LONDON â€" The Libyan Investment Authority is suing the French bank Société Générale and other parties over losses that it says were tied to tens of millions of dollars in bribes paid to associates of a son of the former Libyan dictator, Col. Muammar el-Qaddafi.
The lawsuit, filed in London’s High Court last week, accuses the French bank of losing $1.5 billion in soured derivatives trades. The Libyan Investment Authority, a sovereign wealth fund, says it should be reimbursed for those losses because the bank paid bribes worth $58.5 million to a company based in Panama that was purportedly acting as a financial intermediary for the bank.
The intermediary, Leinada, was paid to provide financial advisory work that was not needed and was unnecessarily “opaque,†the suit said. Leinada is run by Walid Giahmi, a friend of Seif al-Islam el-Qaddafi, the son of Colonel Qaddafi.
“There is no evidence of Leinada providing any legitimate services in relation to any of the disputed trades; indeed SocGen had no need of support related to structuring and investment solutions from an individual with no discernible expertise on structuring financial derivative transactions,†the Libyan investment authority said in a statement.
Société Générale called the accusations “unfounded.†In a statement, the bank said that it sometimes worked with financial intermediaries in countries where it did not have local teams in place. When it does, it said “the process is fully reviewed through our compliance procedures in respect of the regulations and in transparency with the client.â€
Mr. Giahmi could not be reached immediately for a comment.
The suit is the second one brought by the Libyan Investment Authority this year. In January, the group sued Goldman Sachs, claiming the bank made more than $1 billion in derivatives trades that became worthless, but left Goldman with a profit of $350 million. Goldman is fighting the suit.
The suit against Société Générale involves $2.1 billion worth of trades, in which the Libyan investment arm says it lost $1.5 billion.
The United Nations lifted sanctions against Libya in 2003, and the United States and British governments encouraged banks and corporations to do business with the country, then led by Colonel Qaddafi. The Libyan Investment Fund was set up in 2006 to invest the country’s substantial oil revenues. The fund is worth about $60 billion today.
In 2011, as the country sank into civil war, sanctions were reinstated. In 2013, AbdulMagid Breish took over as chairman of sovereign wealth fund, initiating a campaign to reclaim billions of dollars in lost investments by top financial institutions.
“This claim, together with the one against Goldman Sachs that was initiated in January 2014, reflects the desire of the LIA’s new board of directors to redress previous wrongs and seek the recovery of these substantial funds as it seeks to invest and generate wealth for the people of Libya,†said Mr. Breish. He said the fund had a new strategy and improved corporate governance in place.
The Wall Street Journal reported this year that the Justice Department was investigating banks, private equity firms and hedge funds that might have violated laws against bribery in their dealings with Libya’s government-run investment fund.
Both suits suggest that sophisticated financiers took advantage of the Libyan Investment Fund’s lack of financial acumen. One of the transactions with Société Générale exposed the sovereign wealth fund to the performance of the French bank as it was reeling from the effect of the financial crisis and the multibillion-dollar losses caused by the fraudulent trading of Jérôme Kerviel, the suit claims.
Mr. Kerviel was sentenced to three years in prison for his role in 50 billion euros worth of unauthorized trades. While a French court originally ordered him to pay €4.9 billion in restitution - the size of the bank’s loss - it later ordered a new trial to determine his damages.
