States and Britain to turn over billions of dollars in frozen assets. But that may require going through the U.N. sanctions committee, the U.S. official said.

The question of recognizing the Libyan rebels was vigorously debated by administration lawyers, but in the end, all the principals agreed on the policy, with Clinton strongly supporting recognition of the rebels, officials said.

But other experts note a long tradition by U.S. governments of using diplomatic recognition as a policy instrument.

“Lawyers will always come up with elaborate arguments,” said Philip Zelikow, a former counselor to the State Department. “The important questions are: What are the facts on the ground, and what is it that you want to achieve.”

The administration should have granted recognition months ago, Zelikow said. “Back then, it might have been a decisive factor,” he said. “It could have knocked the wind out of Gaddafi’s sails.”

Joby Warrick joined the Post’s national staff in 1996. He has covered national security, intelligence and the Middle East, and currently writes about the environment.
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