How Libya got around sanctions - via the Netherlands

Guest blog: from A.Nonymouse, in the Netherlands

Oilinvest, a huge European-focused oil company owned by the Libyan authorities until very recently, has been able to avoid financial sanctions against the Gadaffi regime by shuffling its legal structure around. It has done this, of course, by using tax havens, with the Netherlands playing a leading role.

Oilinvest’s latest move to escape the asset freeze is striking: a restructuring approved by the Dutch Ministry of Finance, which installs former executives of the Dutch central bank and financial markets authority as board members of the company!

Currently the multinational operates over 3000 petrol stations in Europe under the brand Tamoil, most of them in Italy, and three refineries.

It is worth tracing a little bit of the history of how Oilinvest’s structure evolved over time.

This history dates back to the 1980s. Its original shareholders were the Libyan National Oil Company, which was also its main supplier of crude oil, the Libyan Arab Foreign Bank and one of that Bank’s subsidiaries. They incorporated the parent company Oilinvest International NV in Curaçao, which owned the European operations via its Dutch subsidiary Oilinvest (Netherlands) BV. The Oilinvest head office is located elsewhere, in Monaco (don’t ask why.)



In short, a Curaçao based entity sits on top of a Netherlands-based entity, which in turn owns a series of subsidiaries. This structure has remained fairly stable over time.

Two tax laywers from the Dutch law firm Taxwise who commented on the structure said it is clear why the European holding of Oilinvest was set up in the Netherlands: “Because the Netherlands is a tax haven.” Alongside the (typically tax-driven) Curaçao-Netherlands route, the Dutch Tamoil business is owned via a Cypriot holding company (which in itself should raise questions; Mittal Steel used that one too.)

For an approximate visual representation of the Oilinvest structure, click here and scroll to figure 8.)

Furthermore, the Taxwise laywers are almost sure that Oilinvest must have concluded a tax ruling with the Dutch tax authority. In which case, the tax authority has to be informed about the ultimate beneficiary of the company’s profits. Which means the tax authority knew the whole company was owned and controlled by the Gadaffi regime.

On 21 December 1988, just a few months after Oilinvest set up its tax dodging structure, a bomb explosion blasted PanAm flight 103 above the Scottish town of Lockerbie. It was not immediately suspected that Libya was behind the attacks and it took almost three years before an arrest warrant was issued against two Libyan suspects. (After that, it would take UN sanctions and another seven and a half years before Libya handed them over.)

In Autumn 1993, four months before UN sanctions were to require the freeze of all Libyan foreign assets, Oilinvest (Netherlands) BV arranged a capital increase that left a controlling 55% of the firm in the hands of non-Libyan shareholders: previous minority shareholders of Oilinvest businesses in Italy and Germany. A company spokesman explained: “We believe we are no longer a Libyan asset". Apparently the change worked: European governments allowed Oilinvest to continue its operations. However, these changes only affected the Netherlands level of the company but not the Curaçao level above it. And the state of Curaçao, for its part, simply failed to implement the UN resolution. The US, keen on enforcement, applied pressure on Curaçao, pointing out that Oilinvest International was merely a holding company for Libyan financial assets so there should be no reason for it to continue to operate.

What did Oilinvest do after the UN lifted its sanctions in April 1999? It restored its corporate structure back to what it was before the sanctions. The whole restructuring, it seems, had been a sham. That is what tax havens will help you do: create shams.

Gadaffi had his billions of oil money flowing in again to pay for his military expenses.

Tax havens also help to create complexity. The Oilinvst structure was changed again in 2004, when Oilinvest (Holdings) NV, another Curaçao entity, was apparently inserted in between Oilinvest International NV and Oilinvest (Netherlands) BV. None of these companies carried out any real business.

Now fast forward to the events of 15 February 2011, when Gadaffi reacted to peaceful protests against his regime with brutal military force. This time things went much more quickly. The EU imposed financial sanctions within weeks. On 11 March, the name of Mustafa Zarti was added to the sanctions list (though his name was later removed again). Zarti was vice president of the Libyan Investment Authority, the successor of the Libyan Arab Foreign Bank, and he was also a director of Oilinvest International NV (the Curaçao-based holding company). So the assets of that company had to be frozen. On 21 March, Oilinvest International NV was closed down.

In the meanwhile, the presence of Oilinvest in the Netherlands has become uneasy. In April, members of parliament asked the Deputy Minister of Finance whether he found it “desirable that dictators use the Netherlands in tax routes”. The answer: “In principle, any company that conducts activities in or via the Netherlands can use the Dutch legal, financial and fiscal system.”

So does that mean that anything goes? The Suharto family also used dozens of Dutch mailbox companies and Trafigura has its headquarters here. Dutch entities of Parmalat and Lehman raised billions of capital but were exempted from supervision.

Welcome to the Netherlands!

On 20 May 2011, three days after the Ministry gave this rather frank answer, a Dutch foundation was created to take over the shares of Oilinvest (Netherlands) BV. In exchange, it issued certificates representing the economic value of the Oilinvest shares, thus separating legal control and economic ownership. (This is a common protection method against hostile takeovers; far more responsible companies like Heineken and Triodos use it too.) NRC, a Dutch newspaper, reported that the Ministry had pressured the company to take such a step. According to the article, the Curaçao holding in the structure made it “unclear who could control the financial assets of the company”. Indeed, it is core business of tax havens to make things unclear!

Oilinvest illustrates once again that companies use these kinds of arrangements not just for tax dodging, but for hiding ownership and control too. The two nicely coincide.

It is a bit of a mystery how this restructuring relates to the closing down of Oilinvest International NV two months earlier. Who owned Oilinvest in between, and who owns the certificates now? Industry news sources suggest that the closing down of Oilinvest International was precisely what alerted the Dutch Ministry and that the legality of the closure might be contested. In any case, there remain questions to be answered.

On the control side of the current structure, things are slightly clearer. According to official data in Curaçao and the Netherlands, backed up by research from the Dutch newspaper NRC, the foundation has three Libyan directors – one is Fuad Krekshi, who was director of Oilinvest International NV until it closed down. But now get this. The foundation also has three independent Dutch directors: Arthur Docters van Leeuwen, ex-president of the financial markets authority; Flip Klopper, ex-director of the central bank; and Peter Waaijer, a former Shell executive. Together, the six directors exercise legal control.

Given the track record of Oilinvest, the new move requires close scrutiny. Is it a sham structure again? If the foundation aims to keep the Libyan investments in good shape for a post-Gadaffi government, that might be a welcome effort. But it needs to show what it is doing. Disclosure is key: disclosure of the details of the restructuring, of the foundation’s articles of association, of the origin of Oilinvest’s crude oil purchases, and of country-by-country financial figures.

Postscript: For our African readers: Tamoil has large operations in Africa too. Those are not owned by the Dutch holding. Instead, they were held via yet another Curaçao entity, which also closed down, and a holding in Malta. This part of the corporate structure is rather opaque too. That didn’t stop Uganda from deciding on 24 March to freeze Tamoil’s assets in the country.)