US Moves Quickly to Freeze Qaddafi's Assets

Sanctions in 72 Hours: How the U.S. Pulled off a Major Freeze of Libyan Assets

By Robert O’Harrow Jr., James V. Grimaldi and Brady Dennis

Washington Post

Wednesday, March 23 2011

The Treasury Department team had been working nonstop on a plan to freeze Libyan assets in U.S. banks, hoping they might snare $100 million or more and prevent Moammar Gaddafi from tapping it as he unleashed deadly attacks against protesters who wanted him gone.

Now, at 2:22 Friday afternoon, Feb. 25, an e-mail arrived from a Treasury official with startling news. Their $100 million estimate was off — orders of magnitude off.

The e-mail said there was in “excess of $29.7 Billion — yes, that’s a B.”

And most of the money was at one bank.

It was a piece of extraordinary good fortune for the Obama administration at a crucial moment in the efforts to address the bizarre and deadly events unfolding in Libya.

Never before had U.S. officials so quickly launched economic sanctions affecting so many assets of a targeted country.

The frenetic 72 hours leading up to the Executive Order 13566 illustrate how a process of identifying and freezing assets — something that customarily has taken weeks or months — has become one of the first tactical tools to employ in the midst of fast-breaking crises.

It also shows that government officials have learned from other recent economic sanction efforts, including against Iran and North Korea. Instead of being a secondary measure, as in the past, economic sanctions have become a centerpiece of national security policy.

The same global electronic networks that dictators use to move billions in state assets can also be turned against them, when government and financial industry officials summon the will. The successful Libyan sanctions effort relied on cooperation with a wide range of financial firms in the United States, including the bank holding the bulk of the Libyan assets, which Treasury officials have declined to identify.

Officials also would not provide detailed information breaking down the assets, which include holdings by individuals and Libya’s sovereign wealth fund. Investigators are expected to focus on whether any laws were broken in the handling of the money.

The $32 billion frozen so far by the United States represents a significant portion of the nation’s wealth. In 2009, Libya had a gross domestic product of $62 billion; its sovereign wealth fund is estimated at $40 billion and its central bank reserves at $110 billion.

The European Union has added the central bank, the wealth fund and three other Libyan institutions to its sanctions — two weeks after the U.S. action. So far, British officials have seized more than $19 billion in Libyan assets.

U.S. Treasury officials said they see their sanctions as one thrust in a broader campaign to isolate Gaddafi.

“Gaddafi is still there and is still brutalizing his people; there’s obviously still work to be done,” said David S. Cohen, acting undersecretary for terrorism and financial intelligence. “We never expected that this by itself was going to persuade Gaddafi to give up power.”

He said Gaddafi is still “paying mercenaries. He’s paying his troops. He’s in a cash-intensive business. And not having access to the Libyan Investment Authority assets, the Central Bank of Libya assets, other assets that he and his children have overseas, is going to be a problem for him.”

‘Incredibly intense, but in the best way’

The plan to find and freeze Libyan assets began taking shape Feb. 23, during an 8:30 a.m. meeting of senior officials in the White House Situation Room.

Libya was deteriorating quickly. The Libyan air force had bombed civilian protesters. In a rambling and incoherent speech on state television, Gaddafi had blamed “foreign rats” for the chaos. He also promised to fight “to the last drop of my blood.”

The possibility of a military response or imposition of a no-fly zone over Libya came up at the Situation Room meeting that morning. But those steps were considered politically untenable for the moment. Officials worried that any aggressive move might trigger a deadly backlash against American citizens who had been unable to leave the country.

“No one wanted to do anything and certainly the president didn’t want to do anything that would put those people at risk,” said Stuart Levey, the Treasury official who led the drafting of the executive order.

National Security Adviser Thomas E. Donilon asked Treasury to prepare options for economic sanctions, an undertaking usually weeks or months in the works. But Levey and the others at Treasury scrambled virtually nonstop over the next two days.

Some of the Treasury people involved had helped launch a prior economic sanction against Libya nearly a decade earlier.

They immediately reached out to their contacts in U.S. financial institutions — many of whom had become close allies in the effort to stop terrorism financing. The Treasury officials quietly asked the bankers to identify assets controlled by the Libyan government, Gaddafi, his family and their associates.

Some of them dusted off a list of more than 400 Libyan citizens and entities who had been included in U.S. economic sanctions that were lifted in 2004. Three officials with major banks who spoke on condition of anonymity because of the sensitivity of matter said their institutions helped Treasury officials identify targets for the list.

“Banks were already asking their compliance departments, ‘What do we have? What’s our exposure here?’ ” Adam Szubin, director of the Treasury’s Office of Foreign Assets Control, said in an interview.

Szubin said the effort was “incredibly intense, but in the best way.”

“This is what we’re here to do, is for moments like this when there is a crisis. I don’t know what more you could ask as a career civil servant than the White House turning to you and saying, ‘We need you. We need you to move incredibly fast. How quickly can you deliver?’”