Libyan sanctions and the Netherlands: part 2

Three weeks ago we blogged about the latest move of Oilinvest, the oil company owned by the Libyan authorities until May this year, to escape an international asset freeze. In a restructuring approved by the Dutch Ministry of Finance, a Dutch foundation was created to take over the shares of Oilinvest (Netherlands) BV, the holding structure for Oilinvest’s European operations. This foundation now exercises legal control over the company, and it issued certificates representing the economic value of the Oilinvest (Netherlands) BV shares.

Some aspects of the restructuring remain a little mysterious. For example, the Libyan Investment Authority owned and financed Oilinvest via several rather opaque shell companies on Curaçao. How did the restructuring deal with those shell companies? And who precisely owns the certificates issued by the Dutch foundation?

Two weeks ago Dutch Minister of Finance De Jager sent a letter [for a rough, non-official English translation, see here] to parliament, providing some information about the efforts to make Oilinvest comply with EU sanctions against Libyan state authorities. This letter does not answer the above questions, but raises further questions.

The Minister explains that his efforts were aimed "to enable the Oilvest group established and active in Europe to continue its activities". He considers that the restructuring, together with the establishment of special sanctions compliance committees, "addresses, in an effective and proportionate manner, the risks related to the blacklisting of the (indirect) shareholders of the Oilinvest group by the EU and the UN ". The Minister thus informed parliament about how he helped Oilinvest address the risks that the sanctions might pose to the company’s operations.

That in itself is remarkable. One would expect the Minister to focus on ensuring compliance with the sanctions in an effective and proportionate manner – not on addressing risks for a company that is established in the Netherlands merely for tax reasons.

Regarding the restructuring, the letter explains that the Dutch foundation now holds 94.9% of the shares of Oilinvest (Netherlands) BV. So why was the remaining 5.1% not transferred to the foundation, and who holds it instead? And who owns the certificates issued by the foundation, in exchange for the shares? The Ministry of Finance must know the answers, but it did not provide them in the letter to parliament.

One might wonder why this is all still relevant, as the fighting in Libya seems almost over. When Gadaffi and his cronies are finally defeated, probably very soon, why still bother about sanctions intended to bring them down? Well, a lot will remain at stake even after Gadaffi goes. In periods of transition, there is a real danger of public assets disappearing into private hands, especially if the transition is quick and chaotic. We’ve seen that before in the Soviet Union and in Iraq. So disclosure about the financial structure and management of a company like Oilinvest is now more important than ever.

It’s not just Oilinvest’s ownership structure either. The company also had other financial ties with the regime and with secretive shell companies. For example, the European subsidiaries of Oilinvest (Netherlands) BV probably still have accounts payable to the National Oil Company of Libya, which used to be a main supplier of oil. At the end of 2009, on latest available figures, the outstanding amount was over EUR 200 million. What happened to the bills from the National Oil Company after the EU imposed the sanctions?

Furthermore, Oilinvest (Netherlands) BV itself probably still has long-term loans from Oilinvest (Finance) BV, one of the shell companies on Curaçao that falls outside the European part of the group. The latest annual report of the Dutch holding company mentions loans of more than EUR 600 million from Oilinvest (Finance) BV falling due somewhere in the period 2011-2014. What happened with those loans and with the interest due on those loans?

Finally, the letter mentions that the measures have been coordinated with relevant "EU member states and other strategic partners". Who are these partners? Who else, apart from EU governments and the company itself, had a say in the restructurings?

Perhaps the Minster does not realise that his letter is so vague that it raises more questions than it answers. There is an odour of secrecy and controversy around the Oilinvest dealings that will not be dispelled until the Ministry provides full disclosure.